reason for 3 to 4 days to transfer funds from bank to bank ?

[steve2470]

hi, I was wondering if someone with good knowledge of the financial system can answer this for me. What are the reasons or reason why transferring funds from one USA bank to another can take up to 3 or 4 days ? I've read that profit is one of the reasons. I don't know. I only know what I read.

Anyone wish to devote a minute to this ? Thanks.

[Whoa_Nelly]

1. Transfers from one bank to another are done in real time, not electronic time

http://www.principal.com/bank/products/checking/moneymove.htm?WT.mc_id=071508lr

[DearAbby]

3. What?

They carry the money over one bank to the other? Of course there were times I was glad for the delay...it's like a race...juggle for time to get the funds into the bank or hot check time!

edit: Put the 'e' on 'one' and to say, yeah, I am one of the dinosaurs that still writes checks for my bills and rent.

[notadmblnd]

2. it's only ever taken me about 15 minutes

[TooBigaTent]

4. The time between you depositing money and having access to it allows the banks

to "use" your money for free. It is a huge benefit for the haves at the expense of the have-nots.

It serves no useful purpose now, in the time of immediate, electronic transfers. Just another gimmick by the moneyed.

[Xithras]

5. Transfers from my CU to BofA take less than 20 minutes.

I do them several times a month.

[TahitiNut]

6. "float" ... the holy-of-holies in banking

Banks must exchange funds and negotiable instruments constantly. You deposit a check drawn on 'Bank A' to your checking account at 'Bank B.' 'Bank B' must present that check to 'Bank A' and obtain funds. But 'Bank A' also has checks, some of which are drawn on 'Bank B,' so the funds transferred between banks must be the net of checks drawn. That's not a particularly difficult process when the banks are "correspondent banks" but gets complicated when there's NOT a direct exchange relationship between the two banks. That's where the "clearinghouse" function comes into play. The TOP "clearinghouse" is the Federal Reserve Bank. Larger banks serve as "clearinghouse banks" at lower levels. It would be impossible for every bank to have an exchange relationship with every other bank ... and it's similarly impossible for every two banks to have a common clearinghuose bank. That's where the Fed comes in.

When a bank, after processing all the checks it can drawn upon its own accounts and those drawn upon the accounts of correspondent banks. bundles the remaining check and delivers them (before midnight) to its local Federal Reserve Bank, it then must wait a specified number of days, as established by the Federal Reserve Bank, for the Fed to post funds to that bank's account at the Fed. That's called "Float" - and it's the amount of time that a bank (including the Fed) has the USE OF FUNDS before it must credit those funds to a depositor's account. Historically, the Federal Reserve has varied this period of time to manage the Money Supply ... which "heats up" or "cools down" the economy by controlling the rate at which cash is cycled through the system.

There are remote/rural banks that have few direct relationships with other banks and with a more distant relationship with their nearest Federal Reserve branch. Corporations often choose such banks for their Accounts Payable accounts and obtain beneficial terms for their business. The reason has to do with the amount of actual (real) time it takes for chekcs drawn on such accounts to actually clear the system. This is one of the ways in which corporations take advantage of a game that banks have played forever.


It's been many years since I worked in the banking industry ... but I doubt this fundamental has changed much. It's the Holy Grail of commercial banking.

You can read up on the ACH (Automated Clearing House) system to get a better understanding.
http://en.wikipedia.org/wiki/Automated_clearing_house