What is an ACH transfer? Explaining how ACH transfers work

Learn how ACH transfers work, how long they take (and why), and how much they should cost.

December 14, 2022

Tom Sullivan Pic
Tom Sullivan

Tom is a fintech industry writer who creates whitepapers and articles for Plaid. His work has been featured in publications like Forbes, Fortune, and Inc. He's passionate about the freedom that the union between financial services and technology can create.

In 2021, more than 29 billion electronic transactions over the ACH network moved a total of $72.6 trillion in the United States. That was over 17% more money moved than in 2020. Why? For one, peer-to-peer transfers via apps like Venmo and Cash App saw a 24.6% increase. And when moving money between bank accounts, ACH is the name of the game.  

What is an ACH transfer?

An ACH transfer is any movement of money from one bank account to another over the Automated Clearing House (ACH) network. This includes everything from person-to-person transfers and bill payments, to direct deposits from employers or the government. The ACH network spans roughly 11,000 financial institutions across the United States.

There are two kinds of ACH transfers: 

1. ACH debits are requests for the ACH network to "pull" money from an account that the requestor doesn't control, such as an auto-bill payment.

2. ACH credits are requests to “push” money from the requestor’s account. This is the case for payroll or government benefit programs (often referred to as “direct deposits”).

ACH transfers were created to counter the hassles of the paper check, offering an easy and inexpensive way to move money with just a few pieces of information (name, bank account number, and bank routing number). Today, roughly 94% of American workers receive their pay via the ACH network.

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How does an ACH transfer work?

ACH transfers can be thought of as digital mail sent out in bulk. Each transfer request is packaged as a message within a batch of outgoing mail by the bank making the request (also known as the originating depository financial institution, or ODFI). The ACH operators then re-bundle each message into a batch destined for the bank receiving the request (the receiving depository financial institution, or RDFI). This happens every business day at six set intervals. Those intervals are 6:00 am, 12:00 pm, 4:00 pm, 5:30 pm, 10:00 pm, and 11:30 pm.

Several factors determine the mechanics of this process:

  • Whether it’s a debit or credit request

  • Which processing partner the originator uses 

  • Whether the originator has paid for same-day service

  • Whether the initial request yields one of 69 possible return codes

A typical ACH transfer works like this:

  • Monday, 4:00 PM ET - Company X submits its payroll info to a processing partner.

  • Tuesday, 10:00 PM ET - The processor works in conjunction with X’s bank (the ODFI) to submit a file to the ACH network. This file includes each of X’s individual payroll ACH credit requests.

  • Tuesday, 10:30 PM ET - The ACH network begins to break down all the files received since the last interval, repackaging them by the recipient. Any file received after this cut-off won’t get processed until the next interval.

  • Tuesday, 12:00 PM ET - The ACH network delivers this latest round of files as ACH credit requests to every bank where X’s employees have an account (the RDFIs).

  • Tuesday, 1:00 PM ET - If same-day processing was requested on any transfers, the RDFI has an hour to process those requests and settle with the ODFI 

  • Tuesday, 1:30 PM local RDFI time - Same-day transferred funds must be processed and settled by this time (meaning the employees get paid) for transactions posted by 7:30 AM PT. Other same-day windows have other requirements (11:45 AM PT = 5:00 pm settlement and 1:45 PM PT = end-of-day settlement).

  • Thursday, 8:30 AM ET - All remaining (non-same-day) transfers must be processed and settled by this time, so long as no error or reversal message has been received.

  • Thursday, 9:00 AM local RDFI time - Transferred funds must be made available to recipients by this time (meaning the remaining employees get paid) for transfers within the first three windows. However, a transaction originated on Tuesday can settle on Wednesday, and usually will.

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How long do ACH transfers take?

An ACH transfer can take anywhere from a few hours to two business days, depending on the time of day it’s initiated and whether same-day processing has been requested.

The latter is available for a fee for any transaction received within the three middle settlement windows each business day. Otherwise, ODFIs generally default to 8:30 AM the following business day for debit requests, and 8:30 AM the second business day for credits

RDFIs who have transaction data in hand can process non-same-day credits faster, but may wait if they perceive the risk of a return. This is because they’ve yet to actually receive the money from the ODFI. For smaller amounts, they may advance the funds earlier as a low-risk customer convenience.

Errors can also slow things down. A return for insufficient funds is the most common error for debits. Credits, on the other hand, are more susceptible to things like incorrect account numbers, erroneous transfer amounts, closed accounts, and names that don’t match

Errors historically resulted in a delay of 1-2 days, or the time to determine the transaction’s salvageability. To reduce errors, fraud, and delays, Nacha (the organization that oversees the ACH network), put a new rule into effect in 2021. This rule requires originators of WEB transactions to verify the recipient's account is open, valid, and able to receive ACH transfers—before initiating an online ACH debit.

Further complicating things, the system works on a “no news is good news” basis, meaning no transaction is ever explicitly confirmed—and thus can later be reversed. If a transaction fails, the RDFI typically has up to 48 hours to report it. In some situations, a debit transaction that’s already been processed and settled may not stay that way if it’s reported by the RDFI as a failed transaction later on. Consumers also have up to 60 days from the issuance of any statement containing an ACH debit transaction to dispute it.

A Modern Guide to ACH

How to add ACH to your platform and reduce losses and risks

What’s the difference between an ACH transfer and a wire transfer?

Wire transfers are direct, irrevocable, and expensive. ACH transfers are batched, recallable, and inexpensive. This makes each better for different use cases.

While wire transfers are faster on average, exceptions do exist. Domestic wires can take as long as a few hours, or overnight if a cutoff is missed. ACH transfers can be as fast as approximately 2.5 hours if the file is sent right before a same-day transfer window shuts. Overall, it’s important to remember that the wire network processes transactions in real-time, while the ACH network processes transactions at set intervals. 

For more in-depth information, please see our guide, "ACH vs wire transfer"

What’s a typical ACH transfer fee?

The base price for an ACH transaction is the network fee, which is fractions of a penny. However, most parties use processing partners who typically add a flat fee per transaction (anywhere from $0.20 to $1.50). While higher-value payments may also see a small percentage-based surcharge (0.5% to 1.5%), those fees usually max out at $5.

ACH has gained payment market share over credit cards and checks in recent years. This is largely due to the difference in cost. A $5,000 debit transaction made by ACH, for example, would likely cost the originator a maximum of $5. A typical credit card, on the other hand, would charge 2% to 3%—or between $100 and $150. In almost all cases, ACH is significantly cheaper than card-based solutions.

Some institutions may have transfer limits in place for ACH transfers from savings accounts. Others may charge fees for more than six transfers or withdrawals per month. 

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Which banks allow ACH transfers?

All banks in the United States can use ACH, as all that’s needed to receive an ACH transfer is a valid bank account and routing number. Additionally, payment processors like Square, PayPal, and Stripe also use ACH.

What further enhancements will make ACH better?

Enhancements to ACH are narrowing the gap between ACH and real-time products. One example is Nacha’s expansion of Same-Day ACH. In March 2022, Nacha announced that it increased its transaction limit from $100,000 all the way to $1 million. This increase makes ACH an appealing alternative to wire transfers for larger transactions. 

Co-evolution is happening, as well. The Clearing House, a collection of banks that jointly operates half the ACH network, released its Real Time Payments (RTP) product in 2017, which resembles an instant wire transfer. Meanwhile, the Federal Reserve—which operates the other half of the ACH network—is set to launch its own equivalent product in 2023. This means ACH will be one strong option among several.

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