Approved funds are cash, checks, or financial instruments deposited in a bank or investment account, authorized for use by the institution. Deposits may be immediately available or held for a specified time. Banks have policies on cleared funds, and delays can be avoided with electronic transfers.
Approved funds are generally identified as cash, checks, or other financial instruments that have been deposited in a bank or investment account, and that the institution has authorized for use. Depending on the regulations governing deposits with the jurisdiction, as well as the standard practices of the financial institution, the deposited funds may be immediately available to the account holder, or may be held in pending mode for a specified amount of time. Financial institutions are responsible for following federal guidelines regarding the availability of deposits and developing their internal procedures related to cleared funds in a manner that is compliant with federal regulations.
Today, at many banks, cash and checks written for a certain amount are first posted as a credit note to the account. This effectively helps the internal system to keep track of the posts that will be applied shortly to a given account. If the customer makes a deposit before a set time of day, the credit memo is issued and dated with the same calendar date and cleared sometime during the evening hours. This means that the cleared funds will be available the next business day.
In general, many banks today require that deposits be made before one or two in the afternoon, in order to record and settle them the same day. Any deposit made later in the afternoon will be dated as the next business day and will be authorized for use on the evening of that date. This will mean that a deposit made around 3pm on Monday will not be available for customer use until Wednesday morning. Understanding the bank’s policy on cleared funds is essential to avoid account issues.
Banks may require three to five business days for funds to be available for withdrawal. This is often the case when a check is written on a bank outside the country, or if other extenuating circumstances occur that delay confirmation of the value of the financial instrument by the bank. With some banks, checks for large amounts of money drawn from non-business accounts will also be included in this three to five day settlement range. Approved funds are available only when the bank has confirmation that the check will be honored. Delays of this type can often be avoided by making use of electronic transfers, which transfer funds directly from the payer’s bank account to the recipient’s designated account. Often these funds are available immediately, or at least later the same day.
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