Who earns interest on my money when I transfer between banks?
When money 'disappears' during an EFT, no one earns interest—not you, not the recipient. But banks still benefit by holding the funds on their books, writes Maya Fisher-French.
With millions of interbank transfers made every day, what happens to the interest during the transfer? This is the question from News24 reader Ian, who wrote: 'I make a normal EFT transaction transferring from Capitec to TymeBank. The funds immediately disappear from my account, but only appear several hours later at the receiving bank. If I transfer on a Saturday afternoon, they only reappear on Monday. Where are the funds in between? I'm certainly not getting any interest.'
Marin Cundall, managing executive of Retail Payments at TymeBank, explained that when making a normal EFT, there are banking hours and days. The system to process these payments between banks is simply not available at certain times.
When a transaction is processed on Saturday afternoon, for example, the EFT window is already closed. The bank debits the account but keeps the credit queued until the window for processing opens on Monday at 08:30.
The Payment Association of South Africa (PASA) says the process generally involves holding funds in the paying bank's internal account until clearing and settlement are completed. Interest is only earned on funds once they are physically reflected in your account.
According to Capitec, banks don't pay or earn interest on funds that are still in the process of clearing. Interest is only accrued once the money is fully cleared and available in the client's account.
In short, no interest is paid to anyone while the funds are being transferred.
But does the bank earn interest? To put it simply, banks have a balance sheet that they use to lend money, and in turn, they charge interest. To raise the money to lend out, banks encourage people to deposit funds with them by paying interest on those funds. They may also borrow from other banks, including the SA Reserve Bank, in which case the bank is paying interest. During a transfer, those funds are still on the bank's balance sheet and form part of their lending book. The bank would be 'saving' money by not paying interest, but most current accounts do not earn interest, so the impact on the individual is probably limited. However, given that billions of rands are being transferred every day, delays in transferring funds waste potential interest that could be earned.
The move away from the traditional EFT system towards faster systems like Rapid Payments and PayShap will largely remove these issues. These newer payment rails support real-time clearing and settlement, ensuring that money is immediately available to the recipient.
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