Definition of Federal Reserve Float
Float is checkbook money that appears on the books of both the check writer (the payor) and the check receiver (the payee) while a check is being processed. Federal Reserve float is float present during the Federal Reserve's check collection process. To promote efficiency in the payments system and provide certainly about the date that deposited funds will become available to the receiving depository institutions (and the payee), the Federal Reserve credits the reserve accounts of banks that deposit check according to a fixed schedule. However, processing certain checks and collecting funds from the banks on which these checks are written may take more time than the schedule allows. Therefore, the accounts of some banks may be credited before the Federal Reserve is able to collect payment from other banks, resulting in Federal Reserve float.