Float time, also called check float or simply float, is the amount of time that passes between when a check is deposited and the funds are actually moved from the account.
Prior to the introduction of modern, electronic check clearing systems, the float period could be as long as several days because the physical paper checks had to be exchanged between banks before the transaction could be settled. This created a lag time in which people could theoretically — and often did — write checks using money that they didn’t have in their accounts yet, hoping to cover the balance during the time it took the check to clear (for example, if rent was due on a Thursday and payday was Friday). While risky, this practice was generally not considered illegal unless the customer did not plan to pay it back, such as in cases of intentional check fraud, closed account fraud, or check kiting.
Industry experts at the time noted that the intentional use of check float created a temporary artificial increase in the money supply, essentially creating fictitious money for a few days. Since some amount of float was going on at all times, the effect was more or less permanent. Conversely, for those who simply paid as usual with existing funds, the delay in payment kept cash tied up in limbo until the transaction was settled. In the late 1990s, this effect was estimated to be a net economic drag in the millions of dollars per day nationwide.
After the passage of the Check 21 Act in 2003 — which allowed the electronic exchange of scanned images instead of the original checks — float decreased dramatically, and in many cases is less than a day or non-existent. In fact, funds availability rules in federal Regulation CC require that checks below certain dollar thresholds be settled the next day, or within two days for larger amounts. Significant float time today is generally limited to high-value checks, and to checks that involve new accounts.
