Have you ever tried to move money and seen the letters, “ACH” and wondered what in the world they were? If you’re like me and have never written a check in your life, you are probably familiar with these letters (don’t you just love millennials). The Automated Clearing House network is quite the interesting system, let’s break it down!
An Automated Clearing House (ACH) transfer is essentially just an electronic transfer of funds from one bank account to another. NACHA is responsible for these transfers. ACH transfers are one of the most widely used methods of money movement here in the United States, NACHA stated that over 2 billion transfers were initiated in the year 2020.
ACH Transfers vs. Wire Transfers
Unlike wire transfers, which incur fees and are quite fast (usually processed in a few minutes, at worst a few hours), ACH transfers are typically free and take time to process. The number of days it takes varies by institution, but many will take 1-3 business days to move the funds from one place to another.
Why does it take this long? Your guess is as good as mine. It blows my mind that in 2021 we do not have standard immediate fund movement across all platforms, but that is just a personal gripe I suppose.
While wire transfers are still often used to move large sums of money in a timely fashion, the creation of tools like Venmo, PayPal, and Zelle have made sending and receiving small – medium sums of money a breeze!
Something to keep in mind with these platforms, though, (they are not paying me to write this so I will be blunt) is that they still make their money.
I had trouble finding a breakdown for Zelle (they do not charge fees to regular customers) but this article has a section on how they make money.
Credits and Debits
ACH transfers are broken out into credits and debits. Debits can be thought of as, “pulls” and credits can be thought of as, “pushes” of money.
You can think of a recurring bill payment (looking at you, Spotify) as an example of an ACH debit, while sending money to your friend to split last night’s bar tab would be considered an ACH credit.
The credit transactions are what most often take somewhere between one and three business days (though it can be more at times). The debit transactions, however, have to happen the next business day.
Why Doesn’t Everyone Just Use ACH Transfers?
Well, there are restrictions. A decent amount of them.
Most banks impose a limit on the amount of money you can send on a daily, weekly, and often monthly basis.
ACH transfers almost never allow for money to be moved outside of the United States.
There are cutoff times, if an ACH transfer is initiated after the cutoff time, it will take an additional business day to process.
A few positives?
They are fast (relatively speaking).
They are cheap, or more often than not, free.
They are easy and keep me from having to learn how to write a check.
You likely use ACH transfers all the time without even knowing it. If you are paid with direct deposit, if you move money between bank accounts, or if you (hopefully) contribute money to retirement accounts, you use ACH transfers. While it probably isn’t all that important that you know all of these things, I hope you found this interesting!
Thank you so much for taking the time to read this article! Do not hesitate to reach out to me with any questions, comments, or suggestions for future topics!
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