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Guide to ACH transfers: What they are and how they work

The Automated Clearing House is the nationwide system that allows money to be transferred electronically.

Yahoo Personal Finance· Getty Images
Ivana Pino
·Senior Writer
4 min read

Before your paycheck hits your account on payday, there are a few steps that happen behind the scenes. Direct deposits and many other types of payments are made via the Automated Clearing House (ACH) — the electronic payment network that facilitates the movement of money between bank accounts across the country.

In 2023 alone, the ACH Network securely handled 31.5 billion payments valued at $80.1 trillion. Read on to learn how ACH transfers work and why it matters to you.

An ACH transfer is a payment processed by the Automated Clearing House network. The ACH is a nationwide network that financial institutions use to send each other batches of electronic credit and debit transfers. Common types of ACH transfers include paychecks, Social Security benefits, tax refunds, and more.

There are several types of ACH payments, and they all differ depending on the purpose of the funds and the time it takes to arrive. This includes:

  • Same-day ACH: Payments that are sent, received, and posted to a recipient’s account on the same day.

  • Business-to-business (B2B) ACH: Electronic payments sent from one business to another.

  • Direct deposit: Paychecks, government benefits, tax refunds, and other payments that get deposited directly into your bank account.

  • International ACH (IAT): Used to facilitate payments across national borders.

  • Healthcare electronic funds transfer (EFT): These types of payments make it easier for your healthcare providers to be paid in a timely manner and process benefit claims.

  • Consumer payments: These include electronic payments such as your monthly student loan payment, utility bill, and mortgage payment. It also includes peer-to-peer payments through platforms such as Venmo, Paypal, or Zelle.

Read more: 5 ways to transfer money from one bank to another

ACH transfers require a series of steps:

  1. Payment is initiated: The individual or organization making the payment must provide the necessary information for the transfer, including the recipient's bank account details, the amount to be transferred, and the date the transfer should occur.

  2. Payment instructions are sent to an ACH operator: There are two ACH operators — the Federal Reserve Bank and the Electronic Payments Network (The Clearing House). These operators sort the transactions and route them to the recipient's bank. During this step, the details of each transaction are verified, ensuring that the accounts involved are valid and the initiating party has the necessary funds or authorization for the transfer.

  3. Funds are settled: Once the transaction has cleared, funds are debited from the sender's bank account and credited to the recipient's bank account.

  4. Account holder receives their money: The funds are posted to the receiver's account.

Unlike wire transfers that are processed in real time, ACH transactions are collected by financial institutions throughout the day and processed in batches. This means all ACH transactions initiated during a specific timeframe are grouped together and processed at predetermined intervals throughout the business day.

ACH transfers typically take 1-3 business days to complete. However, the exact timing can vary depending on factors such as the banks or credit unions involved, the time of day the transfer was initiated, and any holidays or weekends that might affect processing times. Many financial institutions have cut-off times that determine whether your ACH transfer is processed that day or the next business day.

Nacha, or the National Automated Clearinghouse Association, which manages the ACH network, estimates that 80% of ACH payments settle in one banking day or less (by regular and same-day ACH).

You likely won’t pay any fees for ACH transfers, but this depends on your financial institution. In some cases, your bank might charge a fee for expedited ACH transfers or international ACH transfers. Refer to your account’s terms and conditions to determine whether or not you’ll incur a fee.

ACH and wire transfers are both methods for sending money electronically, but they differ in a few ways:

  • Wire transfers come with extra fees: Unlike ACH transfers, incoming and outgoing wire transfers usually involve a fee. Wire transfer fees typically cost around $35 for domestic wires and can be higher for international wire transfers. Fees can also vary depending on the amount being sent.

  • Wire transfers may be processed more quickly than ACH transfers: ACH transfers are processed in batches, while wire transfers are processed individually and can happen on the same day or even instantly in some cases.

  • A wire transfer could make more sense depending on the purpose of the money transfer: If you’re making a one-off or time-sensitive payment, a wire transfer ensures your money arrives quickly and securely. ACH transfers are more commonly used for routine payments.