Investment Fund Balance Stagnation: Why It Happens

There are several reasons why your investment fund balance might be the same as yesterday's. Your investment fund balance reflects the amount of money in your bank account at any given moment, including any pending payments and deposits. Your available balance is the amount of money you have to spend, which may be less than your current balance due to pending transactions. These transactions could include purchases made with a debit or credit card, check deposits, or recurring payments such as gym memberships and insurance premiums. It is important to monitor your available balance and keep track of any pending transactions to avoid overdrawing your account and incurring fees.

Pending transactions

There are three distinct processes involved in card payment processing: authorisation, settlement, and funding. Typically, if a transaction is marked as pending, it is held up during the authorisation phase of processing. This is what happens behind the scenes when you pay with a credit or debit card:

• Following payment verification (entering your PIN or paying online), the merchant requests payment authorisation from your bank (the issuing bank) via the payment processor and card association.
• Upon receiving this request, your bank will evaluate factors like your available balance, security credentials, card validity, etc. Depending on the outcome of these checks, it will then approve or decline the transaction.
• From the moment the transaction is authorised by the issuing bank, it is marked as pending. This process is fully automated and happens within a matter of seconds.
• After receiving payment authorisation, the vendor sends the transaction details to their payment processor, who adds the transaction to a batch with many other transactions. Batch processing helps to save time and increase efficiency. This may be at the end of the day, at the beginning of the week if a payment is authorised over the weekend, or even longer if the payment coincides with a holiday.
• The payment processor then sends the transaction to the issuing bank (your bank) via the appropriate card network. Upon receipt of the transaction, the issuing bank charges your account. It then sends the money to the merchant's bank, who then deposits the money in the merchant's bank account.
• The transaction is completed once the funds have been deposited into the merchant's account.

The current balance is the total amount of money in an account, including all cleared and posted transactions. It reflects the actual balance of the account at the end of the last business day and does not account for pending transactions that have not yet been processed.

Because of the way these figures work, your available balance will often differ from your current balance. Pending transactions will reduce your available balance before your current balance, while pending deposits may be added to your available balance before being added to your current balance.

Available balance vs current balance

When you check your bank account, you may see different numbers, including your available balance and your current balance. While these two numbers may be the same, they can also differ. Understanding the difference between these two numbers is important for managing your money effectively.

Current Balance

The current balance of your bank account is the total amount of money in the account at any given moment. It includes all transactions that have been completed, as well as pending transactions that have not yet cleared. For example, if you have $500 in your account and make a $10 purchase, the current balance will still show as $500 until the transaction clears. The current balance may also be higher if you have deposited a check that has not yet cleared.

Available Balance

The available balance is the amount of money you can withdraw and use from your account. It includes any pending deposits but does not include pending purchases. This balance is important to track because it reflects the funds that you can actually access and use. For example, if you have $500 in your account and swipe your debit card to buy a $10 lunch, the available balance will decrease to $490, even though the current balance still shows as $500.

Reasons for Differences

There are several reasons why your available balance and current balance may not match up:

• Pending transactions: As mentioned earlier, pending transactions can affect the available balance but not the current balance. It can take a day or two for transactions to clear, depending on the type of transaction.
• Authorization holds: Merchants may authorize a transaction for a higher amount than what is actually owed. For example, a restaurant may authorize a transaction for a higher amount to account for a tip. This hold will reduce your available balance until the final amount is processed.
• Check deposits: When you deposit a check, the funds may not be immediately available. It usually takes about two business days for a check to clear and the funds to become part of your available balance.
• Delays in crediting deposited funds: Banks may not make all of the deposited funds available immediately, especially for larger deposits or new customers. This is done to protect against fraud.

Best Balance to Track

For checking accounts, the important balance to track is the available balance. This balance shows the amount of money you can withdraw and spend, and using it can help you avoid overdraft fees or having transactions declined. However, it is also important to monitor your current balance to keep track of pending transactions and ensure you have enough funds available to cover them.

Delayed crediting of deposited funds

When you deposit a check, your bank may not make all of the funds available immediately. Instead, they may place a hold on the funds until they can verify and process the deposit. This hold period ensures that the deposit is legitimate and allows the bank to communicate with the issuing bank to receive the funds. The length of this hold period can vary depending on the bank's policies and the nature of the deposit. For example, deposits from new customers or large deposits may be subject to longer hold periods.

To avoid surprises, it is essential to understand the difference between your available balance and your current balance. The available balance reflects the funds that you can immediately access and use, while the current balance includes pending transactions that may take a few days to clear. By tracking your available balance, you can ensure that you don't accidentally overspend or incur overdraft fees.

Additionally, it's important to be mindful of pending transactions that have not yet been added or deducted from your available balance. These can include authorized transactions, such as recurring payments or checks that have not been cashed yet. By considering both your available balance and pending transactions, you can make more informed financial decisions and avoid overdrawing your account.

To summarize, delayed crediting of deposited funds can occur due to processing times and verification procedures implemented by banks. This can result in a delay in updating your available balance, even though the deposit may reflect in your current balance. Understanding the distinction between these balances and staying aware of pending transactions can help you effectively manage your finances and avoid potential overdraft fees.

Check holds

The amount of time that a bank holds a check depends on various factors, including the size of the check, the source of the check, and your account history. Checks that are typically available the next business day include:

• Checks for less than $200
• Certified checks, or checks drawn from another account at the same financial institution
• Government checks
• Checks deposited in person with the help of a bank employee

Checks that may be held for longer include:

• Checks for more than $200
• Checks deposited at an ATM that is not owned by your bank
• Checks deposited after the bank's cut-off time for the day
• Checks that the bank has reasonable doubt about, such as post-dated checks or checks that may be fraudulent
• Checks deposited into a new account (open for less than 30 days)
• Checks deposited into an account that has been overdrawn frequently

It is important to note that banks are required to disclose their check-hold policies, and you can usually find this information in your account agreement or on the bank's website. Additionally, you can contact your bank to inquire about the status of a check hold and how long it may take for the funds to become available.

Different fund types

Investment funds are a way to pool money from multiple investors to purchase a diversified portfolio of stocks, bonds, or other securities. There are several different types of investment funds, each with its own investment focus and strategy. Here are some of the most common types:

• Mutual Funds: Mutual funds are the most common type of investment fund. They are managed by professional money managers and offer investors a diversified portfolio of stocks, bonds, or other securities. Mutual funds typically charge annual fees, expense ratios, or commissions, which can lower overall returns. Examples include equity funds, bond funds, and target-date funds.
• Balanced Funds: Balanced funds, also known as blended funds, invest in both stocks and bonds to provide a balanced portfolio. They aim for long-term growth potential and a source of income. The classic approach is to invest 60% of assets in stocks and 40% in bonds, but actively managed funds may deviate from this mix.
• Stock Funds: These funds primarily invest in equity or stocks and can be categorized by the size of the companies they invest in (small-, mid-, or large-cap) or their investment approach (aggressive growth, income-oriented, or value).
• Bond Funds: Bond funds primarily invest in bonds and other fixed-income securities. They can be actively managed or passively managed, aiming to replicate the performance of a specific index.
• Money Market Funds: Money market funds invest in safe, short-term debt instruments like government Treasury bills. They offer low returns and are often used as a temporary holding place for cash.
• Target-Date Funds: These funds automatically adjust their allocation of stocks and bonds over time, becoming more conservative as the target date (usually retirement) approaches. They are commonly used in retirement savings accounts.
• Index Funds: Index funds aim to replicate the performance of a specific market index, such as the S&P 500 or the Dow Jones Industrial Average. They are passively managed and tend to have lower fees than actively managed funds.

Each type of investment fund has its own advantages and disadvantages, and investors should carefully consider their financial goals, risk tolerance, and investment horizon before choosing which type of fund to invest in.

Frequently asked questions