Definition: Available funds refer to the money that can be accessed immediately. The term “available funds” is typically used when discussing bank accounts, but it can also have applications in finance and investment.
How do available funds work?
When funds are available, it simply means you have the ability to use that money in some way. With each transaction you make from the aforementioned operations, your available balance decreases. Your available balance can increase when you deposit new money. You can view your available balance by logging into online banking or the mobile banking app.
If you spend an amount greater than your available funds, it may result in your account going into overdraft. When this happens, you may be charged one or more overdraft fees until you deposit enough money into your account to restore the balance to a positive state.
Note: Joining an overdraft protection program at your bank can help you avoid paying high overdraft fees.
Types of available funds
Available funds are the money available to you for specific purposes. How this works can vary depending on the situation. As mentioned, you can have available funds in a bank account. However, you may also have available funds in other scenarios.
For example, let’s say you need to obtain a personal loan to cover unexpected expenses. You apply for a loan online and are approved for $15,000. This $15,000 represents your available funds or the amount you will repay to the creditor, plus any applicable interest and fees.
Credit Lines
Available funds or available credit work differently with revolving credit lines. For instance, let’s say you have a credit card with a maximum limit of $5,000. You currently have a balance of $2,500 on the card. This means the available funds you can use for new purchases are $2,500. You may also have a separate amount available for cash advances.
Investment Accounts
You may also have available funds when investing for retirement. If you have a 401(k) account at work, for example, your available funds can be determined by the vesting schedule of your investment plan. Vesting refers to the process by which you become the owner of the funds in your account, including original contributions, employer matching contributions, and earnings. The available funds will be the money you can withdraw or borrow if your plan allows 401(k) loans.
Note: You are always 100% eligible for the funds you contribute to an Individual Retirement Account (IRA).
Bank Accounts
Available funds or the available balance in a bank account exclude any pending transactions or check holds. Checks you’ve written that haven’t been cashed, debit card purchases that haven’t been authorized, or deposits that haven’t posted to your account are not included in available funds but may be included in your total account balance.
Your available funds may be less than your actual account balance. This can happen if you have debit card transactions that haven’t been authorized or deposits that haven’t cleared. Banks and credit unions can set funds availability policies according to federal regulations that dictate when deposits become available.
Under federal regulation CC, these deposits must be available on the first business day following the banking deposit:
- Cash
- Electronic payments, including ACH and money transfers
- Checks
- U.S. Treasury checks deposited at a branch or ATM
- U.S. Postal Service money orders deposited at a branch
- Federal Reserve checks and federal mortgage loan checks deposited at a branch
- Local or state government checks deposited in person if the payer and payee are in the same state
- Cashed or certified checks deposited in person
Generally, you can access up to $200 from checks deposited in person the next day. Any amount exceeding $200 will be available on the second business day. Deposits must be made before 2 p.m. to be included in that day’s daily transactions. Deposits received after 2 p.m. are processed on the next business day.
Note: A different funds availability schedule may apply to deposits made using remote deposit capture through mobile banking apps.
However, it is possible to wait longer for funds to be available after depositing money into your account. Banks can impose longer deposit hold periods if:
- You are depositing money into a new account
- Your account history includes numerous overdrafts
- The deposit is greater than $5,000
- Deposits are made at ATMs not owned by your bank or credit union
- The bank believes there is a high likelihood that the deposited check may not be collectible
- You are re-depositing a check that was previously returned
For example, let’s say you sell your car to a private buyer. The buyer gives you a check for $10,000 to complete the purchase. According to federal guidelines, the first $200 of the check will be available to you on the next business day. However, the bank may hold the remaining $9,800 for up to seven business days to ensure the check clears before releasing the funds to you.
Some banks and mobile banking apps allow you to access your money as quickly as two days when you sign up for direct deposit of your paychecks.
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Sources:
- Bank of America. “Overview of Bank of America Core Checking – Key Policies and Fees.” Accessed Jan. 24, 2022.
- Internal Revenue Service. “Retirement Topics – Vesting.” Accessed Jan. 24, 2022.
- Code of Federal Regulations. “Part 229 – Availability of Funds and Collection of Checks.” Accessed Jan. 24, 2022.
- Consumer Financial Protection Bureau. “How Quickly Can I Get Money After I Deposit a Check Into My Checking Account? What Is a Deposit Hold?” Accessed Jan. 24, 2022.
- Capital One. “Early Paycheck.” Accessed Jan. 24, 2022.
Sources:
- Bank of America. “Overview of Bank of America Core Checking – Key Policies and Fees.” Accessed Jan. 24, 2022.
- Internal Revenue Service. “Retirement Topics – Vesting.” Accessed Jan. 24, 2022.
- Code of Federal Regulations. “Part 229 – Availability of Funds and Collection of Checks.” Accessed Jan. 24, 2022.
- Consumer Financial Protection Bureau. “How Quickly Can I Get Money After I Deposit a Check Into My Checking Account? What Is a Deposit Hold?” Accessed Jan. 24, 2022.
- Capital One. “Early Paycheck.” Accessed Jan. 24, 2022.
Source: https://www.thebalancemoney.com/available-funds-5216805
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