What Are Uncollected Funds?
The term uncollected funds refers to a portion of a check deposit that remains unavailable to the accountholder until the bank verifies that the funds associated with the deposit have been received. Once the deposited check has cleared the banking system, the funds are deemed collected and become part of the accountholder’s available balance.
Key Takeaways
- Uncollected funds are the unavailable portion of a bank deposit that is in the process of being verified.
- The verification period allows banks to ensure that a deposit by check has been confirmed and the correct amount has been received.
- Uncollected funds protect banks and customers from certain types of fraud.
- A check written against an account with uncollected funds that bounces generally results in an uncollected funds charge.
- Charges related to uncollected funds are often viewed as unfair by bank customers.
How Uncollected Funds Work
Uncollected funds result from deposits that need to be verified by the depositor’s bank before they’re available for use.
The Check Clearing Process
The bank must validate that the deposited funds have been received from the bank that issued the check. Until then, the funds are labeled as “pending”. Larger check deposits may have most of the amount held during this process, with only a portion made available immediately based on customer relationship history.
Uncollected Funds Fee
A bounced check written against an account with uncollected funds often leads to a fee similar to a non-sufficient funds (NSF) fee. These fees, as of 2023, ranged from $30 to $40, although many banks are transitioning away from NSF charges.
Benefits of Uncollected Funds
Fraud Protection
Uncollected funds are vital in fraud prevention. They prevent individuals from writing bad checks, depositing them, and then withdrawing the “available” funds.
Money Management Support
Uncollected funds notifications help customers understand their deposit status, supporting better financial planning and avoiding overdrafts.
Short-Term Investments
During the hold period, banks can utilize the uncollected funds for short-term investments, enhancing their returns.
Criticism of Uncollected Funds
Fees Are Unfair
Many customers see uncollected funds charges as unfair because they assume deposits are immediately available money.
Fees Are Excessive
The similar pricing to NSF fees is seen as excessive, especially when banks can quickly reclaim these fees once uncollected funds clear.
Hold Periods Are Uncertain
The varying durations for funds to clear can cause frustration. While online banking mitigates some concerns, not everyone uses it, leaving some customers uncertain of their balance status.
Examples of Uncollected Funds
Example 1:
Jack, a customer of Hometown Community Bank, deposits a $1,000 check on Monday. $100 is available immediately, but $900 remains uncollected until the check clears, usually later in the week. Writing a check before funds clear results in an uncollected funds charge.
Example 2:
Christine, who runs a graphic design business, deposits a client’s check, knowing it will be temporarily unavailable. Though clearing takes an extra day due to the non-local client bank, she manages with existing funds until the deposit is wholly collected.
Uncollected Funds vs. Insufficient Funds
Understanding the difference between uncollected funds and insufficient funds is crucial. Uncollected funds reflect a pending deposit, whereas insufficient funds occur when the account lacks the balance to fulfill withdrawal demands. Writing a check against insufficient funds always results in a bounced check and a fee, and possibly a crime if done knowingly.
How Long Can Banks Put a Hold on Uncollected Funds?
According to U.S. regulations, banks must make $225 of your deposit available the day after the deposit is made, with the remaining funds usually accessible on the second business day. Holds can be longer if there is a concern regarding the depositor or the deposit source.
What Does Uncollected Mean?
It indicates the funds have not yet been received from the issuing bank. Movement of money, even electronically, must be verified before it becomes available.
Is Writing a Check on an Account With Uncollected Funds a Crime?
No, provided there are sufficient available funds in the account to cover the check when cashed. If a check does bounce, the accountholder typically faces a UCF fee, not criminal charges.
The Bottom Line
Uncollected funds represent the portion of a bank deposit that is temporarily unavailable until the deposit has cleared. This period secures the deposited money, supports account management, and allows banks a brief investment window for additional returns.
Related Terms: insufficient funds, bounced check, fraud protection, NSF fees, money management.
References
- OceanFirst Bank. “Fee Schedule”.
- Consumer Financial Protection Bureau. “Consumers on course to save $1 billion in NSF fees annually, but some banks continue to charge these fees”.
- Office of the Comptroller of the Currency. “I deposited a check. When will my funds be available / released from the hold?”
