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What Is An ACH Transfer? How They Work And Their Advantages

Hunter Brock
Hunter Brock
Hunter Brock is an experienced freelance writer who has been covering the lending and personal finance industries since 2016. With a passion for staying on top of the latest trends and changes in financial markets, Brock offers insightful commentary and analysis for consumers looking to navigate the often complex world of personal finance.

DollarGeek's goal is to help you make the best financial decisions. To help us do this, many or all of the products featured here are from our partners. However, this doesn’t influence our evaluations or ratings.

Table of Contents

ACH (automated clearing house) transfers are a popular way to move money from bank to bank in the United States. They facilitate automated, batch-processing transfers that make paying bills and sending and receiving payments more efficient.

Takeaway Points

  • ACH transfers are a safe and low-cost way to send money
  • They save individuals and organizations time and money
  • They are a popular way for employers to pay direct deposits and for companies to pay invoices
  • ACH transfers are used for automated bill pay

ACH transfers pervade the modern American financial system. Virtually everyone receives money or pays bills through this method.

What Are The Advantages Of ACH Transfers Versus Paper Checks?

ACH transfers are faster and more cost-effective than traditional paper checks. Customers can see their account transactions on screen, making it easier to track account balances. ACH transfers can be used for most bills, including:

  • Credit cards
  • Auto loans
  • Utility bills
  • Mortgages
  • Rent
  • Insurance premiums

Customers can also receive many types of payments through ACH transfers, including:

  • Wages
  • Self-employment income
  • Annuities
  • Social Security benefits
  • Disability income
  • Tax refunds

For businesses, ACH transfers eliminate the need for manual processing of paper statements and checks, which saves time and money.

What Are The Advantages Of ACH Payments Versus Wire Transfers?

Wire transfers work similarly to paper checks: They are one-time payments. However, wire transfers come with hefty fees, making them an impractical solution for recurring payments.

Banks charge at least $10 for domestic wire transfers and fees of $30 or more for international payments.

Because of this, few banking customers use wire transfers unless ACH transfers are impossible. For example, ACH transfers only work for domestic remittances, so many people sending funds overseas must use wire transfers.

How Do You Initiate An ACH Transfer?

ACH transfers offer the significant benefit of being easy to initiate. You have two options: ACH Credit and ACH Debit.

  • ACH Credit is a service offered through your bank or credit union, which is ideal for one-time payments.
  • ACH Debit is used for recurring payments and is set up through the company you wish to pay.

Downsides Of ACH Transfers

There are a few drawbacks to consider when it comes to ACH transfers:

  • They take several days to become effective
  • You must cancel unwanted ACH transfers before the due date
  • It’s easy to keep paying for unwanted subscriptions
  • Some banks impose limits on ACH transfers
  • Businesses may encounter stiff fees for certain transactions

External ACH Transfer Limitations

It’s important to check with your financial institution about their ACH policies and any restrictions. These may include:

  • Limits on the amount of money you can transfer daily or monthly
  • Cutoff times for transfers, after which processing won’t start until the next business day
  • Fees for insufficient funds, which can result in the transfer being stopped
  • International transfer restrictions, which may prohibit consumer ACH transfers to banks outside the U.S.
  • Transfer limits for savings accounts, with many banks charging a fee for more than six transfers or withdrawals per month
  • Fees for staff-assisted banking transfers, which may be charged even if online transfers are free. Be sure to know your financial institution’s policies before making a transfer with assistance.

Tips For Safe ACH Transfers

To ensure safe and secure ACH transfers, consider the following tips:

  • Safeguard your account information
  • Carefully review your bank statements
  • Report unrecognized transactions immediately
  • Close your account if your banking data is unsecure

Receive more tips on banking in our article on how much money you should keep in your checking account.

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