So I got facetiously asked by someone at work if I could write them a check for a million dollars. I told them that I could, but that didn’t mean it would be any good. As I repeated the story to someone else, a ridiculous idea popped into my head: I write a check to myself for some ludicrous amount of money, then deposit it into the account that the check is being drawn on. Don’t ask me why I would do this, this is purely a hypothetical situation with no practical applications that I imagine banks might not truly be prepared for it.
What would happen? That is, mechanically, what steps would be taken in the processing of the check? I highly doubt any bank’s system is set up to formally ignore a check in the extremely rare case that it’s being drawn from and deposited to the same account. If the check were to be deposited into any other account that I held other than the one it was being drawn on, it would certainly not be honored, but the only time the bank would ever see the check it would be being presented for deposit to the same account it’s being drawn from. Would they charge me a fee for overdrawing my account even though I’m covering the debit simultaneously with an identical credit? Would they post the transaction to my transaction history? If so, what would happen if the amount of the check were so large that it couldn’t be displayed in the standard manner?
Why not give it a try? Write yourself a check for something less than your balance and deposit it. If they give you a hard time, tell them it’s for Science.
Depositing a check that you know isn’t good into another account in order to take advantage of the slow communication and claim the “funds” before the second bank realizes you didn’t have that much in your account at bank one is called check kiting and is typically illegal.
Several years ago, I deposited a couple hundred checks back into the account they were written on. These were prize money checks for an event, and many went un-awarded. But our treasurer felt that it would be easier to reconcile the account if all these checks were deposited rather than left as missing check numbers.
It worked fine. The bank tller noticed, and pointed out to me that this deposit would have xero net effect on the account. I explained, and she said OK, took them, and processed them through the regular process. They showed up just as normal on the monthly statement.
Of course, we had sufficient funds in the account to cover all these checks and more.
I think this could be considered a scheme for abusing the account, because there may be a time after the deposit is recorded and before the processing is finished during which the account balance increases by the amount of the check. Not that I have worked in a bank or have any reason to know this. The point is, if you can imagine a way this temporarily inflates the account balance, then banks would have a good reason to have thought of it and include formal handling of the situation in their big automated system.
I actually did this a few months ago, albeit not for a million bucks. I was writing a check for my half of the rent to my roommate, but we somehow mixed up our checkbooks (they were from the same bank) and so I very generously wrote her a big fat check out of her own checkbook! The deposit posted and the withdraw cleared pretty much at the same time.
Banks are really good at quickly taking money out of an account and maximizing the time to add a deposit. The bank would withdraw the money of the check. Hold on to it for a while. Then deposit it. If the amount is over what is in the account, that is bad.
We do that all the time at work with payroll checks. About half of them, our employees cash at work (out of the register). I could (to save what the bank charges us for depositing AND drawing them) not deposit them, but for book keeping, it’s easier to deposit them. Then they show up on my regular monthly statement and, if someone should ever tell that they lost a check and ask for a new one, I can show them the cancelled check. Also, now, with cancelled checks being online, I don’t have to save them anymore, so that’s less paper that I have in storage at my place.
Thank you for the replies. I was completely unaware that people actually did this on a regular basis. As for the large check issue, I asked the question of other people and one said that the bank would probably charge you whatever fees they could think of for doing it, just because they could. I completely forgot about the fact that one of the ways banks make money is to debit accounts immediately and not post the credit until the maximum time as required by law, making this experiment of mine obviously a terrible idea.
You can write yourself a check on Friday afternoon, for a million dollars you don’t have, and deposit it in an interest-paying account. Then walk over to the window that says “Items at this window will be posted on Monday”, and write yourself another check to cover it. On Monday, withdraw the money from the interest account and cover the check. Pocket the two days interest.
It’s called “check-kiting”, somebody has already thought of it, and it is specifically illegal. But not because you are writing yourself a check, which is legitimate.
the Ski Hill business I helped out did this too. Casual employees made on the order of $50 to $100 or so per paycheque. Typically, they cashed them at the bar (or the ticket kiosk) before going home. Simpler for them. For us - a record that we had paid them as required.
My WAG is that any cheque goes through the same process as any other - is there enough money to cover the cheque? Yes - it is deposited; no, it bounces.
Check-kiting, IIRC, was based on the theory that when you deposited a cheque, if you were a good customer, they would credit you the money right away. Riskier customers, they put a hold on the money for a few days until the cheque cleared.
If you started bouncing $500 cheques from A to B to C and back to A then you hoped hat somewhere down the road, the banks would lose track of what had and had not cleared, and it would seem like you had more money than you did. One day you swoop in and withdraw that $500 several times from all 3 accounts.
It’s illegal because it’s intended to defraud the bank by taking advantage of their policy to make funds available before a check clears.
And I think you will find in practice that most banks will hit you up with overdraft charges if you do what the OP describes. The million dollar check will bounce before the funds from the deposit are available.
In most states, the severity of criminal and civil charges associated with this activity increase with the dollar value of the check in question.
That’s not kiting, that’s just fraud. Kiting is when you write a check knowing that you don’t have the money available right then, but that you will by the time the check actually clears. Possibly this is a whole chain of such checks.
For an example of how this can work on a truly massive scale, read about the E.F. Hutton check kiting scandal– they ultimately made $8 million by kiting checks.
Interesting. Thanks. I spent the last 40 years under the impression that kiting was when the timing was intended to create funds for fraudulent purposes.
Not so fast md2000. I agree with you. Writing a cheque with insufficient funds is vanilla fraud. Kiting is inflating the nominal value in an account by taking advantage of the delay between when funds are posted to the account and when the cheque clears. This is usually done by writing cheques from multiple accounts in multiple banks to each other in a round robin, and then either withdrawing the non- existent money or using the apparent amount as leverage to “prove” wealth.
Of course usage of the term may vary in different places, but the above was always my understanding.