What Happens When You Write A Check?

If you’re like most people, you write 240 checks a year — and probably take the whole process for granted. When you add your checks to those written by everyone else in the country — about 50 billion annually — it’s an amazing story how the money actually goes from your account into someone else’s.

If you’ve ever wondered about the journey your check takes, here’s how it happens:


The Players

There are really two kinds of banking institutions involved in the story of your check’s journey.

The first is your own financial institution and hundreds of those like it around the country, whether it’s a bank, savings and loan association or credit union. These are privately owned businesses and form the grassroots level of America’s banking system.

The second kind of player is the Federal Reserve. One of the functions of Federal Reserve Banks is as check clearing and collecting centers for the local financial institutions that you and everyone else in the country deals with. You, as an individual, will never come into direct contact with them, but your financial institution deals with them on a daily basis. You can consider them as banks for banks.

The Federal Reserve Banks, which were established in 1913, streamlined the check clearing and collecting system in the United States. Today, with computerized banking, they still function as the hubs of a vast financial network that transfers billions of dollars of funds across the US daily. There are 12 regional Federal Reserve clearing/collecting centers across the United States.


Your Check’s Journey

Let’s say that its the start of your first year of university. You live in Ohio, but the school you’re planning to attend is the University of Florida. You send them a check for your tuition fees.

  1. You write a check and mail it to the Registrar at the University of Florida in Gainesville, Florida.
  2. When the Registrar’s office receives your check, they deposit it in their bank account at Barnett Bank.
  3. Now the check goes from your private banking institution — Barnett Bank — to the regional Federal Reserve Bank. Florida’s regional Federal Reserve Bank is in Atlanta. When your check arrives at the Atlanta Federal Reserve Bank, it is deposited into Barnett Bank’s account.
  4. Next, since Florida and Ohio are in two different regions, the check must travel from one Federal Reserve Region to another. Atlanta’s Federal Reserve Bank sends it to the Federal Reserve Bank Cleveland.
  5. You guessed it. The check travels from the Cleveland Federal Reserve Bank to your own bank. There, the amount of tuition is deducted from your checking account.
  6. The check’s journey isn’t finished yet. The money still has to come out of the accounts down the line until it reaches Gainesville. The Cleveland Federal Reserve Bank deducts the amount of the check from your bank’s account with the Federal Reserve and pays the Atlanta Federal Reserve Bank for the amount of your check.
  7. The Atlanta Federal Reserve Bank adds the amount of your tuition to the Barnett Bank, where the University of Florida banks.
  8. Barnett Bank adds the amount of your tuition to the University of Florida’s bank account.

It used to be that this process could take a week to ten days, which is why often banks would (and often still do) put holds on checks you deposit to your account. Today with computerized banking, the whole process goes a lot faster, which is why often the check you write is cleared in a day or two. But there are still many steps from the time you write a check until it’s paid. Checks written to individuals and merchants within your Federal Reserve region take less time to clear than those written to those across regions, because a second Federal Reserve Bank isn’t involved in the process.

There are several reasons why the payment of checks can be delayed or denied, including the check being completed improperly or there not being enough funds in the account to cover the amount of the check.

However, recent changes to check processing systems have made the clearing of paper checks much faster than it used to be. These changes are known as “Check 21” and they amend the Expedited Funds Availability Act. You never know how quickly the check you write will actually be debited from your account. Certain businesses may even take your paper check and clear it electronically – instantly. They will tell you if they are doing so. So, make sure the money is in your account before you write any check.


What’s All That Writing On Your Canceled Checks

These days, to save money, most banks don’t return your canceled checks to you, but occasionally you may get a chance to look at one. You’ll probably notice computer printing all over the front and back of the check. These are is a series of numbers printed in magnetic ink so that check processing machines can read them. The numbers on the front of the check tell the machine:

  • The bank’s Federal Reserve district
  • The bank’s identification number
  • The customer’s account number
  • The check number
  • The amount of the check.

On the back, below the space for the endorsement, is:

  • The identification number of the district for the Federal Reserve Bank where the check was first deposited
  • The identification number of any other bank that handles the check.


Viewing Your Canceled Checks

Once the funds have been paid, your bank automatically sorts and sends them to those customers who requested their canceled (paid) checks with their statement. Usually customers pay an extra fee for this service, but canceled checks can assist in record keeping and reflect proof of payment. Most businesses retain them as part of their tax records. Depending on the services offered by your bank, you may be able to look at your canceled checks on-line.


Funds Availability

If you’ve every wondered why your bank holds out of state checks for several days, now you know. Because the check is routed through many steps and actual payment on the check may take several days, most financial institutions have a “Funds Availability” policy. This policy differs from bank to bank.