Investing Answers Building and Protecting Your Wealth through Education Publisher of The Next Banks That Could Fail
Investing Answers Building and Protecting Your Wealth through Education Publisher of The Next Banks That Could Fail

Net Settlement

What it is:

In banking, net settlement is simply the sum of the day's credits and debits.

How it works (Example):

Let's assume XYZ Bank has the following activity today:

Outflows:
Cash withdrawals        $400,000
Debit card transactions    $500,000
Credit card transactions    $300,000
Total                $1,200,000

Inflows:
Check deposits    $275,000
CD purchases        $100,000
Cash deposits        $125,000
Total            $500,000

Net settlement = $500,000 - $1,200,000 = -$700,000

 

Why it Matters:

Banks send their net settlement data to each other and to Federal Reserve bank banks in order to collect or pay amounts due from or to one another. A clearinghouse typically handles the actual transaction between entities. Payments usually occur at the end of the day so as to include all transactions for the day.

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