What is ACH? (Automated Clearing House)
What is ACH? The letters stand for “Automated Clearing House,” but what does that really mean? ACH is used to transfer money from one account to another. Instead of your account provider, such as your bank, doing the transfer, they leave it to somebody else.
Many people want to transfer money from one account to another during the course of a single day. The bank (your account provider) could use their own computers initiate each transaction, but instead, they leave it to the Automated Clearing House.
During the day, your account provider receives many requests to move money. These requests go into a list. At the end of the working day, the list is handed over to an Automated Clearing House.
During the night, the Automated Clearing House goes down the list and conducts each transfer transaction. They take money out of the account of the sender, and they put money in the account of the recipient. The image below should give you a clearer idea of how it works.
How Long Will My ACH Transfer Take?
In most cases, it takes at least one night. If it is the weekend, or if there are national holidays involved, then it may take a little longer. Some account providers take a little longer when it comes to ACH transfers, at which point it may take two to three days.
If you are transferring overseas, then it may take longer than overnight. It may also take longer if there are extra security checks done on your transfer.
Is An ACH Transfer Reversible?
If you try to put a stop to the transfer prior to the transaction taking place, then there is a moderate chance you may stop the transfer going through.
In this day and age, and speaking as an eCheck.org member who often deals with financial companies, I say it is possible to reverse an ACH transfer–but it is not easy. However, I can say that it is definitely easier to reverse an ACH transfer than it is to reverse a wire transfer, (since it is very difficult to reverse a wire transfer once it is sent).
Are ACH Transfers Safe?
The idea of a bank or account provider sending a list of transfers to a separate organization may not sound like something you want to be a part of. However, ACH is no less safe or secure than a wire transfer or any other form of electronic payment.
The people responsible for maintenance of the networks are very diligent because they know just how much can go wrong if there is a security breach or network problem.
The risk only really comes from the user or the account provider. It comes from the user if he or she enters the wrong details when trying to send or receive money. The risk comes from the account provider if your account provider is somehow fraudulent or particularly negligent when it comes to account security.
What Is ACH Used For?
If you have an account with a bank, a credit union or a money company, then the most common reason is to send money to pay your bills, to send money to family, to friends, and even to employees. You may also use ACH transfers to send money to your various other accounts. Here are a few other uses for ACH transfers.
- It is a salable service that bank treasury management departments sell to government and business customers
- It is used for person-to-person transfers
- People use them to send money to businesses and utilities
- Direct debit payments often use Automated Clearing House transfers, and they may include varying amounts of money being sent each time
- They are used for paying loans, insurance, rent, and other regular payments where the amount stays the same
- ECommerce payments sometimes involve the use of ACH transfers
- Tax payments are often made with ACH transfers, which includes state tax, federal tax and local tax payments
- Charitable donations are often sent with ACH transfers because it removes the possibility of there being fees added on
An ACH transfer is used primarily for two reasons. The first reason is that ACH transfers are almost always free and/or are very cheap, which makes it a very economical way of transferring money. The second reason is that the funds are not in immediate need. You may plan your ACH transfers ahead of time, and you may pre-approve ACH transfers, but they are not used for immediate payment. It makes more sense to use ACH transfers if there is no immediate need for the funds.
Should I Use ACH Transfers?
Since they have such a high success rate and since they have proven themselves to be very safe, you should seriously consider using ACH transfers. Your account provider should offer them already, they may simply be called something else such as Bill Pay, direct deposits, electronic transfers and so forth.
The thing to look out for is if the transaction will cost you money. If there is a fee for transferring money, then either your account provider is overly expensive, or you are about to use a wire transfer rather than an ACH transfer.
Just remember that ACH transfers will take at least overnight to process, and that they are often free. If your account provider claims the transfer will happen quicker or if your account provider says there will be a fee, then what you are about to use may not be an ACH transfer.
A Nasty ACH Trick Still Exists
There are some account providers that charge people extra fees for using ACH. There are some that say you can transfer money for free, but it will take two-to-three days to process. They then say, “If you want it sending overnight, you can pay to speed it up.” This is not a very good deal when you remember that most account providers will offer overnight transfers for free. It is only (maybe) acceptable if the money is being sent overseas or converted and sent.
Conclusion – What About The Times You Are Offered Instant And Free Transfers?
If your transfer is free and quick, then it isn’t an ACH transfer, but you should still use it anyway. Some account providers allow you to send money almost instantly and without a fee. They are often for transfers between accounts that they administer. Just make sure you are not going to be charged, and you will be fine. The only time you should pay a charge is if you want the money processing within the next two/three hours because you are in a rush. In that case, it may be worth paying the fee to have the money sent quickly.