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Based on this question, I figured that there might be multiple questions for distinct locales. Why do the most common transactions to or from bank accounts in the US require waiting one or more days before they are completed? In the information age, it seems like we should be able to transfer money instantly (or nearly so).

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NL - SE listen to your users
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3 Answers3

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As Nathan has correctly noted, ACH processes transactions in daily batches. The reason for that is accounting - the money doesn't actually change hands for each transaction. All the transactions are aggregated and calculated in the batch process, and the money only changes hands for the difference.

Consider this:

  • 25 clients from bank A send each $50 to bank B.
  • 2 clients from bank B send each $500 to bank A and 1 client from bank B sends $50 to bank C.
  • A client from bank C sends $50 to bank A and $50 to bank B.

If each transaction was to be handled separately, each time banks would have to adjust their books to account for the money movement. But if we do it in batch we have this:

  1. A owes to B $1250 (25 times 50)
  2. B owes to A $1000 ($500 times 2)
  3. B owes to C $50
  4. C owes to A $50
  5. C owes to B $50

The resulting inter-bank transfers:

  1. B and C don't transfer any money to each other - their transactions cancel each other.
  2. A transfers to B $250.
  3. C transfers to A $50.

Total for the original 30 transactions - 2 transactions between the banks: A->B and C->A.

If you need money to be transferred immediately (relatively) - you can use wire transfer. Some banks will still aggregate and batch-process those, but more than once a day. They'll charge you additional fee for their inconvenience.

littleadv
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Automated Clearing House transactions are used in the US for direct deposit of pay checks and direct debit of many payments for accounts such as mortgages, credit cards, car loans, insurance premiums, etc. The reason they take one or more business days to clear is that the transactions are accumulated by each processor in the network during the day and processed as a batch at the end of each business day.

The ACH network processes 20+ billion transactions per year worth $40 trillion, (estimates based on 2012 figures).

NL - SE listen to your users
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I was doing some calculations, and I reckon the answer is interest-ing. (Sorry)

On $1000, at 2% interest, I make roughly $0.05 a day.
If my money is in limbo for 3 days, then I lose $0.15
With money, if someone loses, someone else gains...

So, for every $1000 transferred, the bank is effectively making $0.15

Using Nathan's figures from 2012 as an example, $40 trillion in transfers, assuming a much more conservative 0.05% interest rate:

Daily interest on $40T @ 0.05% = $54,807.08

If all these transfers took 3 days, the banks netted $164,421.24
Every day your money is "between banks", they make a lot more profit.

At 2% it's more galling:

Daily interest on $40T @ 2.00% = $2,211,984.18
Over 3 days that's $6,635,952.55

These 3 day transfers are making them millions.
Any surprise they aren't rushing to change that...?

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