3 Lessons Learned From a Botched Money Transfer

We talked about the right way to transfer money in the previous post ACH Push or Pull. I read this story of a botched money transfer related to using Fidelity as a checking or savings account. I’m not linking to it because I don’t want to shame anyone for making a mistake. Let’s see what lessons we can learn from this case study of a transfer gone awry.

I had over $6,000 in a money market fund in my Fidelity Cash Management Account one day. I transferred an additional $20,000 from another institution to that account.

Once the money arrived at Fidelity, it was available to invest as always but not to withdraw (the holding period was 7 days). Fair enough. I then invested it in the same money market fund.

Then I decided to move the money to my other Fidelity brokerage account to keep it (away) from my checking needs. So I called a rep who did that (or so I thought!). I’m now supposed to have $6,000 in my Cash Management Account as if nothing happened, but no, when the rep moved the $20k and because of the holding period, the system used first the $6,000 already cleared. Anyway, I didn’t notice that whole mess and bounced some credit card payments.

Use Push

Most problems in transferring money are caused by initiating the transfer at the wrong place. If you remember only one thing from the previous post ACH Push or Pull: The Right Way to Transfer Money, it’s that you should use a push when you have a choice. There are exceptions but in general your first choice should be a push. In other words, initiate the transfer at the origin where the money currently resides, not at the intended destination. Push the money out. Don’t pull it in.

If the first transfer in this story had been initiated at the other institution (a push to Fidelity), all the subsequent problems wouldn’t have happened. Money received from a push has no hold. It’s fine to invest it or transfer it again to another account.

Go Direct

When people travel by air, most people prefer a direct flight. It takes less time. Having fewer stops means fewer things can go wrong.

The same principle applies to transferring money. If it’s intended to be kept away from checking needs, transfer it directly to the final destination. Don’t create hops.

Even a pull directly into the brokerage account would’ve worked in the story. The Cash Management Account used as a checking account wouldn’t have been affected if the money had been pulled directly into the brokerage account. Credit card payments from the checking account wouldn’t have bounced.

The money pulled into the brokerage account would’ve still had a hold but it could be invested immediately. The hold wouldn’t have been noticed because withdrawals weren’t taken out of the brokerage account.

Let It Age

If a money transfer landed in the wrong account by mistake, don’t exacerbate the mistake by making a back-to-back transfer. Slow down. Let it age. It makes no difference which account the money is in after it’s already invested. Just wait and let everything settle.

Besides fund availability problems, frequent back-to-back transfers in large amounts can trigger anti-money laundering flags. Some banks and credit unions restrict or close accounts when they see an account is used as a “hub” with fast in-and-out transfers. This goes hand-in-hand with “Go Direct.” If money needs to go from A to B, don’t make an interim stop at C.

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The transfer in the story went poorly because it took the most problematic path. These would’ve been better ways to make the transfer in question in the order of preference:

1. A push directly to the brokerage account.
2. A push into the Cash Management Account followed by an internal transfer to the brokerage account.
3. A pull directly into the brokerage account.
4. A pull into the Cash Management Account. Transfer to the brokerage account only after it’s reflected in the “available to withdraw” balance.