# Float: What It Is, How It Works, Calculation, and Example

![Float: Money within the banking system that is briefly counted twice due to time gaps in registering a deposit or withdrawal.](https://www.investopedia.com/thmb/WVzUURxhqqate6szF01V0Acu698=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/float.asp-final-d281617436f5445bb62d7ab822dde4e3.png)

*— Investopedia / Zoe Hansen*

## What Is the Float?

Float refers to double-counted money in banking systems caused by delays in processing deposits such as paper checks. A customer's account is credited upon check [deposit](https://www.investopedia.com/terms/d/deposit.asp), yet the amount takes time to clear from the payer's bank. Until cleared, this sum is recorded in two accounts, creating float. Though less common now due to digital transactions, float still plays a role in modern banking.

### Key Takeaways

*   Float refers to funds that are temporarily double-counted within the banking system due to delays in processing deposits or [withdrawal](https://www.investopedia.com/terms/w/withdrawal.asp)s, especially with paper checks.  
    
*   As digital payment methods become more prevalent, the occurrence of float is decreasing, reducing its impact on financial systems.  
    
*   Understanding float can allow individuals and companies to manage their cash flow more effectively, taking advantage of brief delays in fund clearance.  
    
*   The Federal Reserve monitors float patterns, using them to influence monetary policy and ensure financial stability.  
    
*   While float can offer temporary financial leverage, misuse of float by intentionally overdrawing on accounts can lead to legal issues, such as wire or mail fraud.  
    

## How Float Works in Banking and Finance

The [Federal Reserve](https://www.investopedia.com/terms/f/federalreservebank.asp) (The Fed) has defined various types of float. [Holdover](https://www.investopedia.com/terms/h/holdovers.asp) float results from delays at the processing institution, typically due to the weekend and seasonal backlogs. Transportation float occurs due to inclement weather and air traffic delays and is, therefore, highest in the winter months.

The Fed—which processes one-third of all checks in the United States—observes that although the amount of float fluctuates randomly, there are definite weekly and seasonal trends. The Federal Reserve uses these trends to forecast float levels, which are then used in the actual day-to-day implementation of [monetary policy](https://www.investopedia.com/terms/m/monetarypolicy.asp).

### Calculating Float: A Step-by-Step Guide

The formula to calculate float is:

*   Float = firm's available balance – firm's book balance

The float represents the net effect of checks in the process of clearing. A common measure of a float is the [average daily float](https://www.investopedia.com/terms/a/average-daily-float.asp), calculated by dividing the total value of checks in the collection process during a specified period by the number of days in the period. The total value of checks in the collection process is calculated by multiplying the amount of float by the number of days it is outstanding.

For example, a company with $15,000 of float outstanding for the first 14 days of the month, and $19,000 for the last 17 days of the month will calculate its average daily float as:

*   \[($15,000 x 14) + ($19,000 x 17)\] ÷ 31
*   \= ($210,000 + $323,000) ÷ 31
*   \= $533,000 ÷ 31
*   \= $17,193.55

### Practical Uses and Advantages of Float

People often use float to gain extra time. For instance, Amanda has a $500 credit card bill due on April 1. She writes a check on March 23, knowing her paycheck will be deposited by March 25. She believes the credit card company won't cash her check until April 1. She has $500 worth of float—the time between the writing of her check and the time her check clears—for those days.

If she were tech-savvy, she could essentially do the same thing by going online on March 23 and scheduling an electronic payment on the credit card company's website for April 1, again counting for her bank to have posted her paycheck by March 25.

### The Evolving Role of Float in Modern Finance

Technology has sped up payments, reducing float. This includes electronic payments, [direct deposit](https://www.investopedia.com/terms/d/directdeposit.asp), and scanning checks instead of physically transferring them.

The steady decline in the number of checks written each year, combined with the rapid adoption of innovative and convenient payment services, may make float a thing of the past.

## Float in Action: Real-Life Examples

Large companies and banks often "play the float" for profit, earning interest by speeding up deposits or slowing down payments. Such moves are not illegal, either for individuals or for institutions, if the money involved is all their own.

However, playing with float can spill into the realm of wire [fraud](https://www.investopedia.com/terms/f/fraud.asp) or mail fraud if it involves the use of others' funds. In 1985, the now-defunct brokerage firm E.F. Hutton & Company pleaded guilty to 2,000 charges for deliberately and systematically overdrawing some accounts to fund other accounts. The firm was writing checks on money it did not have to profit from the float—in effect, getting millions in loans from the banks without the banks' knowledge and without paying [fees](https://www.investopedia.com/terms/f/fee.asp) or interest. It was, in essence, a floating scheme, executed on a grandiose scale for years.

Float can temporarily inflate a nation's [money supply](https://www.investopedia.com/terms/m/moneysupply.asp) by counting the same funds twice, affecting bank measurements.

## How Long Is Bank Float?

The length of time in which money is double-counted due to check-processing delays can vary from institution to institution. However, the gap is typically between one or two days.

## What Is an Example of a Float in Banking?

Examples of float can be seen across the banking sector. Consider a scenario in which an employer hands you a check. When you deposit it into your account, it may appear instantaneously as part of your account balance. However, the money represented by the check may not have actually been transferred out of your employer's account yet. In such an instance, the money is double counted for a brief window. This is an example of float in banking.

## Does Float Mean Loan?

Colloquially, the word "float" can be used to denote lending money. One friend might "float" another a couple of dollars for lunch, for instance. However, this use of the term "float" differs from the way "float" is used in the banking system, which is to refer to double-counted funds.

## The Bottom Line

In the realm of banking and finance, float refers to funds that are temporarily double-counted due to processing delays, often associated with paper checks. While individuals and companies have historically used float to their advantage by timing transactions strategically, advances in digital payments have significantly reduced its prevalence. However, the opportunity for float still exists, but those leveraging it must be cautious to avoid legal pitfalls, such as wire or mail fraud. As float declines due to increasing digital transactions, understanding its impact on financial systems remains critical.

> **Article Sources**
>
> 1.  University of Northern Iowa. "[Federal Reserve Float: Not to Be Forgotten](https://scholarworks.uni.edu/cgi/viewcontent.cgi?article=1055&context=draftings)."
>     
> 2.  Securities and Exchange Commission Historical Society. "[E.F. Hutton Guilty Plea](https://www.sechistorical.org/collection/papers/1980/1985_0805_HuttonGuilty.pdf)."