Checks A check is an order to transfer funds from the payer's bank account to the payee's bank. Most small banks do not process checks themselves. Instead they send them either to a correspondent bank, with which they have an arrangement, or to the Fed which also provides that service. Both charge a fee. A check drawn on a bank outside the area of the local clearinghouse generally involves the use of the Fed's clearing facilities.
Float refers to checks in the process of clearing.
When the payee deposits the check in his bank, he receives credit the same day for that amount. Until the check is processed through the clearing system, the payer continues to receive credit on his account. Thus float represents an interest-free short term loan to the payer. Credit cards offer a substantially longer float period. The problem of bad checks is avoided by the giro payment method of transferring ownership of bank deposits.