What Is an ACH Transfer?
An ACH transfer is an electronic money transfer processed through the Automated Clearing House (ACH) network.
Consumers commonly use ACH transfers as a secure way to receive their pay with direct deposit or set up recurrent payments for a subscription service. Businesses, on the other hand, use the ACH network's batch processing system to pay vendors or receive payments from customers and facilitate payroll and tax refund deposits.
The National Automated Clearinghouse Association (Nacha) oversees the ACH Network and sets operating rules and guidelines for every ACH payment.
Types of ACH transfers
Also known as Direct Deposit, Direct Payment, direct debit, electronic funds transfer (EFT), or an electronic check (eCheck), ACH transfers are a quick and easy way to make or receive payments.
There are two types of ACH transfers: direct deposits and direct payments.
ACH Direct deposits
With ACH direct deposit, electronic payments are made directly into your bank account.
Direct deposits can be used to receive:
- Pension/401(k) disbursements
- Social Security wages
- Tax and other refunds
- Travel and expense reimbursements
- Dividends and interest payments
ACH Direct Payments
With direct payment, individuals, businesses and other organizations can pay — or receive payment — for any type of service or bill electronically.
For example, Netflix uses the ACH network to withdraw money from your account each month. This debit will appear on your bank statement as an ACH debit, while the person or company receiving the funds will see an ACH credit.
You can also use ACH direct payments to:
- Send money to a friend (via Venmo or Zelle)
- Pay your monthly bills
- Make a donation to a charity of your choice
- Pay your tuition
- Pay your mortgage
- Make HOA payments
- Fund an investment account
- Automatically pay your car loan
Benefits of ACH transfers
ACH transfers make paying bills or receiving money less complicated and time-consuming than writing or mailing a check. That’s why, according to Nacha, tens of millions of Americans use the ACH network — in 2021, the ACH Network processed more than 29 billion payments.
Convenience - ACH payments are quicker and easier for consumers and businesses. Direct deposit and online bill pay mean fewer paper checks and trips to the bank. Sending and receiving funds through the ACH network is also usually quick, with Nacha requiring that credits settle as either “same-day,” “next-day, or “2-day” payments. ACH debits, on the other hand, can be processed as “same-day” or “next-day” payments.
Cost - ACH transactions are often free. Banks, credit unions and employers don’t charge their clients to receive direct deposit. However, this doesn’t mean that ACH transactions don't have a cost. The cost of processing an ACH transfer will depend on the bank and type of transfer — your bank may charge you a fee (usually a few dollars) to move money from your checking account to an account at a different bank.
But it is another story for businesses. The median cost of an ACH payment is between 26 cents and 50 cents, whereas paper checks can cost between $1-$4 to issue and process. Wire transfers are even more expensive, costing as much as $50 per transaction.
Security - Paper checks have a long series of numbers on the bottom called a MICR (magnetic ink character recognition) code. This code includes a bank routing number and the account number issuing the check. Personal checks also include the name of the account holder as well as their address. With ACH transactions, none of this information is committed to a printed document which can be lost or stolen.
Potential downsides to ACH Transfers
Transaction limits - ACH transfers can have limits on how much money can be moved. There might be limits per transaction, daily, monthly and weekly limits. Some banks can impose limits on bill payments or transfers to other banks, while others may prohibit international transfers. On the other hand, Nacha also enforces its own limits. In 2022, the association increased the “same-day” dollar limit per transaction from $100,000 to $1 million.
Processing times - Even with same-day ACH, transactions can still take up to three days to process. For most end users, this happens behind the scenes, but in certain scenarios (such as waiting for a refund, for example), there may be a cutoff time which can result in a delay.
How long do ACH transfers take?
Although quicker than checks, ACH transfers can still take several days to process. The exact processing time will vary depending on a couple of factors, such as the type of transfer completed (same-day or next-day), what batch the transaction was processed in or if the transaction came in before the cutoff time for the day.
- Next-day ACH is a process in which the settlement of all transactions for the day is processed the following day.
- Same-day ACH transactions are settled on the same day as long as they are in before the cutoff time.
A receiving bank has up to 3 days to reject the transaction for any number of reasons, including “account not found,” “insufficient funds,” or “closed account,” among others.
What is the difference between a wire transfer and an ACH?
A wire transfer is also used to move money between banks. Wire transfers are usually processed on the same day, whereas even a same-day ACH transfer can take several days. Another difference is cost. The median cost for an ACH transaction is 26 cents. A wire transfer, however, can cost up to $50.
ACH transfers provide a fast, safe and affordable way to move money between accounts. Whether it be to make sure your paycheck is in your bank in a timely fashion with direct deposit or to pay your recurring monthly bills, it’s all done with ACH.