Automatic money transfer occurs when a bank customer schedules an electronic transfer of funds between two or more accounts.
Definition
The automatic money transfer consists of a banking arrangement whereby funds are transferred electronically from a customer’s account to another account. The customer may own both the source account and the recipient account or may transfer funds to another person’s account.
Example and Definition of Automatic Money Transfer
Account holders can set up automatic transfers from savings accounts to checking accounts to protect the account from overdraft, save money for vacations or holidays, or pay recurring monthly loan installments. The account holder consents to the automatic transfers in advance, allowing the bank to withdraw funds from their account on the specified date.
Alternative names: Automatic Fund Transfer, AFT
For example, a bank customer can schedule an automatic transfer from their checking account to their savings account with each paycheck, or parents can automatically transfer money to their child’s account every month.
How Does Automatic Money Transfer Work?
Just like automatic payments, transfers are arranged in advance and occur automatically once scheduled.
Many consumers use automatic money transfers for budgeting and saving. To set it up, you will need to register and authorize the bank to transfer funds from one account to another on your behalf.
To set up automatic money transfers online, you can log into your account on the bank’s website and find the option to schedule automatic transfers. You can arrange for funds to be transferred from your checking account to your savings account with each paycheck, for example. The amount you choose can be a percentage of your paycheck or a predetermined amount. Funds will automatically move to the savings account once the transfer is created.
Note: Some banking institutions may require the account holder to fill out a form in person when setting up automatic transfers, while others accept online consent.
This is one example among many that illustrates why account holders transfer money between accounts. Here are some of the most common scenarios in which a person might schedule an automatic money transfer:
- Savings and budgeting: Some banks offer club savings accounts or Christmas savings accounts as tools for customers to save. Account holders can use automatic money transfers to regularly contribute to these accounts.
- Supporting a spouse or caregiver: Parents can regularly deposit money into their child’s bank account using automatic money transfer, and couples can use it to move funds between their accounts.
- Paying credit or loans: If you have a credit card or loan agreement issued by your bank, you can arrange for a recurring automatic payment between your accounts.
- Bank transfers to another bank: Customers use transfers between banks to pay off loans or rent or to send money to an external account or person. To complete an automatic transfer payment to another account in a financial institution in the United States, you will need account information for both the source account and the recipient account. Once completed, both accounts will be verified and linked so that future automatic transfers can be scheduled.
- Zero balance or sweep accounts: Companies with multiple branches use sweep accounts or zero balance accounts to manage payroll, simple cash, and other administrative needs. These accounts are subject to automatic transfer where all funds are regularly “swept” from the zero balance account to the main account via automatic money transfer.
- Fixed balance accounts: Fixed balance accounts allow you to set up automatic transfers when a certain balance exists in the account. For example, you can set up a fixed balance checking account to automatically transfer funds so that you do not have more than a specified amount, such as $5000. Fixed balance accounts help with financial planning and security. When interest rates on savings accounts are higher, they can also help increase the interest earned.
Protection
Overdraft Protection
Overdraft protection involves the transfer of funds, but the permissions, regulations, and fees associated with it are entirely different. They are not scheduled in advance like automatic transfers of funds.
Bank customers can set up recurring transfers from savings accounts to checking accounts to prevent overdrafts. Additionally, many banks offer overdraft protection services, where money is automatically transferred from a savings or credit account to a checking account when the latter is about to incur an overdraft. Customers typically choose to enroll in this service and may have to pay an overdraft fee. They may also be subject to overdraft charges.
Source: https://www.thebalancemoney.com/what-is-an-automatic-transfer-of-funds-5204639
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