Derek Tallent
By: dtallent
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What Are ACH Transfers and How Do They Work?

Have you ever heard the term “ACH Transfers” and wonder what that meant? This is a way of sending money between banks through the Automated Clearing House network. This can include transferring your funds to financial institutions like banks, paying bills, or receiving paychecks through direct deposit or payments made between businesses.

In this article, we will be discussing this method of transferring funds and find out if this is a good option for your business’s day-to-day operations.

what are the ach tranfers

How Do ACH Transfers Actually Work?

ACH transfers are not like wire transfers that can be done immediately and place the money in the destination bank in real-time. These transfers are processed by the network and are done in batches 2 or 3 times a day (once a certain threshold of transactions is on hold, they are all processed).

This is why if you have ever tried to pay a credit card balance or move money, for example, your bank will notify you that the payment will not be received until one or two business days later (there are a lot of transfers over the U.S. and the ACH network will not push everyone through when it comes in).

The Two Types of ACH Transfers

Another critical thing to note about ACH transfers is that there are two types, each that operates slightly differently:

  • ACH Debit Transfers

Debit transfers are when the ACH Network pulls money from an account. If you set up a recurring bill payment, for example, the company you are paying will make an ACH Debit Transfer to take the money owed directly from your account. Debit transfers must be processed within one business day according to the National Automated Clearing House Association guidelines.

  • ACH Credit Transfers

Credit transfers let you personally send money from your accounts to an account at another bank, your friend’s or family’s bank accounts, etc.

What’s the difference?

The key difference is that a debit transfer does not have to have input from the account owner, while the account owner chooses how much (if any) to send to a different account in a credit transfer. Also, unlike ACH debit transfers, banks can choose whether to process credit transfers in one business day or two.

FAQs about ACH Transfers

How Much Does an ACH Transfer Cost?

Most ACH transfers are, thankfully, free. The vast majority of banks will do at no cost. The two exceptions are if you send money between banks, there may be a $3 fee (but many banks will still do sending transfers using ACH transfer for free), or if you need an expedited bill payment, which could have different fees depending on your bank. Overall though, this kind of transfer is unlikely to cost you much money, if any.

How long do ACH transfers take?

Typically, these automated clearing house transfers could take between 1 and 2 business days, but it can take longer than that, depending on your bank.

What information is needed for ACH transfer?

To make this transfer, you will need the following information:

  • name
  • bank routing number / ABA number
  • account number
  • payment amount
  • type of account

two types of ach transfers, credit and debit

What is the difference between a wire and an ACH?

Below is a table explaining some of the crucial differences between an ACH transfer and a wire transfer:

ACH TransfersWire Transfers
Are handled by the Automated Clearing House in batches only three times a day.Are handled by the bank’s network themselves and are sent through and completed almost immediately after the transfer is made.
Money for the transfer typically comes from a bank account.Money for the transfer is paid to the bank upfront through a debit card, cashier’s check, cash, etc.
Takes 1 or 2 business days for the money to transfer.The money transfers almost immediately, but it still takes most banks 1 or 2 business days to process wire transfers.
Are typically free, with fees of at most $3.Typically cost anywhere from $25 to $50.
It can usually be reversed if, for example, your employer overpays by accident or too much money is taken out of your account.It cannot be reversed, making it critical that you know who you are sending money to and how much you will need.

Advantages of ACH Transfers

Why should you use ACH transfers? Here are some of their pros so you can decide if they’re a match with your business.

  • Easy

ACH transfers are very easy to make, plus doing the transfer won’t take you much time (at least when compared to other methods, like checks). This is a great benefit for business owners that are always working and don’t have enough time to stop their busy days just to make a transfer. Plus, you can make them anywhere from your phone!

  • Cheaper than other alternatives

Payments with credit cards mean extra fees (like processing, setup, and operational fees). But ACH transfers are way less expensive. So if you receive payments from customers and you’d like to save on fees, maybe ACH transfers are what you were looking for.

Limitations of ACH Transfers

As with anything else, these transfers also do have some drawbacks:

  • Slow

ACH Transfers are handled in batches 2 or 3 times a day. They usually take at least one full business day to process and often can take even more. This makes them not a great option for time-sensitive payments, as there is no telling when the transfer will go through (this is especially true for credit transfers).

  • Takes Money Only When Processed

ACH Transfers do not actually take the money from your account once you request the transfer. Instead, once the transfer is processed in a batch, the funds will be taken from your account. The problem with this is that you may not have the funds necessary to transfer. This is why it is important when you are paying a credit card, bill, or making any other transfer to make sure you have sufficient funds and will have enough funds two or three business days from now. Otherwise, the transfer will be declined two days later, and you will likely have to deal with lots of headaches going through and figuring out where the transfer went wrong.

Alternatives to ACH Transfers

While we have already discussed the key differences between ACH transfers and the most popular choice, the wire transfer, there are other options for transferring money that you should be aware of:

Credit Cards

Credit cards are essentially a form of transferring money, as the bank receives your credit card payment, transfers the money to who you paid, and then charges you for the amount you charged to your credit card. Credit cards are convenient but have significant drawbacks, so you need to use them carefully.

ePayment Systems

ePayment systems are electronic payment systems, which are similar to a check but, of course, are handled entirely online. There are many different ePayment systems: the most innovative being electronic wallets that contain your bank information to make transactions faster (you may have already seen buyers tapping their phones on the scanner in a store to make a payment), or the use of bitcoin or another cryptocurrency.

how epayments systems works

Use the Transfer that fits your Needs

We hope this article has helped shed some light on ACH transfers and gotten you closer to deciding what type of electronic transfers are right for your business.

Our goal at Camino Financial is to provide you with the tools and resources to improve your financial performance and run your business smoothly. Want to get more information about options to transfer money?

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