For the first time since opening my “Electric Orange” checking account at ING Direct, I used the account’s ability to send a paper check. I’ve never used similar bill payment options that have always been available with my banks because other, better options, like paying by direct debit or credit card, were also available. This is the first time I instructed a bank to send a check on my behalf.
The check I sent was for a little over $1,000 to pay off the remaining balance on my car loan. (Woo hoo!)
I’m a little surprised to see that ING Direct has already deducted the amount of the check from my balance. I can understand reducing my “available balance” as ING expects the funds to be transferred soon. But according to my account activity, the amount has been debited.
With ING Direct’s overdraft policy in which overdrafts become lines of credit, reducing the actual balance increases the chances of overdrafts (for account holders who don’t pay attention to their accounts).
This process reduces the interest-earning balance in my account, even though the funds were not deposited into the recipient’s bank account yet. The funds should stay in my account, earning interest during that time, even if my “available funds” would decrease. If the recipient decides to hold onto the check for 180 days, then the interest on that money could be significant.
I am not sure if other online bill payment services offered by banks work the same way. If the money isn’t in my bank account, and it’s not in the recipient’s account, it’s in someone’s account, earning interest. Here, the bank is making money on the “float,” when it should be me. This doesn’t add up to a lot of money when only my one check is considered, but with thousands of customers and millions of dollars sent via check, with an estimated 7 days delivery and deposit time, it becomes clear that this is a very good money-making operation for ING Direct.
Meanwhile, my other bank is not notified when I write manual checks. With this account I get to earn interest on my money until the check is deposited by the recipient.
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3:02 pm (reply)
That explains the “free” checks. Thank you for the information.
5:47 pm (reply)
What are we talking about losing here, maybe 50 cents? Less after the postage is factored into the equation.
Yawn.
6:09 pm (reply)
Ted: You’re missing the point. The bigger deal is the amount of money ING Direct is making on the float rather than other banking relationships where the customers combined earn that interest. Not billions of dollars, but not 50 cents, either. Bad for customers, fine for investors in the bank’s stock.
6:30 pm (reply)
Nearly all online bill payment systems work the same way. They debit the account when the check is mailed.
With ING, the higher interest rate makes up for the amount of interest lost while the check is in transit. Most checking accounts have low or no interest so while your money sits in there (180 days in your example) waiting for the recipient to deposit the check, you’re getting nothing anyway.
6:31 pm (reply)
I do not have to order ING checks, buy checks, or buy stamps, so whether ING (1) debits immediately or (2) debits later with lowered interest rates/added fees is all the same to me. I assume the money’s gone when I sign the check.
7:01 pm (reply)
I assume ING is treating the check like a money order. If I go to the teller and request a “bank check” I am getting a money order which costs me $1.00 and immediately removes the money from my account (even through it has not yet been cashed by the eventual receiver).
I don’t use ING for checking – I have an old fashioned account with a normal checkbook – but then I get diddly for interest on the account…
So not sure if you are looking for a product that just does not exist yet (one that lets you have your cake and eat it as well).
8:45 pm (reply)
Bank of America debits my account as well when they send the check, not when it is cashed. I think they all do it…whether we like it or not. :-)
9:42 pm (reply)
I hadn’t really thought about it, since all other bill pay services that I know of work the same way.
Personally, I am grateful for the free stamp, solid interest rate, and great service.
I only wish I could open more than one electric orange account per SSN.
9:44 pm (reply)
Boston Gal has this pretty much nailed down.
While I’m sure they get some other benefit, ING and the other services that do the immediate debit are bounce-proofing your payment by isolating the money that way. In the case of ING, the check will not be issued unless you have sufficient funds at the end of the day (I’m not sure if this includes the overdraft buffer) and then the funds are locked to the check, it CANNOT bounce if you short your account, because the funds are no longer tied to your account. Payment screwups are another issue, but the method being used eliminates bounces.
I used the paper check feature on ING Electric Orange recently and noticed this, I figured out the bounce-proofing angle in a matter of minutes. Yes, it may cost me some interest, but if I muff my numbers, I don’t get the multiple layers of fees from a bounce. I think of it as cheap insurance.
10:57 pm (reply)
Bank of America deducted the funds when the payment was made via a paper check using bill pay about 4 days after I made the payment. The on-line message regarding this payment stated that the check had been received. Low and behold, when I got my next bill from the utility company, I had a past due balance. A call to the bank revealed that it was never received and “must have gotten lost in the mail”. They explained that they gave it a “received” status because they “assume” it’s received after about 4 days! I had no way of knowing this bill wasn’t paid. If I had mailed the check myself, I would have realized there was a problem when the check didn’t get cashed.
4:41 am (reply)
Since folks on this forum seem to be very used to this ING Direct checking account…I have a question about it…Can you set up a recurring monthly date for sending out paper checks?
7:47 am (reply)
I had an expense similar Susan’s this month with Bank of America with my rent. BoA issued the check and later marked it as “received” online. I found out via eviction notice on my door a few days later that the apartment complex had not received the check. I ended up canceling the bank check and having to write a personal check plus extra for the late fee. It took 48 hours for the funds taken out for the bank-issued check to be transferred back to me. The bank check eventually arrived at the apartment complex a week late. With these systems, there definitely needs to be some indication of if/when the check was actually cashed.
11:09 am (reply)
gauthum, yes you can set up recurring automatic payments. When you do a bill pay, there is an option for one time or recurring.
ING does show whether the check has been cashed or not. I don’t know if its accurate, but it seems to be.
I really don’t mind this at all. If I’m using a paper check, its because the recipient either didn’t take debit or an electronic transfer was unavailable. That ING holds on to the money between the time I send the check and the time it is cashed doesn’t concern me, because I would have preferred to use debit anyway…so the result on my end is the same. If ING uses this to operate, fine by me! The other services they offer far outweigh it.
11:43 am (reply)
Well if you think I missed that point, then I must assume you missed the part where ING pays a very good checking interest rate, provides no-fee services (bill pay, ATM access, checks), runs a great website, and holds your money safe and sound. All at no cost to you.
Sigh.
I’m not going to look it up (but you should and write a blog entry on it), but it is probably required by law that the money be taken out immediately. I seem to recall a new electronic banking law was passed recently.
9:04 pm (reply)
I just looked at my payment that I mentioned previously, it has a space of six days between when it was listed as mailed and when it was listed as cashed. I remember that I had been checking on it daily and it was actually a few days after the listed date when the update hit the account. I think they actually extracted the date when it hit the bank of the payee.
12:52 am (reply)
Missed in all these comments is the realization that ING, BOA, or any other bank is not the entity that cuts the paper check to send to your recipient. The banks use a service provider like Checkfree to process the check and mail it out. Your bank deducts the money because the funds are transferred to the service provider to cover the amount of the check. They make money off of the float, sure, but would you rather pay a per check fee for the printing and mailing costs? There is NO FREE LUNCH.
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