New Internet Banks Often Neglect ACH Transfers - Why This Is a Mistake
I've recently come across some banks that have started internet divisions with online savings accounts. The rates are above average, but they are not great. So I'm not in a hurry to post on them. Also, I'm not having an easy time learning about the banks' ACH transfer systems. They have little documentation on their websites, and when I contact their customer service, the CSRs have trouble providing more details. This reminds me of a common problem that I've seen over the years with new internet banks. They neglect their ACH transfer capability.
Since you can't go to a branch to deposit or withdraw money, the ACH transfer capability of an internet bank is very important. It's also one of the most overlooked features. Many internet banks provide little information on these features.
Overview of ACH Transfers
If you don't have a lot of experience with internet banking, you might not be familiar with ACH transfers. ACH stands for Automated Clearing House, and it's an electronic network for financial transactions in the U.S. Direct deposit is one of the best known transactions that is done via ACH. An ACH transfer may also be called an electronic funds transfer (EFT).
An internet bank should allow customers to log into their accounts and initiate bank-to-bank transfers via ACH. For example, if you deposited a check into your checking account at your local bank, you should be able to log into your internet bank account and initiate an ACH transfer from your local checking account into your internet account (pulling funds from your local bank). Likewise, if you need money at your local bank, you should be able to log into your internet bank and initiate an ACH transfer to your local bank account (pushing funds to your local bank).
If an internet bank doesn't offer ACH transfers, making deposits and withdrawals probably won't be easy. You might have to mail checks for deposit, or you may have to do a wire transfer which may require faxing forms and/or phone calls. Also, wire transfers for outgoing transfers most always have fees.
Important ACH Transfer Features
Even if an internet bank has an ACH transfer capability, you might still experience problems when you try to initiate transfers. This is why it's important for internet banks to provide clear documentation describing their ACH transfer features. If you're trying to choose a new internet bank, the ACH transfer features should be a major criteria in your decision. Below are a few of the important ACH features that an internet bank should clearly disclose:
- How Links are Established - A link for an ACH transfer is a connection to an external account. This is typically done before you can initiate an ACH transfer. The typical process for establishing a link is to specify your bank's routing and account number. Trial deposits are sent to the external bank account. You then have to verify the trial deposits by entering the deposit amounts. This proves to the internet bank that you own the external account. Some internet banks require this to be done at least twice: once when you initially fund the account and again after the account is established.
- How Many Links Are Allowed - Many internet banks restrict the number of links to your external accounts. If you hit the limit and you need to add a new link, you'll first have to delete an existing link. So if the bank has a small limit, it should make it easy to delete links.
- Type of Accounts That Can Be Linked To - Ideally, the internet bank should allow you to link to checking accounts, savings accounts and brokerage accounts. Some internet banks limit linking to just checking accounts.
- Cost to Initiate ACH Transfers - ACH transfers should be free. I've seen some banks that have a fee for outgoing transfers.
- Dollar Transfer Limits - This is the maximum dollar amount that can be transferred. Banks often have different limits for deposits and withdrawals. There are often limits for a single day and limits for a month. Banks sometimes limit this to small amounts. For example, one internet bank has a limit of $10,000 transferred out per day.
- Restrictions on the Number of Deposits and Withdrawals - All savings and money market accounts limit withdrawals via ACH to a maximum of six per month. If you go above this number, you will likely be hit with a fee. This is due to federal regulation. However, some banks place additional restrictions.
- Allow ACH Deposits/Withdrawals Initiated from Other Banks - If a bank's ACH capability is weak, you may have an easier time to initiate transfers from another internet bank. Most banks allow ACH deposits and withdrawals that you initiate from your other banks. Some have restrictions.
- Hold Times - When you make an ACH deposit, the hold time is how many days it will take before those funds are available. During the hold time, the money is typically earning interest, but it's frozen, and it can't be withdrawn.
- Speed of ACH Transfers - Some banks can take three or more business days between the time you initiate the transfer and the time that the money is credited to the destination account. Some banks can transfer as fast as one day. If a bank mentions the transfer time, it will often list a range of time for the transfers or the worst case time. So it's hard to know the true speed until you use it.
Some banks say they have low limits or restrictions on ACH transfers for security reasons. Sometimes they will increase limits for long-time customers or on a case-by-case basis. These limits and restrictions are usually just on ACH transfers initiated from that bank. ACH transfers initiated from another bank usually have fewer restrictions. This is due to how liability is assigned in the ACH system. The bank that initiates the ACH transfer is the one liable for the ACH. If an ACH is received by a bank, regulations allow that bank to reverse the transaction within 60 days.
Regardless of the reason why internet banks have low limits and restrictions on ACH transfers, they should ensure the limits and restrictions are clearly documented so customers aren't surprised by the delay and cost when they want to withdraw their money.
I can sum up my own ACH situation with few words. I do tens of ACH money moves each month involving many financial institutions. Were it not for my Alliant hub account I would be so incredibly out of luck. I am completely and totally reliant . . on Alliant.
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Dear Mr Tumin,
I've found that ACH fund transfer systems offered by Air Force FCU, and by USAA are very efficient. USAA's ACH system has a feature, where it allows transfers from their bank, and also from their brokerage.
Yours Truly,
- Anonymous
They also have very long hold times on all checks deposited.
For an Internet bank where you expect convenience and flexibility in moving and having access to your funds, Discover Bank sucks.
Monday morning, I intend to cancel this transaction and ask for the return of my funds. When applying for this cd, they indicated that there would be 2 trial deposits. This did not happen. Why should I trust them now? If anyone can shed some light on this, I would appreciate it.
If I should post a new thread, which forum category should it be in.
on the topic of the post - ACH transfers and bank policies:
At synchrony bank
The hold times for new accounts (first 30 days) of a bank I am considering - related to ACH transfers
into the bank -- those hold times seem very excessive - 45 days.
Here is a quote from the account agreement at
https://www.synchronybank.com/sites/syf ... 009913.pdf
bottom of page 13 above Arbitration section - the second bullet item below
New Account Rules – if you are a new customer (you do not have any pre-existing bank deposit accounts with the Bank), the following rules will apply during the first 30 days following the date of your first deposit:
• Funds from checks deposited into the account of a new customer will be available on the sixth Business Day after the Business Day we receive the deposit.
• If you fund your account with an initial deposit made by ACH transfer from another financial institution, the types of withdrawals you can make are restricted for the first 45 days
I am referring to opening just a fdic insured savings or money market acct - not a CD.
I've heard 3 different explanations from the bank about it - and it seemd they were struggling
with what they were saying even in the same conversation:
a. one said that the section is out of date and to ignore it
b. one said that it is very much in effect and applies to any ach during that time, not just the initial deposit
c. that it applies to just the initial deposit if that is ach, but otherwise would not apply
In any case, I need to assume that 45 days could be the hold time and accept that.
But doesn't that seem excessive ? (for money that comes via ach
from other institution ?
I don't know if the negative comments about that bank I see on this site
under user reviews relate to that or just other things but there sure
are a lot of negative comments, though there are a lot of positive ones also.
Perhaps I just need to open account with a small check and wait 30 days
to ACH, or just try to find another bank.
(not doing online banking does limit me so need to use banks
that, like Synchony claimed, lets me do most things on phone
and/or by mail.
been wondering why you haven't posted here in a while.
alive and hopefully well . must have found a new hangout.
couple of good CD deals have passed by you might have liked ..
nothing changed here.
Dollar Transfer Limits
Speed of ACH Transfers
Restrictions on the Number of transfers
Hold Times
Most online banks offer ACH, however typically the top ten highest rate paying banks do not offer same or next day ACH and are limited to standard 3 or even 4 day speeds. Many also limit dollar amounts for ACHs they originate. Now that interest rates are greater than 3.5% for many online banks if transferring significant amounts, it starts to make more sense to pay for wires rather than performing standard ACH transfers depending on the wire transfer fees. This info would be great to have up front and contacting all the banks to find out takes too much time.