ACH payment: What is it and how to make an ACH deposit

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Wondering what an ACH payment might be? We’ve got you covered. 

It’s incredibly common to send and receive ACH payments when making transfers direct from one bank account to another within the US. That means that if you prefer to manage your money online and on the go you’ve probably send ACH payments yourself using your online banking system - and if you have your salary deposited right into your account for convenience, you probably receive ACH payments, too.

This guide clears up the mysteries around ACH deposit payments so you know when, how, and why they’re useful.

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What is an ACH?

Let’s start with the basics. ACH payments are bank to bank electronic transfers, which are processed through the Automated Clearing House system - hence the name, ACH. ACH payments are organized by NACHA - the National Automated Clearing House Association.

Even if you’ve never heard of an ACH payment you’ve almost certainly received one. ACH payments are the preferred method of sending direct deposits such as employer payroll, government payments and benefits, and even IRS rebates.

ACH payments are also regularly used by banks, so if you make electronic transfers using your online banking system, or set up recurring payments to cover loans or mortgage payments for example, you’re probably using the ACH system there too.

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ACH payments may also be called direct deposit payments, direct pay, or electronic checks. If you’re arranging bank to bank transfers within the US online using your own bank’s system you may not even know you’re setting up an ACH payment - but as this is one of the cheapest and easiest options for domestic transfers, it’s probably the default your bank offers. 

In broad terms you can split ACH payments into direct deposits and direct payments. Direct deposits are usually made from a company or organization to an individual - direct payments can be made by individuals, companies or organizations.

Common places direct deposit ACH payments are used include:

  • Payroll - 93% of US employees get their salaries via ACH direct deposit
  • Government payments which are made to large groups of people are usually via ACH
  • ACH is used for annuity payments, or interest payments from investments and savings
  • The IRS uses ACH payments when it distributes tax rebates

You’ll also often use direct payments - here are some examples:

  • Sending money with Venmo or Zelle? That’s probably an ACH payment
  • Many low cost or free domestic transfers made using online banking are ACH payments
  • Recurring payments made from a personal bank account to a company often use the ACH network 
  • Online bill pay usually uses ACH payments
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How to make an ACH payment

The process for making an ACH payment will vary a little depending on your own bank’s online or mobile banking system. However, the basic steps are usually the same:

  • Log into your online banking service
  • Select the options to make a domestic transfer or pay a bill
  • Follow the prompts to enter the recipient’s name, bank account number and routing number
  • Confirm the amount you want to pay, and whether the payment is one off or recurring
  • Check everything over and confirm to complete the transfer

How does ACH payment processing work?

ACH payments are initiated and then processed by the clearing house at various stages throughout the day. The ACH network operates almost 24 hours a day during the working week, with standard payments processed 4 times a day, and same day payments processed at 3 points every day. ACH payments are not processed over weekends or public holidays.

Once the payment has been processed by the clearing house it is usually available for the recipient very quickly - although the exact process does depend on the recipient’s own bank’s system.

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Can I make an international ACH transfer?

It is technically possible to use ACH payments to send money overseas. However, not all banks offer this service to their customers. Depending on your own bank you may need to use a wire transfer instead when sending a payment internationally - or send your transfer using a third party provider. We’ll cover a little about wires and how they differ from ACH payments in just a moment.

ACH payments costs

It’s free to receive an ACH payment, so your bank or credit union won’t charge you for getting your salary paid by direct deposit for example. It’s also usually free or fairly cheap to send ACH payments or pay bills by ACH - check your own bank’s policy on this. 

In some cases account holders can make a certain number of free ACH payments per month before fees apply, so knowing the fees and limits associated with your account is essential.

ACH payment processing time

ACH direct deposits can be set up as same day, next day or 2 day payments, while ACH payments are available as same day or next day payments.

That means for example, that an employer can schedule payroll 2 days in advance to be sure that employees will get their money first thing on payday.

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ACH vs Wire transfer

While ACH payments and Wire transfers are both ways to move money from one bank account to another, they do both have different features, fees and benefits to consider. 

Wire payments are processed by your bank instead of being passed to the automatic clearing house. That means they may be dealt with right away instead of having to wait until the next ACH processing time - but it also means more work for the bank, and so higher fees. In fact you’ll usually pay fees both to send and receive a wire transfer, making wires more appropriate for times when speed is essential.

International wire transfers

Wire transfers are often used when making international payments through traditional banks, too. In this case the fees used can be especially high - both for the sender and the receiver. 

Depending on how the payment is processed, international wires may also involve currency conversion fees and third party costs. 

Third party costs come in when international payments use the SWIFT network - a set of partner banks working together to move money across borders from one account to another. SWIFT payments can involve up to 3 partner banks, which can all impose a fee if they choose to - meaning your recipient gets less than you expect in the end.

Currency conversion fees can apply when you send payments to a foreign currency. These are usually in the form of a markup added to the exchange rate used to switch your money from dollars to the currency of your recipient’s account. Again, this can mean you’re paying more than you expect for your transfer, so check out the details before you initiate your wire.

Wire payments - features and benefits

While bank wire transfers can be costly, they are a smart choice under some circumstances. Here are some benefits of wire payments:

  • Immediate processing - good for when a payment needs to arrive quickly
  • A wire payment can only be processed if the funds are available in the sender’s account - the money can be quickly released once it arrives
  • Wire payments can not usually be reversed once initiated
  • International wire transfers are usually the standard offer for sending money overseas with a traditional bank
  • Higher fees make wire transfers more popular for one off, high value transfers

ACH payments pros and cons

We’ve looked a bit at how ACH payments are used, and how they differ from the wire transfers you may use when sending high value or cross border payments. To close out, let’s go over some of the pros and cons of ACH payments so you can see if they’re right for your needs.

ACH Pros

  • Low cost way to send and receive payments
  • ACH transfers are processed regularly for same day, next day, or 2 day delivery
  • Direct deposit ACH payments can be split between accounts - to put money direct from you salary into a saving and checking account for example
  • Safe way of sending money to family, friends or businesses

ACH cons

  • Depending on when you place your ACH request it may not be as fast as a wire
  • International ACH payments aren’t always available from regular banks
  • Although ACH transfers are usually cheap they’re not always free
  • You may find transaction limits imposed by your own bank on either the number or value of ACH payments you can make

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By Ileana Ionescu Updated September 29th, 2021