Recent changes in the Truth In Savings Act may have your financial institution very focused on your balance. My goal here today is to help you understand the different influences on your balance and hopefully shed some light on this seemingly simple, yet often frustrating part of banking.
Let’s start with current balance. Also known as ‘book balance’, ‘ledger balance’, or just plain old ‘balance’. This is the balance in your account according to the institutions books. Just as if they too were keeping a register. You make a deposit, they add it, a check clears your account, they subtract it, and so on.
According to the recent regulatory changes, your institution must always give you this balance.
Now there’s also a couple other flavors of balance, one being ‘collected balance’, which is a somewhat outdated term that goes back to the days when the main thing that effected your balance was whether or not deposited checks had been collected or not yet.
What is much more common now is ‘available balance’. This takes the current balance and adjusts it for funds that may not be available yet (uncollected) and for funds that have been promised (like for that purchase you made online).
How does the math work out on this? Let’s say you open your account for $100 cash, then make a check deposit for $200. This would make your current balance $300 but your available balance $100 because the funds from the deposit aren’t immediately available.
Now let’s take that a step further. If you had also made a purchase using your debit card on the same day using the ‘credit’ or signature option (remember the Debit or credit article?) for $50 then your available balance would be reduced by $50 because those funds are promised to the merchant you made the purchase from. So now your available balance is $50, even though your current balance is still $300. Make sense?
If the next day the hold is released on the deposit you made, your available balance is now $250 and your current balance is still $300. And, if we follow this through and the day after that, your debit card purchase clears, your current balance is reduced to $250 and it now matches your available balance assuming you haven’t touched your account at all during that time.
But we all now you’re constantly messing with your account, purchases here, deposits there, bill payments somewhere else, and the next thing you know the two balances don’t seem to even be on the same account.
Let’s throw something else into the mix, and this is what all the hubbub is about. Overdraft protection. We talked a while back about courtesy pay programs, and the ones that aren’t so courteous. Well the bad apples have spoiled the bunch and the regulators had to make sure everyone was following the same rules.
Starting December 1st, Financial Institutions must always show you your current balance. And, if they want to they can also show you your available balance, but they must tell you exactly what that available balance includes with regard to overdraft protection.
If you remember, there are three types of overdraft protection, a second account of yours such as your savings account, a line of credit from the bank, or courtesy pay where the institution lets you go negative by a certain amount and charges you a fee for that.
Some institutions will add those overdraft options into the available balance. Using the example above where you ended up with a current balance of $250 and an available balance of $250, we’ll add in an overdraft line of credit of $1,000. If your institution chooses to show that to you, you may see a current balance of $250 and an available balance of $1,250.
But if they do that, they must tell you that so that you don’t think you have more of your own funds then you really do.
Be a good consumer, read the disclosures your institution is providing you and know what your balance really is. And remember, if they’ve confused you, call them and let them explain, using your account, where your balance is derived from.