How Do Bank Accounts Work?
Why does it take so many days for a cheque to be paid into your personal account? We thought we’d look at how these bank accounts actually function from the Bank’s side of things and maybe along the way we’d find out whether the system is fair to its customers.
Paying in
The biggest gripe that most of us have against our banks is the amount of time it takes for a cheque to clear in our account. Why does it take so long?
As long ago as 1998 there was a Government enquiry into the Banking Industry to analyse whether its practices were justified. In particular it looked at the bank clearing system that was responsible for ensuring all payments go into customer’s accounts within the existing three day clearance schedule.
Hiding behind an acronym
APACS is the rather unimaginatively named institution responsible for Bank Clearing in Britain. Undoubtedly some time ago the letters behind this faceless acronym stood for something but they now they seem to prefer the anonymity of just the letters. So how does APACS mess with our money? How does APACS transfer funds?
If you pay a cheque into Bank A for clearance in Bank B, then on the first day when the cheque is paid in it is actually processed by Bank A during that same evening. The details of the cheque (not the payment) are also registered at Bank B at the same time.
On the second day Bank A delivers the cheque to an exchange centre and Bank B takes it away.
On the third day staff at Bank A will review all the cheques drawn on the account and decide whether there are enough funds to pay the amounts required. Before the end of this third day the two banks pay each other the amount owed, or not, if the cheque “bounces”.
It is these bounced cheques that are then returned to the issuing bank in the post. So in our case, that would be Bank A, but they don’t get back there until either the third or fourth day, sometimes later, if they are delayed in the post!
If the cheque clears, then it will do so through the account in Bank B on day four. Supposedly, this gives the bank enough time to deal with bounced cheques… of which there are a lot. Although 99% of cheques clear successfully there are still something like 30,000 bounced cheques in Britain’s banking system every day.
Four days to clear that cheque you received from Mr A Conman in return for that dodgy Ford Fiesta you sold him will ensure the bank doesn’t lose out by processing a fraudulent cheque…as long as HM postal service works efficiently. And that seems to be what the Banks revolve around, giving themselves enough time to avoid being stung by bouncing cheques. Plus the day or so in which they can earn interest on these hundreds of thousands of cheques floating around waiting for processing.
A foreigner abroad
It seems that people who come to live in this country from abroad are often horrified by our banking system. Customers in South Africa it seems can deposit a cheque one day and the funds will be available the next. The same too applies in Norway, although apparently the use of cheques is fairly scarce as the whole banking system is far more high-tech. If these countries can do it why can’t Britain?
Change at last
Enough is enough: finally after decades of operating this archaic system it seems that even the Banks have had to move into modern business life. They have now said that by the end of 2007 all the banks will operate a same day clearance service for internet, phone and standing order transactions.
Whether or not they have agreed to shorten the time it takes to process cheques is less clear and it will be interesting to see. After all, we have no argument with a system that is fair and provides Banks with an operating profit, but we do have an argument with a system that rips off its customers.
Other Recommended Sites:
- Bank and Savings Accounts – Information from the FSA
- APACS – The bank’s clearing house
- Bank of England
- Q&A: Clearing cheques – advice from the BBC
