Automatic withdrawal is a program offered by a mutual fund service that allows shareholders to automatically withdraw a fixed amount of money on a regular basis, usually monthly or quarterly. These can be in the form of dividends, realized capital gains or income generated from securities held by the fund. If payments are not possible through dividend income, shares can also be liquidated.
Automatic withdrawal can also refer to the automatic transfer of bank funds from a client’s money from one account to another. For example, a regular amount of fund might be transferred from one’s checking account to a third party account (e.g. a company) as a regularly occurring payment to that third party. Bill payment is one of the most common uses of automatic withdrawal. The customer authorizes the company to withdraw specified funds from a particular account that he owns on a predefined interval.
Automatic withdrawal is also used for setting up a savings account. In this scenario, the account receiving the funds is a savings account of the same customer. Setting up automatic withdrawal for bills payment requires that the customer fill up an enrollment form to be submitted to his bank. Some banks allow enrollment transactions to be submitted and processed online without the user having to physically go to the bank premise. This is feasible only when the customer already has an online account with his bank’s online banking system. Some banks might still require that the enrollment process be done offline and in the bank premise, while some will offer a hybrid setup.