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What is FedNow, and how does it work?

This new payment service from the Fed helps banks and credit unions speed up transactions. Here’s how that benefits you.

Yahoo Personal Finance· Getty Images
Sarah C. Brady
·Contributor
4 min read

When it comes to sending and receiving money fast, banks are finally catching up with the likes of PayPal and Venmo. Thanks to FedNow, the Federal Reserve's new payment service for banks and credit unions, you can send and receive cash from your bank accounts in just a few seconds and get instant access to your paycheck.

Financial institutions aren't required to use the new service, but some of the largest banks and service providers in the U.S., including U.S. Bank, Wells Fargo, and Visa, are already on board.

FedNow is a payment service developed by the Federal Reserve to facilitate faster bank and credit union transactions.

If your financial institution uses FedNow, which went live in July 2023, you can send and receive instant payments from your bank account 24/7, including after banking hours, on weekends, and holidays. Businesses and vendors can also use FedNow to facilitate immediate transactions, such as payroll deposits and payments from customers.

In the future, FedNow will have even more functionality. For now, the service can be used to complete any of the following banking activities in a matter of seconds:

  • Send or receive payments from another person, even if they're a customer of a different bank.

  • Transfer funds between your checking and savings accounts.

  • Pay bills on time, even if payment is submitted on the due date.

  • Make instant deposits to wealth management or brokerage accounts.

  • Send or receive same-day payroll transactions.

FedNow won't replace Zelle, PayPal, or most payment services currently in use, such as the automated clearing house (ACH), Fedwire, or FedACH. But it can complement those services, potentially speeding up transactions by settling them instantly instead of in batches, which means no more one-to-three business day delays.

Your financial institution can choose to stick with its current payment service too. That doesn't necessarily mean forfeiting speed since they could be using speedy alternatives such as Same Day ACH or the Real Time Payments Network (RTP), the first instant payment network made for U.S.-based institutions.

Unlike payment apps, FedNow is not directly available to individuals and businesses. Instead, it's a service financial institutions and certain service providers use for customer transactions. You can visit FRBServices.org to see if your FI uses the service.

The main benefit of FedNow is speed. Without the service, your bank or credit union can take a full business day to make your paycheck deposit available to you. So, if you receive your paycheck on a Friday, you might not get access until Monday, or even longer if it's a holiday weekend. But FedNow gives you instant access to your paycheck.

Other ways FedNow's quick processing can potentially help you include:

  • Eliminating the need for costly paycheck advance loans.

  • Reducing your chances of making late payments and incurring late payment fees.

  • Completing transactions any time of day or day of the year.

With FedNow, transactions are completed within seconds, which means your financial institution has little opportunity to catch fraud in real-time. And once a transaction is completed, it cannot be canceled or revoked.

So if a fraudster gets a hold of your account credentials and transfers money out of your account, or you accidentally send money to a scammer, your cash is gone.

As for preventative measures, the Federal Reserve has left most of that up to the financial institutions, calling them the first line of defense against fraud. But your financial institution may not have the proper security infrastructure in place — monitoring processes and systems, a suspicious accounts watch list, etc. — to catch fraudulent payments. Financial institutions can also opt not to use all of the fraud prevention features available through the Federal Reserve.

Other drawbacks to note:

  • For now, you can only send and receive payments between financial institutions that both use FedNow.

  • Some institutions only allow you to receive deposits through FedNow, not send.

  • Financial institutions may eventually pass their FedNow transaction fees on to customers.

Banks are not required to use FedNow. Your bank can choose to sign up for the service or continue using their current payment systems.

Some banks may opt not to use FedNow. You can see a list of all participating banks at FRBServices.org.

FedNow will not replace wallet apps like PayPal, Cash App, or Apple Pay. You can use PayPal and other payment apps to complete transactions with banks that have FedNow.

If your bank doesn't use FedNow, it may have other services in place that allow you to make quick transactions or gain early access to deposits, such as same-day ACH or early direct deposit.