Cleared Funds
Cleared funds are the cash balances in an account that are able to be immediately withdrawn or used in financial transactions. If available funds are withdrawn from the account and the deposited check does not actually clear, the amount of the check will be withdrawn from the depositor's account possibly resulting in a negative balance or a bounced check due to insufficient funds. A check clears when funds are moved from the check writer's bank to the bank of the person depositing the check that was written. When cash or checks are deposited into an account, either as an account funding transaction or as the result of the sale of a security, it may take several business days until the financial institution is able to make all of the funds available for withdrawal or trading. When a person receives a check and deposits it, the bank receiving the deposit makes a request to the bank that houses the account the check was written from.
What Are Cleared Funds?
Cleared funds are the cash balances in an account that are able to be immediately withdrawn or used in financial transactions. Until funds are considered to be cleared funds they are considered to be pending, and investors or customers will be unable to conduct transactions with them.
Cleared Funds Explained
When cash or checks are deposited into an account, either as an account funding transaction or as the result of the sale of a security, it may take several business days until the financial institution is able to make all of the funds available for withdrawal or trading. A check clears when funds are moved from the check writer's bank to the bank of the person depositing the check that was written. If the check writer and depositor use the same bank, this can potentially happen on the same day.
When a person receives a check and deposits it, the bank receiving the deposit makes a request to the bank that houses the account the check was written from. Intermediary banks, clearinghouses, or the Federal Reserve may assist in the transaction. This can take varying amounts of time. Often, larger deposits may require a longer period of time to clear than smaller ones, especially if the size of the deposit requires a financial institution to comply with government regulations.
It typically takes about two business days for a deposited check to clear, and about five business days for the bank to receive the funds. Electronic transfers may clear in fewer days.
Cleared Funds vs. Available Funds
Available funds are not the same as cleared funds. Banks are required by law to make a certain portion of deposits available to the depositor either immediately or within a few days of the deposit. However, that does not mean that the money has actually been moved from the check writer's account and cleared. If available funds are withdrawn from the account and the deposited check does not actually clear, the amount of the check will be withdrawn from the depositor's account possibly resulting in a negative balance or a bounced check due to insufficient funds.
Related terms:
Available-for-Sale Security
An available-for-sale security is a security procured with the plan to sell before maturity or to hold it for a long period if there is no maturity date. read more
Available Funds
Available funds is the amount of money that is in your bank account and accessible for immediate use. read more
Book Balance
Book balance is an accounting record of a company's cash balance reflecting all transactions and must be reconciled with the bank account balance. read more
Certified Check
A certified check is a type of check for which the issuing bank guarantees that enough cash will be available when the recipient decides to use the check. read more
Checking Account
A checking account is a deposit account held at a financial institution that allows deposits and withdrawals. Checking accounts are very liquid and can be accessed using checks, automated teller machines, and electronic debits, among other methods. read more
Clearing
Clearing is when an organization acts as an intermediary to reconcile orders between transacting parties. A clearing bank approves checks for payments. read more
Deposit in Transit
A deposit in transit is money that has been received by a company and sent to the bank, but it has yet to be processed and posted to the bank account. read more
Federal Reserve System (FRS)
The Federal Reserve System is the central bank of the United States and provides the nation with a safe, flexible, and stable financial system. read more
Financial Institution (FI)
A financial institution is a company that focuses on dealing with financial transactions, such as investments, loans, and deposits. read more
Financial Intermediary
A financial intermediary facilitates transactions between lenders and borrowers, with the most common example being the commercial bank. read more