When checking your bank account, you’ll notice two important figures – your actual balance and your available balance. While they may seem similar at first glance, understanding the difference between the two is crucial for managing your money and avoiding overdraft fees.
What is Actual Balance?
Your actual balance, sometimes called your ledger balance, refers to the total amount of money in your account at any given time. This reflects all transactions that have officially posted to your account, including:
- Deposits made into your account
- Checks, transfers, and electronic payments you’ve made from your account
- Any fees charged by your bank
- Interest earned on your account
Your actual balance does not take pending transactions into consideration. For example, if you write a check that has not yet cleared your bank, it will not be reflected in your actual balance.
What is Available Balance?
Your available balance is the amount of money you have at your immediate disposal in your account. This is the balance that determines whether transactions will be approved or denied due to insufficient funds.
Your available balance accounts for:
- Your actual balance
- Pending deposits that have not yet posted
- Pending payments, checks, or withdrawals that have not yet posted
- Any holds on your account due to pending transactions
By factoring in pending activity, your available balance gives you a more accurate picture of the funds you can actually access at the moment. This is the balance you should rely on when making transactions.
Why Do Actual and Available Balances Differ?
In most cases, your actual balance and available balance should be very close to one another. However, you may notice a discrepancy between the two if:
- You have a pending transaction – This could be a payment, check, or debit card transaction that has been authorized but not yet finalized. While it will be subtracted from your available balance, it will not show up in your actual balance until it posts.
- You have a deposit on hold – Banks will sometimes place a hold on checks or cash deposits, making those funds unavailable until the hold is released. The amount will be reflected in your actual balance but not your available balance.
- You have an overdraft line of credit – If your account is linked to an overdraft line of credit or overdraft protection, your available balance may exceed your actual balance up to your credit limit.
How Pending Transactions Affect Your Balance
One of the most common reasons for a discrepancy between actual and available balances is pending transactions. Here is a more detailed overview of how they impact your account:
- Debit card purchases: When you use your debit card, the merchant generally requests authorization for the payment amount. This hold immediately reduces your available balance but does not affect your actual balance. The transaction posts 1-3 days later, reducing both balances.
- ATM withdrawals: Cash withdrawals work similarly to debit purchases. The amount is authorized when you swipe your card and held against your available balance. The transaction finalizes when the ATM settles with your bank, often the next business day.
- Checks: When you write a check, the payee must physically deposit it with their bank before the funds are deducted from your account. There is often a 1-5 day lag between when you write the check and when it hits your actual balance.
- Online bill payments: Electronic payments made via your bank’s online bill pay feature are deducted from your available balance on the payment date, but may take 2-3 business days to post to your actual balance.
Keep in mind that policies vary between financial institutions – some debit transactions may only authorize when they settle. Contact your bank for specifics on how and when pending transactions affect your balances.
Why is my available balance important?
Keeping track of your available balance is crucial for avoiding overdrafts. For example:
- You have $100 in your actual balance
- You use your debit card to make a $60 purchase
- The transaction is authorized, so $60 is subtracted from your available balance but your actual balance remains $100
- Before the first transaction posts, you make a second $50 debit card purchase
- This second transaction overdraws your account since your available balance was only $40 at the time
You can avoid fees in this scenario by closely monitoring your available balance and not exceeding it with purchases or withdrawals. The available balance gives you your true spending power at any moment.
Tips for Managing Your Balances
Here are some tips for keeping track of your actual and available balances:
- Check your balances frequently – Review both balances regularly online or via mobile banking so you know your spending limit at all times.
- Allow time for pending transactions – Understand processing times for different transaction types so your balances stay aligned.
- Keep a cushion – Maintain a buffer between your balances and your account minimum to avoid overdrafts.
- Link overdraft protection – Opt to link a savings account or line of credit to fund overages when necessary.
- Sign up for alerts – Set up email or text notifications for low balance warnings and when certain key transactions post.
- Use online banking tools – Features like pending transaction listings can provide greater clarity.
What happens if my available balance is negative?
A negative available balance means you have transactions pending that exceed the funds currently in your account. This typically happens when:
- You have outstanding checks, debit transactions, or other pending payments that have not yet posted to your actual balance
- You made a transaction without sufficient funds in your actual balance to cover it
If your available balance dips into negative territory, any additional transactions you attempt will likely trigger overdraft fees. You have a few options to correct this:
- Make a deposit to cover the pending transactions and bring your available balance to positive
- Cancel any pending checks or payments if possible to avoid further overdraft fees
- Contact the merchant to void any debit card transactions that would overdraw your account
- Speak with your bank – they may be willing to waive overdraft fees if this was an isolated incident
Having a negative balance can result in your debit card being declined for purchases, automated payments failing, and additional fees from your bank. It’s best practice to closely monitor your finances and not spend below your available balance to avoid issues.
FAQ
How often do available and actual balances update?
Your available balance updates immediately when transactions are authorized against your account during business hours. Actual balances update once or twice a day as pending transactions from the previous day post. Your bank’s end-of-day cut-off time impacts this timing.
Which balance is shown on my bank statement?
Your monthly statement will list your actual balance for each day, not your available balance. The statement reflects posted transactions only.
What happens when a pending transaction drops off?
If a pending transaction never finalizes and posts, such as a debit card authorization that expires, the hold against your available balance will be removed. The funds become available in your account again.
Can I spend from both balances?
You can only spend from your available balance, not your actual balance. Initiating transactions based solely on your actual balance is likely to result in overdrafts and fees.
What if my balances don’t match my register?
If your running account register does not match either balance, it likely reflects timing differences. Log pending transactions in your register when initiated so it aligns with your available balance. Contact your bank if discrepancies persist.
Conclusion
While your actual and available balances may differ slightly from time to time, monitoring both is imperative to understanding your true account position. Keeping a close eye on your available balance in particular will help you avoid spending below your means and incurring overdraft fees. With a thorough understanding of how each balance works, you can take control of your finances.
