A balance is the amount of money held in an account, or owed on it, at a particular moment. It is the running total of everything paid in minus everything paid out since the account was opened. For a customer's bank account a positive balance is money the bank owes the customer; for a loan or credit card the balance is money the customer owes the bank.
Banks usually show two figures, the ledger balance and the available balance, and the gap between them explains many everyday surprises, such as a payment being declined although the account looks funded. In accounting, the word also describes whether an account's total sits on the debit or the credit side. It should not be confused with the current account balance of a country, which is a balance-of-payments measure of trade and income flows, not money in a bank.
Balance in plain terms
Picture a jar where you drop in coins and take some out. The balance is what is in the jar right now. A bank keeps the same kind of tally, except the jar is a line in the bank's books and the coins are entries for wages, card payments and bills.
The twist is that some coins are "promised" but not yet usable. A cheque you paid in this morning is noted, but the bank may not let you spend it until it clears. A coffee you bought with your card is not yet taken out, but the bank has set the money aside. That is why your banking app can show two different numbers at the same time.
Ledger balance and available balance
The ledger balance (also called the current or book balance) is the total of all transactions that have been fully posted to the account, usually as of the end of the previous business day. It is the figure recorded in the bank's ledger and printed on a bank account statement.
The available balance is what the customer can actually spend or withdraw now. It starts from the ledger balance and then:
- Subtracts card payments that have been approved but not yet settled. When a debit card is used, the bank places a hold at the moment of authorisation, and the money leaves the ledger only when the merchant settles, often a day or more later.
- Subtracts the uncleared part of recent deposits, especially a cheque. In the United States, the Federal Reserve's Regulation CC, which implements the Expedited Funds Availability Act of 1987, sets maximum hold periods for deposited checks.
- Adds any arranged overdraft limit, on the banks that choose to show it this way.
The time between money leaving one account and arriving in another is sometimes called float. Faster payment systems have shrunk it, but card holds still create gaps between the two balances.
Debit and credit balances
In double-entry bookkeeping every account has a debit side and a credit side. An account has a debit balance when debits exceed credits and a credit balance when the reverse is true. Asset accounts, such as cash, normally carry debit balances; liability accounts, such as loans payable, normally carry credit balances.
This produces a familiar point of confusion. On the bank's own books, a customer's deposit is a liability, so a healthy account is "in credit". When the customer's statement says "CR" next to a balance, it means the bank owes the customer; "DR" or "OD" means the account is overdrawn. A company keeping its own records sees the same account the other way round, as a debit balance in its cash ledger, and matches the two through reconciliation.
On credit products the balance is the amount owed. A credit card statement shows the statement balance, the minimum payment and the current balance including later spending.
Minimum balance requirements
Some accounts require the customer to keep at least a set amount in the account, either at all times or as a monthly average. If the balance falls below that line the bank may charge a monthly fee, pay a lower rate of interest, or, after long inactivity, apply a dormancy fee. These rules are listed in the account's schedule of bank charges.
Interest on a savings account is normally calculated on the daily closing balance, so money kept in the account for longer earns more. Some products pay a higher rate only above a balance threshold, known as tiered interest.
Checking and managing a balance
Customers can see their balance in mobile and online banking, at a cash machine, on statements, by text alert or by asking at the branch. A withdrawal or standing order can fail if the available balance, not the ledger balance, is too low. Watching the available figure, setting low-balance alerts and remembering pending card holds are the simplest ways to avoid declined payments and overdraft fees.
A balance that is not zero when an account is closed, such as a few cents left on a prepaid card, is sometimes described as a non-zero balance and must be refunded or handled under local unclaimed-funds rules.