Cheque Clearing Cycle

With effect from 3rd December 2007, the Office of Fair Trading (OFT) will introduce a new ‘customer promise’ that aims to clarify the banking industry’s cheque clearing cycle.

The OFT customer promise
In summary the OFT customer promise will clarify:

  • when you will start to earn interest on a cheque deposit;
  • when you can withdraw against the cheque deposit, and;
  • when a cheque can no longer be debited from your account without your permission (cheque clearance in this instance is known as ‘certainty of fate’).

The maximum cheque processing timescales set out by the OFT customer promise are as follows: OFT Customer Promise Maximum Timescales

T = Transaction day The day a cheque deposit will appear as a credit on your account.
T + 2 = Transaction day plus 2 clearing days The day you will start to earn interest on a cheque deposit. Or, the day the value of the cheque deposit will start to reduce the interest charged on your overdraft.
T + 4 = Transaction day plus 4 clearing days The day you can withdraw against the cheque deposit in your current account.
Until ‘certainty of fate' is reached a cheque can still be returned unpaid and the deposit removed from your account.
T + 6 = Transaction day plus 6 clearing days The day you can withdraw against the cheque deposit in your savings/ deposit account.
T + 6 = Transaction day plus 6 clearing days The day the cheque deposit receives ‘certainty of fate' and can no longer be debited from your account without your permission.
Cheques deposited after 4:30 or via the Post Office will be subject to one day's delay. Cheques paid in at the post office can take upto 15 working days to appear on the account before clearance starts.

For postal deposits, T is the day the cheque is received by the financial institution and credited to the account.

 

Please note: Clearing days are equivalent to business working days and do not include weekends or bank holidays example – if T is Monday then T+2 is Wednesday or, if T is Friday then T+2 is Tuesday. There may be limited circumstances beyond our control, where payment or non payment of a credited cheque may be delayed or not presented. For example – if the cheque is involved in a fraudulent situation.

What this means to you

It is unlikely that the OFT customer promise will have any direct impact on the way you operate your account but we would like to specifically draw your attention to the following points:

  • From ‘certainty of fate’ you are assured that the value of a cheque deposited on your account is yours.
  • Should you wish to place a stop on a cheque that you have issued, you have up to 3pm on the day the cheque debits your account to do so.

Example

Day Working day Customer Promise Example
Sunday     Mr Cook sold his car for £2,000 and was paid by cheque.
Monday Day 1 T At lunchtime, Mr Cook went to the bank and paid in the £2,000 cheque, which showed as a credit in his account.
Tuesday Day 2    
Wednesday Day 3 T+2 Mr Cook starts to earn interest on the £2,000.
Thursday Day 4    
Friday Day 5 T+4 Mr Cook withdraws £100 of the £2,000, leaving £1,900 in his account. He could withdraw all of the money but he chooses to wait until after T+6 when he has greater certainty.
Saturday      
Sunday      
Monday Day 6    
Tuesday Day 7 T+6 At the end of the day, Mr Cook has £1,900 in his account. He can now be sure that the money will not be returned unpaid.
Wednesday Day 8   Mr Cook withdraws £1,900 and uses the money as a deposit for a new car.
Note: If Mr Cook was found to be a knowing party to fraud, then the original cheque deposit of £2,000 can be taken from him at any point.