What Is E-checking? Why E-checks Matter
When’s the last time you stood in line at a grocery store and saw someone pull out a paper check to pay? Paper check payments have been dropping steadily in number in the United States, falling 7.2% each year by value from 2015-2018, the Federal Reserve reported.
However, that doesn’t mean that checking accounts are going away. An appealing alternative to many is an e-checking account, which allows an account holder to pay electronically, either through money transfers or debit card payments. In 2018, payments from debit cards surpassed paper checks in amounts, the Federal Reserve study showed.
Government agencies such as the Social Security Administration are now paying all federal benefits electronically.
What Is an E-checking Account?
Traditionally, banks had savings accounts and checking accounts. Think of an e-checking account as a regular checking account, but without paper checks. Payments are made through the “Automated Clearing House” network or ACH network, which is used by most U.S. financial institutions.
How Does an E-Check Work?
Instead of writing a check, a payer uses either a debit card or fills out a form — including the routing number and account number — to allow the transfer of funds electronically. When the payer clicks “submit” on the form, the payment is authorized.
The payment is transferred when the funds in the payer’s account are verified, which can take 3-5 business days but often takes less. That’s still faster than payments with paper checks.
Financial institutions often have mobile apps to allow easy payments, making this even more popular. People are on their mobile phones up to four hours a day, CNN reported, and one in four smartphone users reported using mobile wallet payment methods, Govtech.com reported.
What Are the Advantages of Using E-checking?
Some people might be leery of sending payments online, but these payments are regulated, and you’re not handing over a piece of paper with your name, address and bank account number. In many ways, it’s more secure than a traditional paper check.
The payments happen faster than with paper checks, which is a bonus for both parties in a transaction. Payees are certainly happy to have money arrive faster.
ACH processing also can reduce processing costs by up to 60%, according to QuickBooks.
E-checking accounts are better for the environment as well, with less paper used, and therefore fewer trees!
Financial institutions like e-checking accounts, too. They cost less to administer – much less to process – and are faster. Banks such as U.S. Bank offer e-checking for free, as opposed to charging for checking accounts.
Are There Any Disadvantages?
It’s much harder to give an e-check as a gift – you can’t stuff one in an envelope and leave it under the Christmas tree. But be creative and include the amount in the envelope, and then simply transfer the money on the next business day. Remember, e-checks are processed by financial institutions, so they won’t operate on Federal holidays.
Some also might consider the faster processing times as a negative, if you’re writing a check for more than you have in your account. Banks will still charge fees for e-checks that overdraw an account, as Wells Fargo reported.
E-Checking FAQHere are the answers to some of the most frequently asked questions about e-checking accounts.
- Can I cancel an e-check?
- If the payment has already been processed, then you can't cancel it. If the payment hasn't been processed yet, reach out to your financial institution.
- Do e-checks cost money?
- Institutions will charge a small processing fee to merchants, usually between $0.30 and $1.50. QuickBooks charges 1%, up to a maximum of $10. But e-checks are usually free to payers.
- What is e-check processing?
- When you submit a transaction through an e-check, it goes through the Automated Clearing House network to be processed.
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- Board of Govenors of the Federal Reserve System. "The Fed - The 2019 Federal Reserve Payments Study."
- Bureau of the Fiscal Service. "Direct Deposit (Electronic Funds Transfer)."
- Bureau of the Fiscal Service. "Automated Clearing House"
- CNN. 2020. "It's OK if you've used your phone too much this year."
- QuickBooks. "Process ACH Payments | Pay with eChecks in QuickBooks."