Cheque hold periods and access to funds: rights and responsibilities

From: Financial Consumer Agency of Canada

Federally regulated financial institutions (FRFI) are required by law to limit the hold period for funds that consumers or small and medium-sized businesses deposit by cheque, provided the cheque is:

  • in Canadian dollars
  • drawn on an account from a financial institution's branch within Canada
  • paper-based
  • encoded with magnetic ink used for the line of special numeric characters across the bottom of the cheque
  • undamaged and readable by a cheque processing system

Financial institutions must also make the first $100 of the cheque available to consumers for withdrawal.

Maximum cheque hold periods

Subject to the exceptions below, the maximum cheque hold periods are as follows:

Table 1: Maximum cheque hold periods
Amount of cheque Deposit method
In person
(with an employee at branch or service)
Any other way
(such as at an ABM)
$1,500 or less 4 business days 5 business days
More than $1,500 7 business days 8 business days

Note: the maximum cheque hold periods shown in the table above do not include the day you deposit the cheque.

If the cheque has to be returned to your financial institution for any reason (such as non-sufficient funds, a closed account or a stop payment), your financial institution will remove the funds from your account. This can happen even after the maximum hold period on a cheque has expired.

Why might a financial institution hold the funds I deposit by cheque?

A financial institution might hold the funds you deposit by cheque for several reasons, including:

  • to make sure that the cheque is drawn on a valid account and that the person or company issuing the cheque has the money to cover it
  • to make sure that the person or company issuing the cheque has not put a stop payment order on the cheque. (A stop payment order is placed on a cheque if, for some reason, the person or company issuing the cheque does not want it to be cashed.)

When you deposit a cheque into your account, your financial institution sends the cheque to the cheque writer's financial institution to have the money released. Until this happens, the money is not withdrawn from the cheque writer's account.

This means that when you deposit a cheque, your financial institution cannot be sure that there is enough money in the cheque writer's account (that is, whether the cheque will “clear”).

Federally regulated financial institutions are able to hold the money you deposit by cheque for 4 to 8 days. The amount of time depends on the amount of the cheque and how it was deposited. For example, if a cheque is deposited in an automated banking machine (ABM) or during extended branch hours (evenings or weekends), clearing the cheque can take longer. Please refer to Table 1: “Maximum cheque hold periods” for more detail.

There may also be additional delays—for example, if the cheque is written on an account located in another province or country.

Can I have the hold removed?

Depending on your relationship with your financial institution, the institution might release the funds to you before the cheque clears; but if it does this, it is effectively extending credit to you. If there is not enough money in the cheque writer's account, the cheque will be returned to your institution because of non-sufficient funds (NSF).

The process for a cheque to clear and be returned for non-sufficient funds normally takes about four or five days, provided the cheque writer's financial institution is located in Canada.

The amount of time it takes for a cheque to clear will depend on:

  • the amount of the cheque
  • whether it is deposited in person with an employee at one of a financial institution's branches or points of service, or in another manner, such as at an automated banking machine
  • whether the cheque is drawn on a bank in Canada or outside Canada

What about cheques drawn on banks outside Canada?

If the cheque writer or cheque writer's financial institution is located outside Canada, the cheque can take much longer to clear. Foreign cheques are often held for 30 days. If the cheque does not clear—for example, because of non-sufficient funds—the money will be debited from your account.

Your bank may choose to mail the cheque back to the financial institution that issued it and have it replaced by a secured method of payment, such as a bank draft or a cashier's cheque. It would then need to wait for that institution to mail the bank draft or cashier's cheque back.

Access to the first $100 for consumers

Subject to the exceptions below, financial institutions must make the first $100 of all funds deposited by a cheque available to consumers for withdrawal:

  • immediately, if you deposit the cheque in person with an employee at one of the financial institution's branches or other locations where you can open an account
  • on the business day following the day of the deposit, if you deposit the cheque in any other manner, such as at an automated banking machine.

If the cheque is for $100 or less, the financial institution must make the entire amount of the cheque available to consumers.

Be aware that access to the first $100 does not apply to cheques deposited by small and medium-sized businesses.

Exceptions

The above-mentioned maximum cheque-hold periods and access to the first $100 may not apply to:

  • an account that has been open for less than 90 days
  • a cheque that has been endorsed more than once
  • a cheque that is deposited six months or more after it was dated
  • cheques that are not issued in Canadian dollars
  • cheques issued from an account at a bank branch outside of Canada
  • a deposit that a financial institution has reasonable grounds to suspect is being made for illegal or fraudulent reasons

Exceptions specific to small and medium-sized businesses only

Maximum cheque-hold periods may not apply to cheques deposited by small and medium-sized businesses that have:

  • negative change in their credit score
  • an increase in their overdraft balance that is not being reduced by deposits received
  • an unexplained change in the history of cheques being deposited to the account
  • high numbers of cheques that are returned as dishonoured cheques, which may affect the account holder’s available balance
  • a notice of bankruptcy or creditor action against the business

Small and medium-sized businesses

In the regulations, the term “eligible enterprise” is used to refer to small- and medium-sized businesses. To qualify, a business must have:

  • authorized credit of less than $1 million
  • annual revenues of less than $50 million
  • fewer than 500 employees.

Your right to receive information

When you open an account, FRFI must give you a written copy of their policy on holding funds that are deposited by cheque. In addition, the financial institutions must also, in each of their branches, display and make available copies of their policy on holding funds deposited by cheque.

The financial institution's policy must contain the following information:

  • the maximum amount of time it may hold funds for a cheque that is issued in Canadian dollars and drawn on an account at a financial institution's branch in Canada
  • the maximum amount of time it may hold the funds deposited from a cheque that is not governed by access to funds legislation

Whether a hold will apply to your account(s) is not stated in this policy; the institution makes that decision when you deposit your cheque.

The financial institution's policy on holding funds deposited by cheque may be included in your account agreement or given to you as a separate document. The financial institution may provide this information to you electronically if you consent to receive required information in electronic format rather than as paper documents. You can also request a written copy of the policy at any time.

If you have an account at a deposit-taking institution that is not federally regulated, such as a credit union or caisse populaire, ask the financial institution about its policy on holding funds deposited by cheque.

From time to time, the financial institution may make changes to its policy on holding funds deposited by cheque. If the financial institution makes changes to this policy that result in a longer cheque hold period, it must let you know what these changes are before they apply to your account.

  • If you receive a regular statement in the mail, your bank must send you (or the person you choose to receive this information) a written notice explaining any change in its hold on funds deposited by cheque policy at least 30 days before the change is applied to your account.
  • If you carry a passbook, which you present to the financial institution when you make your transaction, your financial institution must display a notice explaining the change in its policy on holding funds deposited by cheque for at least 60 days before this change applies to your account.

What you should do if you feel your rights are not being respected

If the financial institution refuses to honour the maximum cheque hold periods or does not provide you with the first $100 of funds you deposit by cheque because of any of the exceptions noted above, the financial institution must give you a written notice of its refusal. If you do not receive it, ask for it. The bank must also tell you how to contact the Financial Consumer Agency of Canada (FCAC).

Tell the bank you want to make a complaint. By law, all banks must have a complaint-handling process. Call FCAC toll-free at 1-866-461-3222 for more information.

If you feel that a federally regulated financial institution is not respecting your rights, contact the Financial Consumer Agency of Canada.

Contact your financial institution to find out about its policy on holding funds and the maximum amount of time it may hold the funds you deposit by cheque drawn on a foreign bank or financial institution.

Definition: Dishonoured cheque

A dishonoured cheque is a cheque that is not accepted by the financial institution on which it was drawn. This can happen for a number of reasons:

  • non-sufficient funds (NSF)—when the amount written on a cheque is more than the amount in the cheque writer's account
  • irregular signature—if the signature the cheque writer signs on the cheque differs from the specimen signature in the financial institution
  • a difference between the amount written in words and that in numbers.
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