External transfers – where does your money go? (secrets revealed)

External Transfers – Where Does Your Money Go?

Have you ever wondered what happens to your money once you transfer it?

I am sure you have used internet, phone or mobile banking to make a transfer to another financial institution. But have you ever wondered what happens to the money you send, and why it takes a day to get to the other person?

Have you ever wondered this? Let us know in the comments below.

On the surface it may seem like it should takes seconds – you transfer the money from your account and hey presto! it should be there in the other person’s account. And this is exactly what does happen when you send money between accounts within the same financial institution.

But when you send money to another financial institution you normally have to wait overnight before the money arrives. But why overnight? Why isn’t it instantaneous?

Each financial institution handle transfers a little differently, but what follows is a good overview of what happens to the money.

The external transfer process

Say you want to send a friend of yours $50 and decide to transfer the money to them using your internet banking.

You log on, fill in the external transfer form and hit send.

From there, your $50 travels electronically to APCA (Australian Payments Clearing Association) and is held there. Your money isn’t alone however, as each financial institution is required to hold a large pool of money to meet all the transfer obligations of its customers.

At around midnight all transfers for that day – including your $50 – are transferred from APCA to their destination financial institutions and accounts. That $50 will then be available to your friend.

Why not midnight?

So why isn’t the money available at midnight?

With many millions of payments running through the system coming out of and going into accounts it can take several hours until all transactions are posted to the intended account.

Much the same as when you are downloading a large file the internet at home on your PC, the internal payments system for a bank works much the same way.

Does the financial institution make money off these external transfers?

Some people believe that financial institutions make money off this “idle cash”, but it is important to know that no profit is made off these funds – either by the RBA or any other financial institution.

Extra, same day, transfer

Recently, some financial institutions, including Queenslanders Credit Union, have introduced a same day transfer service which operates a little differently behind-the-scenes, but works the same for you. If you transfer money prior to 10am it is generally received after 4pm on the same day.

The money is still transferred at midnight, but a sort of IOU is issued to the receiving financial institution and is covered by them until the electronic transfer comes through at midnight.

Next time you transfer money externally to another financial institution you will know what happens. Share this with your friends if you think they need to know.

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Queenslanders Credit Union offers an array of awesome home loans and car loans, an online savings account, and useful everyday transaction accounts to suit every need, as well as offering insurance and financial advice. Find out more about us.


Posted in Banking Education

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