Money transfer delay means lost interest Ask Dr. Don by Don Taylor, Ph.D., CFA, CFP • Bankrate.com

Dear Dr. Don,
I notice that whenever I perform ACH transfers of money from a high-yield savings/money market account to my local bank there is a delay of about two business days, during which the money is in limbo and not earning any interest. The banks tell me that this is due to the Federal Reserve Bank that facilitates these transfers. They claim the money is with the Fed while it is being transferred.

Is this true or is one of my banks just ripping me off? I thought ACHs were electronic. Why the two business days? It looks to me like I would be better off transferring money by means of a check (as long as I don't need it too quickly). That way there is no limbo-interest penalty.
-- Penurious and Peeved

Dear Peeved,
You will have interest-earning issues whether you transfer the money by check or by ACH. For the uninitiated, ACH stands for automated clearing house. Automated clearing houses manage the flow of electronic payments between financial institutions. Both the Federal Reserve and the Electronics Payments Network act as central clearing facilities for financial institutions to transmit or receive ACH entries.

Regulation CC of the Federal Reserve Board provides the regulatory guidance as to when funds must be available in the customer's account. In a guide for financial institutions, "Compliance with Regulation CC," the Federal Reserve Board has this to say about the availability of electronic payments:

The following types of deposits must be made available on the first business day following the banking day of deposit ("next-day availability"):

Next-day availability:

1. Cash deposited in person to one of your employees. 2. Electronic payments received by your institution for deposit into an account. An electronic payment is considered received (deposited) when your institution has received both payment in collected funds and information on the account and the amount to be credited. (Under other rules, funds for most electronic deposits are made available on the day of deposit.)

Two-business-day availability of an ACH transfer seems to be the norm for financial institutions. Transfer the money by check and there will still be a period of time when the money isn't earning interest in either account. Wire transfers can eliminate that issue, but the transfer expense will typically more than offset the captured interest earnings. If you're not talking six figure transfers ($100,000-plus), then let it go.

To ask a question of Dr. Don, go to the "Ask the Experts" page, and select one of these topics: "financing a home," "saving & investing" or "money."