The Reason Online Bank Transfers Take So Damn Long – Fraud!
Ever wonder why it takes so long for online banks to move your money around?
Long time reader J shared a very informative article with me recently: The Holdup at Online Banks (from The Wall Street Journal).
The article explains the long wait time involved with transferring money in and out of online savings accounts. If you have one of these accounts, you know what they’re talking about.
If you have a high-interest online savings account, a product highly promoted here at PT Money as a way to save more money, you know that the time it takes to transfer money in and out of this account is one of the biggest drawbacks to having it.
There is the problem of how to make deposits. But that can be remedied by keeping your brick and mortar bank, making deposits there, and then transferring the money to the online savings account. That’s also where things slow down. The transfer can take up to a week.
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Why Do Bank Transfers Take So Long?
So in this high-tech, get-it-now world we live in, why do these account transfers take so darn long? The Wall Street Journal article explains just that:
“…these large transfers move in steps. Banks have slowed down the process further to reduce the chance of fraud…”
…[the bank] sends transactions in batches during the day to an automated clearinghouse, which sorts them and moves them to the receiving bank in a matter of two to four hours…
In many cases, the receiving bank gets the transfer the same day. Under rules established by Nacha [the Electronic Payments Association], money that moves on Monday should be available by the end of Tuesday. If the transfer slips to early Tuesday morning, the money should be available first thing Wednesday morning.”
So when are things going to change for us? When will the system speed up? The article briefly mentions that,
“…Europe already has a much faster system, and systems to speed up the process here are under development, though they won’t be ready for at least a couple of years“
What Can Cause Delays?
Since everything leads back to fraud, the biggest cause of delays is the risk profile of the person and the amount of risk a bank or finanical institution is willing to take.
If you have a new account or are making a large transfer, then the system will kick you into a longer verification to make sure the person is legit or that the funds are actually available.
Another example is a customer who has a history of overdrawing their account. The bank or credit union might have them flagged to be a slower transfer, just to make sure there will be no problems.
A final delay could be when you are trying to make the transfer. The federal reserve is closed on weekends and holidays. This will cause payments to no settle until the next working day of the Fed.
FedNow – The Long-Term Solution
In 2019 legislation was introduced to require the Federal Reserve to create a faster system for bank transfers. In response they will be launching FedNow some time in 2023.
The new service will not be a replacement to ACH transfers but will eventually be interoperable with the current ACH system.
The goal is to provide faster transfers and redundancy so that errors and exploits to the system can be prevented. The service will also be available 24 hours a day 365 days a year.
They are already in the testing phase and several pilot organizations of varying sizes have already started sending messages over the platform.
The Short-Term Solution
Until then, I recommend attaching your online savings account to their respective bill pay accounts. Transfers to your bill pay accounts are usually instantaneous. Since most bill pay accounts will come with a ATM card you’ll be able to access your cash faster than if you tried to transfer it out to another bank.
Banks already have instant availability of funds but you will typically have to pay an extra fee to get that feature. Right now you can do an instant transfer with Venmo for 1.5% fee and a max of $15.
Bottom Line
While we are currently stuck with the slower system the fix has already been started. There are many fintech solutions that are going to come out of the FedNow interface and it will be interesting to see how much changes over the coming years.
Thanks for sharing the article J. If any of you other readers have a informative article or money-saving idea, let me hear from you.
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I am being told there is general bank maintenance ongoing in California banks that are restricting bank transfers between online banking companies.
Is this true? I am being told that it is ongoing for two months and no transactions can be done.
I made a transfer of Two Thousand on 12/8/22 from my bank (Truist) it shows that it was delivered on 12/12/22to PNC, I even have a confirmation number. On the 13th the payment has not posted to the account. PNC said that it could take 5 to 7 business days to post. My question is: Where is the money, somewhere in the clouds?, no one knows. Very frustrating.
bitcoin
Wells Fargo debits the money from my account on the day the transfer was set up to take place (in this case, a Thursday), and then holds onto it for FIVE DAYS. My other account (at a different bank, one to which I had already used WF to make a transfer, so this was repeat business for them) did not show the money coming in until the following TUESDAY evening!!! This is just insane.
I think they hold it so that it is more difficult for customers to estimate the amount in your account which then leads to overdraft fees which are a major source of profit for banks. It is probably faster in Europe because Europe has a stronger belief in regulation and government protections. As for the idea that they keep the money longer to float it I don’t know, I suppose they can get a little extra profit off that money assuming that the OCC has allowed that kind of transaction to occur.
I think they hold it so that it is more difficult for customers to estimate the amount in your account which then leads to overdraft fees which are a major source of profit for banks. It is probably faster in Europe because Europe has a stronger belief in regulation and government protections. As for the idea that they keep the money longer to float it I don’t know, I suppose they can get a little extra profit off that money assuming that the OCC has allowed that kind of transaction to occur.
I have to plan ahead when dealing with transfers of my online bank accounts. It is really annoying having to deal with them when they take a few days so the best thing to do is plan ahead. I have been told in Europe they are 10x faster, anyone know why? I will find the article and post.
It is NOT 10x faster in Europe. I am transferring into an HSBC account and they have taken 3 whole business days.
We have a scheme called Faster Payments where transfers between accounts of participating banks should be near real-time for existing and verified payees on your account.
My transactions meet all these criteria but have not been processed instantly/same day. I find any substantial amount (over £1000) transfer is usually delayed.
Agree with Junger and Steve C that they want to hold your money for a few more days.
What a load of rubbish, it would be faster for me to manually do the transfer at my bank!!!!
Hmmm … fraud? That answer sounds a little too much like PR.
I don’t want to be a cynic, but I agree with Steve C. They just want to have your money for one more day.
HSBC is the worst offender of this – it shouldn’t take 3 days after your money is deducted from account #1 to get into HSBC.
I personally think it takes so long so they can float the money an extra couple of days.
Its well know that the float is a huge way banks make money. Imagine the billions of dollars in ‘transit’ during any 24 hours period and multiple it by .9%. Big money that doesn’t go into our pockets.