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Banking

How Do ACH Payments Work?

Editorial Note: The content of this article is based on the author’s opinions and recommendations alone. It has not been previewed, commissioned or otherwise endorsed by any of our network partners.

Ever wonder what those little notations about ACH credits and debits in your banking statements mean? You’re not alone. As consumer spending habits have evolved, ACH payments have become an integral part of our financial lives — even if most people don’t understand what’s happening behind the scenes.

ACH is short for Automated Clearing House, a network and processing system that financial institutions use to transfer funds electronically. It’s been around since the mid-1970s, when it began facilitating direct deposits of paychecks and social security payments. The ACH now processes 25 billion electronic transactions each year, totalling $43 trillion. The system is overseen jointly by the Federal Reserve Board and the National Automated Clearing House Association (NACHA), which groups more than 10,000 member financial institutions.

“The ACH Network really does serve as the backbone for money movement in today’s economy,” says NACHA Senior Director & Group Manager Victoria Day. “It’s one of the few payment systems that has the ability to reach all U.S. bank accounts, so it provides real value to consumers and business, fintechs and financial institutions.”

Indeed, ACH is the foundation of today’s fintech app ecosystem, as funds transfer services (e.g. PayPal, Venmo, Zelle, Square Cash and Google Wallet) use it to process transactions linked to bank accounts.

How ACH transactions work

ACH Network transactions begin and end with banks. Though the originator of a transaction might be an individual or a company, ACH transactions require bank accounts at both ends. An ACH credit — say, a tax refund or a single bill payment by a consumer — pushes funds into the receiving account. An ACH debit — such as a consumer’s recurring monthly bill payment — automatically pulls money from the originating account.

The process sounds straightforward enough, until you consider the sheer volume of transactions that must be verified and securely processed. An Originating Depository Financial Institution, like your bank, aggregates transactions from all its customers and transmits them in batches at predetermined intervals to the ACH. The batches are processed by ACH and settled — during normal business hours — and then transmitted to each Receiving Depository Financial Institution, where transactions are finalized in the designated receiver’s bank account.

Until a few years ago, NACHA rules required each ACH credit transaction to be settled in one to two business days, and ACH debit transactions to be settled in one business day. However, in 2016 the ACH began offering Same Day ACH, an expedited option that increases the movement of funds between financial institutions from one to three times each day.

“There are times when a consumer or a business needs to send or receive money quickly,” notes Day, and Same Day ACH was designed to help facilitate that.

Benefits of ACH payments for banks and consumers

Safety and reliability are two of the top benefits of the ACH Network, says Day. But there are other advantages as well.

Benefits of ACH transfers for consumers:

  • No fees, typically: Most financial institutions don’t charge customers a fee for ACH transfers. The ACH Network is funded, primarily, by NACHA member financial institutions, who pay fees to cover the costs of operation.
  • Convenience: Paying bills by writing and mailing checks each month takes can take considerably more time and effort than online bill payments via ACH transfers. The ACH system lets consumers feel confident their payments will arrive on time, limiting the risk of late fees or damage to their credit ratings.

Benefits of ACH transfers for banks:

  • Same Day payday: In the past, financial institutions have profited little, if at all, from the ACH Network. The earnings situation has improved somewhat, however, with Same Day ACH. Banks receiving Same Day ACH credits on behalf of customers will be paid an interbank fee of $.052 per transaction by the originating financial institution.
  • New features for bank customers: Same Day ACH give banks new value propositions to include in their products and services for a new generation of consumers. That includes expedited bill pay, better P2P payment service, and cheaper wire service.

What’s the difference between ACH, wire transfers, and EFT?

ACH payments vs. EFT

There is some confusion when it comes to comparing ACH payments and electronic fund transfer (EFT) payments. That’s because various companies commonly refer to ACH payments as EFTs or EDIs (electronic data interchange). Here’s something else that probably doesn’t help: Because the ACH network is electronic, all ACH payments are EFTs, but not all EFT payments are ACH.

Here’s the deal: The banking industry thinks of EFTs as a general term for any method of transferring funds electronically from one bank account to another, including wire transfers, credit card payments and online purchases. Because the ACH Network is backed by the federal government, though, it boasts a higher level of security than other EFT options.

ACH payments vs. Wire Transfer

Both wire transfers and ACH transactions involve one financial institution sending funds to another electronically. However, wire transfers use a different network, Fedwire, and can move funds domestically and internationally with equal ease. (International ACH transfers, on the other hand, are more complicated.)

Speed is the great advantage of a wire transfer, which can send funds from one bank account to another instantly. For certain transactions where speed is essential — closing on a new home, for example — wire transfers may be a requirement. A wire transfer’s speed does come at a cost, though: wire transfer fees can range from $15 to $30 or more for domestic wire transfers and $35 to $45 or more for international ones.

Another caveat is that a wire transfer’s speed can sometimes be a vulnerability. Because the money moves instantly, this type of transfer is particularly appealing to criminals who might try to, say, scam home-buyers into wiring funds into the wrong account.

Payment typeProsCons
ACHMost secure, free of chargeSomewhat less speedy
EFTFacilitates online purchasesLess secure
Wire transferHigh speedFees, risk of outsider fraud

Examples of ACH payments

The 25 billion annual transactions handled by ACH covers a lot of ground, yet they tend to fall into a handful of general categories. Consumers use them for direct deposits of payroll earnings, tax refunds and government benefits, such as Social Security payments.

They are also used to pay taxes and bills, to make payments to individuals, and to move funds from one bank to another. Businesses use them to pay other businesses for goods and services.

Basically, you can use ACH to pay for just about anything that you might previously have paid for by paper check — only more quickly, reliably and securely.

The bottom line

ACH payments have radically changed the way we manage money, and are integrated into the modern fabric of how most of us receive and send funds. There are times, though, when ACH isn’t available — say, with many online stores — and you’ll be paying with a different type of ETF. And there are other times, still, when a wire transfer or money order might make more sense.

Advertiser Disclosure: The products that appear on this site may be from companies from which MagnifyMoney receives compensation. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). MagnifyMoney does not include all financial institutions or all products offered available in the marketplace.

Kate Rockwood
Kate Rockwood |

Kate Rockwood is a writer at MagnifyMoney. You can email Kate here

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Banking

Review of Mvelopes Budgeting App

Editorial Note: The content of this article is based on the author’s opinions and recommendations alone. It has not been previewed, commissioned or otherwise endorsed by any of our network partners.

The Mvelopes app helps you make a budget and stick to it. The app mimics the envelope budgeting system — where you place actual cash in physical envelopes — on your mobile device. Placing cash in paper envelopes every month is a budget strategy that’s been around for a long time, and Mvelopes virtualizes this tried-and-true method. If you like the idea of budgeting via envelopes but find it a hassle to use actual physical envelopes and cold, hard cash, Mvelopes may be a budgeting solution for you.

What is the Mvelopes app?

With Mvelopes, you trade the physical cash and paper envelopes of the envelope budgeting system for a website and a mobile app. You synch up bank accounts with Mvelopes, which lets you create virtual envelopes and then assign different amounts to place in each envelope. Mvelopes offers a 30-day free trial, after which you’ll need to decide how many features you’d like to pay for.

Mvelopes has three levels of service: Basic for $6 a month, Plus for $19 a month, and Complete for $59 a month. Choosing to pay annually gives you a discount equal to two months of fees. At the Complete level, Mvelopes gives you a 60-day money-back guarantee, no questions asked.

Features of Mvelopes

The Mvelopes Basic account offers the following features:

  • Digital envelope budgeting
  • Automatic importing/syncing of transactions
  • Monitoring of account balances
  • Interactive reporting
  • Live chat support
  • Weekly webinar

After you open your Mvelopes account, you’ll see a dashboard with six broad budget categories (bills, everyday, giving, goals, periodic, system), each populated with budgeting envelopes. You can add or remove envelopes from these budget categories at any time.

Under each category, Mvelopes provides envelopes for items like auto maintenance, home maintenance, gifts, auto insurance, electricity, phone and so on. You’re free to change these envelopes at any time to match up with your own personal budget categories.

Add financial account to sync transactions

After opening your account, you’ll be asked to sync one or more financial accounts to Mvelopes, like a checking or savings account, or a credit card account. Mvelopes will automatically import your transactions from each account. Imported transactions are automatically assigned to your Mvelopes inbox. From there, you are responsible for categorizing your deposits and purchases into the correct envelope.

The Mvelopes dashboard and reporting features allow you to see at a glance all of the information regarding your funding and spending transactions, along with your budgets and the amounts remaining in each envelope.

Interactive reporting

You can generate three types of interactive reports that help you understand your spending and plan your budget: envelope reports, account reports or spending plan reports. Within these broad categories, you can track envelope transactions and balances, create summary reports and show details of accounts and envelopes.

Live chat support & weekly webinars

Live chat is available at all tier levels Monday to Friday from 9 AM MST to 7 PM MST, but not on Saturday or Sunday.
Mvelopes likes to stress the educational component of its services, and in addition to extensive educational information you can find online, Mvelopes hosts weekly webinars on various financial topics.

Mvelopes Plus features

At the Plus level, you get the features above plus:

  • Quarterly checkup from an Mvelopes Personal Finance Trainer
  • Debt reduction tools
  • Access to educational resources
  • 1-on-1 assistance with setting up your account
  • Priority support

The big advantage of the Plus tier is a quarterly check-in with a personal finance trainer, who helps guides you and provide feedback on your budgeting process. In addition, Mvelopes will custom-design a rapid debt reduction plan that is personally tailored to your financial needs. You can discuss your progress on this plan every three months with your personal finance trainer session.

Mvelopes also offers an interactive learning center to help Plus-tier customers understand the keys to financial success across a broad range of topics.

The Plus tier also entitles you to one-on-one startup support to help you establish your account and set up your envelope budgeting program. It also gives you priority when it comes to support issues.

Mvelopes Complete features

Complete is Mvelopes’ top tier of service, giving customers the following additional benefits:

  • Monthly sessions with a personal finance trainer
  • A customized Mvelopes budget plan
  • Financial education guided by a trainer
  • Accountability and motivation tools

Top-tier Mvelopes clients get monthly access to a personal finance trainer to help keep them motivated and on track toward their budgeting goals. Working in conjunction with their trainer, Complete-tier customers create a customized financial plan tailored to their personal situation.

In addition to the Plus-tier educational resources, Complete-tier customers can learn additional financial planning techniques and strategies, including financial goal tracking, via trainer-guided education.

Advantages of Mvelopes

  • Automatically imports all of your financial transactions
  • Multiple levels of service to meet varying customer needs
  • 60-day money-back guarantee at Complete, its top-tier level
  • Options for unlimited envelopes and personal financial coaching

Downsides of Mvelopes

  • Not completely automated: You still have to categorize your imported transactions
  • Interface is not entirely intuitive or easy-to-use
  • After the 30-day introductory trial, there is no free option available
  • No 24/7 live chat

Mvelopes vs. other budget apps

Mvelopes is uniquely focused on making the envelope-budgeting system easy to use in an online or mobile format. If you’re already familiar with this type of budgeting, the app may be a perfect fit for you. However, there are other options worth examining.

Mvelopes vs. Goodbudget

Goodbudget is one of the few competitor apps to Mvelopes that focuses on the same envelope budgeting system. The apps are very similar, with the main difference in their interfaces and pricing.

Unlike Mvelopes, Goodbudget offers a free option. However, users are only allowed to link a single account. Goodbudget’s paid account costs $6 per month — the same cost as Mvelopes’ Basic account — and offers broadly similar functionality at that level. However, Mvelopes’ premium service tiers give you quarterly or monthly access (for higher fees) to personal financial specialists, something Goodbudget doesn’t offer at any price level.

Mvelopes vs. EveryDollar

EveryDollar is a budgeting app without the envelopes. As the name implies, EveryDollar allows you to track every dollar that comes into or goes out of your linked financial accounts. Like Mvelopes, you’ll start by setting up your budget categories, such as groceries, restaurants, clothing and health care, and assigning your transactions to each segment. Although the categories are not specifically called “envelopes,” they serve the same purpose as with Mvelopes.

EveryDollar has a free version and a paid version that costs $129.99 per year. The free version includes a personal budget planner and an expense tracker. Access to service and savings experts, such as insurance, real estate and tax professionals, comes with the paid version.

Is Mvelopes right for you?

If you’re already familiar with the envelope system of budgeting, Mvelopes might be your go-to budgeting app. However, even at the Basic level, you’ll be paying $6 per month just to digitize your envelopes. Meanwhile, the top tier costs a very steep $59 per month to add monthly financial coaching. The Mvelopes requires you to regularly allocate your funds to individual envelopes, which could be helpful for some users, but cumbersome for others. Whether you stick with Mvelopes depends on your comfort with frequently interacting with your envelopes.

Fees mentioned in the article are accurate as of the date of publishing.

Advertiser Disclosure: The products that appear on this site may be from companies from which MagnifyMoney receives compensation. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). MagnifyMoney does not include all financial institutions or all products offered available in the marketplace.

John Csiszar
John Csiszar |

John Csiszar is a writer at MagnifyMoney. You can email John here

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Banking

How to Pay for Uber and Lyft Rides with Commuter Benefits

Editorial Note: The content of this article is based on the author’s opinions and recommendations alone. It has not been previewed, commissioned or otherwise endorsed by any of our network partners.

You may have more options than you think when it comes to getting your employer to foot the bill for your commute. Some commuter benefits packages include ride-share options, and both Lyft and Uber have hopped on board the trend.

Lyft and Uber commuter benefits can be used when riders select a shared Lyft ride or uberPOOL, the apps’ carpooling options. If you’re curious about this benefit and whether or not it’s worth linking your Uber or Lyft account to your commuter benefit account, we’ve got you covered.

What are commuter benefits?

Commuter benefits are an employer-provided benefits program that lets you set aside pre-tax dollars in an account to be used for your commute costs. Employees can use these benefits to pay for public transportation — trains, subways, buses, even parking passes — used on their daily commute with pre-tax dollars. The amount of money you set aside to pay for your commute doesn’t count as income, so you’re not taxed on it.

Which benefits programs are included for Uber and Lyft?

Each ride-hailing service has partnered with select benefits programs; there is significant overlap, though Lyft has a slightly more robust list of partners.

For example, if your company’s benefits package is with Zenefits, Wageworks, Igoe or Pension Dynamics, you can use your commuter benefits with Lyft as well as with Uber. On the other hand, if you use the Benny Prepaid Benefits Card, the Discovery Benefits Visa Prepaid Debit Card or the EBPA Benefits Debit MasterCard, you can only use Lyft.

You can see a full list of the supported commuter benefits programs for Lyft here and for Uber here.

How do I sign up for commuter benefits?

Workers have to sign up for commuter benefits in order to receive them. When you sign up, you will be asked to select how much money you want to set aside from your paycheck each month to cover your transportation costs.

Once you’re enrolled, you may receive a benefits card (it can be used like a regular debit or credit card) to make transportation purchases. Otherwise, you may be able to cover transportation expenses using your regular credit or debit card and then submit a claim to be reimbursed through your benefit provider.

Reach out to your employer’s human resources department to find out how to take advantage of your commuter benefits program.

How much can I really save?

Depending on your current tax bracket, you could save as much as 37% on your commute by using commuter benefits. For example, if you’re in the 35% tax bracket and contribute $200 each month to your commuter benefits account, you’re getting an extra $70 to spend on your commute each month. That’s an extra $840 per year.

But here’s the catch: Commuter benefits contributions are capped at $270 per month. So if you are already relying on your benefits to finance your monthly subway pass or parking garage expenses, you may not have much left over for Uber or Lyft commuter benefits.

What are Lyft’s shared rides and uberPOOL?

To use commuter benefits to pay for Lyft or Uber rides, you have to select the apps’ carpooling options — either Lyft’s shared rides or uberPOOL.

Carpool vehicles seat six or more passengers, whether you’re using Lyft or Uber. Both Uber and Lyft use algorithms to place riders going toward the same area in the car together. Because you’re carpooling, however, you may or may not have a longer commute, depending on traffic in your city and how many other riders get picked up or dropped off during your trip.

Where are these benefits available?

Whether Lyft or Uber commuter benefits are available in your location depends on which rideshare option you want to use.

If you prefer Lyft, you’re in luck: As long as the company offers shared rides in your area, you can use your commuter benefits to fund your rides, assuming, of course, your company uses a partner benefits program. Here is a full list of cities where Lyft offers shared rides.

Uber users, on the other hand, can use the commuter benefits everywhere that uberPOOL is available, with the exception of Nashville, Tenn. and Portland, Ore.

How to use commuter benefits on Lyft

If you’re interested in using commuter benefits on Lyft, here’s how to set it up:

  1. First, you need to add your commuter benefits card to your profile. When you open the Lyft app, tap “Payment” in the left-hand side menu to see your payment options.
  2. Select “Add card,” enter your commuter benefits card information and press save.
  3. Next, set the card as your default payment method. There are two ways to do this:
    • Select the card as your default payment method for your personal profile under the “payment defaults” section in the “Payment” menu.
    • When you open the app, set your location and destination. You’ll then see the last four digits of the card that’s being used to pay for the trip. Tap the numbers to change your payment method to your commuter benefits card. You should see a rectangular icon with a diamond in its center when using your benefits card.
  4. To use your commuter benefits on a ride, select “Shared.” You can only use your benefits to pay for carpools under the “Shared” ride option, located under the “Economy” tab.

How to use commuter benefits on Uber

Prefer to use Uber? Here’s how you can set up Uber commuter benefits:

  1. Add your commuter benefits card to your profile by going to the left-hand menu and adding your commuter benefits card under “Payment” (it may also be listed as “Wallet.”) You can also add the card after setting your location and destination under uberPOOL, shown below.
  2. Tap on your card information to set or add your commuter card as a payment option.
  3. Your benefits can only be used to pay for carpools under uberPOOL. Select the pooling option to be matched with a car with six or more seats, and you’ll be good to go.

Pros of using Uber and Lyft commuter benefits

  • Use pre-tax dollars to save: The most obvious perk of using your commuter benefit is that you’re using pre-tax dollars, so your dollar can go up to 37% further. If you’re already paying out of pocket for your commute, this could be a huge benefit, freeing you up to use that cash on something else.
  • Cut back on driving: According to the latest available five-year estimates from the U.S. Census Bureau, the average commute takes about 27 minutes — though if you live outside of a larger, more congested city, it could be significantly longer. If it’s more affordable for you to use a ride-sharing app, you can use that time to read, catch up on work or take a nap while you ride, instead of letting the stress of navigating from point A to point B get the best of you.
  • Reduce your carbon footprint: Since these benefits are restricted to carpooling with at least six or more passengers, taking advantage of it means contributing to a smaller carbon footprint, and that’s especially true if you usually drive to work solo. Using a ride-sharing app takes the hassle out of organizing a carpool.

Cons of using Uber and Lyft commuter benefits

  • Only shared rides are eligible: You may want to put your pre-tax dollars elsewhere if you’re not into making new friends each morning. You’ll be placed in a vehicle that seats six or more people when you use your benefits card, and other riders may have various personality types that may not mesh so well with yours, if, for example, you tend to be in zombie-mode before your coffee kicks in and prefer to sit in silence.
  • Contributions are limited: Your contribution is limited to $270 a month, which may or may not be a month’s worth of commuting, depending on how much your commute costs. For example, an analysis by LendingTree, the parent company of MagnifyMoney, found the average monthly cost of commuting with Uber’s non-pool service UberX in New York City is more than $700. Still, $270 pre-tax will help cut down on your monthly spending for the trip to work.

Advertiser Disclosure: The products that appear on this site may be from companies from which MagnifyMoney receives compensation. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). MagnifyMoney does not include all financial institutions or all products offered available in the marketplace.

Brittney Laryea
Brittney Laryea |

Brittney Laryea is a writer at MagnifyMoney. You can email Brittney at [email protected]