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A quick and easy guide to ACH transfers: What, why, and do they cost you money?

Even if you don't know what ACH transfers are, you could probably benefit from them. It's common for employers to direct deposit paychecks, and even many gig-economy businesses pay freelancers via ACH. Discover everything you need to know about this banking tool, including what ACH bank transfers are, why you might need to use one, and how much they cost so you can better grasp how your hard-earned dough is getting from A to B (where B stands for a bank account, of course).

What are ACH transfers?

ACH bank transfers are a way to send money between banks or financial institutions. The funds are routed electronically through what's called an Automated Clearing House (hence the ACH), so cash is not needed to change hands physically, and people aren't dealing with paper checks or lugging around big bags of change.

These transfers are batched by financial institutions and sent at the same time daily through a clearinghouse. This lets banks and other businesses automate a lot of the work involved in ACH transfers and streamline the process of sending funds between banks. If you've ever wondered why your paycheck comes through roughly the same time every other Friday, now you know.

Benefits of ACH transfers

ACH transfers are generally more secure than dealing with cash or checks. Cash can be stolen or lost, and you can misplace a check. But an ACH transfer moves funds electronically, so nothing has actually to trade hands physically.

How long do ACH transfers take?

Electronic funds transfers can also be more convenient and faster than checks or cash. Depending on the operating procedures of the financial institutions involved in the transfer, the funds may be credited to the destination account the next business day. In some cases, funds can typically take 1 to 2 business days to be available in the destination account.

You also don't have to account for travel time or other issues. To deposit cash, you must go to a bank or complete an electronic upload, which not all banks even offer. To pay someone in cash or with a paper check, you may need to arrange a meeting time or send a payment by mail, which may add additional time to the transaction. Some of these methods feel so outdated you almost expect the Pony Express to pull up with news from the big city, and that's just not going to get the job done.

Types of ACH transfers to know about

ACH transfers include both debit and credit transfers. The major difference between these two types of ACH transfers is how they were initiated. In most cases, ACH credit transfers are more common.

ACH Credit Transfers

ACH Debit Transfers

"Pushes" money into other accounts

"Pulls" money from other accounts

Initiated by the entity sending funds, such as a bank, typically on behalf of an account holder

Initiated by the entity receiving the funds

Can take up to a few business days to complete

Usually completed within 1 business day

Examples:

Direct deposit from employer accounts to employee accounts

Direct deposits from government benefits programs

Automatic bill pay you set up with 

your

 checking or savings account to "push" payments out to other entities each month

One-time (usually large) transfers you work with your bank to set up, such as when funding escrow for a home purchase

Examples:

Automatic bill payments you set up with utility companies or other entities so they can "pull" payments each month from your account

eChecks, where you provide your account number and routing information as a payment method and agree the merchant can deduct the funds from your account

How much do ACH transfers cost?

How much you pay for ACH transfers depends on the financial institution you're working with and the type of transfer.

According to the National Automated Clearing House Association, the average cost of an ACH transaction is between 26 and 50 cents. However, that's the direct cost to the financial institution for managing the transaction. Banks and other entities may pass this and other administrative costs on to you in the form of ACH fees.

How those fees are charged depends on the account type, financial institution, and other factors. Banks may charge a flat rate per transaction, a percentage of the total per transaction, or a fee per batch of transactions. It's totally up to the powers that be. They may also not charge at all and make up administration and ACH costs via monthly fees for account holders.

You could pay $1 to $10 on average for this service as an individual who may only send ACH payments in specific circumstances. Banks may sometimes allow a certain number of ACH transfers per month as a courtesy before you are charged.

However, if you are receiving funds, such as via direct deposit from an employer, you are typically not charged.

Potential restrictions when sending ACH transfers between banks

If ACH transfers are more secure and faster than paper checks or cash, shouldn't you just send all your payments that way? Not exactly, because there are restrictions on these types of transfers. Here are just a few restrictions you might deal with:

  • Caps on transfers.

    Banks may limit how many ACH transfers you can send each day or month. You may also face a cap on how much money you can send in a day or a month via this method. Caps are set by each bank and may be unique for various account types. For example, thresholds may be lower for individuals and small businesses than for large corporate accounts.

  • Fees for transfers.

    You may be charged fees to initiate transfers. If you need assistance from someone at the bank, you may need to pay an extra fee to cover that expense. How much you pay for ACH transfers with your financial institution may limit how much you want to use them.

  • Potential inability to transfer outside the United States.

    While ACH payments can be used to send funds internationally, not all banks or accounts support this function.

  • Deadlines for sending transfers.

    Every bank has a cutoff time of business days. ACH transfers are initiated before that cutoff is processed. ACH transfers initiated after the cutoff are held until the next business day. That means your transaction may not go out until the next day or, in cases where there is a weekend or holiday, several days later.

Wire transfers vs. ACH transfers: What's the difference?

While some people use terms like "wiring money" to mean transferring funds via ACH, these transactions are not the same and don't use the same networks. So, what are ACH wire transfers, and how do they compare to ACH transfers?

Wire Transfers

ACH Transfers

Funds are sent via a communication network — Some options include Fedwire or the Society for Worldwide Interbank Financial Telecommunication (SWIFT)

Funds are sent via the Automated Clearing House

Transfers can be completed in hours and, sometimes, minutes

Transfers typically take 1 to 3 business days

Can be used for international transfers

Can only be used for international transfers in select situations

No limit on transfer amount

Limits on transfer amounts

Cannot be reversed

Can be canceled or reversed

Often used in scams, putting senders at risk if they aren't wary

Used less often in scams than wire transfers

Tips for speeding up ACH Transfers

If you're sending an ACH transfer, one of the best ways to ensure it moves as quickly as possible is to request the transfer well before your bank's cutoff time. That way, there's time to handle any issues before transfers end until the next business day. You might also ask about paying for expedited processing or one-day transfers. These are great tips to keep in mind if you're trying to move money for a last-minute down payment on a house or even just to ensure bills that pay out of one account will be covered by the money you keep in another.

If you're sending someone else money with Varo Bank, you might consider using Zelle® to set up a fast, person-to-person transfer. When both the sender of funds and the recipient have Zelle®, money can be transferred in just a few minutes.

If you want to receive ACH payments faster—like a direct deposited paycheck—Varo can help. You can get your paycheck funds up to two days faster than you would when banking with a traditional bank when you set up a Varo Bank Account with direct deposit¹.

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