An account generally carries both a current balance and available balance. Before delving into the ins and outs of an available balance, it’s helpful to understand the term, “current balance.” A current balance is a number that generally reflects an account’s contents before any pending transactions, fees, deposits, holds, or other items have cleared. If an account contains no pending transactions or other similar items, the current balance is a true reflection of the account’s standing.
What is an Available Balance?
The “available balance” is always a true reflection of the amount of money that can be immediately used in an account. To get a better idea of how an available balance works, picture a basic account that holds $200. The owner of the account spends $10 out of the account on dinner one night using their debit/credit card. If the owner of the account were to refer to their bank statement online just after the purchase, they would notice that that the current balance was still $200, while the available balance was $190. The current balance still reflects $200 because of the pending $10 transaction.
The restaurant merchant account will eventually capture the funds (either on the same night or the next day), and both the available and current balances will be $190. This is assuming that no other transactions were made after purchasing dinner.
Potential for Problems
Problems occur when account holders become confused about how much money is truly available in their bank accounts. Although banks use the available balance to help account holders stay on top of their finances, this number can still be wrong. For example, when a driver prepays at a gas pump using their debit/credit card, the credit card processing mechanism will place a small hold on the account for authorization. The pump will generally charge a fee of around $1 before authorizing the purchase. The driver will then purchase a certain amount of gas. The small fee charged from the gas station’s merchant account will stay on the account anywhere from one day to one week before the credit card processing mechanism charges the true amount to the debit/credit card holder.
Because this type of hold can take days to transition to a genuine purchase, it can cause an account holder to forget that the purchase was ever even made. This is how overdrafts happen. Unfortunately, there is no fool proof way to avoid errors without manually monitoring transactions and expenses and not solely relying on online account reflections.