What Are ACH Payments and Transactions?

7 Min Read | Published: March 5, 2024

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This article contains general information and is not intended to provide information that is specific to American Express products and services. Similar products and services offered by different companies will have different features and you should always read about product details before acquiring any financial product.

Automatic Clearing House (ACH) payments and transactions offer some advantages, but they have their downsides as well. See how ACH payments work.

At-A-Glance

Automatic Clearing House (ACH) payments are electronic transfers between banks and credit unions that are made through the Automated Clearing House network.
ACH payments typically take two to five days to process, but banks may be able to clear payments in as quickly as one day.
The difference between an ACH direct deposit and an ACH direct payment is the direction the money is going.

Electronic funds transfers made between financial institutions like banks and credit unions are often conducted using the Automated Clearing House (ACH) network, which provides a fast, secure, and easy way to transfer funds.¹ Read on to learn more about how ACH payments work.

What Is an ACH Transaction?

Banks in the U.S. use a nine-digit routing number and an account number to create a unique identifier for their customer’s checking accounts. Those numbers are used to send and receive funds on the Automated Clearing House Network.² Think of it as using an “electronic check” to make a payment to someone else’s bank account.

ACH payments typically take two to five days to process, but some banks can now clear an ACH payment within one business day. The exact details of this are something you’ll want to discuss with your bank because every institution is different.

ACH is typically used for domestic transfers, but you may be able to use it to transfer funds internationally. These are sometimes called “remittance transfers.”³ Ask your local bank or financial institution about them first, because they are not always available.

ACH Transactions: Direct Deposit vs. Direct Payments

ACH transactions are bank-to-bank transfers that can go in either direction. A good example of an ACH transaction is the electronic transfer of a paycheck. The recipient receives that transfer as an “ACH credit,” also known as a “direct deposit.” The employer records it as an “ACH debit,” and can list it as a “direct payment” for accounting purposes.

The differentiator between a direct deposit and a direct payment is the direction the money is going. Direct deposit is the receipt of funds from someone else. A direct payment is the sending of funds. Many Americans use ACH direct payments for bill payments through their bank or credit union. The chart below might help you to better understand this:

Be careful about substituting the term “ACH payment” for “direct payment.” They are not the same thing. An ACH payment can be either a credit or debit.⁴ It’s a descriptive term used for all ACH transactions. A direct payment is an ACH payment that goes out, like online bill pay.

Type of ACH	Fund Flow Direction	Example
Direct Deposit	Incoming (Pushed)	Payroll
Direct Payment	Outgoing (Pulled)	Bill Pay

How to Initiate ACH Transactions

Most modern banks and credit unions have an option on their website to initiate ACH transactions. Account holders may be able to log in, enter the account number and routing number of where they want to send money, and then authorize the ACH payment. Of course, this process will vary depending on which bank you use, so be sure to get clarification from your financial institution if you need further guidance.

Double-check the account number and routing number of the intended recipient before giving the final authorization for your ACH payments.

Writing the wrong numbers could cause your transaction to be delayed, denied, or even posted to the wrong account. Ideally, the bank will catch it before that happens, but if not, the funds may end up deposited in the wrong account. If that happens, you’ll need to contact your financial institution to try to resolve the problem.⁵

Benefits and Drawbacks of ACH Payments

Benefits
Convenience: ACH Payments offer a convenient form of money transfer.
Accuracy: ACH transfers go from one bank account into another, helping to ensure that the proper party receives the funds.
Cost: The cost of an ACH varies, but they are cost-effective. The recipient pays nothing.
Security: ACH transactions are initiated by banks and credit unions using bank-level security protocols.

Potential Drawbacks
Processing times: An ACH can take two to five days to process, but in some cases, faster processing may be available.
Bank-imposed amount limits: Your bank or credit union may have a daily amount limit on ACH transactions.
Potential payroll fraud: Theft of bank account numbers and routing numbers could lead to payroll fraud.

Frequently Asked Questions

Payroll direct deposits and automatic recurring payments (debits for services like utilities) are all examples of ACH payments.⁶

The maximum amount you can send per day via ACH varies by financial institution.

The Takeaway

ACH payments can be a safe and effective way to electronically transfer money from one bank account to another. Processing time for a domestic ACH payment to clear is two to five days, but faster processing may be available. Check with your local bank or credit union for more details.

¹ “Direct Payment for Consumers,” National Automated Clearing House Association

² “What is an ACH?,” U.S. Consumer Financial Protection Bureau

³ “Can I use the Automated Clearing House (ACH) network to transfer funds abroad?,” U.S. Consumer Financial Protection Bureau

⁴ “What is ACH versus direct deposit?,” Modern Treasury

⁵ “Routing vs. account number: Understanding the difference,” Intuit Credit Karma

⁶ “Frequently Asked Questions,” Modern Treasury

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Kevin D. Flynn is a financial services provider, business coach, and financial writer. He lives in Leominster, Massachusetts with his wife Evelyn, two cats, and ten wonderful grandchildren.

All Credit Intel content is written by freelance authors and commissioned and paid for by American Express.

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