DEFINITION of Immediate Credit

Immediate Credit is the Federal Reserve practice of "clearing" checks deposited by member banks on the same day they're deposited. This service is only available when the Federal Reserve has one of its branches in the same city as the bank wishing to process the check. Normally, checks are subject to "deferred availability" which means the amounts are made available within two days of deposit.

BREAKING DOWN Immediate Credit

The Federal Reserve's policies on immediate credit and deferred availability often have little to do with the actual policies at your local bank. Some banks make funds immediately available on any checks deposited by their customers, some place limits on the amount available, while still others hold all checks over a certain amount. Consumers should be wary of banks that routinely hold checks even when there is no history of bounced checks. This may be because the bank wants to earn a little extra interest off their customers' money.

Clearing Rules

Here are the rules on check clearing posted by the Federal Reserve. Next-day availability states that the regulation requires that cash deposits, wire transfers, and certain check deposits that Congress believes pose little risk to the depositary bank, such as Treasury checks and cashiers checks, generally be made available for withdrawal by the business day after the banking day of deposit.

Proceeds of local and nonlocal checks must generally be made available for withdrawal by the second and fifth business day following deposit, respectively. A local check is a check deposited in a depositary bank that is located in the same Federal Reserve check-processing region as the paying bank, and a nonlocal check is one deposited in a different check-processing region than the paying bank. 

Exceptions to the rules can be made for new accounts, large deposits, repeatedly overdrawn accounts, emergency conditions, and other circumstances. A depositary bank that invokes one of the exceptions to extend the availability schedule generally must provide notice to its customer. according to the Fed.

The Check Clearing for the 21st Century Act (Check 21) is a federal law that took effect on October 28, 2004, and gives banks and other organizations the ability to create electronic image copies of consumers' checks, in a process known as check truncation. The images are then sent to the relevant financial institutions to be processed, where money from a consumer's account is transferred to the receiving party's account. The electronic copy of the original check is known as a substitute check.