A negative float is a term that is commonly employed in the banking industry and has to do with the time frame that exists from the moment that a bank customer writes a check and when that check actually clears the bank account. The amount of float involved with a given account is based on the number of transactions that have been initiated by the account holder but have yet to be cleared by the institution. While the term once only had to do with checks written but not yet cleared, the float can also include debit card transactions that have been accepted by a vendor but have not yet been applied against the balance of the issuing bank account.
One of the easiest ways to understand the concept of a negative float is to consider a checking account that has a current balance of $5,000 US dollars (USD) at the beginning of a calendar month. The account holder issues one check in the amount of $1000 USD to pay rent, another check of $100 USD to pay a utility bill, and then makes a $50 debit card purchase at a local supermarket. The total of the three transactions will not clear the bank account at least until the following business day, meaning that in the interim the account has a negative float of $1150.
The amount of float time that is involved with settling a negative float will vary, depending on how quickly the check or debit transaction is presented for payment. In some instances, debit card purchases may not clear the account for two business days, based on when the vendor presents them for payment. The time needed for checks to clear the account will also vary. A check written to a local vendor who also happens to do business with the same bank may be deposited early the next day and clear the account later that same day. By contrast, a check that is mailed to a creditor may take several business days to clear the bank.
Monitoring the negative float is important to the process of responsibly managing a checking account. Account holders will use what is known as a check register to track the transactions initiated on the account, making it simple to identify the current balance, less any negative float that may currently exist. Keeping an accurate register that is up to date on all cleared and pending transactions makes it easier to avoid overdrawing the account balance and incurring penalties or having a check returned for non-sufficient funds.