What is the difference between a direct debit and a wire transfer?
In light of this, we would like to take a closer look at the differences between the various deposit options and highlight the advantages and disadvantages in this article.
A deposit at Ginmon can be made both by direct debit and bank transfer. The distinction is mainly due to the way in which the monetary transaction takes place between the payer and payee. In this case, it would be the transaction between the reference account and the client’s clearing account managed by Ginmon. Depositing via wire transfer requires active intervention from the customer, who must initiate the transfer himself. It is important that the customer has the necessary bank information at hand, such as the IBAN of the clearing account. So a wire transfer means more work for the customer. In return, however, the account holder has full control over the payment.
In contrast to a wire transfer, the reference account holder only indirectly intervenes in the money transaction when making a deposit with a direct debit. Instead of making the payment itself, a third party is commissioned to debit the money from the reference account. This third party is the custodian bank, which holds the securities in safe custody and where the associated clearing account is also located, to which the amount of money is to be transferred. The debit of the deposit is therefore made by the payee, i.e. the custodian bank on behalf of the customer and not by the customer itself.
What are the benefits and drawbacks of the different deposit options?
With the transfer, the reference account holder determines the time and amount of money when executing the deposit. This provides the payer with some flexibility and control over the manner in which the money is transacted to the clearing account.
- In addition, the money transfer is usually executed by the next banking day. The time required for the deposit is therefore shorter than for a direct debit.
- The amount of money is unlimited when depositing by wire transfer.
You can also deposit money from an account other than the defined reference account. This is a good idea, for example, if grandparents want to deposit money in their grandchild’s securities account.
- As the bank details of the clearing account must first be entered and then commissioned for a wire transfer, this requires diligence. For this reason, the transfer can be considered laborious and cumbersome.
In addition, an incorrect specification of the bank details of the clearing account (in the case of a bank transfer) can lead to an undesired crediting of a third-party account. Unfortunately, a transfer back cannot be guaranteed by the bank, as the bank does not have access to the third-party bank account. For this reason, a request must be made to the third-party bank account or the third-party account holder.
- One of the advantages of depositing by direct debit is the simplified payment processing, especially since the custodian bank debits the money. Consequently, the reference account holder does not have to actively intervene in the money transaction, but only initiate it. The deposit bank will then handle the deposit with all the details.
- Deposits are observed and debited at a specific payment deadline in the case of direct debit. The payee determines the time of the deposit. In this regard, no deposit defaults occur.
- In addition to time savings and simplicity, security is another aspect of choosing direct debit. To execute a direct debit, the explicit consent of the reference account holder is required.
- The debit of a direct debit can be revoked at any time within the 8-week period and serves to prevent fraud.
- One of the disadvantages of direct debit is the passive role of the reference account holder. If there are insufficient funds in the reference account, the money will not be collected, which may result in unwanted costs and additional expenses. The reference account holder must then make a transfer to settle the outstanding deposit, as a SEPA direct debit can only be executed once. If the direct debit fails for any reason, it will not be triggered a second time.
- The execution of a SEPA direct debit can take up to 2-3 bank working days.
- The limit amount for direct debit deposit is €100.000 within 8 weeks. A higher amount cannot be collected during the 8 weeks for security reasons.
Deposit with a securities account transfer
- There are no additional costs for a securities account transfer, as the securities portfolio remains intact during the transfer. Likewise, there are no order fees when selling securities at Ginmon, as this is an additional and free service that Ginmon offers to its customers. On the other hand, order fees may be charged by brokers for the sale of securities in a securities account transfer if the customer sells the securities himself.
- The loss offset pot can be transferred to the new custodian bank when transferring the securities account. One advantage of this is that the investment income in the old custody account may be too low to fully utilize the amount in the loss offset pot. During the transfer, any higher capital gains on the new custody account can be fully utilized with the transferred loss offset pot, thus reducing the tax payment.
- A securities account transfer can take up to several weeks. The duration depends on the processing of the issuing custodian bank.
- In the transfer process, securities may initially arrive in fragments, this would also delay the time until the complete securities account transfer.
- After the securities arrive in the new settlement account, they are sold. As a result, capital gains tax may be due on the securities sold. This would reduce the amount of money reinvested relative to the value of the old securities portfolio. To avoid or at least cushion this, an exemption order can be set.