Okay, so why does banking "float" still exist?

This is something I wonder about all the time. I recently had to close my account with a “online” bank because electronic transfers to that bank (the only way to deposit money) from an existing bank took 2 business days, which means up to five actual days. What the hell is going on in those two days? Seems to be a universal standard, but I can’t figure out the benefit since the slowdown must affect each bank equally going in and out.


Prompted by: http://www.straightdope.com/columns/read/721/why-are-rebate-checks-drawn-on-obscure-banks-in-the-middle-of-nowhere – CKDH

Maybe because banks make money off of overdraft penalties?

Which column is this in reference to?

This is the article from today’s email that got me on the subject (and from which I clicked “Comment on this Answer”, but I suppose it really is only tangentially related.

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Banks use the float as loanable money - they can and do give very short-term loans (i.e. a day or two) which they then receive interest on. Profit!

So you are essentially letting the banking system use your money for a few days. But consider this: if they didn’t have this means to raise money they’d have to find some other way to do so, like increased fees or questionable financial products. It’s the price of doing business.

MODERATOR COMMENT:
Yeah, it’s tangential, but it’s sort of vaguely related, so I’m leaving it here.

I can’t figure out why it takes several days going from bank to Paypal if I am “adding funds,” but it does.

Yet Paypal can transfer the same amount from the same source to the same destination (bank to Paypal) in seconds if I buy something. If you justify the delay due to float for one case, why is it ignored for the other?

The new giant float the banks are getting if from on line bill pay. If I send the gas company a check for $200, the money stays in my bank while the check is in the mail, at the gas company and on its way back to my bank. If I use bill pay, the money leaves my account immediately and the bank keeps the funds until while the check goes to the gas company and back. I save the cost of a stamp, however.

There’s float in that case, too. Just not on your end. :smiley:

What float is there if the transfer is instant? 30 milliseconds?