Tag: banking

The Answers to the Banking Questions you Never Asked–Part II

Check Negotiability and Availability

One of the biggest challenges we have as bankers, and you have as a banking consumer, is issues arising from availability and negotiability of checks. Yes, people do still write, and cash, checks. Admittedly, its much less than it used to be. In fact, according to The Atlantic, check writing in 2012 was just under 20 billion transactions versus 40 billion in 2000. Paper checks currently account for just 15% of all payments. Things like direct deposit, electronic payments, debit cards, credit cards and most recently apps like Venmo and Zelle, have greatly reduced the number of checks we write and cash. But checks are not obsolete just yet. You may not receive checks on a weekly basis, but occasionally you will: A birthday present from your gram, an insurance check from a claim, a rebate check from an overpayment or store rebate offer. So it’s important to know the items that make up your check, and the elements that may affect your ability to cash the check, as well as when those funds will be available to you.

Negotiability

Let’s start with negotiability, which means the conditions under which you can cash or deposit a check with your bank.

The “maker” is the person who issues the check. That person, or business, must complete the following pieces of information:

  • Date: You cannot cash a check that is dated ahead of todays date. Also, checks are generally good for 6 months, so you won’t be able to cash a check dated more than 6 months ago
  • Dollar amount: The amount must be filled in both numerically, and in written words, and those amounts must match; if they do not match, the written words will serve as the legal amount
  • Memo line: this is optional and serves as a note to the maker of the check as to the purpose of the check
  • Endorsement: Where the maker signs the check; a check cannot be cashed if the endorsement is missing
  • Payee: The Payee line tells who is authorized to negotiate the check and can be the most complicated element. It is the item that most often causes problems. Here are some possibilities and how they affect negotiability
    • Single payee: this is payable to one individual and can be cashed or deposited by that individual
    • Multiple payee: this is payable to more than one individual; the presence of the word “and” means both individuals must sign and be present; “or” means either can sign without the other; in the absence of “and” or “or,” “or” can be assumed
    • Double endorsed: This means that a second person, other than a payee, is attempting to negotiate the check; most banks will accept this as long as both parties –the payee and the casher–are present and identified; this most often happens when the payee does not have a relationship with a bank and is unable to cash the check on their own
    • Checks payable to any entity(ies) other than an individual: This includes checks payable to a business (AT & T), an association (MA Bowling League), an Estate (Estate of John Smith), or a Trust (The Smith Family Living Trust), among others. These checks may only be deposited into an account bearing the same name; often individuals will think that because they are the owner of the business, or the trustee of the trust, they can cash the check on their own; unfortunately, that is not the case. These checks must always be deposited into a like titled account

Other things that can affect your ability to cash a check include:

Identification: Most banks require a government issued, unexpired, picture ID. Most common forms of these are a drivers license, state issued ID or passport. Some banks will require a second form of ID such as a social security card, or credit card.

Customer status: While banks will cash a check for a non customer when that check is drawn on one of their own accounts, in most cases you will only be able to cash checks at a bank where you have a deposit relationship.

Availability

The next thing you may need to consider when cashing or depositing a check is availability. This means when the funds from your check are actually available to you to use for purchases. This is often referred to as “holding” the funds. Most banks make funds from cash deposits or direct deposits available to you immediately, but rules around checks are different. There are two main reasons for this. The first is that the bank has no way of knowing if the check is actually good. It could be fraudulent, or the maker might have insufficient funds to cover it, in which the check will be returned to the bank where you cashed it or deposited it, and the bank will deduct those funds from your account. Placing a hold on the check helps to ensure that those funds are in your account in the event the check is returned.

The second reason for holding the funds is that the bank does not actually receive the funds for that item until it gets back to the bank that it is drawn on. In essence, you are borrowing those funds from your bank while the bank awaits payment.

Government entities regulate how long banks can hold funds on checks. The main regulation that outlines these guidelines is called Regulation CC. The regulation sets maximum days that banks can hold your deposited checks. Check clearing has become much quicker in recent years. You may have noticed that your bank now scans your transactions, which allows the processing of the check to be completed much more quickly. Scanners are also designed to pick up on potential problems like fraudulent checks and unusually large items. This means that your bank often knows very quickly if a check is not good. They are therefore able to make the funds available to you more quickly. So although Reg CC sets limits on the number of days your bank can hold your funds, often the bank has a more generous funds availability policy.

Your bank is required to give you a copy of this policy when you open an account (Typically in your “Deposit Account Agreement”), but they will also provide it to anyone upon request. These days, most banks make funds available from checks within 1 or 2 days. Longer holds may come into play for more unusual situations such as: Large checks, checks that have been returned once already, or if your account is new to that institution. Keep in mind that these are “business” days, which do not include saturdays, sundays, or holidays. So if you deposit a check on friday, and availability is 1 business day, those funds will be available on monday. If you make a deposit on saturday or sunday, the business day of that deposit is actually monday. So 1 day availability means your funds will be available on tuesday. Availability is important to know, because if you attempt to access the funds sooner, you could be subject to fees. For example, if you make a check deposit today and then try to use your debit card today for a purchase that requires use of the funds you just deposited, you may find your transaction is declined, OR, you could be charged an insufficient funds fee, as those funds are not yet available.

There are ways to minimize worries about availability of check deposits. First, if direct deposit, or electronic crediting is available, take advantage of that as, in most cases, those funds will be available more quickly, often immediately. Also, many banks now offer ATM deposits and mobile deposits which allows you to process your check deposit after banking hours. So if you can’t make it to the bank before your branch closes, you can still deposit your check for that day. The sooner you can get your checks deposited, the sooner those funds will be available to you. Pay attention to “cutoff” times in these instances. You may have to deposit the item by 7 or 8 pm in order for it to be processed on the same day.

I hope this information is helpful! Feel free to share your questions about banking and I’ll attempt to address them in a future installment of The Answers to the Banking Questions You Never Asked.

The Answers to the Banking Questions that you Never Asked

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Part I

How much thought do you give to your banking? If you’re like most people, you probably don’t think about it a lot. Maybe you’re using the same bank where you opened that savings account for your birthday money when you were 12. Or maybe you just picked the bank that was closest to your home or workplace. Do you understand how your account works, how to avoid fees, what happens to your money if you die?

Not the most fun things to think about or talk about, I’ll agree. But important. And after 30 years in banking, I still don’t know it all. There are still situations that come up on a daily basis where I have to go looking for the answer. This is the first installment in a multi part series where I’ll tackle some of these issues based on the frequency in which I see these questions–and problems–on a daily basis in my own career as a Banker. The topics I will address today are:

1. How Banks Process Transactions

2. Debit Cards and Insufficient Fees

How Banks Process Transactions

Banks process transactions using either an online system or a batch system, or a combination of both. An online system means that transactions are processed in real time, meaning as they occur. So if you make a cash deposit at 10 a.m. and someone goes into the bank to cash a check you wrote to them, the deposit is available to cover the check. In the reverse scenario, if you needed that deposit to cover the check, your payee may get your check handed back to them to try again later.

In a batch system, transactions are processed overnight. In most cases, this benefits you, as banks almost always post credits (deposits) before debits (withdrawals). This means that you can make an ATM withdrawal at 10 am and a cash deposit at 11 am and when items post at the end of the day, your deposit will post first, making it available for your ATM withdrawal.

Within the “credit,” and “debit” categories, there is further detail about transaction posting order. Your bank may post your debit card transactions first and paper checks second. And dollar limits play a role as well. Some banks post from largest to smallest. This is good in that if you don’t have enough funds to cover all the items clearing on that day, your largest bill (maybe your rent or mortgage), will get paid first. The downside to that is that the largest item may eat up all your available funds and you could be assessed fees for every item that comes after.

Many banks now use a combination of online and batch processing. In most cases, this will benefit you. If, for example, you make a cash deposit at the ATM at 10 am, your bank may make that money available to you right away, so it hits the available balance in your account immediately. This can sometimes come in handy if you remember later that you meant to keep $20 from that money. You would be able to go back to the ATM and withdraw that right away.

When you open your account, your bank will give you a document, typically called the Deposit Account Agreement, that will explain the manner, and order, in which they process your transactions. It is valuable information to know if you have high levels of activity or tend to keep your account balances very close to what is needed to pay items. If you don’t have that agreement from when you opened your account, or if you’re shopping banks and would like to know how they process transactions, you can walk into your own bank, or any other bank, and ask for this document.

Debit Cards and Insufficient Fees

Debit cards and debit card transactions warrant their own conversation.

For those of you who use debit cards, and I’m going to guess that’s almost everyone, you may appreciate the convenience, and may have become aware of some of the potential problems. A debit card can make recordkeeping a little more challenging. While most debit card purchases show up immediately on your transaction history (possibly posting as “pending”), this is not always the case, so its still important to pay attention to your account activity so you don’t overdraw. Some places, like gas stations and restaurants, may authorize your card for an amount higher–or lower–than your actual purchase, as they don’t always know what the final purchase amount will be. When you swipe or insert your card at a gas terminal, the approval is made immediately, before you start pumping. In a restaurant they will process your card for the total of the food, and you may then add a tip, causing a different amount to be needed.

Online orders can also cause some confusion. If you order multiple items from an online store, they may only charge your debit card as items ship. So you have to remember that additional charges will be coming as your remaining items ship. This means knowing that some of the funds showing in your account balance are already spoken for.

The first debit cards were issued in 1978. My the mid 1980s they had become popular, and by 1998 they had exceeded check usage as a payment source. Banks quickly learned that they could make additional income on debit cards by “paying” items against insufficient funds. This means that when you swipe your debit card, the bank will authorize the payment, even though you don’t have enough to cover it–and then charge you a fee. If your bank does offer this service (often disguised as overdraft protection), they must give you the option to “opt out.” This means that you authorize them to decline the transaction when presented against insufficient funds. Although it may cause some minor embarrassment when this happens to you in a store, you get to walk away without having incurred any fees. You can decide if it’s worth it to pay the fee (you’re out late at night and need gas) or have the transaction declined.

Other areas where larger (and longer) “holds” are placed when using a debit card include hotel reservations and car rentals. This can more greatly impact you as the holds are often for longer periods of time and will affect your account balance, meaning you can’t use those funds while the transaction is pending. This could be for the entire duration of your stay, or rental.

Here are some best practices for using a debit card and avoiding fees:

–Make your decision about how to handle transactions against insufficient fees and notify your bank of your choice

–Monitor your account daily using your bank’s online banking platform and/or app

–Use a credit card when possible for larger, or more long term purchases like hotel or car reservations

–Avoid using your debit card for “subscription” services like netflix, gyms, or amazon as its difficult to remember when these items will hit your account and are often the cause of overdrafts

Do you have a question about Transaction Processing, Debit Cards, or Insufficient Funds Fees? Ask Me!

Be on the lookout for my next installment of Banking Questions!