Though the Federal Reserve may be best known for interest rate pronouncements that keep investors on the edge of their seats, it also has a few less glamorous jobs. For one, it runs the nation's check-clearing system.
That means the venerable institution has some regulatory power over mundane things like how long banks get to sit on your deposits before they make the money available to you. In that realm, the Fed recently decided that things seem to be working just fine.
Fine for you?
That may be disappointing to some consumers who have complained that newer electronic check-clearing systems haven't worked in their favor. They seem to have made it easier for banks to quickly withdraw money from your account but haven't done much to speed up the deposit process. Actually, the Fed found that speedier electronic processing has lead to some changes in consumers' favor.
A law passed in the late '80s established the rules for how long banks can wait before they credit a check to your account. Here's what it says:
- Deposits made by electronic payment must be available the next day.
- Cash deposits must also be made available the next day if you actually hand the money to a teller. Otherwise, they're available in two days.
- Certain government checks (federal, state, and local), as well as cashier's and certified checks, must be available the next day.
- The first $100 of most other checks must also be available the next day.
- Deposits from checks drawn on local banks (located in the same Federal Reserve check processing region, that is) must be available in two days.
- Checks drawn on non-local banks (in different Federal Reserve check processing regions) must be available in five days.
How the rules help you
What has helped consumers? As electronic check clearing has started to take off, the Federal Reserve has been able to consolidate some of its check processing centers. Fewer check processing sites means that, for consumers, more deposit checks get categorized as "local." That means more of your checks must be deposited under the two-day rule instead of the five-day rule.
With more consolidation in the Fed's processing centers expected through early next year, they expect that 73% of all checks could be classified as "local" for bank depository purposes.
Why not just make all checks subject to the two-day rule? Banks take a risk that you might deposit a bum check but run off with the money before the bank has the cash in hand. Despite all the electronic accelerations in banking, it still takes banks a while to make sure you haven't deposited a bum check. In many cases, the rules say the bank has to give you your money before they know they will get the funds that your check promised.
Credit unions win the race
Interestingly, the Fed's statistics show that credit unions more frequently make all checks, whether local or not, available for withdrawal the same day. Banks catch up to credit unions by the next day, making deposits available to account holders in more similar numbers. But if you're the type who wants your hands on your money immediately, you might investigate your local credit unions.
If you're wondering why your bank didn't follow these rules with your last deposit, remember that in banking, as in life, there are always exceptions. The time your deposit gets held may be longer for checks larger than $5,000, if you have repeated overdrafts to your account, and under certain other special circumstances.
Whether you get quick access to your money is only one in a number of factors you should consider while choosing a bank. You can get more help from the Fool's Banking Center and from the Motley Fool Green Light newsletter, which recently investigated the best places to park your short-term savings.