Transferring funds describes the methods used to transfer funds and securities between financial institutions and brokerages.
The direct deposit of payroll, social security benefits, and tax refunds are typical examples of ACH credit transfers. The direct debiting of mortgages and utility bills are typical examples of ACH debit transfers. While the ACH network was originally used to process mostly recurring payments, the network is today being used extensively to process one-time debit transfers, such as converted check payments and payments made over the telephone and Internet.
The Reserve Banks and Electronic Payments Network (EPN) are the two national ACH operators. As an ACH operator, the Reserve Banks receive files of ACH payments from originating depository financial institutions, edit and sort the payments, deliver the payments to receiving depository financial institutions, and settle the payments by crediting and debiting the depository financial institutions' settlement accounts.
The Reserve Banks and EPN rely on each other to process interoperator ACH payments--that is, payments in which the originating depository financial institution and the receiving depository financial institution are served by different operators. These interoperator payments are settled by the Reserve Banks.
Since 1974, NACHA – the Electronic Payments Association – has served as the trustee of the ACH Network. This self-regulatory organization both administrates the ACH Network and acts as an industry trade organization.
Network administration fees
Each depository financial institution that transmits or receives ACH entries is required to pay NACHA an Annual Fee and a Per-Entry Fee for costs associated with the administration of the ACH Network. The fee amounts are set to recover costs of the ACH Network administrative functions, which NACHA performs for the industry on an “at-cost” basis.
For 2017, the fee schedule imposes a Per-Entry Fee of $ .000162 and Annual Fee of $ 216.00.
Same day ACH processing
The ACH Rules change passed in May 2015 provided for the same-day processing and settlement of virtually any ACH payment.
The first phase of implementation, effective September 23, 2016, provided for same-day settlement of credit entries and non-monetary entries only.
The third, and final, phase of implementation is scheduled for March 16, 2018, and will require that RDFIs (Receiving Depository Financial Institutions) make funds available from same day ACH credits (such as payroll Direct Deposits) to their depositors by 5:00 PM at the RDFI's local time.
A wire transfer is an electronic payment service for transferring funds by wire, for example through SWIFT (Society for Worldwide Interbank Financial Telecommunications), the Federal Reserve Wire Network or the Clearing House Interbank Payments System (CHIPS).
Unlike the batch-processing nature of ACH transfers, wire transfers are designed for individual transactions. The biggest benefit of wire transfers is speed or availability of funds. You can send money to a person located across the country or halfway around the world typically within the same day. Wire transfers involve more interaction between the institution that sends and the institution that receives the money. Due to the fund availability and speed of the transaction, wire transfer fees are typically more expensive than ACH transfers. Incoming wire fees may be charged by the receiving institution as well.
US transfers are carried out by the Federal Reserve Wire Network, commonly known as Fedwire, and is a part of the Federal Reserve Bank System. Banks that are a member of the Federal Reserve (not all banks are Federal Reserve members) use Fed Wire to make domestic funds transfers for their customers.
The Clearing House Interbank Payments System (“CHIPS”) can be considered the international version of Fed Wire. However, the two systems are not related. CHIPS is operated by the New York Clearing House Association, and balances are settled at the end of each business day by net adjusting entries to each bank’s account at the Federal Reserve Bank of New York.
CHIPS is the largest private-sector U.S.-dollar funds-transfer system in the world, clearing and settling an average of $1.5 trillion in cross-border and domestic payments daily.
CHIPS is a real-time system for transmitting and settling high-value U.S.-dollar payments among its participating banks. The Clearing House began operating CHIPS in 1970 to simplify and expedite interbank payments in New York City.
Backed by over 44 years of reliable operation, CHIPS serves 49 foreign and domestic banks, 14 representing 21 countries, through a network of sending and receiving devices, which range from microcomputers to large-scale mainframe computers. CHIPS participants include U.S. commercial banks and foreign banks with offices in the United States. It has been estimated that CHIPS carries a very high percentage of all international interbank funds transfers that are denominated in U.S. dollars. For these reasons, CHIPS has been widely regarded as a systemically important payment system.[note 3][note 4]
SWIFT is a global member-owned cooperative and the world’s leading provider of secure financial messaging services. SWIFT's messaging platform, products and services connect more than 11,000 banking and securities organisations, market infrastructures and corporate customers in more than 200 countries and territories. SWIFT does not hold funds or manage accounts on behalf of customers.
Since its inception, SWIFT has played a leading role, together with its community, in the standardisation that underpins global financial messaging and its automation. The use of standardised messages and reference data ensures that data exchanged between institutions is unambiguous and machine friendly, facilitating automation, reducing costs and mitigating risks. Through SWIFT, banks, custodians, investment institutions, central banks, market infrastructures and corporate clients, can connect with one another exchanging structured electronic messages to perform common business processes, such as making payments or settling trades.
SWIFT Standards acts as Registration Authority (RA) for several standards that define universal codes for common data items, or reference data. RAs are appointed by the International Organization for Standardization (ISO) to ensure the integrity of the reference data defined by ISO standards, and to publish the data in an accessible form for the benefit of the user community. Examples of such standards include the ISO 9362 Business Identifier Code (BIC - commonly referred to as the “SWIFT” code), which is used to identify parties, and the ISO 10383 Market Identifier Code (MIC), which is used to identify exchanges, trading platforms, regulated or non-regulated markets and trade reporting facilities.
Securities transfer (ACATS)
Used for broker-to-broker securities transactions, the Automated Customer Account Transfer Service (ACATS) enables the transfers of many different types of assets, including, but not limited to, equities, corporate and municipal bonds, unit investment trusts, mutual funds, options, annuities, and cash.
DTCC clears and settles virtually all broker-to-broker equity, listed corporate and municipal bond and unit investment trust (UIT) transactions in the U.S. equities markets.
When applicable, ACATS links with NSCC’s Fund/SERV system, which processes and settles mutual fund transactions, to expedite the re-registration of fund positions when a customer account moves from one firm to another, and when a customer mutual fund asset moves between a broker-dealer or bank and a fund.
National Securities Clearing Corporation
DTCC's subsidiary, National Securities Clearing Corporation (NSCC), established in 1976, provides clearing, settlement, risk management, central counterparty services and a guarantee of completion for certain transactions for virtually all broker-to-broker trades involving equities, corporate and municipal debt, American depositary receipts, exchange-traded funds, and unit investment trusts.
NSCC generally clears and settles trades on a T+2 basis.
NSCC is regulated by the U.S. Securities and Exchange Commission (SEC).
The Guide to the NSCC Fee Schedule can be downloaded here.
- Unlike a wire transfer, an ACH receipt of funds can usually be easily cancelled or reversed by the sender. See: ACH Reversals and Other Fixes: Rules and Tips, Erin ONeil, thebalance.com, February 01, 2017
- Additional information can be found here: ACH Operations Bulletin #2-2017: Same Day ACH and Debit Processing, NACHA, April 11, 2017.
- On July 18, 2012, FSOC designated The Clearing House Payments Company L.L.C. (), which owns and operates CHIPS, as a systemically important financial market utility (SIFMU) under Title VIII of the Dodd-Frank Act on the basis of its role as the operator of CHIPS.
- Details on payment processing, message formats, and network operation can be found in Self-Assessment of Compliance with Standards for Systemically Important Payment Systems, January 2016.
- Automated Clearinghouse Services, from the US Federal Reserve System, viewed July 24, 2017.
- About NACHA, NACHA, viewed July 24, 2017.
- Network Administration Fees, NACHA, viewed July 24, 2017.
- Same Day ACH Resource Center, Federal Reserve Bank Services, viewed July 24, 2017.
- Wire Transfer FAQs, Bank of America, Viewed July 26, 2017.
- ACH vs Wire vs Electronic Transfer? What is the difference?, IAA Credit Union, Emily Griffin, May 8, 2014, viewed July 26, 2017.
- Banking Industry Standards and Practices for Funds Wire Transfers by Fed Wire, CHIPS, SWIFT, ACH, and EFT, Don Coker, HG.org, 2010, viewed July 26, 2017.
- CHIPS, The Clearing House, viewed July 26, 2017.
- Self-Assessment of Compliance with Standards for Systemically Important Payment Systems, January 2016.
- Discover SWIFT, swift.com, viewed July 26, 2017.
- Automated Customer Account Transfer Service (ACATS), DTCC, viewed July 24, 2017.
- Equities & Fixed Income Clearing Services, DTCC, viewed July 24, 2017.
- NSCC - National Securities Clearing Corporation, DTCC, viewed July 24, 2017.
- "Financial Services Industry Shortens Trade Settlement Cycle In The U.S.". 05-Sep-17. http://www.ust2.com/pdfs/T2-Steering-Committee-Joint-Release-on-Launch.pdf. Retrieved 09-Sep-17.
- Bogleheads® forum topic:
- Hub Accounts - ACH Transfers: Capabilities, Fees, and Limits Across Financial Institutions, Doctor Of Credit, November 16, 2016, viewed July 25, 2017. A list of community-submitted ACH transfer info for 69 banks and credit unions.
- ACH Transfers: Costs to Send Money Between Banks Online, nerdwallet.com, June 20, 2017. A list of financial institutions, fees, and time to transfer the funds.
- Automated Clearing House - Wikipedia
- ACH Network: How it Works, NACHA
- The basics of ACH, An intro to one of the most popular ways to move money electronically, Chelsea Allison, fin.plaid.com, April 2011.
- How ACH Processing Works, DiamondMineInc.com. Shows the process flow based on an example transaction.
- Understanding the ACH Network: An ACH Primer, ConVergence Technologies (IPpay.com), 2003. Content may be outdated.