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What is Immediate Credit?

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  • Written By: Malcolm Tatum
  • Edited By: Bronwyn Harris
  • Last Modified Date: 22 September 2016
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Immediate credit is a process that makes it possible for checks to clear an account on the same day they are deposited. The ability to enjoy this fast clearing is typically only available if a branch of a central or government bank is located in close proximity to the bank where the check is deposited. Often, the depositor is unaware of this fast processing, especially if the bank where the check is deposited has a policy of making the funds available immediately, even though the check has not yet cleared the system.

In the United States, immediate credit of a check may be possible if the receiving bank is located near a branch of the Federal Reserve Bank. When this is the case, the usual policy of taking up to two business days to clear the deposit is waived and the receiving bank receives notice that the presented check has cleared, or that it has been dishonored due to insufficient funds or some other issue. This process can be used for certified checks and cashier’s checks as well as checks written on individual and business checking accounts.

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Since many banks do allow customers access to funds related to checks deposited in their accounts, the benefit of immediate credit is really for the bank. The ability to present the check for payment on the same day it is deposited makes it possible to obtain clearance for the funds sooner rather than later. This in turn means the bank can begin putting that balance to work immediately, in terms of investment activity that helps keep the bank solvent.

For banks that do not grant depositors immediate access to the balance of those checks, issuance of immediate credit provides what is known as remittance float. This means that the bank may receive immediate clearance of the check and begin using those assets the same day, without any concerns of depositors withdrawing those funds until the usual two day clearance period has passed.

One benefit that the customer does receive with immediate credit is same-day notification if a deposited check is dishonored. This makes it possible for the depositor to take action on the bounced check immediately, rather than having to deal with the issue after he or she has written other checks based on the belief that the check is good. By receiving same day notice that the deposited check has been returned, the depositor has less of a chance of incurring overdraft fees or having checks written on the account to bounce due to the reduced balance in his or her account.

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RocketLanch8
Post 2

I've heard of people presenting a check to a bank and asking for cash. They would then immediately deposit that cash into their personal accounts. This way the funds would be immediately available, even if the physical check took several days to clear.

mrwormy
Post 1

I'd say having immediate access to the funds of a deposited check is mostly a good thing. I've had instances where a client would present me with a check from a smaller bank and I'd have to wait several days for it to clear both banks before I could use the funds. A short float time does help small businesses that accept a lot of out-of-town checks.

However, I do remember some college friends of mine who would write checks for things on Wednesday, hoping that those unsupported checks wouldn't clear their bank until a paycheck deposit was credited first on Friday. When banks started offering immediate credit and shorter float times, some of those people got hit with overdraft charges.

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