What is ACH debit?

Been asked to set up an ACH debit to cover a recurring payment? Maybe you’re curious about how you can use ACH debit transfers to pay your bills?

This guide has you covered — with all you need to know about ACH payments, including the ACH debit meaning and how these electronic payments can be easier and safer than using wire transfers, paper checks, debit cards or making credit card payments.

While international ACH debit payments are possible, they’re often only available domestically in the US. However, if you need to send money overseas, we’ll also cover how you can make cheaper international transfers with Wise — more on that later.

Learn more about Wise

What is ACH debit?

ACH stands for Automated Clearing House — and all ACH payments in the US are overseen by NACHA, the National Automated Clearing House Association¹.

ACH transactions are a convenient way of sending and receiving money between bank accounts.

They’re cheap, safe and fast — which is why they’re favored by companies and Federal institutions when paying out salaries or benefits, and by individuals who need to pay mortgages, utility bills or other one off and recurring payments.

If you’ve heard of ACH transfers, you may already know that there are two types of ACH transactions: ACH credit and ACH debit.

ACH credit payments are a way of pushing money through an electronic transfer into another bank account via the ACH network.

An ACH electronic debit payment, also known as ACH autopay or an ACH withdrawal, on the other hand, pulls money from your account when a bill is due.

With an ACH debit payment, customers authorize financial institutions to automatically make recurring payments to individuals or companies— when covering regular bills for example.

How does ACH debit work?

To set up an ACH debit payment, you’ll need to authorize a company — like your utility provider — to pull payment directly from your account on an agreed date to cover your bills².

You can do this using the forms the company provides you with, or by logging onto your online banking service.

You can then automate your payment to set it and forget it, or in some cases, add in a further notification which means you’ll always see the amount being debited and can cancel the payment if you choose.

💡 ACH automatic debits are especially useful for bill payments as the customer only needs to give their authorization, account information and routing number once, to allow the payee to pull funds from the account whenever a bill is due.

What types of ACH debit are there?

ACH debits are commonly used to pay regular bills— but other types of ACH debit also exist. These can include:

• Automatic debits for bills: ACH payments where the customer or payer authorizes an organization to pull funds at an agreed interval from their checking account

• Point of sale (POS) transactions: such as paying with a debit card in a store

• Web initiated transactions: you’ll use these frequently when shopping online or through apps and paying from your debit card or bank account

• Accounts receivable transactions: including when someone receives a paper check and scans it to add the funds to their account

Is ACH debit the same as debit card?

Although ACH debits and debit cards can both be used to set up payments from your checking account, they’re not actually the same thing.

Generally when we talk about ACH debits we’re referring to automated electronic transfers which are authorized by the customer and pulled from a checking account by an organization or individual — with no card involved.

What are the pros and cons of ACH Debit?

Let’s look at some of the pros and cons involved with using the ACH transaction network.

✅ Pros	❌ Cons
Often free or very cheap to make transfers and pay bills Set up a recurring payment to make sure you never miss a bill Fast, safe and easy to use — you only have to give your bank details once to get started Track payments easily from within your bank account No need to write, mail or remember to reorder checks	You’ll need to share your bank details with the payee to set up your ACH debit Risk of going into your overdraft when a payment is debited Possible payment errors — although you can dispute incorrect or duplicate payments if you need to You’ll need to cancel the ACH debit if you don’t want to continue paying ongoing bills indefinitely

Meet Wise: international payments with a local's experience

ACH payments are fast, safe and usually either free or very cheap. However, they’re often not available when you want to send a payment internationally. Instead, you may be better off using a specialist service like Wise.

Send fast and easy online payments with Wise, in over 50 currencies around the world.

You’ll always get the mid-market exchange rate with no markups and no hidden fees.

Wise accounts are opened and operated online or using your mobile device for convenience — and you can even get a linked debit card to let you spend easily in 170+ countries.

Here’s what you can do with Wise:
Hold 50+ currencies in your Wise Account Switch between currencies when you need to with the Google exchange rate Send low cost payments to 70+ countries Get your own local bank details for fee free payments in 10 currencies Spend around the world with your linked Wise debit card

Make hassle free
international payments

Please see Terms of Use for your region or visit Wise Fees & Pricing for the most up to date pricing and fee information

Direct Deposit vs ACH debit

Direct deposit is a push payment — a form of ACH credit. Direct deposits are commonly used when employers pay salary, or when government agencies distribute social security payments.

In this case, the payer organizes and pushes the payments out to land automatically in the recipient accounts.

ACH debit payments are pull payments. That means that they’re initiated by the recipient, not the sender.

💡 Want to know more? Learn more about direct deposit payments here.

eCheck vs ACH debit

eChecks are another type of ACH debit payment. Through the ACH network, regular paper check payments can be converted into electronic transfers known as eChecks.

You might hear the words eCheck and ACH debit being used interchangeably for this reason.

ACH debit FAQ

Still got questions about ACH debit and how it works? Here’s a roundup of some frequently asked questions, with all the answers you need.

Is ACH debit safe?

ACH debit payments are generally considered to be safe, compared to alternatives like sending a check or using cash. However, you’ll still need to take common sense precautions to protect your account.

If you think you’ve been the victim of an ACH fraud, contact your bank, and consider filing a complaint with the FBI’s internet crime complaint center³.

What does ACH mean on your bank account?

ACH stands for Automated Clearing House — and is a way of electronically moving money from one bank account to another.

If an ACH debit payment shows on your bank account it means funds have been deducted by an authorized organization — such as paying your utility bills or mortgage.

Why would I get an ACH payment?

ACH credits are commonly used by employers and organizations for paying salaries, benefits, dividends and similar deposits. You may also receive an ACH payment if someone sends you money or you’re getting a refund from something you’ve bought, for example.

Is ACH debit a deposit or withdrawal?

ACH debit payments are withdrawals, which are initiated by the person or organization receiving the money.

To set up an ACH debit you’ll first have to authorize the organization to pull funds from your account, but can then have the money automatically debited according to your agreed schedule.

Is there a better way to use ACH debit?

Use ACH debits to pay recurring bills or make regular transfers and payments to others. ACH debits let you set and forget payments, so you won’t accidentally fall behind on bills.

Bottom line

ACH debit payments are a great way to make recurring payments like utility bills, cell phone charges or mortgage repayments.

You’ll only need to authorize the payee once to set and forget ACH debits, meaning you’ll never miss a bill — and never need to mail a check — again.

However, if you’re paying someone in a foreign currency, ACH debits might not be a good fit, and you may find you save with a provider like Wise.

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Sources:

1. NACHA - What is ACH?
2. NACHA - How direct payment works?
3. FBI - Internet crime complaint center

Sources checked on 02.19.2023