Automatic Transfer Service

Key Takeaways

• An automatic transfer service (ATS) provides automatic fund transfers between a customer's accounts to manage balances and avoid overdraft fees.
• ATS is commonly used for overdraft protection, moving funds from a savings account to a checking account when funds are low.
• Initiating an ATS requires a proactive request by the customer to enable overdraft protection and avoid unnecessary fees.
• Savings and mutual savings banks introduced ATS in the 1970s to compete with traditional commercial banks.
• ATS contributions are part of national money supply metrics, according to the U.S. Federal Reserve.
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What Is an Automatic Transfer Service (ATS)?

An automatic transfer service (ATS) is a banking service, in both a generic and specific sense, offered to customers. On a general level, it can signify any automatic transfer of funds among customer accounts. For example, bankers many use an ATS during a transitional transfer from a checking account to pay off a bank loan, and/or a monthly transfer from a checking account to a savings account.

More specifically, an automatic transfer service describes the overdraft protection that a bank provides when it transfers funds from a customer's savings account to his or her checking account, at times when insufficient funds exist to cover unpaid checks and/or maintain a minimum balance.

Ordinarily, a bank will transfer the exact amount of funds required to cover unpaid checks. Customers may thus avoid any overdraft fees, along with the hassle associated with returned checks. Usually, a customer will need to proactively request to turn on overdraft protection on his or her account to make sure no fees are charged.

Understanding How Automatic Transfer Services Operate

Savings and loans and mutual savings banks first introduced ATS accounts in the 1970s in order to compete with traditional commercial banks. According to the U.S. Federal Reserve (the Fed), ATS offerings count toward the nation’s money supply (the full stock of currency and other liquid instruments, circulating in the U.S. economy at a given time). The M1 metric for money supply also includes travelers' checks, demand deposits, and other checkable deposits, such as negotiable order of withdrawal (NOW) accounts and credit union share drafts.

Given the low rates of interest that checking accounts pay, these arrangements are the norm rather than the exception. This is particularly the case with checking accounts at brokerage firms. Generally, individuals and sole proprietors are eligible for automatic transfer accounts, while organizations, units of government, and other entities are not eligible.

Exploring Checking Account Features

Many traditional financial institutions offer checking accounts, allowing customer withdrawals and deposits. Checking accounts differ from savings accounts in that checking accounts generally offer unlimited withdrawals and deposits, while savings accounts limit these. Checking accounts can be open to commercial or business accounts, student accounts, and joint accounts, along with many other types of accounts that offer similar features.

Checking accounts are very liquid. Customers can access their accounts, using checks, automated teller machines (ATMs), and electronic debits, among other methods. In exchange for this liquidity, checking accounts usually will not offer a high-interest rate; however, if a chartered banking institution holds this account, the Federal Deposit Insurance Corporation (FDIC) can guarantee funds by up to $250,000 per individual depositor, per insured bank.

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