Faster Payments into Ulster Bank savings account & daily interest

Ballard

Just to add to what @TheBanker has outlined, that was also my understanding, and it probably remains true, but I work for an agency bank and FPs are now converted into MT103s by our sponsor/clearer. It’s not my area so I don’t know the nitty gritty but that’s definitely the way FPs come into us, although other banks almost certainly continue to receive the payments in bulk.  The point they made above remains valid, though. 

TheBanker

Ballard said:

Just to add to what @TheBanker has outlined, that was also my understanding, and it probably remains true, but I work for an agency bank and FPs are now converted into MT103s by our sponsor/clearer. It’s not my area so I don’t know the nitty gritty but that’s definitely the way FPs come into us, although other banks almost certainly continue to receive the payments in bulk.  The point they made above remains valid, though. 

Yes, I should have clarified that I am talking about Banks that directly participate in the Faster Payments Scheme and hold Reserve Accounts with the Bank of England. The situation is different for agency banks and non-bank payment service providers. But this question was about Ulster Bank, which is a trading name of Natwest plc, who are a 'full fat' bank. 

Ulrich

TheBanker said:

Ulrich said:

Hi All,

I have a Loyalty Saver account with Ulster Bank that I use to store extra cash.
It calculates interest daily.
I noticed that sometimes my money transfers from another bank (HSBC) to Loyalty Saver are showed as made on a later day despite the money arriving to the account the same day.

It looks like despite the money being available the very same day (so I can transfer them to another bank, withdraw cash etc) they are not counted towards daily balance until the next business day.

Here's Ulster Bank's information on Faster Payments, the same applies if one receives money via Faster Payments (as I do).
They do not mention interest but I think it's pretty clear they pay no interest on money arrived via Faster Payment after 6.30pm or over weekends.

Can anyone explain me in layman's terms why I can see my money in the Loyalty Saver account almost instantly and can do whatever I want with them BUT they are not counted toward the balance when calculating daily interest? Is that something industry-wide?
It just sounds very weird to me.

I think this all because of how the Faster Payments system works.

The Faster Payments Scheme works on a Deferred Net Settlement basis. What that means in simple terms is that when you ask Bank A to make a payment (say £100) to an account at Bank B, A sends a message to B telling them to credit a certain account. It's just a message - they don't send any actual money. B act on this message and makes the funds available, normally immediatly. No money has actually moved, even though both account balances have changed. Bank A owes Bank B £100. There will be millions of other Faster Payments taking place creating debts between banks.

Three times each business day, the Faster Payments systems works out the net position for each bank (i.e. the total payments their customers have sent, minus the total payments they've received). Each bank then receives either a credit or debit to their Bank of England settlement account. For example, if A's customers have sent £100m of payments, and received £90m of payments, A will be debited £10m. If B's customers have sent £50m of payments and received £80m, B will be credited with £30m. This is known as settlement. For Faster Payments, settlement takes place three times on every business day. The last cycle of the day is in the early evening. I can't remember the exact time but it may be around 6:30pm.

Why does this matter? Because banks receive interest from the Bank of England on their balances, paid at the Base Rate. If your payment from A to B is processed before the last cycle of the day, B will earn the interest overnight. However, if your payment is processed after the last settlement cycle of the day (or at a weekend or on an English Bank Holiday), the money will remain in A's account and therefore A will receive the interest. From a customer perspective, the payment is part of B's customer's balance, and can be spent by that customer, but B won't actually receive the money until the first cycle of the following business day. 

It's up to banks to make a commercial decision as to when they pay interest, which should be explained in their Terms and Conditions and, for Payment Accounts, be aligned to the Payment Services Regulations. They also need to take into consideration various FCA rules. They should really apply the same logic to incoming and outgoing payments but I don't think they're under any obligation to.

It's a very useful description, appreciate your time and effort.
My main goal was to find out if Ulster Bank should pay me interest on money I sent from another bank after 6.30pm on a business day, for example.
For some reason here they repeatedly point out the date displayed will be the next working day and that's it.
The T&Cs say nothing about these special cases, it's just "money (via Faster Payments) are credited to your account and start earning interest on the same day".