ACH Transfers: How They Work

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. The types of transfers include 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 up to several business days. This lag is a result of ACH network operators processing transfers in batches at a specific time each day, instead of individually in real time.

ACH debit transactions must be processed by the next business day and ACH credits within one to two business days, according to current rules from the National Automated Clearing House Association, the trade group that oversees the network. Banks might also keep transferred funds for a holding period, so the total delivery time varies.

What it costs

ACH debit transfers typically are free, including payroll direct deposits and most bill payments. But for ACH credit transfers, banks might charge a small fee for sending money between bank accounts that you own at different banks. Banks may call this an external funds transfer.

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

ACH transfers vs. wire transfers

Unlike ACH transfers, bank wire transfers within the U.S. tend to cost between $20 and $30, and there’s usually a fee to receive them. However, the wire processing network processes them in real time, so you can generally expect delivery for U.S. transfers to occur 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

Coming soon: Same-day delivery

A new rule by the National Automated Clearing House Association will go into effect this September to start the move toward three ACH network processing times daily, instead of just one. This will occur in three phases, ending in March 2018, which ultimately will make same-day delivery possible.

The rule won’t determine whether this faster service will cost extra. “There are definitely going to be some banks that will charge a premium for processing same-day transactions,” says Linda Cohen, 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 might allow consumer ACH transfers only within 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 times per month.

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: spencer@nerdwallet.com. Twitter: @SpencerNerd.

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