What Are Holdovers?
Let me explain holdovers to you directly: in finance, they refer to transactions, usually checks, that haven't been processed yet. These days, if a check is held as a holdover, it typically doesn't last more than one business day.
You should also know that holdover can mean a tenant who stays in a property after the lease expires, making them subject to eviction.
Key Takeaways
Understand this: holdovers are simply transactions banks haven't processed. The classic example is a check received too late in the day, so it gets deposited the next business day.
This leads to holdover float, where money shows up in two accounts at once temporarily. Banks correct this quickly once they process the checks.
Be aware, though, that holdovers can enable illegal activities like floating bad checks or kiting.
Understanding Holdovers
Here's how holdovers happen: banks often can't process all payments before the business day ends. You'll see this more in large clearinghouse banks, and it's not the same as holds on out-of-state checks.
For example, if you deposit a bunch of checks late in the day, the bank might hold them over and process them the next day.
Special Considerations
When holdovers occur, the bank gives you a deposit ticket dated for the day they received the checks. But this creates holdover float, with funds duplicated briefly in both accounts.
To handle this, some banks post a debit to your account and zero it out the next day. If you cause holdovers often, they might make you sign an agreement or just refuse them, telling you it'll process tomorrow.
Important Notes
Banks only allow holdovers for customers with good credit. Examiners check that holdovers get processed the next day and debits are cleared regularly.
Holdover Timing
Holdovers aren't common at single banks, but across the system, they're frequent. The Federal Reserve notes more holdover float on Tuesdays from weekend backlogs.
It's highest in December and January due to holidays, and events like bad weather can cause them too.
Warning on Fraud
Scammers use holdovers for fraud, like check kiting with bad checks across accounts.
Reducing Holdovers
Holdovers give banks 'free' funds temporarily, so the Monetary Control Act of 1980 set rules to minimize them, like charging for manual processing and pushing electronic networks.
This speeds up check handling and cuts float time.
What Does Floating Mean in Banking?
In banking, float is uncleared payments counted twice. It's regulated heavily, and misusing it is fraud.
What Are the Risks of a Floating Check?
A floating check is written but not cleared. Banks advance funds quickly now, but if it's bad, fraudsters can withdraw or buy during the float, costing millions in scams like kiting.
Is Floating a Check Illegal?
Yes, in most U.S. states, floating a check for fraud is illegal, though a simple bounced check isn't.
What Is Concentration Banking?
Concentration banking is when a main bank branch collects funds from satellites to handle payments and transfers.
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