Say you’re 10 and just had the most awesome lemonade-stand sale ever! You now have $20 to do whatever you want with, and you plan to use all $20 for that joke book you saw at the toy store. Now you just need mom or dad to take you to the store.

Little girl with a lemonade stand

Mom says, “I’ll take you next week.”  Dad says, “I can’t today, but I’ll try to work it in tomorrow.”

You’re devastated. After all your work, you won’t be learning any new jokes today.

That might be how you feel when you deposit a check only to be told by the teller, “We’ll need to put a hold on this money.” All you heard was, “You can’t spend this money right now.”

This article explains why banks sometimes put hold on deposited funds, and how you can navigate these situations like a lemonade stand entrepreneur.

What are Check Holds?

A hold on a deposited check is a temporary delay before money is available for withdrawal from your account.

Caeri Chiaro, vice president, senior compliance manager, explains that regulation and industry standards guide why and when banks can place holds on deposited funds. Regulation CC (commonly known as Reg CC) sets the rules for when and how long banks can hold funds. Think of it as the government’s way of ensuring a fair game for both customers and banks.

Protecting You and the Bank

Why rules? Well, it’s about protecting you and the bank from potential risks, says Caeri, especially with check fraud on the rise. “If we can verify funds are available for a check, we can release it right away. However, most banks will no longer verify checks for other banks. Therefore, we have to send the check through the Federal Reserve and to the drawing bank before it can be verified. If the check does not clear the other bank, those funds are removed from the receiving customer’s account and INB is not liable for those funds.

“That means, if a customer presents a check for $10,000 but has only $500 in their checking account at the time of deposit-- and the bank allows them to immediately take $8,000 in cash from the check presented -- they will have $2,500 remaining in their account. If the check is returned for any reason, the customer account will be debited for the check amount ($10,000). The account will then be overdrawn $7,500, and the customer could incur overdraft or other fees.”

Caeri continues: “To avoid this difficult situation, INB places a hold on the check when it’s presented. The customer will have access to the amounts required by regulation, but the additional funds are held until the check clears the Fed and the other bank. Once that happens, the full amount of collected funds are posted to the customer’s account.”

Think of it this way: if someone hands you a check for $100, but there’s only $10 in their account, you’d want to make sure that check is legit before spending it, right? Banks do the same thing, ensuring funds are available before releasing them to you.

Navigating Holds: Tips From the Pros

While holds might feel like a lemonade stand rainout, they benefit you by preventing potential fees if a check bounces. As noted before, it’s all about protecting your financial interests.

Natalie Cain, AVP, branch manager at our South Sixth branch, says new accounts, large deposits, and repeated overdrafts are just a few reasons why a bank might put a hold on funds. The holds aren’t meant to ruin your day; it’s about ensuring financial safety for everyone involved.

“The Federal Reserve has set guidelines for check deposits that all banks must follow,” Natalie says. “A check hold can typically range anywhere from 2-7 business days, depending on the reason for the hold.” Natalie explains that if you deposit the check in branch, in person, you will receive a hold notice with an explanation of when the funds will be available. If we need to place a hold after a customer leaves, we will call the customer and mail out the hold notice that day.

Natalie says customers don’t typically ask about a hold unless they are bringing in a large check to deposit. “At that time,” she explains, “we will review their account relationship and the check being deposited and then determine if we need to place a hold.”  If the customer doesn’t want a hold placed, we will offer alternatives such as giving the check back and letting them know they could take the check to the bank it’s drawn from or go back to the person who wrote the check and asked to have it changed to a wire or ACH transaction. These digital payment types provide immediate access to funds.

Misty Shaw, AVP, branch manager at our North Dirksen location, acknowledges that digital banking brings up more reasons a mobile deposit could result in a check hold. “There are limits as to how much can be deposited through the mobile app. If the check is not endorsed correctly or made out to someone who is not on that account, the check could be rejected, and the customer may have to bring the check to the bank. Also, digital banking can sometimes tell when the check looks fake and reject the deposit.”

So, what can you do to avoid holds and their ramifications? Misty and Natalie recommend staying informed, managing your spending to take holds into consideration, and opting for electronic transactions whenever possible. And, Misty adds, never deposit a check you weren’t expecting because it is likely fraudulent and, even if the transaction appears to have increased your checking account value when you make the deposit, the funds will be likely be removed once the fraudulent check enters the banking system.

If you have questions on holds, don’t hesitate to ask someone on our branch team.

In Conclusion

Just like waiting for your lemonade stand profits to buy that joke book, navigating bank holds requires patience and understanding. By knowing the why and how behind holds, you can tackle these situations like a savvy entrepreneur.