What is ACH debit?

Adam Rozsa
19.01.22
3 minute read

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 debit payment, on the other hand, pulls money from your account when a bill is due.

This guide covers all you need to know about bank debit 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.

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How does ACH debit work?

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.

ACH debit payments, which are also known as ACH autopay or ACH withdrawals, are a form of electronic debit in which customers authorize financial institutions to automatically make recurring payments to individuals or companies.

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 then automate this 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.

ach debit

ACH Debit: Pros & Cons

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

Pros

  • 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

Cons

  • 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

ach debit

Meet Wise - and save up to 6x with the world’s most international account

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.

Save up to 6x on Wise international transfers, and send easy instant online payments in over 50 currencies around the world. You’ll always get the real mid-market exchange rate with no markups and no hidden fees.

You can also open a Wise international account to hold 54 currencies, switch between them, send low cost payments, and get your own local bank details for 10 currencies. That makes it easy to get paid like a local from all around the world.

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 using the mid-market exchange rate in 200 countries.

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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.

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.


Sources:

1]NACHA - what is ACH?
2]NACHA - how direct payment works

All sources checked on 19 January 2022


This publication is provided for general information purposes only and is not intended to cover every aspect of the topics with which it deals. It is not intended to amount to advice on which you should rely. You must obtain professional or specialist advice before taking, or refraining from, any action on the basis of the content in this publication. The information in this publication does not constitute legal, tax or other professional advice from TransferWise Limited or its affiliates. Prior results do not guarantee a similar outcome. We make no representations, warranties or guarantees, whether express or implied, that the content in the publication is accurate, complete or up to date.

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