What Is Running Balance vs. Available Balance?
Understand how your bank displays your money. Learn the crucial distinction between reported and immediately accessible funds for better financial management.
When checking a bank account, you’ll often see a “running balance” and an “available balance.” While they may seem similar, these terms have distinct meanings crucial for personal financial management. Understanding their difference helps prevent unexpected financial issues and provides a clearer picture of your spending capacity. This article clarifies these differences and explains their importance.
Understanding the Running Balance
A running balance is a chronological record of all transactions as they post to an account. It reflects the total amount of money after each fully processed deposit or withdrawal. This balance serves as a complete ledger of all account activity, showing the balance after every transaction has officially cleared.
For example, if you start with $500, deposit $100, and a $50 check clears, your running balance would sequentially update to $600, then $550. This balance provides a comprehensive overview of funds that have moved in and out of the account.
Understanding the Available Balance
The available balance is the amount of money immediately accessible for spending or withdrawal. This figure is calculated by subtracting any funds subject to holds or pending transactions from the running balance. Banks use the available balance to determine if a transaction, such as a debit card purchase or ATM withdrawal, will clear or result in an overdraft.
This balance updates in real-time as transactions are authorized, even before they fully post. It represents your true spending power at any given moment and is the most practical figure to consult for financial decisions.
Discrepancies and Their Causes
Differences between the running balance and available balance primarily stem from pending transactions or holds on funds. The running balance includes fully posted transactions, while the available balance accounts for temporarily inaccessible funds.
When using a debit card, a transaction initially appears as “pending” or “authorized.” The amount is immediately deducted from your available balance, reserving those funds. The actual deduction from the running balance and full processing by the merchant and bank may take one to three business days.
Deposited checks often lead to discrepancies due to bank holds. While the full amount might be added to your running balance, only a portion, or none, may be immediately available. Banks typically place a hold on checks to verify funds, with federal regulations generally allowing holds up to two business days for most checks.
Pre-authorizations, common with hotel, car rental, or gas station purchases, also cause a difference. These transactions place a temporary hold on a specific amount, reducing your available balance. The held amount might be larger than the final charge and remains inaccessible until the actual transaction posts or the hold expires, which can take a few days to a week. Additionally, Automated Clearing House (ACH) transactions, such as direct deposits or automatic bill payments, can take one to three business days to fully process and settle, impacting the available balance before the running balance.
Importance of Knowing the Difference
Understanding the distinction between your running and available balances is fundamental for sound personal financial management. This knowledge helps consumers avoid common pitfalls like overdraft fees, which can range from $25 to $35 per occurrence. Relying solely on the running balance, which includes funds not yet accessible, can lead to inadvertent overspending.
Always consult your available balance before making spending decisions to ensure you are working with genuinely accessible funds. This practice helps in effective budgeting, prevents declined transactions, and provides a more accurate picture of your immediate financial capacity. Prioritizing the available balance supports proactive financial health.