DEFINITION of 'Net Settlement'

The resolution of all of a bank's transactions at the end of the day. Since banks engage in so many electronic transactions, they cannot simply count their cash at the end of the day to see how much money they have. Instead, they have to add up all their electronic credits and debits for the day as part of this calculation. The bank then sends its settlement file to a Federal Reserve Bank, which credits it with any funds due for interbank settlements.

BREAKING DOWN 'Net Settlement'

A bank's net settlement is kind of like an individual balancing his or her checkbook. If all of your transactions are in cash, all you need to do to check how much money you have is open your wallet and count the bills. But since most people have money going out in the form of cash, checks and debit- and credit-card transactions, and money coming in as cash, checks and direct deposits, all transactions, including purchases, returns, bills paid and paychecks received, must be added up to determine how much money a person has.

RELATED TERMS
  1. T+1 (T+2,T+3)

    Abbreviations that refer to the settlement date of security transactions. ...
  2. Cash Transaction

    A transaction that is settled with cash on the same day as the ...
  3. Credit Netting

    A system whereby the number of credit checks on financial transactions ...
  4. Electronic Check

    A form of payment made via the internet that is designed to perform ...
  5. Cash and Carry Transaction

    A type of transaction in the futures market in which the cash ...
  6. Settlement Date

    1. The date by which an executed security trade must be settled. ...
Related Articles
  1. Personal Finance

    Top 5 Reasons Banks Won't Cash Your Check

    Learn the top reasons that a bank won't cash your check, and find out what steps you can take to prevent those scenarios from happening.
  2. Tech

    New Bank Account? Don't Be Without These 6 Features

    Certain banking features can make managing your finances easier, so it's important to choose carefully when opening a new checking or savings account.
  3. Insights

    Understanding How the Federal Reserve Creates Money

    Read about how the Federal Reserve actually targets and creates new money in the economy, and find out why the savings and loans system magnifies this process.
  4. Personal Finance

    Your First Checking Account

    This owner's manual will show you what to expect from your bank.
  5. Personal Finance

    Bank Account Tips For Young People

    If you’re just getting started with managing your own bank account, these tips will show you how to do it right.
  6. Investing

    What Does Debit Mean?

    Debit is an accounting term used to refer to the left side of an accounting journal entry. Each debit must be offset by an equal credit entry.
  7. Investing

    What is a Settlement Date?

    A settlement date is the day a security trade must be settled.
  8. Small Business

    Best Checking Accounts For Small Businesses

    What you need to know to choose the best checking account for your small business – and where to look.
RELATED FAQS
  1. What happens when my bank account is debited?

    Understand the process that takes place when your account is debited. A debit to your account happens when you use funds ... Read Answer >>
  2. How do you calculate credits and debits in the general ledger?

    Know the key points when balancing a ledger and why it's essential to understand the relationship between credits and debits ... Read Answer >>
  3. Who uses debit notes in business transactions?

    Read about the types of parties that are most likely to issue or receive a debit note in the normal course of business-to-business ... Read Answer >>
  4. Do I own a stock as of the trade date or the settlement date?

    When it comes to buying shares, there are two key dates involved in the transaction. The first date is the trade date, which ... Read Answer >>
Trading Center