Posts Tagged ‘Automated’

Automatic Bill Payment

Written by admin. Posted in A, Financial Terms Dictionary

Automatic Bill Payment

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What Is an Automatic Bill Payment?

An automatic bill payment is a money transfer scheduled on a predetermined date to pay a recurring bill. Automatic bill payments are routine payments made from a banking, brokerage, or mutual fund account to vendors.

Automatic payments are usually set up with the company receiving the payment, though it’s also possible to schedule automatic payments through a checking account’s online bill pay service. Automatic bill payments occur over an electronic payment system, such as the Automated Clearing House (ACH).

Key Takeaways

  • An automatic bill payment occurs when money is automatically transferred on a scheduled date to pay a recurring bill, such as a mortgage, credit card, or utility bill.
  • Individuals can set up an automatic bill payment through their online checking account, brokerage, or mutual fund to pay their monthly bills.
  • Advantages of automatic bill payments include the ease of automated payment, the ability to avoid late payments, and the potential to maintain or improve your credit score.
  • Disadvantages of automatic bill payments include the difficulty in canceling them, the need to keep adequate funds in your checking account, and the potential of incurring a returned payment or late fee.

How an Automatic Bill Payment Works

Automatic bill payments can be scheduled for all types of payment transactions. This can include installment loans, auto loans, mortgage loans, credit card bills, electric bills, cable bills, and more. These payments can be automated quite easily from a checking account.

Setting up automatic bill payment involves making arrangements with the bank holding the checking account to make the exact payment each month. The set of instructions is typically created online by the account holder. More frequently, this power is given to the vendor (the utility company, for example) to charge the checking account for whatever amount is owed that particular month. In both cases, the individual paying the bill must initiate the automatic bill payment and provide the necessary information required to make automated recurring payments.

Pros

  • Payments are easy to automate from a checking account.

  • Organizing automatic bill payments helps you avoid late payments. 

  • Paying automatically (and always on time) helps you improve or maintain a good credit score.

  • Once payments are set up, you don’t have to keep doing the task each month.

Cons

  • If you don’t keep a cushion in your checking account, an automatic payment could bounce.

  • You may incur a returned payment fee or late fee.

  • You could miss catching mistakes or fraud because the payment is automatic.

  • Automatic payments can be difficult to cancel.

Example of an Automatic Bill Payment

Automatic payments save consumers the hassle of having to remember to make a payment month after month. They can also help consumers avoid late payments.

For example, suppose you have a $300 car payment due on the 10th of every month for the next 60 months. Instead of logging into your online account with the auto loan company to schedule the same payment each month, you could set up automatic payments one time and agree to have $300 automatically transferred from your checking account to the auto loan company on the fifth day of each month. This way, you know your payment will never be late, and you’ll avoid the trouble of doing the same task each month. You’ll also improve—or maintain—a good credit score.

Disadvantages of Automatic Bill Payments

Automatic payments have a couple of potential downsides. If you forget about your scheduled automatic payments and do not maintain a cushion in your checking account, an automatic payment could bounce. Not only will your bill remain unpaid but you might also incur a returned payment fee from the company you were trying to pay, as well as a late fee for missing the due date. And automatic payments aren’t infallible. You still need to check regularly to make sure your scheduled payments have gone through as expected.

Another problem can occur when you authorize automatic payments that vary in amount. For example, suppose you set up automatic payments of your credit card bill from your checking account. If you don’t look at your credit card bill when it arrives, you might have an ugly surprise when it’s automatically paid in a much higher amount than you expected because of a mistake or fraud—or because you simply didn’t realize how much you had spent.

Automatic payments can also be difficult to cancel. Additionally, consumers might forget about certain automatic payments and continue to pay for services that they no longer want.

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ATM: How Automated Teller Machines Work and How to Use Them

Written by admin. Posted in A, Financial Terms Dictionary

ATM: How Automated Teller Machines Work and How to Use Them

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What Is an Automated Teller Machine (ATM)?

An automated teller machine (ATM) is an electronic banking outlet that allows customers to complete basic transactions without the aid of a branch representative or teller. Anyone with a credit card or debit card can access cash at most ATMs, either in the USA or abroad.

ATMs are convenient, allowing consumers to perform quick self-service transactions such as deposits, cash withdrawals, bill payments, and transfers between accounts. Fees are commonly charged for cash withdrawals by the bank where the account is located, by the operator of the ATM, or by both. Some or all of these fees can be avoided by using an ATM operated directly by the bank that holds the account. Using an ATM abroad can cost more than using one in the USA.

ATMs are known in different parts of the world as automated bank machines (ABMs) or cash machines.

Key Takeaways

  • Automated teller machines (ATMs) are electronic banking outlets that allow people to complete transactions without going into a branch of their bank.
  • Some ATMs are simple cash dispensers, while others allow a variety of transactions such as check deposits, balance transfers, and bill payments.
  • The first ATMs appeared in the mid- to late 1960s and have grown in number to more than 2 million worldwide.
  • Today’s ATMs are technological marvels, many capable of accepting deposits as well as several other banking services.
  • To keep ATM fees down, use an ATM branded by your own bank as often as possible.

Click Play to Learn How ATMs Work

Understanding Automated Teller Machines (ATMs)

The first ATM appeared at a branch of Barclays Bank in London in 1967, though there are reports of a cash dispenser in use in Japan in the mid-1960s. The interbank communications networks that allowed a consumer to use one bank’s card at another bank’s ATM followed in the 1970s.

Within a few years, ATMs had spread around the globe, securing a presence in every major country. They now can be found even in tiny island nations such as Kiribati and the Federated States of Micronesia.

More than 2.2 million

ATMs in use around the world

Types of ATMs

There are two primary types of ATMs. Basic units only allow customers to withdraw cash and receive updated account balances. The more complex machines accept deposits, facilitate line of credit payments and transfers, and access account information.

To access the advanced features of the complex units, a user often must be an account holder at the bank that operates the machine.

Analysts anticipate ATMs will become even more popular and forecast an increase in the number of ATM withdrawals. ATMs of the future are likely to be full-service terminals instead of or in addition to traditional bank tellers.

Cryptocurrency enthusiasts can now buy and sell Bitcoin and other crypto tokens via Bitcoin ATMs, which are internet-connected terminals that will dispense cash in return for crypto or accept cash or credit card to purchase. There are now nearly 40,000 Bitcoin ATMs located around the world.

ATM Design Elements

Although the design of each ATM is different, they all contain the same basic parts:

  • Card reader: This part reads the chip on the front of the card or the magnetic stripe on the back of the card.
  • Keypad: The keypad is used by the customer to input information, including personal identification number (PIN), the type of transaction required, and the amount of the transaction.
  • Cash dispenser: Bills are dispensed through a slot in the machine, which is connected to a safe at the bottom of the machine.
  • Printer: If required, consumers can request receipts that are printed out of the ATM. The receipt records the type of transaction, the amount, and the account balance.
  • Screen: The ATM issues prompts that guide the consumer through the process of executing the transaction. Information is also transmitted on the screen, such as account information and balances.

Full-service machines now often have slots for depositing paper checks or cash.

How to Use an ATM

Banks place ATMs inside and outside of their branches. Other ATMs are located in high-traffic areas such as shopping centers, grocery stores, convenience stores, airports, bus and railway stations, gas stations, casinos, restaurants, and other locations. Most ATMs that are found in banks are multifunctional, while others that are off-site tend to be primarily or entirely designed for cash withdrawals.

ATMs require consumers to use a plastic card—either a bank debit card or a credit card—to complete a transaction. Consumers are authenticated by a PIN before any transaction can be made.

Many cards come with a chip, which transmits data from the card to the machine. These work in the same fashion as a bar code that is scanned by a code reader.

$60

Average amount of cash withdrawn from an ATM per transaction

ATM Fees

Account holders can use their bank’s ATMs at no charge, but accessing funds through a unit owned by a competing bank usually incurs a fee. According to MoneyRates.com, the average total fees to withdraw cash from an out-of-network ATM was $4.55 as of 2022.

Some banks will reimburse their customers for the fee, especially if there is no corresponding ATM available in the area.

So, if you’re one of those people who draws weekly spending money from an ATM, using the wrong machine could cost you nearly $240 a year.

ATM Ownership

In many cases, banks and credit unions own ATMs. However, individuals and businesses may also buy or lease ATMs on their own or through an ATM franchise. When individuals or small businesses such as restaurants or gas stations own ATMs, the profit model is based on charging fees to the machine’s users.

Banks also own ATMs with this intent. They use the convenience of an ATM to attract clients. ATMs also take some of the customer service burdens from bank tellers, saving banks money in payroll costs.

Using ATMs Abroad

ATMs make it simple for travelers to access their checking or savings accounts from almost anywhere in the world.

Travel experts advise consumers to use foreign ATMs as a source of cash abroad, as they generally receive a more favorable exchange rate than they would at most currency exchange offices.

However, the account holder’s bank may charge a transaction fee or a percentage of the amount exchanged. Most ATMs do not list the exchange rate on the receipt, making it difficult to track spending.

How much can you withdraw from an automated teller machine (ATM)?

The amount that you can withdraw from an automated teller machine (ATM) per day, per week, or per month will vary based on your bank and account status at that bank. For most account holders, for instance, Capital One imposes a $1,000 daily ATM withdrawal limit and Well Fargo just $300. You may be able to get around these limits by calling your bank to request permission or upgrading your banking status by depositing more funds.

How do you make a deposit at an ATM?

If you are a bank’s customer, you may be able to deposit cash or checks via one of their ATMs. To do this, you may simply need to insert the checks or cash directly into the machine. Other machines may require you to fill out a deposit slip and put the money into an envelope before inserting it into the machine. For a check, be sure to endorse the back of your check and note “For Deposit Only” to be safe.

Which bank installed the first ATM in the United States?

The first ATM in the United States was installed by Chemical Bank in Rockville Center (Long Island), N.Y., in 1969 (two years after Barclays installed the first ATM in the United Kingdom). By the end of 1971, more than 1,000 ATMs were installed worldwide.

The Bottom Line

ATM stands for automated teller machine. These are electronic banking outlets that allow people to complete transactions without going into a branch of their bank. Some ATMs are simple cash dispensers, while others allow a variety of transactions such as check deposits, balance transfers, and bill payments. The first ATMs appeared in the mid- to late 1960s and have grown in number to more than 2 million worldwide.

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What Is the Automated Clearing House, and How Does It Work?

Written by admin. Posted in A, Financial Terms Dictionary

What Is the Automated Clearing House, and How Does It Work?

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What Is the Automated Clearing House (ACH)?

The Automated Clearing House (ACH) is an electronic funds-transfer system run by Nacha. The Automated Clearing House traces its roots back to the late 1960s but was officially established in the mid-1970s. The payment system provides many types of ACH transactions, such as payroll deposits. It requires a debit or credit from the originator and a credit or debit on the recipient’s end.

Key Takeaways

  • The Automated Clearing House (ACH) is an electronic funds-transfer system that facilitates payments in the U.S.
  • The ACH is run by Nacha.
  • Recent rule changes are enabling most credit and debit transactions made through the ACH to clear on the same business day.
  • ACH transactions make transferring money quick and easy.
  • Banks may limit the amount you can transfer and impose fees.

Click Play to Learn About the Automated Clearing House (ACH)

How the Automated Clearing House (ACH) Works

The ACH Network is an electronic system that serves financial institutions to facilitate financial transactions in the U.S. It represents more than 10,000 financial institutions and ACH transactions totaled more than $72.6 trillion in 2021 by enabling over 29 billion electronic financial transactions.

The network essentially acts as a financial hub and helps people and organizations move money from one bank account to another. ACH transactions consist of deposits and payments, including:

Here’s how the system works. An originator starts a direct deposit or direct payment transaction using the ACH network via debit and credit. The originator’s bank, also known as the originating depository financial institution, takes the ACH transaction and batches it together with other ACH transactions to be sent out at regular times throughout the day.

An ACH operator, either the Federal Reserve or a clearinghouse, receives the batch of ACH transactions from the originating institution with the originator’s transaction. The ACH operator sorts the batch and makes transactions available to the bank or financial institution of the intended recipient, also known as the receiving depository financial institution. The recipient’s bank account receives the transaction, thus reconciling both accounts and ending the process.

Changes to NACHA’s operating rules expanded access to same-day ACH transactions, which allows for same-day settlement of most (if not all) ACH transactions as of March 19, 2021.

Special Considerations

The ACH payment system is offered by Nacha. Formerly known as the National Automated Clearing House Association, it’s a self-regulating institution. The ACH network’s history dates back to 1968 but wasn’t officially established until 1974.

This network manages, develops, and administers the rules surrounding electronic payments. The organization’s operating rules are designed to facilitate growth in the size and scope of electronic payments within the network.

Types of ACH transactions include payroll and other direct deposits, tax refunds, consumer bills, tax payments, and many more payment services in the U.S.

Advantages and Disadvantages of the ACH

Advantages

Because the ACH Network batches financial transactions together and processes them at specific intervals throughout the day, it makes online transactions extremely fast and easy. NACHA rules state that the average ACH debit transaction settles within one business day, and the average ACH credit transaction settles within one to two business days.

The use of the ACH network to facilitate electronic transfers of money has also increased the efficiency and timeliness of government and business transactions. More recently, ACH transfers have made it easier and cheaper for individuals to send money to each other directly from their bank accounts by direct deposit transfer or e-check.

ACH for individual banking services typically took two or three business days for monies to clear, but starting in 2016, NACHA rolled out in three phases for same-day ACH settlement. Phase 3, which launched in March 2018, requires RDFIs to make same-day ACH credit and debit transactions available to the receiver for withdrawal no later than 5 p.m. in the RDFI’s local time on the settlement date of the transaction, subject to the right of return under NACHA rules.

Disadvantages

Certain financial institutions may restrict the amount of money you can transfer. If you want to do a large transfer, you may have to do this in multiple steps. For instance, if you’re transferring money to your child who’s away in college, you may be limited to transfers of $1,000. If they need more for books and rent, you will be required to send more than one transfer.

Some banks charge fees for ACH transactions. And this can be a per-transaction fee. If you’re used to doing multiple transactions, this can add up and put a big dent in your bottom line.

The ACH network only works between U.S. accounts. This means that you can’t conduct any transactions that are meant for international transfers using this payment system. So if you want to send money to someone abroad, you must do so using a wire transfer or other similar payment processing network. As such, the transaction will not necessarily be executed on the same day.

Pros

  • Makes online transactions quick and easy

  • Increases efficiency and timeliness

  • Provides same-day banking transactions

Cons

  • Banks may limit transaction amounts

  • Fees

  • Can’t be used for transactions outside the U.S., which may result in longer processing times

How Does the Automated Clearing House Work?

An Automated Clearing House or ACH transaction begins with a request from the originator. Their bank batches the transaction with others that are to be sent out during the day. The batch is received and sorted by a clearinghouse, which sends individual transactions out to receiving banks. Each receiving bank deposits the money into the recipient’s account.

What Is an Automated Clearing House Transaction?

An Automated Clearing House or ACH transaction is an electronic transaction that requires a debit from an originating bank and a credit to a receiving bank. Transactions go through a clearinghouse that batches and sends them out to the recipient’s bank. Transactions are normally executed on the same day as long as they are done before 5 p.m.

Are There Any Disadvantages to Automated Clearing House Transactions?

ACH transactions may come with fees, depending on your bank. This means the more you do, the more you’ll spend on fees. Certain banks limit the amount of money that you can transfer through the system so if you want to transfer large amounts of money to other people, you may have to do so through multiple transactions. Another drawback is that the system is only equipped to handle domestic transfers. As such, you can’t use the ACH network to make transfer money internationally.

The Bottom Line

Sending money to someone else used to be a big hassle. But the advent of electronic technology is making things much easier. The Automated Clearing House or ACH facilitates transfers between banks. This eliminates the need for withdrawing money from one account and depositing it into another. The network is updated to allow businesses and individuals to execute transactions on the same day. But keep in mind that there are restrictions—notably, that you can’t send money internationally. You may also be limited in how much you can transfer and you may end up incurring fees. Check with your bank about how it handles ACH transactions.

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What Is the Automated Customer Account Transfer Service (ACATS)?

Written by admin. Posted in A, Financial Terms Dictionary

What Is the Automated Customer Account Transfer Service (ACATS)?

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What Is the Automated Customer Account Transfer Service (ACATS)?

The Automated Customer Account Transfer Service (ACATS) is a system that facilitates the transfer of securities from one trading account to another at a different brokerage firm or bank.

The National Securities Clearing Corporation (NSCC) developed the ACATS system, replacing the previous manual asset transfer system with this fully automated and standardized one. This greatly reduced the cost and time of moving assets between brokerage accounts as well as cut down on human error.

Key Takeaways

  • The Automated Customer Account Transfer Service (ACATS) can be used to transfer stocks, bonds, cash, unit trusts, mutual funds, options, and other investment products.
  • The system may be required when an investor wants to move their account from Broker Company A to Broker Company B.
  • Only NSCC-eligible members and Depository Trust Company member banks can use the ACATS system.
  • Once the customer account information is properly matched and the receiving firm decides to accept the account, the delivering firm will take approximately three days to move the assets to the new firm. This is called the delivery process.
  • Some brokerages will charge their customers an ACAT fee per transfer.

How the Automated Customer Account Transfer Service (ACATS) Works

The ACATS system is initiated when the new receiving firm has the client sign the appropriate transfer documents. Once the document is received in good order, the receiving firm submits a request using the client’s account number and sends it to the delivering firm. If the information matches between both the delivering firm and the receiving firm, the ACATS process can begin. The process takes usually takes three to six business days to complete.

The ACATS simplifies the process of moving assets from one brokerage firm to another. The delivering firm transfers the exact holdings to the receiving firm. For example, if the client had 100 shares of Stock XYZ at the delivering firm, then the receiving firm receives the same amount, with the same purchase price.

This makes it more convenient for clients, as they do not need to liquidate their positions and then repurchase them with the new firm. Another benefit is that clients do not need to let their previous brokerage firm or advisor know beforehand. If they are unhappy with their current broker, they can simply go to a new one and start the transfer process.

Securities Eligible for ACATS

Clients can transfer all publicly traded stocks, exchange-traded funds (ETFs), cash, bonds, and most mutual funds through the ACATS system.

ACATS can also transfer certificates of deposit (CDs) from banking institutions through the ACATS system, as long as it is a member of the NSCC. ACATS also works on all types of accounts, such as taxable accounts, individual retirement accounts (IRAs), trusts, and brokerage 401(k)s.

Transfers involving qualified retirement accounts like IRAs may take longer, as both the sending and receiving firm must validate the tax status of the account to avoid errors that could cause a taxable event.

Securities Ineligible for ACATS

There are several types of securities that cannot go through the ACATS system. Annuities cannot transfer through the system, as those funds are held with an insurance company. To transfer the agent of record on an annuity, the client must fill out the correct form to make the change and initiate the process via what is known as a 1035 exchange.

Other ineligible securities depend on the regulations of the receiving brokerage firm or bank. Many institutions have proprietary investments, such as non-transferrable mutual funds and alternative investments that may need to be liquidated and which may not be available for repurchase through the new broker. Also, some firms may not transfer unlisted shares or financial products that trade over the counter (OTC).

How Does an ACATS Transfer Work?

An ACATS transfer is initiated by a brokerage customer at the receiving institution by submitting a Transfer Information (TI) record. The TI contains all of the information needed to identify the customer’s existing brokerage account and where it will be delivered. The delivering firm must respond to the output within one business day, by either adding the assets that are subject to the transfer or by rejecting the transfer. Before delivery is made, a review period is opened during which the sending and receiving firm can confirm the assets to be transferred.

What Is the Difference Between an ACATS and Non-ACATS Transfer?

The main difference between an ACATS transfer and a manual (non-ACATS) transfer is primarily one of automating the process such that it cuts the delivery time down to 3-6 business days for ACATS vs. up to one month or more for a non-ACATS transfer. The other difference is that the automated system is far less prone to mistakes, typos, and other forms of human error.

What Is an ACAT Out Fee?

Some brokers charge existing customers a fee to ACAT assets out of their account to a new brokerage. This fee can be as high as $100 or more per transfer. Brokerage firms charge this fee to make it more costly to close the account and move assets elsewhere. Not all brokerages charge these fees, so check with yours before initiating a transfer.

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