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Watch out for "the float"
 The
"float" is that time lapse between when a check is deposited
and when the money becomes available. For example, a person gives
the landlord a rent check on Tuesday, but the money won't be in
the bank until Friday.
The float time for paper checks is between
two and five days. Banks use this time to verify the legitimacy
of a check. In the meantime, the bank or credit union earns interest
on dormant checks, which has caused some consumer groups to accuse
banks of exploiting the float to their own advantage.
Legislation requires banks to make money
from local checks available within two business days of deposit.
Money from checks drawn on out-of-state banks must be available
within five banking days.
Often, banks hold checks on new accounts
where the bank doesn't know the customer or the check is for a large
amount. In reality, most checks clear through the Federal Reserve
banking system in two to three days.
If you must float checks, follow these
guidelines:
- Do not pay all of your large bills at once unless
the checks are covered. Some banks clear checks for mortgage and
car payments immediately. That means if a bunch of checks hit
the bank at once, the biggest check is cleared first. If it bounces,
subsequent checks bounce.
- Consider getting overdraft protection. Be careful,
though -- many banks charge as much to cover your check as they
do to bounce it.
- Use telephone or online banking to transfer money
from your savings or other accounts to cover checks drawn against
your checking account. Transfer the money back when the checks
are covered.
The float also works against
you when it comes to getting access to checks you've been given.
Some tips for avoiding that:
- Don't make deposits at ATMs. A bank can set an
earlier cutoff time for ATM deposits than teller deposits, resulting
in checks taking longer to clear. And a bank where you are not
an account holder does not have to make the money available until
the fifth business day.
- If money is coming to you from out of state, consider
having it sent through Western Union.
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