When you want to send some money to another bank account, it’s often just a case of making the request with your banking provider over the phone, through online banking or via your mobile banking app. Unless you work within the banking industry, you may not be familiar with all the different ways you can actually send a bank transfer.
For a long time, BACS and CHAPS were the only two options available for sending money. One was more expensive but much faster, while the other cost less but took longer. However, nowadays we also have another option: Faster Payments.
In this blog post, we take a closer look at the three different methods of payment and whether Faster Payments spell the end for BACS and CHAPS.
What are CHAPS Payments?
Clearing House Automated Payment System, more commonly known as CHAPS, has been used as a way of sending payments since 1984.
It’s possible to use CHAPS for any type of transaction in the UK, including for high-value payments. There is no minimum amount needed to send a CHAPS payment but it’s typically only used for large sums of money, such as a deposit for a house. This is because it’s an expensive transaction to process.
Payments for house purchases and other sums of money in excess of £10,000, are usually sent by CHAPS. Any payment which is high value and time-sensitive is ideal for sending via CHAPS, as there’s a guarantee that it will arrive securely and quickly, making the processing fee worthwhile.
What are BACS Payments?
Banker’s Automated Clearing System, or BACS, is the oldest type of money transfer system currently in operation, having been in use for over five decades.
BACS payments can handle large sums of money too, and for businesses or retailers, this could be as much as £20m per transaction. However, unlike CHAPS they take a couple of days to arrive in the recipient’s bank account.
BACS are primarily used for routine payments which are being planned in advance, such as salary payments from your employer. This means that the delay is less of an issue as it can be scheduled and sent in time for it to arrive on the date required. As you might expect, BACS are much cheaper to process than a payment made through CHAPS.
What are Faster Payments?
Faster Payments are the newest type of money transfer system and only launched in 2008. Drawing on the latest innovations, the system was created to bypass the delays caused by BACS and the high costs associated with CHAPS. In 2019 alone, there were over 2.4 billion transactions completed worth £1.4 trillion via the Faster Payments service.
Faster Payments offers the best of both worlds, only costing marginally more than a BACS payment to process but providing a rapid result – typically arriving within either minutes or hours. Any banking account which is capable of receiving a BACS payment will also be suitable for receiving a Faster Payment too.
Do We Still Need CHAPS and BACS Payments?
There’s no question, that for many situations, Faster Payments offer a faster and cheaper solution. However, there are limitations, which is where BACS and CHAPS payments may still be required.
Depending on your banking provider, there is a limit in play on any Faster Payment; this can be anything from £10,000 to £100,000. However, the faster payments limit is changing to £5,000 effective 24th May 2022. In theory, up to £250,000 can be sent, but few banks offer such a high limit.
For larger value transactions, this means that Faster Payments aren’t always possible. The process can also be much more complicated than sending payment via another means, for example, card readers are frequently required to complete the process.
While it’s clear that Faster Payments offer more flexibility and have replaced BACS and CHAPS in many ways, it’s not a one-size-fits-all solution and won’t always provide the answer when looking to transfer money. For this reason, BACS and CHAPS will still continue to be used, albeit in much more reduced capacity than before.
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