An ACH payment is an electronic fund transfer made between banks and credit unions across the Automated Clearing House (ACH) network. It is a way to transfer money between bank accounts, rather than going through card networks or using wire transfers, paper checks, or cash. ACH payments 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 payments are processed in batches and are designed to process numerous transactions at once, charging low fees to encourage their use for low-value payments. There are two main categories of ACH transactions: direct deposits and direct payments. Direct deposits are used for payments from businesses or the government to a consumer, particularly for payroll, as well as government benefits, tax refunds, interest payments, and more. Direct payments, on the other hand, are initiated by the payee with pre-authorization from the payer and include consumer payments such as utility bills, insurance premiums, mortgage loans, and other types of bills.
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 transactions can trigger a return notification if there are insufficient funds in the account.
