EFAA: Understanding the Expedited Funds Availability Act | [Your Company Name]

The Expedited Funds Availability Act (EFAA) is a United States law that requires banks to make deposits and checks available within a standardized period. The law was enacted in 1987 to control the holding periods on the funds deposited in customers’ accounts in commercial banksCommercial BankA commercial bank is a financial institution that grants loans, accepts deposits, and offers basic financial products such as savings accounts..

Summary

• The Expedited Funds Availability Act (EFAA), enacted in 1987, requires banks to make deposits and checks available within a certain number of days.
• The funds in the deposits can be accessed on specific days, depending on the deposit size and the time duration elapsed since the account was created.
• EFAA offers four types of holdings that any financial institution can place on a check deposit according to their preference.

Expedited Funds Availability Act (EFAA) Explained

This act was adopted to govern the availability of funds from customers’ accounts and the use of hold periods by financial institutions. As per the Expedited Funds Availability Act, deposits to commercial banks can be accessed on specific days, depending on the deposit size and the time duration elapsed since the account opening.

Depending on the deposit size and the account type, the EFAA decides the kind of holding that banks may use on check deposits. The Federal Reserve enforced the EFAA, which is also called the Regulation CC.

All account holders must be informed of holding policies and of any change in the policies by their respective financial institutions. The holding policies are made available in writing on the opening of new accounts or when requested by clients. The accounts on which interests are paid receive earnings from the time the deposits are made to banks, regardless of the holding period.

Expedited Funds Availability Act (EFAA) and Types of Holds

The Expedited Funds Availability Act (EFAA) offers four types of holds that any financial institution can choose from and place on a check depositHow to Write a CheckEven though digital payments are continually gaining more market share, it’s still important to know how to write a check. This guide shows you step by step. Although it is legal to set any type of holding on deposits, bank policy may indicate that the holding type placed on deposits offers the highest amount of money for the longest period that can be applied legally. The following are the types of holdings provided by the EFAA:

1. Statutory Hold

Statutory holds are individual state-mandated reserve obligations for insurance companiesLife and Health InsurersLife and health (L&H) insurers are companies that provide coverage on the risk of loss of life and medical expenses incurred from illness or injuries. The customer - the purchaser of the insurance policy - pays an insurance premium for the coverage.. As per law, insurers must keep a portion of assets in the form of easily obtainable securities for quick repayment of claims. A statutory hold can be placed on any deposit type. However, no other hold should’ve been set on the same deposit at that time. The bank must make the following payments:

• $200 on the next working day after making a deposit
• $600 on the second working day after the deposit is filed
• Balance amount on the third workday

2. New Account Hold

The Expedited Funds Availability Act states that if the account owner previously opened an account at the depository bank, another account will not be considered new for at least 30 calendar days after the creation of the existing account.

It implies that an account is considered new for the first 30 days of its creation, and a new account hold is set on deposits of the accounts. The new account hold is removed on the ninth working day following the deposit.

3. Large Deposit Hold

A large deposit hold is placed if deposits of more than $5,000 are made in one business day. The rules of funds availability for the first two days are the same as those for statutory holds. However, for the third day, the bank must make available $4,800 with any balance amount made accessible on the seventh workday following the deposit.

4. Exception Hold

Financial institutions use it to hold funds in accounts when they become suspicious of an illegal deposit or when the account’s been frequently overdrawn. Exception hold can also be used when a system failure or power outage occurs in a bank premise. Generally, an exception hold is placed on an account if more than $5,000 is withdrawn for at least six consecutive working days.

Additional Resources

CFI offers the Commercial Banking & Credit Analyst (CBCA)™Program Page - CBCAGet CFI's CBCA™ certification and become a Commercial Banking & Credit Analyst. Enroll and advance your career with our certification programs and courses. certification program for those looking to take their careers to the next level. To keep learning and advancing your career, the following resources will be helpful:

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