ACH payments are a popular, low-cost way of moving money across US bank accounts. If you live in America, it’s likely you’ll have used ACH before, as they’re quite popular for bill payments and direct deposits.
This article explains how ACH transfers work and the advantages and disadvantages of ACH.
Understanding how transfers work helps you choose the best method for what you need. ACH transfers are low-cost and safe. But they are not the quickest, nor are they the best for overseas transfers.
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If you need to transfer money abroad, then try Wise — the one-stop shop for cheap and fast international transfers!
If you came here to know what the ACH payment means, you’re in the right place.
ACH stands for Automated Clearing House. The Automated Clearing House is a network that provides the mechanism for ACH transfers¹.
The ACH network started in the 1970s. Banks across the US came together to find ways to improve payment systems. The growing volume of paper checks in use was a shared concern.
The solution was an electronic network for payments between banks. Consistent standards were developed, and the ACH network was born.
Today, Nacha manages the ACH network. It is used to transfer money between bank accounts all over the US. ACH is the system behind Direct Deposit, Direct Payments, and several other methods.
In 2020, the ACH network processed 26.8 billion person to person payments totaling almost 62 trillion USD². Chances are you have used ACH without even realizing it!
An ACH payment is an electronic transfer between bank accounts that is handled by the ACH network. This payment can be to or from a business, individual, or government account.
ACH payments are different from wire transfers. These are direct payments between bank accounts, without intermediaries. They are also different from payments using other networks, such as Visa or Mastercard.
You may also see ACH payments referred to as ACH transfers or ACH transactions. These are all the same!
ACH transfers work by grouping transfers between banks together. Once placed, transactions are checked and then held by the bank to be sent in batches.
The transactions are then sent in bulk to the relevant recipients — the ACH batch times might different from bank to bank. So make sure to ask around when the payments will be made.
When you make an ACH transfer to someone else, you’ll usually need their account number, routing number, full name and account type.
With this information, you can then set up a transfer on your bank app and sit back and relax while waiting for the payment to reach the recipient.
There are two types of ACH transfer:
Direct deposits are payments from organizations to an individual. If you have a regular payment made to your bank account from your employer, chances are it is an ACH direct deposit. 93% of salaries in the US are paid this way³.
|Some of the uses of the ACH direct deposits are|
An ACH direct payment is when you use your savings or checking account to make a one-off or recurring payment to another account. This can be done either for personal or business purposes³.
|Common usage of the ACH direct payment include|
Direct deposits are an important part of the ACH network. They cover many regular payments across the US. If you receive money from a company or the government, this is a direct deposit.
But whenever you make a payment to another person or company, you are looking at an ACH direct payment.
|Summarizing: if you’re receiving a direct payment to your account, it’s an ACH direct deposit. When you send money or make a payment to someone else, it’s an ACH payment.|
Transferring money is often a worry. No one wants to see payments go missing.
The ACH network and payments are one of the safest transfer methods. Transmitted data is encrypted with bank-level encryption³. Which reduces the chances of it being compromised.
Importantly, you can reverse an ACH payment. If you later notice an error or suspect fraud, the payment can be tracked and reversed. This is a great feature — and not something you can do with wire transfers.
Cost is the main advantage of ACH transfers, especially when compared to a wire transfer. There are usually no fees for receiving payment.
ACH transfers are often free to send for the individual, although some banks charge up to around 3 USD⁴. You can check with your bank to find out if there is a fee in advance.
Wire transfers are much more expensive. Domestic wire transfers cost around 15 USD to 30 USD, and internationally this can be as high as 50 USD⁵.
ACH transfers are not instant. Transfer time varies between 1 and 4 business days. They are cheap and secure, but can be slow!
Nacha states that debit payments should be processed by the upcoming business day, while credit payments could take up to two working days.
There’s a catch though: the actual transfer time will depend on the financial institution. This means that, despite often being processed within the 1-2 business days margin mentioned above, sometimes payments can take 4 working days to be completed.
Make sure you factor in that time when setting up a transaction, so there aren’t any surprises later on — especially if you’re making a time sensitive payment.
ACH has recently improved transfers with same-day processing, for both debit and credit transfers⁶.
These are available from some banks and may have a higher cost. Although processing is same-day, delivery is usually the next business day.
As of March 2021 ACH payments have a new deadline for same-day processing. The new cut-off time for ACH processing is 1:45 PM PT⁷, giving it a 2h hour advance when compared to previous years.
ACH transfers to overseas accounts are possible but are not yet widespread.
If you are looking to make a transfer, look for a bank offering International ACH Transfer. This is different from International ACH Transaction (IAT) — which is more about bank reporting. Banks may mention IAT even when they do not offer international transfers.
Wire transfers are more widely used for international transfers. These are usually handled by SWIFT (Society for Worldwide Interbank Financial Telecommunication). But fees are high, and there are extra costs associated with the exchange rate used.
Whenever making an international transfer, make sure to double check the type of payment and processing that will be used. And, most importantly, what’s the exchange rate that will be used — banks usually add a hefty mark up on those.
When it comes to not adding markups on the exchange rate, Wise is definitely a good option for you.
You can send money internationally in just a few clicks, and always with the mid-market rate.
Wise is a fast, cheap and secure way to send money overseas. And you can pay via ACH directly from your bank. This means You can enjoy the combined benefits of ACH and wire transfers, without the cons.
- Nacha - ACH
- Nacha - ACH statistics
- Nacha - Direct deposit
- NerdWallet - ACH fees
- Finder - Wire fees
- Nacha - ACH time
- Nacha - ACH deadline
Sources checked on 05.06.2022
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ACH stands for Automatic Clearing House. Learn more about what this means with our full guide.
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