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What Is Check Clearing?

Check clearing refers to the time that a bank needs to process a check that has been used for payment. Unlike cash, check payments or deposits are not immediately reflected in the account as available. The amount will reflect as existing, but will not be available for withdrawal until the clearing time has passed. Check clearing will depend on the bank and the country.

A person or institution is the one who issues a check to another entity. In order to issue a check, they have to have a current account - also called a checking account. The funds that will be used to pay the amount cited in the check will be taken from this account. The issuer needs to make sure there are sufficient funds in the account, otherwise one of two things can happen. One situation is for the check to bounce; that is, the bank will not honor the check and the issuer will have to pay a fine. This is also termed an overdraft Another situation is that the bank will pay the amount, but this only applies if the account has overdraft protection. This usually comes with a service charge as well.

Overdraft charges will vary depending on the bank, but in general, they can be considerable. Banks do tend to rely on overdraft charges - among other charges - and thus, you need to make sure that your account can handle all the checks that you issue. It is imperative that you ask your bank about the check clearing time.

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