2/2/2023
In the world of finance there are all sorts of terms that we see every day that we may not be familiar with. One of them is ACH transfer, a kind of electronic transaction that is done between banks.
If you're not familiar with what they are and how they work, we're here to enlighten you.
What are ACH transfers?
ACH (Automated Clearing House) transfers are not very different from the wire transfers we usually do. The basic difference is that they occur between banks through what is known as the NACHA (National Automated Clearing House Association) Automated Clearing House Network.
Another important difference with respect to regular transfers has to do with processing. While normal transfers occur in real time, ACH transfers are gathered in batches and then handled by the financial institutions. This can occur 3 to 7 times daily during business days.
ACH transfers are used for many purposes, such as P2P or B2B payments, direct deposits, bill payments or to receive government assistance.
Applications such as PayPal, Venmo and Zelle also use this network to process money transfers. This operation is also common for making recurring deposits to IRA accounts, college accounts and more.
Types of ACH transfers
The essence of ACH transfers lies in simplifying the process for the parties involved. In an era that is moving away from paper and favoring the convenience of doing everything from home, these operations are increasingly used.
In this regard, the ACH network handles 2 types of transactions: payments and direct deposits.
ACH Direct Payments
These can be used by individuals, businesses or other organizations to send money. When you use this method, the sender of the funds will see an ACH debit on their bank account that records who it was for and the amount. The same is true for the receiver, who is awarded an ACH credit.
Direct Deposits
In itself, this refers to any electronic transaction made from a business or government entity to an individual. In this category we can include:
- Payroll.
- Interest payments.
- Annuity payments.
- Tax refunds.
- Government benefits.
- Employee expense reimbursement.
How long do ACH transfers take?
We have seen that ACH transfers are processed in batches, a few times a day and only during business hours. Despite this, financial institutions can choose whether the funds are allotted the same day or in 1-2 business days.
This is not the case for debit transactions, which, due to the dynamics of the system, must be processed on the next business day.
These operating times are stipulated in rules designated by the National Automated Clearing House Association (NACHA), the trade group that oversees the network.
Once the credit union or bank receives the money, it can hold it for as long as it deems necessary, with the bank or credit union being in charge of deciding its release.
Cost of ACH transfers
The popularization of ACH transfers has a lot to do with how much they cost. Debit transactions, direct deposits and most bill payments are usually free.
There is an additional fee involved if you ask for the process to be expedited (expedited transfer). Even so, their cost is well below that of a normal transfer.
This is most noticeable when you want to send money abroad, which can cost between $14 and $75 depending on the country, exchange rate and receiving bank. Using the ACH network, sending funds between accounts can be free or cost $3. While there are platforms like PayPal that take a fee, there will be others that do not.
The disadvantages of ACH transfers
We've seen that ACH transfers can be relatively fast, free and convenient. However, they also come with a few things you need to be aware of:
- Frequency penalty. This happens with savings accounts, which have a federal limit of 6 transactions per month. When you exceed this amount, you are charged a penalty fee. If this becomes frequent, the bank may move you to a checking account.
- Transaction limits. Each bank has its own policies on the number of ACH transactions you can make. There are limits by transaction type, destination, banks, daily, weekly and monthly.
- The time of the transaction counts. Financial institutions process these transactions at different times of the day. That is why they usually have a certain cut-off time that may mean that they process your payment that day or 1-2 days later. You should be aware of this fact if you need to pay for a service on a non-flexible date.
ACH transfers are a fundamental part of the U.S. economic system and are evolving. Keep this information in mind and use them wisely to better manage your personal finances.
English: ¿Qué son las transferencias ACH entre bancos?