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ACH Transfers: How They Work

An ACH transfer is an electronic money transfer between banks that allows money to be pulled from an account or to be 'pushed' online to accounts at other banks.
November 2, 2016
Banking, Banking Basics, Money Transfer

If you’ve sent or received money online before, odds are that an Automated Clearing House transfer was involved.

Although you might not be familiar with that name, these ACH transfers account for the online bill payments you make and the direct deposits you receive, along with other transfers. Here’s a guide to how they work.

» MORE: Best ways to send money to individuals

What is an ACH transfer?

An ACH transfer refers to any electronic movement of money between different banks that goes through the Automated Clearing House network, one of the biggest U.S. payment systems.

An ACH transfer is an electronic, bank-to-bank transfer processed by the Automated Clearing House network.

The types of transfers include external funds transfers, person-to-person payments, bill payments and direct deposits from employers and government benefit programs. For sending money to friends and family, many transfer providers — including banks and third-party apps like PayPal and Venmo — use the ACH network.

Types of ACH transfers

ACH transfers get processed in two ways, which vary in delivery speed and cost:

  • ACH debit transactions involve money getting “pulled” from an account. When you set up a recurring bill payment, for example, the company you’re paying can pull what it’s owed from your account each month.
  • ACH credit transactions let you “push” money online to accounts at different banks, either accounts you own or friends’ and family members’ accounts.

How long it takes

Delivery of ACH transfers can take several business days, meaning days that banks are open. Unlike the real-time processing that wire transfers have, ACH network operators process transfers in batches only three times a day.

Delivery can take several business days.

Financial institutions can choose to have ACH credits processed and delivered either within a business day or in one to two days. In contrast, ACH debit transactions must be processed by the next business day. These timelines are based on the new rules from the National Automated Clearing House Association, the trade group that oversees the network. Upon receiving the money, the other bank or credit union might also keep transferred funds for a holding period, so the total delivery time varies.

What it costs

ACH debit transfers, including payroll direct deposits and most bill payments, are typically free. If you need expedited bill payments, there can be fees.

ACH transfers such as bill payments tend to be free, while transfers between linked accounts at different banks are either free or about $3.

For ACH credit transfers, banks might charge a fee of around $3 for sending money between accounts that you have at different banks, but many offer these so-called external funds transfers for free. There’s usually no fee to receive them. Person-to-person payments that you initiate through your bank or third-party apps such as PayPal can cost a small fee, depending on the platform and payment method.

» MORE: What it costs to send money online between banks

ACH transfers vs. wire transfers

Although ACH transfers cost a few bucks at most, sending a bank wire transfer within the U.S. tends to cost from $20 to $30, and there’s usually a fee to receive one. However, the wire network processes transactions in real time, so you can generally expect U.S. wire transfers to be delivered within hours, if not minutes. Because of its cost and speed, a wire transfer is best for large-sum and time-sensitive transfers, either in the U.S. or abroad.

» MORE: How wire transfers work

Same-day delivery

A new rule by the National Automated Clearing House Association that went into effect this September starts the move toward three ACH network processing times daily instead of just one. This will occur in three phases and will make widespread use of same-day delivery possible by March 2018.

The rule doesn’t determine whether this faster service will cost extra, though. “There are definitely going to be some banks that will charge a premium for processing same-day transactions,” says Linda Coven, senior analyst at Aite Group, a consulting firm in Boston.

Restrictions on external funds transfers

Sending money via ACH between banks can be convenient, but there are some limitations, including:

  • Amount limits: You may have a daily and monthly cap on how much money you can move.
  • Cut-off times: After a certain hour, a transfer won’t be processed until the next business day. If you send money on a Friday, for instance, processing might not start until the following Monday.
  • Fee for insufficient funds: If you don’t have enough money in your account, your bank might charge you a fee and stop the transfer.
  • Not often available for international transfers: Your bank probably won’t allow consumer ACH transfers to banks outside the U.S.
  • Transfer limits for savings accounts: These online transfers fall under the general federal restrictions, which limit the combined number of certain withdrawals and transfers from savings accounts to six per month. (If you’re looking for a new account, check out NerdWallet’s best savings accounts.)

ACH transfers can be a cheap way to move money, but if you’re the one sending funds, check out your bank’s policy first. This will help you avoid any fees, unexpected processing delays and potential limits so you can make the most out of this service.

Spencer Tierney is a staff writer at NerdWallet, a personal finance website. Email: Twitter: @SpencerNerd.

Updated Oct. 2, 2017.