Transfer Limits: Reducing Risk at the Expense of Convenience

To fund a study we're conducting in our brokerage research, we recently attempted an online transfer of $5,000 from a Citibank account to a linked Charles Schwab account. We had done this before without any problem, and were surprised to note that Citibank recently reduced the daily limit for outgoing inter-institution transfers (IITs) from $5,000 to $2,000.In light of the change at Citibank, we decided to look into the daily outgoing transfer limits at the nine other Bank Monitor firms we track that offer IITs. KeyBank and Wachovia also feature daily limits of $2,000 - the lowest ceiling of any of the firms in our coverage group. Other firms offer much higher limits, such as E*TRADE Bank and HSBC that permit daily outgoing transfers totaling $100,000. Perhaps not surprising given their model, ING Direct has no limit at all.

Although Citibank reduced its outgoing transfer limit, the service itself is free of charge. Similarly, five other firms offer a free IIT service including E*TRADE, HSBC, ING, KeyBank, and WaMu. The standard cost among other firms (Bank of America, Chase, and Wachovia) is $3 for standard delivery of usually three-day processing, while there is a $10 fee for next day delivery.

However, customers looking to transfer relatively large chunks of cash (say $10,000) might be hamstrung by low transfer limits and find themselves forced into executing more expensive wire transfers or inconvenient branch withdrawals. Firms with higher transfer limits (or no limits) increase flexibility for their customers and make a more user-friendly product.

At the same time, there are relatively few customers that will have the desire or means to transfer $100,000 in a day to another financial institution, so such a high limit might not make sense for every firm. A bit of research into your customers' average daily balances and average transfer requests could help provide suitable transfer limit guidelines. Chase, for example, offers a higher external transfer limit for its preferred clients, while clients with a standard bank account are provided a limit of $10,000 per transaction.

Certainly, there are security benefits to lower transfer limits: Firms with lower transfer limits are liable for less money in the event of fraudulent account access. Still, there are other ways of securing external transfer functions beyond low transfer limit. Firms can require a secondary password for external transfers, or can send an automatic security alert when a new transfer is scheduled. Wachovia, for example, requires customers to answer a series of personal questions through its Wachovia Security Plus feature before allowing customers to make an external outgoing transfer.

The IIT service is an important aspect of the online banking experience. Banks - particularly those with little or no branch presence - need to offer flexible online banking platforms that can accommodate a broad range of customer needs.