What Are Uncollected Funds?
Uncollected funds are the amount of a bank deposit that comes from checks that have yet to be cleared by the bank from which the checks are drawn. Essentially, uncollected funds are sums of money that the bank needs to account for prior to releasing the funds to the depositor.
Uncollected Funds Explained
Uncollected funds are deposits that need to be reconciled; that is, the bank from which a check is drawn must acknowledge that the checking account has the funds to cover the check. Once the check clears, the depositor can have access to the deposited funds. Until then, the funds are referred to as uncollected funds, coded as "UCF" or "UF" for short. A check in a large amount that is deposited to an account is subject to a holdback of the majority of the amount. A portion is typically made available immediately to the depositor as long as the customer is in good standing with the bank.
Example of Uncollected Funds
For example, Jack, a longtime customer of Hometown Community Bank, deposits a $1,000 check on Monday. $100 is available for withdrawal right away, but the $900 balance is designated as uncollected funds and Jack must wait until the check clears later in the week to draw upon that amount. If Jack tries to write a check against the balance and it has not yet cleared, Jack's check will be returned to him, often with a returned check fee.
Difference Between Uncollected Funds and Insufficient Funds
Unlike uncollected funds, an account with insufficient funds will not show a deposit pending. Writing a check against an account with insufficient funds will result in a bounced check and incur a fee. If timed correctly, writing a check against an account with uncollected funds will be okay; in this case, the funds would be collected before the bank receives the withdrawal check.