An ACH transfer is a convenient way to transfer funds in a number of different scenarios, from online banking to peer-to-peer payments through services like PayPal. Money is sent electronically through the Automated Clearing House network, which is a major payment system that connects different bank and credit unions.

Here’s everything you need to know about ACH transfers, including how they work and what the pros and cons are for using them in specific situations.

ACH Transfers Explained

An ACH transfer occurs by pulling funds from one account and having them electronically deposited into another account. It’s a fast and convenient way to facilitate payments between bank accounts for both individuals and businesses.

ACH transactions typically break down into two separate categories: debits and credits. You can utilize each type of transfer for different payment options. Understand how each transaction type works so you know which you’re most likely to use for common services. 

Debit Transactions

When you set up an ACH debit transaction, you authorize an external company to access your bank account to debit funds to pay a recurring bill. This can be done for ongoing automatic payments, such as a monthly ACH debit from your cell phone company, or for one-time payments that you schedule on demand.  

With automated payments, you typically receive a notice in advance of how much will be charged. The billing company then initiates the withdrawal on the given due date. This is common with things like subscription services where you know the amount owed is the same each month.

With on-demand payments, you establish an existing link between the billing company and your bank account but still remain in control of when you pay for a bill or service. If you set up on-demand ACH transfers with your utility company, for example, you may wait to see how much the varying bill amount is before you authorize payment. You may also want to check for accuracy before agreeing to make a payment.

Either option entails providing the billing company with both your bank’s routing number and your individual account number in order to sign up for this ACH transfer service. You can add your bank account to third-party services like PayPal, Venmo, and Zelle to safely connect to other individuals’ accounts. This way you can seamlessly transfer money back and forth with family and friends using ACH transfers. It’s also a safer way to pay for online transactions without entering your credit or debit card information into a website you’re not entirely familiar with.

Credit Transactions

You can also receive account credits through ACH transactions. The most common type of credit transaction is through direct deposit from an employer. To get started, you provide the same bank account and routing information and authorize your company to deposit your checks via direct deposit. This makes it faster to receive your money without having to worry about manually depositing a paper check. The company doesn’t have the authorization to deduct money from your account, so you don’t have to worry about security issues with this process.

Cost and Timeframe of ACH Transfers

Time and money are important in all aspects of life, and ACH transfers are no exception. Find out what to expect for each one when using this form of electronic payments. 

Costs

One of the biggest perks of ACH transfers is that it’s typically a free service to use. Some banks, however, do charge a $3 fee when sending funds this way. While not a huge dollar amount, that can quickly add up if you end up sending these transfers frequently. 

Also, check on costs if you sign up for online bill pay through your bank. This service utilizes ACH transfers to execute the transaction. While the company you’re paying likely won’t issue a fee, some banks charge for this service or only allow a certain number of bill pay transactions for free each month.

Peer-to-peer services typically don’t charge a fee for sending money to friends and family. If you’re using the platform to pay for goods or services, the recipient typically pays a fee. This could either be a flat fee, a percentage of the amount received, or a combination of both. When you’re purchasing something, however, you do typically get certain buyer protections that help you navigate the refund process if your order isn’t correct. 

Timing

ACH transfers may feel automatic, but they’re really not. In fact, it can take as long as several business days for your payment to leave your account and be credited to the receiving account. Transfers are only processed three times a day on business days, so the time of the request can impact how quickly it’s processed in the system. Payments are not processed on weekends or bank holidays.

Delivery also depends on how long the financial institution accepting the funds decides to hold them before releasing. While banks have the ability to process payments the same day they’re received, that doesn’t mean they actually do. 

Advantages

You can gain a lot by opting for ACH transfers, whether sending them or receiving them. One of the biggest advantages is convenience, especially if you’re prone to late payments simply because you forget them. Set up automatic payments and you won’t have to worry about manually paying everything anymore.

Security is another important feature of ACH transfers. The potential for lost paper checks is eliminated and there are fewer intermediaries involved to help with fraud prevention. You also have a better chance of avoiding a human error with automated payments. Additionally, ACH transfers are generally more cost-effective than other options such as wire transfers and even paper checks are more expensive to execute and distribute.  

Finally, ACH transfers are becoming increasingly useful to the broader public, even outside of paying bills and getting your checks deposited directly. Free and low-cost online services and mobile apps make it easier than ever to send money to friends and family or split bills at restaurants with P2P transfers. Not only is it easy and cost-effective, but it can also help improve relationships by ensuring everyone is on the same page with money. 

Disadvantages

While ACH transfers do open a lot of doors to safety and convenience, they also come with several restrictions to be aware of. First, there are limits to how much you can transfer both on a daily basis and a monthly basis. If you plan to frequently transfer funds through ACH, make sure you understand these ceilings so you’re not penalized.

You might also feel restricted by the time limits involved. ACH transfers stop going through the system at a certain point in the day, plus they’re only processed on business days. If you miss the cutoff on the Friday afternoon of a holiday weekend, for example, you’ll have to wait several days for the funds to actually transfer.

Another limitation is that you likely won’t be able to send ACH transfers to banks that are located outside the U.S. You may be able to get around this with an online third-party service, but it’s usually not allowed for bank-to-bank transfers. Also, note that savings accounts are restricted to six withdrawals per month. ACH transfers are included in that calculation.

Finally, if you’re the one sending money, make sure the funds are fully available in your account before initiating the ACH transfer. If you don’t, you’ll likely be charged an expensive insufficient funds fee and your transfer could be canceled.

ACH Transfer vs. Wire Transfer

When considering your electronic payment options, you may wonder which is better: an ACH transfer or a wire transfer. While similar, there are some key differences to be aware of. Wire transfers are typically much faster than ACH transfers. While they’re not technically processed in real-time, they come pretty close. As long as you submit the wire transfer before the cut off time on a business day, the funds should arrive on the same day, if not within moments of initiating the transfer. 

That convenience does, however, come with a price. While an ACH transfer might cost you a couple of dollars, a wire transfer fee typically costs around $25 if you’re the one sending it. Because of the cost involved, you may wish to reserve using wire transfers for large-dollar purchases. 

A wire transfer can also be used to send money overseas. If you have family abroad and want to send them cash or are paying for international services, a wire transfer is safe and cost-effective. Common expenses include things like a deposit for a destination wedding venue or paying tuition for studying abroad. 

The Bottom Line

An ACH transfer can be a useful tool for sending money, as long as you use this service with clear expectations. From slower timing to moderate fees, there are a few limitations to incorporate into your plan. However, utilizing ACH transfers for consumer-friendly services like bill pay, direct deposit for paychecks, and P2P payments is an easy way to manage your money, both in terms of security and convenience.

Author

Lauren's work has been seen in a variety of news outlets, including the Chicago Tribune, Crediful, Kiplinger, and CBS News. Before her writing career, Lauren worked in community outreach for the Federal Reserve Bank of Richmond as well as in non-profit fundraising. She lives in the Blue Ridge Mountains with her husband and three kids.

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