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Cleared funds are usually identified as cash, checks or other financial instruments that have been deposited into a bank or investment account, and have been cleared for usage by the institution. Depending on the regulations the govern deposits with the jurisdiction, as well as the standard practices of the financial institution, the deposited funds may be immediately available to the account owner, or be held in a pending mode for a specified matter of time. Financial institutions are responsible for following federal guidelines regarding the availability of deposits, and develop their internal procedures related to cleared funds in a manner that complies with federal regulations.
With many banks today, cash and checks written under a certain amount are recorded first as a credit memo to the account. This effectively helps the internal system keep track of postings that will shortly be applied to a given account. If the customer makes a deposit before a set time of day, the credit memo is issued and dated with the same calendar date and is cleared sometime during the evening hours. This means the cleared funds will be available the following business day.
Generally, many banks today require that deposits be made before one or two o’clock in the afternoon, in order to be recorded and cleared on the same day. Any deposits made later in the afternoon will be dated as occurring the following business day and cleared for use the evening of that date. This will mean that a deposit made around three p.m. on Monday will not be available for use by the customer until Wednesday morning. Understanding the bank’s policy on cleared funds is essential to preventing problems arising with the account.
Banks may require three to five business days to make funds available for withdrawal. This is often the case when a check is issued on a bank outside the country, or if other extenuating circumstances occur that delay the bank from confirming the worth of the financial instrument. With some banks, checks for large amounts of money that are drawn on non-business accounts will also fall into this three to five day clearance range. Cleared funds are made available only when the bank has confirmation that the check will be honored. Delays of this type can often be avoided by making use of electronic transfers, which move funds directly from the bank account of the payer to the designated account of the payee. Often, these funds are available immediately, or at least later the same day.