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What is an ACH Transfer?

Updated on July 07, 2022 11:27 am
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Modern consumers have a wide range of alternatives for sending or receiving payments. One of the frequent ways to move money online between bank accounts is through an ACH (automated clearing house) transfer.

It's possible that you already use ACH bank transfers without even being aware of it. Through ACH transfers, you can, for instance, pay your bills online using your bank accounts, have your paycheck deposited straight into your account, receive government benefits, or send an electronic check to pay a business.

Whether or not you have used ACH, it is a low-cost alternative for online money transfers that are rising in popularity in the United States. It is something worth knowing about.

Continue reading to learn everything there is to know about ACH transfers, including their advantages and disadvantages, what money transfer services provide international ACH transfers, and how to do an ACH transfer for a low-cost and secure international money transfer.

What Is An ACH Transfer?

An ACH transfer is a type of electronic bank-to-bank transfer that takes place over the Automated Clearing House Network.

The Automated Clearing House Network is a system for electronic money transfers between bank accounts throughout the United States. The network is managed by Nacha, a 1974-founded company that was formerly known as the National Automated Clearing House Association (NACHA).

All U.S. financial institutions are linked through the ACH network, which was developed to transfer money and information between bank accounts safely and quickly.

Nacha claims that the ACH network is a batch processing system used by banks and other financial institutions to combine these transactions for processing.

The Automated Clearing House receives ACH withdrawal and deposit requests in batches from banks and businesses throughout America each day at predetermined intervals. The credit or debit transaction requests are then sent out by the Clearing House, usually the next day.

Consumers frequently use ACH transfers for things like direct deposit of paychecks, automatic bill payments, MOTO (mail order, telephone order), government benefit programs, P2P and B2B payments, and direct debit transactions.

Many transfer services, including banks, Zelle, and third-party applications like PayPal and Venmo use the ACH network for sending money to friends and family.

ACH transfers are becoming more and more common. Nacha estimates that in 2021, there were 29.1 billion payments totaling $72.6 trillion, an increase of more than 17% from the previous year. The number of transactions between individuals and businesses also climbed, reaching 271 million (24.9%) and 5.3 billion (+21%), respectively, within the same time frame.

Types of ACH Transfers

There are two main types of ACH transactions:

  • Direct Deposits
  • Direct Payments 

You receive money with ACH direct deposits. While you can send money with ACH direct payments.

ACH Direct Deposit

An electronic transfer from a company or the government to a customer is known as an ACH direct deposit. 

ACH direct deposit is frequently used for payroll, government benefits, employer-reimbursed costs, tax refunds, annuity payments, interest payments, and other payments.

ACH Direct Payment

An ACH direct payment refers to money transfers made electronically for payment purposes by both businesses and people. For instance, using your bank account to pay a bill online. You can send money to your friends and family via payment apps like Venmo and Zelle, which leverage the ACH network.

During an ACH direct payment transfer, the sender sees an ACH debit in their bank account. The recipient sees the payment as an ACH credit in their bank account. There are ACH credit transfers and ACH debit transfers within the direct payment category.

The fundamental distinction between the two is how the funds are transferred between accounts, either "pulling" or "pushing."

ACH Debit pulls money from an account. For instance, when you set up recurring bill payments, the business you are paying might take the money it is owed each month from your account (with your authorization).

ACH Credit pushes money from one bank to another, either into your account or the accounts of your friends and family. In other words, the customers are in charge of starting any money transfers that involve 'pushing' money from their accounts to someone else's account.

How Long Does an ACH Transfer Take?

The processing of ACH transactions occurs in batches, is almost entirely automated, and frequently takes place overnight through a central body. From there, the requests are distributed to institutions all around the United States. It can take a single day to several. But more people are starting to use same-day ACH transfers.

Difference Between ACH Transfers and Wire Transfers

Wire transfers and ACH transfers move funds from one bank account to another. They are not, however, the same. There are differences in speed, cost, and security, along with how the transfer is done.

ACH transfers are mainly used for domestic transfers. However, international ACH transfers are becoming popular. Whereas wire transfers can be used for both domestic and international transfers.

Usually, wire transfers take place on the same day. Since the money is transferred manually, under the supervision of bank staff, it takes place right away. When sending money by wire transfer, the bank acts as the direct mediator between account holders.

The transfer is made over a slightly longer path with an ACH transfer. It can take several business days to complete.

While ACH transfers usually take 1-2 business days to clear a bank account, domestic wire transfers are executed virtually quickly. 

The disadvantage of speedier delivery is that once a wire transfer has been initiated, it cannot be stopped. As a result, it is typically seen as less secure than ACH.

ACH transfers are usually free or very low cost. However, wire transfers come with higher fees-be they domestic or international.

Although ACH transfers are not the quickest method of moving money, they are safe and affordable.

ACH vs. Wire Transfers

FeaturesACH TransfersWire Transfers
Domestic & International Payments Mainly handles domestic transfers. But International ACH transfers are available.Both domestic and international transfers. International transfers are done via the SWIFT network
Fees to Send Money Are typically free, or under $3 per transaction$10-$50 
Fees to Receive MoneyFreeSome banks may charge around $35 to receive international transfers 
Speed1-2 business days for domestic ACH transfers

Domestic wires: within hours.

International wires: 1-5 business days 










Pros and Cons of ACH Transfers

Advantages of ACH Transfers

Using ACH transfers offers several advantages:

  • Let's start with convenience - with ACH transfers, you may automate bill payments and other regular monthly costs to save time and money.
  • Depending on where you bank and the type of transfer, ACH transfers are typically free. Compared to wire transfers, it is more affordable.
  • Even though wire transfers are quicker than ACH transfers and are frequently utilized for same-day service, they can occasionally take more time to process, particularly with international wire transfers, which can take several business days to send money from one account to another.
  • ACH transfers can be quick. The ACH network typically settles a transaction from one bank to another the next day after it is initiated. According to Nacha operating guidelines, credits must settle within one to two business days, and debits must settle the next business day.
  • It is easier to use than sending or writing a check or paying a bill using a credit or debit card.
  • An ACH transaction can be more secure than other forms of payment.

Disadvantages of ACH Transfers

Although practical, ACH transfers are not always ideal. There may be drawbacks that should be considered.

  • You may be restricted in how much you can send on a daily, monthly, weekly, and per-transaction basis.
  • There are cutoff times. An ACH transfer that is started after the bank's cutoff time may take longer to complete. For instance, processing might not begin if you transfer money on a Friday until the following Monday. This may be a problem if you are trying to meet a bill's due date to avoid paying a late fee.
  • There used to be a six-per-month cap on certain types of withdrawals and transfers from savings accounts. Even though this is no longer the case, several banks still impose a withdrawal fee for transactions that exceed six each month. The bank may change your savings account to a checking account if frequent withdrawals from savings become routine.
  • When making an ACH transfer, there can be fees if there are not enough funds in your account.
  • ACH transfers are primarily utilized domestically and only within the United States. International transfers are generally prohibited by banks. Only a few US banks have a mechanism in place that can offer international ACH transfers to most US-based customers.

Information Required To Make An ACH Transfer

Basic details needed to perform ACH transfers are as follows: 

  • The name of the account holder,
  • Account number,
  • Bank routing number also known as ABA number,
  • IBAN (International Bank Account) number,
  • SWIFT (Society for Worldwide Interbank Financial Telecommunications) code,
  • And the transfer amount.

Throughout much of Europe, IBAN numbers are used for international bank routing. ABA numbers are unique to the United States exclusively. IBAN numbers are not used by the United States for international banking. American banks, however, employ SWIFT codes.

What Is an International ACH Transfer? Is It Different From International ACH Transactions (IAT)?

An ACH transfer that involves a financial institution beyond the U.S.'s borders is known as an international or global ACH transfer. Nacha also controls these transfers.

A global ACH involved the direct deposit of funds into an overseas bank account via a clearing house, in this case, Nacha in the United States. 

The Single Euro Payments Area serves as the clearinghouse throughout Europe (SEPA). Australia's ACH system is known as Direct Entry. Different systems exist in other nations to receive these payments.

The point is that there isn't an official international framework in place for each nation to handle transactions through the ACH system. This kind of payment is not accepted everywhere in the world. When a cleaning mechanism is not present, they have their system in place.

International ACH Transaction (IAT) is mainly concerned with monitoring and reporting global transactions. IAT is not a means for moving money. An IAT is established by Nacha as an extension of an ACH.

Nacha mandates the IAT format for all ACH transfers coming in and going out of the U.S. to ensure that all cross-border payments comply with OFAC (Office of Foreign Assets Control). No retail consumers are involved in this procedure.

If you find a bank offering IATs, it does not necessarily signify that they provide international ACH to individual clients but rather that they adhere to legal reporting obligations.

How to Do an ACH Transfers to Send Money Abroad?

Global/international ACH transactions are only available to the general public through a select few institutions, as was already mentioned. 

While technically viable today, international ACH transactions are still not frequently accepted. It is not as simple as walking into your bank and ordering one. Most banks prefer to offer customers international wire transfers. 

Check with several banks to see whether they offer international ACH transfers. Additionally, check to determine if international payments' costs and delivery times are competitive.

There is good news, though. There are ways to send an ACH transfer with banks that will send money overseas. 

You can do it by using intermediary money transfer services like Wise, XE money transfer, Instarem, Remitly, and State Bank of India (California). These money transfer businesses offer ACH bank debit as one of the payment options to fund your international money transfer.

Steps to make an international money transfer:

  • Sign up with one of the money transfer companies (either on the web or using their money transfer apps). Follow the instructions on the screen. 
  • Give the necessary transaction information (your and recipient's information, including bank details and others). 
  • Verify the exchange rates and the fees, then select ACH Bank debit as your payment option and press send. 
  • You can relax and leave the rest to the money transfer service provider.

Use the ACH system to send money overseas instead of paying exorbitant international wire transfer fees. Make sure you have enough money in your account to cover the debit until it occurs.

Compare money transfer services offering ACH payment options using the CompareRemit online comparison tool today!

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