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What is ACH?

The Simple Guide to ACH Processes

Updated on September 18, 2022

 Personal Finance

The good ol' days of writing, mailing, and waiting for checks to clear are gone. Thanks to ACH, your salary deposits into your bank account when you wake up on your payday. ACH allows you to pay a bill online on a specific day or with recurring payments.

You can still write and mail those checks, but ACH transfers allow you to receive and send money securely in the comfort of your home.

What is ACH, and How Does It Work?

Created in 1974, The National Automated Clearing House Association (NACHA) runs The Automated Clearing House (ACH). NACHA monitors the ACH network to ensure safety, security, and effectiveness.

Its formation resulted from advanced payment preferences and consumer mobility, and banks struggled to meet the demand of geographic spread and the volume of checks. So they established an automated solution using newly available computer technology. This new system was dubbed Automated Clearing House, or ACH, in honor of the clearing house, a central location where banks would go to settle transactions and exchange checks at set times.

Two different operators run the ACH network:

  • The Federal Reserve Banks run FedACH to manage ACH transactions on behalf of the federal government.
  • The Electronic Payment Network (EPN), a private corporation owned by some of the largest commercial banks, is operated by The Clearing House Payments Company.

For comparison, imagine FedEx and UPS; each has its zones and sometimes passes packages to the other on their routes. FedACH and private banks service government financial institutions by the EPN. NACHA works closely with various government agencies and sets the rules. These two operators work together to route and deliver all ACH transactions.

ACH is used for all fund transfer transactions, including monthly debits for routine payments and direct deposits. Merchants allow consumers to pay bills via ACH by providing account and bank routing numbers. Several online payment services also conduct transactions via ACH, including most banks and credit unions' online bill payment services.

While many ACH payments clear quickly, because of how an ACH is processed and safeguards against money laundering and fraud, transactions can sometimes take a few days to complete. If there are insufficient funds in the account, ACH transactions will trigger a return notification.

Types of ACH payments

What Are the Types of ACH Payments?

You can process two ACH transactions: direct deposits and direct payments.

ACH Direct Deposits

An ACH direct deposit is an electronic transfer from a government entity or business to a consumer. These types of direct deposits include:

  • Paychecks
  • Tax Refunds
  • Interest Payments
  • Government Benefits

With ACH direct deposits, you receive the money. When you send money, you make an ACH direct payment.

ACH Direct Payments

You can send money through direct payments, businesses, and other organizations. For example, social payment apps like Venmo use the network when you send money to family and friends. It's also an ACH direct payment if you're paying a bill online with your bank account.

With direct-payment transactions, you'll see an ACH debit appear in your bank account if you send money. The debit will show the amount paid and who received it. The person or company receiving that money registers it in their bank account as an ACH credit. You pull cash from an account while they push it to another.

How ACH works

How to Make an ACH Payment

In the ACH network, two payment options are ACH Credit and ACH Debit.

ACH Credit

ACH Credit is considered a push payment triggered by the account holder. Unlike ACH debits, you won't need to provide your account information to the payee. Your payment is set up and accomplished by you and your bank while the payee patiently waits to receive the funds.

ACH credit is often used to deposit your salary to your bank account. However, you can use it to make purchases, pay bills, send money to your friends or family, and more.

ACH Debit

ACH Debits are pull payments initiated by payees. You authorize a business or organization to withdraw funds from your account for the amounts, and on the dates, you agree in advance.

These payments are usually monthly bills such as insurance, phone, or power. Businesses will also pay this way for recurring services.

How To Make an ACH Credit Payment

You'll need to submit the banking details of the organization or person you'd like to send money to if you make an ACH Credit payment. Also, you'll need access to online banking features through your bank or a third-party service.

Here's how to complete ACH Credit transfers:

Online Banking

Your bank should provide you with access to online bill pay features so that you can transfer money quickly. Using a mobile app or by logging into your account online, you'll need to provide the following information:

  • The date you need to make the payment
  • The amount you need to send
  • The recipient's banking details

You should know that credit transfers are not instant because ACH practices batch processing. They are, however, faster than ACH Debit payments, as discussed below.

Payment Processors

Third-party payment processors (TPPPs) can connect to your bank account so that you can complete ACH Credit payments. PayPal and Venmo are providers offering money transfer services that use the ACH network.

To make an ACH payment with a processor, log into a TPPP online account or app, provide the recipient's banking details and the amount you want to send, and then follow the rest of the process.

How To Make an ACH Debit Payment

You need to provide the payee authorization and your account details to begin payments from your bank account via ACH Debit. The organization you are paying will direct you through the authorization process. There are a few ways authorization will be given:

  • Online via an app or webpage
  • A paper form that you complete and return
  • Verbally over the phone
  • In person at the location where you want to pay

After completing the process, the organization can pull the same recurring payment from your account without needing any action from you. Any change to the frequency or payment amount requires that you receive an ACH customer payment notification in advance informing you of the change.

How Long Do ACH Transfers Take?

ACH Credit payments can be processed on the same day or up to two business days. The amount of time it takes for the money to clear in the recipient's account will depend on the financial institutions involved.

ACH Debit, per scheme rules, must be processed the next day and generally takes 3 - 4 days to clear the payee's account. The batched nature of ACH transactions means that the time of day of the transaction can impact how long it takes.

ACH Pros and Cons

What are the Advantages of ACH Payments?

ACH transfers are inexpensive, convenient, and fast. If these benefits are right for you, you should consider this type of payment.


ACH transfers are often free, depending on the type of transfer and your financial institution. For instance, your bank may charge nothing to move money from your account to an account at a different bank. It may only be a few dollars if it does charge a fee.

Compared to wire transfers, which can cost between $20 to $75 for international outbound transfers, ACH transfers are much more cost-effective. Wire transfers can be used for same-day service but take longer to complete. An international wire transfer could take several business days for the money to move from one account to another, then an added few days for that transfer to clear.


Paying your utility bill, mortgage, or recurring monthly expense using an electronic ACH payment is less time-consuming and more accessible than writing and mailing a check. You can also save a few bucks by not buying stamps. Plus, an ACH payment is more secure than other forms of payment, and you won't have to worry about your check getting lost in the mail.


The transfer of funds via the ACH network from one bank to another usually happens the next day. NACHA operating rules require that debits settle the next business day and that credits will be settled in one to two business days.

What Are the Disadvantages of ACH Payments?

There are potential disadvantages when using ACH payments to pay bills, move money from one bank to another, or send payments.

Don't Transfer Too Frequently From Savings

Because savings accounts are governed by Federal Reserve Regulation D, which limits certain withdrawals to six per month, you could be hit with an excess withdrawal penalty if you exceed that limit. If you frequently transfer from savings, your bank could convert your savings account to a checking account.

Transaction Limits

Your bank might limit how much money you can send via an ACH transfer. Limitations could be the number of transactions per day, weekly, or monthly. There might be limits for transfers to other banks and another for the amount of bill payments. Check with your bank to know if ACH transactions are unlimited and if they prohibit international transfers.

Timing Is Important

The time frame matters. Not every bank sends your ACH transfer for processing simultaneously. If you need your transfer processed the next day, there might be a cutoff time.

If you initiate your transfer after the cutoff, it could result in a delay. If you are trying to pay a bill on a specific due date, the delay could result in being charged a late fee.

How Much Does ACH Cost?

Your ACH transfer will be free in the best-case scenario. You will be charged a one-time amount or a percentage if there are fees. A typical flat fee for each transaction could range from $0.25 to $1.50. Rates charged might be from 0.25% to 1.5%. The figures below will give you an idea of what to expect to pay:

  • Person-to-person payments cost: Depending on the platform and payment method, you will pay a small fee if you initiate through third-party apps such as PayPal or your bank.
  • ACH Debit transfer cost: These transfers, which include most bill payments and direct payroll deposits, are typically free. There might be a fee if you need expedited bill payments.
  • ACH Credit transfer cost: Your bank could charge a fee of around $3 if you send money to different accounts at various banks. There is usually no fee to receive them.


ACH transfers can be a convenient way to receive or send money. Know your bank or credit union's ACH direct deposits and payments policies. Also, always be on the lookout for ACH transfer scams. If someone sends you an email that you're owed money, and all they need is your bank account number and routing number to send you that money - it's a scam