Debits are transactions that involve the deduction of funds from your checking account. Funds are immediately held in your account when you make debit card purchases, but the debits actually post to the account only when the bank completes the day's processing. At the end of each day, usually just after midnight, banks process all debits and credits to hard-post them. Every item must have an offset before it can post, so every deposit slip credit must have a check debit or combination of debits that offsets it exactly. Hard-posting a transaction means funds have changed hands and the transaction has been finalized.
Checks are types of debits because they are used to deduct money from an account. Banks use "cash in" tickets as substitutes for actual cash to serve as debits in cash transactions. Electronic payments processed through automated clearinghouses, such as automatic mortgage payments or car loan payments, are also debits. All ATM and debit card transactions are debits. Other forms of debits include bank overdraft fees, monthly service fees and general ledger debits used to charge accounts for check orders or wire transfer fees.
Checks are processed by paying banks on the business day they are received, although it often takes two to seven days for checks to pass from the depositor's bank to the payer's bank. The checks travel between banks via the regional Federal Reserve, and they post to the payer's account after midnight on the day they are received. Most banks post electronic debits after midnight on the business day they occur. Payments made over the weekend do not post until after midnight in the early hours of Tuesday.
When people make cash deposits or withdrawals at ATMs or in person at banks, they receive a receipt showing a balance that takes the transaction into account. The balance shown reflects the available balance, not the posted balance. Many banks post debits before credits when processing. If you made a cash deposit during the day, but on the same day your bank also received a request for payment of a check that you previously wrote, the bank normally posts the check first. Your "available" balance" disappears after midnight when the bank posts items, and you could incur an overdraft fee even though you deposited cash earlier in the day before the check posted.
Many people do not use debit cards close to payday because they do not have sufficient funds in their accounts to cover purchases. Some people believe that if they write checks instead of using their debit card, all check debits will take longer to post. The 2004 Check Clearing for the 21st Century Act enables merchants to turn checks into electronic form. The electronic checks pass through automated clearinghouses and post after midnight on the day of the transaction.
In 2010, changes to regulations covering electronic transactions enabled account holders to choose whether they want their debit cards to allow over-limit transactions. Customers can choose to give their banks discretion to authorize over-limit transactions or decline them. If approved, they could lead to overdraft fees, but when declined there are no overdraft fees. The fee avoidance pertains only to certain kinds of transactions. ATM withdrawals, recurring debits and check withdrawals can still incur overdraft fees if the account holder lacks funds to cover them on the day of posting.
- Financial Solutions: Regulation CC Holds
- Washington State Department of Financial Institutions: Debit Card Frequently Asked Questions
- Federal Trade Commission: Credit, ATM and Debit Cards: What to Do if They're Lost or Stolen
- National Automated Clearing House Association: NACHA Reports 18.76 Billion ACH Payments in 2009
- Federal Financial Institutions Examination Council: Check Clearing for the 21st Century Act
- Financial Web: Overview of the Electronic Funds Transfer Act
- Visa: Debit Card/Check Card Frequently Asked Questions