When viewing your bank account online, you might have noticed two balances related to your account: “account balance” and “available balance.” Although they sound similar, they are different and need to be understood to avoid unnecessary overdraft fees.
An account balance, also known as the “current balance” or “ledger balance” is the actual balance on the account at the beginning of the business day. This is the same balance which is printed on your bank statements. It’s also the balance used to calculate interest payments on interest-bearing accounts. You could think of this as the “official” balance which is used by the bank. It does not update as quickly as the “available balance.”
The available balance is much more up-to-date than the account balance. The amount of money in the available balance is immediately available for withdrawal or other uses. Any activity – i.e. deposit or withdrawal – during the day will be reflected by the available balance, but not necessarily in the account balance. For example, if you send a check from your online bill pay system for $50, your available balance will decrease by $50, but your account balance will not decrease until that check is deposited by the payee’s bank. Alternatively, if you receive a deposit of $50, your available balance may increase by $50, but the account balance will lag behind since banks sometimes put a “hold” on deposits to verify sufficient funds.
Why the Different Balances Matter
The difference between account balance and available balance is important to understand in order to avoid unnecessary overdraft fees. Banks may charge large penalty fees to customers who draw against unavailable funds. When you are checking your bank account to ensure sufficient funds before writing a check, always base your decision off the available balance. Keep in mind that the balances may be exactly the same. This situation happens when there has been no activity for a couple of days and all deposits have had time to settle.
Checking Your Balances
If your account balance and available balance are not shown on your online banking system, most banks have a toll-free telephone number for customers to check their account’s balances. Banks typically have automated systems which can provide a variety of information about your account, including available balance and account balance.
Category: Personal Finance