Automatic Transfer of Funds

Automatic Transfer of Funds

An automatic transfer of funds is a standing banking arrangement whereby transfers between a customer's two (or more) accounts are made on a regular, periodic basis under specified conditions. When funds are needed in the ZBA, the exact amount of money required is moved to the account through an automatic transfer of funds from a central, or master, account. An automatic transfer of funds is a standing banking arrangement whereby transfers from a customer's account are made on a regular, periodic basis. Another common use of these transfers is for overdraft protection, whereby funds are moved from a higher-interest-earning account to cover payments due in another account. Automatic transfers can be used to move money from one bank account to another one, like from a checking account to a savings account.

An automatic transfer of funds is a standing banking arrangement whereby transfers from a customer's account are made on a regular, periodic basis.

What Is an Automatic Transfer of Funds?

An automatic transfer of funds is a standing banking arrangement whereby transfers between a customer's two (or more) accounts are made on a regular, periodic basis under specified conditions. Automatic transfers are executed without further instruction or action by the customer; a common way that automatic transfers are executed is through "sweep" instructions, whereby all excess funds in one account are swept into another account. The automatic transfer of funds is one core offering of both commercial and online banks.

An automatic transfer of funds is a standing banking arrangement whereby transfers from a customer's account are made on a regular, periodic basis.
Automatic transfers can be used to move money from one bank account to another one, like from a checking account to a savings account.
Almost all brick-and-mortar banks and online banks offer automatic transfer services to their customers.

How an Automatic Transfer of Funds Works

Automatic transfers are often used for the regular movement of funds from a checking account to a savings account. Automatic transfers may be used to transfer money between the accounts of two spouses, or between a parent and a child. Setting up automatic transfers to pay bills is a useful budgeting tool because they can be used for periodic equal payments, such as for mortgages or other loan payments.

Another common use of these transfers is for overdraft protection, whereby funds are moved from a higher-interest-earning account to cover payments due in another account.

Corporations with multiple subsidiaries will sometimes make use of a zero-balance account (ZBA). A ZBA often arranges for the automatic transfer of funds because it is a checking account in which a balance of zero is maintained. When funds are needed in the ZBA, the exact amount of money required is moved to the account through an automatic transfer of funds from a central, or master, account. 

Corporations also may use a ZBA if its employees have company credit or debit cards because it allows for greater control in regards to the distribution of company funds (along with limiting excess balances). A ZBA account can help ensure that managers pre-approve all activity on company debit/credit cards. After approval, an automatic transfer of funds from a master account is initiated in amounts just large enough to cover the charges presented.

Special Considerations

Amongst online banks, cybersecurity has become especially critical in order to prevent making electronic information vulnerable to damage or theft. When information is transferred across networks, such as during an automatic transfer of funds, cyberattacks may occur.

Cyberattacks can occur in a range of forms, include backdoor attacks, in which a thief exploits an alternate method of accessing a system; denial-of-service attacks, which prevent a rightful user from accessing a system; and direct-access attacks, includes bugs and viruses, which gain access to a system and copy its information and/or modify the system.

Related terms:

Automatic Transfer Service (ATS)

An automatic transfer service (ATS) is a banking service that generally describes the overdraft protection for customer checking accounts. read more

Bank Wire

A bank wire is an electronic message system, which allows major banks to communicate various actions or occurrences regarding client accounts. read more

Budget : Corporate & Personal Budgets

A budget is an estimation of revenue and expenses over a specified future period of time and is usually compiled and re-evaluated on a periodic basis. read more

Checking Account

A checking account is a deposit account held at a financial institution that allows deposits and withdrawals. Checking accounts are very liquid and can be accessed using checks, automated teller machines, and electronic debits, among other methods. read more

Commercial Bank & Examples

A commercial bank is a financial institution that accepts deposits, offers checking and savings account services, and makes loans. read more

Home Banking

Home banking is the practice of conducting banking transactions from home rather than at branch locations and can include online banking. read more

Online Banking

Online banking allows a user to conduct financial transactions via the Internet. Online banking is also known as Internet banking or web banking. read more

Overdraft Protection

Overdraft protection is a fund transfer or loan that banks offer to customers to cover checks or debits larger than their account balances, so as to avoid nonsufficient funds fees. read more

Same-Day Funds

Same-day funds is a term for money that can be transferred or withdrawn the same day that it is deposited into the recipient's bank account. read more

Savings Account

A savings account is a deposit account held at a financial institution that provides principal security and a modest interest rate. read more