Why Do Bank Transfers And Deposits Take So Long?

If you’re anything like me and you’ve ever had to transfer money from one bank account to another – especially from an online account to a bricks and mortar bank – you may have noticed how long it takes for the money to show up in your account. In some cases when you transfer money it can take 3, 4, or even 5 days for the money to show up.

If you’re transferring a large amount of money from an online savings account to a checking account, for example, like we were when were when we bought our new car last year, it can be frustrating to have to wait while the banks take their sweet time with your transfer or deposit.

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So why is it that those bank transfers take so long? What can you do to ensure that they happen as quickly as possible?

why bank transfers take so long

Bank Transfers Slowed Down To Avoid Fraud, And To Make Some Money

We live in an age where you can make a purchase at your local grocery store and have the charge show up on your online account register within minutes, but we can’t transfer money from one bank to another in less than a few days. Wouldn’t you think it’d be possible to transfer money almost instantaneously? That probably is the case, but banks don’t allow those instant transfers in order to reduce the risk of fraud.

But in a remarkably interconnected, instantaneous world, where a debit-card purchase shows up in our bank accounts right away, it’s equally remarkable that online transfers can be so slow. Here’s the hitch: Funds transferred between two different banks or a bank and a brokerage firm aren’t really sent “online” in the way we have come to expect. Instead, these large transfers move in steps. Banks have slowed down the process further to reduce the chance of fraud, even though such fraud is fairly rare. (Years ago, Congress forced banks to speed up the clearing of checks and the availability of deposits, but it hasn’t addressed electronic payments.)

So banks are slowing down the process in order to ensure there isn’t fraud happening when the transfer is made. Others, however, have suggested that the time the funds are held overnight allow the banks to invest your money and keep that unearned profit. This could also be a reason why the process won’t be speeding up anytime soon – the banks don’t want to give up that profit center.

Transferring Money Happens In Steps

So what exactly happens when you transfer money?

  • Your originating bank sends transactions in batches during the day to an automated clearinghouse.
  • The automated clearinghouse sorts the transactions and the moves them on to the receiving bank, usually in a few hours.
  • In many cases the receiving bank will have the funds the same day. Depending on when the transactions are sent in a batch, the funds may not be available until the next day.

There is an association for these automated clearinghouses that sets rules for transfers, called Nacha. Their rules say that money transferred on one day, should be available by the end of the following day. So if you send money on Monday, it should be available by the end of Tuesday.

Three Day Good Funds Model

The problem is that the wait doesn’t always end there. The receiving banks often take 2-4 days for funds to be released to customers because they are following what they call the “”three-day good funds model”, which basically means they’ll hold the funds for three days to make sure it’s not a fraudulent transaction.

Fraud, while it is only a small fraction of transactions, is still a big problem. There was over 1.848 billion dollars worth in debit and check related fraud in 2010.

Deposits Take Even Longer At Times

Deposits can take even longer to happen at times, in part because the bank wants to ensure that the funds are good. They won’t know that the funds are good until the money actually arrives, so many banks will hold deposits for up to 5 business days at times. So be aware of that, and know what your bank’s policy is.

Plan Ahead When Transferring Or Depositing Money

There are things you can do to ensure that you have access to your money as soon as possible.

  • Do your best to send your transfer early in the day to give yourself the best chance of the money being sent to the clearinghouse that day.
  • Have a checking account from the same bank, often transfers within the same bank will happen the same day.
  • If your transaction takes longer than a couple of business days, complain to the bank where the transfer originated. If funds aren’t credited quickly to the receiving bank the originating bank can be fined by Nacha.

When it comes down to it, your best bet for having quick turn around time on transfers and deposits is to either have a checking and savings at the same bank, or to deposit a check using the bank’s remote deposit feature as those can have quicker turn around times.

How long do your bank transfers typically take? Have you ever had one take longer than 5 days?

Last Edited: 26th October 2012

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  1. says

    This is frustrating at times, but seems the price of doing business with an online only bank. I wonder if it is a conspiracy of the brick and mortar banks to punish those using online banks? I think the slow transfers also stop those hopping from bank to bank to get the best interest rates.

  2. says

    I should probably write a post on how AWESOME USAA Bank is. I have several accounts at different banks, with USAA being my main institution. When I initiate the transfer from my USAA account, the funds are deposited instantly, no waiting. For instance, I might have $300 sitting in my Ally mutual fund and I need it in my USAA account. If I were to initiate the transfer from Ally, it would take a minimum of 3 business days…so if I did it on a Friday it would be Wednesday of the next week at the earliest before I would get it. However, should I initiate it from USAA, the funds are credited instantly.

    On top of all this, their customer service is second to none. I’ve never had a poor interaction, and I’ve been banking there for two years. When I call I’m greeted by a human, and handled by that person…no transferring!

    The common misconception about USAA is that you have to be affiliated with the military to have an account there, but that is untrue. USAA has offered their checking and savings products to the general public for years. However, in order to use all of their services, such as home and car insurance or mortgage services, you do have to be affiliated. This affiliation could be as simple as your mother or father having prior service – it doesn’t mean you have to have been enlisted….

    I absolutely love them, and will be a customer for life….you can enroll online in a matter of minutes…when is the last you’ve heard that from someone about a bank??

    oh yeah…and another totally sweet perk is that your direct deposits are made available a full day before any other bank makes them available….I get paid every other Thursday, while my co-workers have to wait until Friday….woot woot!

    Now, if only they would offer “perks” like Perkstreet…. hmmm.

    • says

      I also have USAA and love their service. My step-dad is in the Air Force and I have one of their “Teen Checking” and “Teen Savings” accounts. I’m not really sure what the difference is, but that’s what it’s called. Anyway, I love their service. If I’m standing at Best Buy trying to buy an $800 computer and I only have $700 in my checking account, I can get on the USAA app on my phone and transfer the $100 to my checking right there at the cash register before swiping my card. The funds go instantly and are available as soon as I tap “Transfer” on my phone.

      Another thing that’s instant is cashing checks. Again, I use the USAA app for this and all you do is take a photo of the check with your phone’s camera. The funds are available instantly and can be spent as soon as you snap the photo. Also super nice.

      The only thing that’s annoying with USAA is transferring money from PayPal. When I initiate a PayPal transfer to either my checking or savings account, it takes about 3 or 4 days to show up in my account. But I know my mom can transfer funds from her Bank of America account to USAA instantly, so maybe it’s a PayPal thing.

      The only problem I have ever had with them is an ugly series of overdraft fees and it was PayPal’s fault. I was supposed to have overdraft protection with my savings account, but apparently something got screwed up along the way. Anyway, I bought something on eBay and paid via PayPal. They attempted to make an ACH withdraw from my account for $50 or something like that and it was a case where my balance in my checking was $47 or something. Very close. The payment didn’t go through, but USAA charged me a $25 overdraft fee. Then PayPal tried again. Another $25. And again. Another $25. I logged onto my account and saw that I had negative $24 or so and thought it was funny. So I called USAA and they not only reversed all $75 I had in fees, but they fixed my overdraft protection so it wouldn’t do that again.

      I’m 15 years old now and when I end up moving out of my parents’ house and go to college I will most likely stay with USAA. I’m not planning on being military, but my step-dad will be retired Air Force by then, so I should be okay according to what you said. The only issue I have is they don’t have a physical bank in Florida so if I have $500 in cash I want to put into my savings, I can’t.

  3. Del says

    Thankfully we do not have these problems in Australia. Checks (cheques) are nearly a thing of the past – we send all payments & transfers electronically, including internationally and if sent by the cut off time (ususally around 3-5pm depending on the individual bank) is processed overnight.

  4. DON says

    QUESTION? Asking for a little help.
    Where do you put your savings so that it is SAFE, NO RISK, but that it is growing consistently 4 to 5%, that is still liquid so you can use it if you need it. Preferably the growth should be tax free. Please help me out on this friends or who ever.

  5. says

    Good overview. I always wondered why the processing happened so slow. Initially setting up an account for deposit from, say Fidelity to a different financial institution takes forever as well, likely because of the security issues you pointed out.

  6. Ian says

    Bitcoin will nuke all that. Open source decentralized banking through a simple cryptographic currency will make the banks as obsolete as telegraph is in this age of social media and instant fast communications.

    I already live 90% through bitcoins and will never ever look back.

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