Throughout my business day, I often find myself explaining the difference between available and collected funds. Your available balance refers to the spendable money in your account. The collected balance refers to the money that has neared or completed the federal collection process. I know what you’re thinking (or at least I’ll pretend for the sake of a needed rhetorical question). You’re thinking, “Why are there two balances?” Well, I will tell you. It all boils down to guaranteed funds.
When you make a deposit, the availability of those monies is determined by what you are depositing into your account. Cash goes directly to your available balance because currency is a guaranteed fund. At the end of the business day, the cash deposit will then be added to your collected balance because the transaction has cleared bank processing. Same goes for electronic deposits like your direct deposit from work or income tax refund. On the day of the deposit, it will show as available to you, then after that night’s processing, it will show as collected the following business day. Checks, however, follow different rules.
When depositing a check, its “spendability” is determined by a number of factors and possible risk. Is it a personal or business check? Is it a money order or cashier check? Is the deposit normal for your banking history? Does the Bank have reason to believe the check will not clear for any reason? All of those factors, plus a few more, determine when your deposited check is spendable. If the teller can assume the check will clear without fault, it will immediately show in your available balance. The check is then submitted to the Fed for clearing, and once it has completed the preliminary processing, the check will be added to your collected balance. This usually takes a few days.
If the teller determines there is a risk in making the check available immediately, the Bank may opt to place a hold on the check. This means the check will not show in your available balance until the hold is released. The check would then follow normal procedures for collection processing and would eventually show as both available and collected on your account.
Now, why is it important to know the difference between available and collected funds? Because while available is spendable, collected is guaranteed. So if you want to purchase a money order, cashier check, wire transfer or traveler’s checks (which are all guaranteed forms of payment) the Bank can only use guaranteed funds to purchase them. Before making a trip to the bank for such a purchase, just call ahead and ask for your collected balance. Because as you’ve learned, there is a difference!