Automatic Transfer of Funds: How to Move Money Between Accounts

What Is an Automatic Transfer of Funds?

An automatic transfer of funds is a banking arrangement where transfers occur between your two (or more) accounts on a regular, periodic basis without your further instruction or action. The automatic transfer of funds is one core offering of commercial and online banks.

How an Automatic Transfer of Funds Works

Typically, customers set up transfers from one financial account to another in advance. These payments can be scheduled to occur automatically. You can set up regular intervals for these automatic transfers, such as once a week, twice a month, or every three months or more.

After the transfer, funds are debited from the first account and credited to the second account. These debit and credit events may not happen on the scheduled day, depending on the automatic transfer's time. For example, a transfer scheduled on a holiday or the weekend will likely occur the prior or following business day.

Transfers may feature several limits, such as:

• A cash amount limit per day or person
• Time of day limit
• Cancellation limits
• Limits on account types
  

Another way to set up an automatic transfer is to give a company permission to take payments from your bank account. Federal law allows you to revoke this permission, but doing so may take several steps and plenty of advance notice.

Types of Automatic Fund Transfers

Bill Payment

Setting up automatic transfers to pay bills is a useful strategy for budgeting. Automatic transfers can be used for periodic equal payments, such as for mortgages or other loan payments. They can also help you repay credit card debt without missing a payment and potentially paying late fees.

Automatic Savings

Automatic transfers are often used for the regular movement of funds from a checking account to a savings account. Through this method, you can build an emergency fund or build savings for other purposes, such as a major expense like a vacation or new appliance.

Retirement and College Contributions

By connecting your bank account to your retirement account, you can set up automatic transfers to build retirement or college accounts. For example, you could make once-monthly contributions to a 529 plan or an IRA.

Moving Money Between People

Automatic transfers may be used to transfer money between two accounts, such as between two spouses, friends, or a parent and a child. For example, a parent or guardian can set up an automatic funds transfer to pay a child's weekly allowance.

How to Set Up an Automatic Transfer of Funds

Setting up an automatic transfer of funds from your bank account will vary at each institution. But in general, here's how it works.

1. Log into your online bank or financial institution account. Look for a button or tab indicating how to pay or transfer funds.
2. Choose the account you want to transfer money from and the one to which you wish to transfer money.
3. Enter the amount you want to transfer.
4. Next, schedule an automatic, recurring payment. This may require entering dates, choosing dates from a calendar, or entering an interval, such as every two weeks.
5. Receive confirmation of the pending funds transfer and review the confirmation for accuracy.
6. Ensure the funds transfer as you wish through logging in or an automatic notification.

The Bottom Line

An automatic transfer of funds can be a convenient way to manage your money. Using this method, you can establish transfers that automatically pay bills, build savings and retirement accounts, or send an allowance to a child, among many other uses. However, ensure you always have enough funds your the account to cover any withdrawals.