What Is an Available Balance?
The available balance in a checking account or on-demand account is the total amount that the account holder is free to use immediately. The available balance is the total amount that has been cleared for deposits or transfers to the account after all deductions and withdrawals have been processed.
A credit card account's available balance is normally referred to as available credit. This is the amount that the account holder is authorized to borrow. It is the account holder's credit line minus any outstanding charges. An account's available balance will at times differ from its current balance. The current balance includes any pending transactions that haven't been cleared.
Key Takeaways
- The available balance is the balance available for immediate use in a customer's account.
- This balance includes any withdrawals, transfers, checks, or any other activity that has already been cleared by the financial institution.
- The current balance accounts for all recent transactions, including those that have not yet been cleared.
- Customers can use any or all of the available balance.
How to Avoid Interest Charges
If you want to avoid interest charges on a credit card, pay the statement balance in full by the due date. You do not have to pay the current balance to avoid interest charges. That figure includes newer purchases that won't incur interest charges until the next monthly statement.
Understanding Available Balance
When you log into your online banking portal, you will normally see two balances at the top: The available balance and the current balance.
The available balance shows the amount available for immediate use in your account. This balance is updated continuously throughout the day. Any electronic activity that takes place in the account—whether it's a transaction through a teller, an automated teller machine (ATM), at a store, or online—affects this balance almost instantaneously. Any transaction involving a paper check may take several days to show up, depending on how the recipient processes it.
The available balance does not include any pending transactions that have yet to clear.
Depending on both the issuing bank and the receiving bank’s policies, check deposits may take anywhere from one to two days to clear. This process may take much longer if the check is drawn from a non-bank or foreign institution. The time between when a check is deposited and when it is available is often called the float time.
A customer's available balance becomes important when there is a delay in crediting funds to an account. If an issuing bank has not cleared a check deposit, for example, the funds will not be available to the account holder, even though they may show up in the account’s current balance.
Using the Available Balance
Customers can use the available balance in any way they choose, as long as they don't exceed the limit. They should also take into consideration any pending transactions that haven't been added or deducted from the balance. A customer may be able to withdraw funds, write checks, do a transfer, or even make a purchase with their debit card up to the available balance.
For example, your bank account balance can be $1,500, but your available balance may only be $1,000. That extra $500 may be due to a pending transfer to another account for $350, an online purchase you made for $100, a check you deposited for $400 that hasn't cleared yet because the bank put it on hold, and a pre-authorized payment for your car insurance for $450.
You can use any amount up to $1,000 without incurring any extra fees or charges from your bank. If you go beyond that, you may go into overdraft and incur penalty fees.
Available Balance and Check Holds
A bank may decide to place holds on checks under various circ*mstances, which affects your available balance. They include:
- If the check is above $5,000, the bank can place a hold on the amount that exceeds $5,000. That amount must be made available within a reasonable time, usually two to five business days.
- Banks may hold checks from accounts that are repeatedly overdrawn. This includes accounts with a negative balance on six or more banking days in the most recent six-month period and account balances that were negative by $5,000 or more at least twice in the most recent six-month period.
- If a bank has reasonable cause to doubt the collectibility of a check, it can place a hold. This can occur in some instances of postdated checks, checks dated six or more months prior, and checks that the paying institution deemed it will not honor. Banks must provide notice to customers of doubtful collectibility.
- A bank may hold checks deposited during emergency conditions, such as natural disasters, communications malfunctions, or acts of terrorism. A bank may hold such checks until conditions permit it to provide the available funds.
- Banks may hold deposits into the accounts of new customers, who are defined as those who have held theiraccounts for less than 30 days. Banks may choose an availability schedule for new customers.
Banks may not hold cash or electronic payments, along with the first $5,000 of traditional checks that are not in question. In 2018, new amendmentsto Regulation CC—Availability of Funds and Collection of Checks—issued by the Federal Reserve took effect to address the new environment of electronic check collection and processing systems, including rules about remote deposit capture and warranties for electronic checks and electronic returned checks.
Special Considerations
There are cases that can affect your account balance—negatively or positively—and how you can use it. Electronic banking makes our lives easier, allowing us to schedule payments and allow for direct deposits at regular intervals.
Remember to keep track of all your pre-authorized payments—especially if they pop up at different days of the month. If your employer offers direct deposit, take advantage of it. Not only does it save you a trip to the bank every payday, but it means you can use your pay right away.
What Is Current Balance on a Credit Card?
Current balance on a credit card is the total amount that the account holder owes to the issuer of the credit card.
This is not the same as the statement balance. The statement balance is the sum of all of the charges incurred and all of the payments made during the most recent monthly billing cycle as well as the total carried over from the previous billing cycle. It determines how much you owe in that billing cycle, whether you make a partial payment or pay in full.
So the current balance may be larger. It's a running list that includes any new charges or payments made after the close of the last billing cycle.
What Is a Demand Account?
A demand account is a checking account. It's a place to stash your cash until you demand it, whether you do that by withdrawing money from an ATM or paying a bill online. In the financial world, money in a checking account is the equivalent of cash. It can be withdrawn by the account holder at will.
By contrast, if you put your cash in a six-month certificate of deposit (CD), you can withdraw it in an emergency but you'll probably pay a penalty for breaking the agreement.
You'll get zero interest on a demand account. You'll get interest on a CD.
Can I Use the Available Balance in My Checking Account?
Your available balance is the amount that your bank currently authorizes you to use or withdraw. In these days of electronic transactions, it should be up to the minute.
Be careful though. If you used a paper check yesterday, it may not have passed through the bank yet. Or, if you know you'll need $200 tomorrow, and your bank doesn't know that, leave at least $200 in your available balance. Also, keep an eye on any automated payments you have scheduled. If your utility payment is going through tomorrow morning, you want to make sure your balance is adequate.
The Bottom Line
In a checking account, the available balance is the amount of money that the account holder can withdraw immediately. The current balance, by contrast, includes any pending transactions that have not yet been cleared.
The bank will honor any withdrawal or payment you make up to the available balance amount. Be careful, though, that you don't use money that you have earmarked elsewhere. If you have an automated payment going through from the cable company tomorrow, your account won't reflect that today.
