Content of the material
- What is a check hold?
- Learn About the Aging Hold
- What are some common reasons for deposit holds?
- Why might a bank put my check on hold?
- Expedited Funds Availability Act
- Understanding Account Holds
- How long can a bank hold a direct deposit?
- The biggest problem that results from a holding account
- Why Do Banks Hold Funds?
- Why Do Banks Hold Checks
- Understanding the History
- Availability of Funds
- Why Do Banks Place Holds on Checks?
- Dealing with the bank
What is a check hold?
When you deposit a check, the money isn’t always available right away. The amount of time that it takes for your funds to become available is sometimes referred to as a check hold. It means the bank is holding the money and you can’t spend it yet.
Not all banks and credit unions use the same check hold period. The maximum deposit hold period was established by the federal Expedited Funds Availability Act, and your bank or credit union generally can’t hold deposit funds past that period. But there is no minimum hold period. Your bank decides whether it will release the funds to you faster than the maximum hold period.
Learn About the Aging Hold
Banks give themselves an extended time period to collect funds on new savings accounts, resulting in a longer-than-average hold period. This is called an “aging hold,” and it may be the only time your bank is legally allowed to hold your funds. Check the date on which you opened your savings account to see if aging is the reason you can’t tap your funds. It could take up to 30 days to clear a first deposit.
What are some common reasons for deposit holds?
When your check deposit is placed on a hold, you may be wondering why, or if, it’s necessary. Here are a few common reasons for deposit holds.
The need to verify sufficient funds. Sometimes, when a check is deposited, we may need to verify with the check writer’s bank to ensure that the account has enough funds to cover the check amount before making all the funds available to you. This step can take up to seven business days and helps you avoid having to repay the check amount if there were insufficient funds in the check writer’s account.
A redeposit of a previously returned check. This may occur when a check that was previously returned due to insufficient funds is redeposited. To help avoid the possibility of the check being returned again and possibly incurring additional fees, we may place the deposit on hold as we attempt to verify if the check writer’s account has sufficient funds. While this may take just a few days, the hold could last for up to seven business days.
Deposits from new customers. When you open a new business checking account, we will focus on getting to understand your deposit routine and transaction activity. This helps us to protect you from overdrafts, returned checks, and associated fees during the first 30 days, which may cause a check deposit to be placed on a hold.
Large-dollar deposits. We understand that from time to time you may receive checks greater than $5,525. To protect you from having to repay a large check amount if you were to use the funds and the check is returned unpaid, we may place a temporary hold to validate if the check writer’s account has sufficient funds. A portion of the check deposit may be made available within two business days, while the rest of the funds will be available no later than the seventh business day after the day of your deposit.
Frequent overdrafts. A history of overdrafts may indicate that your account may not have sufficient funds for a variety of reasons. If you have experienced several overdrafts in the last six months, we may place a temporary hold of up to seven business days on your check deposit until the check has cleared.
Why might a bank put my check on hold?
While it can be annoying to have your funds put on hold, banks hold checks for a reason: to ensure the funds clear before you spend them. Without a hold, you might end up spending money you think you have — only to find out that the check hasn’t cleared, causing you to overdraw your account and rack up hefty overdraft fees.
Hold policies vary from bank to bank, but there are some common reasons your check might be subject to a longer delay.
- You’ve recently opened the account.
- Your checking account has been overdrawn too much in the past six months.
- The deposit being made is more than $5,000.
- You make the deposit at an ATM that isn’t owned by your bank or credit union.
- Your bank believes that the check will be uncollectible.
- The check has been redeposited because it was first returned unpaid.
Banks put checks on hold to protect you from honest banking mistakes — and from check scams that can cheat people out of their money.
One common scam works like this: Someone gives you a fake check for more than you’re owed (for example, someone buys something from you online and sends you a check for too much money). Then the scammer asks you to send back the overpayment amount. The scammers’ checks can look just like real checks, and it can take weeks for banks to detect the fraud. While the check is on hold, the scammer hopes you’ll send a real check for the “overpayment” amount before you realize their check was fake.
A check hold is one way the banks try to combat such scams.
Expedited Funds Availability Act
The Expedited Funds Availability Act (EFAA) was passed in 1987 to address concerns over the length of time banks were holding customer deposits. The EFAA, implemented by Regulation CC, established maximum permissible hold times for checks and other deposits. With checks, the EFAA requires that:
- No more than one business day passes between the day funds are deposited and the day they’re made available for local checks.
- No more than four business days may pass between the day funds are deposited and the day they’re made available for nonlocal checks.
- Not more than $400 (or the maximum amount allowable in the case of a withdrawal from an automated teller machine but not more than $400) of funds deposited by one or more checks shall be available for cash withdrawal not later than 5 p.m. of the business day on which funds become available.
The Expedited Funds Availability Act aims to ensure that customers aren’t waiting on hold indefinitely to access their deposits. The Act also requires banks and other financial institutions to inform customers about their funds availability policies and how they work. This information is provided through a funds availability disclosure.
Understanding Account Holds
There are several reasons for an account hold. A deposit of a particularly large check, an out-of-state check, or a foreign check may cause an account to be placed on hold, though the hold would be limited to the check amount. The customer would have to wait for the check to clear before having access to the funds. Note that new accounts, however, are typically subject to holds on entire initial deposits. If funds were pledged as collateral for a loan, there would be a hold.
An order by a court or a Federal or state tax authority would also result in a hold. If the bank needs to conduct an investigation of suspicious activity in an account, it may decide to exercise its right to temporarily block the customer's use of funds. If a customer reports being a victim of identity theft, to protect the customer the bank would make sure the account could not be accessed. For instance, a sudden and suspicious exorbitant withdrawal or transfer to an overseas account may indicate an account has been compromised.
Accounts may also be put on hold if the owner passes away and an heir or administrator to the decedent’s estate has yet to be named. If an individual is found to be complicit in certain crimes, their accounts may be frozen.
How long can a bank hold a direct deposit?
Direct deposits, such as payroll deposits from your job, have to be made available to you the day after they are received by the bank. However, some exceptions could delay that timeline by a few days, such as when the amount of the deposit is more than $5,000.
The biggest problem that results from a holding account
Because your money has been sent to a hold account, perhaps the biggest issue is paying bills.
Many people have their checking account associated with the bills they pay and allow the money to be taken out automatically each month.
If you run into problems, your bill pay feature will most likely be disrupted, which can result in bounced checks and a domino effect of issues that can be difficult to handle. Once things start festering, they can spiral out of control rather quickly.
Why Do Banks Hold Funds?
Banks can hold deposited funds for various reasons, but, in most cases, it’s to prevent any returned payments from your account. In other words, the bank wants to make sure that the deposit is good before giving you access to the money.
Depending on the type of deposit involved, it can take several days for the money you deposit to be transferred from the payer’s bank to your bank. Placing a hold on those deposited funds in the meantime allows the payment to clear your account.
Without a hold, you could write checks, pay bills or make purchases with your debit card against your balance. If the check you deposited ends up getting returned because the payer had insufficient funds, your bank would have to cover those payments. And, as a side effect, you could be charged returned check or overdraft fees for any transactions the bank has to cover.
Funds availability holds protect you and the bank against the consequences of returned payments. Having your bank hold a check can work in your favor if it allows you to avoid overdrafts and their associated fees.
Why Do Banks Hold Checks
Banks hold checks to verify that the check will be paid. Anyone can write a check to you, but if there isn’t sufficient money in their account, the check will bounce. As mentioned above, this can create headaches for both you and the bank, especially if you’ve used funds from a bounced check to pay bills or make purchases.
Checks get special treatment compared to other types of funds because there’s a degree of uncertainty surrounding them. With checks, institutions don’t know if the check is collectible until it’s paid by the institution it’s written from. This is unlike some other deposit methods. For example, if you’re depositing $5,000 in cash, the bank has money in hand to credit to your account. And wire transfers are typically irreversible—the person who sent the transfer typically can’t get the money back, so your bank can credit those funds to your account without fear of a reversal later.
Understanding the History
The banking industry once put holds on all funds deposited into checking and savings accounts until Regulation CC was enacted. Among the changes that resulted from this regulation were that banks continued to require holds on accounts with third-party payment powers – like checking accounts – but savings deposits and certificates of deposits became officially exempt from the hold requirement. Your inability to withdraw funds is likely to be found closer to home.
Availability of Funds
Your bank may give you immediate credit for check deposits, but many institutions place holds on checks as permitted under federal Regulation CC. Typically, a bank must make $200 of a check deposit available for use on the next business day, but remaining funds can be held for two business days. If a check is dishonored by a bank, it takes between two and four days for the check writer’s bank to notify the depositor’s bank. The placement of a hold reduces the possibility of the check depositor spending money before realizing the deposited check has been returned unpaid. Were this to happen, the depositor’s account might register a negative balance.
Why Do Banks Place Holds on Checks?
The most common reason banks put a hold on funds in your account is to ensure that a check clears. Putting it simply, they want to make sure they receive the appropriate funds before these funds are made available to you. You can learn more about your hold by calling your bank and requesting more information or reading the guidelines you received when you opened the account.
Dealing with the bank
If you have incurred an overdraft from your bank, it’s time to sit down and talk with them.
Many banks will work with you and may even offer a refund for an overdraft fee, especially if it’s your first time overdrafting your account.
While you can have this conversation over the phone, it’s always wise to go into a physical branch location of your bank if you can and speak to someone in person.
If you truly were unaware of the circumstances that led to the overdraft, make that clear. Sometimes, a little honesty can go a long way.
As one might expect, it’s not always easy to convince a bank to reverse an overdraft charge.
Holding accounts can be confusing, but the error is often made because one isn’t paying close enough attention to the amount of money they’re spending.
This can be a difficult pill to swallow, especially considering the fact that overdraft charges can be exceptionally high once they add up.
If you’re able to take steps to avoid the issue from occurring in the first place, however, you won’t have to worry about paying unnecessary fees.