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Last Updated: Saturday, 21 June, 2003, 13:59 GMT 14:59 UK
The Clearing Cycle
Money Box explains the bank clearing system in the UK.

Bank customers in the UK moved more than 25bn by phone and internet in 2002. This money is handled by the Association for Payment Clearing Services, APACS, which is owned by 39 major banks and building societies.

It sends phone and internet payments through a 36-year-old system called BACS - the same process used for 50bn of standing orders.

And BACS is based on the traditional clearing cycle used for cheques - even though nothing physical changes hands. So it still takes a minimum of three working days - and frequently longer - for money to be moved by standing order, internet or telephone. The

Office of Fair Trading recently estimated the banks make 35 million a year in interest from the delay.

The payment leaves the customers bank on day one and should arrive in the recipient's account on day three.

Disappointing results

For two nights the money is held by the bank as part of its float which is invested on the money market earning interest at the Sterling overnight Libor rate - currently 3.98%. In practice the money is there for longer because the banks stretch the three day cycle.

First, they only move money on weekdays. On average, that adds around one day to the cycle. Second, the banks hang onto the money after it has arrived before making it available to customers.

Research by Consumer's Association found recently that seven banks and building societies took four days to make telephone and internet transfers. They included the specialist internet banks cahoot and Intelligent Finance.

A spokeswoman for IF, which is owned by Bank of Scotland, admitted it took the extra day "our banking run is done at midnight so the money goes in at midnight which is the next day."

Worst of all was Alliance & Leicester which routinely took five days. A spokesman said the results were "disappointing. We are carrying out a review to see how we can speed up the process."

Cheque clearance times are even slower with some building societies taking nine working days.

Money Box



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