What Are ACH Transfer & How Do They Work?
Have you ever wondered how ACH transfers work? You might have heard of ACH transfers but aren’t quite sure what they are. Maybe you know exactly what they are, but want to learn more about the process. Learn why it can be a great option for your business or personal finances. This article will explain everything from start to finish. By the end of this article, you will understand how ACH transfers work and when you might need one in your life.
Here’s What We’ll Cover:
What is an ACH Bank Transfer?
Let's get started! What is an ACH transfer? An Automated Clearing House (ACH) transfer is a payment method used by businesses and individuals. It allows you to move money between accounts at different institutions.
Here is an example. A business wants to pay rent with their checking account at Bank X. To do this, they would initiate an electronic funds transfer (EFT) using the Automated Clearing House network. This allows them to send money electronically from one bank account directly into another bank account. They can do this without having physical currency pass hands. This type of transaction is known as an “ACH Transfer”. It's also sometimes referred to as “electronic check conversion." The term "automation" refers to the fact that no human labour is involved in processing these transactions. There are also no checks involved.
Rather than writing out a paper check that must be physically mailed to the business where they want to pay their rent, the company initiates an ACH transfer. This transaction takes less time than mailing a check or wiring funds because it is completed electronically.
Which Banks Offer ACH Transfers?
ACH transfers are offered by just about every major bank. This means the business has many options when it comes to choosing an account with which to initiate their ACH transfer. Here's a list of banks that offer ACH transfers (According to BankingMyWay):
- Bank of America
- Wells Fargo
- Bank of the West
- TD Bank
- USAA Federal Savings Bank
- PNC Bank
- SunTrust Banks, Inc.
- BMO Harris Bank N.A.
- U.S. Bancorp
- BNY Mellon
It is important to note that while these are some of the biggest banks in America, they are not the only ones that offer ACH transfers. Many smaller banks do as well.
How Do You Use ACH Transfers?
ACH transfers can be used for a variety of purposes. It is most commonly used to send money from one bank account to another. This could mean making payments, paying bills or even moving money between private accounts. It's also an extremely common way to make electronic payments. Additionally, ACH transfers are frequently used by businesses looking for a quick and easy way to move their money around.
The other most common use of ACH transfers is for direct deposit purposes. For example, if you're paid via check your employer must take the funds from your checking account and deposit them into your savings account before you can access the money. This is often done on payday. With ACH transfers, your employer would initiate an electronic transfer of funds from your checking to your savings (or any other) account without having to withdraw cash and make a physical deposit elsewhere. It's important to note that some employers only allow for one ACH transfer per month and that you'll need to set it up through your payroll office.
When Would You Use an ACH Transfer?
ACH transfers are often the best option in the following situations:
- The payee doesn't accept checks. If you're making a payment to someone who only accepts electronic payments, an ACH transfer would be the best option as it is the simplest way to make a transfer.
- You need your funds immediately. An ACH transfer is completed electronically and takes just a few days to process. This means the funds will be available much faster than if you had to wait for a check to clear or cash to arrive in your bank account from an international wire transfer.
- You need your money in multiple different accounts. Sometimes it's difficult to split up the total amount you need to move between accounts. For example, you may be moving $5,000 out of your checking account and $3,500 out of savings to meet a bill payment. With an ACH transfer, the money is automatically split up into different deposits so that each one arrives in the right account rather than forcing you to manually deposit the money.
- ACH transfers are also a great option if you're looking for an alternative to a wire transfer, particularly one that's going to take several days or weeks to complete. An ACH transfer is much faster and easier than a wire transfer but can still be used for the same purposes.
Are ACH Transfers Secure?
ACH transfers are extremely secure. Financial institutions, including banks where you hold accounts, are required to undergo regular audits for security. The Consumer Financial Protection Bureau is responsible for overseeing the laws and regulations that govern ACH transfers.
Unlike wire transfers, which pass through several different companies before making their way to the recipient's bank account, an ACH transfer only passes through your bank's servers. This is a more secure process. You don't have to worry about unauthorized access at any point in the transaction.
How Long Do ACH Transfers Take?
ACH transfers are often completed in one business day. They can take up to 3 days depending on how long it takes the financial institution to process the transaction.
If you're planning on making frequent ACH transfers to the same accounts, it's a good idea to set up automatic payments through your bank so that they happen automatically. For example, if you have monthly bills to pay you can set up an ACH transfer from your checking account to the payment company for each bill so that when they become
How Much Do ACH Transfers Cost?
ACH transfers are often free of charge. You should always check with your bank to verify if there are any fees that may be assessed for using this payment method. Always opt for electronic payments if they're offered for free since they'll save you money.
Another common use for ACH transfers is automatic bill pay. For example, if you have a monthly mortgage payment or other bill, you can set it up to be automated through an ACH transfer. You'll need to provide your bank account number and routing number in order to make the transaction.
Alternatives to ACH Transfers
You can also take advantage of electronic bill pay. This is a less secure option than an ACH transfer because it involves giving out your account and routing number to companies instead of transferring the money electronically from your bank accounts.
However, automated electronic billing may offer you more flexibility. You can specify different payment dates for each company rather than only initiating one payment date for all of your bills with an ACH transfer. You'll also have the option of specifying different amounts for each company rather than splitting up a larger amount across multiple companies.
In Conclusion - All About ACH Transfers
ACH transfers are a payment method that's both secure and easy to use. They are completed electronically, are usually free of charge and take just one business day to complete. ACH transfers can be used in conjunction with automatic bill pay or when you need to make a transfer between multiple accounts.
If you're looking for an alternative to an international wire transfer or want more flexibility when setting up your automated bill payment system, consider using an ACH transfer to meet your needs. Hopefully this article tells you everything you need to know about ACH transfers and how they work. Check out the FreshBooks Resource Hub for more content.