What I Discovered Today About Online Banking

Today I got a call from my mortgage company wondering where my mortgage payment was.  A quick glance at my online checking account with a multi-billion dollar, national bank showed the the payment had left my account on October 3.  Today is October 17.  That's two weeks.  Wherever could my money be?

I called my bank, and discovered a funny thing about online banking: It's not really online banking.  It's more like an automated check writing service, except less useful.

Here's what happened to my mortgage payment: I entered it into my web-based checking account ledger.  The money left my account that very second -- poof! --  moving into some kind of bank transfer account from which actual payments are made.  Those actual payments take the form of -- this is where I about blew a blood vessel -- a paper check.  A couple of days after the money leaves my account, the bank prints a freakin' paper check, just like the one I could have written myself, which it then mails -- mails! -- to my mortgage company. 

The subtle difference between my writing the check and the bank doing it is when the money leaves my account.  If I write the check, the money leaves my account when the mortgage company takes it out of the account.  If it takes two weeks for the paper check to get to the mortgage company, for those two weeks I have the money and it is, at least theoretically, earning interest for me.  Then, when my mortage company demands payment, payment is what they get.  One minute the money is here, where I can use it, the next minute it's there, where the mortgage company can use it. 

If my bank writes the check, one minute the money is gone from my account, and then a couple of weeks later -- depending on the mail and whoever it is who opens envelopes and does the hand-processing -- the mortgage company requests and receives the actual cash.  Which means that my big, multi-billion bank with hundreds of thousands of checking accounts to service gets to keep my money and everyone else's interest free.  The float must by tens of millions of dollars.

This all happens because idiots like me have bought the idea that because the money has left our accounts it has gone where we sent it.  That's certainly what I believed, until last month when I noticed that I was getting hit with late fees on accounts that I had paid two and sometimes three weeks before the bills were due.  Or, more precisely, that I thought I had paid. 

So, to recap: My bank, which is highly sophisticated, sets up an online bill-paying capability that gives every impression that transactions are instant.  It withdraws the money from my account instantly, and when I check my bill-paying history it tells me that that instant is when the bill has been paid.  Except that the bill hasn't been paid at all, and my bank builds up a pool of millions of dollars on which they can earn interest while I pile-up only late fees.

How is this not fraud? 

Comments

[NewMexiKen]

Was aware of the float -- figured that was the cost for the service, which is otherwise free to me. Wasn't aware they weren't paying the bills on time. (I looked at when the payee received the funds before I began to trust this process.)

So, banks may do this differently. How about a hint about which bank yours is so we can avoid doing business with it.

[muddy ted]

I, too, would love to know the name of your bank, or at least what it sounds like... for example, sounds like SnittyBank or Washingdumb MooChewAll

[Rodger]

It's less convenient, but you can pay the bills much quicker by setting up the account with the company expecting the cash. I've found that even payments due within 48 hours are paid on time.

The transaction I'm describing actually works the way you imagine above. Click the button and the money is very soon delivered to the intended destination.

[Thought]

Unfortunately, this post oversimplifies the reality in trying to make a point.

Some payees do indeed accept electronic payments, and that list is growing. It's just that some do not, and for those a paper check is generated.

Even then, this can offer convenience to the user of the service. No having to write the check, no rushing to the post office, and no mailing fees. Plus, the check issued is an official bank check, and thus does not have the user's bank acct information on it, which makes it more secure in the mail.