Unavailable Funds

What are Unavailable Funds?

Unavailable funds, which are also known as uncollected funds, essentially represent a certain amount deposited into an account that is yet to be cleared and/or reconciled by a respective banking institution. The institution needs to verify and account for the funds before they can be accessible to the account holder.

Unavailable funds result from holds placed on account funds that prevent the funds from being accessed or withdrawn for a determined period. It can happen for various reasons – some as simple as the time taken to clear a check to more complex reasons, such as lawsuits that freeze the indicted accounts’ funds. Sometimes attempting to use unavailable funds can lead to an unavailable funds fee.

Understanding Unavailable Funds

Before a bank can access certain funds (for example, check deposits), it needs to carry out an account reconciliation. The process involves the bank of the person from whom the check was received (hereafter referred to as the sender), verifying that funds are available to be drawn down to cover the amount stipulated on the check.

The receiver of the check (hereafter referred to as the depositor) takes it to their bank to deposit it. Once the depositor’s bank verifies that the funds are available from the sender’s account or bank and the check is cleared, the depositor can then access the funds. The unavailable funds (i.e., yet to be cleared) are also referred to as uncollected or unavailable funds – “UF” or “UCF.”

Unavailable Funds vs. Insufficient Funds

The term “insufficient funds” refers to an account with no or with as an inadequate amount of funds to cater for a check drawn against it. Typically, an account with insufficient funds does not have any ingoing uncleared checks or funds; therefore, drawing a check from the account will result in the bouncing of the check and the incurrence of related fees.

An account with unavailable funds, on the other hand, can result in the successful drawing of a check, provided that the receiver of the check/funds only cashes the check after the funds have been cleared into the account from which the check was drawn.

It will only work if the amount cleared into the account is enough to cover the amount stipulated in the check or when the receiver of the check/funds deposits the check into his or her account after the funds have been cleared into the account of the check drawer. Otherwise, the check is likely to bounce.

Unavailable Funds Fee

The unavailable funds fee is a charge by the bank. Consider the following example:

Jane has decided to write a check to James. Unfortunately, the account against which Jane drew the check to James, has a negative balance, despite having a positive physical balance. It merely means that the funds in Jane’s account are on hold or unavailable.

She incurs a penalty fee due to transacting with funds that are yet to be cleared or availed. The penalty fee for transacting on unavailable funds is known as the unavailable funds fee.

The unavailable funds fee is not to be confused with the non-sufficient funds fee, which is charged when transactions are carried out from an account with either both negative available and physical balances or when the funds in the account are not adequate to meet the transactional obligations, and there are no incoming funds or funds to be cleared.