Take this piece of paper and give me money for it (please)

October 12, 2022 • Issue #164

Hi y’all —

Like pretty much everyone — except, maybe, for Chip Skylark — I hate going to the dentist. I especially hate going to the dentist when, at the reception desk, they tell me I owe them $1,000 due to a billing issue.

Which is what happened this summer.

Don’t worry: After a couple dozen stern phone calls, my insurance company agreed to reimburse me… in a series of paper checks it has snail-mailed to my apartment one by one. I want to get that cash back in my account as fast as possible, which means I've been spending a bunch of time taking pictures of checks in my phone's banking app and waiting for my bank to decide they're legit.

I'll be honest, though — the mechanics of the whole thing mystify me. It's wild that I can show my bank a scribbled-on piece of paper and the financial gods will just... give me money for it.

What actually happens when I deposit a check?

Brad Kvederis, research manager at Digital Check, says the numbers at the bottom of a paper check tell it where it must quote-unquote "go." The first nine digits make up the routing number, which identifies my bank. The next 10 are my personal account number, followed by the check number.

“It contains all the information your bank needs to know: where is this money coming from, who wrote this check, how do I transfer the funds,” Kvederis says.

The data is generally printed in magnetic ink, which is easy for automated machines to scan, read and record. There's a short waiting period, and voila. Transaction complete.

Behind the scenes, the details of the check deposit process vary slightly based on the type of check, the banks involved and the method by which I deposit it, says Ryan Bailey, head of retail banking at USAA.

Here's an example. If I’m a USAA customer and I walk into a USAA bank to deposit a paper check from another USAA customer, the funds typically become available immediately. These are referred to as “on-us” checks because they can be authenticated right away. The bank knows that money is in the check-writer’s account; it can instantly take it out and move it to my account.

But if it’s a check from a different bank, there’s usually a brief delay while USAA verifies it isn’t fraudulent. While this is important, it can't be too drawn out: Federal funds availability rules dictate that on-us check deposits have to drop in my account the next business day, and others can take as long as five.

Interestingly enough, Bailey says there was an entirely different process before 2004. Say I brought a Bank of America check into my local Wells Fargo branch. Wells Fargo would, at the end of the day, round up all the Bank of America checks it had received and literally fly them to Bank of America for approval before it would approve the deposit.

Not kidding.

When airplanes were temporarily grounded in the aftermath of 9/11, it exposed serious flaws in this setup.

”An incredible amount of money was just stuck. People didn't know when they were going to get paid, didn't know where their money was, didn't know how long it was going to be before it got unstuck,” Kvederis says. "That was enough to make Congress take action."

Enter the Check Clearing for the 21st Century Act, a law that made it so banks could use images rather than paper to authenticate checks electronically. Some banks send these images to each other directly, while others use a clearinghouse as an intermediary in order to sort them. 

Thanks to that law, nicknamed Check 21, most everything is virtual now — and assuming there are no problems, "the process happens a lot quicker,” Kvederis adds.

That includes mobile deposits, which USAA actually claims to have invented as a way to help military families abroad. “As long as you have service, you can be on a hike or in the middle of a break and deposit at your convenience,” Bailey says.

All I have to do is take a picture of a check in my bank app, and my bank will extract the data, using those numbers at the bottom to help direct the funds.

One hangup: Obviously my phone is just a camera; it can’t read magnetic ink or anything. Luckily, banks have sophisticated software to verify the information. It's safe, but Kvederis says it can be a “nuisance that you have to keep taking pictures of the check because they don't have the magnetic signal to rely on.”

Because my phone doesn't (yet) have a fancy magnetic ink reader, Bailey recommends not tearing up checks right after I snap my photos. He says to always keep the physical copy for 10 days in case the bank has questions about my deposit.

THE BOTTOM LINE

(but please don't tell me you scrolled past all of my hard work)

Though it may seem like magic, check deposits actually involve a lot of back-and-forth between financial institutions behind the scenes. Those communications — while a lot faster than they used to be — take time.

So I just need to be patient.

VIA GIPHY

RECEIPT OF THE WEEK

check out this wild celebrity purchase

VIA INSTAGRAM

Singer Lewis Capaldi, who I firmly believe is the funniest man on the internet, got talked into making a major pandemic purchase by Ed Sheeran: a $1.8 million farmhouse with a distinct odor. “I was like, 'that smell of dog and smoke will go away after a while,' but it didn't,” Capaldi told a radio station this month. “I am redoing the house. Ed Sheeran should technically reimburse me for the money I'm having to pay on this. Ed is a property tycoon, but he's never bought a place in Scotland, obviously, because mine is awful."

INTERNET GOLD

five things I'm loving online right now

1	You — yes, you — can download data from Mars, and honestly I feel like they shouldn’t be giving us this power given that we are the same society that had to tell people not to make Nyquil chicken.
2	New island just dropped.
3	After getting lost in the woods, about 100 sheep began trailing a new leader: one extremely bewildered runner in France. Luckily, a hiker caught the whole thing on camera. “Without a sheep dog, [they] followed her instead, and she was leading them back towards where she’d seen some pastures,” the Instagrammer later wrote. “Probably a confusing day for the farmer to discover that the whole flock had gone missing, but this isn’t an entirely unusual sheep behavior, and I’m guessing they were reunited by the end of the day.” Anyway, ewe should watch the video.
4	I can’t stop thinking about these kids with award-winning mullets. Tag yourself, I’m Rustin.
5	Just look at these quadruplet cubs born at the Oklahoma City Zoo and Botanical Garden, the first in 15 years.

401(K)ITTY CONTRIBUTION

send me cute pictures of your pets, please

VIA Eric Santos

Meet Ralph, a big boy named after Ralph Kramden from The Honeymooners. Ralph is tired of waiting for his check to depawsit, he wants the funds right meow.

See you next week.
 

 
P.S. Do you ever deposit checks on your phone? What would you do if 100 sheep randomly started tailing you? Should I grow a mullet? Send tips to julia@money.com or @SuperJulia on Twitter, please and thank you.

This newsletter is free because Money earns a commission when you click or make purchases from the links in this email and on our site. We also receive compensation for some of the products and services featured in this message. Offers may be subject to change without notice. Learn more about how we make money.

Privacy Policy • Advertise With Us • We're Hiring!

To stop receiving these emails, unsubscribe or manage your email preferences.

Copyright ©2022 Money Group, LLC. All rights reserved.

Metro Office Park Calle 1, Building 7 Suite 204, Guaynabo, Puerto Rico 00968, USA