It's 2020. Why does it still take DAYS for a check to clear?!

It’s 2020. Why does it still take DAYS for a check to clear?!

I just started a freelance job 2-1/2 weeks ago. I got my first check on Tuesday and it still has not cleared the issuing bank! How can they not instantly verify the funds are in the account and forward them to my account? It’s not like they’re sending real, physical cash. Everything’s done electronically these days.

So really, why does it still take DAYS for a check to clear?!

What’s a cheque, Grandpa?

The money is gone from the other account well before it’s released into yours, simply because it’s legal to do so. Nobody has ever campaigned on changing banking regulations in the light of new technology, while bankers are obviously opposed to any change.

As to what good it might do, it might help catch fraudulent activity and have it be reversible before it’s too late. If the money were in your account immediately when gone from the other guy’s, you’d have a chance to withdraw it before he even had a chance to notice the transaction and complain that he didn’t actually write that check.

Because nobody’s going to invest in upgrading cheque clearing systems when the whole concept of cheques is obsolete. Why in God’s name is your employer paying you by cheque? I haven’t received a paycheque since about 1986. The last cheque I wrote was about 10 years ago.

While there are some businesses that I work with that use very few checks, I don’t think there’s a single one that doesn’t use them at all. And there are several businesses that go through dozens, if not over a hundred, a month. And these are fairly small businesses, maybe 2 dozen employees.

Exactly. Instant payments (within seconds) have been available for years, e.g., RT1.

ETA blame your bank and/or employer for not offering instant payments. I read that even Walmart offers it.

He’s a freelancer, not an employee.

Exactly. I’m a freelancer, not an employee.

I already asked about Direct Deposit but that is only available for employees. :frowning:
So I guess I’ll just have to deal with it until they hire me full-time. :frowning:

I write a check once a month to pay rent because it’s easier than making a trip to the bank to withdraw hundreds of dollars and less bothersome than trying to pay my roommate electronically. Other than that, they can be useful for large transactions that exceed the daily spending limit on my debit card.

Meh, same question arises. The fact that he’s already paying one groups of creditors by electronic transfer just makes it all the odder that he isn’t paying other creditors in the same way.

Do banks still charge hefty fees for bounced checks?

The OP has no control over how the company for which he’s freelancing chooses to do this.

FWIW, I freelanced for a very large company from 2015-17, and ran into the exact same thing. The company for which I was freelancing farmed out payments for its freelancers to several small companies, all of which paid with physical checks, and direct deposit was simply not offered as an option. I have no idea why they chose to do it this way.

For writing one, yes. For depositing one, it’s about $15 where I live.

The OP is running into two problems.

First, the bank gives you an unreleased cheque amount, based on your credit rating and history with the bank. I remember the pain of having a terrible credit rating. Banks have to gives you $100 or $200 up front, but might give you more. In my case, I had the same limit for withdrawing cash from an ATM, which meant I had to make two trips to pay rent. (Now I just write cheques.)

Second, actual clearing. Banks are supposed to exchange image files (called “truncating” for some odd reason) electronically, so that should happen quickly. However, I don’t know how long it takes for the depositing bank to be sure the cheque won’t bounce, as that info probably isn’t transferred with the image file.

Moderator Note

CardboardBoxx, it’s against the GQ rules to post a joke answer before the question has been answered factually. You can also leave out the snark in this forum. No warning issued, but don’t do this again.

General Questions Moderator

How do cheques clear?

I know in the good old days, a human looked at the cheque, verified the numbers - dollars, account, bank - and then they approved the request by the bank that cashed the cheque to transfer the money. Request to pay was reconciled with payments, etc. etc.

I assume nowadays all the numbers are matched up electronically. The image is probably just a backup in case there is some question about the validity of the transaction? Or is it a matter of many banks still being tied to overnight batch processing? You cash at bank A, who processes transactions overnight and sends a consolidated list of requests to each other bank, including bank B where the cheque was drawn. The next night, B processes the request and notes it will send payment to A. The third night, A receives the payment batch list and processes that, including the payment for your cheque cashed.

The key point is trusting the sending bank. If you recall, this was where the economy almost broke down completely in 2008 - banks would not advance money if they could not be sure that sending the request to the corresponding bank would not result in re-payment, with so many banks crashing. One bank I dealt with (in Canada) had a feature where money was instantly available - to trusted customers. i.e. you did enough business with them and pushed through enough money for long enough, were a long term good customer - so they trusted you were not trying to pull a fast one.

I’m the office manager at a small (about 7 employees) company. We use printed checks to pay our employees because it is cheaper in several ways. There is a fee is to use direct deposit, though I don’t remember how much. But a bigger reason is the timing: For direct deposit, I would need to enter all the numbers a couple of days before payday. That would be easy if everyone was salaried, but most of our people are hourly, and I can’t remember the last time any of them put in the same number of hours for two consecutive weeks. Plus, for direct deposit, the bank takes all the money in advance but with checks we get to hold it until each paycheck reaches our bank. You can’t even say that direct deposit would save much on paper costs, because we’d have to print withholding stubs either way.

For other payments, checks give a flexibility that electronics can’t match: I can print a check, do all the related bookkeeping, and then I can put it in the outgoing mail whenever I feel I can afford to. I can even retrieve it from the outgoing mail for a while. You can’t do that with electronics; once you’ve pressed the “pay now” button, it is a nightmare and a half to change your mind.

It still needs overnight clearing (at minimum), because people commit fraud.

If I write a cheque and give it directly to the depositor’s bank (I did this once a few years ago), the money was out of my account the next business day. However, it had not been pulled from my account that very night. It’s going to be worse in the OP’s case.

You might mean the cheque writer :slight_smile:

That’s pretty similar to what I was saying. We don’t know the OP’s history at their own bank. Furthermore the bank might treat business customers differently (if the OP has a business bank account).

Most jobs issue actual checks for the first couple paydays until DD is set up.

Fintech (financial technology…a huge growth industry in finance) is working against banks old and slow ways of clearing payments. We saw it start (or at least get popular) with PayPal (Elon Musk) and has since grown into many electronic payment systems that are (almost) instantaneous.

Banks use the Federal Reserve which has an Automatic Clearing House (ACH). This thing has been around for ages and has largely not changed. Still the tech of the 60’s.

Now you can use PayPal or Zelle or whatever and send money that is available in minutes or hours instead of several days.

What delays still exist are usually to avoid fraud (e.g. send money then cancel the transaction shortly after so the person thinks they got the money only to have it yanked back).

I recently did some upgrades to my home and I paid nearly all of my contractors via electronic payment systems. Everyone was happier with it. It was super easy for me to do and they could see they had their money before they walked out the door (or near enough). Some few still wanted a paper check which was fine too.

It’s not that the banks couldn’t credit the amount to the recipient’s account faster; it’s just that they don’t want to, and legislation doesn’t force them to.

The word you want to google to find more about this is “float”. In its most general sense in finance, float is any difference in timing between two transactions that correspond to each other and balance each other out. Essentially, by debiting the payer’s account immediately but crediting the payee’s amount only with a delay, the payee’s bank gets a free loan (free liquidity) during the intermittent period. With close-to-zero interest rates as we have now, it doesn’t matter as much as it used to; but in past times of high interest rates, it could be very desirable for banks to benefit from large volumes of float.