Dear Quentin,
I have a banking question and would like more clarification on it. I received an insurance claim check for $22,000, written against an account at Bank of America.
On Tuesday morning, I deposited the check into my bank account. But none of the funds will be available until five business days later.
Why does it take so many days to transfer funds internally “from your branch to my account”? Other than checking the availability of funds, what happens that requires five days?
Curious customer
“Checks are an old-fashioned payment method, relying on more archaic processes for settlement.”
Market watch illustration
Latest Money: 'I want to protect my family': My wealthy father, 49, is to marry his third wife. How do I raise the issue of inheritance?
Dear curious,
Since the average insurance claim settlement can take anywhere from 30 days or more for auto insurance to nearly five months for homeowners insurance, I assume your question about the check taking five days to clear is because a) you're simply curious about the mechanics of payment By check or b) You've waited so long at this point that the final days seem even more torturous than the previous months.
When a bank takes time to process a check, it does so to ensure the validity of the check. Checks are ripe for fraud. In fact, the Better Business Bureau recommends signing checks with black gel ink, which it says is more difficult to manipulate than regular blue or black pens. “The Crown” actress Claire Foy recently refused to sign in blue ink; Some experts say blue pyro is easier to screen for nefarious purposes, while others say such fears are overblown.
Checks are an old method of payment, and rely on outdated processes for settlement. “We assume that the check referred to has been put on hold,” a Bank of America spokesperson told MarketWatch. “A lien can be placed on a check for a variety of reasons – the amount of the check, concerns about the validity of the check, etc. A lien allows us time to research and verify the check, including contacting the check maker if necessary.” Read more here.
Paper checks rely on an outdated network
Paper payments rely on a legacy network to process and return checks. For example, your income tax refund can take three to eight weeks to arrive. The paying bank has a certain amount of time to verify that the check is valid and authorized. If a check is not payable, it is returned and the bank is not notified until the check is returned. It is not wise for the depository bank to withdraw funds based on the amount of the check before ensuring its validity.
Federal law also allows a bank to keep some funds for a period of time, depending on the type of check and the amount. For a check like the one you received from the insurance company, banks generally must make the first $5,525 available by the second business day after the “banking day” for deposit, although there are exceptions that allow the first $5,525 to be held for a longer period. An amount greater than $5,525 may be held for longer than that.
Common Scam: Consumers are tricked into cashing a check for a third party. The scammer tells someone with a US bank account that he or she has inherited a large sum of money, but must deposit the amount and send a portion of the funds to the scammer in order to receive a generous commission. However, the check is returned and the customer is on the hook for the withdrawn funds. (This New Yorker story on the subject will give you chills.)
And if you are a victim of a scam? Contact your bank, file a police report, and place a fraud alert on your credit reports to prevent any further damage from a bad actor who may have access to your personal data. Even if you're lucky enough to get the money back, it could take months. I hope this puts your five-day wait into perspective. Congratulations on receiving your $22,000 insurance payout. Whatever its purpose, I hope you enjoy putting it to good use.
You can email The Moneyist with any financial and ethical questions at qfottrell@marketwatch.com, and follow Quentin Fottrell on X, the platform formerly known as Twitter.
paying off The Moneyist on Facebook A group, where we search for answers to life's thorny money issues. Post your questions, tell me what you'd like to know more about, or participate in the latest Moneyist columns.
The Moneyist regrets that he cannot respond to questions individually.
Previous columns by Quentin Fottrell:
My wife and I sold our house to her son at a $100,000 discount. He is now selling for a profit of $250,000. Should I order a cut?
The employer hires exclusively white managers and promotes people with “questionable experience.” Is this a good or bad time to jump ship?
