What is ACH?

ACH (Automated Clearing House) is a US electronic payment network that processes bank-to-bank transfers in batches. Banks collect ACH payments throughout the day and process them in scheduled cycles rather than individually.

The ACH network handles common payment types:

• Direct deposits for payroll and government benefits
• Bill payments for utilities, mortgages, and subscriptions
• Business-to-business vendor payments
• Person-to-person transfers through apps like Venmo and Zelle
• Tax payments and refunds

Nacha (National Automated Clearing House Association) operates the ACH network and establishes the rules that all participating banks must follow. The Federal Reserve and the Electronic Payments Network serve as the two national ACH operators that actually process the transactions between banks.

How ACH transfers work

An ACH transfer begins when the originating party authorizes a payment through their bank. For direct deposits, employers authorize payments to employee accounts. For bill payments, consumers authorize companies to withdraw funds from their accounts.

The originating bank (ODFI - Originating Depository Financial Institution) collects authorized ACH transactions throughout the day and creates batched files. The bank sends these files to the ACH operator at scheduled times, typically at the end of the business day or in cycles throughout the day.

The ACH operator sorts the transactions by destination bank and sends the information to each receiving bank (RDFI - Receiving Depository Financial Institution). The receiving bank credits or debits the appropriate accounts based on whether the transaction is an ACH credit or ACH debit. The ACH operator then settles the net amounts between all participating banks.

ACH credit vs ACH debit

ACH transfers work in two directions depending on who initiates the transaction.

ACH credits push money from the sender's account to the recipient's account. Direct deposit payroll is an ACH credit - the employer initiates the payment and funds move from the company account to employee accounts. The sender controls when the payment happens.

ACH debits pull money from the payer's account to the recipient's account with prior authorization. Utility bill payments are ACH debits - the utility company withdraws the payment from customer accounts. The recipient initiates the transaction but the payer must have authorized it first.

ACH processing times and costs

Standard ACH transfers settle in one to two business days because banks process transactions in batches. A payment initiated on Monday might not settle until Wednesday, depending on the timing and the receiving bank's processing schedule.

Same-day ACH enables faster processing for transactions submitted before network cutoff times. Nacha established three same-day ACH windows with cutoffs at 10:45 a.m., 2:45 p.m., and 4:45 p.m. EST. Same-day ACH currently has a $1 million transaction limit per payment.

ACH processing costs $0.05-$5 per transaction, making it significantly cheaper than wire transfers. Many banks offer free ACH transfers for consumers, though some charge fees for business accounts or expedited same-day processing. The actual cost depends on whether your bank charges per transaction, uses monthly fees, or offers ACH as a free service.

ACH vs wire transfer: what's the difference?

ACH and wire transfers both move money between banks electronically, but they use different networks and processing models.

ACH processes transactions in batches through scheduled cycles, settling in one to two business days at $0.05-$5 per transaction. Wire transfers process individually through Fedwire or SWIFT networks, settling within hours at $15-$50 per domestic transaction.

ACH allows reversals for errors and insufficient funds within specific timeframes. Wire transfers are generally irrevocable once sent - the recipient's bank makes funds immediately available and reversing a wire transfer proves extremely difficult.

Use ACH for routine payments where timing is predictable: payroll, recurring bills, vendor payments under $1 million. Use wire transfers for urgent high-value payments requiring same-day settlement: real estate closings, large equipment purchases, time-sensitive business transactions.

For a detailed breakdown of ACH processing, including how to integrate ACH into your platform and optimize for your specific use case, read our guide to ACH payments.

Common ACH use cases

ACH powers everything from your paycheck hitting your account to automated bill payments. Here are the most common ways businesses and consumers use the network:

• Payroll and direct deposit: Employers process payroll through ACH credits, depositing wages directly into employee bank accounts. This eliminates paper checks and ensures employees receive payment on scheduled paydays regardless of mail delays or bank holidays.
• Bill payments: Consumers authorize companies to withdraw recurring payments via ACH debit for mortgages, utilities, insurance premiums, and subscription services. The automatic nature reduces missed payments and late fees.
• Business-to-business payments: Companies use ACH to pay vendors and suppliers for goods and services. Same-day ACH enables faster payment cycles while maintaining low costs compared to wire transfers or paper checks.
• Tax payments and refunds: The IRS and state tax authorities collect payments and distribute refunds through ACH. Electronic filing with direct deposit typically delivers refunds faster than paper tax returns with mailed checks.
• Peer-to-peer transfers: Payment apps like Venmo, Cash App, and Zelle use the ACH network to move money between users' bank accounts. While the apps provide instant availability, the actual funds transfer happens through standard ACH processing in the background.

ACH security and compliance

Nacha enforces strict security regulations for all institutions processing ACH transactions. Banks must encrypt sensitive account information and implement fraud monitoring systems. ACH participants must comply with requirements for data security, authentication, and transaction monitoring.

ACH payments can be reversed under specific circumstances. Consumers have 60 days to dispute unauthorized transactions or errors. Businesses must follow Nacha's return rules when payments fail due to insufficient funds, closed accounts, or incorrect account information.

Banks monitor ACH transactions for suspicious patterns that might indicate fraud. However, because ACH debits require prior authorization, criminals sometimes manipulate consumers into authorizing fraudulent payments. Banks focus on customer education to prevent these authorized push payment scams.

Read a more in-depth guide on Understanding ACH Payments in 2025