What Is a Float Transaction at a Bank?

If you pay a bill by check you likely note it as being “Paid” in your mind as soon as you mail the check or deliver it personally. In your mind, the matter is done with. However, there is a lapse between when you make your payment and when the recipient receives the funds in their bank account. This is called the float bank transaction.

The float time refers to the period between when a check is deposited at the recipient’s bank and the funds are paid by the check writer’s bank. During this lag time, the check has not been completely processed yet. We are not at the point where these transactions take place instantly, so it is to be expected that there will be some delay in actually moving the funds from one account to the other.

In the last century, it was not uncommon for funds to take between ​two and 10 days​ to clear the check writer’s bank. The longer float times were considered normal when the check writer and the check recipient had bank accounts at different financial institutions.

Some people decided to take advantage of the situation by writing checks on accounts held by small banks in remote locations. The theory was that if the check had to travel further to get to the recipient’s bank for processing, it would take longer for funds to be withdrawn from the writer’s account. “Floating” the funds in this manner was legal, as long as there was enough money in the account to cover the amount of the check when it was written.

If someone deliberately writes a check and provides it to someone else when the writer knows they don’t have enough money to cover the amount, it is called check kiting. This is an illegal practice that runs afoul of banking laws in most jurisdictions.

Banks are particularly on the lookout for a kiting pattern where someone deposits a check and then withdraws the amount at the same time from more than one bank. The depositor does this to take advantage of the float. Since banks can now process checks more quickly than in the past, a person attempting to do this type of check-kiting is more likely to be caught now.

The Check Clearing for the 21st Century Act (Check 21) is a federal law. It gives banks authorization to deliver electronic images of checks for processing instead of transporting paper checks from one location to another. The bank can simply hold the original check for a certain time and then destroy it.

Banks are not required to process electronic versions of checks. Some types of checking accounts return paper checks to the originator for their records.

Under Check 21, an electronic copy of a check cannot be deposited into a bank account in the same way as a paper check. Some banks do allow customers to capture a digital image of a check for deposit into their checking account, using their phone. This process is called making a remote deposit.

If you are the type of person who writes checks for various expenses and finds it challenging to keep track of your balance due to the bank float time, consider applying for overdraft protection. This service will ensure that you have funds available to temporarily cover you if a check is presented for payment and you are short of money.