I was bitterly dissapointed when the lady at the counter at my bank today told me that another bank's cheque would need three days to clear (I needed the money FAST). You would think that with all the advances in technology, with ATMs accepting cards from other banks, etc, that they would be able to verify in a matter of seconds whether the account of the issuer of the cheque has any funds remaining or not.

I'm not talking about a transfer of money between the Commonwealth Bank of Timbuktu and the National Nicaragua Bank either. I'm talking about two major Australian banks.

I'm getting the impression that more and more fees are being charged to customers, processing times are the same as always and customer service is getting poorer and more expensive as Banks are striving to push customers away from tellers. Am I the only one enraged by this?
Of course, your bank will take the money as fast as they can read your signature on your check. They probably grab your money even if they can't read your signature, just to be sure. And until a law is passed, they will hold on to your money for as long as they can. It has nothing to do with technology; it's pure and simple greed.

I saw that in Norway banks cannot take interest on their customers money while it is en route between accounts or banks or whatever. That makes sense, since, just like domaindudu points out, it's just a split-second transaction in their system.

On another note, why are you still using checks? That's a relic from the twentieth century that won't be missed. I have never ever used a single check in my life.
Update: Since writing the above, I have moved to the United States. I now have used many checks...
British bank to Irish bank - 21 working days.

BACS transfers from British banks to Irish banks and vice versa - possible in theory, haven't had a single one actually go through smoothly yet ("the bank lost your salary" is still one of the most surreal conversations I've had with an agent).

Banks are bastards. They are blood sucking parasites who should be wiped from the face of this earth for the betterment of humankind. Trust me, get rid of banks and there will be world peace and an end to famine worldwide.

As the first writeup is referring to the Australian banking network, I can shed some light on why it takes the amount of time that it does for a cheque to clear in Australia.

The delay essentially gives the banks some time to intercept fraudulent cheques. After the cheque is deposited and processed overnight, it is returned to the originating bank. It is during that day that the signature and the date are checked, and the cheques are also inspected for any unauthorised alterations.

If the cheque is found to be fraudulent or non-transferable in some way, the originating bank will contact the processing bank and let them know the cheque has been dishonoured. They then forward this notification by mail to the processing bank. The processing bank then advise their customer of the dishonour.

Note: only cheques over the value of $20,000 are actually inspected by the banks. The reason cheques of smaller value also take the same length of time is primarily for consistency's sake, and also as a time buffer in the event that the bank is advised of a fraud for a cheque of a smaller value.

The system for verifying and clearing checks (I'm American, spelling shift!) has actually caused some notable fraud in the past. My favorite example is a gentleman who had hit upon an incredibly efficient scheme, which all by itself was a great deal of the motivation for CheckPoint and other electronic check-verification systems (note that check verification is not the same thing as check clearing).

In any case, a bank noticed that a customer was requesting a close on an account that had only been open for three months but had accumulated nearly $10,000 in it, in nearly regular infusions. This alone would not be cause for any interest, since the pattern was roughly that of a salary, had it not been for the fact that the bank had just done an internal audit and found that it was short almost exactly the same amount. Normally, this wouldn't cause notice either; especially at a large bank where a $10,000 difference is penny ante compared to the amounts moved through it. However, this was a smaller bank, and the manager who noticed this checked up on things. He found that each of the deposits had been for a check from a different payor, despite the regular schedule. Tracing back the checks deposited, he found that none had been returned.

Herein lies the beauty of the scheme. Up until this point, the bank verification process was fail-open; that is, unless the processing bank received notification of a problem with the check, they would automatically advance the monies to the depositor, and expect to recoup them when their accounts with the originating bank cleared. This could take days, and could also involve a whole separate department. Thus, there was a window between the end of the three-day clearing period and the time of the actual account clearing where the money was available to the depositor without being yet retrieved from the issuing bank.

What the guy was doing, it came out, was destroying the checks in transit. He'd come up with a chemical solution that, when painted on paper, took nearly exactly two days to activate, and then reduced the paper it was painted on quietly to ash. So the banks would receive his (fraudulent) deposited checks and mail them to their purported bank of issue. In transit, the check would dissolve. The issuing bank would get an envelope with some ash in it but nothing more, and throw it out.

A week to two weeks later, our friend would come along and move the money that was now in his account, or close the account. The processing bank (his target) wouldn't even know they'd been had until the next account clear, and wouldn't know unless they happened to correlate the discrepancy in their books with this particular account. One of the gentleman's main slipups was obsessively keeping his transactions under $10,000 US (this is the size at which a transaction must, by law, be reported to the IRS). Patterns like this, with lots of activity just under that limit, naturally attract attention at the bank and among Law enforcement.

They've fixed the system. Now, usually, the processing bank verifies the paying account is open and has funds in it using an electronic system such as CheckPoint before actually mailing the check and crediting the payee's account three days later.

3 days? If you're very lucky.

In Norway - see previous writeup in this node - the banks may not be allowed to earn interest while the cheques are being cleared, but they certainly can in the UK.

There is no practical reason as far as I know why cheques couldn't be cleared instantly. They don't need to send the cheques around the country anymore, it's just a throwback to earlier, pre-computerisation times. The reason they do it is because the money-grabbing bastards earn an absolutely enormous amount of money on all the cheques whilst they are waiting to be cleared. At any one point in time there are thousands and thousands of cheques waiting to be cleared - the money has gone from the issuer's account but hasn't arrived at the payee. During this time the banks earn stupidly large amounts of money by taking the interest on this money (which, I believe, they deposit in their accounts with other banks).

Let me just say that again - banks are money grabbing bastards. Especially Barclays, but I won't go into that now.

On the other issue of fraud. As someone has also said, only cheques above a certain value are checked. I used to work in a bank for a short time, and no checking at all is done on cheques below a certain value (the amount escapes me now). I mean the signature on the cheque could be literally anything, only cheques above a certain value were even looked at. And it was quite a high threshold. As Electricsound says - $20,000 in Australia. That must make up less than 1% of all cheques processed.

But then again the CCTV cameras in our branch (which was the central branch in the district for the company) were never on, and were only activated by the cashiers if "something suspicious" was happening. Apparently it was "too expensive" to have them running all the time(!).

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