Do you ever get confused about your checking account balance when you log into your checking account online? If so, you are in good company! Many people have trouble discerning the difference between the "balance" and the "available balance." Believe it or not, many people do not realize or have not ever noticed there are two balances listed on their account. As a result, many people end up overdrawing their account and paying hefty fees to their financial institution each month because they looked at the wrong balance.
Why is there a difference in the two balances? The difference has to do with how merchants process transactions. The "balance" reflects all transaction that have processed and the "available balance" is the difference between the funds in your account and money that has be put on “hold” for the completion of the transaction.
Even though the transaction has been completed at the checkout, it most likely has not been completed with your financial institution. The time it takes for a transaction to be completed and the money to be withdrawn from your account can vary from a few hours to a few days. This is because companies run their transactions at different times. For example, if you go out to eat, get gas for your car, or buy clothes at a clothing store, the merchants will charge your “debit card.” Usually, this will put a hold on the amount of the transaction. This is also true for credit cards. It depends on how the merchant has their programs set up. At this point, the transaction usually doesn’t post, or move the money from your account to theirs, until the merchant completes the transaction. Merchants typically finalize transactions in batches. Batches contain all of the transactions by all customers that made purchases within a given time period such as an entire day. Most merchants will either run the batch of transactions when they close at night or the next morning. On some occasions, though, merchants will not run their batch of transactions for a few days.
Why is this important? It is important if you make spending decisions based on the “balance” in your account rather than the “available balance” in your account. Looking at the "available balance" isn't always reliable as you will read about later in this blog post. Of course, keeping track of each transaction in a checkbook register is the best way to avoid errors, but they can still occur. These errors can occur from making a calculation mistake or forgetting to enter a check.
There have been times where I have been really good about entering transactions into my checkbook register, but forgot to enter in a check I wrote. It only took me a couple of times of forgetting and paying fees before I stopped making that mistake…most of the time. If you rely on the “available balance” when logging into your account online, it is important to remember that the “available balance” does not include any checks that have been written and have yet to go through your account.
Another important thing to be aware of is that sometimes a transaction will lag or the merchant doesn’t put a hold on the amount of the purchase. When this happens, the transaction will go straight through the account at the time the merchant completes the transaction or runs a batch. If you forget about a purchase and a hold wasn’t put on the funds and reflected in the “available balance,” you could end up surprised if you make more purchases and it causes you to overdraw your account.
One other frustration for consumers is when a “debit card” is used as “credit card” to put something on hold and it affects the “available balance” in the checking account. For instance, when a consumer reserves a hotel room to be used in the future, many hotels will put a “hold” on the credit card for the future cost of the room. If the room is going to cost $100, then the hotel may put a hold on the $100, which lowers the available balance and makes that $100 unavailable to the consumer if they use a debit card as a credit card for the reservation. If you plan to reserve something that requires a credit card to hold the reservation, you may want to ask the company if they will be putting a hold on the future cost of the reservation. If so, this is when a credit card (not a debit card being used as a credit card) is a good financial tool that you may want to consider using. When it comes time to actually pay, you can then switch paying methods and use a debit card or cash.
What is the best solution for keeping track of your available balance? Keeping a record either manually (e.g. using a paper checkbook register), using Excel, or using a software program where you can record your transactions. This is not a foolproof method to avoid errors, due to the possibility of human mistakes, but it helps tremendously.
If you like using a paper checkbook register, PAFS has a handy one for sale on the Products link. If you prefer using Excel or would like to print checkbook register pages, those are offered for free under the Resource link on the PAFS website.