When might a CHAPS payment be useful?


CHAPS payments are something which most people have heard of at some point in time, but do you know what they are and in what situation a CHAPS payment might be useful?

What are CHAPS Payments?

Since the faster payments system was introduced back in 2007, the need to clear payments between banks using the 3 day Bacs payment system has reduced drastically, as most payments can now be made electronically and almost instantaneously between participating banks. Still, not all banks participate in the faster payments system and this means that payments between non-participating banks will still need to be made via the Bacs system, as are direct debit payments. Although it does not cost anything to make these payments, you do need to allow up to three working days for payments to clear and reach their destination account. This could prove to be a huge problem when you absolutely need the payment to go through more quickly than that, possibly even to be transferred on the same day.

This is where CHAPS payments play a role. If a CHAPS payment is made before 2pm on a working day (some banks do request that the payment is instructed earlier) then the payment is guaranteed to go through on the same day. There is a fee associated with CHAPS payments however, with banks typically charging as much as £35 per transfer.

When might a CHAPS payment be useful?

As we’ve seen then, CHAPS payments can be relatively expensive. So in what situation might you be able to justify the cost of a CHAPS transfer? One very common use of the CHAPS payments system is when a person is buying a house.

The first reason for this is that most banks will only allow faster payments or Bacs payments to be made up to a certain amount.

The second reason why CHAPS payments are so useful in the purchase of a property is that any delay in payments being sent and received on the day of purchase could cause huge problems for solicitors and lead to a nightmare completion day. On completion day it is of utmost importance that funds are transferred quickly, smoothly and without delay in order for the purchase to complete without problems. By using the CHAPS payments system solicitors can be guaranteed that as long as payments are initiated by 2pm, the funds will arrive in the destination account in time to complete the sale on the same day.

One other security offered by a CHAPS payment is that unlike with cheques, payments are made in real-time, with no potential for the payment to be reversed at the request of the sender or due to insufficient funds once the payment has been made.

Another obvious situation where paying for a CHAPS transfer might be justified is in the case of emergencies, where you need a concrete guarantee that any funds being sent – perhaps to a relative or friend – will arrive on the very same day.

As much as technology has moved on in recent years and continues to do so at break neck pace, we have still not yet reached a situation where all payments of any amount can be transferred instantly, no matter which bank or account they are going to. If it is vital to you that any funds being transferred arrive on the same day then CHAPS payments can give you the peace of mind that this will happen.

One Response to When might a CHAPS payment be useful?

  1. Pauline says:

    I use CHAPS for anything over the online banking threshold of £10,000. It takes time, money, and you have to go to the branch but it is fast.

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