What Is an Available Balance?

The available balance is the balance in checking or on-demand accounts that is free for use by the customer or account holder. These are funds that are available for immediate use, and includes deposits, withdrawals, transfers, and any other activity that has already cleared to or from the account. A credit card account’s available balance is normally referred to as available credit.

An account holder’s available balance may be different from the current balance. The current balance generally includes any pending transactions that haven’t been cleared.

Understanding Available Balance

As noted above, the available balance represents the funds available for immediate use in a customer’s account. This balance is updated continuously throughout the day. Any activity that takes place in the account—whether that’s a transaction done through the teller, an automated teller machine (ATM), at a store, or online—affects this balance. It does not include any pending transactions that have yet to clear.

When you log into your online banking portal, you will normally see two balances at the top: The available balance and the current balance. The current balance is what you have in your account all the time. This figure includes any transactions that have not cleared such as checks.

Depending on both the issuing bank and the receiving bank’s policies, check deposits may take anywhere from one to two days to clear. This process may take much longer if the check is drawn on a non-bank or foreign institution. The time between when a check is deposited and when it is available is often called the float time.

A customer’s available balance becomes important when there is a delay in crediting funds to an account. If an issuing bank has not cleared a check deposit, for example, the funds will not be available to the account holder, even though they may show up in the account’s current balance.

Using the Available Balance

Customers can use the available balance in any way they choose, as long as they don’t exceed the limit. They should also take into consideration any pending transactions that haven’t been added or deducted from the balance. A customer may be able to withdraw funds, write checks, do a transfer, or even make a purchase with their debit card up to the available balance.

For example, your bank account balance can be $1,500, but your available balance may only be $1,000. That extra $500 may be due to a pending transfer to another account for $350, an online purchase you made for $100, a check you deposited for $400 that hasn’t cleared yet because the bank put it on hold, and a pre-authorized payment for your car insurance for $450. You can use any amount up to $1,000 without incurring any extra fees or charges from your bank. If you go beyond that, you may go into overdraft, and there may be issues with the pending transactions.

Available Balance and Check Holds

Banks may decide to place holds on checks under the following circumstances, which affect your available balance:

• If the check is above $5,000, the bank can place a hold on whatever amount exceeds $5,000. However, said amount must be made available within a reasonable time, usually two to five business days.
• Banks may hold checks from accounts that are repeatedly overdrawn. This includes accounts with a negative balance on six or more banking days in the most recent six-month period and account balances that were negative by $5,000 or more two times in the most recent six-month period.
• If a bank has reasonable cause to doubt the collectibility of a check, it can place a hold. This can occur in some instances of postdated checks, checks dated six (or more) months prior, and checks that the paying institution deemed it will not honor. Banks must provide notice to customers of doubtful collectibility.
• A bank may hold checks deposited during emergency conditions, such as natural disasters, communications malfunctions, or acts of terrorism. A bank may hold such checks until conditions permit it to provide the available funds.
• Banks may hold deposits into the accounts of new customers, who are defined as those who have held their accounts for less than 30 days. Banks may choose an availability schedule for new customers.

Banks may not hold cash or electronic payments, along with the first $5,000 of traditional checks that are not in question. On July 1, 2018, new amendments to Regulation CC—Availability of Funds and Collection of Checks—issued by the Federal Reserve took effect to address the new environment of electronic check collection and processing systems, including rules about remote deposit capture and warranties for electronic checks and electronic returned checks.

Special Considerations

There are cases that can affect your account balance—both negatively and positively—and how you can use it. Electronic banking makes our lives easier, allowing us to schedule payments and allow for direct deposits at regular intervals. Remember to keep track of all your pre-authorized payments—especially if you have multiple payments coming out at different times every month. And if your employer offers direct deposit, take advantage of it. Not only does it save you a trip to the bank every payday, but it also means you can use your pay right away.

What Is an Automatic Bill Payment?

An automatic bill payment is a money transfer scheduled on a predetermined date to pay a recurring bill. Automatic bill payments are routine payments made from a banking, brokerage, or mutual fund account to vendors.

Automatic payments are usually set up with the company receiving the payment, though it’s also possible to schedule automatic payments through a checking account’s online bill pay service. Automatic bill payments occur over an electronic payment system, such as the Automated Clearing House (ACH).

How an Automatic Bill Payment Works

Automatic bill payments can be scheduled for all types of payment transactions. This can include installment loans, auto loans, mortgage loans, credit card bills, electric bills, cable bills, and more. These payments can be automated quite easily from a checking account.

Setting up automatic bill payment involves making arrangements with the bank holding the checking account to make the exact payment each month. The set of instructions is typically created online by the account holder. More frequently, this power is given to the vendor (the utility company, for example) to charge the checking account for whatever amount is owed that particular month. In both cases, the individual paying the bill must initiate the automatic bill payment and provide the necessary information required to make automated recurring payments.

Example of an Automatic Bill Payment

Automatic payments save consumers the hassle of having to remember to make a payment month after month. They can also help consumers avoid late payments.

For example, suppose you have a $300 car payment due on the 10th of every month for the next 60 months. Instead of logging into your online account with the auto loan company to schedule the same payment each month, you could set up automatic payments one time and agree to have $300 automatically transferred from your checking account to the auto loan company on the fifth day of each month. This way, you know your payment will never be late, and you’ll avoid the trouble of doing the same task each month. You’ll also improve—or maintain—a good credit score.

Disadvantages of Automatic Bill Payments

Automatic payments have a couple of potential downsides. If you forget about your scheduled automatic payments and do not maintain a cushion in your checking account, an automatic payment could bounce. Not only will your bill remain unpaid but you might also incur a returned payment fee from the company you were trying to pay, as well as a late fee for missing the due date. And automatic payments aren’t infallible. You still need to check regularly to make sure your scheduled payments have gone through as expected.

Another problem can occur when you authorize automatic payments that vary in amount. For example, suppose you set up automatic payments of your credit card bill from your checking account. If you don’t look at your credit card bill when it arrives, you might have an ugly surprise when it’s automatically paid in a much higher amount than you expected because of a mistake or fraud—or because you simply didn’t realize how much you had spent.

Automatic payments can also be difficult to cancel. Additionally, consumers might forget about certain automatic payments and continue to pay for services that they no longer want.

What Is an Account Number?

An account number is a unique string of numbers and, sometimes, letters and other characters that identify the owner of an account and grant access to it. In the U.S., the Social Security number was the primary identifier until its vulnerability to identity theft forced the practice to be abandoned. In today’s electronic age, the most important account number for many people is the checking account number.

How an Account Number Works

The checking account number is located at the bottom of the paper check. You’ll see three sets of numbers in a computer-readable font at the bottom of the check:

• The first number on the left is the nine-digit bank routing number.
• The middle number is your account number.
• The third number is the number of the check.

Payroll processing offices use checking account numbers to set up direct deposit payments for employees.

In addition to checks, account numbers are attached to just about any transaction a consumer or business can make. Sales receipts, subscription services, credit card accounts, and store club memberships all have them.

Protecting Account Numbers

Identification numbers, in addition to passwords, are vulnerable to identity theft and fraud. This is why we have to answer annoying questions about our mothers’ maiden names when we try to make routine changes to an account. The means of making it difficult for hackers to steal account numbers currently are taking the form of password managers along with multi-factor authentication systems.

Modern businesses now often employ a hard-to-hack master password to unlock an electronic vault of customers’ account numbers and other sensitive data. Consumers are becoming accustomed to multifactor authentication, which adds another step before accessing an account, such as a fingerprint, voice activation, or a time-sensitive code sent to the cellphone number on record.

These are just some of the means of protecting users’ account numbers in an increasingly vulnerable online environment.

Account Number vs. Routing Number

On a paper check, the nine-digit routing number identifies specific financial institutions within the U.S. The number identifies the check as having been issued by a federal- or state-chartered bank that maintains an account with the Federal Reserve.

This system dates back to 1910 and was developed initially as a way to help bank clerks sort through piles of checks and assign them to the correct drawer. Today, electronic services use them in much the same way for wire transfers, to draw a payment from a deposit at the correct institution.

The account number works together with the routing number to identify the right account holder at the right institution.

How to Locate Your Account Number

You can find your account number on your monthly bank statement, or by visiting a branch of your bank.

If you are using a checking account, the account number is also printed on your paper checks. You can find it printed between the bank’s routing number and the check number, as shown below.

The Bottom Line

An account number is a unique identifier for each account at a bank or other financial institution that you have. Along with the routing number, this number is used to make payments and deposits. Due to the increase in identity theft and fraud, it is important to protect your account number and other banking information.

What Is a 408(k) Plan?

The term 408(k) account refers to an employer-sponsored retirement savings plan. A 408(k) plan allows employees to put aside pretax dollars for retirement that grow on a tax-deferred basis, making it a type of individual retirement account (IRA). This means that individuals pay taxes when they make withdrawals after they turn 59½. The 408(k) is commonly referred to as a simplified employee pension (SEP) plan. In fact, it is the SEP version of the popular 401(k) plan.

Understanding 408(k) Plans

Section 408(k) of the Internal Revenue Code (IRC) outlines the rules and regulations associated with SEP and salary reduction simplified employee pension (SARSEP) accounts, notably individual retirement accounts (IRAs) or individual retirement annuities. That is why SEP plans are often referred to as 408(k) plans.

The IRC highlights the requirements needed in order to participate in a 408(k) plan. Plans are available to small businesses of any size and to self-employed individuals. Participants qualify if they are:

• Over the age of 21
• Worked for at least three of the last five years for the employer
• Were compensated at least $650 by the employer (for 2022; compensation requirements increase to $750 for 2023)

Annual employer contributions cannot exceed the lesser of 25% of the employee’s pay or $61,000 for 2022 ($66,000 for 2023). The annual compensation limit cannot be calculated on incomes exceeding $305,000 for 2022 ($330,000 in 2023). The maximum deduction claimed on a business tax return for contributions is the lesser of the total contributions into employees’ accounts or 25% of compensation.

Plan holders can make withdrawals from their 408(k) plans at any time—the same way they would from traditional IRAs. But there are certain conditions that apply. For instance, most individuals make withdrawals after they turn 59½. Any distributions from these plans before that age incur a 10% early withdrawal penalty. Withdrawals must be made as required minimum distributions (RMDs) as of April 1 the year after you turn 72 if you were that age on or before Dec. 31, 2022. You must begin taking RMDs if you turn 73 on or after Jan. 1, 2023.

408(k) Plans vs. 401(k) Plans

As noted above, a 408(k) is one type of employer-sponsored retirement plan. The 401(k) plan is the most common option and is offered by the vast majority of American corporations. The plan allows taxpayers to make pre-tax contributions through automatic payroll deductions and employer matches for those that make them.

Plan reform has made several changes to benefit employees, including lower fees and investment options. The average 401(k) plan now offers nearly two dozen investment options by balancing risk and reward, in accordance with an employee’s preferences. Unlike an SEP, employees may contribute to a 401(k) plan. And self-employed individuals who work for a company with a 401(k) can contribute to that plan, too.

Participation in traditional 401(k) plans continues to grow. These plans held roughly $7.7 trillion in assets by the end of 2021, which represented about one-fifth of the retirement market in the United States. There were 600,000 active plans in the country with a total of 60 million employees and retirees at the end of September 2021.

Here are a few other facts related to the 401(k) that taxpayers should know:

• Contribution limits for 401(k) plans are indexed to inflation. The Internal Revenue Service (IRS) allows employees to save up to $20,500 for 2022 and $22,500 for 2023. Catch-up contributions of $6,500 per year (increasing to $7,500 in 2023) are also allowed for people 50 or older.
• Withdrawals before the age of 59½ often result in a 10% early withdrawal penalty, unless an exemption is applied. Taxes are imposed on any withdrawals made as contributions are made with pretax earnings.
• Individuals who turn 72 between Jan. 1, 2020, and Dec. 31, 2022, must begin taking RMDs the following April 1. The SECURE ACT 2.0 raised that age to 73 for anyone who turned that age on or after Jan. 1, 2023.

Correction—Jan. 27, 2023: A previous version of this article misstated that 408(k) plans are available to companies with 25 employees or less. It was corrected to state that plans are open to companies of any size.