When you receive your monthly bank statement, you'll see the details of the additions (credits) and subtractions (debits) that the bank posted to your checking account during the statement period.
Checking account debits result from these types of transactions:
- Paying bills
- Purchasing goods and services
- Withdrawing funds via ATM or a check made out to yourself
- Electronically transferring money out of the account
- Overdraft fees and other charges deducted from the account
- Corrections for overstated account balances (caused by a stop payment, bounced check or faulty direct deposit that had to be reversed)
Banks provide debit cards and checks that allow you to add and subtract from your checking account.
How Banks Post Transactions to Your Account
"Posting" means that the bank applies debits and credits to your checking or savings account balance. An arriving check or other debit posts immediately or overnight with any credits and other transactions. Your bank processes all of these items either in real time or in a batch, according to a specific order.
Each bank sets posting rules. It may process deposits before debit card charges, for example, or vice versa. After the posting completes, your bank account carries a new current balance, which some banks call a ledger balance. The current balance is the amount of money in your account after the bank has processed the day's credits and debits.
A Debit Can Cause an Overdraft
With the advent of debit cards and automatic withdrawals, the ordering of account transactions has gotten more complex, and the potential for problems has risen. As an account holder, the basic rule of thumb for avoiding an overdraft is to ensure you have sufficient funds to cover all transactions as soon as you make them.
Once upon a time, it was possible – although not ethical – to write a check and cover it later with a deposit. "Floating" a check worked because transaction processing between the check writer's bank and the payee's bank took several business days. That is no longer the case.
According to the Office of the Comptroller of the Currency, a check can now post to your account as soon as the start of the next business day, and the same is true for other account activity, such as debit card transactions, online purchases and bill pay, check-by-phone debits and automatic withdrawals that you authorize.
Some Debits Post Immediately
Banks post some debits instantly, including debit card purchases, ATM withdrawals and electronic payments made through online banking. The timing is crucial if you want to avoid overdrafts.
Debit Card Purchases
When you use your debit card at a checkout line, you choose whether you want a "debit" or "credit" transaction. This choice is confusing because either one debits your account. If you select "debit," you must enter a secret PIN code, and the purchase immediately updates your account balance. Choose "credit" and you may have to sign a receipt.
The debit will hit your account in one to three days. It depends on how financial institutions process.
Transactions Made Through an ATM
If you withdraw money from an ATM, the debit immediately updates your available and current balances. The available balance is the money you or the bank can use for transactions. It frequently changes as you use your debit card at a store or ATM, but the current balance changes just once a day after the evening's posting.
Some ATMs now accept deposits by check and cash and may make the funds available immediately depending on the bank's policies. You can also update the available balance immediately with online and mobile banking, allowing instant transfers from one account to another.
Electronic Automated Clearing House Transactions
Electronic bill payments and wire transfers can be a somewhat mysterious process. The transactions are conducted through the Automated Clearing House network, called ACH. Although they are more convenient than writing and mailing paper checks, these automated debits can post quickly. For example, the IRS advises that you may be able to do a same-day wire from your financial institution.
Each bank, utility company, credit card issuer and financial services firm has procedures for posting transactions. After the transaction arrives, your bank may post the debit while the payee is holding the funds while delaying crediting your payment. Avoid insufficient funds by always keeping enough money in the account if you authorize ACH withdrawals.
This article was written by PocketSense staff. If you have any questions, please reach out to us on our contact us page.