What is ACH (Automated Clearing House)?
Written by True Tamplin, BSc, CEPF®
Updated on July 10, 2021
The Automated Clearing House, or ACH, is an electronic funds-transfer system that facilitates electronic payments.
This system provides transaction services for use with payroll, direct deposits, tax payments and refunds, consumer bills, and so on.
The ACH is overseen by NACHA (formerly the National Automated Clearing House Association). Like the Federal Reserve and other financial institutions, NACHA is an independent, non-governmental organization.
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What is ACH?
The purpose of the ACH is to allow money to be moved between bank accounts securely and quickly.
NACHA guidelines regarding the ACH mandate that all debit transfers be completed on the same business day, and credit transactions be completed between 2 and 3 business days.
The speed of the ACH comes from the fact that it batches multiple requests together to increase the efficiency and timeliness of monetary transfers.
The ACH also charges fees low enough that it can be used by consumers for even low value transactions.
How the ACH Works
To start, an originator will make a deposit in the ACH network from an originating bank.
The originator can be an individual, an institution, or even a government body.
Once submitted, the originating bank will batch it together with other transactions to be sent out at regular intervals during the day.
Once received, an AHS operator sends the transactions to the recipient’s bank, which will make the funds available.