What is an ACH transfer?
ACH transfers are everywhere. You may be using ACH transfers without realizing it. Direct deposit or online bill payment through a bank account are two examples of ACH transfers. Beyond that, you can use an ACH transfer to make a single or term deposit into an Individual Retirement Account (IRA), taxable brokerage account, or college savings account. Business owners can also use an automated clearing house to pay suppliers or receive payments from customers and consumers.
Through this system, automatic payments are becoming more and more popular. Nacha reported $29 billion in payments in 2021. This is an 8.7% increase over the previous year. During the same period, person-to-person and business-to-business transactions also increased to 271 million (+24.9%) and 5.3 billion (+21%) respectively.
Types of ACH transfers:
ACH transfers can be more convenient for senders and recipients. You no longer have to write and wait for a check to clear or have to pay your bill to the electric company by the due date. While all of these are still possible, you now have other options. ACH transfers allow you to send and receive money conveniently and securely without leaving home.
ACH direct deposit:
ACH direct deposit is any type of electronic transfer from a business or government entity to a consumer. Types of payments that fall into this category include: salary, employer reimbursement expenses, government benefits, tax refunds, annuity payments, interest payments. With ACH direct deposit, you can receive your money. When you send money, you make an ACH direct debit.
ACH direct debit:
Individuals, businesses, and other organizations can use direct debit to send money. For example, if you use your bank account to pay bills online, this is ACH direct debit. Social payment apps like Venmo and Zelle also use the web when you send money to friends and family. In an ACH direct payment transaction, the sender will see the ACH debit appear in their bank account. This debit shows who the money was paid to and for what amount. The person or entity receiving the money records it as ACH credit in their bank account. The former withdraws money from one account, while the latter pushes it into another.
Benefits of ACH transfers:
Paying bills or making person-to-person payments using ACH transfers has several advantages:The first is convenience. Paying your mortgage, utility bill, or other recurring monthly expenses with electronic ACH payments can be easier and less time-consuming than writing and mailing a check. Not to mention you can save yourself a few bucks by not having to spend money on stamps. ACH payments are more secure than other payment methods. Also, sending and receiving ACH payments is usually fast. Settlement of a transaction, or transfer of funds from one bank to another through the ACH network, usually takes place the day after the transaction begins. Nacha operating rules require credits to be settled within one to two business days and debits to be settled the next business day.
Another bonus is that ACH transfers are usually free, depending on where your bank is located and the type of transfer involved. For example, your bank may not charge you any fees to transfer money from your checking account to another bank’s account. If it does charge, it’s probably only a nominal cost of a few dollars. ACH transfers are more cost-effective than wire transfers, with fees ranging from $25 to $75 for international outbound transfers. Wire transfers are known for their speed and are usually used for same-day service, but can sometimes take longer to complete.For example, with an international wire transfer, it can take several business days to transfer money from one account to another, and then another few days to complete the transfer.
Are there any disadvantages to ACH transfers?
ACH transfers are convenient, but not necessarily perfect. There are some underlying rules to keep in mind and circumvent when using them to move money from one bank to another, send payments, or pay bills.
ACH transfer transaction limit:
Many banks impose limits on the amount you can send with an ACH transfer. There may be per transaction limits, daily limits and monthly or weekly limits. Bill payments may have one limit, while transfers to other banks may have another limit. Or one type of ACH transaction might be unlimited, but another might not. Banks can also impose restrictions on transfer destinations. For example, they may prohibit international transfers.
There may be penalties for transferring money from savings too frequently:
Savings accounts are governed by Federal Reserve Regulation D, which may limit certain types of withdrawals/transfers to six times per month. If you exceed this limit with multiple ACH transfers from your savings account to another bank, you may be subject to an over-withdrawal penalty. If frequent transfers from savings become routine, the bank may convert your savings account to a checking account.
Timing issues with ACH transfers:
When you choose to send an ACH transfer, the time frame is important. That’s because not every bank sends them for banking processing at the same time. There may be a deadline by which you need to make the transfer for it to be processed the next business day. Initiating an ACH transfer after the due date can cause delays, which can be a problem if you’re trying to avoid late fees on a certain bill by its due date. ACH takes an average of one to three business days to complete, which is considered slow in the age of fintech and instant payments. Same-Day ACH processing is growing to address the slow service of the standard ACH system. In 2021, intraday ACH transaction volume increased by 73.9% compared to 2020, totaling 603 million payments.
(Tip: Most money transfer apps charge no fees when sending money to friends and family, but some apps may charge a 3% fee when you pay with a credit card, so read the fine print.)
Other online remittance methods:
If you need a faster way to send money online, social pay money transfer apps can help. These apps allow you to send them money using their email address or phone number. The money you send can come from your bank account, credit card, or in-app balance.
Of course, there are traditional money transfer services like MoneyGram and Western Union. These services allow you to send money and pay bills online by setting up an account and linking it to your credit or debit card. Keep in mind, though, that these companies usually charge a fee.
The biggest advantage of these apps, aside from their ease of use, is the transfer speeds they can offer. Depending on which one you use, you may be able to send money within minutes. This gives them an advantage over ACH transfers.
What is an ACH bank transfer?
ACH bank transfers are electronic payments between banks for payment purposes. The network over which these payments occur is known as an “automated clearing house.” ACH bank transfers are used for a variety of purposes, such as direct deposit of paychecks, recurring debt payments, and money transfers.
What is required for an ACH transfer?
Information required to complete an ACH transfer includes account holder name, routing number, ABA number, account number, and amount to be transferred.
What is the difference between a wire transfer and ACH?
Both wire transfers and ACH transactions are used to facilitate the movement of funds. Wire transfers usually happen the same day and are more expensive. ACH transfers generally take longer to complete; however, same-day ACH transfers are becoming more common. ACH is also available for domestic transfers, while international transfers are done via wire transfer.
ACH transfers are a relatively easy way to send or receive money. Either way, make sure you understand your bank’s policies regarding ACH direct deposits and direct debits. Also, be wary of ACH transfer scams. For example, a common scam involves someone sending you an email telling you you owe money and all you need to do is provide your bank account number and routing number to receive it. If something sounds too good to be true, it probably is.
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