Uncollected Funds: Explanation, Benefits and Examples

What Are Uncollected Funds?

Uncollected funds are the unavailable portion of a bank deposit that comes from checks that have yet to be cleared by the bank. Essentially, uncollected funds are the money that the bank needs to account for before releasing the funds to the customer.

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 bank refers to the funds as uncollected funds, coded as "UCF" or "UF" for short. A check for a large amount that is deposited to an account is subject to a hold on most 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.

It is crucial to make a distinction 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 always result in a bounced check and incur a fee. Writing a check on an account with uncollected funds can work if the check is not cashed until after the uncollected funds have cleared.

If a check is cashed on an account with uncollected funds and the check would otherwise bounce, then an uncollected funds charge will typically be incurred. This charge is also called a UCF fee, and it is usually the same as the bank's non-sufficient funds (NSF) fee. As of 2020, NSF and UCF fees of $25 or $30 were fairly common. No charges are incurred for uncollected funds if the rest of the checking account balance can cover all expenses.

Benefits of Uncollected Funds

Although there are numerous complaints about uncollected funds, they do protect banks and their customers from certain types of fraud. Without uncollected funds, it would be possible for someone to write a bad check on one bank account, deposit it in another, and then walk away with the cash. This scheme is so easy and obvious that just about anyone facing bankruptcy might be tempted by it. Even worse, criminals could force innocent people into such schemes and then make them turn over the money.

Uncollected funds are really just a way for a bank to tell customers that they received a check, but the funds are not yet available. For example, a customer might deposit a check by sending it to the bank through the mail in an envelope. When the bank gets the check, it will first show up as uncollected funds. When the customer looks at their online banking account, they will see it as uncollected funds and know that the bank got it. The customer can then check back later to see if the funds have cleared and it is safe to spend the money.

Criticism of Uncollected Funds

Customers who face uncollected funds charges often find them to be unfair and excessive. When people deposit checks, many of them naturally assume that it becomes money in the bank that they can spend. In this view, an uncollected funds charge is a sneaky way to make money. Since uncollected funds are not available right away, then when do they become available? A day? A week? A month? Check clearing times can be hard to figure out. It was more of an issue before online banking made it easier to determine the status of deposited checks.

There is also a good argument that UCF fees are excessive. The fact that they are usually the same as non-sufficient funds (NSF) fees seems particularly unfair. A person writing a bad check often has no reason to believe it would clear, while someone with uncollected funds might think this money was available. Furthermore, there might be little or nothing in an account with insufficient funds, leaving the bank with a loss and a need to collect. On the other hand, it is easy to take UCF fees out of the uncollected funds when they arrive, which often happens within a few days.

An Example of Uncollected Funds

Jack, a longtime customer of Hometown Community Bank, deposits a $1,000 check on Monday. $100 is available for withdrawal right away. However, the $900 balance is designated as uncollected funds, so 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 will incur an uncollected funds charge.