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What is a provisional credit, and how does it work?
If you’ve ever disputed a transaction with your bank, you may have seen a “provisional” or “pending” deposit in your account equivalent to the disputed charge. Provisional credits are temporary credits issued to your account while the transaction in question is investigated.
Understanding how provisional credits work is important to managing your funds and keeping your account in good standing. Here’s what you need to know.
What is a provisional credit?
A provisional credit is a monetary credit applied to your bank account while a potentially fraudulent or disputed charge is investigated.
Say you see a debit card purchase for $1,200 that you didn’t make. After initiating a dispute with your bank, it will add $1,200 back into your account while they look into the issue.
However, it’s important to understand that during the investigation, the provisional credit is merely a placeholder. Should the bank determine the charge was, in fact, fraudulent, you keep the money. But it can also be reversed — the funds would be withdrawn from your account should the bank determine the charge was valid.
Read more: How to dispute a debit card charge
Why do banks issue provisional credits?
An unexpected or fraudulent debit from your checking account — especially a large one — can hinder your ability to cover daily expenses while it gets sorted out. A provisional credit is designed to provide relief for the account holder, who would otherwise have to bear a potentially sizeable dent in their funds.
Depending on the size of the charge and the complexity of the case, an investigation can take anywhere from a few days to a few weeks. Thus, a bank will issue a credit equivalent to the charge in question as a placeholder for the actual funds.
Typically, suspected fraud will trigger a provisional credit. Errors on the merchant’s behalf, such as billing you for a subscription you canceled or double-charging you, will also trigger a credit.
How do provisional credits work?
First, the account holder must contact the bank to dispute an unauthorized transaction. Financial institutions typically have 10 days to complete the investigation. But if the case is particularly complex, they will issue the provisional credit while continuing the investigation.
During this time, the bank examines the transaction details, weighing evidence from both the merchant and account holder. Eventually, the bank determines whether or not the dispute is valid. The provisional credit lasts only as long as the investigation.
If the dispute is valid, the provisional credit becomes permanent. It is important to keep in mind that not every claim is found to be valid. Should the bank conclude that the disputed charge was not erroneous or fraudulent, they will reverse the provisional credit. Although you’re free to spend the provisional credit while it’s posted to your account, it’s smart to keep a buffer of funds in your account to avoid accidentally overdrafting in case the credit is reversed.
Read more: How much money should you keep in your checking account?
