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.
Updated March 24, 2011 and originally published July 23, 2007.