What is an ACH payment and how does it work?

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If you’ve ever received a direct deposit from an employer or sent money to a friend using a peer-to-peer payment platform like Venmo, you’ve likely participated in an ACH transfer.

In the not-so-distant past, making payments to your utility or paying restaurant bills with friends required writing checks or having paper money on hand. But today, these types of payments are usually made online. When you send money to someone or a business digitally, or receive money from them, payment is often made by ACH Wire Transfer – an electronic payment made through the Automated Clearing House network. (ACH).

And ACH payments are more and more common. “Last year, the ACH network processed 26.8 billion payments,” said Victoria Day, communications manager at Nacha, the administrator of the ACH network. This is an increase of 8.2% from the previous year.

ACH payments are fast, secure, and can be a more convenient way to send and receive money. Here’s what you need to know about how they work, along with other options for money transfers.

What is an ACH transfer?

ACH is an electronic service that allows individuals and businesses to transfer money between bank accounts, says Lindsey Grossman, Product Manager at Wise, a global payments platform. Here are a few cases where you might have used ACH transfers to send or receive money:

  • Receive a paycheck from your employer by direct deposit to your bank account
  • Pay a utility bill using your agent’s online payment system
  • Send or receive money from friends through peer-to-peer payment apps like Venmo or Zelle
  • Transfer money from your checking account with one bank to a savings account with another

Put simply, ACH transfers are “a general framework for paying and getting paid,” says Marwan Forzley, CEO of Veem, a global payment network platform.

How do ACH transfers and payments work?

When you authorize an ACH transfer, you authorize the ACH network to process an electronic money transfer using your bank account and routing number. For example, let’s say your credit card bill is due. There are several ways you can use ACH to make your payment:

  1. Use your bank or credit union’s bill payment system to send the amount you owe to your credit card issuer
  2. Use the site of your credit card issuer to initiate the transfer from your bank or credit union
  3. Set up an automatic and recurring payment, which authorizes the transfer to your credit card issuer on an ongoing basis

Cost of ACH transfers

In most cases, ACH payments are free to consumers, although different platforms may have different fee models. Some charge a fixed fee, while others charge a variable fee. Usually, you will see these fees imposed on ACH transfers on the same day. For example, Venmo charges a fee for instant transfers, but if you can wait 1-3 business days for the transfer, it’s free.

Types of ACH transfers

There are two types of ACH transfers: debits and credits. “I like to think of ACH as a payment rail between two banks,” says Grossman. “On this payment rail, you can both push payments – what we call ACH transfers – as well as withdraw money from those bank accounts – and it’s called ACH direct debit. “

When you wake up on payday and find that your paycheck has been automatically deposited into your bank or credit union account, that’s an example of an ACH loan, Day says. You’ll be doing an ACH debit, on the other hand, “when you pay a bill online and skip the hassle of writing and sending a check, or when you schedule your mortgage or car loan for. that it automatically pays on the day of the month you choose. “

Basically, when money goes from another bank account to yours, it’s a credit. When you send money from your bank account to someone else’s, it’s a debit.

Advantages and disadvantages of ACH transfers


  • Cheap: ACH transfers can have lower costs and fees than other payment methods, like wire transfers or even credit or debit cards. In most cases, ACH transfers do not cost consumers anything.

  • Secured: ACH payments are secure, but even if an unauthorized electronic funds transfer is made from your account, you can avoid payment liability if you notify your bank or credit union within 60 days.

  • Convenient: It’s easy to set up an ACH transfer online or from your mobile phone. And you can avoid having to mail your payment several days before the due date.

The inconvenients

  • To slow down: Transfers can be slower than some other payment options, especially if you want to avoid the potential costs of same-day transfers. Usually, transfers can take place the next day, but can sometimes be slower depending on the platform.

  • Limits: Some platforms have limits on how often you can transfer funds electronically, or restrictions on how much you can transfer in any given day or month.

  • Non international: Some platforms do not allow you to send money directly from a US bank account to an international bank account.

Other ways to send money

ACH transfers are commonly used by consumers and businesses, but there are other options for transferring money to individuals or businesses.

  • Electronic transfers: Wire transfers happen in real time, so they’re often faster than ACH transfers if you’re short on time. But they can be expensive, sometimes charging up to $ 20 depending on your bank, and even more for international transfers.
  • Credit and Debit Cards: While you don’t pay a fee at most large retail stores to pay by credit or debit card, small businesses and other providers, like your utility provider, may charge you a fee for using. this payment method.
  • Google Pay and Apple Pay: They are fast and secure mobile payment systems, but may not be common at in-store or online retailers, depending on where you shop.
  • Bank drafts or cashier’s checks: These are guaranteed checks that you can buy at a bank if you need to send money. They are generally less expensive than wire transfers, but can be an even slower way to send money than ACH transfers.
  • Financial orders: Money Orders can be purchased inexpensively at a post office or grocery store and mailed to a recipient.
  • Personal verification: If you have a checkbook associated with your checking account, you can send a check to someone. It is secure, but not guaranteed, especially since the personal banking information of your check will pass through the hands of several people before being cashed by the recipient. The check may also be bounced if you do not have sufficient funds in your account at the time of cashing.
  • Cash: Sending cash is an insecure way to transfer money, but it’s convenient. If you often keep cash on hand, you can also give money to someone in person if you need to make a payment.
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