ING Earns Interest When You Send Checks
According to Flexo, when you use ING Direct’s bill-paying check service, the funds are debited from your account immediately - not when the check clears. That’s a different of at least a few days because of how long it typically takes for a letter to reach its destination (2-3 days) and how long it takes for it to clear (1 day with Check 21). He asked whether other banks were the same and I can say definitely that’s not how it works at Bank of America, the only bank I’ve ever used the billpaying feature at.
With Bank of America, you enter in the destination address, payee, and a desired delivery date. I recently sent some money and a Bank of America representative actually called me up to confirm I had initiated the transaction (and not some thief). Incidentally, from what I can recall, he simply asked me for the destination and the payee so even if it was a phishing attempt he would’ve gotten zero useful information (plus he provided all the payment information anyway like the amount). The transaction was authorized, the check was sent, and the funds weren’t actually withdrawn from my account until the check was cashed.
You might ask “what’s the big deal?” It’s not really a big deal but it’s the principle of the matter. When you write a paper check, the funds aren’t withdrawn until the check is cashed and you are continuing to earn interest. Why shouldn’t ING’s system this way too?
A commenter on Consumerism Commentary said that Bank of America debits immediately too but my memory says differently, anyone care to corroborate either of the stories?
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There are 12 comments, add your thoughts now!
Sorry, couldn’t help myself. Too bad I couldn’t use the red background too. Personally, I agree it’s the principal of the matter but as Devil’s Advocate I would like to say at least we are still saving money by using INGs service.
Let’s assume the average check someone writes is for rent, $500 to keep the math simple. The interest rate is 4% (compounding ignored for this case) and finally that the check is not cashed for 5 days (three in the mail, 2 for cashing.)
(($500*.04)/365)*5 = $0.27397 or 27.5 cents. I have to say, that seems like a significant savings over my cost to buy stamps, a envelope and checks each year. I won’t begrudge ING the few cents pilfered on the deal. Please, someone else post the required rebuttal.
BoA debits immediately for all of my checks. I think it depends on whether they have a relationship with the company you are sending payment to or not.
I added the red formatting for you
Hey, thanks Jim, you’re awesome!
It depends on how their bill payment service is implemented. Some use a “good funds model” which means the bank secures the money from you before sending out a payment. The risk based model means the bank will go ahead and pay before getting their money from you.
I just switched from NetBank (risk model) to ING Orange and not 100% sure which model ING is using. I paid my mortgage a couple weeks ago and thought ING uses the good funds model. However the lender posted my payment on the same day I scheduled the payment.
Also, to clarify the good funds model; it is usually the bill pay vendor (Checkfree, Metavante, etc) that secures the funds not the bank.
I’ve used BOA billpay for three years. In the beginning the amount deducted as soon as you hit the “submit payment” button, now it deducts no the “arrive by” date. I believe that with companies with which BOA has a relationship, it’s really and electronic transfer and therefore the arrival date is the check cashed date. With other entities, BOA probably just makes an assumption. On one hand, it’s bad because you don’t know if someone received their check with this method, on the other, BOA doesn’t have to worry about bounced checks through the billpay feature.
I have no problem with ING’s policies. They are a much kinder bank than BofA. ING offers free overdraft protection - well, virtually free. I have overdrawn my checking account in the past and ING charged something like 20 cents… compared to what BofA would charge ($20 to $30), it’s no contest.
ING gives you interest before the cash clears from any deposits you make, which they don’t have to do, so I don’t fault them for removing the money from the interest calculation before someone else takes it from them.
It’s been my experience that BoA debits the money from your account on or near the “delivery by” date and NOT when the check is actually cashed.
A couple months back, I sent my mom a check through BoA’s online bill pay. It was set to be delivered to her on a Thursday (thought it didn’t arrive until a week later…a whole other matter) and the funds left my account that same day. However, the check wasn’t actually cashed by mom until two weeks later (due, in large part, to her not receiving the check for another week). So basically, BoA had two full weeks of earned interest on my money. I wasn’t too happy about that.
Sorry - You are wrong on this one.
BoA debits your account when the check is sent. I had one experience where the check was “lost in the mail” on it’s way to my student loan holder (I now use the student loan website directly than BoA’s automatic bill pay), and a more costly experience when I stupidly paid my mortgage twice via BoA’s bill pay. From the latter, I had 4 overdrafts leading to $140 in fees. Three of those were checks sent via online bill pay - one to my mother, one to the dog walker and one to my housecleaner. The other was a direct debit transaction. NONE of the three checks cleared the bank, because I called everyone and they all still had or had not even received the checks, AND the mortgage payment wasn’t credited for 4 days after the late fees were incurred. I was pretty confident that BoA would refund at least some of the fees when I called and pointed all of this out, but all they kept saying was “this was not a bank error and the account was debited in accordance with our policies.”
As a direct result, I now have an ING account, but its too early for me to comment on that
ING lets you schedule your paper check payments and deducts the money on the day it is sent, not cashed. If the check is not cashed within a certain amount of time, it will be refunded back to your account. Obviously, they are making money on the float, not you. I suppose that’s how they pay for their “free” bill pay. But they aren’t the only ones doing that.
I prefer using bill pay as a safety feature, “pushing” the money, rather than allowing companies to “pull” the money from me. We’ve all read enough horror stories about zombie auto-debits that won’t stop.
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