Where does the money go to in between banks?

[Mike C]

Can anyone tell me where the money goes to during inter-bank transfers.

I transfer money from my bank, and it is taken off my bank balance - but it takes a whole day (and sometimes longer) to show in the beneficiaries bank balance. Where does that money go to for the waiting period and what kind of interest must all those multi-millions be making?

[Nickolai Naydenov]

I'm no expert on this but I can trll you that only a small fraction of the bank's business is cash, that means that they deal with virtual money all the time so I personally wouldn't assume that they are making interest on one day transfers, I would assume that it takes time for their inter-bank systems to update and it's more of a security option than anything else. And then again I could be completely wrong in what I'm saying here, I must say that this is no concern to me, I would rather look at exorbitant bank charges and monopolistic banking business practice

[adrianh]

I suspect that the money is shifted from the individuals account into a holding account allocated to the other institution. I suspect that all the institutions do this. At some point, be it during the evening (or 1 every 2 days or whatever), all the institutions balance up their books and shift the difference to one another. I think that the money earns interest within these accounts at all times.

[Citizen X]

The earning of interest theory is worrying as it suggests that they make money on your transfer, you with xyz bank, on a Monday you transfer x amount to abc bank. It only reflects in account holder s's account at abc bank on Wednesday. So for one full day interst is earned?

[adrianh]

I asked my brother this question this afternoon (He was the MD of Bank Windhoek for 5 years). He said that the the bank doing the transfer calulates the date value of the money (i.e. the exact value of the money at the time the transfer is initiated). In the case of Namibia the banks square up their positions 4 times per day (they are heading to do it in real time). The positions are squared at date value. He says that the bank DOES NOT take interest on these transactions and that the interest will lie in either of the transacting accounts. It is different with cheques. Cheques are date valued at the point where the cheque is presented to the other institution (not at the date that it clears). We need to understand that banks deal with inter bank transfer of millions and 100's of millions and that both both parties have a tremendous stake in the interest accumulated. Those figures are reconciled very closely by both parties.

I'll tell you this much, bankers are not stupid people, though it might look that way from the outside looking in. We also need to realize that national banking laws is very strict. Yes, they make a lot of money from us, and yes they screw us over, but they sure aren't stupid. A BCOM LLB, CA, a MBA and 30 years experience in banking sure leaves me in awe of his knowledge, not only in banking but in all sorts of other things.

[Mike C]

Thanks Adrian - I never ever thought that bankers were stupid, and found it interesting to hear what happens to these apparently "absent" funds.

I have often regarded the institution as greedy - and they certainly have us by the short and curlies. Is it even possible to live in today's world without a bank account. Is it even legal to NOT have one?

[adrianh]

Mike - I suppose it would be difficult to live without a bank account. Yes you are right, they have us by the nuts and they know how to suck us dry. They make money out of the fact that we do not know how money works in real life. We are too happy to lend money at horrendous interest rates and admin fees. But you must also keep in mind that we are conditioned into paying exorbitant prices for new cars every four years, TV sets, Ipads and all sorts of other trinkets that we don't need. So the question is this: are they sucking us dry or are we letting them suck us dry through our lack of financial education...