Unavailable funds fee
Encyclopedia
Unavailable funds fee is a penalty fee
applied by a bank
on a transaction account when a transaction is posted to an account that has negative available balance even though it has a positive physical balance. The fee is distinct from a non-sufficient funds
fee as there is a positive physical balance but some or all the funds are on hold
meaning that the balance is not yet available.
Bank fees such as the unavailable funds fee are contentious and have been the subject of some debate. Consumer advocacy groups have criticised them as opaque and unfair and that they particularly penalise the poor and fees do not reflect the banks costs. The banks argue that its penalty not a transaction fee. These fees have become a major source of income for banks replacing the traditional account and transaction fees which in many countries have disappeared.
An account has two distinct balances a posted balance or physical balance and an account balance. The difference is comes from transactions that have been applied to the account but have holds against them. To understand how an "unavailable funds fee" comes about it is important to understand the difference between the two types of balances.
For example if we have an account with an opening balance of $100, and we have $10 on hold, and $20 physically leaves the account the available balance is $70.
deposits waiting to clear, notice of returns, notice of collection, debit card
purchases or direct deposit
. A "hold" is assigned a dollar value and a time frame, typically between 1 to 14 days. Holds are not permanent and once the reason for the hold has been resolved, it either becomes a posted transaction or the payment is reversed. At this point, when a transaction posts a fee can be generated.
To illustrate this, the following example shows a number of transactions and the hold balance over a period of 7 days, starting the 1 Jan 2006 until 7 Jan 2006.
shows a customer that has over spent by one penny and as a result has generated five fees. The overspending fee used in the example is $30.00 which is typical for the banks that charge this type of fee. These fees occur when a transaction post to the account and the available balance is negative. In this example there is 5 purchases ($10.00 for gas, $35.01 for net, $15.00 for phone, $15.00 for music and $25.00 for food, total =$100.01) and a standard deposit hold period.
Fee
A fee is the price one pays as remuneration for services. Fees usually allow for overhead, wages, costs, and markup.Traditionally, professionals in Great Britain received a fee in contradistinction to a payment, salary, or wage, and would often use guineas rather than pounds as units of account...
applied by a bank
Bank
A bank is a financial institution that serves as a financial intermediary. The term "bank" may refer to one of several related types of entities:...
on a transaction account when a transaction is posted to an account that has negative available balance even though it has a positive physical balance. The fee is distinct from a non-sufficient funds
Non-sufficient funds
Non-sufficient funds is a term used in the banking industry to indicate that a demand for payment cannot be honored because insufficient funds are available in the account on which the instrument was drawn. In simplified terms, a cheque has been presented for clearance, but the amount written on...
fee as there is a positive physical balance but some or all the funds are on hold
Authorization hold
Authorization hold is the practice within the banking industry of authorizing electronic transactions done with a debit card or credit card and holding this balance as unavailable either until the merchant clears the transaction , or the hold "falls off." In the case of debit cards,...
meaning that the balance is not yet available.
Bank fees such as the unavailable funds fee are contentious and have been the subject of some debate. Consumer advocacy groups have criticised them as opaque and unfair and that they particularly penalise the poor and fees do not reflect the banks costs. The banks argue that its penalty not a transaction fee. These fees have become a major source of income for banks replacing the traditional account and transaction fees which in many countries have disappeared.
Overview
The "unavailable funds" fee, not to be confused with the "non-sufficient funds" (NSF), "overdraft", "exceed hold" or "overlimit" fees, is a fee that results from a transaction that posts to a negative available balance and a positive physical balance, as applied to a Demand Deposit Account; usually a checking account. The fee is typically applied at the end of the business day, as most banks process transactions at the end of each business day.An account has two distinct balances a posted balance or physical balance and an account balance. The difference is comes from transactions that have been applied to the account but have holds against them. To understand how an "unavailable funds fee" comes about it is important to understand the difference between the two types of balances.
Posted Balance
The "posted balance" is money that physically is in the account. This balance is the result of a transaction that has a date in the past. This is the actual or the "real balance" of the money in the account.Available Balance
The "available balance" is the "posted balance" minus the total of the "holds" that have today's date or a date in the future.For example if we have an account with an opening balance of $100, and we have $10 on hold, and $20 physically leaves the account the available balance is $70.
| Date | Serial number | Description | Amount | Posted Balance | Holds | Available Balance |
|---|---|---|---|---|---|---|
| 01-01-06 | opening balance | $100.00 | $10.00 | $90.00 | ||
| 01-01-06 | Direct deposit | gas | $5.00 | $95.00 | $10.00 | $85.00 |
| 01-01-06 | 1001 | check | $15.00 | $80.00 | $10.00 | $70.00 |
Holds
A "hold" is money that the bank has either chosen or is not allowed to make available to the customer yet. "Holds" originate from chequeCheque
A cheque is a document/instrument See the negotiable cow—itself a fictional story—for discussions of cheques written on unusual surfaces. that orders a payment of money from a bank account...
deposits waiting to clear, notice of returns, notice of collection, debit card
Debit card
A debit card is a plastic card that provides the cardholder electronic access to his or her bank account/s at a financial institution...
purchases or direct deposit
Direct deposit
Direct deposit also known as Direct credit is a banking term used to refer to certain payment systems used to transfer money where a payment is initiated by the payer not the payee, namely:* In Europe, the giro system...
. A "hold" is assigned a dollar value and a time frame, typically between 1 to 14 days. Holds are not permanent and once the reason for the hold has been resolved, it either becomes a posted transaction or the payment is reversed. At this point, when a transaction posts a fee can be generated.
To illustrate this, the following example shows a number of transactions and the hold balance over a period of 7 days, starting the 1 Jan 2006 until 7 Jan 2006.
| Date | Value | 1 Jan 2011 | 2 Jan 2011 | 3 Jan 2011 | 4 Jan 2011 | 5 Jan 2011 | 6 Jan 2011 | 7 Jan 2011 |
|---|---|---|---|---|---|---|---|---|
| deposit | +$100.00 | $100.00 | $100.00 | $100.00 | ||||
| DBC gas | -$10.00 | $10.00 | $10.00 | $10.00 | ||||
| DBC music | -$15.00 | $15.00 | $15.00 | $15.00 | ||||
| DBC food | -$25.00 | $25.00 | $25.00 | $25.00 | ||||
| DBC Phone | -$15.00 | $15.00 | $15.00 | $15.00 | ||||
| DBC net | -$35.01 | $35.01 | $35.01 | $35.01 | ||||
| total holds | -$00.01 | -$100.00 | -$110.00 | -$175.01 | -$100.01 | -$90.01 | -$25.00 |
Example
The following bank statementBank statement
An account statement or a bank statement is a summary of all financial transactions occurring over a given period of time on a deposit account, a credit card, or any other type of account offered by a financial institution....
shows a customer that has over spent by one penny and as a result has generated five fees. The overspending fee used in the example is $30.00 which is typical for the banks that charge this type of fee. These fees occur when a transaction post to the account and the available balance is negative. In this example there is 5 purchases ($10.00 for gas, $35.01 for net, $15.00 for phone, $15.00 for music and $25.00 for food, total =$100.01) and a standard deposit hold period.
| Date | Description | Amount | Posted balance | Holds | Available Balance | Fee Caused | What's on hold |
|---|---|---|---|---|---|---|---|
| 1 Jan 2011 | deposit | +$100.00 | $100.00 | $100.00 | $0.00 | none | none |
| 2 Jan 2011 | n/a | $0.00 | $100.00 | $100.00 | $0.00 | none | none |
| 3 Jan 2011 | n/a | $0.00 | $100.00 | $100.00 | $0.00 | none | none |
| 4 Jan 2011 | n/a | $0.00 | $100.00 | $200.01 | -$100.01 | none | $10.00 gas, $35.01 net, $15.00 phone, $15.00 music, $25.00 food, $100 deposit |
| 5 Jan 2011 | gas | -$10.00 | $90.00 | $90.01 | -$00.01 | unavailable fee | $35.01 net + $15.00 phone + $15.00 music + $25.00 food |
| fee | -$30.00 | $60.00 | $90.01 | -$30.01 | none | $35.01 net + $15.00 phone + $15.00 music + $25.00 food | |
| 6 Jan 2011 | net | -$35.01 | $24.99 | -$25.00 | -$0.01 | unavailable fee | $25.00 food |
| phone | -$15.00 | $9.99 | -$25.00 | -$15.01 | unavailable fee | $25.00 food | |
| music | -$15.00 | -$5.01 | -$25.00 | -$30.01 | overdraft fee | $25.00 food | |
| fee | -$30.00 | -$35.01 | -$25.00 | -$60.01 | none | $25.00 food | |
| fee | -$30.00 | -$65.01 | -$25.00 | -$90.01 | none | $25.00 food | |
| fee | -$30.00 | -$95.01 | -$25.00 | -$120.01 | none | $25.00 food | |
| 7 Jan 2006 | food | -$25.00 | -$120.01 | $0.00 | -$120.01 | overdraft fee | none |
| fee | -$30.00 | -$150.01 | $0.00 | -$150.01 | none | none |
United States of America
- Bank of AmericaBank of AmericaBank of America Corporation, an American multinational banking and financial services corporation, is the second largest bank holding company in the United States by assets, and the fourth largest bank in the U.S. by market capitalization. The bank is headquartered in Charlotte, North Carolina...
- WachoviaWachoviaWachovia was a diversified financial services company based in Charlotte, North Carolina. Before its acquisition by Wells Fargo in 2008, Wachovia was the fourth-largest bank holding company in the United States based on total assets...
- U.S. Bank
- SunTrust BanksSunTrust BanksSunTrust Banks, Inc., is an American bank holding company. The largest subsidiary is SunTrust Bank. It had US$172.7 billion in assets as of September 30, 2009...
- Citizens Financial GroupCitizens Financial GroupCitizens Financial Group, Inc. is an American bank headquartered in Providence, Rhode Island, which operates in the states of Connecticut, Delaware, Illinois, Massachusetts, Michigan, New Hampshire, New Jersey, New York, Ohio, Pennsylvania, Rhode Island and Vermont. Citizens is a wholly owned...
- Compass BankCompass BankCompass Bank is a name of a bank. It may refer to:#Compass Bank of New Bedford, Massachusetts, USA, acquired by Sovereign Bank in 2004#BBVA Compass, headquartered in Birmingham, Alabama, USA...
- TD BankTD BankTD Bank may refer to:*Toronto-Dominion BankOr its retail banking divisions:*TD Canada Trust *TD Bank, N.A. Or a former retail-banking division:*TD Banknorth...
- CAPITAL ONE BANK
United States of America
Not all overspending fees are officially defined or regulated in the United states. It is up to the individual bank to decide if the Unavailable Funds Fee should be applied, instead it could dishonour the payment to avoid a customer getting into a position where the fee applies.See also
- Bank charge
- Non-sufficient fundsNon-sufficient fundsNon-sufficient funds is a term used in the banking industry to indicate that a demand for payment cannot be honored because insufficient funds are available in the account on which the instrument was drawn. In simplified terms, a cheque has been presented for clearance, but the amount written on...
- OverdraftOverdraftAn overdraft occurs when money is withdrawn from a bank account and the available balance goes below zero. In this situation the account is said to be "overdrawn". If there is a prior agreement with the account provider for an overdraft, and the amount overdrawn is within the authorized overdraft...
- Overdraft protection
- Deposit accountDeposit accountA deposit account is a current account, savings account, or other type of bank account, at a banking institution that allows money to be deposited and withdrawn by the account holder. These transactions are recorded on the bank's books, and the resulting balance is recorded as a liability for the...
- Debit cardDebit cardA debit card is a plastic card that provides the cardholder electronic access to his or her bank account/s at a financial institution...