Table of Contents
Floating a check occurs when a person writes a check for more than they have in their account while waiting for an incoming deposit that will cover the shortfall. Behind the scenes, what check floating means for banks is that money may be counted twice for a period of time.
While this may not sound like a major issue, it can actually lead to problems such as incorrect accounting, overdrafts (and the resulting fees), and, in a worst-case scenario, criminal activity. Take a closer look at what floating a check is and its dangers.
Key Points
• “Floating a check” refers to writing a check for more than you have in your checking account, anticipating you’ll have enough in your account by the time the check clears.
• The float refers to the time period after a check is deposited when the same funds appear to be in both the payee and payer accounts.
• Floating a check relies on the fact that it can take banks a couple of days to fully process a check.
• Banks may charge hefty fees for overdrafts if the account lacks sufficient funds when a check is processed.
• To avoid the risks associated with floating checks, maintaining a cash cushion in the account is advisable.
What Is “Floating a Check”?
Floating a check involves writing a check for more than you have in your bank account, anticipating that you’ll have enough funds for the check to clear when it’s actually deposited. This differs from bouncing a check in that check floating is typically done intentionally to take advantage of a period in banking when funds are in limbo.
To break it down a bit more, consider the following:
• When you write a check, the amount isn’t immediately removed from your checking account. The funds still appear as available. After all, if you write a check to someone, it may be a while before they deposit the check.
• The float period begins when a check is deposited. The amount is likely to be reflected in the depositing account holder’s balance, although the full amount may not be accessible yet. It still may take several days for it to be processed and cleared through the banking system. During this time, it’s considered an outstanding check.
• At the same time that the check amount is reflected in the payee’s account, it may still appear in the payor’s account until the check is fully processed and the funds are removed. The time period between when a check is deposited and when the funds are actually debited from the payer’s account and settled through the banking system, when the money can appear to be in two places at once, is called the “float.”
This “float” period can create problems for the payor, payee, and financial institutions, which you’ll learn more about below.
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Check Floating vs Check Kiting
It’s important to understand the difference between check floating and check kiting, both of which are illegal when used fraudulently. When people or businesses try to take advantage of the float period and appear to have more money than they actually do in order to defraud others, it can be considered a criminal activity.
Check kiting, which is a crime, is the act of intentionally writing bad checks when you know you don’t have the funds for the check to clear, nor do you expect to.
Check kiting typically takes advantage of the bank’s float period. Here’s one example:
• A person has Bank Account 1 and writes a check to themselves or another scammer to deposit in Bank Account 2.
• The check from Account 1 is for more than is on deposit, but it gets credited to Account 2 since the receiving bank doesn’t yet know this.
• The nonexistent funds in Account 2 may then be used to cover another bad check, and these steps may be repeated.
• By the time the bank finds out that the checks have bounced, the scammers have made off with the funds.
As you might guess, this is illegal, and a person may be prosecuted for check kiting.
Dangers of Check Float
Check floating in and of itself may not be illegal in many cases, such as when a consumer believes they will have funds available in time for the check to clear. Nevertheless, there are a few things that both consumers and financial institutions should be aware of.
For Consumers
A common danger of check floating for consumers is the risk of overdrawing your account if you’re the one issuing the check.
If the funds you were expecting to cover your floated checks get delayed, this can lead to overdrawing your account and paying bank fees for having insufficient funds.
Floating a check gets even more complicated if you have multiple outstanding checks. Outstanding checks are generally not subtracted from your account’s available balance until they’re deposited, processed, and cleared. This means your account balance may seem higher than it actually is. If you spend the money needed to cover your outstanding checks, you may not have enough money in your account once the checks have been processed to your account, even if the deposit you were counting on for your floated check comes through.
You might pay as much as $35 for an overdraft or NSF fee, despite the Consumer Financial Protection Bureau’s efforts to reduce these fees. If a merchant receives a bounced check, it may also charge you $20-$50 in returned-check fees. If you bounce a few checks, those charges can add up quickly.
Recommended: How to Avoid Overdraft Fees
For Financial Institutions
Consumers aren’t the only ones who have to worry about check floating. Many banks, credit unions, and financial institutions have to deal with the challenges of check floating, and often on a much larger scale. Obviously, it takes time, effort, and expense to deal with checks bouncing and being returned.
If a financial institution discovers that one of its consumers has been taking advantage of the float period, it might close the account. If it finds evidence of illegal activity, such as check kiting, it would likely turn the case over to the local authorities.
How to Manage Check Floats
The best way to manage check floats is to make sure that you always have enough money in your account to cover any checks that you write. If you have both a checking account and a savings account that are linked, you could move money from your savings account into your checking account when you write a check, for example. That way, you lower your risk of depleting your checking account balance and being charged a fee for having insufficient funds.
Reducing Check Float With the Help of Technology
Another way to reduce check float is through the use of technology. Electronic checks and other forms of online payments can help reduce the amount of time that it takes for money to move from one account to the other. That can help you hold yourself accountable and make sure you aren’t transferring out more money than you have on deposit.
In fact, the growth of electronic payments has made check writing and check floating less common than in the past.
Recommended: How to Transfer Money From One Bank to Another
The Takeaway
Check floating refers to a person writing a check for more than they currently have on deposit while expecting more funds to come in. The float is the time between when a check is deposited and reflected in the payee’s account and when the funds are removed from the payor’s account. The practice of check floating can lead to bounced checks and significant fees. It’s considered good financial practice to make sure you always have sufficient funds in your account to cover any checks that you write.
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FAQ
Is it illegal to float a check?
A check’s float period simply refers to the time between when a check is deposited and appears in the payee’s account and when the money is withdrawn from the payor’s account. Floating a check isn’t typically illegal, though it may be in some cases. However, intentionally writing a check drawn on a bank account that doesn’t have enough money to cover the check, with the intention of profit, may be considered check kiting, which is illegal.
What types of checks clear immediately?
Nearly all checks take some amount of time to clear, though the exact amount of time depends on the type of check and the policies of the bank in question. Cashier’s, government, and certified checks clear the fastest, sometimes on the same or next business day. Checks deposited with the same bank that they were written against also usually clear quickly.
How long can you float a check?
The float period, or the time between when a check is deposited and when the funds are actually deducted from the payor’s account, can vary somewhat. It’s possible for checks to clear on the same business day that they’re deposited, in some instances, or the float period may take several days. It’s good financial practice to always make sure you have enough money in your account to cover any outstanding checks you have written.
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