Working for a financial institution, I’ve been able to see the benefits of online banking from a first-hand perspective. By cutting the costs associated with retail transactions in more than half, online banking provides some amazing opportunities for expanding the kinds of services that a customer can handle for themselves. However, just because the bank is now providing you with all sorts of complex financial transactions that you can now execute on your own, doesn’t mean you should jump in head-first without first brushing up on your bank-speak.
Remember, with complex transactions, come complex fees. Here’s a list of the three biggest transactions that I see as being the most expensive mistakes that clients make in their daily online banking. By the end of this article, you’ll have the skills to know where to look before you leap in your online bill payments window.
Stop Payments
When a client writes a cheque, and then sees the need to cancel that cheque before it clears, they need to issue a stop order. While the customer can have any reason for the cancellation, the important thing to understand this transaction pertains to when you can successfully implement the order. Regardless, if you’re going to shell out as much as $25/cheque (regardless of whether or not you successfully stop the payment), it’s worth your time to do it right.
When a cheque is written, before it can be cashed, the date on the cheque must be ‘valid’. If the date of the cheque is post-dated, you can successfully stop the payment. If the date is valid, and the recipient deposits the cheque at the bank, it has still not cleared, and can therefore still be successfully stopped. Upon being received by the bank, it takes about 2 days to reach the clearing corporation.
At any time before this 2 day period, you can successfully execute a stop payment. However, if you try to implement a stop order at any time after this period, you will be charged for the transaction, and have no service provided. Your best bet after that clearing date is instead to meet with the cheque recipient and make a request that the funds be returns.
Stop EFT and Direct Debit
When an Electronic Funds Transfer (EFT) is sent, it clears instantly, and you receive a record of payment right away. It is by far the most efficient way of handling a transaction, especially when you start looking at the benefits of automating monthly payments. However, a stop order on an EFT is an extremely frustrating transaction that many of our clients encounter regularly. Specifically, the impossible-nature of the transaction can prove to be extremely confusing. Allow me to explain.
If a client has scheduled in a series of regular (let’s say monthly) payments. However, during one period, they choose to instead pay for the service in cash. A client can proceed to place a Stop EFT order into their online banking profile to prevent the period’s transaction from completing. While this may seem like a somewhat trivial order, especially when the client will likely be charged a fee of anywhere between $7-12 per item, it is important to understand how it is that the benefits of the cash transaction may outweigh the costs.
No, I’m not insinuating that the hypothetical client is dodging taxes, I’m simply describing a fundamental issue of capital costing. Now that we understand the benefits of this sort of scenario, let’s examine a situation where a customer may wind up on the wrong end of those fees.
When sending a Stop EFT order, it is important to remember that the transaction is not retroactive. There is no flexibility like there is in a Stop Payment. As soon as the payment clears, which is instantaneously with an EFT, the bank no longer has your money, and is therefore unable to stop it. However, because the client has already sent in an order for the transaction, they’ve incurred the charge without the service. It’s a losing situation.
Trace Orders
The final transaction that I see regularly confusing online patrons is the Trace order. When a bank issues a trace, it is digging up information for you to prove that a payment has gone through to a recipient. This transaction comes in handy when a pesky phone or utilities company double bills you, or claims that they never received a payment from you. The bank contacts the company in question, and creates a document that proves how and when the transaction occurred.
The two biggest issues associated with trace orders come down to frivolity and timeliness. In the former situation, a client has most likely misinterpreted what is required of them in a situation. They will be charged a whopping $40-60 on the transaction, to create a document that won’t remedy their problems. A trace is only useful to you if you need proof of a transaction, or a formal record of its occurrence. In the latter situation, the client has misinterpreted the complexity of the task at hand.
Specifically, a Trace Order can take as long as 90 days to complete, depending on the willingness of the company in question to cooperate with the bank (in my experience, this sort of cooperating is fairly limited). While the bank will usually be able to get the required information from the company in question, a 90 day period is an extremely dangerous length of time for a consumer to wait, especially in situations where daily compounding interest is involved. Again coupled with the large cost associated with the transaction, this should be considered as a very large undertaking to consider.
As an added bonus, I’d like to add an extremely non-financial solution that I’ve personally come across as an alternative to these products. In my personal experience, buying the recipient of an erroneous payment a cup of coffee is almost always more cost effective of retrieving funds accidentally displaced.
