“I received an insurance claim” – why does it take 5 days for my check to clear?

Dear Quentin,

I have a banking question for which I would like further clarification. I received an insurance check for $22,000, credited to a Bank of America account.

Tuesday morning I deposited the check into my bank account. But none of the funds will be available for five business days.

Why does it take so many days for an internal transfer of funds “from your branch to my account”? Besides verifying the availability of funds, what happens that takes five days?

Curious customer

“Checks are an antiquated payment method and rely on more archaic processes to clear.”

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Dear curious,

Given that settling an average insurance claim can take anywhere from 30 days or more for auto insurance to nearly five months for homeowners insurance, I assume your question about whether your check takes five days to be cleared either because a) you’re simply curious about the mechanics of paying by check or b) you’ve waited so long at this point that the last few days seem more torturous than the previous months.

When a bank takes time to process a check, it does so to ensure its validity. Controls are ripe for fraud. In fact, the Better Business Bureau recommends signing checks with black gel ink, which it says is harder to tamper with than regular blue or black pens. “The Crown” actress Claire Foy recently refused to sign an autograph in blue ink; some experts argue that blue biro is easier to scan for nefarious purposes, while others argue that such concerns are overblown.

Checks are an antiquated payment method and rely on more archaic processes to clear. “We expect the referenced check to have been blocked,” a Bank of America spokesperson told MarketWatch. “You can place a hold on a check for a variety of reasons: the amount of the check, concerns about the validity of the check, etc. The hold allows us time to research and verify the check, including contacting the issuer of the check if necessary.” Read more here.

Paper checks rely on a legacy network

Paper payments rely on a legacy network to process and return checks. For example, it can take three to eight weeks to get an income tax refund. The paying bank has a certain amount of time to verify that the check is valid and authorized. If the check is not payable, it is returned and the bank is not notified until the check is returned. It would be unwise for the depository bank to withdraw money based on the amount of the check before its validity is established.

Federal law also allows the bank to hold a portion of the money for a period of time, depending on the type of check and the amount. For a check like the one you receive from your insurance company, banks generally must make the first $5,525 available by the second business day after the “bank day” of deposit, although there are exceptions that allow you to hold the first $5,525 longer. An amount greater than $5,525 may be held even longer.

A common scam: Consumers are tricked into cashing a check on behalf of a third party. The scammer tells a person with a bank account in the United States that he has inherited a large sum of money, but he must deposit the amount and transfer a portion of the funds to the scammer to receive a generous commission. However, the check bounces and the customer is on the hook for the withdrawn funds. (This New Yorker story on the subject will give you goosebumps.)

What if you are a victim of a scam? Contact your bank, file a police report and place a fraud alert on your credit reports to prevent further damage from an attacker who may have access to your personal data. Even if you are lucky enough to get your money back, it could take months. This, I hope, puts your five-day wait into perspective. Congratulations on receiving your $22,000 insurance payment. Whatever its purpose, I hope you enjoy putting it to good use.

You can email The Moneyist with any financial and ethical questions at qfottrell@marketwatch.com and follow Quentin Fottrell on X, the platform formerly known as Twitter.

Watch the private Facebook Moneyist group, where we seek answers to life’s thorniest financial problems. Post your questions, tell me what you want to know more about, or weigh in on Moneyist’s latest columns.

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Previous articles by Quentin Fottrell:

My wife and I sold our house to her son at a discount of $100,000. It is now selling at a profit of $250,000. Do I ask for a cut?

“If I say the sky is blue, she will tell me it is green”: My daughter, 19, will inherit $800,000. How can you invest in your future?

My employer only hires white managers and promotes people of “questionable competence.” Is this a good or bad time to jump ship?

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