Online Bank Lost Interest Experiment Results – Surprising!

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Here are the results of my bank transfer timing experiment to help estimate the lost interest when transfering money from one online bank to another. I scheduled transfers very late on Monday (~9pm Pacific) to and from various online banks and recorded when the money was taken out of the originating bank, and when the money was noted as deposited in the destination bank.

I would have posted the data earlier, but I’ve been trying to pore through all the fine print to figure out exactly when the banks stop and start paying interest during withdrawals and deposits. I’m still fuzzy on several things, but I just made some assumptions and ran with them for now. Here are the (I think reasonable) assumptions I made:

» All the banks stop paying interest on the day that the money is debited from the account. For example, if the debit is marked on 1/18, no interest will be paid on the 18th. All the banks that did have wording involving this seemed to work this way.

» Presidential and Bank of America start paying interest the same business day that the deposit is made.


Per their respective fine prints:

» Capital One 360 starts paying interest two business days after the deposit is made.

» HSBC Direct, VirtualBank, Emigrant Direct, and E-Trade Bank all start paying interest the same business day that the deposit is made.

Results

Bank Transfer Time Comparison

* (The bolded bank is the one which initiated the push or pull)

So, it appears that although both E-Trade Bank and HSBC Direct both use the CashEdge system to perform their transfers, the HSBC implementation somehow takes 2 full business days for both deposits and withdrawals, whereas E-Trade Bank actually gives you an extra day of interest on incoming transfers and only 1 lost day on outgoing transfers. So it’s isn’t CashEdge’s fault. In the end with E*Trade it seems you don’t lose any interest at all on a round-trip transfer!

Also, even though ING for some odd reason only starts paying you interest two days after the deposit date, it also makes the deposit date very early, before the money even is debited from the other bank. In the end, you only lose one day of interest for incoming and outgoing transfers.

Emigrant and VirtualBank were similar in losing 1 day of interest for outgoing transfers and losing zero days for incoming transfers. Maybe they are trying to encourage something?

Conclusions
Keep in mind that this was only for one day, so these are not rock-solid conclusion results. However, I would say they reflect accurately what I have read from comments on my blog and elsewhere.

Best Bank for Transfers – E*Trade Bank
Worst Bank for Transfers – HSBC Direct

The question remains – Is HSBC taking advantage of the float? I can’t tell. According to the fine print, it says that in between transfers there is no interest earned by the third party (I assume Cashedge). However, they also say “we reserve the right to hold funds beyond the normal period and if any interest is earned will be the property of HSBC.” What the heck is up with that?



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Comments

  1. Jonathan, this has nothing to do with this post but I just wanted to say that the podcast was great. Keep up the great work.

  2. Looking at your results, they are consistent with my experiences as well. HSBC is definately the worst bank for transfers.

  3. But since HSBC is paying better than others, if we don’t transfer in and out the same money frequently, HSBC is still a better choice?

  4. it a pitty you dont have an HSBC checking. Then you could link your checking account to other account that do allow pushing funds to HSBC for free as it seems you only used free ach accounts to test results.

    If you use anyone else ACH system to push funds to HSBC they seem to be able to post your deposit same day you pushed to it.

    Personally I think it is HSBC keep the float.

  5. Sigh. Of course there had to be a downside to HSBC…bummer.

  6. Just curious. Do these other banks acutally pay you interest when they wait for your deposit to clear.

  7. I just did an ACH transfer from Ameritrade to HSBC. The money left my Ameritrade account Monday night

    04/17/2006 17:33:22 CLIENT REQUESTED ELECTRONIC FUNDING DISBURSEMENT (FUNDS NOW)

    and showed up in my balance talley the morning of the 18th, though it does not show up as an itemized transaction just yet.

    Has HSBC changed their behavior? This is my first ACH that I recall doing.

  8. Andrew says:

    Shane – if you processed the transaction from Ameritrade TO HSBC using Ameritrade’s interface, that’s different than the above. I believe the above test was done using the HSBC interface, using the CashEdge system.

    My experiences are consistant with the above.

  9. Dude from Texas says:

    My experience with HSBC is consistent with these results. Using BoA to xfer to HSBC is one day faster that doing the exact same xfer through the HSBC system.

    But unfortunately, BoA charges $3 for outbound xfers. BoA will waive the fee “depending on your relationship with the bank” but they do not elaborate on this statement on the website and the folks on the phone told me I wouldn’t get charged but I still was charged!

    Another point on the longer float times: Keep in mind that the extra day increases the probability of the float time running into the weekend, which means:
    2 bonus days of interest earned by the bank ….. it’s good to be the king!

  10. Responder says:

    Interesting experiment. One question: You ask whether HSBC keeps the interest from the “float”, but why not also ask the same of ING? ING, from what you say, starts paying interest two business days after the deposit, according to the “fine print”. Isn’t it possible that ING actually does earn interest but only pays after two business days after the deposit?

    Related question: If ING starts paying interest only after two business days, wouldn’t that make ING the “worst” in terms of interest lost to the deposit customer, despite its slightly better transfer time?

    Thanks in advance.

  11. ING is the sort of thread that holds all of my accounts together. ING allows me to initiate transfers to any account that I have (with the exception of my brokerage account, from where I must initiate any transactions.) ING’s savings account now pays 4.5%, or 0.75% below Citiwide Finance’s money market rate, but it is the most convenient place for me to park a few thousand of cash to have it handy when I need it. I can have it moved from ING to my Bank of America checking account, with funds available in only 2 business days. It’s worth giving up the 0.75% for this convenience.

    I’m avoiding places like FNBO and HSBC because it sounds as if their services are second rate, despite their more attractive interest rates. I note that Citywide won’t allow any initiations of ACH transfers, but will accept them from others. My link to Treasury Direct also works well with Citywide, ING, and Bank of America.

  12. I meant “Countrywide” not “Citywide” Finance.

  13. HSBC is a bad bank. I have both online savings and branch checking with HSBC. I scheduled a transfer a week ago to transfer $2000 from my savings to checking account for today. Today, I went to the bank to withdraw money from my checking account and came to know that I do not have money in my checking account! After calling HSBC, I found out that although the transaction date is today, I will not get my money until tomorrow! They keep the float even when money is transferred between accounts within the bank! Shame on them.

  14. I have had a BOA checking account for about 15 years, and an Emigrantdirect savings for about 2 years. I make my transfers from Emigrant to and from Boa, and provided it is before 5pm est, it’s in the account the next day, available for use or interest, depending on the account. There’s no clearing time except for the one day transfer. I have perfect credit and have never had an overdraft problem, so my only concerns are about interest lost due to waiting periods. Here’s why:

    I opened a WaMu free checking with the 4.75% online savings earlier this month, depositing $10.00 in each account. I didn’t want a lot of money out there in limbo in case they were slow with the process. It took 4 days for them to initiated the mico-deposits. I verified them immediately. It took 2 more days for them to notify me that the $10.00 deposits were in my accounts, but not available. The funds were taken out of BOA a day later. It has now been three days since the transfer took place, and my funds for an ACH transfer are still not available. Yesterday, I decided to test the system, and transfered $5.00 into my WaMu savings. The earliest day they could even initiated the transfer was the 18th…3 days later. Then I know there will be a holding time. Granted, this is a new account and the 30 day new account period isn’t over, but I am concerned about the time it takes them to even initiated a transfer, much less the holding time. At this point, I wouldn’t even consider depositing a check, if their ACH transfers are this slow.

    Getting back around to the subject of this blog…My savings account with Emigrantdirect only pays 4.55 % now, but starts paying interest as soon as the transfer shows up, which is one day after I put it in. The WaMu account pays $4.75%, but takes what appears to be almost a week to clear the ACH transaction. I was excited about the WaMu accounts, because of the instant transfers between savings and checking, and there is a bank less than a mile from me. I haven’t put pen to paper, but the loss of interest for the waiting time would probably make Emigrant the better deal. I will wait the 30 days and see if things change, but I may not be using these accounts much if things don’t speed up.

    I also am in the process of opening up an Etrade savings because of their advertised quick transfers, but am having second thoughts after reading all the horror stories. What I need is a high yield savings that compounds daily, pays interest from the day the deposit appears in the account, and has one day or less ACH transfers. The six transfer limit will not be a problem.

    Jonathan, I was wondering how it works for you, to have to wait until the funds clear to start earning interest on your WaMu savings? Does it get better with time? Also, does anyone have direct deposit with them who can tell me how long it takes to have access to your funds?

  15. This is the big disadvantage with WAMU…ACH transfers take a long time..but the advantage lies in free checking and debit card.

    I believe the transfers from savings to checking is instantaneous and will be available the same day.

    Emigrant direct may transfer fast but what i feel is WAMU might be better long term if you are jus going to keep money and not do much transfers.

    Thanks

  16. Along the same lines, below is the text of a comment I submitted to the Fed about pending Truth-in-Savings regulations:

    My comment on Truth in Savings: ‘The Lost Day of Interest’ …
    It is common practice for an institution to pay interest on funds from date of deposit through the date -prior- to date of withdrawal. That’s fine, and it is as expected.

    What has come to my attention is a peculiarity when a depositor wishes interest paid on one account to be automatically transferred monthly to a different account with the SAME institution. No ACH process is involved.

    My institution’s practice is to withdraw the interest from the earning account on the date paid, then credit the transfer to the target account on the FOLLOWING day. This technique results in one lost day of interest! Although this practice might result in a merely a small loss for most depositors, it remains a hidden and undisclosed practice which should eliminated. If a transfer is done 12 times a year, this could amount to a significant number of dollars!

    Please consider this in light of pending Truth in Savings regulations.
    Thank you.

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