Uncollected Funds: Explanation, Benefits, and Examples

What Are Uncollected Funds?

"Uncollected funds" refer to a portion of a check deposit that remains unavailable to the accountholder until the bank verifies the receipt of the funds.

Once the check clears, the funds become part of the accountholder’s balance.

Key Takeaways

• Uncollected funds are the unavailable portion of a bank deposit being cleared by the bank.
• The time funds remain unavailable allows banks to ensure the correct amount has been received.
• Uncollected funds protect banks and customers from fraud.
• A bounced check written against an account with uncollected funds incurs a charge.
• Uncollected funds charges are often considered unfair and excessive.

How Uncollected Funds Work

Uncollected funds are deposits that need to be cleared by the depositor’s bank before they’re released for use.

The Check Clearing Process

The bank verifies that the funds have been received from the issuing bank. Until then, the funds appear as uncollected funds and the deposit is "pending."

A large deposited check is subject to a hold. A portion is available immediately, as long as the customer is in good standing.

Uncollected Funds Fee

A bounced check from an account with uncollected funds incurs a fee, also known as an uncollected funds charge.

No charges are incurred if the available account balance covers written checks.

Benefits of Uncollected Funds

Fraud Protection

Uncollected funds protect banks and customers from fraud.

Without uncollected funds, someone could deposit a bad check and withdraw cash before it clears, potentially involving innocent people in fraudulent schemes.

Money Management Support

Uncollected funds provide a waiting period that supports good money management and helps customers avoid overdrafts.

Customers can check their online banking account to monitor the status of their deposited funds.

Short-Term Investments

Banks use uncollected funds for short-term investments during the holding period to increase returns and income.

Criticism of Uncollected Funds

Fees Are Unfair

Uncollected funds charges are often considered unfair, as customers expect deposited checks to be instantly available for spending.

Fees Are Excessive

There is a argument that uncollected funds charges are excessive. Charging the same as NSF fees is seen as particularly irksome.

Unlike insufficient funds, uncollected funds can be easily deducted from cleared funds, which usually takes a few days.

Hold Periods Are Uncertain

Determining hold periods for uncollected funds can be frustrating for customers. Checking account balances online is the best way to avoid charges.

Examples of Uncollected Funds

Example 1: Jack, a customer of Hometown Community Bank, deposits a $1,000 check. $100 is available immediately, while the $900 balance is designated as uncollected funds. Jack must wait until the check clears to access this amount.

Uncollected Funds vs. Insufficient Funds

Uncollected funds differ from insufficient funds. An account with insufficient funds does not show a pending deposit and cannot meet demands.

Writing a check against an account with insufficient funds results in a bounced check and fees. Writing a check against an account with uncollected funds can work if the check is cashed after the funds clear.

How Long Can Banks Put a Hold on Uncollected Funds?

Banks are required to make $225 from a deposit available the day after it’s made. Normally, uncollected funds should be available by the second business day. Holds can be extended under certain circumstances.

What Does Uncollected Mean?

Uncollected means the funds from a bank deposit have not yet been collected or verified before being made available to customers.

Is Writing a Check on an Account With Uncollected Funds a Crime?

Writing a check on an account with available funds is not a crime. If the check bounces, an uncollected funds charge is typically incurred.

The Bottom Line

Uncollected funds are temporarily quarantined from a bank deposit to ensure the money is received before it can be spent. This practice protects banks and customers from fraud, supports money management, and provides banks with short-term investment opportunities.