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