Automatic Clearing House (ACH)
What Is ACH?
Launched in 1974, ACH is used for a wide range of financial transactions. You are likely familiar with ACH as a way to pay your credit card bill and other obligations. It is also used for direct deposit, payrolls, IRS payments, and tax refunds among other uses.
ACH represents more than 10,000 financial institutions, and in 2018 it moved over $43 trillion across 25 billion annual transactions.
How Does ACH Payment Processing Work?
The ACH network helps individuals, businesses, and government agencies to move money from one bank to another.
The entity or person initiating the ACH transfer starts by accessing the ACH network. The originator’s bank batches the transfer with other ACH transfers and sends out batches at a variety of times throughout the day to a clearing house or the Federal Reserve. The batch is then sorted with individual transactions being sent to the intended recipients.
Today many ACH transactions take place within a day. The NACHA has moved to change the rules allowing for nearly every transaction to settle within one day by September 2020. This will allow businesses and government agencies to increase the efficiency of operations, and to have faster access to funds.
ACH Payments vs. Wire Transfers
The biggest difference between an ACH payment and a wire transfer is the speed of processing. Typically, funds sent by ACH are good the following day. Funds sent via wire transfer are good the same day. Most institutions charge customers for outgoing wire transfers. The fee usually ranges between $10 and $25. ACH payments are generally free to consumers.
ACH transactions are usually small. Wire transfers tend to be larger for things like a real estate purchase or some other form of bulk funds transfer. Wire transfers also tend to draw more scrutiny from regulators and law enforcement under the USA Patriot Act and corresponding anti-money laundering laws.