iStock_000001750552XSmallWhat happens when you deposit a check? What do those words that the bank employees use really mean? I’m talking about words like, “hold on your funds”, “available balance”, “P.E.G.” and more. These terms become very relevant when you receive a check from a client and you need to be certain that the check is good before writing checks on your account.

Anytime you deposit a large check you may be informed by the teller that a hold has been placed on your account. The purpose of this hold is to allow your bank to validate the authenticity of the check, so that you don’t withdraw the newly deposited funds immediately and leave the bank liable. The bank places a hold on the deposited funds until the funds actually arrive. Or do they?  It is common for holds to last from three to ten days or more.

Typically, a bank will credit an account to show the deposited funds as part of the account holder’s overall balance. However, the account holder will not be able to withdraw these funds until the hold is lifted. Generally the length of the hold is determined by several factors:

  • The source of the check. US Government checks might have a shorter hold or none at all. Personal checks or out of state checks usually have longer hold time periods.
  • Characteristics of the Account Holder. How long the account holder has held the account and the volume and history of the account all bear on the length of the hold.
  • The amount of the deposit. Larger checks receive more scrutiny.

When the bank will notifies the account holder that the funds are available to be withdrawn, most people assume that this means the check has been paid and there is no concern about the check.  In other words, the check is good. This is where those acting in good faith are injured by assuming the check was valid. Too often the go ahead and refund part of the check to the , not realizing the check is counterfeit. The money is usually wired to the alleged sender, and once wired, the money is not coming back.

P.E.G. stands for prior endorsements guaranteed. This means that when you endorse the back of the deposited check, you are liable for the full amount of the check if it is returned for any reason. Counterfeit checks are always returned; some in two weeks and others in two years. If you unwittingly deposit a counterfeit check in your bank account and wire a portion of the funds elsewhere, guess who is responsible for the full amount? You!

If you receive a large check and the sender later requests that you wire him part of the proceeds, call a fraud investigator immediately. You need to verify that the check is good.  If you suspect that you may be a victim, call Cadfael today at (763) 694-6086.

--Cadfael.