ACH Payments: How Do They Work?

By Rebecca Lake
March 3, 2021
Chime is a financial technology company, not a bank. Banking services provided by The Bancorp Bank or Stride Bank, N.A.; Members FDIC

If you’ve ever scheduled an automatic bill payment from your bank account or received a direct deposit, you know how convenient these transactions can be. (Bye, late fees!)

But how, exactly, do they work? That’s where the ACH network comes in: A method of delivering payments electronically. Read on to learn all about ACH payments.

  1. What is an ACH transfer?
  2. Types of ACH transfers
  3. Benefits of ACH payments
  4. ACH payment processing times
  5. How much do ACH payments cost?
  6. ACH payments vs. wire transfers
  7. Bottom line: ACH payments can make sending and receiving money easier

What is an ACH transfer?

In simple terms, an ACH transfer is an electronic movement of funds from one bank account to another. In an ACH payment transaction, you have one person or entity who’s sending a payment and another that receives it. This payment is processed through the Automated Clearing House (ACH) Network. 

Processing this type of payment requires certain details about where the money is coming from and where it’s going, including:

  • Bank account number and routing information for the person or business sending the payment
  • Bank account number and routing information for the person or business receiving the payment
  • Name on the account and name of the bank
  • Amount to be sent

If one piece of the puzzle is missing, an ACH transaction can’t be processed. 

Types of ACH transfers

There are two ways to make an ACH transfer: debit and credit. 

An ACH debit transaction involves the withdrawal of money from a bank account. An ACH credit transaction happens when money is deposited into a bank account. 

In either type of transaction, you have:

  • The person or business sending funds
  • The person or business receiving funds
  • Both the sender and the recipient’s banks
  • The ACH operator that processes electronic debits and credits

If you’re initiating an ACH payment, the direction money is moving determines whether it’s a debit or credit. 

Here are some examples of ACH credit and ACH debit transactions.

ACH CreditsACH Debits
  • Employer-originated direct deposit payments
  • Direct deposit payments for tax refunds or stimulus checks
  • Direct deposit payments of government benefits
  • Payments received by businesses for goods or services
  • Automated bill payments scheduled from a checking account
  • Transfers of money between accounts you own at different banks
  • Electronic payments made to businesses for goods or services

ACH payments can sometimes be called “push” or “pull” transactions, depending on which way money is moving. 

Example: You schedule your credit card bill to be paid electronically from your bank account:

ACH debit = when money is pulled from your account to pay the bill. 

ACH credit = when the money you sent is pushed to the credit card company’s bank account. 

It works in reverse when you’re receiving a payment. So, if you set up direct deposit with your employer, you’d receive an ACH credit or push transaction once the money hits your account. Your employer would pull the money from its bank account to pay you, resulting in a ACH debit. 

Benefits of ACH payments

In general, ACH payments are convenient and simple to process. (It’s a lot simpler to schedule an ACH payment than write a paper check!) And, since they’re electronic with a digital paper trail, they’re also easy to track.

In terms of why businesses may prefer ACH payments, here are some of the pros:

  • Speed. Compared to a paper check, ACH payments can offer a much shorter processing time, allowing businesses to get paid faster. 
  • Fees. Accepting credit card payments can be expensive when it involves paying processing fees. ACH payments can be a lower-cost alternative. 
  • Bookkeeping. Keeping track of ACH payments may be easier than trying to keep tabs on paper checks or even cash payments. 

On the consumer side, here are some of the best reasons to use ACH payments:

  • Convenience. ACH payments can be easy to set up if you need to pay bills or you want to get paid via direct deposit. You can automate recurring ACH debits or credits, simplifying the way you manage your money. 
  • Avoid debt. ACH payments are deducted from your bank account so you’re not creating debt the way you could if you pay with a credit card. 
  • Cost. Scheduling ACH payments can be fee-friendly if your bank offers free online bill pay.

ACH payment processing times

ACH payments aren’t processed instantly. There’s a bit of a wait between the time money is debited from one bank account and credited to another. 

Typically, this waiting period is 3-5 days. This allows enough time for money to be pulled from one account, processed through the ACH operator, then forwarded to the receiving bank. 

Virtually every type of ACH payment is eligible for same-day processing but, at this point, it’s optional, rather than required. In other words, businesses that send payments via ACH can choose whether to allow for same-day processing. Doing so can make it easier to deliver speedy payments but it may mean paying higher fees, which is why not all businesses use it. 

How much do ACH payments cost?

As mentioned, sending ACH payments–whether they’re processed same-day or on the traditional timeline–requires a fee. This fee is typically paid by businesses that process payments over the ACH network. 

The types of fees involved can depend on the payments processor the business uses. For example, businesses may pay:

  • Account fees
  • ACH debit fees, per transaction
  • ACH credit fees, per transaction
  • Discount fees for certain types of transactions

A typical cost is around $0.29 per ACH transaction, but this is more of an average than an industry standard. 

Whether or not you pay any fees for ACH payments depends on how they’re processed. For example, if you’re sending money from your bank account to pay a bill, your bank may not charge anything for this service. On the other hand, if you’re using a person-to-person payment app to send money via ACH, the app might charge a small processing fee. 

ACH payments vs. wire transfers

ACH payments aren’t the only way to send and receive money electronically. A wire transfer is the movement of money from one bank account to another over a processing network, such as Society for Worldwide Interbank Financial Telecommunication (SWIFT) or Fedwire. Domestic wire transfers involve transfers of money between banks within the same country. International wire transfers involve the movement of money between banks in different countries. 

ACH payments and wire transfers may sound similar, but there are some important differences between them. 

ACH PaymentsWire Transfers
Processing SpeedCan take several business daysMoney can transfer within minutes
SecurityACH transfers are also secure and they can be reversibleWire transfers are secure, though they can’t be reversed even if you suspect a fraudulent transaction
CostTypically free for consumersYou may pay anywhere from $10 to $35 to send domestic wire transfers, with higher fees for international wire transfers

Whether it makes sense to use ACH payments vs. wire transfers may depend on how quickly you need to send or receive money. If you can wait a few days and don’t want to pay a fee, ACH payments can get the job done. On the other hand, if you need to send or receive money right away then it may be worth paying the fee for a wire transfer. 

Bottom line: ACH payments can make sending and receiving money easier

Most likely, you use ACH payments far more than you think. A simple way to start taking advantage of the benefits of ACH payments is to set up direct deposit for your paycheck, tax refund and/or stimulus check. You can even go ahead and enroll in direct deposit with Chime today and start getting paid up to two days early¹. 

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1 Early access to direct deposit funds depends on the timing of the submission of the payment file from the payer. We generally make these funds available on the day the payment file is received, which may be up to 2 days earlier than the scheduled payment date.

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