Paycheck Chronicles

Myth: Banks Are Holding Your Money


A recent comment reminded me to verify some information regarding direct deposit of pay:

all the banks and credit unions that post the pay on the actual payday is making money on YOUR money! my ssi payment (disability) was posted today instead of may 30, so if i was using a bank and or credit union that posted on payday they would collect interest on MY money without my knowledge and permission! this making money on the consumers money like this should be illegal!!
While the commenter's concern for all of us is kind, the comment isn't accurate.  This is a misconception that I have heard repeatedly from a wide variety of different people.  The reality is that the paying institution (the Defense Finance and Accounting Service, for military pay), transfers the pay money on the actual payday.  It is true that they provide the banks and credit unions with a transcript of what they are going to get prior to the payday, but the money doesn't move until payday.  (Just like you get a Leave and Earnings Statement before payday, but you don't get paid until payday.)

USAA has an explanation of this on the USAA Direct Deposit Pay and Military Pay FAQs webpage:

I saw on the DFAS MyPay site that DFAS released my pay several days before it showed up in my USAA bank account.  Is USAA holding my funds?

No. USAA Bank provides members with DFAS direct deposit funds one day before DFAS sends the funds to USAA.

The date you see on the MyPay site is the date DFAS sends a notification to USAA Bank about a future deposit. The actual funds are not transferred to USAA Bank until the official pay date.

More details on the DFAS direct deposit process ...

  • Step 1 — Notifications: Several days prior to a military payday, DFAS sends notifications to financial institutions about deposits that are coming on the next payday. The notifications are sent over several days, and they include the deposit amount for each account holder.
  • Step 2 — Payment: On the actual military payday, DFAS releases the funds to financial institutions. To learn more about DFAS pay processes and procedures, visit the Defense Finance and Accounting Service website.
When banks and credit unions offer early direct deposit as a benefit to their customers, they are actually losing a smidge of interest on that money because they are paying it before they have it.  It doesn't add up to a huge amount because very few of us rush in and withdraw our entire deposit on the day it is credited.

Just so you know...

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