What Is FedNow?

FedNow is a new instant-payment service backed by the Federal Reserve. It gives financial institutions the ability to let customers make payments that can be sent any time and received within seconds, with funds immediately available for use. FedNow is not replacing PayPal and other apps, such as Venmo, Cash App and Zelle. Still, the service’s availability will depend on whether your bank opts in.

Here’s a breakdown of what FedNow is and how it works.

FedNow is the Federal Reserve’s new instant payment service that enables customers at participating banks and credit unions to send and receive money within seconds, 24/7 and every day. The service lets users complete payments or transfers on weekends, holidays and after banks’ business hours, which isn’t the case for standard online transfers such as those through the Automated Clearing House Network (ACH). ACH transfers are processed in batches and tend to take one to three business days to complete.

“What FedNow will do is it will enable all the banks, any bank in the United States — not just the big ones — to offer instantly available funds and real-time payments to their customers,” said Fed Chair Jerome Powell before the House Financial Services Committee on March 8.

FedNow is available to all banks and credit unions, but there’s no requirement for them to join. Consumers, businesses and nonbank payment providers won’t be able to use FedNow directly, but they can use the service through a participating financial institution. Neobanks, which aren’t banks, would need to partner with a bank that’s a participant.

Payments between banks typically require clearing and settlement. Clearing means that banks exchange information about a payment and can include other activities such as checking for fraud. Settlement involves moving money to the recipient’s account. FedNow makes clearing and settlement occur within seconds, according to the Fed.

Transfer speed: Instant. The Fed defines an instant payment as a recipient having full access to funds within seconds of the payment being sent.

Cost: As with other Fed payment services, FedNow charges fees to its participating financial institutions, but it’s unclear if banks will pass on FedNow costs to its customers.

Amount limits: The Fed caps transfer amounts at $500,000, and sets the default transfer limit at $100,000 for a financial institution; however, a financial institution can choose to raise or lower its limits.

Other limits: FedNow will be initially limited to domestic payments between U.S. financial institutions. Consider wire transfers through a bank or money transfer firm — or multicurrency accounts for long-term travelers — if you need to make overseas transactions.

Uses for FedNow include bill payments and account-to-account transfers. Being able to send money instantly could be helpful, especially if you’re on a tight budget and susceptible to late payment fees.

With FedNow, you can avoid late fees when making last-minute bill payments: You could pay a bill right on the due date and receive immediate confirmation that the payment is accepted. And there’s typically no risk of overdrawing your bank account or paying overdraft fees, since your bank has to verify sufficient funds before initiating an instant payment. Instant account-to-account transfers would allow you to manage your accounts across banks easily.

FedNow is not the first real-time payments service in the U.S., but it will likely expand the reach of instant payments to more institutions nationwide. The Fed already provides access to its payment services to more than 10,000 banks and credit unions, either directly or through an intermediary. In contrast, the privately owned entity The Clearing House has operated the RTP network, a real-time payments platform, since 2017, but only about 400 financial institutions participate. The RTP network is available to nearly any bank or credit union.

Peter Tapling, payments industry consultant and managing director of PTap Advisory, LLC, speculated in March that FedNow adoption among financial institutions will take time. One promising sign, he said in an email, is that the U.S. Department of the Treasury’s Bureau of the Fiscal Service is on the list of participants. The department is responsible for issuing payments, such as tax refunds and Social Security benefits, to the public on behalf of the federal government, among other financial operations. The U.S. Treasury’s use of FedNow, Tapling said, may create urgency for more banks to join the service.

FedNow is another way to make consumers’ funds more quickly accessible to them at their participating banks and credit unions with a transaction that doesn’t require signing up. Without FedNow, the soonest banks can guarantee availability of funds from a deposit is by the next business day (and that’s only for the first $225 of check deposits; generally, the rest of the deposit would be available on the second business day) of the deposit amount. With FedNow service, all of the funds would be available within moments. Without FedNow or Zelle, getting immediate access to funds from a transfer to your account would require that the transfer come from an account at the same bank. For banks using FedNow, the funds would be available immediately even if the accounts are at different banks.

As a consumer, FedNow is not something that you sign up for. But you can reach out to your financial institution to ask if you have the ability to send or receive instant payments through the FedNow service. If your institution does not currently offer this service, consider these alternative ways to transfer money from one bank account to another.

While FedNow’s service is similar to what other peer-to-peer money transfer options offer, it isn’t replacing apps and services such as Zelle, Cash App, PayPal and Venmo. FedNow and Zelle are both offered at some financial institutions, but there are a few key differences between the payment services: Zelle is owned by Early Warning Services and is available at more than 1,800 financial institutions. FedNow, on the other hand, is backed by the Federal Reserve and available at about 225 financial institutions and the U.S. Department of the Treasury’s Bureau of the Fiscal Service. Funds from Zelle transfers are usually available within a few minutes; funds sent with FedNow are available immediately.

The FedNow launch date was July 20, 2023.