An ACH (Automated Clearing House) is an electronic network used for processing transactions between participating financial institutions. It is a way to transfer money between bank accounts, rather than going through card networks or using wire transfers, paper checks, or cash. ACHs process large volumes of credit and debit transactions in batches, and they are designed to process batches of payments containing numerous transactions, charging fees low enough to encourage their use for low-value payments. ACH credit transfers are initiated by the payer and include payments such as direct deposits, payrolls, retail payments, and vendor payments. ACH direct debit collections are initiated by the payee with pre-authorization from the payer, and they include consumer payments such as utility bills, insurance premiums, mortgage loans, and other types of bills.
ACH transfers work by using the ACH network to facilitate the transfer of money from one bank account to another. Several factors determine the mechanics of the ACH process, such as whether its a debit or credit request, which processing partner the originator uses, whether the originator has opted for same-day service, and whether the initial request yields one of 69 possible return codes. While many ACH payments clear quickly, transactions can sometimes take several days to complete due to the way in which an ACH is processed and precautions against fraud and money laundering.
ACH transfers are used for all kinds of fund transfer transactions, including direct deposit of paychecks and monthly debits for routine payments. Merchants often enable consumers to pay bills via ACH by providing an account number and bank routing number. A number of online payment services also conduct transactions via ACH, including most banks and credit unions’ online bill payment services. ACH transfers are often free, depending on where you bank and the type of transfer involved. For example, your bank may charge you nothing to move money from your checking account to an account at a different bank. And if it does charge a fee, it may be a nominal cost of just a few dollars.
