What is ACH Transfer and how does it work?
If you’ve ever sent or received money online, chances are you’ve used an automated clearing house (ACH) transfer. It is a popular way for both businesses and individuals to transfer money between financial institutions.
But how exactly does ACH transfer work and is it always the best option? Let’s see how this process can remove some of the hassle of transferring money as well as some alternatives you can use.
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What is ACH Transfer?
ACH transfer is an electronic funds transfer that is done between banks and credit unions in an automated clearing house network (ACH). The ACH network provides fast and secure transactions, with over 29 billion ACH payments processed in 2021 totaling $72.6 trillion. If you are wondering how to transfer money for a specific purpose, then ACH transfer can be the right solution.
You are already using the ACH network for online bill payments without even knowing it. This includes receiving payments directly from your employer rather than by paper checks or having Social Security benefits deposited directly into your account.
Millions of people use the ACH network for daily transactions because of how easy and secure it is. If you want to make direct deposit with your employer, you usually have to do nothing more than give your account and routing number to your payroll department or set it up yourself through the payroll portal.
For transfers between different banks, you typically link one bank account to another using the same account and routing information. Depending on your financial institution, this process can take a few days and may require verifying small test deposits to make sure the correct accounts are linked.
Types of ACH Transfers
There are two types of ACH transfers: ACH debit and ACH credit. Here’s how they work:
- ACH Debit Transactions: This type of transfer debits (pulls) money from a bank account. With many electronic payments using Autopay, you allow a merchant to withdraw money from your account on a specific date each month.
- ACH Credit Transactions: This type of transfer credit (push) funds to another bank account. Direct deposits from your employer are usually pushed from your employer’s account into your bank account.
How long does ACH transfer take?
A standard ACH transfer usually takes two to three business days or days when banks are open. This will usually not include weekends or holidays. Processing times may differ between each type of ACH transfer.
ACH credits are typically processed on the same day and anywhere between two days. ACH debit can be processed only on the same or next day. If the ACH transfer is expedited, the transfer may only take a few hours to complete.
Here are some factors that can affect the duration of an ACH transfer:
- Standard vs Speedy: It usually takes a few business days for a standard ACH transfer to be processed, but a quick transfer can be completed in just a few hours.
- your time: Payments from ACH transfers are simply settled, or credited to accounts, at certain times during each business day. Once the transfer is processed, it will not accrue until the next settlement period.
- Day of the week: ACH transfers are not fixed on weekends or federal holidays, so you’ll want to initiate a transfer closer to the beginning of the week if you want to deposit money in the same week.
- Errors: Certain errors can disrupt and delay the ACH transfer process, such as insufficient funds or incorrect banking information. However, you generally need to go through a verification process to ensure that a valid bank account is being used for ACH transfers.
- Financial Institutions: The National Automated Clearing House Association (NACHA) oversees the ACH network. NACHA has different timeframes for financial institutions that can affect the speed of ACH transfers. Additionally, each bank and credit union may have its own rules that can affect how long a transfer takes.
ACH vs Wire Transfer
A wire transfer is another way to transfer money electronically between banks. The main differences between ACH transfer and wire transfer are as follows:
- pace: Wire transfers are generally faster than ACH transfers and often offer same-day delivery. An international wire transfer may take longer than a domestic wire transfer due to longer processing times.
- cost: Wire transfer speeds often come with a higher cost than ACH transfers. Most ACH transfers have little or no fees, unless you choose an expedited service, while a wire transfer can cost from $20 to $30 or more.
If time is of the essence, you typically choose wire transfers over ACH transfers, such as sending large sums of money for real estate transactions. ACH transfer may be more useful if you don’t need to transfer money as quickly and you want to avoid fees.
Learn more in our guide on how to wire money online.
ACH transfer limit
ACH transfers are generally safe and convenient, but there are some limitations to keep in mind:
- Amount Limit: You can have limits on how much money you can transfer through the ACH network, per transaction, per day and per month.
- charge: You will usually have to pay a fee if you want faster processing times. If you initiate an ACH transfer and do not have enough funds to cover it, your bank may also charge an overdraft fee for insufficient funds.
- International Transfers: The ACH network allows international transfers, but the availability of this option may depend on your bank.
- Cutoff Time: You must be aware of the fixed cutoff time to clear the ACH transfers. If you miss the cutoff time, your transfer may get delayed till the next working day. If it’s a Friday, you may have to wait until after the weekend for the transfer to process.
- Number of transfers: Some banks charge a fee if you transfer more than six ACH from a savings account in a monthly statement period. Checking accounts usually do not have this limit.
questions to ask
What is required for ACH transfer?
All you usually need is a valid bank account number and your bank’s routing number. Many financial institutions provide ways to link other bank accounts if you log into your online account through an app or web browser.
What is the cost of ACH transfer?
It depends on the type of ACH transfer and the financial institutions involved. Most ACH transfers between different accounts with the same bank are free, but you may see a fee if you transfer between different banks or want faster processing. Most fees are typically less than a certain amount of 2% of the total transfer, or a few dollars.
Do all banks do ACH transfer?
All US banks can do ACH transfers. ACH transfers are often easy to set up as you usually only need a valid bank account number and your bank’s routing number. Other financial services – including Venmo, PayPal and Zelle – can also do ACH transfers.
Other ways to transfer money
zelle
Zelle is a payment app that allows you to send and receive money between friends and family with quick results. It is available in several different bank apps including Chase, Discover and Bank of America. Although Zel is free to use, your bank may charge an additional service fee.
To get started with Zelle, sign up with your email or mobile phone number through your bank app or the Zelle app. You can then send money to almost anyone you know with a US bank account using their email address or US mobile phone number. Transactions usually take a few minutes to complete. Read our Gel review to learn more.
paypal
PayPal is a payment app used by millions of people around the world to send and receive money. It is free to use and provides simple ways to link various payment methods including bank accounts, credit cards and debit cards.
To use PayPal to send and receive money, you need a PayPal account. This is true for both parties involved in the transaction. To initiate a money transfer, log in to your PayPal account and select the “Send and Request” option. Once you’ve entered the recipient’s name, PayPal username, email address, or mobile phone number, you can transfer funds.
You can avoid fees when sending money with PayPal using a PayPal Cash card, your PayPal balance, or a linked bank account. There is a 2.9% fee for every money transfer made using a debit or credit card.
Sending money to friends and family using PayPal is usually fast, although it may take a few business days for the money to be transferred to your bank account. Instant bank transfers often come with fees.
cash app
Cash App is a free payment app that you can use on compatible mobile devices to send and receive money. It can also be used to buy and sell stocks and bitcoin.
To send and receive money with the Cash app, type in how much money you want to request or pay, and then use the other person’s phone number or email address to complete the transaction. You can also use the user’s $Cashtag, which is a unique username that you choose when you created the Cash App account, to make transfers.
Transfers between friends on Cash App are fairly quick, but it may take a few business days for your Cash App balance to transfer to your bank account, unless you pay for Instant Transfer. See our Cash App review for more details.
Venmo
Venmo is a free payment app similar to Cash App when it comes to sending and receiving money between friends and family. You can use your Venmo balance, US bank account, or credit or debit card to transfer money with Venmo.
Venmo transfers between friends and family are generally fast and don’t come with fees unless you use a credit card to send money. Unless you pay a fee for the instant transfer, it may take a few business days for the transfer to take place in the bank account linked to your Venmo balance.
Read our Cash App vs Venmo comparison for more details.
If you’re planning on using a credit card to send money, check out our list of the best credit cards for Venmo.
ground level
ACH transfers are often a quick and easy way to transfer money between bank accounts, whether you’re transferring money between your own accounts or sending money to a friend or family member. In some cases, it makes sense to use other financial services like payment apps if you want to transfer money faster.
Keep in mind that while most ACH transfers are free, your financial institution may charge additional fees. Check out our list of the best banks to find banks that don’t charge ACH transfers and provide the banking services you need.
