DEFINITION of 'Automatic Transfer of Funds'

An automatic transfer of funds is a standing banking arrangement whereby transfers from a customer's account are made on a regular, periodic basis without further instruction or action by the customer. A common automatic transfer of funds are through "sweep" instructions, whereby all excess funds in one account are swept into another account. Corporations with multiple subsidiaries generally use this zero-balance account.

BREAKING DOWN 'Automatic Transfer of Funds'

Automatic transfers are often used for the regular movement of funds from a checking account to a savings account, or from the account of one spouse to another or to a child. Another common use of these transfers is for overdraft protection, whereby funds are moved from a higher-interest-earning account to cover payments due in another account.

Automatic transfers may also be used for periodic equal payments, such as for mortgages or other loan payments.

Automatic Transfer of Funds and Zero Balance Account

As mentioned above, corporations with multiple subsidiaries will often make use of a zero-balance account. Using a zero balance account can help ensure managers pre-approve the activity on company debit cards. This can automatically occur via the transfer of funds from a master account in amounts just large enough to cover checks presented. A zero-balance account also allows for greater control on the distribution of company funds, along with limiting excess balances.

Automatic Transfer of Funds and Online Banking

Automatic transfer of funds is one core offerings of both commercial and online banks. (Many operate together, as is the case with the online branch of a major commercial bank like T.D. Bank) Most online banks incorporate the basic commercial banking services, such as deposits into checking accounts or savings accounts, withdrawals from both accounts, transferring funds among accounts, and balance checking. For other products, such as money market accounts and certificates of deposit (CDs), customers generally have to visit a physical commercial branch location.

Cybersecurity among many online banks has become critical in order to prevent making electronic information vulnerable to damage or theft. Cyberattacks may occur when information is transferred across networks as during an automatic transfer of funds. Types of attacks include backdoor attacks, in which a thief exploits an alternate method of accessing a system; denial-of-service attacks, which prevent a rightful user from accessing a system; and direct-access attacks, includes bugs and viruses, which gain access to a system and copy its information and/or modify the system.

  1. Transfer Procedures

    Transfer procedures are the means by which ownership of a stock ...
  2. Current Transfers

    Current transfers are current account transaction in which a ...
  3. Balance Transfer Fee

    A balance transfer fee is an expense charged in return for the ...
  4. Automatic Investment Plan - AIP

    An automatic investment plan is an investment program that allows ...
  5. Wire Transfer

    A wire transfer is an electronic transfer of funds across a network ...
  6. Checking Account

    A checking account is a deposit account at a financial institution ...
Related Articles
  1. Personal Finance

    8 Low-Cost Ways To Transfer Money

    If cost is your primary concern, there are several cheap(er) ways to move funds.
  2. Investing

    5 Money Transfer Tips For Foreign Workers

    If you are working in the U.S. as a foreign worker, here are some tips for sending money back home.
  3. Personal Finance

    Handling High-Yield Savings Accounts

    Is a high-yield savings account right for you? Read on to find out what they have to offer.
  4. Managing Wealth

    Should You Pay Your Bills On Autopilot?

    Now that you can sign up to have your bills paid automatically online, it it a smart way to make your life more efficient? A look at the pros and cons.
  5. IPF - Banking

    These Savings Accounts Have the Highest Interest Rates

    Don't expect interest from a bank savings account to make you rich. You can do better, however, than the paltry 0.08% average paid in 2015.
  6. Small Business

    Best Checking Accounts For Small Businesses

    What you need to know to choose the best checking account for your small business – and where to look.
  7. Small Business

    Moneygram vs. PayPal vs. Xoom: Who Has the Lowest Fees?

    Learn about the different fees associated with leading transfer services PayPal, MoneyGram, and Xoom and the types of services that each company provides.
  8. Personal Finance

    10 Bank Promotions That Pay You to Open an Account

    Find out which banks are running cash promotions and will pay you just for opening a new account.
  9. Managing Wealth

    Review: Discover Checking Account

    Will having a Discover checking account save you money? It will save you fees.
Trading Center