What Is An ACH And How Does It Work With A Checking Account


In all things related to finances, there are a lot of acronyms: APY, APR, ACH. Although there are many, they will show up over and over again, so by taking the time to add a few more entries to your financial jargon repertoire, you’ll be well-versed in the lingo of credit unions, lending institutions, and financial fitness.

You may have seen APY (annual percentage yield) and APR (annual percentage rate) throughout your relationship with your financial institution, but ACH doesn’t show up as often. So, what is an ACH?

An ACH is a form of electronic payment that gets processed through something called the Automated Clearing House (ACH) Network. Money that moves from one financial institution to another does so through a centralized system. This system, the ACH, receives, processes, and then directs funds to a destination account.

These payments can be beneficial to both the sender and receiver. Sending payments by this method can keep the funds transfer inexpensive. It can also be automated and is easy to review. That is, a record of the transfer is kept in a way that makes record-keeping simple.

A lot of people already use ACH payments, although the jargon may be new. For example, things that you already have set up, like automated bill pay or direct deposits, often get processed through an ACH. The ACH Network is responsible for processing billions of transactions a year. According to Nacha, the ACH facilitated over 24.7 billion electronic payments in 2019.

Examples of ACH Transfers

  • Customer paying a merchant for a service
  • Employee receiving paycheck automatically through direct deposits
  • Transfer from one customer or member at a credit union to another financial institution
  • Business owner sending payment for supplies they receive from a merchant
  • Taxpayer following up and submitting any outstanding funds to the IRS

What Does an Individual Need in Order to File an ACH Transfer?

Whatever the situation, the sender needs to have the name of the credit union or financial institution receiving the funds, the type of account (most commonly a checking account, but it is possible to send funds to a savings account), the institution’s routing number, and lastly, the account number for the person or business set to receive funds. If you’re looking to use an ACH to have your paycheck directly deposited, check with your employer’s HR department. It’s likely they have a form you can complete.

Why Must All This Information Be Provided?

There are a lot of funds transfers and payments taking place every day, so in order for the correct amount of money to go to the correct place, the details need to be reviewed. It’s similar for companies that receive payments from customers. They need to be able to preauthorize the withdrawal from the customer’s account.

Why Are ACH Payments Popular?

There are numerous benefits to setting up or receiving automatic payments. The first is the decreased reliance on paper checks. This starts with the actual paper used to produce the check, and includes the ink, fuel to transport the check, and both the labor and time of handling the check through until it’s deposited. Additionally, in modern life and business, there’s a certain ease that comes with having things done electronically.

One major part of this is the ability to manage accounts, personal finances, and bookkeeping without having to chase down a copy or scan of a physical document. The transaction history is accessible at the tips of your fingers. These services utilize your checking account to “draw” on the balance in order to send the funds.

Difference Between an ACH Transfer and a Wire Transfer

ACH and wire transfers are similar in nature, but a wire transfer is often done in real time. The fee for an ACH is often free or, at most, a few dollars (see below), but a wire transfer can cost upward of $20 to $30. An ACH can take a couple of days to process (think business days), and the central authority is only processing a few batches of ACH payments and transfers each day. A wire transfer will usually “show up” in the other account within a couple of hours or sometimes even just a few minutes. For large-sum transfers, either in the US or overseas, a wire transfer is often a better choice.

ACH Transfers and Delivery Time

There is a series of rules and standards set up by Nacha that impact the “arrival” date of a funds transfer using ACH. Some credit unions and financial institutions will process a transfer on the same day, while others will take one to two days to send the payment. If there are funds that need to be sent right away, there may be extra fees on top of the few dollars to issue the transfer. Nacha made a rule that ensures banks can process payments the same day they’re sent, but it’s up to each financial institution whether it charges for expediting a payment.

The Costs of ACH Payments

Debit transfers using ACH, such as direct deposit and bill pay, are normally at no cost. Most ACH transfers beyond debit transfers (think of transfers from one account to another at different credit unions or financial institutions) will usually just be a few dollars. Sending these sorts of external funds transfers may be free at a given institution, so ask your local branch what the policy is.

It’s generally free to receive transfers.

For any ACH transfer needs that you have, your local credit union, such as Rivermark Community Credit Union, is able to help you set up and process the transfers. If you have any questions about ACH transfers as they relate to your checking account, don’t hesitate to contact us.