– how do some banks make paychecks available several days before the typical “payday”, while others don’t see them until actual payday?

Question

I get paid semi monthly. Usually I can expect to see my check on the actual payday, with my paystub showing the night before.

I got an email from my bank saying they will start showing deposits three days earlier now.

How does this work if payroll doesn’t pay out until specific days?

In: Other

Answer 1

Direct deposits are sent via ACH, which is one of the most common transfer methods in general. If you’re transferring money between your accounts at different banks, chances are it says it will be available in 3-5 business days. Same is true with paychecks, just the employer’s bank is the originator (ODFI) and yours is the receiver (RDFI). Once an ACH file is sent between banks, it still takes a couple days to process and settle.

Your employer processes payroll several days early to account for the ACH process so the money hits your account on payday. Knowing that payroll is generally reliable, your bank posts the money to your account immediately after receiving the ACH file instead of waiting for it to settle. Basically the bank is giving a mini loan and is relying on the transfer to settle.

This is similar to checks – if you deposit a check your bank will make X amount available immediately, but it still takes several days for the check to clear. (Except check availability is a regulatory thing, direct deposit availability is just business practice)