Numbers don’t lie, but they may play a trick or two.
And one of the most bothersome can be determining whether the current balance or the available balance on a bank account is the most correct. In actuality, they both are. A current balance is the amount of cash presently sitting in a checking or savings account at any given time. However, the available balance is the current balance minus any pending transactions that haven’t been fully processed yet.
Financial institutions provide both of these balances in an effort to provide account holders with the most detailed picture of their funds, however, it has been known to confuse many uninformed account owners. Understanding the differences between a current balance and an available balance is extremely important as it provides a clear guide for future spending.
What is Current Balance?
The current balance of an account is a reflection of the amount of funds that are moving throughout a checking account or savings account at any given time. This is a compilation of both credits and debits — incoming and outgoing funds — within an account. It includes transactions that have been completely processed on both ends and posted to an account.
Pending transfers or payments that have been authorized but have not been fully processed yet may be listed in your transaction history but are not included in the tally. So any debit card payments, mobile deposits, or automatic bill payments that haven’t been fully processed will not be calculated into the current balance.
For example, let’s say Brian’s checking account balance is $200. On Monday, his employer deposits an $800 payment into his account that clears and posts on the same day, raising Brian’s current balance to $1,000. On Wednesday, Brian uses his debit card to pay $100 for dinner, and the restaurant places a hold on his account for the amount. Because the payment is pending and awaiting processing, Brian’s current balance is still $1,000. However, if on Friday the restaurant charge is fully processed and posted onto his account, his current balance would drop to $900.
What is Available Balance?
An available balance is the current balance of a checking or savings account, minus any pending payments and deposits. At essence, it takes the total amount of all fully processed and posted credits and debits, and subtracts the total amount of any pending payments that have yet to be fully processed, providing a more accurate reflection of the money in your account that remains available to be spent.
For example, Danielle’s checking account balance is $500. She uses her debit card to pay a $100 internet bill, and her landlord cashes her $300 check for her rent — both payments appear on her account as pending. Despite her current balance being $500, her available balance is only $100 due to the pending payments. If she were to make other payments totaling more than $100, she will risk an overdraft fee.
Recommended: Different Types of Savings Accounts You Can Have
What is the Difference Between Current Balance and Available Balance?
If an account goes a week or two without any activity, its available balance and current balance will likely be in sync. However, once purchases and payments are made with a debit card, that is when the available balance is likely to fluctuate.
The key difference between a current balance and an available balance is “promised payments.” A current balance is the total amount of money in an account including money that has been promised to other people or businesses. An available balance, on the other hand, is the specific amount of money available that has not been promised to any person or business. While spending the full amount of a current balance with pending payments could result in overdraft fees, spending the full amount of an available balance will not.
Generally, when a current balance and available balance differ, the available balance is the lower of the two, and it’s nearly always due to a pending payment. In some rare cases, however, an available balance may appear larger than the current balance. This could be due to receiving a refund from a purchase or the reflection of a bank overdraft protection buffer on an account. Either way, in this case, it would be wise to contact your bank for a better understanding of your current account standing.
How Long Does It Take for a Current Balance to Become an Available Balance?
The amount of time it takes for an available balance to sync back up with a current balance depends on the specific amount of processing time needed to complete each pending transaction, and those times can vary depending on the type of transaction and how quickly the establishment processes it. The account holder’s ability to refrain from spending with their debit card and adding more pending payments to the account is also a major factor.
As a general rule of thumb, individual pending payments can take as little as 24 hours, or as long as 3 days to be completely processed and posted to an account. The process requires communication and confirmation between the banks of the account owner and the establishment they purchased from. If a transaction remains pending for up to a week, that is when it would be wise to contact the merchant or your bank for clarity.
Which Balance Should I Rely On?
The current balance and available balance each serve their own purpose and both can be relied upon as an accurate representation of a checking or saving account. However, there are specific instances when it would be better to reference one over the other.
If you’re planning on making a purchase or withdrawal, that is an instance where it would be more beneficial to reference the available balance on your account. It’s the best way to know exactly how much money is available to be spent without disrupting any other pending payments. Checking the available balance will give the most exact account of what is freely available to be spent and will also help you avoid incurring any overdraft fees.
If you’re more interested in your account balance as a whole and how much money you have flowing through your account at any given time, that is when you’ll want to reference your current balance. It accounts for every dollar entering and exiting your account at the very moment you check it. Do keep in mind, however, that the available balance total may change quickly due to any sudden pending transactions, therefore it would be wise to check it daily for the most up-to-date tally.
Recommended: How Often Should You Monitor Your Checking Account?
Knowing what your account balances mean and how to interpret them is a basic financial skill that can literally save you money. Even the slightest misinterpretation of the two could result in costly overdraft fees and disrupt your financial goals.
SoFi Money® is a cash management account that can help you keep tabs on your cash and help you reach your financial goals. You can save, spend, and earn all in one account with no account fees.
Check out SoFi Money.
Photo credit: iStock/fizkes
SoFi Money is a cash management account, which is a brokerage product, offered by SoFi Securities LLC, member FINRA / SIPC . Neither SoFi nor its affiliates is a bank. SoFi Money Debit Card issued by The Bancorp Bank.
SoFi has partnered with Allpoint to provide consumers with ATM access at any of the 55,000+ ATMs within the Allpoint network. Consumers will not be charged a fee when using an in-network ATM, however, third party fees incurred when using out-of-network ATMs are not subject to reimbursement. SoFi’s ATM policies are subject to change at our discretion at any time.
The SoFi Money® Annual Percentage Yield as of 03/15/2020 is 0.20% (0.20% interest rate). Interest rates are variable subject to change at our discretion, at any time. No minimum balance required. SoFi doesn’t charge any ATM fees and will reimburse ATM fees charged by other institutions when a SoFi Money™ Mastercard® Debit Card is used at any ATM displaying the Mastercard®, Plus®, or NYCE® logo. SoFi reserves the right to limit or revoke ATM reimbursements at any time without notice.