Same-Day Funds: What it Means, How They Work

What Are Same-Day Funds?

The term "same-day funds" refers to money that can be transferred or withdrawn the same day it is deposited into the recipient's bank account. Same-day funds are subject to the net settlement of accounts between the banks that present and remit the funds. Many customer deposits are not same-day funds and are not available for withdrawal for one to two business days.

Understanding Same-Day Funds

Most banks make funds deposited by customers available within one to two business days. Business days are Monday to Friday, with the exception of federal holidays. This does not include Saturdays and Sundays, even if banks are open and accept deposits on these days.

Banks and other financial institutions that accept customer deposits must adhere to the Federal Reserve Board's (FRB's) Regulation CC. This rule enforces disclosures about hold policies and the availability of funds. Put simply, it states what deposits customers have access to per the Expedited Funds Availability Act (EFAA) passed by Congress in 1987.

Availability of Funds

According to Regulation CC, the following deposits are available to customers on the first business day after the banking day of deposit (also known as next-day availability):

• Cash deposits
• Direct deposits
• Wire transfers
• Transfers from other accounts at the same bank
• Deposits made through the Automated Clearing House (ACH)
• Checks from the U.S. Treasury
• Government checks
• Certified or cashier's checks
• Money orders purchased from the U.S. Postal Service

These deposits must be made in person at a bank or, in some cases, may be made at an automated teller machine (ATM) owned by the customer's bank, as long as the funds are posted to the account before the bank’s cut-off time for that day’s business operations. This is usually sometime in the mid-afternoon.

The majority of deposits aren't immediately available to customers because they need time to clear. For instance, when a customer deposits a check into their bank account, the bank may put it on hold for a number of days. This allows the check to be verified and cleared so it doesn't bounce. Once the check is cleared, the hold is removed and the funds become available to the depositing customer.

Special Considerations

Regulation CC also has conditions regarding when financial institutions can delay the availability of deposited funds. These conditions are called "exception holds" and include:

• Large deposits over $5,000. When a customer makes a large deposit, banks must release the first $5,000 according to their availability policy and can hold the remaining balance for a reasonable period of time. Thus, if someone makes a $7,500 deposit, the customer has access to $5,000 according to the bank's availability policy while the remaining amount can be put on hold.
• Checks that are redeposited.
• Deposits made to accounts that are constantly overdrawn.
• When a check cannot be verified or may have a risk of bouncing.
• Deposits made during emergencies, such as a natural disaster.
• Deposits by new customers, as these account holders don't have an established deposit history.

Fedwire Funds Service

Same-day funds can also refer to federal funds that are sent via bank wire. This money would be sent between banks via the Fedwire Funds Service the same day. This service allows for immediate, irrevocable, and final real-time funds transfers. It’s available to businesses, financial institutions, and depository institutions that have an account with the Federal Reserve Bank.

The Fedwire Funds Service is typically used to make large, time-sensitive payments. Funds are debited from an originator’s account and credited to the account of another participant in the Fedwire Funds Service. Fund transfers can be initiated via telephone or online.

Clearing House Interbank Payments System

Clearing House Interbank Payments System (CHIPS) transfers in New York are also known as same-day funds. CHIPS is a privately owned clearinghouse for handling large transactions. Transferring money via CHIPS costs less than transferring it via Fedwire, so banks typically prefer to use this service to transfer less time-sensitive payments.

While Fedwire is a real-time gross settlement system, payments made via CHIPS can be netted. This means that payments are not made in real-time. CHIPS has approximately 50 direct participants and settles $1.8 trillion in domestic and international payments every day.