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View Full Version : 3 days to clear a cheque -here is the rason why :O)


Rolf Latham
15-02-2005, 08:43 AM
Hi All

This could really be in the Coffee Lounge, but while I had this sent to me from a mailing list I wonder if anyonce can tell me why it does really take 3 days to clear a cheque when the $ have been stripped out of the payers acct the same day ?




Today, the first in a new series aimed at explaining banking procedures,
entitled "What On Earth Just Happened To My Money?"

This week: Deposits

When you hand your $50 note over to the unfailingly chipper counterwallah,he or she (it's so hard to tell these days) first checks to make sure that it is genuine by holding it up to a special light. This allows them to see any tell-tale signs of forgery such as the Queen winking, or wearing a tie. The note is then placed in a drawer.

When the bank closes, all of the notes taken that day are gathered together, bundled into sheathes and bound with cotton, dyed with an ochre powder found only in the Indies. These are packed into the leather saddlebag of that branch's rider.

At the stroke of midnight by the town hall clock, the bank doors fly open
and the rider charges out. These riders, incidentally, are all able to
demonstrate direct descendence from the great Khans of Asia. Well, they have to, because only those of true Mongol blood know the precise routes across the Steppes and along the old Silk Road which they must follow.

Stopping every 25 miles for fresh horses at yurts bearing the bank's logo,
the riders take dry food and hopless ale from the attendant mute eunuchs
(especially employed as their minds are less likely to wander from the job
in hand).

Turning down through Samarkand, the riders head for Tibet, where their
horses are abandoned in favour of the members of the bank's Himalayan
Logistics Unit, or "sherpas". These sturdy fellows, resplendent in the
company livery of dark blue blazer, polyester slacks and name badge, heave the sheathes of cash high into the mountain range, to a secret entrance. Here they leave their cargo and ring a prayer bell to indicate its arrival.

Mountain dwarves take the money in and down to a vast central cavern, hung all about with abaci and hourglasses. Your personal abacus is moved across to the tune of £50 and a scribe scratches acknowledgement on a small clay tablet, which is wrapped with hundreds of others in a hogskin shammy and left at a wayside shrine for the riders to take on into China.

When they reach Canton, the bundles of tablets are stored at the bank's hong on the shores of the Zhujiang before being taken down-river in chop-boats to waiting clippers of taut rigging and high renown. (Names such as The Cutty TSB and Spirit of ABN Amro - queens of the sea, both). The clippers then undertake the murderous passage across two savage oceans, by way of Cape Horn, back to Portsmouth, where a clerk sends the
packages on to your bank branch for recording. And that's it.

At least, I assume that's what happens. Otherwise, I really can't understand why in the age of the computer it takes four whole working days for the money to get into my account.

Twitch
15-02-2005, 08:51 AM
Maybe because the banks get the funds for 3 days interest free? Or maybe because to streamline the process the banks would have to pay money (IT development), and all that would do is lose a day or so of free money. This is not a tough decision for a bank, "lets see, close a few branchs to save money, or should I spend money and streamline a process to lose money."

Hulkster
15-02-2005, 11:37 AM
It's to allow time for the dishonours to be processed on bouncy cheques. If everything was available immediately it can introduce added risk. I belive it is by way of agreements between major banks.

Rolf Latham
15-02-2005, 12:46 PM
Hiya Hulk

If a cheque is presented this afternoon, my acct is debited in actual cash before midnite. So the money is there..............................but its not

ta

rolf

Andrew_A
15-02-2005, 05:01 PM
Cheques are one of my personal dislikes with our banking system. It's time for cheque technology to catch up with the 21st century.

I bank a lot of cheques in my business and spend too much time writing out cheque details, physically visiting the bank, waiting days for the cheques to clear and sending back cheques because of minor problems with the date-signature-payment name etc etc. When a person forgets to have enough money in their account for the cheque they get hit with a dishonour fee and I do as well!! Bandits.

Not sure how to fix this dilemman but it's obvious the banks won't unless they are somehow forced to improve their service. It's too lucrative for them otherwise.

Andrew_A
15-02-2005, 05:08 PM
Hi All

This could really be in the Coffee Lounge, but while I had this sent to me from a mailing list I wonder if anyonce can tell me why it does really take 3 days to clear a cheque when the $ have been stripped out of the payers acct the same day ?I'd always thought it was because the banks were pocketing the interest on the difference between funds being deposited and later cleared.

Also fees seems to be very important to a banks balance sheet and the dishonour fees would add up.

agent 86
15-02-2005, 05:44 PM
Rolf,

Setting up an account at the CBA about 10yrs ago, the teller asked me would I like instant clearance/access on cheques deposited to help my cashflow on a newly started business.
Naturally my answer was yes.
Been that way ever since, no charge or anything.
And it's just a normal bank acct, not a business acct as I couldn't see the benefit in paying them business acct fees. :)

A86

Free Loader
16-02-2005, 09:24 AM
Hulkster is right. The three days is to allow the banks time to dishonour a cheque. They say three days because they physically need to have hold of the cheque to be able to dishonour it.

Say a cheque written by someone in Melbourne is banked by the payee in Perth. It is going to take a couple of days for that cheque to travel back to Melbourne so the bank can dishonour it if they have to.

Its worth remembering that cheques aren't always dishonoured due to lack of funds. Sometimes the drawer decides they don't want the payee to have the money (eg. if a product they purchased doesn't work) so they want to stop the cheque. Or someone may have lost a cheque and don't want it to fall into the wrong hands.

Another reason is that your bank has a responsibility to ensure that the signature on the cheque matches your original authority - ie. it matches your signature, or has two signatures if you don't trust your partner etc. Not that they check the cheques much these days but up until a few years ago little bankers actually checked the signatures on all cheques over $1,000, every day. If it didn't match, it got dishonoured.

Its also a complete furfy that the bank uses the 3 days to make "free interest" or whatever. The money comes out of the drawers account the same day it goes into the payee's account so they payee gets the interest. The only thing the bank is guilty of is locking the money up for 3 days. But that works both ways - the bank has clients that are waiting on payments from other bank customers that can't pay until their funds clear.

A86, you are one of the old breed of customer. The bank made a calculated risk that you are a person of solid character and credit (plus they also probably have a mortgage over your property so you aren't going to run away) so they reckon they have some recourse if you write a dud cheque but they don't think you'll ever do that.

As for groaning about how cheques slow down business, go over to business internet banking right now. 95% plus of all payments in and out in my business are electronic and that inlcudes heaps of small suppliers all over the country and overseas. If your customers don't want to change over give them an incentive to.

GreatPig
16-02-2005, 11:43 AM
I like the ING (or BankWest or whoever) system. You log onto their site and transfer money from your linked account into ING. The funds appear immediately in the ING account but take a few days to disappear from the linked account.

Of course it would help if the linked account actually paid some interest, and the opposite happens when transferring in the other direction.

GP

pete_w
16-02-2005, 01:03 PM
the company my dad worked for had one of the cheques professionally forged and cashed, not too long ago. the forger added an extra zero and changed the name of the account to be paid into. an eagle eyed accountant spotted it, as though it wasnt for a large amount, it was large enough to be abnormal. they reported it to the bank and the payment was stopped. i know i didnt really think of that sort of thing happening in this day and age either.

stickysandwich
16-02-2005, 02:33 PM
My father worked for 35 years for the Reserve Bank. He is long retired now, but in the old days, it used to take 3 days for the cheques to physically go from one bank to another, a clearing house first then delivered to the other bank. Nowadays, I believe they use it on the short term money market. They just use the 'clearing' word for an excuse. As far as I am aware, banks can figure out whether there is money in the account instantly. So they are are just using our money in the mean time, with the old excuse of 'clearing'. AAAARRRGH!!!

SS

Free Loader
16-02-2005, 05:09 PM
Nowadays, I believe they use it on the short term money market. They just use the 'clearing' word for an excuse. As far as I am aware, banks can figure out whether there is money in the account instantly. So they are are just using our money in the mean time, with the old excuse of 'clearing'. AAAARRRGH!!!

SS

Refer to earlier post above. They are NOT 'using our money in the meantime'. This hoary old chestnut just keeps on keeping on.

stickysandwich
17-02-2005, 09:39 PM
Freeloader

That's BOLLICKS!!!!!!

SS

Andrew_A
17-02-2005, 09:52 PM
My father worked for 35 years for the Reserve Bank. He is long retired now, but in the old days, it used to take 3 days for the cheques to physically go from one bank to another, a clearing house first then delivered to the other bank. Nowadays, I believe they use it on the short term money market. They just use the 'clearing' word for an excuse. As far as I am aware, banks can figure out whether there is money in the account instantly. So they are are just using our money in the mean time, with the old excuse of 'clearing'. AAAARRRGH!!!

SSI think this is incorrect and Freeloader is right. I was banking some cheques today and I took the chance to ask the tellers what was happening. Apparently the bank is not using the money at all in any capacity. The money goes straight into your account even though it isn't cleared for the three days.

According to my bank there is still a clearing house where the cheques have to be physically sent and then they are sent to the originating bank I believe, so there is quiet some effort to work out if the cheque will be honoured.

When I asked why both the writer and the receiver of the cheque are charged with a dishonour fee the response was "The Bank has the right to charge fees as it sees fit" Though the teller admitted this didn't seem fair.

pfsfinance
17-02-2005, 10:59 PM
I worked for a bank for 15 years, when it used to take 5 days to clear a cheque. When you deposit a cheque into your account. The bank puts it in as unclear funds so it does go directly into your account but you are unable to access the funds for 3 working days. The cheque then makes its way through the Data Processing centre of you bank to the clearing house and then to the Data Processing centre for the bank on the cheque. The cheque is than processed and the funds taken out of the drawers account. The Bank checks to see if there are any stops on the cheque and checks the signature and also check to make sure there are sufficient funds to cover the cheque. This normally happens the day after you deposited the cheque if it is happening in the same state. If it is different states it can add a day or two.

If the cheque is to be dishonoured it can take at the minimum 2 days after you have deposited it to arrive back at your bank. So hence the 3 day clearance time.

geoffw
18-02-2005, 08:48 AM
Forget 3 days to clear a cheque. The cheque I sent to World Vision for tsunami relief took over four weeks to get presented.

(Apparently the couldn't handle the tidal wave of donations, and they were deluged :D )

Free Loader
18-02-2005, 10:56 AM
Freeloader

That's BOLLICKS!!!!!!

SS

No, it's "bollocks". But I'm interested to hear the rest of your reasoning, or is that it??

Waysolid, thanks for clearing it up direct with the bank. Re the fees on both drawer and payee, they are firstly for cost recovery (its a manual process and takes a while to write up and send back to the payee's bank which then has to manually process the deposit reversal and notification) secondly, as a deterrent (the more the fees, the less likely people are to write bad cheques and there's less credit risk for the bank) and thirdly, banks don't make as much from their interest margins any more and its another way to help boost the bottom line.

Andrew_A
18-02-2005, 11:04 AM
No, it's "bollocks". But I'm interested to hear the rest of your reasoning, or is that it??

Waysolid, thanks for clearing it up direct with the bank. Re the fees on both drawer and payee, they are firstly for cost recovery (its a manual process and takes a while to write up and send back to the payee's bank which then has to manually process the deposit reversal and notification) secondly, as a deterrent (the more the fees, the less likely people are to write bad cheques and there's less credit risk for the bank) and thirdly, banks don't make as much from their interest margins any more and its another way to help boost the bottom line.I have no problem with the idea of fees for a dishonoured cheque. All I think is that the writer of the cheque should pay 100% of the fee rather than splitting it 50-50 which is the case at the moment with my bank. Last time I believe the fee was $20 each, why not just charge the writer $40?

It's really not my fault if the cheque bounces.

Free Loader
18-02-2005, 11:35 AM
All I think is that the writer of the cheque should pay 100% of the fee rather than splitting it 50-50 which is the case at the moment with my bank. Last time I believe the fee was $20 each, why not just charge the writer $40?

It's really not my fault if the cheque bounces.

To pass on the entire cost to the drawer would involve some sort of universal protocol between banks and a balancing or clearing system.

The reason they don't do that now is that the payee's bank has no idea if the drawer will be good for their fee (which is always a worry given they have just had their cheque bounced) and the drawer's bank doesn't want the obligation to pay the payee's bank when it might not be able to recover its fee either which for some banks is up to $50.

To illustrate: Say each bank dishonours 100 cheques every day (probably a lot more) and each payee's bank wants a $20 fee for each one. Over a year, for say 30 banks in Australia, that's about $16 Million due in charges on the payees alone. The banks would need a whole new admin system to manage who is owed what and how much couldn't be collected and why.

They reckon it is just simpler for the payee's bank to directly recoup what it wants and then pass the responsibility back on to you to try and get it back from the drawer. That way, they have quickly got their money and washed their hands of it.

Medine
21-02-2005, 09:38 PM
The University where I'm doing my MBA supports the "short term money market" theory, for what it's worth.

Cheers, Medine.

Rolf Latham
21-02-2005, 10:25 PM
Hi Medine

MBA ?


Mega Bank Account :)

ta

rolf

D.T.
21-02-2005, 11:26 PM
Hiya's

I used to be a teller in a bank. I know how to not let a cheque go thru clearing. Some (not all) banks will allow you to 'split' a cheque, eg take this $1000 cheque and put $500 in a/c A and $500 in a/c B. If your bank allows this, put a nominal sum in your normal account, and the rest in a credit card account. It'll be available immediately. Go to the back of the line (or home to your online banking) and transfer the money from your credit card to your other account - it's yours :)

Food for thought ;)

Free Loader
22-02-2005, 10:42 AM
The University where I'm doing my MBA supports the "short term money market" theory, for what it's worth.

Cheers, Medine.

Medine, are you or the uni able to elaborate?

I used to work for a bank in a senior retail position and have since provided consultancy to several of them over many years. If there is a way that they directly earn income in the way you suggest it certainly isn't obvious or admitted. I can't add anything more to this thread than my earlier posts which are boringly long.....

David E-Noosa
22-02-2005, 12:20 PM
I can't add anything more to this thread than my earlier posts which are boringly long.....

Might be boringly long (not really) but your earlier post is correct.

"They" would all scream blue murder if "that bloody bank" allowed instant clearance on a cheque from "their" account that ended up being a forgery by someone other than themselves.

Cheques are the slow link in the sytem now and I do beleive banks would be very happy to do without them if only people wouild all get into the current century and use other methods that are available.

Medine
22-02-2005, 02:09 PM
Hi Free Loader,

I had a look back at my texts after posting this and can't find a reference to it. It's not the sort of thing that I would write down without hearing it, but it must have been a lecturer's throw away line. My aplologies - I should check my sources before I type :o .

Rolf - I wish!!

Cheers, Medine

Olly
26-02-2005, 12:38 AM
http://www.bankers.asn.au/Default.aspx?ArticleID=612

Full explanation here of what happens.

Cheers
Olly

Lissy
26-02-2005, 09:24 AM
I also get very ticked off that I get charged a fee if a cheque I deposit bounces.
Possibly I wouldn't mind so much if it was a nominal fee, say a dollar, to cover the costs of posting me a letter to inform me of the default, but when it's $20, that sucks. :mad:

pennyk
26-02-2005, 05:17 PM
one of the reasons I bank with ANZ is that cheques are generally cleared immediately. eg I banked $5000 yesterday and transferred some of the money out that afternoon. Sometimes it is overnight, but pretty much always available straight away. My colleague banked with other banks where they would get charged an honour fee if they used the proceeds of the cheque before it was cleared, even if the cheque then cleared. which I thought was a bit rough.