When you move money from one bank account to another, you’re doing what’s known as an automatic clearing house transfer, or ACH. If you receive a direct deposit from your employer, that is also an ACH transfer.
ACH transfers are significantly cheaper than wire transfers, which generally cost between $15 and $50 — an ACH transfer, by comparison, is usually free or only a few dollars at most. So what is an ACH transfer, and how are banks able to offer this service for little or no fee?
What Is an ACH Transfer?
ACH stands for Automated Clearing House. This is essentially an electronic network that lets you make payments without much hassle through your bank. Because we live in the era of online banking, what used to be a service you had to go into a physical branch to take advantage of is now something that anyone can use simply by logging into their bank’s website. You can transfer money from one account to another, usually without a fee, to pay your bills.
The payment system is governed by the National Automated Clearing House Association. Regulations are put in place by NACHA and the Federal Reserve. This makes ACH perhaps the most secure means of sending payment possible. In fact, there have been various phishing and malware scams invoking the name of NACHA in an attempt to garner trust with the intended victim. Sixty percent of all ACH transfers are done by the Federal Reserve Banks, with the remaining 40% being commercial and consumer-level transactions.
The Difference Between an ACH and a Wire Transfer
Wire transfers and ACH transfers accomplish identical ends: getting money from one place to another. The main differences, as far as you’re concerned, are speed and cost. ACH transfers might take a few days to appear in your account and aren’t always available internationally, while a wire transfer might show up as early as the close of business that day. If you need money transferred quickly or internationally, a wire transfer is usually the way to go — but you’re going to pay significantly more.
When choosing between an ACH and a wire transfer, there are two pieces of information that will help you to make your decision: how long it’s going to take and how much it’s going to cost you. In some cases, you’re going to pay extra if you get help from a banker. Here’s a breakdown of ACH transfer fees and processing times at some of the major American banks (note that some banks set a daily limit on ACH transfers ranging from $1,000 to $5,000):
|Bank||ACH Transfer Fees||Processing Time|
|Ally Bank||Free||3 business days|
|Bank of America||Incoming from external account: Free. Outgoing to external account: $3.||3 business days; next-day processing to external account for $10|
|Capital One 360||Free||2 business days|
|Chase||Free||1-2 business days|
|Citi||Free||1-3 business days|
|Discover Cashback Checking||Free||3 business days|
|Navy Federal Credit Union||Free||1-2 business days|
|Simple Bank||Free||1-3 business days|
|TD Bank||Incoming from external accounts: Free|
Outgoing to external institution: $3
|3 business days; next-day delivery available for $7|
|USAA||Free||3-5 business days|
Other Advantages of ACH Transfers
The biggest advantages of ACH lie in the domain of small business. For example, because you’re automating payments, you can sometimes negotiate a better deal with your vendors using ACH. What’s more, you can streamline your payroll with ACH, as this is the most common method of paying through direct deposit. Tax payments can also be made using ACH transfers, which makes them ideal for small business owners and the self-employed alike. You simply estimate your quarterly payment and then let ACH autopayments do the rest.
If you’re looking to make a lot of payments using ACH, you’ll find no shortage of banks and credit unions offering the service for free or a relatively low rate. Shop around and find the bank nearest you that’s offering no-fee ACH transfers in a timely manner. In the current marketplace, you won’t have much trouble – if you even have to switch banks at all.
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