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What Is An ACH Transfer And Does It Work

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Sarah Li Cain
Updated October 2, 2022
4 Min Read

ACH transfer is the most common way to transfer money between banks. Most banks offer this option of electronic transfer to customers, so it’s worth understanding what it is and how it works.

What is an ACH transfer?

Short for Automated Clearing House, ACH is an electronic transfer network system that is responsible for moving funds from one bank to another. ACH transfers are conducted through this system and don’t require touching cash or paper checks. 

You may already be using ACH transfers and not even know it. Some examples include direct deposit (like for your paycheck), automatic bill payments or recurring transfers, Paypal transfers, and when you send money to friends and family through Zelle. 

How long do ACH transfers take?

In most cases it takes a few business days to complete ACH transfers. Factors that could delay the delivery of funds from one bank to another could include insufficient funds, or when someone sends money when banks are closed — weekends or holidays. 

More specifically, ACH transfers are usually processed by a network operator several times a day. The NACHA, or National Automated Clearing House Association, have rules around the timeline when ACH transactions need to be processed. For instance, debit transactions need to be processed by the next business day.

However, even though banks need to process transactions within the same or in one business day, it can choose to hold the transferred funds for a certain period of time. That’s why it can differ between financial institutions as to when you or the person you’re sending money to will receive their funds. 

How do ACH transfers work?

ACH transfers are processed in two ways: credit and debit transactions. 

With ACH credit transactions you “push” funds from your bank account to different receiving accounts, whether to a family member or to a company who has billed for a service. ACH debit transactions, on the other hand, “pull” money from your account, such as when you authorize a recurring payment for a company to take money out for the amount you owe every month. 

For example, if you decide you want to be paid by direct deposit by your employer, once you give them your bank account information, the employer will initiate a payment each pay period by sending an ACH transfer request through their bank.

When it receives the request, the employer’s bank will then forward your request to the ACH network. When it’s confirmed the employer has enough funds in their account, the money will be pulled electronically. It’ll then be pushed to your bank, which may hold the funds before finally depositing it into your account. 

ACH vs. wire transfer

Both ACH and wire transfers send money from one financial institution to another. However, where they mainly differ is in terms of the transfer amount and where the funds need to be sent. Usually, banks have a lower transfer limit for ACH transfers compared to wire transfers. Plus, wire transfers tend to be faster than ACH transfers.

For instance, if you need to wire closing costs and your down payment when purchasing a house, most lenders want a wire transfer. That’s because you can transfer a large amount and it needs to be validated before it’s accepted, assuring the transfer is legitimate and complete.  

ACH transfers are more common for smaller and recurring transactions since they’re typically free, or included with a monthly maintenance fee charged by your bank. 

Wire transfers are also ideal for international transactions. Whether you have family living abroad or a college-age student studying in a foreign country, a wire can get them the money they need quickly. Wire transfers are more expensive, but you get the value of speed if you’re in a time-sensitive situation.

For regular, small transfers that aren’t time-sensitive, you can stick with ACH in most instances. Your employer could set up ACH direct deposits, which are free of charge to you. 

Wire transfers typically cost around $25 to $50 per transfer depending on your bank, transfer amount and where you want to send it. Plus, you can send money internationally with wire transfers, whereas ACH transfers are usually only offered within the U.S.

ACH transfers pros & cons

Here are some advantages and disadvantages of using ACH transfers.

Pros

  • Low or no processing fees from your bank to conduct transfers
  • A secure form of money transfer
  • Convenient form of payment, especially for recurring payments
  • Money is deposited into bank account within a few business days

Cons

  • Typically unable to make international transfers
  • May be slower compared to wire transfers
  • Banks usually impose limits on the amount allowed to be transferred

Factors to keep in mind for ACH transfers

While sending and receiving money through ACH transfers can be low-cost and convenient, there are some factors to watch out for, which could vary from bank to bank:

  • Transfer limits: While most banks have an average ACH transfer limit of around $25,000 per month, some banks impose much lower amounts. It's important to check with your bank what these limits are, and whether there are differences between daily and monthly limits. 
  • Transfer cutoff times: If you make a transfer request after a certain time on a weekday, on a weekend or holiday, you’ll have to wait until the next business day for it to be processed. For those who aren’t in a rush it may not matter, but for those that want the money to hit the recipient’s account by a certain time, it’s best to time it so that it does. 
  • Insufficient funds: A transfer won’t go through if there isn’t enough money in your account. If your transaction is denied, your bank may charge you an insufficient or unsufficient fee.
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