Floating a check occurs when a person writes a check for more than they have in their account while waiting for an incoming deposit that will cover the shortfall. Behind the scenes, what check floating means for banks is that money may be counted twice for a period of time.
While this may not sound like a major issue, it can actually lead to problems, such as incorrect accounting, overdrafts (and the resulting fees), and, in a worst-case scenario, can indicate criminal activity. Take a closer look at what floating a check is and its dangers.
Key Points
• “Floating a check” refers to writing a check for more than you have in your checking account, anticipating you’ll have enough in your account by the time the check clears.
• The float refers to the time period after a check is deposited when the same funds appear to be in both the payee and payer accounts.
• Floating a check relies on the fact that it can take banks a couple days to fully process a check.
• Banks may charge hefty fees for overdrafts if the account lacks sufficient funds when a check is processed.
• To avoid the risks associated with floating checks, maintaining a cash cushion in the account is advisable.
What Is “Floating a Check”?
Floating a check involves writing a check for more than you have in your bank account, anticipating that you’ll have enough funds for the check to clear when it’s actually deposited. This differs from bouncing a check in that check floating is typically done intentionally, to take advantage of a period in banking when funds are in limbo.
To break it down a bit more, consider the following:
• When you write a check, the amount is not immediately removed from your checking account. The funds still appear as available. After all, if you write a check to someone, it may be a while before they deposit the check.
• The float period begins when a check is deposited. The amount is likely to be reflected in the depositing account holder’s balance, although the full amount may not be accessible yet. It still may take a few days for it to be processed and cleared. During this time, it is known as an outstanding check.
• At the same time that the check amount is reflected in the payee’s account, it may still appear in the payor’s account until the check is fully processed and the funds are removed. The time period between a check being deposited and the funds actually being removed from the account it’s drawn from — when the money can seem to be in two places at once — is called the “float.”
This “float” period can create problems for the payor, payee, and financial institutions, which you’ll learn more about below.
Get up to $300 when you bank with SoFi.
No account or overdraft fees. No minimum balance.
Up to 4.20% APY on savings balances.
Up to 2-day-early paycheck.
Up to $2M of additional FDIC insurance.
Check Floating vs Check Kiting
It’s important to understand the difference between check floating and check kiting, both of which can be illegal in some cases. When people or businesses try to take advantage of the float period and appear to have more money than they actually do in order to defraud others, it can be considered a criminal activity.
Check kiting, which is a crime, is the act of intentionally writing bad checks when you know you do not have the funds for the check to clear — nor do you expect to.
Check kiting typically takes advantage of the bank’s float period. Here’s one example:
• A person has Bank Account 1 and writes a check to themselves or another scammer to deposit in Bank Account 2.
• The check from Account 1 is for more than is on deposit, but it gets credited to Account 2 since the receiving bank doesn’t yet know this.
• The non-existent funds in Account 2 may then be used to cover another bad check, and these steps may be repeated.
• By the time the bank finds out that the checks have bounced, the scammers have made off with the funds.
As you might guess, this is illegal, and a person may be prosecuted for check kiting.
Dangers of Check Float
Check floating in and of itself may not be illegal in many cases, such as when a consumer believes they will have funds available in time for the check to clear. Nevertheless, there are a few things that both consumers and financial institutions should be aware of.
For Consumers
A common danger of check floating for consumers is the risk of overdrawing your account if you’re the one issuing the check.
If the funds you were expecting to cover your floated checks get delayed, this can lead to overdrawing your account and paying bank fees for having insufficient funds.
Floating a check gets even more complicated if you have multiple outstanding checks. Outstanding checks are generally not subtracted from your account’s available balance until they are deposited, processed, and cleared. This means your account balance may seem higher than it actually is. If you spend money needed to cover your outstanding checks, you may not have enough money in your account once the checks have been processed to your account, even if the deposit you were counting on for your floated check comes through.
You might pay as much as $35 for an overdraft or NSF fee (though the Consumer Financial Protection Bureau has been working to minimize this cost). If a merchant received a check that bounced, they might also charge you between $20 and $40 for the inconvenience. If you bounce a few checks, those charges can add up quickly.
Recommended: How to Avoid Overdraft Fees
For Financial Institutions
Consumers aren’t the only ones who have to worry about check floating. Many banks, credit unions, and financial institutions have to deal with the challenges of check floating, and often on a much larger scale. Obviously, it takes time, effort, and expense to deal with checks bouncing and being returned.
If a financial institution discovers that one of its consumers has been taking advantage of the float period, they might close the account. If they find evidence of illegal activity, such as check kiting, they would likely turn the case over to the local authorities.
How To Manage Check Floats
The best way to manage check floats is to make sure that you always have enough money in your account to cover any checks that you write. If you have both a checking account and a savings account that are linked, you could move money from your savings account into your checking account when you write a check, for example. That way you lower your risk of depleting your checking account balance and being charged a fee for having insufficient funds.
Reducing Check Float with the Help of Technology
Another way to reduce check float is through the use of technology. Electronic checks and other forms of online payments can help reduce the amount of time that it takes for money to move from one account to the other. That can help you hold yourself accountable and make sure you aren’t transferring out more money than you have on deposit.
In fact, the growth of electronic payments has made check writing and check floating less common than in the past.
Recommended: How to Transfer Money from One Bank to Another
The Takeaway
Check floating refers to a person writing a check for more than they currently have on deposit while expecting more funds to come in. The float is the time between when a check is deposited and reflected in the payee’s account and when the funds are removed from the payor’s account. The practice of check floating can lead to bounced checks and significant fees. It’s considered good financial practice to make sure you always have sufficient funds in your account to cover any checks that you write.
Need a bank account that helps you manage your money with less effort? See what SoFi offers.
Interested in opening an online bank account? When you sign up for a SoFi Checking and Savings account with direct deposit, you’ll get a competitive annual percentage yield (APY), pay zero account fees, and enjoy an array of rewards, such as access to the Allpoint Network of 55,000+ fee-free ATMs globally. Qualifying accounts can even access their paycheck up to two days early.
FAQ
Is it illegal to float a check?
A check’s float period simply refers to the time between when a check is deposited and appears in the payee’s account and when the money is withdrawn from the payor’s account. Floating a check is not typically illegal, though it may be in some cases. However, intentionally writing a check drawn on a bank account that does not have enough money to cover the check, with the intention of profit, may be considered check kiting, which is illegal.
What types of checks clear immediately?
Nearly all checks take some amount of time to clear, though the exact amount of time depends on the type of check and the policies of the bank in question. Cashier’s, government, and certified checks clear the fastest, sometimes on the same or next business day. Checks deposited with the same bank that they were written against also usually clear quickly.
How long can you float a check?
The float period, or the time between when a check is deposited and when it is actually deducted from the payor’s account, can vary somewhat. It is possible for checks to clear on the same business day that they are deposited, in some instances, or the float period may take several days. It is good financial practice to always make sure you have enough money in your account to cover any outstanding checks you have written.
Photo credit: iStock/fluxfoto
SoFi® Checking and Savings is offered through SoFi Bank, N.A. ©2024 SoFi Bank, N.A. All rights reserved. Member FDIC. Equal Housing Lender.
The SoFi Bank Debit Mastercard® is issued by SoFi Bank, N.A., pursuant to license by Mastercard International Incorporated and can be used everywhere Mastercard is accepted. Mastercard is a registered trademark, and the circles design is a trademark of Mastercard International Incorporated.
SoFi members with direct deposit activity can earn 4.20% annual percentage yield (APY) on savings balances (including Vaults) and 0.50% APY on checking balances. Direct Deposit means a recurring deposit of regular income to an account holder’s SoFi Checking or Savings account, including payroll, pension, or government benefit payments (e.g., Social Security), made by the account holder’s employer, payroll or benefits provider or government agency (“Direct Deposit”) via the Automated Clearing House (“ACH”) Network during a 30-day Evaluation Period (as defined below). Deposits that are not from an employer or government agency, including but not limited to check deposits, peer-to-peer transfers (e.g., transfers from PayPal, Venmo, etc.), merchant transactions (e.g., transactions from PayPal, Stripe, Square, etc.), and bank ACH funds transfers and wire transfers from external accounts, or are non-recurring in nature (e.g., IRS tax refunds), do not constitute Direct Deposit activity. There is no minimum Direct Deposit amount required to qualify for the stated interest rate. SoFi members with direct deposit are eligible for other SoFi Plus benefits.
As an alternative to direct deposit, SoFi members with Qualifying Deposits can earn 4.20% APY on savings balances (including Vaults) and 0.50% APY on checking balances. Qualifying Deposits means one or more deposits that, in the aggregate, are equal to or greater than $5,000 to an account holder’s SoFi Checking and Savings account (“Qualifying Deposits”) during a 30-day Evaluation Period (as defined below). Qualifying Deposits only include those deposits from the following eligible sources: (i) ACH transfers, (ii) inbound wire transfers, (iii) peer-to-peer transfers (i.e., external transfers from PayPal, Venmo, etc. and internal peer-to-peer transfers from a SoFi account belonging to another account holder), (iv) check deposits, (v) instant funding to your SoFi Bank Debit Card, (vi) push payments to your SoFi Bank Debit Card, and (vii) cash deposits. Qualifying Deposits do not include: (i) transfers between an account holder’s Checking account, Savings account, and/or Vaults; (ii) interest payments; (iii) bonuses issued by SoFi Bank or its affiliates; or (iv) credits, reversals, and refunds from SoFi Bank, N.A. (“SoFi Bank”) or from a merchant. SoFi members with Qualifying Deposits are not eligible for other SoFi Plus benefits.
SoFi Bank shall, in its sole discretion, assess each account holder’s Direct Deposit activity and Qualifying Deposits throughout each 30-Day Evaluation Period to determine the applicability of rates and may request additional documentation for verification of eligibility. The 30-Day Evaluation Period refers to the “Start Date” and “End Date” set forth on the APY Details page of your account, which comprises a period of 30 calendar days (the “30-Day Evaluation Period”). You can access the APY Details page at any time by logging into your SoFi account on the SoFi mobile app or SoFi website and selecting either (i) Banking > Savings > Current APY or (ii) Banking > Checking > Current APY. Upon receiving a Direct Deposit or $5,000 in Qualifying Deposits to your account, you will begin earning 4.20% APY on savings balances (including Vaults) and 0.50% on checking balances on or before the following calendar day. You will continue to earn these APYs for (i) the remainder of the current 30-Day Evaluation Period and through the end of the subsequent 30-Day Evaluation Period and (ii) any following 30-day Evaluation Periods during which SoFi Bank determines you to have Direct Deposit activity or $5,000 in Qualifying Deposits without interruption.
SoFi Bank reserves the right to grant a grace period to account holders following a change in Direct Deposit activity or Qualifying Deposits activity before adjusting rates. If SoFi Bank grants you a grace period, the dates for such grace period will be reflected on the APY Details page of your account. If SoFi Bank determines that you did not have Direct Deposit activity or $5,000 in Qualifying Deposits during the current 30-day Evaluation Period and, if applicable, the grace period, then you will begin earning the rates earned by account holders without either Direct Deposit or Qualifying Deposits until you have Direct Deposit activity or $5,000 in Qualifying Deposits in a subsequent 30-Day Evaluation Period. For the avoidance of doubt, an account holder with both Direct Deposit activity and Qualifying Deposits will earn the rates earned by account holders with Direct Deposit.
Members without either Direct Deposit activity or Qualifying Deposits, as determined by SoFi Bank, during a 30-Day Evaluation Period and, if applicable, the grace period, will earn 1.20% APY on savings balances (including Vaults) and 0.50% APY on checking balances.
Interest rates are variable and subject to change at any time. These rates are current as of 10/31/2024. There is no minimum balance requirement. Additional information can be found at https://www.sofi.com/legal/banking-rate-sheet.
*Awards or rankings from NerdWallet are not indicative of future success or results. This award and its ratings are independently determined and awarded by their respective publications.
Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.
Non affiliation: SoFi isn’t affiliated with any of the companies highlighted in this article.
SOBNK-Q324-016