What Is an ACH Transfer?

An Automated Clearing House (ACH) transfer is an electronic payment between bank accounts sent over the Automated Clearing House Network. You likely use ACH transfers on a regular basis: when your salary lands in your account every month or when you set up bill payments for your utilities or mortgage.

You could say ACH transfers are the unsung heroes of electronic payments, safely carrying money to its destination behind the scenes. Read on to learn how they work.

What is an ACH transfer?

An ACH transfer is an electronic payment between bank or credit union accounts processed via the Automated Clearing House Network.

First time you’ve heard of them? You’re not alone. They’re widely used but not widely understood. If you’re part of the 96% of American workers who receive their paycheck through direct deposit, or if you ever pay a friend back for dinner with Venmo, you’re conducting an ACH transfer.

According to the National Automated Clearing House Association (NACHA), which governs the ACH network, there were more than 29 billion ACH network payments in 2021 (for nearly $73 trillion). And in the second quarter of 2022, the ACH Network managed 7.5 billion payments.

There’s a reason ACH transfers are growing: they’re convenient, secure and typically have a quick turnaround. Most (but not necessarily all) banks offer them, with online banks especially relying on ACH as their business is built entirely on keeping everything digital.

Types of ACH transfers

There are two types of ACH transfers: when money is sent to your account (direct deposits) or taken from your account (direct payments).

• ACH direct deposits: Also known as ACH credits, these payments are “pushed” or deposited directly into your account. They can come from an employer, business or government entity as paychecks, tax refunds, government benefits or even interest payments.
• ACH direct payments: Also known as ACH debits, these are transfers you authorize to an individual, business or other organization. For example, you might set up recurring online payments for your electricity bills — those are “pulled” from your account.

How long does an ACH transfer take?

The time it takes for an ACH transfer to happen depends on your bank’s policies, the type of transfer, when you initiate it and whether there’s an error or security issue. And because the bank initiating the ACH transfer is liable for fraud, this could also impact processing and hold times on the ACH service.

ACH direct deposits can be processed within the same day, one day or two days — check to see if your bank offers same-day processing. ACH direct payments, on the other hand, are processed by the next business day, according to NACHA rules.

An ACH transfer must go through one of two operators: the Federal Reserve Bank and the Electronic Payments Network (the Clearing House). Banks batch up ACH transactions and send them through these operators at predetermined times during weekdays. If your transfer is initiated after these times, it’ll be settled the next business day.

Keep in mind that ACH transfers are not settled on holidays, weekends or outside of Federal Reserve settlement service hours. For instance, if your payday is on a weekend or holiday, you’ll generally receive your direct deposit early.

ACH vs. wire transfer

ACH and wire transfers both safely move money between banks and credit unions. Here’s how they compare:

What to consider with ACH transfers

Before going through with your ACH transfer, think about:

• Processing times: The banks initiating ACH transfers are liable for any fraud associated with them, so outbound processing and hold times can be higher. ACH direct deposits can take a few days to process, while ACH direct payments are typically processed by the next business day. Both do not go through on weekends or holidays.
• Availability: NACHA can reach all U.S. banks and credit unions, but that doesn’t necessarily mean they all participate equally. As for timing, payments are processed through the ACH network for 23¼ hours on business days.
• Transfer limits: Transfer limits vary by institution. NACHA recently expanded its same-day dollar limit to $1 million per payment — but because fraud falls on the bank that originates the ACH, a bank may decide to set smaller limits. Ask your bank if they have any transfer limits.
• Reversals: ACH transfers are reversible under certain circumstances, like a duplicate payment or a payment sent to the wrong account. Every bank operates differently and may require a different process for stopping or reversing one.
• Fees: Most often, ACH payments are free — but your bank may charge a fee if you opt in for a same-day transfer. External transfers may also come with a fee. Ultimately, cost varies based on the institution where the transfer is initiated.

How to do an ACH transfer

Setting up an ACH transfer — whether you’re sending or receiving — is pretty simple.

1. Gather the relevant information: You’ll need your bank’s name and address, account number, routing number, type of account and the account holder’s name (you).
2. Set up the transfer with the appropriate institution: Initiate the transfer with your bank (by supplying your ongoing bill information) or the outside institution or entity (i.e., your employer, electricity company, Venmo, PayPal, the IRS, etc.). This can involve providing your ongoing bill information with your bank or credit union, or giving your bank information (compiled in step 1) to the right institution.
3. Monitor your account: Once you’ve set up your transfer with either your bank or the receiving entity, keep an eye on your account to make sure that you maintain sufficient funds and that your payments are going through successfully.

Is an ACH transfer safe?

Yes, an ACH transfer is a secure option for moving money. NACHA enforces strict rules and fraud liability laws to protect these payments and sensitive information. With each transfer, your money, personal data and account details are protected by layers of bank-level encryption.

Going the ACH route also means more steps for verifying your identity and bank information before a payment goes through. Plus, you don’t have to rely on riskier forms of transfer or payment, like paper checks that are easy to steal. And if you send money in error, you can reverse the transfer under certain circumstances.

Another level of protection is the Fed’s Regulation E, which covers all electronic fund transfers. Your bank is required to fix fraudulent ACH transfers to your bank account as long as you report it quickly.