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The Journey of Money: Know Where It Goes!

When you pay for purchases by check, debit card, automatic payment, or Online Bill Payment, what really happens to your money and how long does it take for the payment to come out of your Millbury Savings Bank checking account? You may be surprised at how quickly funds travel in this age of technology!

Checks

How They Work

You write a check, present it to the merchant, and you’re on your way, right? Well, so is the check! First, the merchant deposits your check into their business account at their bank. That institution then sends your check to a Federal Reserve Bank (or “Fed”) for processing. The Fed then sends a deposit to your merchant’s bank so the money can be added to their account, and sends a withdrawal and your check to Millbury Savings so we can deduct the money from your account.

What You Should Know

Checks clear your account faster than ever before due to “check imaging,” a process made possible by Check 21 (short for Check Clearing for the 21st Century Act), a federal law signed in 2003. Instead of the actual paper check travelling from point to point as described above, an “image” or picture of your check is sent electronically. That means checks that used to take up to a week to route through the banking system now take just one or two days. In fact, lots of folks are surprised at how quickly all this happens. If you write checks even a day or two before your paycheck is due to be direct deposited, expecting the money to be there before the checks clear, you may be in for an unpleasant surprise.

Debit Cards

How They Work

Debit cards like Millbury Savings Bank’s Cash & Check Debit Card look like a credit card but work like a check, in that the money for the purchase is deducted directly from your account. Unlike checks, however, the money is either deducted immediately, or a “hold” is placed immediately on the corresponding amount (making it unavailable to you) and the money will be deducted a day or two later. This helps the merchant ensure there’s enough money in the account to cover the purchase.

What You Should Know

Some merchants, especially gas stations, hotels, and car rental companies, actually place a hold for more than the amount of the purchase to cover any incidentals (like food, beverage, or gasoline) or “accidentals” (like damage to the rental car or hotel room). If the hold’s still in place when other checks or debit card purchases come through and they total more than the available balance, you will be overdrawn. If you’re cutting it close with your account balance, always ask the merchant how large a hold they’ll be placing on your account and for how long.

Automatic Payments

How They Work

When you provide your checking account number to merchants to pay for a onetime or recurring expense (your gym membership or electric bill, for example), that payment is actually taken from your account electronically using a method called electronic funds transfer (EFT). Sometimes the merchant will ask you for a voided check or ask you to sign an authorization form that allows them to collect the amount of the payment or bill on the specified date.

What You Should Know

Giving your checking account number and the authorization to take money from your account involves some risk. That’s because once you have provided the authorization, the merchant can access your account without any further action by you, unless you ask them to end the arrangement. Further, some merchants require a certain number of days of prior written notice before discontinuing automatic payments.

Online Bill Payment

How It Works

Using an application like Millbury Savings Bank’s free Online Bill Payment is simply another way to initiate an automatic payment. But this time, instead of giving your account number to the merchant, you tell Millbury Savings to pay the one-time or recurring expense from your account. We, in turn, make the payment, usually via electronic funds transfer, on the date you specify.

What You Should Know

Using Online Bill Payment through your bank is usually less risky than setting up automatic payments with the merchant, because it allows you — not the merchant — to initiate the payments from your account. Another interesting fact: While Online Bill Payment is one of the modern-day wonders, it’s also, to a small degree, “smoke and mirrors.” That’s because, while many merchants can accept electronic funds transfers, those who can’t actually receive a paper check from your bank. The only difference: You didn’t have to write it!

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