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 a 12b-1 Fund?

A 12b-1 fund is a mutual fund that charges its holders a 12b-1 fee. A 12b-1 fee pays for a mutual fund’s distribution and marketing costs. It is often used as a commission to brokers for selling the fund.

12b-1 funds take a portion of investment assets held and use them to pay expensive fees and distribution costs. These costs are included in the fund’s expense ratio and are described in the prospectus. 12b-1 fees are sometimes called a “level load.”

Understanding 12b-1 Funds

The name 12b-1 comes from the Investment Company Act of 1940’s Rule 12b-1, which allows fund companies to act as distributors of their own shares. Rule 12b-1 further states that a mutual fund’s own assets can be used to pay distribution charges.

Distribution fees include fees paid for marketing and selling fund shares, such as compensating brokers and others who sell fund shares and paying for advertising, the printing and mailing of prospectuses to new investors, and the printing and mailing of sales literature. The SEC does not limit the size of 12b-1 fees that funds may pay, but under FINRA rules, 12b-1 fees that are used to pay marketing and distribution expenses (as opposed to shareholder service expenses) cannot exceed 0.75% of a fund’s average net assets per year.

12b-1 Fees

Some 12b-1 plans also authorize and include “shareholder service fees,” which are fees paid to persons to respond to investor inquiries and provide investors with information about their investments. A fund may pay shareholder service fees without adopting a 12b-1 plan. If shareholder service fees are part of a fund’s 12b-1 plan, these fees will be included in this category of the fee table.

If shareholder service fees are paid outside a 12b-1 plan, then they will be included in the “Other expenses” category, discussed below. FINRA imposes an annual 0.25% cap on shareholder service fees (regardless of whether these fees are authorized as part of a 12b-1 plan).

Originally, the rule was intended to pay advertising and marketing expenses; today, however, a very small percentage of the fee tends to go toward these costs.

Special Considerations

12b-1 funds have fallen out of favor in recent years. The growth in exchange-traded fund (ETF) options and the subsequent growth of low-fee mutual fund options has given consumers a wide range of option. Notably, 12b-1 fees are considered a dead weight, and experts believe consumers who shop around can find comparable funds to ones charging 12b-1 fees.

What Is Annual Turnover?

Annual turnover is the percentage rate at which something changes ownership over the course of a year. For a business, this rate could be related to its yearly turnover in inventories, receivables, payables, or assets.

In investments, a mutual fund or exchange-traded fund (ETF) turnover rate replaces its investment holdings on a yearly basis. Portfolio turnover is the comparison of assets under management (AUM) to the inflow, or outflow, of a fund’s holdings. The figure is useful to determine how actively the fund changes the underlying positions in its holdings. High figure turnover rates indicate an actively managed fund. Other funds are more passive and have a lower percentage of holding turnovers. An index fund is an example of a passive holding fund.

Calculating Annual Turnover

To calculate the portfolio turnover ratio for a given fund, first determine the total amount of assets purchased or sold (whichever happens to be greater), during the year. Then, divide that amount by the average assets held by the fund over the same year.


$\begin{aligned}&\text{portfolio turnover}\ =\ \frac{\operatorname{max}\begin{cases} \text{fund purchases}\\ \quad \text{fund sales}\end{cases}}{\text{average assets}}\end{aligned}$​portfolio turnover = average assetsmax{fund purchasesfund sales​​​

For example, if a mutual fund held $100 million in assets under management (AUM) and $75 million of those assets were liquidated at some point during the measurement period, the calculation is:


$\begin{aligned}&\frac{\$75\text{m}}{\$100\text{m}}=0.75\\&\textbf{where:}\\&\text{m}=\text{million}\end{aligned}$​$100m$75m​=0.75where:​

It is important to note that a fund turning over at 100% annually has not necessarily liquidated all positions with which it began the year. Instead, the complete turnover accounts for the frequent trading in and out of positions and the fact that sales of securities equal total AUM for the year. Also, using the same formula, the turnover rate is also measured by the number of securities bought in the measurement period.

Annualized Turnover in Investments

Annualized turnover is a future projection based on one month—or another shorter period of time—of investment turnover. For example, suppose that an ETF has a 5% turnover rate for the month of February. Using that figure, an investor may estimate annual turnover for the coming year by multiplying the one-month turnover by 12. This calculation provides an annualized holdings turnover rate of 60%.

Actively Managed Funds

Growth funds rely on trading strategies and stock selection from seasoned professional managers who set their sights on outperforming the index against which the portfolio benchmarks. Owning large equity positions is less about a commitment to corporate governance than it is a means to positive shareholder results. Managers who consistently beat the indices stay on the job and attract significant capital inflows.

While the passive versus active management argument persists, high volume approaches can realize moderate success. Consider the American Century Small Cap Growth fund (ANOIX), a four-star-rated Morningstar fund with a frantic 141% turnover rate (as of February 2021) that outperformed the S&P 500 Index considently over the last 15 years (through 2021).

Passively Managed Funds

Index funds, such as the Fidelity 500 Index Fund (FXAIX), adopt a buy-and-hold strategy. Following this system, the fund owns positions in equities as long as they remain components of the benchmark. The funds maintain a perfect, positive correlation to the index, and thus, the portfolio turnover rate is just 4%. Trading activity is limited to purchasing securities from inflows and infrequently selling issues removed from the index. More than 60% of the time, indices have historically outpaced managed funds.

Also, it is important to note, a high turnover rate judged in isolation is never an indicator of fund quality or performance. The Fidelity Spartan 500 Index Fund, after expenses, trailed the S&P 500 by 2.57% in 2020.

Annual Turnover in Business: Inventory Turnover

Businesses use several annual turnover metrics for understanding how well the business is running on a yearly basis. Inventory turnover measures how fast a company sells inventory and how analysts compare it to industry averages. A low turnover implies weak sales and possibly excess inventory, also known as overstocking. It may indicate a problem with the goods being offered for sale or be a result of too little marketing. A high ratio implies either strong sales or insufficient inventory. The former is desirable while the latter could lead to lost business. Sometimes a low inventory turnover rate is a good thing, such as when prices are expected to rise (inventory pre-positioned to meet fast-rising demand) or when shortages are anticipated.

The speed at which a company can sell inventory is a critical measure of business performance. Retailers that move inventory out faster tend to outperform. The longer an item is held, the higher its holding cost will be, and the fewer reasons consumers will have to return to the shop for new items.

What Are Adjusted Funds From Operations—AFFO?

Adjusted funds from operations (AFFO) refers to the financial performance measure primarily used in the analysis of real estate investment trusts (REITs). The AFFO of a REIT, though subject to varying methods of computation, is generally equal to the trust’s funds from operations (FFO) with adjustments made for recurring capital expenditures used to maintain the quality of the REIT’s underlying assets. The calculation takes in the adjustment to GAAP straight-lining of rent, leasing costs, and other material factors.

Understanding Adjusted Funds From Operations—AFFO

Regardless of how industry professionals choose to compute adjusted funds from operations (AFFO), it is considered to be a more accurate measure of residual cash flow for shareholders than simple FFO. Though FFO is commonly used, it does not deduct for capital expenditures required to maintain the existing portfolio of properties, so it doesn’t quite measure the true residual cash flow. Professional analysts prefer AFFO because it takes into consideration additional costs incurred by the REIT—and additional income sources too, like rent increases. Thus, It provides for a more accurate base number when estimating present values and a better predictor of the REIT’s future ability to pay dividends. This is a non-GAAP measure.

Calculating Adjusted Funds From Operations—AFFO

Before calculating the AFFO, an analyst must first determine the REIT’s funds from operations (FFO). The FFO measures cash flow from a specified list of activities. FFO reflects the impact from the REIT’s leasing and acquisition activity, as well as interest costs. FFO takes into account the REIT’s net income including amortization and depreciation, but it excludes the capital gains from property sales. The reasons these gains are not included is that they are one time events and generally do not have a long-term effect on the REIT’s future earnings potential.

The formula for FFO is:

FFO = net income + amortization + depreciation – capital gains from property sales

Once the FFO is determined, the AFFO can be calculated. Though there is no one official formula, calculations for AFFO typically would be something like:

AFFO = FFO + rent increases – capital expenditures – routine maintenance amounts

Example of an Adjusted Funds From Operations—

AFFO Calculation

As an example of the AFFO calculation, assume the following: a REIT had $2 million in net income over the last reporting period. During that time, it earned $400,000 from the sale of one of its properties and lost $100,000 from the sale of another. It reported $35,000 of amortization and $50,000 of depreciation. During the period, net rent increases were $40,000; capital expenditures were $75,000 and routine maintenance amounted to $30,000.

Given this information the FFO can be calculated as:

FFO = $2,000,000 + $35,000 + $50,000 – ($400,000 – $100,000) = $1,785,000

From this, the AFFO is calculated as:

AFFO = FFO + $40,000 – $75,000 – $30,000 = $1,720,000