Loading the player...

What does 'Float' mean

Money in the banking system that is briefly counted twice due to delays in processing checks. Float is created when a bank credits a customer’s account as soon as a check is deposited. However, it takes some time for the check to be received from the payer’s bank. Until the check clears from the payer’s bank, the amount of the check appears in the accounts of both the recipient’s and payer’s banks.

Float may also refer to the total number of shares available for trading. Float is calculated by subtracting closely-held shares from the total number of outstanding shares.

BREAKING DOWN 'Float'

Since float is essentially double-counted money, it can distort the measurement of a nation’s money supply by briefly inflating the amount of money in the banking system. This can complicate monetary policy implementation.

For instance, the Federal Reserve – which processes one-third of all checks in the U.S. – has observed that although the amount of float fluctuates randomly, there are definite weekly and seasonal trends. For example, float usually increases on a Tuesday due to a backlog of checks over the weekend, as well as during the months of December and January because of higher check volume during the holiday season. The Federal Reserve uses these trends to forecast float levels, which are then used in the actual day-to-day implementation of monetary policy.

The Federal Reserve also defines two types of float. Holdover float is caused by delays at the processing institution, typically due to weekend and seasonal backlog. Transportation float occurs due to inclement weather and air traffic delays, and is therefore highest in the winter months.

Technological advances over the years have spurred the adoption of measures that substantially speed up payment and hence reduce float. These include the widespread use of electronic payments, the direct deposit of employee paychecks by companies, and the scanning and electronic presentation of checks (instead of their physical transfer). As a result, float in the U.S. has declined from a record daily average of $6.6 billion in the late 1970s – when it spiked due to high inflation and high interest rates – to only $774 million in 2000. The steady decline in the number of checks written each year, combined with the rapid adoption of innovative and convenient payment services, may make float a thing of the past.

RELATED TERMS
  1. Availability Float

    The time period between when a deposit is made and when the funds ...
  2. Float Time

    The amount of time between when an individual writes and submits ...
  3. Book Balance

    Funds on deposit prior to any adjustment for check clearing, ...
  4. Clean Float

    Also known as a pure exchange rate, a clean float occurs when ...
  5. Floating Interest Rate

    An interest rate that is allowed to move up and down with the ...
  6. Float Shrink

    A reduction in the number of a publicly traded company’s shares ...
Related Articles
  1. Investing

    Float

    Float is money in the banking system that is briefly counted twice due to delays in processing checks.
  2. Investing

    Float Over to Floating Rate ETFs

    Floating rate notes are another avenue for bond investors to consider when it comes to reducing interest rate risk.
  3. Investing

    Types Of Shares: Authorized, Outstanding, Float And Restricted Shares

    A company’s financial statements may refer to multiple types of stock, including authorized, outstanding, float and restricted shares. If a company issues more shares, its outstanding shares ...
  4. Investing

    Floating Rate Loans Look Attractive

    The search for income continues to remain a major priority for investors, as interest rates still sit at historically low levels. In order to get yield, many have moved up the maturity ladder. ...
  5. Trading

    Understanding the Floating Exchange Rate

    Floating exchange rate is the exchange rate between two currencies at any given time.
  6. Investing

    FLOT: iShares Floating Rate Bond ETF

    Explore detailed analysis and information of the iShares Floating Rate Bond ETF, and learn how to use this ETF as a defense against rising interest rates.
  7. Investing

    Is it Time to Buy Floating Rate Bonds?

    The Fed’s awaited interest rate hike could finally be at hand. Are floating rate bonds the way to go?
  8. Trading

    Dual And Multiple Exchange Rates 101

    Why would a country choose to implement dual or multiple exchange rates? It's risky, but it can work.
  9. Trading

    Interest Rate Swaps Explained

    Plain interest rate swaps that enable the parties involved to exchange fixed and floating cash flows.
RELATED FAQS
  1. How does float affect the nation's money supply?

    Learn how float affects the appearance of the nation's money supply, and receive a brief lesson on how the U.S. government ... Read Answer >>
  2. In what ways has technology helped to reduce float?

    Learn more about the impact of float on the U.S. monetary system and how technology has changed the amount of float as measured ... Read Answer >>
  3. What does floating stock tell traders about a particular stock?

    Learn about what floating stock tells a trader about a particular stock. One commonality of the biggest winners in stock ... Read Answer >>
  4. How do I determine a company's floating stock?

    Find out more about floating stock, outstanding shares and restricted stock, and learn how to calculate the amount of a company's ... Read Answer >>
  5. What is a treasury stock?

    Every company has an authorized amount of stock it can issue legally. Of this amount, the total number of shares owned by ... Read Answer >>
Hot Definitions
  1. Promissory Note

    A financial instrument that contains a written promise by one party to pay another party a definite sum of money either on ...
  2. SEC Form 13F

    A filing with the Securities and Exchange Commission (SEC), also known as the Information Required of Institutional Investment ...
  3. Fixed Asset

    A long-term tangible piece of property that a firm owns and uses in the production of its income and is not expected to be ...
  4. Absolute Advantage

    The ability of a country, individual, company or region to produce a good or service at a lower cost per unit than the cost ...
  5. Nonce

    Nonce is a number added to a hashed block, that, when rehashed, meets the difficulty level restrictions.
  6. Coupon

    The annual interest rate paid on a bond, expressed as a percentage of the face value. It is also referred to as the "coupon ...
Trading Center