What is a Net Settlement?

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

How Does a Net Settlement Work?

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

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

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 Does a Net Settlement Matter?

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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Paul Tracy
Paul Tracy

Paul has been a respected figure in the financial markets for more than two decades. Prior to starting InvestingAnswers, Paul founded and managed one of the most influential investment research firms in America, with more than 3 million monthly readers.

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