By Effie Zahos, Money Magazine, April 2007
Most of us fume because we have to wait three days for a cheque to clear.
With all the whiz-bang computer technology out there, Money reader Glen Cozens raises a very good point: "Just why does it take banks three days to clear a cheque?" And I want to know why bank cheques remember they can only be purchased with cleared funds are treated like regular personal cheques, needing three days to clear too.
Okay, we have come a long way from 1999 when banks needed a whole five days to clear cheques, but is there room for improvement?
"Cheques are still a paper-based payment instrument," says Westpac.
So even though banks are able to electronically submit some information about a cheque, it still needs to be delivered physically to the drawer's institution for security and fraud prevention.
"Cheques must be physically presented to the institution on which they are drawn to make a demand for payment," says the Commonwealth Bank. "The drawee institution then must make a paid or dishonour decision on the cheque, after looking at things such as the authorised signatory on the account. If dishonoured, this must be communicated to, and value returned to, the deposit institution."
A cheque can be dishonoured if it has been stopped by the payer; is forged; has been materially altered; is reported lost or stolen; or is subject to a court order restraining payment.
So if you deposit a cheque on Monday, funds will normally be available on Thursday at the latest, instead of the following Monday. But there is a way of getting your hands on the cash faster. It all comes down to what you're willing to pay. In most cases, if you're prepared to spend around $15, you can request a "standard" special clearance. This should get you an answer by 5pm the next working day.
If you're prepared to spend a little more, around $70 per hour plus out-of-pocket expenses, which could include the banker's cab fare to personally take your cheque to the issuing bank, you could get an immediate clearance.
"There is [with special clearance] a significant demand on the bankers' time," says National. "It takes considerable effort to process clearance in this manner. The fee applied reflects the cost of providing this service to our customers.
"When you consider that a member of staff has to leave their usual workplace to attend to these requirements on behalf of the customer, the fee is neither unreasonable nor disproportionate."
There are no clearance favours when it comes to bank cheques. Just because you spend up to $10 buying one and you need cleared funds to get one doesn't mean they're treated like cash.
"The clearing cycle is the same," says National. "While bank cheques are generally perceived by the community as guaranteed for payment, the reality is they too can be stopped or dishonoured."
One advance with bank cheques is that some institutions now allow their customers to purchase them online. ANZ, for example, charges customers $7.50 to purchase an online bank cheque.
Not only does this save ANZ customers a couple of dollars but, because they can direct ANZ to send their bank cheque to the payee, they save a lot of time too. The good news with cheques, whether bank or personal, is that when a cheque is deposited to an account, you can expect to earn interest on the higher balance even before the funds are cleared. This wasn't always the case.
For the complete story see Money Magazine's April 2007 issue. Subscribe now.