I love NPR. Specifically planet money.(and of course wait wait don't tell me)
I was listening to their podcast on ACH and Double Entry accounting.
Here are some notes I gathered
ACH - Automated Clearing House. Here is an example that was given in the podcast which I liked. You can go to your chase bank ,withdraw $500. Go to your credit union and deposit the same say in a hour (if they both are near by). The process is pretty simple right? Use ATM card withdraw the money and deposit it in the other ATM or a teller.
In UK they implemented the system to overhaul this problem (remember UK has around 200 banks and US 7000+). Now, you can transfer money in seconds from one bank to another in UK. Not in US.
Also it is always 3-5 business days. Why? The machines that process these batch files will be switched on and off only during regular banking hours. What? It was the state of the art technology in 1970 and we got frozen in time. No more upgrades. The voting to overhaul this system didn't get adequate vote few months ago. So .. there will be no change.
What is ACH anyways?...why do we need ACH? What are they clearing and who is clearing ?
Let us said I want to transfer money from my chase to citibank account.
They used to send the check from citibank to chase. Chase will send cash to citibank and send me the paid check.
They even arranged for parking lot swap in secure locations in NY where trucks will back up and transfer check bags... then they started overnighting it.
Finally they came up with an idea - every bank can send the check to a clearing house and they will contact banks and make sure there are funds and transfer them.
The main servers are located in 2 secret locations and one operated by Fed and other by banking industry.
It will be 3-5 business days for a very long foreseeable future.
It is amazing to think why?
Answer - dont forget that wire transfer is another line of revenue generating business ($30 a transfer) and bounced checks mean more fees..
The next time you see 3-5 business days for money transfer between banks you will know why.
I was listening to their podcast on ACH and Double Entry accounting.
Here are some notes I gathered
ACH - Automated Clearing House. Here is an example that was given in the podcast which I liked. You can go to your chase bank ,withdraw $500. Go to your credit union and deposit the same say in a hour (if they both are near by). The process is pretty simple right? Use ATM card withdraw the money and deposit it in the other ATM or a teller.
In UK they implemented the system to overhaul this problem (remember UK has around 200 banks and US 7000+). Now, you can transfer money in seconds from one bank to another in UK. Not in US.
Also it is always 3-5 business days. Why? The machines that process these batch files will be switched on and off only during regular banking hours. What? It was the state of the art technology in 1970 and we got frozen in time. No more upgrades. The voting to overhaul this system didn't get adequate vote few months ago. So .. there will be no change.
What is ACH anyways?...why do we need ACH? What are they clearing and who is clearing ?
Let us said I want to transfer money from my chase to citibank account.
They used to send the check from citibank to chase. Chase will send cash to citibank and send me the paid check.
They even arranged for parking lot swap in secure locations in NY where trucks will back up and transfer check bags... then they started overnighting it.
Finally they came up with an idea - every bank can send the check to a clearing house and they will contact banks and make sure there are funds and transfer them.
The main servers are located in 2 secret locations and one operated by Fed and other by banking industry.
It will be 3-5 business days for a very long foreseeable future.
It is amazing to think why?
Answer - dont forget that wire transfer is another line of revenue generating business ($30 a transfer) and bounced checks mean more fees..
The next time you see 3-5 business days for money transfer between banks you will know why.
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