What Is an Availability Float?
Availability float refers to the interval between when a deposit is made to a banking account and when funds become available, specifically relating to check deposits. Availability float exists because banks need time to process physical checks before releasing funds. This means a depositor may need to wait before funds are accessible.
The difference between availability float and payment float is referred to as the net float.
- Availability float refers to the time period between fund deposits and clearing.
- Availability floats are caused due to several reasons, including weekends or delays in depositing or processing of a check.
- The rise of electronic transactions and money has shortened availability float time periods.
Understanding Availability Float
Availability float for checks depend on several factors, such as delays in depositing a check, delays in the manual processing of a check, weekends and holidays, etc. The Check Clearing for the 21st Century Act (Check 21) was adopted in 2014 to expedite clearing times by allowing banks to handle more checks electronically. Previously, paper checks moved from one bank to another for processing. The act allowed substitute checks (scanned reproductions of original paper checks) to be used in clearing. This resulted in decreased availability float times.
Availability Float and Bank Deposits
The availability float is a key aspect of any deposit. A deposit is defined as any transaction involving a transfer of funds to another party for safekeeping. Traditionally, it involves placing money into an account at a bank. Both individuals and entities, such as corporations, may make deposits. Deposited funds may be withdrawn at any time, transferred to another account, and/or used to purchase goods. Often, a bank requires a minimum deposit to open a new account. This covers the costs associated with opening and maintaining the account.
Availability Float and Electronic Payments
Companies can reduce an availability float by moving to an electronic payment system, as this reduces the reliance on a bank's processing speed for physical checks.
An example of electronic money is a direct deposit. Many companies use direct deposits for income tax, refunds, and paychecks. It is a form of placing electronic funds directly into a bank account rather than through a physical paper check. Direct deposits may eliminate the risk of losing a physical check, the need to visit a bank's physical branch location, and can also lessen the risk of losing the check enroute (as well as theft).
Direct deposit and other forms of electronic banking may be more efficient but may also increase online security risks. Cybersecurity attacks include backdoor attacks (in which thieves exploit alternate methods of accessing a database that don't require traditional authentication) and direct-access attacks (including bugs and viruses that gain access to a system and copy its information), among others.
Example of Availability Float
Take for example a printing company that has $50,000 deposited in a bank and is owed $10,000 by one of its clients. The printing company cashes the $10,000 check and adjusts its ledgers to indicate it has $60,000 on deposit. Until the deposit is complete, however, the printing company's bank account will still show a $50,000 available balance. The $10,000 is the availability float.