Alrighty then, people, how many of you know the process it takes to clear a check after you write it? You in the back ? with the Post It Note stuck to your forehead. Do you know? With U.S. individuals and businesses writing about 42.5 billion checks per year, you?d think we?d have a better idea of the route they take from the time you drop it in the mail or pass it over the counter until recipient has cold hard cash in their grubby little fingers.
Let?s have a semi-random statistic. Last year, the average American household wrote about 12 checks a month.
Here?s the life of a check:
1. You go shopping for a shiny new iPod and write a check from an account you have established with the financial institution of your choice.
2. The store deposits the check with its bank. The store, bank, or Fed prints a magnetic strip in the lower right hand corner of the check to make sure the store gets credited with the proper amount.
3. The store?s bank sends the check to either a Federal Reserve bank or a private (correspondent) bank. About one-third of all checks are cleared through the Federal Reserve system.
4. The Federal Reserve bank runs the check through its sorting machines.
5. After the FR processes the check, it is sent back to the to the depositing financial institution to credit or debit the customer account.
6. There is a short period of time called ?float?, between which the store?s bank is credited and your bank is presented with the check. During the ?float? period, both banks have the funds available to them.
7. The transaction shows up on your monthly statement.
There you go. It?s that simple and that complicated. You can no longer claim check ignorance.
The Young Wealth Team