When purchasing using a debit card the almost universal process is for the bank to reserve the needed amount first and only later the actual money will be deducted from your account, later can be seconds but sometimes days.

This process is obviously needed to ensure that there is enough balance in your account, but why is it necessary in the first place? why can't the money be withdrawn immediately and transferred to the end business or the intermediate card company?

  • 1
    Are you talking about retail transactions (in stores / shops)? I have never seen a separate authorisation followed by a later final transaction, for in-person transactions...
    – AakashM
    Sep 7, 2022 at 11:45
  • Yes retail transactions, my Swedish bank does that
    – Rsf
    Sep 7, 2022 at 12:29
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    "the almost universal process is for the bank to reserve the needed amount first and only later [deduct] the actual money". I've never seen any indication that it works like this. Why do you think it does? (Other can places like gas pumps where you don't know the amount in advance). Sep 7, 2022 at 13:34
  • Maybe global was a somewhat strong word but I have confirmation that this is the case here in Sweden, and many search results show that it is the same in other countries as well
    – Rsf
    Sep 7, 2022 at 15:14
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3 Answers 3


This depends a lot on both the type of charge and the systems involved.

First rule of using debit cards is that you have to have the money to use it. That's the main difference between credit cards (where you're given a credit line) and a debit card (where you're debiting your bank account directly). As such, banks have to go at great length to ensure you're not ending up overdrawing your account.

What it means is that any transaction using your debit card will be immediately communicated to your bank, and the amount the merchant communicated will be "set aside", or put on hold, so that the bank knows not to let you use it again in a different transaction.

You've got a great explanation from the user 'Justin Cave' about holds where the transaction amount is not known ahead of time. But it also happens when the transaction is known. In fact, from the banks' perspective it doesn't matter, the process is the same.

The transaction itself clears (or posts, different places use different terminology) at a different time. Sometimes the process is online, sometimes it is done in batches during the daily (or rather nightly) processing. Sometimes the transaction has to go through several different steps and be processed at different institutions. This is especially true for international transactions, but not always.

How you see it reflected on your account may not necessarily match how it is actually processed. For example, you may see a transaction, but it is actually a hold. How it is presented to you depends on the bank itself.

Once the transaction clears the bank reconciles it with the hold (matches the merchant, time, amount) and removes the hold. Sometimes this doesn't happen, and there could be many reasons, some examples:

  • Transaction couldn't be reconciled. You may end up with the transaction posted, but the hold remains because the bank couldn't match them. This happens rarely. Sometimes it happens when the merchant puts a hold ahead of the transactions on a much larger amount (rental cars, hotels usually do this). You'll need the merchant to cancel the hold.
  • Transaction never happened. For example, you swiped the card at the gas pump and then changed your mind and didn't actually fill any gas. The hold then will remain until either the merchant communicates cancellation or it expires (depending on the bank - may take weeks)
  • An obvious follow-up question (one which is contained within the original question of "Why can't the money be withdrawn immediately and transferred to the end business?") is why the actual transaction takes time to clear/post, when the hold is instantaneous.
    – R.M.
    Sep 8, 2022 at 2:35
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    @R.M. the hold is based on an information passed online by the merchant, but the money is not delivered online, money transfers are done in batches. It is infeasible to initiate a wire transfer for every debit card transaction, and even then it wouldn't be instantaneous for many banks and systems.
    – littleadv
    Sep 8, 2022 at 2:53
  • It is feasable to get instant transfers. I guess way less people transfer money from their online banking account than pay via card for groceries, so might be a load problem
    – julka
    Sep 8, 2022 at 10:30
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    @julka Is it? In the US, for example, it is not. I know in Europe they do have the technical infrastructure that allows it, but even there as you said - it's a question of scale.
    – littleadv
    Sep 8, 2022 at 15:04
  • I've not encountered this for a long time, but I do remember a time when I was at university in the 90's (New Zealand) and it was possible to overdraw your account by taking money out from multiple ATM's in short succession. This loophole was eventually closed. Sep 9, 2022 at 1:00

Because the merchant doesn't know the amount of the actual transaction in advance.

The classic example is the gas pump. When you pull in to a gas station, the merchant wants to verify you're able to pay before you start pumping-- it's obviously rather problematic if the customer pumps $100 in gas before realizing they've only got $20 in their account. But the merchant doesn't know how much gas you're going to pump until you've finished pumping. So they reserve a certain amount before you start pumping and process the actual transaction amount later after you finish pumping. That process may take time depending on exactly how the transaction gets processed-- merchants will often do this processing in overnight batches rather than doing it immediately after you finish pumping since they've already reserved the money they're going to be paid.

This sort of transaction contrasts with a more natural retail transaction where there is only a single step. If you go into a grocery store after you've filled up your tank and bring a dozen eggs up to the cashier, you and the merchant know exactly how much your transaction will be before you present your card so that's done as a single step with no pre-authorization required.

If you are seeing that every retail transaction looks like hold, that's most likely not a hold. It's likely that your bank is presenting pending transactions and holds the same way. If you present your card at the grocery store for a dozen eggs, the store authorizes the transaction with the bank immediately. There is then a second reconciliation step that happens some time later, often as an overnight batch operation, to finalize the transaction.

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    This is correct for this use case, but I don't think that this is the common case. People mostly use cards to buy goods with the prices known at checkout like supermarkets, electronics or cloths.
    – Rsf
    Sep 7, 2022 at 11:25
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    It's probably going to depend on the system used to reconcile the charge. Verifying a balance is a fast, "read-only" transaction, as opposed to a withdrawal which may require multiple steps with various safe guards to ensure successful completion.
    – chepner
    Sep 7, 2022 at 13:02
  • @Rsf - That's the case for when amounts are reserved. If the price is known, the transaction would be processed directly, there would not be a hold amount. Sep 7, 2022 at 13:41
  • @JustinCave Standard practice is to now reserve monies prior to processing. There are various reasons for this but one of them is that, commonly, payment providers/gateways do not charge for "checks" and incomplete payment workflows. So if a customer decides to cancel they do so with a "void" rather than a reversal/refund. There's also the case for "Secure 3d2" or PSD2, whereby additional checks are required (in banking app usually). In this case, you would not want a race-condition resulting in monies leaving between authentication, so you reserve the money to safeguard the auth process. Sep 8, 2022 at 9:43

It's a side-effect of how transactions are processed behind the scenes. Most debit transactions (along with other forms of relatively low-valued money transfer) go though an automated clearing house, or ACH. This is a system where a business or financial institution bundles up a large number of transactions and submits them in a single batch. This greatly reduces the overhead associated with processing the transactions and brings per-transaction costs low enough to be reasonable for low-value transactions. One big bulk transfer is more efficient than thousands of tiny ones. Instant funds transfers typically go through a central funds transfer system like Fedwire, which isn't designed to handle mass volumes of small transactions. ACHs also allow banks to use net settlement to minimize the amount of money that actually needs to be moved around. A secondary benefit is that it also shifts the time-consuming process of settling the transaction away from the point of sale, so that you don't have to hold up the line waiting for banks to coordinate and confirm fund transfers. Behind the scenes, some transfers can take days to complete.

One of the big problems with delayed-settlement payment systems is that overdrafts are easy to do. If you try to make a $100 purchase, the bank can confirm that you have $100 in the account to cover the transaction. However, if you promised that same $100 to multiple people in the same day (either by mistake or by fraud), only the first to settle will actually receive payment. A "reservation" or "hold" is the bank's remedy for this. Reserving the funds both confirms that they exist and sets them aside for this specific transaction, assuring the merchant that the transaction will settle as expected. It provides most of the security of an instant transaction, while retaining the ability to actually settle those transactions in bulk.

  • Note "ACH" is a US term and this isn't about the US.
    – user541686
    Sep 10, 2022 at 16:14
  • @user541686 The US has a system (confusingly) called "the ACH network", but I'm talking about ACH as a generic concept. ACH systems are used in countries around the world.
    – bta
    Sep 14, 2022 at 2:13

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