How Does Cheque Clearing Work?

by , Last Updated: 17 October 2014

We investigate the process behind clearing a cheque to find out exactly how it works - and why in the world of instant technology it can still take so long.

Pen And Cheque

It's clear from their declining acceptance as payment on the high street that cheques are gradually falling out of use, and perhaps soon will be a thing of the past.

After all, in the world of electronic transfers and instant payments, what relevance can pieces of paper that take days to clear really have as currency?

For now though at least cheques are still used as a method of payment, whether in business transfers, a birthday present from your Gran, or for other reasons.

But the way in which cheques are cleared remains a mystery to most of us - and even more intriguing is exactly why it does take days for a cheque to be processed. We take a look at how cheque clearing works.

Paying in your cheque

When you are given a cheque as payment you'll have to visit your local bank to pay it in. Many banks have paying-in machines nowadays that will electronically read the data of your cheque and hold it for processing. Otherwise, the more old-fashioned visit to the bank teller is still an option.

On the same day that you pay the cheque in its details will be registered with your bank, as well as the bank that the money is coming from.

You will usually be able to see the funds payable to you as an entry on your statement on the same day, but this doesn't mean the money will have hit your account yet. At the end of each working day all the paid-in cheques are rounded-up and sent to a clearing centre.

The next day

Your cheque is now sitting at a clearing centre waiting to be sorted. On the day after you paid it into your bank the cheque's sort code, account number, serial number, and amount are captured from the code-line that runs along the bottom. These details are sent electronically to the bank on which the cheque is drawn.

Your cheque is then sent off to an exchange centre, where it is picked up by the bank that the money is coming from.

The third day

Most banks will begin to pay interest on your paid-in funds two working days after you have deposited your cheque (although a few banks start paying interest from the day you deposit).

At the same time the amount debited from the account at the paying bank will show as an entry on any statements generated. At this point it's still possible the cheque could bounce, or there could be some technical error with it that requires it to be returned (such as a missing signature).

The fourth day

Four working days after paying your cheque in to your bank, you will be able to withdraw funds. But it is not until the sixth day that you can be certain the cheque will not bounce and is in your account to keep.

Cheque clearing is carried out by the Cheque and Credit Clearing Company who in 2007 updated their clearing system to the above criteria, calling it the 2-4-6 system. 2-4-6 indicates the two days until the money is earning interest, the 4 days until you can withdraw, and the 6 days until you can be sure that the cheque funds have been applied to your account.

So why does it take so long?

The main reason that cheque clearing still takes up to 6 days upon first paying in the money is that cheques are physical pieces of paper. Unlike money that can be moved electronically, cheques must be actually handled - picked up, delivered, received, and manually checked.

It is for their nature as pieces of paper that they can't be processed instantly - instead they require this lengthy system of checking, verifying, and moving around the country.

Of course there is the argument among cynics that the only reason cheques take so long to clear is because of the interest banks earn while thousands of cheques hang in limbo every day. But the new 2-4-6 system does at least quell this a little, by guaranteeing you start earning interest on your paid-in money 2 days after depositing.

If you want to know exactly how long your cheque will take to clear after any given paying-in date, you can use this Cheque Checker to find out when you can expect the money to be yours.

Simply enter the date you paid the cheque in, the kind of account you paid it into, and you'll be given an exact timescale for interest earned, withdrawals allowed, and final clearance.

Responses

add your response here

I was about to pay off the remaining balance of a " Buy Now - Pay Later " agreement with Creation Consumer Finance Limited. When I read the clearance time for cheques, I was amazed to see 3 weeks! Can this be possible?

by Acola, 25 Mar 2013

Interesting article but it fails to address the real issue. In the good old days cheques took 3 days to clear (always).
Now we simply accept that the goal posts have been moved and the system takes longer.
Initially it would be easy to make the mistake of thinking that this is due to improved transport and increasing volumes. But as the article correctly points out the volumes are down. Communication and checking of signatures etc. can be done much more quickly now with the internet and instant global network access.
Truth is the banks can sit on your money for as long as they like as, despite the massive problems they have caused for the global economy in the recent past, they remain a law unto themselves.
Also we must remember that the credit and cheque clearing company are little more that a cartel for the major clearing banks.
It will only get worse if we continue to accept it as the norm, because it's not!

by TheProphet, 14 Jun 2013

Talking about the 'good old days', I worked in a bank 22 years ago and it took less time then to clear a cheque than it does now! I still don't see how this 6 day rule works. The cheque will be at its own branch by day 4 and the signature and other details can be checked that morning. Bearing in mind cheques are a rarity these days, it can hardly take long to carry out these checks. The bank I worked in held a local authority account, which meant thousands of cheques being processed everyday, as well as personal cheques. How the system can now take longer, with less transactions is beyond me.

by shopgirl, 10 Jul 2013

None of above are wrong, but apply to foreign cheque. Barclays bank debited the whole amount of unpaid cheque 8 days after paying in the cheque. I made a complaint, but being told that none of above rules apply to Euro cheque, although I only have accounts in the UK, and used a branch in the UK. I am British citizen, so deal with businesses in Ireland. The banks quite often explain cheque clearance system, but never say it doe not apply to foreign cheques even when you pay in the cheque...

by Jonaissance, 13 Aug 2013

Its a scam by the "Boys club of banks" to get more money to cover up their own failings from everyone, especially the people at the bottom of the pile who need it more than anyone.

by ozzo, 24 Aug 2013

Santander state in there terms and conditions that paid in cheques can not be drawn on for five working days. Is this against the agreed banking rules. They told me the extra time is because they don't have their own clearing house. Clearly an unsatisfactory response having read this article.

by accountant, 4 Jan 2014

I am astonished to know that in UK a cheque takes so many days to clear. Here in Pakistan if you deposit a cheque before 1 pm in your account you can get clear funds by 4:30 pm on next working day. However cheque which requires clearance from other city (main cities) may take 2 to max of 3 working days. This all is achieved through central clearing house known as NIFT (National Institutional Facilitation Technologies)

by skywalker165, 22 Jan 2014

I am astonished to know that in UK a cheque takes so many days to clear. Here in Pakistan if you deposit a cheque before 1 pm in your account you can get clear funds by 4:30 pm on next working day. However cheque which requires clearance from other city (main cities) may take 2 to max of 3 working days. This all is achieved through central clearing house known as NIFT (National Institutional Facilitation Technologies)

by skywalker165, 22 Jan 2014

ALL banks are LIARS, THIEVES and FRAUDSTERS and the simple fact is that ANY way they can make money out of you, illegal or otherwise, they use it and with impunity.

6 June 2014, NATIONAL RUN ON BANK DAY. EVERYONE withdraw their money, lets take these scumballs down.

by Siliquaesid, 27 Mar 2014

I take it youve seen the classic "its a wonderful life"? whilst i understand that sentiment, such action would, if successful completely destabilise the economy and cause massive problems for the whole of society. We live in a delicate ecosystem where you can no longer just "take down" something you dont like. Shops, businesses and people with loans would all have them recalled to make up for the withdrawals!!!!! The answer is to fix and make institutions accountable. Anarchy does not work and if you did tear something down whats to say what we put in its place would not be worse?

by S1MARSHA, 27 Mar 2014

And the scum at the banks KNOW this which is why they do what they do.

I agree it would cause problems short term but that is only because we are sold on the lie that those worthless bits of paper we call money actually have some value. If we went back to money being worth something tangible like silver or gold then things would soon be OK.

Let me put this to you, if you own a grocers and need something fixing, I'll do that for a bag of mixed vegetables. Fair? Barter, it's the ONLY way forward, once the economy collapses, and it will, those who have skills and can actually DO something useful will be the ones who survive (Farmers, Engineers etc.) lawyers will soon die out as will bankers as they are inherently not very clever when it comes to practical things. The only thing they will be good for with all that worthless paper is starting fires to cook them on ;-))

by Siliquaesid, 27 Mar 2014
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