While ACH might never enter your daily conversations, the acronym is probably an essential piece of your well-being. Why? Because the Automated Clearing House – that’s the name behind those three letters – Network is probably responsible for getting you paid and making sure that your bill payments arrive on time.
“Consumers may not realize that they’re using ACH,” says Dave Fortney, executive vice president, product development and management at The Clearing House, “but most people use it a lot.”
How much is a lot? Well, data from Nacha, an organization that works to enhance and enable ACH payments, shows that the ACH network processed more than 24.7 billion payments worth $55.8 trillion in 2019. So, a lot.
How does an ACH transaction work?
Fortney says that any kind of electronic deposit to a consumer from an employer or the government happens over the ACH network.
“You’re pushing funds from one bank into an account at another bank,” Fortney says.
On the other side, Fortney highlights the ACH debit function. For example, you can give your mortgage provider your bank info, and each month, the mortgage lender debits your account for the same amount on the same day.
ACH transactions are happening throughout traditional business hours, but they are not in real time.
The network has two submission deadlines. Payments submitted by 10:30 AM ET are settled at 1:00 PM ET, and payments submitted by 2:45 PM ET are settled by the close of business at 5:00 PM ET.
“If you use one of the money movement platforms such as Venmo, Zelle or PayPal, a lot of that is ACH, too,” Fortney says. “Some of those platforms have more than one way that they move money, but ACH is the primary method.”
Benefits of ACH transactions
- Eliminate the need for checks. At its core, ACH helps eliminate the need to print, sign and cash checks. The world used to sign and deposit an overwhelming number of them, too. In fact, in 2000, data from the Federal Reserve showed that more than 42 billion check payments were processed. By 2018, that number had shrunk to around 14.5 billion. Now, that number seems poised to grow much smaller. During the pandemic, Fortney says that he has seen a growth in ACH as more people have shifted away from paper checks.
- It’s everywhere. The ACH network has been around for more than 40 years, so every financial institution that works with traditional checking and savings accounts is part of it.
- It makes your life easy. Bridget Hall, product lead, real-time payments at ACI Worldwide, says that ACH “removes friction” from the payment experience by removing the need to even look at your calendar. “A top [benefit] would be the ease of scheduling recurring debits from an end consumer’s bank account, originated on the consumer’s behalf by the payee company or government with no additional effort on the part of the consumer after initial authorization,” Hall says.
- ACH is cheap. If you need to send money to another recipient, the ACH network can play a role in keeping your transaction costs very low or free. While wire transfers might be $30, ACH transactions are a fraction of that cost.
Cons of ACH transactions
“There are downsides to every payment type,” Hall says, “and ACH is no different.”
- Automatic isn’t always an advantage. While not having to remember to pay your utility bill makes your life easy, what if you don’t have enough money in your account? “Recurring payments happen automatically,” Hall says, “and the end consumer may not be prompted to review their invoice for potential errors or may not review their bank account to ensure sufficient funds are available, causing an overdraft fee.”
- Timing can be tricky. ACH payments operate on a same-day network, but Fortney says that the network is “business-day driven.” So, if a payment is made over a weekend or a holiday, it will not appear in your account the next business day.
In addition to waiting to receive money, that slowdown creates hiccups when sending your money. “For non-recurring payments, ACH sometimes isn’t fast enough,” Hall adds. “If a bill is due today, an ACH payment may not get there in time to avoid late payment penalties.”
If you’re on a tight time crunch, you’re better off finding an option that runs on the RTP network. The Clearing House also runs the RTP network, which is a newer infrastructure for processing real-time payments. While Fortney says the RTP network is not ubiquitous yet, 56 percent of bank accounts in the U.S. are connected to it.
“The RTP network doesn’t behave differently based on a weekend or time of day,” Fortney says. “No matter when the payment is made, it’s completed immediately.”
When you wake up to find a new direct deposit in your checking account or you can avoid mailing a check to your electric company, it’s not magic. It’s probably ACH.