What Are Cleared Funds?

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DEFINITION
Cleared funds refer to any cash, check, or electronic deposit that has been validated by your bank and made available for you to use. Anytime there is a deposit into your bank account, there could be different time frames as to when you will have access to the funds.

Cleared funds refer to any cash, check, or electronic deposit that has been validated by your bank and made available for you to use. Anytime there is a deposit into your bank account, there could be different time frames as to when you will have access to the funds.

Knowing what cleared funds are and how they work can help you avoid any confusion that could lead to a costly mistake.

Definition and Example of Cleared Funds

Cleared funds refer to the money deposited into a bank account that has been made available for the customer to use for financial transactions or withdrawals. The deposited funds can be cash, check, or electronic transfers.

Some deposits may take more time to clear than others, especially if the originating bank is different from the receiving bank. However, once your bank has cleared the funds, they immediately become available for you to either withdraw or use.

Depending on the type of deposit, federal law regulates the maximum length of time your bank can wait before making the funds available, which is typically two to seven business days.

Banks and credit unions have the option to clear funds sooner than the federally stated guidelines. However, until the funds are cleared, they are considered pending. That means you will not be able to withdraw or use that money for any financial transactions while the deposit is still pending.

For example, you could make a $500 cash deposit in person at your local bank branch on Monday before noon, and have access to the funds by Monday evening. Or you could deposit a $500 cashier’s check in person and not get access to the money until the next business day.

How Do Cleared Funds Work?

When you make a deposit into your bank account, you want to be able to use the funds as soon as possible. However, it’s important to note that those funds may not be immediately available for use until your bank has cleared them.

Cleared funds mean you have full access to withdraw or use the available money in your bank account for transactions. This practice acts as a safeguard that protects both you and the bank from any unwanted consequences if the payer has insufficient funds or if the deposit doesn’t go through for any reason.

Now, imagine if you start writing checks, paying bills, or making purchases from your bank account but the deposit hasn’t cleared. You could end up being charged returned-check fees and overdraft fees for every transaction.

Depending on the type of deposit made into your account, the wait times for the funds to clear may vary. In some cases, it can take several days for deposits to transfer from the payer’s bank to your bank.

Banks and credit unions may also have their own rules regarding when you can access money after a deposit. However, there are federal guidelines in place that specify the maximum time a bank or credit union can make you wait before the funds are available for you to use for transactions.

Financial institutions must disclose their funds availability policies and schedules to their customers in writing. The policy may also be available online at your bank’s website.

Determining the time it takes for a deposit to clear typically depends on factors such as:

  • The type of deposit
  • The time the deposit was made during the business day
  • The amount of the deposit (in some cases)

Cleared funds are made available according to your institution’s banking-day cutoff times. Additionally, wait times are measured by the business days that follow the day of the deposit.

Here’s a breakdown of times when cleared funds should be made available based on the different types of deposits and federal guidelines.

Deposit Type Deposit Method Funds Availability
Cash In person at your bank Same day or next day
  Your bank's ATM Second business day
  Another bank's ATM Fifth business day
U.S. Treasury checks In person or at your bank’s ATM Next business day
Direct deposit, wire transfers, and ACH  Electronic deposit Typically same day or next business day
U.S. Postal Service money orders In person at your bank Next business day
  Your bank's ATM Second business day
  Another bank's ATM Fifth business day
Federal Reserve Bank and Federal Home Loan Bank checks; state or local government checks In person at your bank Next business day
  Your bank's ATM  Second business day
  Another bank's ATM  Fifth business day
Cashier's, certified, or teller's checks In person at your bank Next business day
  Your bank's ATM Second business day
  Another bank's ATM Fifth business day

Reasons for Cleared Funds Availability Delays

There are a few instances where deposits may have longer wait times than usual before they become cleared funds. Here are a few possible scenarios:

Large Deposits

Deposits over $5,000 could be placed on hold (cash and electronic deposits may be excluded). However, your bank is required to make the first $5,000 available for withdrawal based on its usual availability policy. The remainder should be made available within the “reasonable” time frames mentioned above.

Redeposited Checks

These could be held unless the check was returned due to a missing endorsement, or if the check was postdated. In this situation, once the deficiency is corrected, the check should not be held.

Accounts With Excessive Overdrafts

Deposits can be held for seven business days or longer if made to an account that has been overdrawn six or more banking days in the previous six months, and either had or would have had a negative balance if the transaction had been paid; or an account in which two or more banking days in the previous six months either had or would have had a negative balance greater than $5,000.

Reason To Doubt Collectibility

Checks that are post-dated, dated for more than six months earlier, or potentially fraudulent may be held for up to seven business days or longer.

Deposits During Emergency Conditions

Checks deposited during emergency conditions such as natural disasters, power outages, etc., may be held until the bank can make the funds available.

New Customer Accounts Open Less Than 30 Days

Next-day cleared funds availability is only allowed for cash deposits, electronic payments, and the first $5,000 of any other next-day deposits for new accounts.

According to The Expedited Funds Availability Act, the first $200 of a non-"next-day" check(s) should still be made available the next day after the day of the deposit.

Cleared Funds vs. Account Balance

 At some point, you may have noticed different balances in your bank account. One may be your  “account” balance, or "running” balance. The other may be your “available” balance.

Your account balance is the overall total amount of money that is currently in your bank account. It shows everything that is in your account, including the funds that might be on hold.

The cleared funds are what would show up as your available balance. This means you already have access to this money to use for withdrawals and other transactions.

Whenever the available balance is lower than the account balance, it typically means one of the following is true:

  • All of your deposits have not been cleared and fully credited to your account yet
  • There are checks, ACH payments, withdrawals, or other charges that are still pending against your account

Regularly monitor and track your transactions to avoid overdrawing your bank account and racking up unwanted charges by accident.

Key Takeaways

  • Cleared funds refer to the money in your bank account that has been cleared by your bank and made available for you to use.
  • Some deposit types take longer to clear than others.
  • The government regulates the maximum wait times before banks must make funds available.
  • Cleared funds are the same as your available balance.

Article Sources

  1. The Federal Reserve Board. "Compliance With Regulation CC." Accessed Feb. 10, 2022.

  2. The Federal Reserve Board. "Regulation CC: Availability of Funds and Collection of Checks." Page 1. Accessed Feb. 10, 2022.