Check card transactions may not be deducted from your account
immediately. The merchant and the type of transaction affects the
speed of processing. Understanding how different check card
transactions work can help you avoid problems with your checking
Personal Identification Number (PIN) transactions, such as an
ATM withdrawal, require you to enter a PIN via a PIN pad, rather
than requiring your signature. PIN-based transactions are processed
through an online network, and typically post to your account
Payments authorized without a PIN, such as signature purchases,
some pay at the pump swipes, and online purchases, are processed by
the merchant in two steps: 1) authorization, and 2) settlement.
When your card is swiped, the merchant receives an authorization
and a "hold" is placed on your account to reserve the funds for the
amount of the transaction. This authorization hold appears on your
online banking transaction history and reduces your available
balance. The hold remains on your account for a specific number of
days or until the actual transaction clears.
Payments authorized without a PIN can take longer to process
because they are remitted by the merchant in a settlement batch. If
a merchant does not remit batches daily, it is possible for the
authorization hold to fall off your account before the actual
transaction posts, creating an overstated balance.
Drew has a checking account balance of $250. He uses his check card
to make a $40 purchase at a florist that uses batch processing. A
$40 authorization hold is placed on his account, reducing Drew's
available balance to $210. The florist does not process the batch
in a timely manner, so the authorization hold expires before the
transaction processes, causing $40 to temporarily reappear in
Drew's available balance. If Drew relies on a balance inquiry
instead of keeping a register, he may think he has $250 to spend
instead of $210.
Some merchants, such as a gas station or restaurant, do not know
the final amount of the purchase when the authorization is made.
These merchants may authorize either a standard or an estimated
amount, which could be different from the actual purchase amount.
If your account balance is not sufficient to cover the estimated
authorization, it could cause a problem.
When a card is swiped at a pay at the pump gas station,
authorization is provided before the gas is pumped. Gas merchants
request a preauthorization for a standard amount, typically $1, but
sometimes up to $75. When the transaction is processed, the actual
amount posts, and the authorization hold is removed.
Julia stops for gasoline on her way to school. She swipes
her check card at the pump, which places a $1 authorization hold on
her account. Because she is running late, Julia forgets to record
the gas purchase of $25 in her register. Later that day, she checks
her balance at an ATM, which indicates a balance of $99. If Julia
relies on this balance and makes an $80 cash withdrawal, her
account would be overdrawn the next day. Why? Her balance had been
reduced by the $1 authorization hold, not the actual purchase
amount of $25. Her actual balance is $100 - 25 = $75.
Some restaurants add an estimated tip amount to the
authorization. If your account balance is not sufficient to cover
the estimated authorization, it could result in a denied
transaction or an overdraft.
Jared's account balance is $37.33. His restaurant bill without tip
is $35, and he plans to leave a tip in cash. The restaurant's card
reader automatically adds a 15 percent tip to each authorization
amount, so the swiped transaction amount is raised to $42.92. If
Jared has elected to receive overdraft privilege on his account,
the transaction will be approved, but it could create an overdraft
on his account. If Jared has NOT elected to receive overdraft
privilege, the transaction will be denied, and the restaurant would
ask for an alternate form of payment.
Hotels may authorize an estimated total amount of your stay at
the time of check-in. This total may include the room fee, plus a
fixed percentage to cover room service charges and taxes. To avoid
potential account problems, make sure the amount of your stay is in
your account at the time of check-in, even though your actual
charge will not occur until you check out. To avoid affecting your
bank account, consider using a credit card when checking in to a
Car rental authorizations work similarly to hotel
authorizations. The total amount may be authorized on the date of
the rental rather than the date of return.
On Sunday, Simon and Claire check in to a hotel for a long-awaited
vacation. Claire's paycheck will be direct-deposited to their
account on Wednesday, which will more than cover the hotel stay.
Simon provides his check card at the front desk. The hotel
authorizes an estimated total of $1,500 for five hotel nights plus
incidentals. A $1,500 authorization hold is posted to their
account, which has a balance of $2,500.
On Monday, their $1,200 house payment clears the bank, creating
an overdraft due to the $1,500 authorization hold. This can be a
bit confusing, so let's look at the transactions in a table
||Hotel Authorization Hold
||Claire's Direct Deposit
||Hotel Authorization Expires
||Actual Hotel Charge