What are bankable funds?

The bankable funds definition refers to payment methods that are easily convertible into cash and accepted by major banks. To better understand the bankable funds meaning, it’s useful to know that companies typically require payment to be made in forms that banks can accept and redeem to avoid the risk of fraud or payment default. 

Money orders, cash and cashier's checks are examples of bankable funds. 

Stocks, gold and  bankable assets such as bonds are not regarded as bankable funds because they take time to convert into cash and their value is uncertain and fluctuates. 

In a nutshell, bankable funds are explained as payments that can be converted into cash on short notice.

Types of bankable funds

Money orders and checks are general examples of bankable funds because they are easier to convert into cash. However, the process of converting a personal check into a bankable fund takes days, which a retailer cannot afford. Some retailers refuse to accept them due to fraud concerns. Furthermore, when accepting personal checks, most banks require a deposit and will hold the funds until the check is cleared. The clearance process usually takes one or two days. 

Money orders and cashier's checks are also considered bankable funds because they can be converted into cash quickly. Most banks, however, will place a hold on a money order until it clears, just as they do on personal checks. Cashing a money order at the issuing institution, where the funds can be immediately banked, is the best way to change it into cash.

In recent years, the distinction between bankable and non-bankable funds has become  blurred with the emergence of new financial technologies. Some brokerage firms, for example, provide stockholders with credit cards that allow them to use the value of their stock portfolio as collateral.

While the stock itself is not recognised as bankable funds, the credit channelled through the card is.

Similar technological developments have occurred in other asset classes such as precious metals. Some companies offer debit and credit cards backed by precious metals kept in vaults. 

For example, Indian fintech company Rupeek offers a Rupeek Prime credit card based on a customer's pledged gold assets such as jewellery and ornaments. 

Unlike the traditional credit card, Rupeek Prime is a secured and asset-backed card. Customers can use the card for withdrawing cash and transferring it to their bank accounts. Rupeek stores the pledged gold and jewelleries in gold vaults.