What Are Available Funds?
Available funds are money in a bank account that is accessible for immediate use. In other words, it represents the total amount of capital that can be withdrawn at an automated teller machine (ATM), used to make purchases with a debit card, write a check, transfer money and pay bills.
An account holder's available funds may differ from the current balance as the latter generally includes any payments that are pending. Until these incomings and outgoings are cleared by a bank, customers are unable to conduct transactions with them.
- Available funds are immediately accessible for use in one's financial account.
- Any transactions that take place in the account will thus impact the amount of funds available.
- Some transactions may not be processed instantly, though, including incoming wire transfers and checks, which usually take two business days to deposit.
- That means that available funds may differ from the current balance, a separately displayed sum that also accounts for any pending payments yet to be cleared.
Understanding Available Funds
When you log into your online banking portal, you will usually come across two different balances: available funds and the current balance. Available funds, as its name implies, represents money that is readily accessible and can be used immediately by the account holder.
Customers are free to spend these funds as they please. Once they run out, they will then be blocked from making further transactions, unless they have an overdraft agreement, an extension of credit that is granted when an account reaches zero, in place with the financial institution (FI) they bank with. As is the case with any loan, the borrower pays interest, a periodic charge for the privilege of borrowing money, on the outstanding balance of an overdraft.
The available funds balance should be updated continuously throughout the day. So, if you make a purchase in a store or online or withdraw money at an ATM, the transaction should result in a reduction in the balance available for you to access. The same applies to incoming payments, too, such as a refund or job salary. When money enters your account, your available funds increase.
Sometimes, credits and debits aren’t processed immediately, though. There are certain transactions that banks take longer to deposit into accounts, as well as times of the week, specifically non-business days, when movements aren't instantly recorded. As long as they are pending and have yet to be cleared, these transactions won’t be reflected in available funds, meaning that the money isn’t yet yours to spend, or according to your bank still is, even though you've already splurged it.
It can take several days for deposits or pending withdrawals and authorizations, such as through online billing, to show up in an account.
Available Funds vs. Account Balance
Different processing times for bank transactions mean that available funds sometimes vary from what is displayed in the account balance—the total amount present in a financial repository that includes any pending transactions or other amounts yet to clear.
Checks, written, dated, and signed instruments that direct a bank to pay a specific sum of money to the bearer, in particular, are known to take a while to process. It typically takes about five business days for the bank to receive funds transferred this way. However, depending on the value of the check, you could have access to the full amount in two days.
It typically takes about two business days for a deposited check to clear, and about five business days for the bank to receive the funds.
Times and procedures vary. Some banks may make a portion of the check available immediately or within one business day. For instance, your bank might credit $150 or $200 of a $500 check straight away, or within one business day of the deposit, and then make the remaining balance of the check available in two days.
Banks place a hold on your deposits because they first want to know if they are legitimate and whether any checks will bounce. While all national banks and federally chartered credit unions are subject to the same hold rules, FIs can release your funds sooner, at their discretion.
Example of Available Funds
Susan has available funds of $500 in her checking account. She receives a check for $1,500 and deposits it right away, while, at the same time, scheduling a one-time wire transfer of $300 to someone she owes money to. Susan is also informed on that same day of an incoming electronic bank transfer heading her way worth $250.
In most cases, the $300 Susan asked to transfer will disappear immediately from her account. The check, on the other hand, isn’t expected to clear for two days. The electronic transfer into her account, too, could take up to the same amount of time to process. That means, Susan, after completing these transactions, may have available funds of $200 and an account balance of $1,950.
Susan must be careful not to assume that her stated bank account balance is what she has access to, at least for the time being. Until the check of $1,500, the $250 transfer, or any other income has been credited to her account, she only has $200 available at her disposal.