ACH Fundamentals
How does ACH work?
A comprehensive guide to understanding how ACH transfers work, how long they take, and how much they cost.
A helpful guide to understanding how ACH transfers work, how long they take, and how much they should cost.
When money needs to move between bank accounts, ACH transfers are the dominant method that makes this happen.
Initially created to replace paper checks, ACH transfers offer individuals, businesses, and governments an easy and inexpensive way to transact using only basic information:
The mechanical process depends on several factors:
In 2020, $62 trillion changed hands in the US via the ACH network, spread over 27 billion electronic transactions. This represents an 11% increase from 2019, driven by a 42% surge in peer-to-peer transfers through apps like Venmo and Cash App.
What is an ACH transfer?
An ACH transfer is any movement of money over the Automated Clearing House (ACH) network. This network enables bank transfers between hundreds of millions of personal, government, and commercial accounts across approximately 11,000 financial institutions in the US.Types of ACH transfers
There are two main types of ACH transfers:Requests for the ACH network to “pull” money from an account that the requestor (“originator”) doesn’t control. Common examples include pre-authorized bill payments. See our ACH Debit guide for details. In Straddle, these are charges.
The ACH network is ubiquitous: roughly 94% of American workers receive their pay via ACH transfers.
- Name
- Bank account number
- Bank routing number
How does an ACH transfer work?
ACH transfers function like bulk digital mail. Each transfer request is packaged as a message within a larger bundle (“batch”) by the requesting bank, called the originating depository financial institution (ODFI). The ACH network then re-bundles these messages by recipient and passes them to the receiving bank (the receiving depository financial institution, or RDFI) at five regular intervals each business day.As of March 2021, ACH processing windows occur at: 6am, 12pm, 4pm, 5:30pm, and 10pm ET.
- Whether it’s a debit or credit request
- Which processing partner the originator uses
- Whether the originator paid for same-day service
- Whether the request returns any of 69 possible error codes
Step-by-step ACH transfer process
1
Payroll submission
4:00pm ET Monday - ABC Company submits their payroll information to a processing partner.
2
File preparation
10:00am ET Tuesday - The processor works with ABC’s bank (the ODFI) to submit a file to the ACH network containing all individual payroll ACH credit requests.
3
Network processing begins
10:30am ET Tuesday - The ACH network begins breaking down all files received since the last window, repackaging them by recipients. Files received after this cutoff wait for the next window.
4
Request delivery
12:00pm ET Tuesday - The ACH network delivers files as ACH credit requests to every bank where ABC’s employees have accounts (the RDFIs).
5
Same-day processing
1:00pm ET Tuesday - For same-day processing requests, the RDFI has one hour to process and settle with the ODFI through the Federal Reserve.
6
Same-day fund availability
1:30pm local RDFI time Tuesday - Same-day transferred funds must be available to recipients by this cutoff.
7
Standard processing deadline
8:30am ET Thursday - Maximum cutoff for all remaining (non-same-day) transactions to process and settle without error or reversal messages.
8
Final fund availability
9:00am local RDFI time Thursday - All funds must be available to recipients by this time.
How long does an ACH transfer take?
ACH transfers typically process and settle anywhere from hours to a few business days. Transfer speed depends on:- Time of day initiated
- Same-day service selection
- Error code occurrences
Same-day processing is available for about $0.05 in network fees for transactions received within the three middle settlement windows each business day. Learn more about Same-Day vs Standard ACH.
Processing timelines
| Transaction Type | Timeline |
|---|---|
| Same-day ACH | 2.5-6 hours |
| Standard ACH Debits | Next business day (8:30am ET) |
| Standard ACH Credits | Second business day (8:30am ET) |
Common delays
Error handling: The most common errors include:- Insufficient funds (for debits)
- Incorrect account numbers
- Wrong amounts
- Mismatching names
RDFIs may delay processing non-same-day credits if they perceive transaction risk, since they haven’t received money from the ODFI yet. For smaller amounts, they may advance funds as a customer convenience.
Recent improvements
In March 2021, Nacha implemented new rules requiring originators to verify that accounts are open, valid, and can receive ACH transfers before initiating online ACH debits. This reduces errors, fraud, and delays. See our Account Validation guide for details.The ACH system operates on a “no news is good news” basis—transactions are never explicitly confirmed and can be reversed later. RDFIs have up to 48 hours to report failed transactions, and consumers have 60 days to dispute ACH debit transactions.
ACH transfers vs. wire transfers
| Feature | ACH Transfers | Wire Transfers |
|---|---|---|
| Processing | Batched | Direct |
| Reversibility | Recallable (see ACH returns) | Irrevocable (see wire transfers) |
| Cost | Inexpensive | Expensive |
| Speed | Hours to days | Hours (typically faster) |
While wire transfers are generally faster, ACH transfers can be as quick as 2.5 hours with same-day processing if submitted before a transfer window closes.
What does an ACH transfer cost?
The base network fee for ACH transactions is fractions of a penny. However, most parties use processing partners who typically charge:- Flat fees: 1.50 per transaction
- Percentage-based surcharge: 0.5% to 1.5% for higher-value payments (typically capped at $5)
Bank ACH availability
All US banks can use ACH transfers. The only requirements are a valid bank account and routing number.
Future enhancements for ACH
The gap between ACH and real-time payment products continues to narrow through ongoing innovation. While payment cards once uniquely offered real-time authorization, technological advances now allow ACH to replicate most advantages while maintaining superior cost efficiency. An example of this advancement is Nacha’s commitment to expanding Same-Day ACH. They recently announced plans to increase transaction limits from 1 million in 2022, making it an appealing alternative to wire transfers for larger transactions.Same-Day ACH Expansion
Nacha recently announced plans to increase Same-Day ACH transaction limits from 1 million in 2022, making it an appealing alternative to wire transfers for larger transactions.
Competitive landscape
Real-time alternatives:- The Clearing House: Released Real Time Payments (RTP) in 2017, resembling instant wire transfers
- Federal Reserve: Launched FedNow in July 2023, their equivalent real-time payment product
While ACH remains less expensive and continues improving, it will compete alongside several strong real-time payment options in the evolving landscape.