Sir, - Mr. Gerry Gunnigan asks (October 24th) why it takes up to five days for a cheque to clear. The basic answer is that, being a paper-based payment system, it can, in certain circumstances, take that length of time to establish that there are sufficient funds in an account to meet the cheque. However, the majority of cheques are normally cleared for payment much faster.
There are two distinct aspects to the clearing cycle for cheques. "Cleared for value" means that, for calculation of interest, the cheque's value is applied to the account balances of both the payer and payee. But it is not until some time later that the cheque is "cleared for payment", whereby the cheque's ultimate fate is known. It has been paid and the payee can safely draw funds against it.
For example, the normal clearing cycle for cheques lodged at and drawn on the same branch of a bank is one business day; value is given on the same day as lodgment but the fate of the cheque is not finally determined until close of business the next day. For cheques lodged at the account-holding branch and drawn on another branch or bank, the normal clearing cycle is three business days. However, clearing rules allow for a clearing cycle of up to five days to cater for the situation that not all cheques are paid on first presentation - due to insufficient funds in the account.
While cheques remain the single most popular means of non-cash payment, their use is declining in favour of electronic-based payments such as direct debits and debit card (Laser) transactions. These automated systems are cheaper for customers to use and value generally passes between payer and payee on the same day.
Finally, I wish to point out that we have produced a two-page fact file on the bank clearing system as part of our Irish Banking Fact File and this is available, free of charge, on request from us. - Yours, etc.,
Manager, Irish Bank Information Service, Nassau Street, Dublin 2.