How does cheque clearing work?

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.

Updated on 19 May 2015.

A man writes a cheque

It is 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.

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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.

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