Collected Balance-Deciphering Your Bank Statement

Sometimes it feels like you need a finance degree in order to make sense of all the various balances and categories that you find inside your bank statement. For example – what is a collected balance, anyway? And how does it differ from your available balance? Keep reading as we walk through some of the various categories you need to understand as you review your bank statement each month.

Below are some of the most frequently asked questions about the various types of balances presented on your checking account or savings account statement, including collected balance:

What is a Collected Balance?

By banking definition, collected balance simply refers to the balance in a checking account or savings account that reflects deposits, posted withdrawals, and other debits, minus deposited items in the process of collection and minus any applicable account charges. So it’s the money left in your account once the bank has posted all debits and credits against the account – plus accounted for any anticipated debits or credits that haven’t yet been posted according to the bank’s collection schedule.

If you review your bank statement and see a “daily collected balance,” that’s the actual amount of money in your account at the end of each business day. You might also see this same amount referred to as a “posted balance,” as well. Generally, this number only changes at the end of each business day – it will stay as is until the close of business on the following day, no matter what kind of activity is going on with your account. So any purchases, holds, fees, other charges or deposits made to your account after the end of the posting period won’t appear until the end of the following business day’s posting period.

How Does A Collected Balance Work?

Basically, anytime you deposit a check, your bank sends that check directly to the Federal Reserve, which then sends that same check to the check writer’s bank. At that point, the check writer’s bank sends the funds to cover the check amount back to the Federal Reserve, which then delivers it to your bank and ultimately, to your checking or savings account. Because of the rise in electronic checking, this process, which at one point could take multiple weeks to complete, can now be wrapped up in less than a day in most cases.

Under previous circumstances, banks could place a hold on a deposit until funds had been received from the Federal Reserve, which led to their using the term, “collected” to indicate any money inside an account that had actually cleared. In other words, the bank had “collected” the appropriate funds from the Federal Reserve and they were now cleared for use by the account holder.

Federal Regulation CC limits the total amount of time that a bank can place a hold on a deposited check. As it currently exists, Regulation CC limits hold time to a maximum of nine days, although in most cases banks are allowed to hold checks only for up to two business days. When a hold expires, your bank credits the money to your account. At that point, your posted balance will represent all funds that have cleared. However, posting typically occurs only after the paperwork for all of the day’s transactions has been processed – usually sometime after the bank closes for the day. Regulation CC also stipulates that your bank must let you know when held funds will be available for withdrawal.

What is Average Collected Balance?

The average collected balance, as you might guess, is a bit different. It’s the average balance of collected funds, minus uncleared or uncollected deposits, in a checking or savings account over a specified period of time – typically one month.

For most accounts, including some checking accounts that earn interest, interest due to the account owner is a liability to the bank. The average collected balance represents the full amount for which the bank must pay interest excluding any uncollected funds.

Most commercial banks will earn revenue based on the amount of money they hold in collected balances. With these funds, they are able to provide loans, including auto loans, mortgages, business loans, and personal loans. Any commercial bank may specialize in just one or a few types of loans. The interest rate the bank pays on these funds – that they borrow from the consumer – is lower than the interest rate the bank charges for the money it lends to borrowers. The difference in the two equals the net interest income, or profit, that a commercial bank earns.

The average collected balance is used to determine the amount of interest the bank owes you for a monthly balance since uncollected funds don’t accrue interest. For most individuals, the difference between the average daily balance and average collected balance will be small, but for businesses or larger enterprises, for example, it may amount to something substantial.

How Do You Calculate the Average Collected Balance?

The average collected balance is calculated by summing all of the daily collected balances in the period and dividing by the number of days in the period. Simple, right?

What Types of Accounts Could Have a Collected Balance?

The easy answer is any type of account on which a bank is required to pay the consumer interest. That can include checking accounts, savings accounts, money market accounts, call deposit accounts, and even certificates of deposit. Savings accounts are deposit accounts that allow a modest accrual of interest while checking accounts allow for both withdrawals and deposits and are also known as demand accounts or transactional accounts. Some banks may limit the number of withdrawals a consumer can make from a savings account per month and may also charge extra fees if the consumer does not maintain a minimum balance.

Call deposit accounts feature the benefits of both checking and savings accounts, and money market accounts are often mutual funds, which feature bundles of money market products. CDs, on the other hand, are simply secured savings certificates that feature a fixed, specific interest rate and maturity date.

Why is My Collected Balance Important?

First of all, it’s good information for you as the account holder. The collected balance lets you know exactly how much money is officially posted to your account at a given moment. By tracking your collected balance, you can see the closing balance of your account during each day of the billing cycle.

In addition, the collected balance is the amount the bank will use to calculate how much interest it needs to pay you. Beyond even this, the bank will use your collected balance to determine whether your balance has fallen below any agreed-upon account minimums required for your checking or savings account. The reason behind this is mere simplicity – because your collected balance changes only once per day, it’s much more straightforward to use it for interest and minimum balance calculations, rather than your available balance, which can change several times throughout a given day.

What Can I Do With My Collected Balance?

The simplest answer is – anything you want. Once funds are categorized in your collected balance column, you can do any of the following:

Withdraw cash
Spend against it with your debit card
Write a check
Pay bills electronically
Make a wire transfer

What is Negative Collected Balance?

If you see a negative collected balance on your bank statement, that means you have an overdraft. You might also see it labeled as a collected overdraft balance. It goes without saying that you’d prefer to see your collected balance without a negative sign, but it does happen. You may also see monthly negative collected balance, which is calculated by summing the daily end-of-day uncollected balances in the analysis period and then dividing by the number of days in the analysis period.

When you see a negative collected balance, you’ll also see corresponding line items, usually related to overdraft fees. A quick list of example line items you might see includes the following:

NSF Items Paid/Returned
Negative Collected Balance Fee
Overdraft Interest
Drafts Handling Charge
Daily Overdraft Occurrence Fee
Daily Ledger Overdraft

How To Avoid a Negative Collected Balance

There are several ways you can take control of your bank balance, avoiding NSF fees, bounced checks and more. We’ve collected a few below:

Direct Deposit – Having your employer directly deposit your paycheck is a game-changer. It gets the money quickly into your account without having to wait for a paper check to clear. If you haven’t arranged for direct deposit with your employer yet, now would be a great time to do that. Because the money goes directly from your employer’s bank to your own, you’ll often have access to those funds on the same day – so there’s no waiting for a paper check to clear.

A Cash Buffer – Many people find success by defining a cash buffer – an amount that in your mind should equal zero. Maybe it’s $100 or $500 or $1,000, but whenever you reach that magic amount, you treat your bank account like it’s completely empty – which means either transferring funds from another account or stopping your spending until payday.

Overdraft Protection – Signing up for overdraft protection can help you avoid NSF fees and the embarrassment of a check bouncing. But – don’t get into the habit of letting overdraft protection save you. It still comes with a fee – sometimes as high as $35 for transferring funds from another account to cover an overdraft. While it’s a great one-time rescue, you don’t want to get in a habit of relying on it.

Why Are My Collected Balance and My Available Balance Different?

Your available balance represents your collected balance minus any withdrawals you’ve made since the last posting date. It may also encompass any deposits you’ve made that haven’t officially been posted to your account and so are not included in the collected balance. Policies vary from bank to bank, so you may be able to withdraw funds against this balance amount – but check with your bank to verify its policy.

Simply put, your available balance just represents the amount of money available to you to spend. The collected balance is a bit more precise – it outlines all the funds that have completed or are very near to completing the full process of federal collection. In other words, those funds are guaranteed.

How Are Transactions Posted to my Account to Determine My Collected Balance?

Hypothetically, if all of the following were received for your account within the same business day, the following represents the order in which most banks would post transactions to a consumer or business account:

Credits – in descending dollar amount.
Bank-initiated debits – in descending dollar amount.
Non-returnable debits in time-stamp order – ATM withdrawals, wire transfers, debit card purchases, internal funds transfers, ACH pre-fund transactions, electronic bill pay, etc.
Non-returnable debits that are non-time-stamped – for example, cashed checks, which would be posted in check number order.
Returnable debits. ACH debit –non-pre-fund transactions – by PAR number, and then checks in check number order.
Post-system-generated transactions such as service charges and fees.

Why Do I Need More Than One Balance?

The need for two balances goes back to how the Federal Reserve processes checks. For a check to clear, it has to pass a lot of hurdles, and that historically has taken up to a few days. When you deposit a check, the bank has to consider several different factors before it deems the check spendable. For example, does the bank have reason to believe the check could bounce? Is it a business check or a personal check? Money order? Cashier’s check? Does the deposit mesh with your deposit and banking history? All of these factors play into how quickly your deposited check becomes available to use. If there’s no reason to doubt that the check will clear, it’s immediately passed along to the Federal Reserve.

But if the bank has any hesitation about the validity of the check – or its ability to clear – it may choose to put a hold on the deposit, which means it isn’t spendable. It won’t show in your collected balance until it’s gone through the full process of clearance. So you may see that check-in your available balance only.

So what’s the big deal? While available funds are just that – available – collected funds are guaranteed for you to spend. So if, for example, you wanted to purchase a money order or traveler’s checks, or even make a wire transfer, the bank will only draw from your collected balance. That’s why you need to know the difference.

Why is My Collected Balance So Much Lower Than My Available Balance?

This kind of discrepancy can happen for several reasons. First, the bank may not allow you to use some funds immediately because a check hasn’t yet cleared or the bank has doubts that it’s legitimate. Or there may be other withdrawals or authorizations against your account. While a personal check generally takes a few days to clear, some banks will allow account holders to use up to $200 immediately, and others may make the whole balance available if you’re a long-time customer with no history of depositing bad checks. A lot of times, government-issued checks, like tax refunds, for example, also can be spent essentially immediately because the source is verified and guaranteed.

While the extra time and hold can feel frustrating at the time, you can also look at it as your bank trying to do you a favor. If a check bounces, you’re ultimately responsible for those funds. So if you’ve already spent the money from the bad check, you have to replace it in your account – and you also have to pay NSF fees to your bank. So a good rule of thumb is to hold off on spending any of the money associated with a check you have any doubts about.

Your own foresight can also lower your collected balance. For example, if you use your bank’s electronic bill pay feature, the bank may factor those future withdrawals into your calculated collected balance – even though you haven’t technically spent the money yet.

Even your debit card spending can sometimes lead to weirdness on your monthly bank statement when it comes to your collected balance. Some merchants, like gas stations and hotels, may authorize more than you’re actually going to pay, which can lock up your entire balance, sometimes even for a few business days.

What Other Parts of My Bank Statement Are Important For Me To Understand?

Banks can get quite creative when it comes to various ways to express your account balance and any applicable bank charges. To help you make better sense of what’s on your bank statement, we’ve included a quick glossary of other terms, especially related to various types of balances, below for your reference. Some of these terms are only applicable to a business checking account, so if you don’t see them on your personal checking account statement, don’t worry.

Average Ledger Balance: This is your daily ending balance in a checking account after all deposits and checks have cleared. The daily balances are totaled for the month and divided by the number of calendar days in the month – or the statement period – to give you the average ledger balance.
Average Float: This is the average amount of each day’s deposit(s) that remains in the process of collection at the close of business. To get the average, all funds still going through the collection are divided by the number of days in the statement period.
Average Collected Balance/Collected Balance: This number is calculated by taking the average ledger balance and subtracting the average float for a given statement period.
Average Negative Collected Balance: This is the total of the collected balances on days when the collected balance is negative, divided by the number of calendar days in the month. This figure represents any funds that were spent while they were still in the process of clearing. An average negative collected balance charge accrues on a daily basis.
Reserve Requirement – When applicable, this is the amount your bank keeps on reserve with the Federal Reserve Bank in order to comply with federal regulations. If you see this on your monthly statement, then that’s the rate your bank is applying to your balances. If you don’t see it, it simply means that your bank is not assessing this requirement.
Investable Balance – This figure represents the average collected balance minus the reserve requirement. This is the balance that the earnings credit rate is applied to, which results in the earnings credit that can help offset service charges.
Average Positive Collected Balance: This is the total of your collected balance on days when the balance is positive. The daily positive collected balances are totaled and then divided by the number of calendar days in the month in order to provide the average positive collected balance.
Less Federal Reserve Requirement: This figure represents non-earning balances that the bank maintains in order to comply with Federal Reserve policy. Reserves can be computed by applying the reserve rate to an account holder’s average positive balance.
Balance Required for Services: This figure represents the compensating balance you’ll need to offset the total price for services the bank provides during the statement period. You’ll see these services outlined in the Service Activity section of your statement. This balance is calculated using a rating factor based on the prevailing earnings credit rate.
Excess/(Deficit)/Balance: This figure represents your balance after all applicable calculations have been applied. Any deficit reveals additional funds that would be needed to avoid a service charge, while an excess shows you any balance over what’s required to pay for bank services.
Earnings on Investable Balance – This figure expresses any earnings credit after the earnings credit rate was applied to your investable balance. This line on your bank statement also should show your earnings credit rate.
Total Analyzed Charges – This figure shows your total price of services.
Net Analyzed Result – Net Analyzed Result is the amount – if applicable – that will be debited from your account in order to cover any service charges not addressed by the earnings on investment balances.
Total Fee-Based Charges – The sum of all service charges not offset by your earnings credit.

At the end of the day, bank statements can be overwhelming and confusing unless you’re crystal clear on the exact terminology and how each term affects your available funds – and your ability to spend them. And misunderstandings of truly how much money you have access to can often lead to frustrations, delayed withdrawals, NSF fees, and more. But don’t be overwhelmed – with a little time and practice, and keeping this reference handy, you can decipher even the most complicated of statements and make sure you’re always in the know about exactly how to access all of your hard-earned money.

How do you make sense of your bank statement – including your collected balance? Tell us about it in the comments below.