Why Your Money Isn’t Available Immediately After Selling Securities

When you need to withdraw cash from your investment account and you’re told the funds aren’t available, it can be a little unsettling, particularly when you know you have more than enough to cover the withdrawal. “What do you mean, the funds aren’t available? I can see them right there!”

An investment account is like a box. Inside the box you may have cash, stocks, bonds, mutual funds, ETFs, or other securities. The securities inside the account may be used to generate cash (either in the form of dividends or interest) by selling the security in the market, or by holding it to maturity (in the case of a bond). The cash generated may then be used to buy more securities, or it may be withdrawn by the account holder.

When securities are sold, however, the cash is not instantly available. There is a settlement period of up to two days for most stocks, mutual funds, and ETFs; bonds typically have a slightly longer settlement period.

Settlement periods are denoted as “T+X” where T is the trade date and X is the number of days beyond the trade date. For example, stocks have a T+2 settlement. If you sell a stock on Monday, it will settle on Wednesday (trade date = Monday). The cash will be available on Wednesday for withdrawal or transfer. If you sell it on Thursday, it will settle on Monday (weekends don’t count). And if there’s a market holiday in there, that will be skipped over as well. If you sell a stock the Thursday before Memorial Day weekend, the cash will be available when it settles on Tuesday.

Beware – if you look at your account’s cash balance on Friday (using the Memorial Day example) it will show the proceeds from your stock sale. However, those are not settled funds and thus are not available for withdrawal until Tuesday.

Q: If I have checks or a debit card linked to my investment account, does that mean I can withdraw cash/write checks whenever I want?
A: Yes – provided there is cash in your account. You may have a sufficiently large account balance, but most of that could be invested in securities or be in the process of settling. Before attempting a withdrawal from your investment account, you should always check to make sure you have enough available cash.

Q: But I need the cash today! What can I do?
A: Do you have a DeLorean with a flux capacitor?

Q: Seriously – I usually think ahead, but I was caught off-guard this time. Isn’t there anything you can do?
A: There is such a thing as same-day settlement. Mind you, it’s only possible for some securities and we must know BEFORE we place the trades so we can request it from the trade desk at the custodian. There may or may not be an additional fee for same-day settlement. In short, it’s a best-efforts situation and we do not recommend relying on this method.

Of course, we aim to provide the best service possible and will make every effort to get your cash to you when you need it. That being said, these are investment accounts and not bank accounts, so a little planning goes a long way to making the process as smooth and painless as possible.

Sarah DerGarabedianSarah DerGarabedian, CFA
Director of Investment Management

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