If you’ve received or sent money online before, then chances are that you have already transferred your money through ACH (Automated Clearing House). However, there are chances that you might not be familiar with ACH and what it does. So to put it in simple words ACH transfers are the online transactions that you do for depositing or receiving money.

Here’s a guide that would help you in knowing how they work:

What is an ACH transfer?

It refers to any electronic funds transfer between various banks or merchants and payees, which happens through the ACH network, which is one of the biggest payment systems in the U.S. This method of transfer includes person-to-person transfers, external funds transfer, direct deposits, and bill payments as well. This is also used by people to send money to their friends and family through banks and applications like PayPal.

Types of ACH transfers

  • ACH credit transactions -This lets you deposit money online to accounts of different banks of your own or your friends’ or family members’.
  • ACH debit transactions –it involves taking money out of your account. It’s basically a recurring bill payment or any other type of payment done through your account.

The cost

Typically, all the ACH debit transactions including the bill payments and the payroll deposits are free. However, if you need expected bills then you might be entitled to pay some fees. In thecase of the ACH credit transactions, the banks may charge a minimal fee for sending money between accounts if you’re transacting between different banks. However, some banks also do the fund transfers for free.

If you’re expecting money from an ACH transaction through the bank then you needn’t worry as you won’t be charged any fee. However, if the transaction is done through any third party online application like PayPal you might be charged an ACH processing fee.

How long it takes

The ACH processing can take time of some business days depending on the type of transaction. They are not like the real-time processing that wire transfers go through, instead ACH network operators process transactions in batches only three times a business day. This is why it generally takes a day to settle debit transactions, two days to settle credit transactions and almost four days to settle checks.

However, this is changing now after the introduction of the new rules that have been put forth by the NACHA, the group that runs the ACH network. The new rules allow all the transactions to be settled in a day.