What is ACH credit and how does it work?

Most Americans receive an ACH credit several times a month—often without even realizing it. The ACH system is a great unsung part of America’s financial plumbing, and even frequent commercial ACH users might not understand the complexities of the system as new solutions are launched.

Despite not being a household name, ACH credit payments are quietly ubiquitous. Often referred to by informal names matching popular uses cases (e.g., “direct deposit” and “peer-to-peer payment”), the ACH network powers tens of millions of credit transactions every day:

Impactful ACH credit usage statistics include:

• 12.9 billion ACH credit transactions per year

• $50.2 trillion in total value exchanged

• 89 ACH credit transactions per person in the US

• ~93% of Americans paid wages/salary by ACH credit

What are ACH credit payments?

An Automated Clearing House (ACH) credit payment occurs whenever someone instructs the ACH network to “push” money from their account to someone else’s. 

This could be an employer (often via some processing partner) pushing payroll to their employees, or a government agency pushing cash payments to eligible citizens. It could also be a consumer digitally paying a bill, or initiating a peer-to-peer transfer to a friend through a service like Venmo or CashApp.

ACH credits essentially say "take my money and give it to this person/organization." ACH allows users to move from one bank account to another in an easy and inexpensive way—from as fast as a few hours to as long as a few business days—all with just a name, bank account number, routing number, and basic transaction details. 

How do ACH credits work?

For the person sending funds, an ACH credit transaction is the digital version of a paper check. Instead of filling out a piece of paper for the payee to bring to their bank, the payer instructs the ACH network to move money between their accounts directly.

Here is how ACH credits work mechanically:

• The payer or their processing partner gives an Originating Depository Financial Institution (ODFI) the payee’s account information, the amount to be sent, a categorization code, and a target settlement date.

• The ODFI (typically a bank), or an approved processing partner, passes on these requests to the ACH network in periodic batches.

• Six times each business day, the ACH network breaks down these incoming bundles into individual messages (transactions) and rebundles them into new batches for immediate delivery to each Receiving Depository Financial Institution (RDFI) that holds payee accounts.

• Each RDFI then imports incoming batches into their system, executes all the transactions they can based on the processing window requested, and sends back any error codes with their next regular batch.

• If no error/ACH return code is received by the requested settlement time, the ODFI and RDFI settle the transaction using their balances at the Federal Reserve.

• Funds for settled transactions are then released by the RDFI to the payee. 

Depending on when the first messages are sent and/or whether the sender pays the extra fee for same-day processing, it generally takes two business days for credits to reach payees. 

For more on timelines, see our in-depth guide on how an ACH transfer works.

→ Looking to streamline payments for both ACH and RTP? Plaid Transfer authorizes customers, analyzes risk, and moves money with one single integration.

What’s an ACH credit refund (aka ACH return)?

While all ACH credit transfers are meant to be definitive, occasionally mistakes may lead to funds being returned. The National Automated Clearing House Association (Nacha), the main governing body over the ACH system, allows the sender to request reversal of credit transactions in four situations:

1. The payment was for the wrong amount

2. The payment was sent to the wrong account

3. There was a duplicate deposit

4. An incorrect settlement date was listed

In most cases, the Originating Depository Financial Institution (ODFI) has up to five business days from the settlement date to deliver a refund request. However, there’s not always a guarantee that the funds in question will still be there (as funds may have already been made available to the recipient to spend or withdraw), so the payment may not be returned in all cases. 

→ Ready to secure your ACH process?  Plaid Signal reduces ACH return risk and optimizes payment flows for more secure ACH processing. 

ACH credit vs debit: What's the difference? 

The difference between ACH credit vs debit is who initiates the transaction. In an ACH credit transaction, the originator requests to transfer money from their account to the recipient’s account. This is often referred to as a “push”. In an ACH debit transaction, the originator is requesting to withdraw money from the recipient’s account to their own, which is often called a “pull”. The two transaction types are the inverse of each other. 

Examples of consumers initiating ACH credit transactions include making bill payments through an online banking portal or sending peer-to-peer payments through an app. Though in most other cases for both debits and credits, either a company or a government agency acts as the originator, making it a credit or debit relative to their perspective. If they’re pushing money towards individuals via the ACH network, it’s an ACH credit. If they’re pulling money for payment via the ACH network, it’s an ACH debit.

What’s a typical fee for an ACH credit transaction?

ACH credit fees from the network itself are typically measured in fractions of a penny. Additional fees charged by processing partners can vary from tens of cents to as high as $1.50 per transaction.

Some factors that can impact ACH transaction costs:

• How many transactions are being processed per month

• How large those transactions are

• How likely they are to be returned

• Whether the transactions are marked for same-day processing

• Which account validation method is being used

While the smallest businesses may see direct costs of over a dollar per transaction, these costs quickly come down with scale.

What does the future look like for ACH credit?

Though ACH credit transactions already total over $50 trillion per year—having increased by 3% from 2021 to 2022 alone—they’re likely to grow further in both number and value. Businesses will continue to switch over to ACH from paper checks, and innovations like Plaid Transfer, which validates and transfers payments with one API, will continue to make ACH more attractive.

This same innovation is also spurring the development of both complementary and competing products. The banking consortium that serves as one of the two operators of the ACH network (The Clearing House) recently launched Real Time Payments (RTP) that allow users to make immediate payments. The Federal Reserve also launched its own real-time funds transfer product called FedNow in 2023. 

The future will be rich with choice, as a variety of products—some built atop the ACH network and some running parallel to it—serve an ever-growing variety of needs.