As a personal finance writer, I’m often answering questions from friends and family about basic financial principles. When someone is setting up a savings account for the first time, they’ll often ask, “How do I actually move the money from my checking to my savings?”
It seems like such a simple concept, but transferring substantial capital almost always involves jumping through some hoops. You can’t just call up your bank and ask them to move the funds, and actively withdrawing and then depositing the money is an unnecessary hassle.
If you want to transfer money between bank accounts, here’s the best way.
How Banks Transfer Money
Every bank uses the the Automated Clearing House (ACH) system to transfer money. When your employer sends your paycheck via direct deposit, they’re using the ACH.
The ACH was created in the 1970s as a faster alternative to checks and a cheaper solution than wire transfers. It’s an electronic system that transfers money in large batches overnight. In addition to being faster than most other transfer options, the ACH is more secure than wire transfers and other types of electronic payments.
How to Transfer Money from One Bank to Another
Transferring money between different bank accounts is a common need for most people. I myself have three different banks I use for my personal and business needs, and I initiate transfers between them at least once a week.
Setting up external transfers can be confusing, so let’s use a hypothetical example to explain how it works. Bank A is the bank you’re transferring money out of, and Bank B is where you want to send those funds.
First, you have to log onto Bank A and click on the “Transfer Funds” section. Then, you’ll click on “External Transfers” or “External Accounts” and from there, “Add an external account.”
To successfully add an external account, you have to verify your Bank B account with Bank A. Bank A needs proof that you have access to Bank B, and that you’re the rightful account owner.
Bank A will ask for the account and routing number for Bank B, which you can find easily on a check or on Bank B’s online statement. You also need to tell Bank A if your account with Bank B is a checking or savings account.
Then Bank A will ask you to verify your account with Bank B in one of two ways: you can give Bank A the username and password you use for Bank B, which will instantly verify the account and make it ready for external transfers. You could also ask that Bank A initiate two small transfers to Bank B. You will not know how much Bank A will transfer; the only way to find out is by logging onto Bank B and seeing how much Bank A deposited.
Once the two small deposits have successfully gone through, you will log on to Bank A and go to the “External Accounts” section. There should be a part that says, “Verify your deposits” where you will enter the amounts that were transferred to Bank B. This process takes at least 1-2 business days.
Once the amounts are verified, you are now able to transfer money from Bank A to Bank B with no problems. You can set up recurring or one-time transfers, depending on your needs. Bank transfers usually take between 2-3 business days to go through, so remember to plan ahead.
Typically, transferring money between two accounts is free, but sometimes there’s a limit on how much you can transfer at one time. This depends on your bank and their own internal rules.
Alternatives to Bank Transfers
If you want to send money from your bank account to someone else’s, you’ll have to find an alternative to bank-to-bank transfers. That’s because you need to be the account holder at both banks in order to send or receive money.
Here are some other solutions:
PayPal: You can send money to someone else’s PayPal account for free through the “send to family and friends” option. PayPal is a fast method, so soon as you send the money it will appear in the other person’s PayPal account. From there, they can transfer it to their own bank account.
Chase QuickPay: Chase QuickPay lets you send money from your Chase bank account to someone else, who doesn’t have to be a Chase customer. If you have a Chase QuickPay account, you can also send an invoice and request that someone else send you money.
Zina Kumok is a freelance writer specializing in personal finance. A former reporter, she has covered murder trials, the Final Four and everything in between. She has been featured in Lifehacker, DailyWorth and Time. Read about how she paid off $28,000 worth of student loans in three years at Debt Free After Three.