Holdovers

Holdovers: Definition and Key Points

Holdovers are transactions—most commonly checks—that a bank has received but not yet processed. They occur when items arrive too late in the business day for same-day clearing. Holdovers can briefly create “float,” where the same funds appear in two accounts before processing completes. While usually short-lived, holdovers can be exploited for fraud (e.g., check kiting) and are managed by bank procedures and regulation.

Key points:
* A holdover is an unprocessed payment received by a bank, typically a check deposited after processing cutoff.
* Holdovers can create holdover float, temporarily duplicating account balances.
* Banks use procedures (debits, agreements, or next-day processing) to prevent misuse.
* Fraudsters can abuse float timing; such schemes are illegal in most jurisdictions.

How Holdovers Occur

Holdovers generally happen when a bank receives more payment items (often many checks) than it can process before the end of the business day. Common situations:
* A customer deposits a large bundle of checks late in the day.
* Branches or clearinghouses delay processing until the next business day.
* Short-term disruptions—holidays, severe weather, or reduced hours—create backlogs.

Large clearinghouse banks see the most holdovers, and the items are typically bundled and processed on the following business day.

Holdover Float and Risks

Holdover float is the temporary duplication of money: the funds are still available in the payer’s account and appear credited in the depositor’s account until clearing occurs. Risks include:
* Fraud: Scammers can use the float window to make purchases or withdraw funds they don’t actually have (check kiting and similar schemes).
* Operational exposure: Banks must ensure holdovers are processed promptly and debits or offsets are reconciled to avoid systemic errors.

Most banks will only allow routine holdovers for customers with good credit or reliable account history.

How Banks Handle Holdovers

Banks use several practices to manage holdovers and limit associated risks:
* Posting a provisional debit to the depositor’s account when items are held over, which is zeroed out once items clear.
* Requiring agreements from frequent bulk-deposit customers that specify processing terms.
* Refusing holdovers altogether and simply processing late items the next business day.
* Regulatory oversight: Examiners monitor that holdovers are handled properly and reconciled promptly.

Timing Patterns

Holdover float is more noticeable at the system level even if rare at individual banks:
* Higher levels are often observed on Tuesdays (processing backlogs from weekend deposits).
* December and January can show increased holdover float due to holiday deposits.
* Temporary events—severe weather, emergency closures—also produce spikes.

Reducing Holdovers: Technology and Regulation

Efforts to reduce holdovers have focused on faster processing and discouraging manual handling:
* The shift to electronic payments and automated clearing has shortened processing time and reduced holdovers.
* Regulation (e.g., measures following the Monetary Control Act era) discouraged manual check processing and encouraged electronic routing and machine-readable account information.
These changes decrease clearing time and reduce opportunities for float-based abuse.

Related Terms

• Float: Payments that have been initiated but not yet cleared; effectively money counted more than once until reconciliation.
• Floating check: A check written but not yet cleared. Using the time before a check bounces to commit fraud is illegal in most U.S. states.
• Concentration banking: A central or main bank branch that aggregates funds from satellite branches to facilitate payments and transfers.

Conclusion

Holdovers are a normal part of the payments ecosystem when items arrive too late for same-day processing. While typically brief and benign, they create a float window that requires careful bank controls and regulatory oversight to prevent misuse. Modern electronic processing and regulatory measures have significantly reduced holdovers and the risks associated with them.