At least where I live, if I make a transfer between my accounts (with different banks) too late on a Friday, the money won’t be available until Monday. But there are no humans involved in this process – it seems to me that could be instantaneous as far as the technology is concerned. What am I missing?
In: 1897
I don’t know where you live, but in the US one of the common ways to send payments is through ACH (eCheck, electronic funds transfer among others.) I’m going to assume when you say transfer, you mean ACH.
The way ACH works is your bank, let’s say Chase, gets a request from you to send money to an account at Wells Fargo. Those two banks don’t talk directly to each other. Instead, Chase will gather a bunch of these requests and send them in batches to a third party (called a clearing house) the clearing house then sorts the transactions. Ok now after that’s done, the clearing house sends the info to the receiving bank (e.g. Wells Fargo)
This can be a fast process, and can even be same day, but it really depends on how fast your bank sends the request to NACHA (the clearing house) and how the receiving bank receives and processes requests.
So why only weekdays and business hours? That’s when the federal reserve banks settlement services is open and ACH transactions go through this system for settlement.
There are other ways to send money, like wire transfers, that can be nearly instantaneous. But these are more costly $20 or more. ACH is usually free for the customer and as little as $0.25 for the bank.
(As alphagypsy pointed out, most US wire transfers are still banking hours)
There are other ways to send money in the US (Venmo, Zelle, PayPal, wise etc.) so, yes, in the US you can send money instantly almost anytime. but in general, these are not banks, even if they’re owned by banks, but non-bank financial institutions and are not regulated the way banks are.
Edit: there’s a lot of speculation in this thread about why US bank transfer happen on weekends and why smaller countries can do it faster. Obviously the technology is there to do it. Moving money from bank to bank in the US is done through the Federal Reserve. There are 4200+ banks in the us and they move over $70 trillion each year through ACH. No other country comes close. Switzerland, known for banking, has <250 banks, the UK <350. Making even a small change for lots of institutions takes a while.
And instant 24/7 ACH via FedNow is likely coming July 2023.
Edit: first, there’s some confusion in this thread about banks just “keeping your money to earn interest” and it sounds good, but completely irrelevant. The banks move money to each other via their account at the federal reserve. If they settle at the end of day or in 2 days yes, they earn interest in the outgoing funds, but it also means they also don’t receive incoming funds.
Second, as to why banks settle at the end of the day. This is how the regulations/law are written. Banks need to keep a certain amount of money in reserve at the fed and if they go under that amount, need to be ready to put more money in via selling assets or borrowing. Doing that requires human intervention. This is important for banks because not having enough in reserve man’s you can get shut down.
In summary. There are historical reasons why bank transfers are set up this way, mostly from leftover rules and regulations from the days of physical checks (which peaked in use in the 90s). Technology changes fast, but that doesn’t mean politicians work fast to change the rules. Getting 4000+ banks all ready to do 24/7 transfers and upending a 70 trillion dollar system requires a lot of effort and planning, and political will. There are lots of other ways to pay for things quickly (credit cards, debit cards, cash, Zelle, Venmo, PayPal…..) so a quick bank transfer really is not a priority and having to do so is a small edge case relative to planned direct deposits and paying bills which usually have several weeks to pay.
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