What Are Foreign Items?
- Foreign items are inter-bank transactions, consisting of a check or draft made at one bank to be deposited at another one.
- When a bank accepts a foreign item for deposit, it must verify if there are sufficient funds in the account to cover it and then obtain them from the issuing bank.
- The Federal Reserve's Regulation CC permits banks to place a hold of up to nine days on foreign items if they are new accounts, though most aim to clear them within two business days.
- Foreign items that are drawn on banks outside the United States take longer to process and are subject to variations in exchange rates and, occasionally, thresholds.
Understanding Foreign Items
Foreign items are interbank transactions, consisting of a check or draft made at one bank to be deposited at another one. A foreign item that is drawn on a bank different from the one at which it is being deposited is also known as a not-on-us item, as opposed to an on-us item: A check or draft that is presented to the bank where the check writer has the funds on deposit.
For example, if an account holder at Wells Fargo wrote a check to an account holder at Chase, that check would be considered a foreign item, transit item, or not-on-us item when the Chase account holder deposited it in their bank account.
Banks can determine whether or not a check or other bank draft is a foreign item by looking at its routing transit number. The item may also have other information about the bank of origin printed on it, including its name.
Foreign Items Method
When a bank accepts a foreign item for deposit, it must clear the item with the bank that issued it. Firstly, it is necessary to verify whether there are sufficient funds in the account on which the item is drawn to cover the item. If there are, the next step is to obtain those funds from the issuing bank.
The Federal Reserve Regulation CC permits banks to place a hold of up to nine days on foreign items, mindful that they can take some time to clear. This only applies to new accounts. Most FIs, however, aim to make funds from foreign items available the business day after the deposit was made or, failing that, within a maximum of two business days.
This quick turnaround time is made possible thanks to electronic check conversion and other forms of electronic bank draft conversion.
Foreign Items Outside U.S. Banks
Foreign items drawn on banks outside the United States, also known as international items, take longer to process. It is possible to deposit such an item into a U.S. bank account, although doing so may require hold times of up to six to eight weeks, depending on the nation where the foreign bank is located.
Items drawn on Canadian banks are usually processed the fastest. Checks and drafts drawn on banks farther away, on the other hand, can sometimes take several weeks before entering the recipient's account.
Furthermore, some banks might only accept checks or drafts on foreign bank accounts above a certain threshold value, due to the expense and time involved in sending the foreign item to a correspondent bank in the relevant country and then presenting it to a branch of the foreign bank on which it is drawn.
It's also worth bearing in mind that the foreign check or draft may be worth more or less when it clears than at the time of deposit, due to daily variations in the exchange rate.
Currency other than United States dollars (USD) can also be considered a foreign item when deposited into an account as special procedures may come into play. Canadian currency being deposited into a U.S. bank does not need to be handled differently, although exchange rates will be calculated.