A standing order in banking is authorization provided by the account holder to the financial institution to make a one-time or recurring payment. It is also referred to as standing instructions.
Most banks and credit unions will allow their customers to set up a standing order to instruct the bank to make these payments. The benefit for the customer is that there is no intervention needed to make these payments – as they will automatically be processed by the bank.
The standing order can take two forms – it can be either an automatic standing order or a manual standing order. In the latter option, the payment is initiated manually by an employee of the bank. It gets its name from the need for manual intervention.
How Does a Bank Standing Order Work
Let’s have a look at an example of how a bank standing order works.
Situation #1: You Obtain a New Credit Card from the Bank
When you get a credit card from your bank, you will have the option to set up a monthly standing order to make the monthly payment. You can choose to pay either the minimum payment or the full balance. This will typically be set up as an automatic standing order. Once you have authorized the bank to make this payment – they will debit your bank account and make a payment to your credit card.
Situation #2: You Are Saving for the Future
If you are trying to save money for the future and would like to instruct your bank to send a specific amount of money from your account to another account – this would be a standing order as well. The other account receiving the credit can be with your bank or another bank.
You may also set up a standing order to make payments to someone else’s account. There are grandparents who might want to contribute to their grandchildren’s savings – and this would be a great way to do so.
In essence, a bank standing order will allow an account holder to send money to any other bank account, credit account, loan account, or investment account.
Oftentimes, customers forget that they have set up a standing order and realize that their money has been going to another account. It is always important to check your bank statements as this is the only way you can catch errors.
Manual Standing Order
A manual standing order is when a bank employee manually initiates a payment to an account, with your authorization. It is common for some businesses to send post-dated cheques to their bank, and have them deposit the cheques into their account on the pay date.
If a customer receives post-dated cheques from their tenant, it can be a hassle trying to remember to deposit the cheques every month. They could opt to have the bank process these cheques manually every month. This would typically be set up as a manual standing order service (and would have a fee associated).
In certain cases, a customer may have a standing order to advise the bank of instructions to wire funds to another financial institution. It is common for large corporations and businesses to have banking relationships with multiple large banks – for lending, day-to-day banking, and investing.
However, if the corporate customer considers one particular financial institution to be their main bank – they may provide standing orders to the other bank with wire instructions for their primary bank. In this situation, if the customer is banking with Institution ABC for investing, and they want to withdraw funds from their investment – the standing order will allow ABC to wire the maturing funds to their main bank – without any further wire instruction verification.
In order to cancel a bank standing order, you can provide a signed letter of direction instructing the bank to cancel it.