Understanding the Available Balance in Your Bank Account
When you check your bank account balance, you may find that you have several balances, including an "available" balance. It's not just the names that are different: the available balance is often different from your account balance. So what are available funds and why is your available balance sometimes lower than your account balance?
Your available balance is the amount you can spend right now. You might think of it as "funds available to withdraw," but there are several ways to use the money.
- Withdraw cash: you can take that amount out of your account in cash, either at an ATM or with a bank teller. If you use a credit union that participates in shared branching, you can even withdraw cash at other credit unions nationwide.
- Spend with your debit card: your debit card pulls from your checking account, so you can only use it if you have funds available. Swipe or insert your card at a card reader, or make purchases online with that money.
- Write a check: checks are also funded from your checking account. The difference is that it can take several business days (or longer, if your payee waits to deposit the check) for that payment to show up in your account. When you write a check, you should assume that the funds are no longer available – even though your bank says you can spend that money. This is something you need to track for yourself, and that’s easiest if you use a check register or you balance your account regularly.
- Pay a bill: available funds can be used for online bill payment (whether you create the payment from your bank or your biller asks your bank for the money. If your billers pull from your account automatically, be sure to keep enough money on hand.
Not Yet Available
Sometimes you’ll see an available balance that’s lower than your account balance. In those cases, you can only spend your available balance (or less if you have outstanding checks), and the rest of the money is being held by your bank.
There are generally two reasons for a low available balance:
- Deposits to your account have not cleared yet
- There are pending withdrawals or authorizations against your account
Deposits: when you deposit funds into your account, your bank might not allow you to use the money immediately. They don’t know if the payment is legitimate, and the money takes several days (at least) to transfer. You can generally use up to $200 by the next business day (or $5,000 if you deposit more than $5,000 in checks on the same day), and some banks let you use your money more quickly – especially if you’re a long-time account holder with no history of depositing bad checks. Government-issued checks like tax refunds might also be available quickly.
However, other items, like personal checks and checks from overseas, are riskier and banks take longer to release those funds. Banks will even hold cashier's checks for a few extra days in some cases.
In fact, your bank might be doing you a favor. If a check bounces, you're responsible for the funds. So if you spend the money from a bad check, you'll have to replace those funds in your bank account (and pay fees to your bank, which doesn't seem fair). Plus you'll end up bouncing checks, racking up fees, and more. If you ever have any doubt about a check, wait a while before you spend the money.
Future withdrawals and authorizations can also reduce your available balance. If you scheduled an upcoming payment through your bank's online bill pay feature, those funds will be unavailable because the bank knows that the money is already headed out the door. The same is true when you swipe your debit card: the bank knows that you intend to spend some money. Debit cards, however, can be especially troublesome -- sometimes merchants authorize more than you're going to spend, and they can lock up your entire balance (this happens most often at gas stations, rental car agencies, and hotels).
Some places simply authorize $100 or more every time you swipe your card, and that money can be tied up for several business days.
Even though you can't spend your money, it is helpful to know how much you have (or had) and how much is potentially available once all of those holds go away. So your bank provides other balances for you as well.
If you want to double-check your bank's math, you can always balance your account yourself. In addition to helping you catch mistakes, it’s also a good way to track your spending and catch any identity theft before it gets out of hand. You’re often protected from errors and fraud, but you need to act quickly to get the full protection available under federal law.
Avoiding Cash Crunches
For the most part, you depend on your bank to release funds. However, there are ways to reduce the chances of your account running dry.
- Direct deposit gets money into your account quickly. If your employer still pays you with a check, sign up for electronic payments so that the money goes directly from your employer’s bank account to your bank account. You don’t need to wait on the check (especially if it goes through the mail), and you don’t need to go to the trouble of depositing the check. As a bonus, the money might even hit your account a day or two before the checks are printed, and some banks offer same-day availability for those payments.
- Keep a buffer of cash in your account to protect you from unexpected expenses and delays. If you’re always “running on fumes,” you’re eventually going to have a problem. A small cash cushion can help you avoid problems. If that’s not possible, look into overdraft protection, but only sign up if you’re going to use it as a safety net – don’t make a habit out of paying those fees – and use a less expensive overdraft line of credit if possible.