eli5, how does “get your paycheck 2 days sooner” work?
In: 0
Essentially, the bank is immediately crediting funds to the account upon notification of an upcoming payments instead of waiting to receive the funds.
This is generally safe for the bank, since bouncing payroll deposits is rarely an issue
It is in comparison to a group of fictitious situations, and depends on who is making the claim of 2 days earlier.
One instance would be where the pay calculations are done on wednesday, those numbers need to transmitted to a printer or printing department (for printing physical checks), actually printed, returned/delivered to the accounting department, then distributed for delivery to recipient.
Another instance, is that your bank on receipt of direct deposit info, would “normally” take verification steps, while placing a “temporary hold” on the funds deposited. During this hold time, your bank has been told that your money is coming, it is in your account, but as it is unverified, the bank won’t let you spend it yet, as a fraud protection measure. In this case, your recieving institution is stating that they will release the funds immediately “trusting” that everything will run as normal.
The payroll system of a company typically notifies the banks of its employees about 2 days before payday of the amount that will be transferred. As a benefit to its customers, some banks will credit the money immediately to their customers’ accounts when they are notified that the transfer will take place even though it’s still in progress. Banks that don’t do this wait until the transfer process is complete and the money is already sitting in the account before crediting it and giving the customer access to use it.
The statement may refer to a few different things:
Banks will often offer a service whereby they credit your account before fully processing your direct deposit. Basically, the bank waives the normal safety checks for known customers receiving money from known companies. The bank takes on a tiny amount of risk that the paycheck will bounce and they will have to go to court to collect, however that tiny risk is well worth keeping an established customer happier.
An employer may make the offer when switching payments methods, either because they have a special deal with a bank or just due to the differences in processing time. That “special” deal may just be due to it being the bank the company uses, therefore making the payroll transfer be inner-bank rather than inter-bank. A live check can take a lot longer to send out compared to an ACH (direct deposit) transfer, meaning they could list a statement like that regarding switching to ACH.
It could also refer to a payday loan service, which is a short term loan you take, typically with extremely high fees, to get your money sooner. Such services can be useful, but are nearly always predatory in nature and a bad idea to use.
Banks offer this as a feature to attract customers. Normally direct deposits take a couple of days to settle and show up in your account. In this case, the bank gives you access to the money right away while it is still processing. There is a slight risk to them, since something may go wrong and they may not actually get the money from the sender, but they have judged that it is small enough to be acceptable.
Want to point out that you’re only getting paid sooner the first time. After that, it’s still every seven or fourteen days, whatever your pay period happens to be.
Latest Answers