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.

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