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Money Dec 21, 2012

Five things you should know about Electronic Clearing System (ECS)

By Bindisha Sarang

We all use electronic clearing system (ECS). It is a service your bank provides when you need to transfer funds from one bank account to another electronically.

In fact, it comes handy when you want to make periodic transactions electronically, like when you need to pay your loan EMI. While, we use this service day in and out, there are a few things we need to keep in mind to make the most of this service. To know more, read on.

You get an option to fix the amount of ECS. Reuters

Types: Did you know there were two types of ECSs? One is called the ECS credit, while the other is called the ECS debit. ECS credit is when an institution makes a credit to your savings account.

For instance, your dividends or even your salary. ECS debit is when you choose to make recurring payments, as EMI towards your loans, or SIP payments towards your mutual funds and the like. This ensures you don't have to keep writing cheques every month and also decreases the possibility of missing due dates on various bills.

How much: You get an option to fix the amount of ECS. Alternately, you can also set a maximum limit and the auto debit amount will be as per your bill.

For instance, if you set an ECS for your credit card bill with a maximum limit of ECS for Rs 10,000 and your credit card's total amount due for the month is Rs 8000, then an ECS of Rs 8000 will run. In fact, you can choose to set ECS for a minimum amount due as well as a fixed amount of your choice.

Start and Stop: To start an ECS for a utility company like your mobile phone bill, you need to fill in the ECS debit mandate with the mobile service provider and get the same endorsed by the bank. There is a good possibility that your bank might charge you a small fee to set an ECS mandate. To stop an ECS, ensure that you inform your bank in advance, so that they get enough time to take the necessary steps.

Warning: Take ECS very seriously because an ECS debit mandate is just like a cheque issued by you. This means, you need to ensure you have enough funds in the account, so that your ECS gets cleared. If you bounce an ECS, you will have to bear the same fines as you would have for a bounced cheque. And this could be as much as Rs 750. Keep in mind that your bank runs an ECS and there isn't enough funds, bank may run an ECS again at a later date (usually a couple of days), that is after a few days. But, if you fail to have funds by that date, your ECS will bounce. Also, re-run of an ECS is not your right but dependent on your bank's policy.

Always Check: ECS debit works well since they take away the pain of writing cheques, especially for recurring payments. It pretty much puts the cumbersome task of paying EMIs , SIPs and bills on auto pilot. But, you must monitor your savings accounts statements regularly to spot any inconsistency between the actual bill and the amount debited. So, use this tool to ensure that you pay bill on time and avoid late payment fees, as well as make use ECS debit as SIPs to build wealth over time.

by Bindisha Sarang

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