A book transfer is the transfer of funds from one deposit account to another at the same financial institution. Book transfers are a way to eliminate check clearing float. Unlike with interbank transfers, these intrabank transfers require little or no wait time.
Breaking Down a Book Transfer
As stated above, book transfers are a means of eliminating check clearing float or the time between when an entity deposits a check, and the institution clears it. For example, if someone deposits a check today, a period of days or weeks might lapse before the check completing payment. This lapse enables the paying bank to earn some extra interest on those funds.
Book transfers are generally between deposit accounts, which can encompass savings accounts, checking accounts, and money market accounts. In any deposit account, the account holder has the right to withdraw deposited funds. A governing account agreement will spell out these terms in detail.
For example, in a current deposit account or demand account, an individual may deposit money, which he or she can withdraw as desired on-demand, using bank cards, checks, or over-the-counter withdrawal slips. In some cases, banks may waive certain service fees if the account holder meets specific requirements, such as setting up direct deposit or making a fixed number of monthly transfers to a savings account.
Book Transfers and Additional Ways Commercial Banks Make Money
Fees on book transfers are one of the numerous ways that commercial banks make money. In contrast with an investment bank, a commercial bank accepts deposits and offers checking account services, in addition to extending loans to small business and individuals. Commercial banks may also provide basic financial products, like certificates of deposit (CDs) and savings accounts.
Commercial banks generate revenue by providing loans and earning interest income. Net interest income is the spread between the interest the commercial bank pays on deposits and the interest it earns on mortgage, auto, small business, and other loans.
Another means of commercial banks' making money often entails small fees on banking services, such as book and wire transfers.
Book Transfers Versus Wire Transfers
Slightly more complicated than a book transfer, a wire transfer is an electronic transfer of funds across a network, administered by hundreds of banks around the world. Wire transfers allow individuals or entities to send funds to other individuals or entities, while still maintaining efficiency. U.S. law considers wire transfers to be remittance transfers.
In summary, a wire transfer entails no physical money exchange; instead, banking institutions pass information regarding the recipient, her bank account number, and how much money she is receiving. Occasionally, non-bank wire transfers do not require bank account numbers.