Automated Clearing House (ACH)

What is Automated Clearing House (ACH)?

An Automated Clearing House (ACH) is a computer network that’s used for processing financial transactions. It’s used primarily for transferring low-value fiscal payments, including domestic transfers. ACH can be used for direct debits as well as credit money transfers.

The most popular example is the Automated Clearing House in the US, which is used by American individuals to receive and send money.

What are ACH Transfers?

ACH transfers are all payments that are sent over the ACH network. An example of an ACH transfer is a direct deposit, when you receive your payments in a bank account. Bill payments made online are another example of ACH transfers. 

Business owners can use the ACH network to make payments to vendors, or to receive incoming transfers to their accounts. In 2020 alone, the ACH network was responsible for processing $61.9 trillion in payments, which included a mix of Direct Deposits, Direct Payments, and B2B payments. 

The History of the Automated Clearing House 

The first automated clearing house was actually set in the United Kingdom, and was known as BACS. It began processing payments in 1968. Around the same time, in the United States, a consortium of banks joined together to set up the first automated clearing house, which began operations in 1972. 

There are automated clearing houses being used around the globe now, processing trillions in payments. 

ACH Payments 

ACH Payments are electronic payments made between the banks of 2 parties which are carried out across the ACH network. These payments are not made via any credit card network. There are 2 main types of ACH payments, Direct Deposits and Direct Payments. 

ACH Direct Deposits

ACH direct deposits are essentially any kind of electronic money transfer, made either by a business or a government to a consumer. 96% of American workers are paid using direct deposits.

ACH Deposits that fall within this category include:

ACH Direct Payments

Any monies transferred for payment are considered ACH direct payments.

Benefits of ACH Transfers

Transfers done through the automated clearing house (ACH) offer a variety of benefits, some of which are discussed below. 

Quick Money Transfers

Automated clearing house (ACH) transfers are generally settled within one or two business days, which means that transfers are considerably quick. For businesses processing large sums of money, this makes it easy to receive and send out payments. 

Free Transfers

Depending upon the financial institution or the type of transfer, most ACH transfers are completely free. Most banks generally don’t charge any fee for moving money, especially if you’re moving it from a checking account to a savings account. 

If you’re transferring a large sum to another entity, the cost is also relatively affordable, coming out to around a few dollars at most. 

Cost-Efficient Processing

Compared to wire transfers, ACH transfers are generally much more cost-efficient to process. In comparison, a wire transfer can cost up to $75 to process for international transfers. 

As mentioned above, most ACH transfers carry a nominal charge, so it’s much more cost-effective. In general, ACH transfers cost around 29c, which is a far cry from the $3 charge for each check.