Where does all the interest go to?

mikeorange7

one thing that's been bothering me lately is when we transfer funds electronically via BACS / direct debit what happens to the interest accruing during the 3 or so days it takes to complete the transaction.

For example if i were to transfer 10k from savings provider ING earning 5% gross to savings provider AA earning 5.26% gross would I loose 3 days interest at 5% and then start earning interest at 5.26% or would the 5% be paid up to the day i started to earn 5.26%?

How is it that I hear that in Sweden all transfers are same day.

Is this a conspiracy / cartel that is pinching even more of my hard earn cash from me? Or am I just getting everso more synical each day? Maybe there is a valid explaination. Money savers please enlighten me.

Answers please maybe not by Bacs

Thank you

blinko

that my friend would go to the bank

davidcampbell

the transaction goes through bacs - and the bacs system is paid for by the interest running through it.

MarkyMarkD

There is no clearance delay on Direct Debit - it's same day value. So there's no lost interest.

The BACS float time accrues to both of the banks involved in the transaction.

It's very trivial honestly unless you are passing huge amounts through your bank account! If it bothers you, use DD as much as possible - some banks allow you to deposit to your savings account via a DD which is the best way to avoid lost interest.

lipidicman

The A&L account takes 8 days for the first deposit and 4 days after that - and that goes via direct debit - so go figure!

dunstonh

direct debit is not same day transfer thats why.

lipidicman

So who is correct here?

Walletwatch

Best thing is to do a cost-benefit analysis and then conclude how much interest is lost in the transfer - if the scale of the loss is of the order of £20-30 or more, it might make sense to do a CHAPS transfer, which is same day, and hence results in zero interest loss, but is charged a hefty sum of around £25 per transaction by the Bank which initiates it on your behalf (presumably a significant portion of this amount goes to the CHAPS clearing system as transaction fee)

You're right that clearing systems in other countries are much more developed, and hence the turnaround times for their clearing networks is much lesser (around a day or so) I come from India, where clearing is next day for low value amounts and same day for high value (INR 100,000 and above, converts to £1250 and above)

This is what British banks have come in for a lot of stick for in the recent past, the allegation being that they choose not to develop their infrastructure to facilitate quicker clearing, as this would affect the profit they make on these 'floats'

MarkyMarkD

What are you on about?

Direct debit IS same day value. Look at any credit card payment you make via DD - the funds leave your bank account, and credit your card account, on the same day. Promise you. So are direct CREDITS such as salary payments made by your employer which operate in the exact mirror image of direct debits.

Which A&L account are you talking about crediting via DD? I'm not aware of one which does this. Are you confusing BACS and DD? (Completely different animals).

dunstonh

Direct debits are still 3 days.

Processing cycle

The three day cycle (minimum three English bank working days) comprises:

• Day 1 (Input day) - receipt of an organisations payment file at BACS Payment Schemes.
• Day 2 (Processing day) - All data accepted is processed through BACS Payment Schemes and passed onto the paying banks.
• Day 3 (Entry day) - payments simultaneously debited and credited to the relevant accounts.

These must be three consecutive days.

You are thinking of same bank transfer. ie, a LloydsTSB bank account transferring funds to a LloydsTSB mastercard will be same day but that doesnt use the direct debit system.

ADDACS requires a 3 days period as well to allow direct debits to be recalled on day 2)

You can verify the 3 days at http://www.directdebit.co.uk/resources/glossary.php

lipidicman

MarkyMarkD wrote:

Which A&L account are you talking about crediting via DD? I'm not aware of one which does this. Are you confusing BACS and DD? (Completely different animals).

The 5.35% paying online saver uses a direct debit to take money from your current account. It uses BACS to pay BACK to your current account. I had to set up a direct debit mandate for this account.

I have think that althought the money takes 4 days to reach the account it didnt disappear from my current account until the day it arrived (ie delayed by 4 days not taking 4 days)

In a separate question, for dunstonh does DD use the BACS system (you seem to suggest it does, but Marky says they are different animals!)

and Marky, my employer uses BACs transfer I believe, I havent heard of Direct Credits before