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Last Updated: Tuesday, 14 November 2006, 00:01 GMT
Time limits for clearing cheques
Writing a cheque
Writing a cheque is still popular with businesses
Maximum times for the clearing of cheques will be adopted by the banking industry next year.

Cheques paid into an interest bearing account will start to earn interest after no more than two days.

Customers will also be able to withdraw cash from current accounts a maximum of four days after paying in a cheque.

The new rules have been agreed by industry body the Payment Systems Task Force, led by the Office of Fair Trading (OFT).

In addition, cheques will clear with absolute certainty after six days, unless the bank or other financial institution suspects that fraud is involved.

Currently, cheques can be rejected by a bank at any time if fraud comes to light later - possibly many weeks or months later - even if the person paying in the cheque has acted honestly, withdrawn the money and then spent it.

Although this happens very rarely, the potential problem was revealed by BBC Radio 4's Money Box programme two years ago.

Sandra Quinn, of the Association of Payment Clearing Services, said: "At the moment cheques are not certain - we have just agreed they are."

The new rules start in November 2007.

Better deal

For many years the banking industry has been criticised by customers who think they are being ripped off because their cheques typically take three days to clear before interest is credited and they are able to withdraw the cash.

The timetable for central cheque clearing will not change in any way
Sandra Quinn, Apacs

Recently some banks have started to offer a better deal.

Earlier this year, Lloyds TSB changed its policy to credit interest immediately.

The OFT, which has been examining the problem for two years, stressed that the routine underlying clearing system would not change, nor would it get any faster.

It said that the Task Force, which involved representatives of other industry and consumer bodies, had decided instead that the system simply needed to be made clearer, with minimum standards applying throughout the UK banking system.

"The Task Force has concluded that there is no case for a complete rebuild of the cheque clearing system," said the OFT.

"The timetable for central cheque clearing will not change in any way," added Ms Quinn.

Cheques in decline.

The OFT-led task force argued that the new rules would bring clarity, transparency and consistency to the banking system.

Part of its decision not to change the system too much is that cheques have been in rapid decline.

Shell stopped accepting cheques at any of its petrol stations last year and Boots is experimenting along the same lines at some of its stores.

The task force also noted that some businesses like paying by cheque precisely because it means a delay to the money leaving their accounts.

A new faster payments service for internet and telephone payments will be introduced from November next year.

Consumer groups welcome the changes

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