Understanding Your Available Balance: What You Need to Know

An account holder’s available balance is the amount of funds in their account that can be accessed immediately. It can be thought of as the quantity of funds available for withdrawal. It accounts for any funds that have been placed on deposits and pending transactions that have been authorized by the bank but that have not yet been credited/debited to the account.

Summary

• Available balance is that part of the current balance that can be accessed immediately by the account holder and is available for withdrawal.
• The account holder can use the available balance to make cash withdrawals, fund online purchases, and pay online bills. 
• Available balance is usually lower than current balance when the deposits to the account are yet to be cleared or when there is a pending withdrawal of money against the account.

Ways to Use Available Balance

The available balance can be utilized by the bank account holder in the following ways:

Cash withdrawal: The available balance can be taken out of the account in cash at an ATMAutomated Teller Machine (ATM)An Automated Teller Machine, better known as an ATM, is a specialized computer that makes it convenient for bank account holders to manage their money or with a bank teller.

Expenditure via debit card: The debit card transfers money from the money in the checking account. Hence, the available balance can be accessed by swiping the card at a card reader or shopping online through the card.

Writing a check: Upon writing a check, even though it may take a few days for the expense to be indicated in the account balance, the funds are no longer available to be spent/withdrawn.

Paying the bills: Available balance can be utilized for online bill payments.

Current Balance vs. Available Balance

Current balance is the outstanding balance of funds in a bank holder’s account. The balance is calculated after all deposits, withdrawals, bank chargesService ChargeA service charge, also called a service fee, refers to a fee collected to pay for services that relate to a product or service that is being purchased., and other banking transactions have been accounted for and reflected in the account.

Available balance, on the other hand, is the amount that is not earmarked or held for a specific purpose. It is that part of the current balance that is available for withdrawal at the given moment. It is based on all deposits and withdrawals as well as all pending electronic transactions, regardless of whether they have been debited/credited to the current account.

Exceeding the available balance usually constitutes an overdraftBank Account OverdraftA bank account overdraft happens when an individual’s bank account balance goes down to below zero, resulting in a negative balance. It usually happens when there are no more funds in the account in question, but an outstanding transaction is processed through the account, leading to the account holder incurring a debt., even if it is within the displayed current account balance. All overdrafts and penalties are calculated by the bank based on this balance.

Why is Available Balance Usually Lower than Current Balance?

Many times, the available balance reflected is lower than the current account balance at a given time. It happens when the deposits to the account are yet to be cleared or when there is a pending withdrawal of money against the account.

Deposits

When funds are deposited in the bank account, they might not be immediately available for use. The bank takes a few days to verify the legitimacy of the transaction and holds the money until that time.

In the U.S., banks generally provide the account holder access to $200 by the next business day. Funds from transactions, such as tax refunds from the government, checks from overseas, personal checks, etc., take a longer time to be released by the bank. In some cases, cashier’s checks are also held for extra days.

Banks put the holds in place for the protection of the customers. Suppose an individual receives payment from a creditor via a check worth $300 and deposits it in the bank. After an hour, the bank allows him to utilize the funds to make an online purchase.

If the check bounces, the individual would need to replace the funds in their account and also incur some penalty imposed by the bank. Thus, withholding access to the money by the time the check’s cleared will avoid such troubles for the account holder.

Pending withdrawals

Whenever an individual schedules an upcoming payment through the bank’s online bill pay feature, the funds are no longer available to them for use. The bank deducts that amount from the available balance. Any payment made by swiping the debit card has a similar effect on the available balance.

Sometimes, when making a payment by a debit card, the merchant may authorize more than the billing amount as a guarantee, leading the bank to withhold more money from the account holder. Hotel and car rental holds are becoming common nowadays.

A car rental company may charge a $100 hold against one’s account to cover for any possible damage to the vehicle. The hold is released when the car is returned undamaged. For the duration of the hold, $100 is deducted by the bank from the person’s available balance.

In the case of hotels, the hold covers both potential damages to the property and additional charges like room service or purchases made at the hotel. It is usually released at the end of the individual’s stay at the hotel or within a day after check-out.

Practical Example

Let the current balance and available balance in Tim’s account both be $50. Suppose Tim purchases a shirt for $30 at a store with his debit card. The seller can ask Tim’s bank to preauthorize the payment.

The bank would thus place a hold on Tim’s account for $30. As the debit card transaction is yet to be posted to his account, his current balance would be $50, but the available balance would only be $20. When the seller submits the transaction for payment, the bank will post it to Tim’s account, after which the current balance will also be reduced to $20.

Additional Resources

CFI offers the Commercial Banking & Credit Analyst (CBCA)®Program Page - CBCAGet CFI's CBCA™ certification and become a Commercial Banking & Credit Analyst. Enroll and advance your career with our certification programs and courses. certification program for those looking to take their careers to the next level. To keep learning and developing your knowledge base, please explore the additional relevant resources below:

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