transfer delay means lost interest
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
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
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.
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