ACH Transfers: Everything You Need to Know

Find out what an ACH payment is and when to make one.

An ACH transfer is one that uses an Automated Clearing House — a network organized by the National Automated Clearing House Association to make it easier to transfer money electronically. The ACH network is used for a large portion of fund transfers in the U.S., including items such as direct deposit, tax refunds and payment services such as PayPal or Venmo.

What Is ACH?

The ACH grew out of efforts to organize by a network of California banks in the 1960s with an eye toward making electronic, recurring payments cheaper and easier. Today, you most likely make or receive an ACH payment nearly every day, whether you realize it or not. The ACH network moved over $50 trillion in 2018 — more than double the U.S. gross domestic product — across 23 billion payments.

Know: Advantages and Disadvantages of Automatic Payments

What Is an ACH Payment?

An ACH transfer is essentially just a transfer of funds between two banks that use the ACH network to process the transaction. An originator — which could be anyone from a consumer like you to a giant corporation — initiates a direct transaction by submitting the necessary information with a financial institution.

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That financial institution then inputs the ACH entry along with all of their other ACH requests as part of a batch entry at a specific time of day. The ACH network then receives it and makes the information available to the receiving financial institution and the funds are then transferred. Typically, the whole process will settle in one to two business days, but the type of transaction can impact that.

It is important to note that there are certain limitations on ACH transfers. Depending on your financial institution, the cutoff time for when batch transfers occur or limits on how much you can send can vary, so be sure to check with your bank about their ACH rules and how long you should expect them to take to process.

ACH Payment Types: Credit vs. Debit

ACH transfers break down into two types:

  • In an ACH credit transaction, funds are pushed into an account, like if you initiate a transfer to pay for something from your bank account.
  • An ACH debit involves pulling funds from an account, like for a recurring, monthly autopay that you’ve set up.

As it’s a transfer of funds, every transaction will involve both pulling money from one account and depositing it into another; the difference is just a question of the order in which they occur — i.e., which portion occurs at the initiation of the transfer and which one is executed after the transaction has been processed.

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Debits typically settle the next day, whereas credits will usually settle in one to two business days.

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ACH Transfers vs. Wire Transfers

Notably, the ACH network is not the only method for settling payments electronically as you can opt to use a more traditional wire transfer if you’re interested in getting it there as fast as possible.

A wire transfer is a direct transfer of funds from one bank account to another using account and routing numbers, essentially working like an electronic check. Wire transfers do offer some advantages, namely that they usually execute faster than ACH transfers. Wire transfers are also final, while an ACH transfer can be “pulled back” from your account since they take longer to settle.

See: How to Wire Money

However, perhaps the most relevant difference is in cost: Whereas ACH transfers have very low fees associated with them — fees that usually don’t get charged to consumers — wire transfer can be very costly in comparison. Wells Fargo, for instance, charges $15 for incoming domestic transfers and $30 for outgoing, and Chase charges $20 for domestic transfers online and $25 for those initiated by phone or in person.

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What Services Use ACH?

Even if this is the first time you’re hearing about the ACH network, you’re probably already familiar with its work. The ACH network is the method of choice for most electronic payment transfers, from direct deposit payroll to person-to-person payments and even Social Security and other government benefits.

ACH vs. Zelle

It’s also how payment apps like PayPal and Venmo settle funds when you’re either depositing funds onto the platform or pulling them out. That said, in 2015 Bank of America, JPMorgan Chase and Wells Fargo banded together to form a new transfer system that was ultimately named Zelle as a way to facilitate free, easy, direct payment transfers between any banks in its network. Unlike PayPal or Venmo, which rely on the ACH network, a Zelle money transfer between banks that are both in the network uses Zelle’s own system and doesn’t need to be cleared by the ACH.

Keep Reading: Zelle Review — Free and Easy Money Transfers

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About the Author

Joel Anderson

Joel Anderson is a business and finance writer with over a decade of experience writing about the wide world of finance. Based in Los Angeles, he specializes in writing about the financial markets, stocks, macroeconomic concepts and focuses on helping make complex financial concepts digestible for the retail investor.

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ACH Transfers: Everything You Need to Know
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