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!”
What is an Investment Account Security?
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 The cash generated may then be used to buy more securities, or it may be withdrawn by the account holder.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.
How Long Does it Take For Cash to Settle?
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. If you decide to sell a stock on Friday, it would typically settle on Tuesday.
Investment Account Settlement FAQ
Q: If I have checks or a debit card linked to my investment account (Fidelity, eTrade, ETC), 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.
Contact an Experienced Wealth Management Advisor Near You
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.
We are proudly a fee-only, independently-owned financial planning firm that acts as a fiduciary for our clients. We have built our organization to put our customers’ interests first, as evidenced by our fee-only fee structure and fiduciary responsibility.
If you’re interested in our services, pleasecontact us. If you would like to learn more about financial planning, wealth management, and finding a financial advisor,please visit other areas of our education section.
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This article is limited to the dissemination of general information about Modera’s investment advisory and financial planning services that is not suitable for everyone. Nothing herein should be interpreted or construed as investment advice nor as legal, tax or accounting advice nor as personalized financial planning, tax planning or wealth management advice. For legal, tax and accounting-related matters, we recommend you seek the advice of a qualified attorney or accountant. This article is not a substitute for personalized investment or financial planning from Modera. There is no guarantee that the views and opinions expressed herein will come to pass, and the information herein should not be considered a solicitation to engage in a particular investment or financial planning strategy. The statements and opinions expressed in this article are subject to change without notice based on changes in the law and other conditions.
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Certified Financial Planner Board of Standards, Inc. (CFP Board) owns the certification marks CFP®, CERTIFIED FINANCIAL PLANNER™, and CFP® (with plaque design) in the United States, which it authorizes use of by individuals who successfully complete CFP Board’s initial and ongoing certification requirements.
As an experienced financial expert and enthusiast, I can confidently delve into the intricacies of investment accounts and shed light on the concepts discussed in the provided article. My extensive knowledge in wealth management and financial planning allows me to dissect the nuances involved in handling investment funds, settlement periods, and the potential challenges investors may face when attempting to withdraw cash.
The article begins by metaphorically likening an investment account to a box, emphasizing the variety of financial instruments it may contain, such as cash, stocks, bonds, mutual funds, ETFs, and other securities. This analogy provides a foundation for understanding the nature of assets within an investment account.
One key concept discussed is the notion of "settlement periods," denoted as "T+X," where T is the trade date, and X is the number of days beyond the trade date. The settlement period is the time it takes for the cash to become available after selling securities. For most stocks, mutual funds, and ETFs, the settlement period is T+2, meaning if you sell a stock on Monday, the cash will be available for withdrawal on Wednesday.
The article addresses the potential discrepancy between the displayed cash balance and the availability of funds for withdrawal. Funds resulting from selling securities may be visible in the account balance but may not be settled and, therefore, not immediately accessible.
The FAQ section anticipates common questions, such as whether having checks or a debit card linked to an investment account guarantees immediate access to cash. The response emphasizes the importance of checking for available cash before attempting a withdrawal, as a significant portion of the account balance may be invested or in the settlement process.
The article also introduces the concept of same-day settlement, albeit with caveats. It highlights that same-day settlement is possible for some securities but requires pre-planning and may involve additional fees. The emphasis on planning and the acknowledgment that investment accounts are not equivalent to bank accounts underscores the need for foresight in managing financial transactions.
In conclusion, the article advises readers to seek the assistance of experienced wealth management advisors, acknowledging the unique nature of investment accounts and the importance of careful planning in navigating their complexities. The firm, Modera Wealth Management, positions itself as a fee-only, independently-owned financial planning firm acting as a fiduciary for its clients, providing additional credibility to the information presented.
