Cheque "clearance" - where does your money go?

PJD

Say I transfer money from my current account (Scabby-Abbey), to my Savings account (ING-Direct), - like a cheque, my money will spend five days in no-mans land.

But where is my money during this time? Does it spend 2.5 days with Abbey, earning them full interest? And then 2.5 days with ING, - earning them full interest?

How has this practice remained to be legal for so long? It doesnt make sense.

Madiba_2

http://payontime.co.uk/collect/collect_cheque_clearing.html

Might not fully answer your query, but the best people to ask would be Abbey themselves. They are a useless bunch of Indians, but they're still the bunch you'll need to ask for your situation.

Milarky

This explains nicely why the funds are only taken from the payer's account after two days (effective on the third day). This compares directly to the current BACs cycle, with day 'two' being the date of reconcilation in both cases. With cheques however, the difference is (in essence) that the transaction is 'pulled' (that is, initiated from the recipient's end) when a cheque is used whereas the transaction is 'pushed' (intiated by a payment from the account of the payer) whenever BACS is used. Because a 'push' won't commence unless the payer's bank allows him (from his own cleared funds) to cover this payment, BACS payments once started are guaranteed whereas cheque payments aren't - the transaction is initiated without knowledge of the funds in the payer's account.

For the first two days the payer keeps the value of their cheque, the banks do not benefit during this time. The exception is where you ask for a banker's cheque yourself, and they write you one but immediately debit the funds from your account to cover it. In that case (of a Bank initiated cheque, if you like) you get no interest and neither does the payee for the full period of time it takes to give them the cheque, for them to bank it (often not the same day) and for the cheque 'clearing'/'credit' cycle to work through.