If you’re designing any kind of FinTech app or solution that enables users to move money from one bank to another (most FinTech apps fall into this category!), then you’ll want to familiarize yourself with the Automatic Clearing House (ACH) network and how it works. Read on to find answers to some of the most frequently asked questions about ACH.
What Is An ACH Deposit?
ACH deposits are electronic money transfers that push funds from an originating account directly into a receiving account over the national Automated Clearing House Network. The network’s batch processing system automatically holds and waits to send out ACH deposits at regularly scheduled times throughout the day for faster and more efficient processing.
The ACH Network is the most popular electronic payments system and the majority of U.S. financial institutions, businesses, government organizations, and individuals use it to send and receive money electronically. A growing number of U.S. employees receive ACH direct deposits from their employer’s bank accounts as a faster, cheaper, and more secure way to receive a paycheck compared to paper checks, wire transfers, or cash.
Other types of ACH deposits include person-to-person electronic transfers, annuity payments, government benefits, interest payments, and more. For additional information on the basics of the ACH Network, check out What Is ACH?
How Does an ACH Deposit Work?
Every ACH deposit is started by an originator looking to transfer funds.
The bank of the originator’s account is known as the Originating Depository Financial Institution (ODFI). The bank account receiving funds in an ACH deposit is known as the receiving account, or the receiving depository financial institution (RDFI). Payments go through either The Federal Reserve or The Clearing House for processing before they can be settled.
All ACH deposits are automatically sent in batches so more deposits can be processed at once.
5 Steps to an ACH Deposit
1. The ODFI begins a transaction.
If you want to send money via ACH direct deposit, you must know the bank account number and routing number of the RDFI. This helps ensure accurate processing of deposits.
2. ACH files store information.
ACH files include the account and routing numbers of the RDFI, as well as the amount of money being deposited. The files must meet strict regulatory requirements enforced by Nacha for maximum security and accuracy for crediting accounts.
3. The ODFI applies debit.
The ODFI applies the amount specified in the ACH file as a debit to the RDFI’s account. The actual funds will be transferred when the ODFI is done batching deposits at certain times throughout the day to be sent to the Federal Reserve or The Clearing House.
4: Payments are processed.
The Federal Reserve or The Clearing House are in charge of organizing ACH files so money moves to the appropriate banks and accounts with efficiency and accuracy.
5. Money reaches the RDFI.
Once the ACH files are delivered to the RDFI, money is credited to the appropriate accounts, effectively settling the ACH deposit
What Is the Difference Between an ACH Deposit & an ACH Payment?
ACH deposits (also known as ACH Credits) and ACH payments (also known as ACH debits) are the two types of ACH transactions. The simplest way to remember the two types have to do with whether you are sending or receiving money on the ACH Network.
ACH deposits are any transfer of funds directly from one account to another while ACH payments are withdrawals from one account to another for the purposes of making payment. ACH deposits credit an account, and ACH payments debit accounts with the RDFI’s permission to directly remove funds from their account to make a bill payment.
Examples of ACH Deposits
- Interest payments
- Social security
- Tax refunds
Examples of ACH Payments
- Bill payments, including credit and debit cards
- Recurring payments like subscription services and charitable donations
- Sending money on platforms like Venmo or Zelle
How Long Does an ACH Deposit Take to Settle?
Thanks to the ACH Network’s batch processing system, ACH deposits typically take between 1-4 business days to settle. The schedules at which ACH files are sent out in batches throughout the day vary by a financial institution and can affect how long it takes for a deposit to settle.
Due to recent guidelines from Nacha, funds must be available in the receiving account of ACH credits same-day, with the 1-4 business days to fully close. However, funds for ACH debits are required to settle within 1 business day.
What Does an ACH Transfer Cost?
Much of the popularity of ACH transfers comes from their cost effectiveness versus other payment systems. ACH transfers are typically free, or limited to no more than a few dollars in fees depending on the financial institution you’re sending money to or from. Compared to often pricey electronic wire transfers per transaction or manual process of paper checks, ACH transfers offer a better alternative.
ACH Direct Deposit Versus Paper Checks
ACH direct deposit is more beneficial than sending paper checks because they are:
- Typically free
- Much more secure (there’s no chance of the check getting lost in the mail)
- Faster and more efficient
ACH Direct Deposit Versus Wire Transfers
ACH direct deposits are better than sending electronic wire transfers because they are:
- Typically free
- Processed in groups, not individually
- Not dependent on bank operators completing manual tasks
- Faster and more efficient
ACH Direct Deposits With Envestnet | Yodlee
Envestnet | Yodlee offers organizations an array of ACH payment solutions that provide individuals, businesses, and financial institutions faster and safer processing of payments. Whether it’s for a better way to process payroll, make payments to vendors, or just send money to friends, Envestnet | Yodlee has an ACH direct deposit solution to make moving money convenient and secure.
NACHA and Envestnet | Yodlee
As a Nacha Preferred Partner, Envestnet | Yodlee is committed to meeting and improving the compliance standards of ACH transactions on the ACH Network.
Recognized by Nacha for our bank account validation tool, Envestnet | Yodlee can help you ensure the account you’re sending money to in an ACH direct deposit is real, and reduce risks for fraudulent activity.
Discover how DCU reduced fraud and lowered ACH return rates with Envestnet | Yodlee in this ACH Solutions Case Study.