Do you ever look at your account statements and notice a transaction that does not seem to be doing anything aside from freezing up some of your funds? These funds have not actually left your account they have just been put on hold.
What is a hold?
Holds allow merchants to ensure that you have the money available for your purchase. In short, a hold is a temporary delay in making funds available.
Even though those funds appear in your account, financial institutions and certain merchants make it so that you cannot withdraw that money or use it for payments. Essentially a hold is a security deposit that does not leave your account. Again, it does not actually leave the account unless it is needed to cover the transaction.
Hotels, Car Rental Companies, Gas Stations, and Restaurants (to name a few) use holds as a way to protect themselves from paying for any damage's guests may cause, or for having to cover any fill-ups or meals, which may not be paid for.
How does it work?
When you use a debit card, the store clerk/representative contacts the financial institution that issued your card to get an authorization. When the approval is given, the balance in your checking account is reduced or "blocked" by the amount of the purchase. This is known as a pre-authorization hold. The merchant determines the amount of the hold.
How long do holds usually last?
Typically, the hold stays on your account until the funds are transferred to the merchant from your financial institution. If you look at your account online, it may show up as a pending transaction.
A "hold," can last anywhere between a minute and 31 days. Or, until the merchant charges your card for the purchase and "clears" them, or they naturally "fall off" your account.
Can holds cause problems?
In a few situations, the dollar amount of the transaction is unknown when an approval is given. This may happen when you check into a hotel room, rent a car, pay for gas at the pump or use your debit card to pay for your meal at a restaurant. In each of these transactions, the merchant may get an approval for a higher (estimated) amount– allowing for a tip, room service, additional or higher purchase amounts. Unless you understand how a hold affects your account, your debit card could be declined in future transactions.
For example, let’s say you have $60 in your account when you use your debit card to pay for gas at the pump. Since the purchase amount is unknown when you insert your card, the merchant requests an authorization for $50. The authorization causes a hold to be placed on your account for $50 and your available balance is reduced to $10. If you only purchased $20 in gas you may believe you have $40 available in your account.
Here are a couple of tips to help avoid these issues:
When you use your debit card in a situation where the merchant may estimate the charge (hotels, car rental, paying for gas at the pump, restaurants)
When a business asks for your card in advance of service - ask if the company will request a pre-authorization hold, the amount of the hold, and how the amount is determined.
Be sure the hold won’t exceed your account balance.
Pay the charges with the same card you used at the beginning of the transaction.
Ask the clerk when the hold will be removed.
Prior to making a purchase that will involve a payment with a different card, by cash, or by check, inform the clerk of the different form of payment and inquire about their policy on reversing holds.
Some key points to remember about holds:
Most merchants, especially those in the hospitality and service industries impose holds.
The money has not left your account.
Holds are temporary.
Once the hold is removed, the funds will once again be available
Let's take a glass of water - if you were to freeze the glass then remove it from the freezer, the water never left the glass, it was just frozen. If you leave the glass out for a bit, it will unfreeze and become water again. The same holds true with a hold (pun intended), some funds are temporarily frozen, but they never left the account and when the hold is removed, the funds will be available again.
I hope this has helped to shed some light on holds for you. If you have any additional questions, feel free to reach out to us.