What is Clearing of Check or Check Clearing?

 

We have talked about checks before. But I’ve heard about something called check clearing. What is check clearing?

Check clearing is the process through which money moves from one account to another when the payment has been made by writing a check – the amount is taken or debited from the check writer’s bank, and given or credited to the bank account of the depositor or person who receives the payment.

So how does the check clearing process work?

Let’s say you write a check to pay your cell phone bill. The phone company would deposit the check into their bank, which then requests the money from your bank. Your bank takes money out of your account, and transfers it to the phone company’s bank. This is when the check gets cleared.

How long does it take for a check to clear?

It used to take up to 5 business days, but can now happen a lot faster because of electronic check clearing. However, many banks make the funds available in the recipient’s account before the check actually clears.

What happens when there is not enough money in the check writer’s account for the check to be cleared?

In this situation, the check is not honored, or accepted by their bank, and is returned due to insufficient funds. The check would be honored by the bank if the account holder opts for overdraft protection – but that’s a topic for another time…

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