What is an ACH transfer in banking?
ACH payments make moving money easy and quick. They enable you to pay your bills online or get your paycheck directly into your bank account. But what is an ACH payment?
ACH payments are electronic bank-to-bank transfers in the United States. These payments are made via the Automated Clearing House (ACH) network, rather than the card networks like Visa or Mastercard. You can send money online and receive payments without the need for checks, cash, or credit cards.
Our guide will walk you through how ACH transfers work, the two transfer categories, and their pros and cons. Since ACH payments aren’t an option in the UK, we also provide an alternative transfer method to help you manage your money transfers.
In this article
• How do ACH transfers work?
• The 2 types of ACH money transfers
• Advantages of ACH transfers
• Disadvantages of ACH transfers
How do ACH transfers work?
ACH transfers offer a secure, efficient way to send and get money. We break the process down step by step, so you know exactly what’s going on when you transfer money this way.
Transaction start
An ACH payment starts when you decide to transfer money via app or online. You will provide your bank with the details of the transfer, including the amount, the receiver’s account details, and the transfer date.
ACH entry and batch processing
Your bank will receive your transaction request and will group this transaction with others into a batch. These batches are processed at predetermined intervals throughout the day. This batch-processing method is central to the ACH system and is what makes these transactions more cost-effective and efficient.
Transaction posting and notification
The batch including your transaction is sent to an ACH operator, either the Federal Reserve or The Clearing House. The operator sorts the transactions and forwards them to the receiver’s bank. Once the receiver’s bank receives the transaction, it posts the payment to the receiver’s account. You and the receiver will be notified that the transaction is in process.
Settlement and transaction completion
The final step in the ACH transfer process is the settlement, where the funds are officially transferred from your bank to the receiver’s bank. Settlement times can vary, but most ACH transfers are completed within one to two business days. You and the receiver will receive a record of the completed payment.
The 2 types of ACH money transfers
There are two main categories of ACH transfers: direct deposits and direct payments.
Direct deposits
An ACH direct deposit is when you receive money. The business or government entity will electronically send money to your bank account using the ACH network. You might see this type of payment for:
• Paychecks
• Social Security or unemployment benefits
• Tax refunds
• Pension or retirement plan payments
Direct deposits fall under ACH credits. An ACH credit transfer is when money is added to a bank account. For example, when your employer deposits your paycheck directly into your bank account, it’s using an ACH credit.
Direct payments
An ACH direct payment is when you send money electronically. You can use the ACH network to pay bills or send money to individuals directly from your bank account. This type of payment is common for:
• Utility bills like electricity or water
• Mortgage or rent payments
• Insurance premiums
• Transfers to friends or family members
Direct payments involve ACH debits, where funds are electronically withdrawn from your bank account. An example of ACH debit transfers is when you set up your utility bills to be paid automatically from your bank account.
Advantages of ACH transfers
ACH transfers are a popular method for electronic payments, and here’s why:
Secure payment method
ACH payments offer a high level of security for your online transfers. Banks and the ACH operator will have rigorous security measures, such as encryption and fraud monitoring, to protect your account and personal information. This helps decrease the risks of fraud and unauthorised transactions, offering you a trustworthy option for sending or receiving funds.
Cost-effective
ACH transfers are more cost-effective when compared to wire transfers or credit card payments. The cost for an ACH payment ranges between $0.20 and $1.50, but this will depend on various factors such as whether your bank charges a flat fee or percentage fee. The lower transaction fees make this payment method a great choice if you are looking to reduce your payment processing costs.
Convenient for sender
Using ACH payments makes sending money straightforward and efficient. You can automate transfers for regular expenses or when you need to pay someone back. This makes payments easier and less time-consuming compared to writing a check or visiting the bank. It’s also a method accepted by most banks, simplifying how you manage your money transfers.
Disadvantages of ACH transfers
While ACH transfers have numerous benefits, there are also some drawbacks to consider.
Longer transaction time
ACH transfers have a longer transaction time compared to other methods, such as wire transfers. ACH payments can take between one to three business days to process. Certain banks offer same-day or next-day processing if you have a time-sensitive payment, but this may involve an additional fee.
Limits on transfer amounts
Many banks place a limit on the amount of money you can send with an ACH payment. These limits can vary from the amount sent in a single transfer to daily limits to monthly limits. This restriction can impact how useful ACH transfers are for your payment needs.
Difficult to reverse transfer
Once an ACH transfer is initiated, it can be difficult to cancel it if you make a mistake or change your mind. This limitation requires you to be cautious and double-check your transaction details before submission.
Are ACH transfers available in the UK?
No, ACH transfers are a system used in the United States. However, ACH can be used for international payments, which means you can receive payments from the US through ACH. For moving money within the UK or to other countries, other systems are in place.
What is the best way to transfer money in the UK?
One of the best ways to transfer money in the UK is with Bacs payments. Bacs is a trusted method for moving money directly between bank accounts. It’s a cost-effective option for regular payments like salaries or bills.
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FAQs about ACH money transfers
What is the UK equivalent to ACH transfers?
Bacs payments are the UK equivalent to ACH transfers.
What is the difference between ACH and Bacs transfer?
ACH is used in the United States, while BACS is specific to the United Kingdom. Their processing times and transaction fees may also vary.
Are ACH transfers faster than Bacs transfers?
ACH transfers can be faster than Bacs transfers. ACH transfers can take between one to three days. You can also choose same-day ACH for an additional fee. Bacs transfers can take up to three days to process.
