Float Law and Legal Definition

Float is subject to different meanings, but in a financial context, it refers to the difference between the amount of checks written and deposited according to your own books or records, and the amount of those checks or deposits that have cleared your bank account. It is that time lapse between when a check is deposited and when the money becomes available. For example, a person gives the landlord a rent check on Tuesday, but the money won't be in the bank until Friday.

Float is the result of the check-clearing procedures of your bank and the Federal Reserve. In the past, it may have taken up to a week or more for checks to clear through the banking system. Today however, electronic processing and changes at the Federal Reserve have considerably reduced the amount of time it takes for checks to clear through the banking system. Banks use this time to verify the legitimacy of a check. In the meantime, the bank or credit union earns interest on dormant checks, which has caused some consumer groups to accuse banks of exploiting the float to their own advantage.

Legislation requires banks to make money from local checks available within two business days of deposit. Money from checks drawn on out-of-state banks must be available within five banking days.