Account Balance Guide

The Ins and Outs of the Available Balance in Your Bank Account

When you check your account balance, you may assume that the amount you see on your statement is the amount you have to spend. This is not always the case. Sometimes, your available balance may be less than or more than your actual account balance. It’s important to understand why this discrepancy happens and how to account for it to avoid cash crunches.

What Are “Available Funds?”

Available funds are funds that are accessible to you right now to use as you please. There are several ways you may use available funds, the most common of which are as follows:

• Use your debit card to pay for transactions directly from your checking account. Debit card transactions are equivalent to cash transactions, as (in most cases) the money comes out as you swipe.
• Withdraw cash from your checking or savings account, either via an ATM or bank teller.
• Pay a bill online either by creating the payment or allowing an automatic payment to go through. If you sign up for automatic bill pay, make sure you have sufficient funds in your account to cover future payments.
• Write a check from your checking account. Always assume that the money you pledge is no longer available the moment you write a check, even though it can take several days (or weeks, if the payee puts off cashing the check) for the funds to come out of your account.

Before you spend available funds, you should always check your account balance, pending deposits and scheduled payments to make sure you have enough money to cover future transactions.

Why Are Your Available Funds Less Than Your Account Balance?

It is not uncommon for banks to categorize customers’ funds into two distinct categories: “Available” and “not-yet-available.” When funds are not yet available, you may be able to access only a portion of your balance. This generally happens for two reasons:

• There are pending authorizations or withdrawals against your account; or
• You deposited a check or money, but the bank has yet to clear the deposit and credit the funds to your account.

Pending Authorizations and Withdrawals

Banks frequently try to account for pending authorizations and withdrawals to prevent customers from over-drafting. A bank might reduce a person’s available account balance when it knows that money is already spoken for. For instance, you may swipe your card at a gas pump and pump $20 worth of gas on a Saturday. Because it’s the weekend, your total account balance might remain the same as it was on Friday, but your available balance will reflect $20 less. The same situation may occur if an automatic bill pay transaction occurs over the weekend or on a holiday.

In some cases, your available balance will reflect a deduction that is far greater or less than what you actually spent. For example, it is not uncommon for gas stations to charge a flat fee of $100 on debit card transactions performed at the pump, even if you only spent $20. The bank will only credit the additional $80 back to your account after it verifies the final amount. On the flip side, a gas station may charge your card $1 and only update the total with your bank days later.

Pending Credits

Some banks may wait to release funds to customers so that they can verify the legitimacy of the payment. If your bank does this, you may not be able to access funds until days after you initially deposit them, making your available balance lower than your actual balance.

How Can You Keep Track of Your Available Balance?

The best way to keep track of how much money you actually have to spend is to keep track of your running balance. To calculate your running balance, take the day’s current balance, add any credits you received throughout the day and subtract each debit. The total you come up with after each transaction is how much you have at hand to use going forward.

Keeping track of your running balance is easier said than done. To ensure your calculations are as accurate as possible, maintain a ledger. Traditionally, a ledger is a little booklet in which you record the date and amount of each transaction and add to or subtract from the running total. However, it is not uncommon for individuals to use Excel spreadsheets and apps to keep track of their spending. Find a method that works best for you and be vigilant about maintaining it.

Steps for Keeping Your Account Balance in the Black

Spending without having any idea of your account balance can have serious financial consequences. This is especially true if you do not have overdraft protection. Examples of how you can use your account balance to remain in good financial standing are as follows:

• Check and record your available balance each morning.
• Maintain a ledger of your running balance each day.
• Check your account twice weekly or more to check on the status of automatic payments.
• Where possible, schedule automatic payments for the day you get paid, which may make it easier to budget for the remaining two to four weeks following payday.
• If you use an app, link it to your bank account. If you use an online program, update it periodically throughout the day to give you the most accurate idea of your available balance.

Quick Questions

Understanding your account balance and what affects it is key to achieving and maintaining financial health. Take the next step with How To Build and Grow Your Credit here