Dedicated to Deposits: Deals, Data, and Discussion

How ACH Transfers Work

You want to make sure that your mortgage and utility bills are paid on time every month, but you hate writing checks, and paying postage to mail those bills is getting to be a hassle. Therefore, you sign up for automatic payment with each of these companies. In doing so, you notify your mortgage and utility companies that you would like the respective set amounts to be taken from your account on certain days each month. When those days arrive, the receivers (the companies that receive the payments) contact the originators (the billers) and tell them to send requests to your bank to transfer the money amounts from your account to the lenders’ accounts per your written permission that you gave when you signed up for automatic bill pay.

The originators send the information to the ODFI (your bank) which then deducts those amounts from your account. At this point, the money is still in your account, but it’s not available to you because holds have been placed on those funds. The lender's bank transfers the amounts to the lenders’ accounts, but the bank doesn't make the money available yet. These transactions will be listed as a "pending ACH transfers". Once the RDFI (usually the Federal Reserve) receives the information, the accounts are reconciled (“balanced”), proven to have sufficient funds to complete the transaction ("cleared"), and the money is officially deducted from your account and deposited in your lenders’ accounts ("settled"). Now, the transactions are officially complete. Your bills are paid for another month. If you don’t yet use direct deposit or automatic bill pay personally, signing up is simple. Just notify your employer and/or the billers for which you have services or products that you wish to participate in Automatic Billing. Some billers may require you to fill out minimal paperwork, but most companies offer the opportunity to sign up online by visiting their websites.

While the concrete details as to how transactions are recorded and finalized aren’t available to the general public to prevent hacking, safeguard account information and maintain the integrity of the system, you might be surprised to learn that clearing transactions is a relatively simple, comparatively quick procedure. A typical transaction takes anywhere from a few hours to a few days to clear depending on how much traffic passes through the regional clearing houses. Interestingly, these transactions do not happen in “real time” as some might think. Instead, participating institutions receive output files (transaction updates and notations) just four times a day. Therefore, the transaction might not appear immediately in your record.

How Businesses and Other Government Agencies Utilize ACH Transfers

Many businesses use direct deposit to pay their employees. When you get your check direct-deposited, your employer uses the ACH to place the funds from your paycheck into the account(s) that you designate on your employment paperwork. The vast majority of Americans who have the option to do so use direct deposit to ensure their checks are placed into their accounts without them having to worry about losing the check or waiting to use the money. The money is available immediately, and people can plan their monthly budgets according to when they get paid. Similarly, if you use Automatic Bill Pay to pay mortgage, utility, or credit card bills, the companies that provide those services to you receive their payments through the ACH network. In using the ACH network, you control the amount of your payment, and you decide when the payment goes out to the lender. There’s no more stress about whether these bills will get paid on time. Just keep in mind that you are obligated to have the money in your account at the time that the payments go out. If there isn’t enough money in your account at the time that the payments are delivered, you might face penalties that range from late fees to suspension or discontinuation of services. These companies might also notify the credit bureaus that you didn’t pay the bill on time which could cause your credit rating to plummet.

Businesses can also use ACH transactions in a similar manner to fulfill other financial obligations. For example, if a school system has contracts with specific food vendors to supply products to the schools within that system, ACH transfers are used to deliver money from the school system accounts to the accounts of the vendors. Many government agencies use ACH transfers on a wide scale. The IRS uses ACH transactions to receive payments and issue refunds. Various agencies (the DMV, child support enforcement agencies and the Social Security Administration) utilize ACH transactions routinely to collect and issue payments in a timely, efficient manner. In fact, the use of ACH transactions has become so widespread that more and more companies are now insisting that their customers pay them electronically. This reduces the use of paper, cuts costs and eliminates unnecessary and time-consuming record keeping since the information is all electronic. In short, the biggest advantage in using ACH transactions is that doing so simplifies the process of getting and giving money.

How to Move Cash Among Various Accounts Using ACH Transfers

If you have funds that are spread across several accounts—whether you are establishing accounts for different family members or pursuing higher interest rates—transferring and keeping up with money from various accounts can be quite challenging. Fortunately, customers do have options at their disposal so that they may track and manage their money as effectively as possible. Consider these helpful tips when deciding where you want to keep your cash stashed:

  • 1) Find a bank that requires a very low minimum balance and no monthly fees. Since it’s unlikely that you’ll be keeping the bulk of your funds here, you don’t necessarily have to worry about interest rates. However, it’s probably a good idea to keep at least some money here in case you need to transfer funds quickly, or you want to prevent your bank from closing an empty account.
  • 2) Make sure that your hub account has the ability to” push” (deposit) or “pull” (withdraw) money from multiple external accounts with no transfer fees. Some banks allow you to link just one or two accounts. Others will charge you when you initiate individual transfers.
  • 3) Look for banks with quick transfer times. Ideally, transactions should take no longer than one business day, but some financial institutions may take as long as three days to transfer money. In some cases, however, if you schedule a funds transfer before the end of a business day, they may credit your account even before you are able to withdraw the money so that you can start earning interest that day (even though, to prevent fraud, you can only withdraw the money officially after three days).
  • 4) Make sure that the bank or credit union allows the transfer. Some institutions may not permit one party to initiate transactions. Most banks will not charge customers who put money in their accounts, but some charge fees when money is withdrawn from their accounts.

Here’s a sample timeline of one such transaction:

Friday: You schedule a $500 transfer from one bank (Point A) to your hub account (Point B). You begin earning interest in your hub account on Friday, but nothing has happened at the bank yet.

Monday: $500 is withdrawn from one bank (Point A).

Thursday: $500 is available to pull from your hub account (Point B). Now, you schedule a transfer from a second bank (Point C), and $500 is debited from your hub account.

Friday: $500 is available at the second bank (Point C).

A Brief History of ACH Transactions

The Automated Clearing House (ACH) was established initially in 1972 as a collaborative effort between California banks and the regional Federal Reserve to simplify the processing of paperless check transactions. Word of its success spread so quickly that many other ACH associations were founded, and agreements were made between the associations and their respective regional banks to operate regional ACH networks. Two years later, in 1974, the National Automated Clearing House Association (NACHA) was founded to develop a national ACH network. By 1978, this had been achieved, and all ACH networks throughout the United States were linked electronically. In 1980, the Monetary Control Act was passed that gave private sector ACH operators the right to compete with the Federal Reserve Bank because the Federal Reserve could no longer offer free services since its operating costs had to be recovered. As a result, there are three private sector ACH operators: American Clearing House Association, The New York Automated Clearing House, and VisaNet ACH Services. Currently, the Fed ACH Operator, otherwise known as the Federal Reserve, handles more than 85 percent of ACH transactions. The ACH Network allows such streamlined services as online bill pay, direct deposit, and direct debiting, and it’s a faster, more secure alternative to paper check clearance. Today, the ACH Network consists of more than 12,000 financial institutions, 650 industry councils, and a network of regional ACH associations that are governed by NACHA from its headquarters in Herndon, VA.

Comment #1 by Jerry Mandel (anonymous) posted on
Jerry Mandel
In the ACH example of paying mortgages, etc. you only showed the "pull" methode of payees withdrawing money from your account automatically. You left out the"push" methods of your bank automatically sending a schedulled payment out and of the depositer "manually" instructing the bank to make a one-time payment.

Comment #3 by Gary (anonymous) posted on
Very good comment from Jerry.  I *never* authorize "pull" ACH transactions from my accounts to pay bills, only "push" transactions using my bank's Bill Payment service.  As I understand it, once I authorize someone to remove money from my account, the only thing keeping them from ****ing up my finances with incorrect debits . . . . is their agreement not to **** up my finances.  I'd rather not grant anyone that access, and I'll keep the control.

Comment #5 by David (anonymous) posted on
Another benefit of using push-only transactions is that all of your pending payments are listed in one place, lowering the complexity of the burden of keeping when how much is coming out of your account and to who straight. Two of the billpay/bank systems I've used even tell you your expected balance after pending transactions, which is useful indeed.

Comment #6 by Anonymous posted on
still not understanding why it takes up to 48hrs for an online payment to clear if posted on weekday durig banking hours but a check will process by the time you get home

Comment #23 by #23 (anonymous) posted on
I don't get it either.  I sent a check to a company via overnight to another state thinking it would take at least two days to go through my account.  I went through 2 hours after they received it the morning!  And...they use a different bank!!

Comment #7 by Oldways Farm (anonymous) posted on
Oldways Farm
I pay many bills by check. I prefer that the companies I do business with deposit the paper check. I have made the request that some companies that put the transaction through as an ACH transaction, not to do that. Several have refused my request and my bank has told me that they, the bank, cannot stop the merchant from converting the check to an ACH transaction. Is this the case?

Comment #10 by Anonymous posted on
I am not happy with the ACH transactions with my Credit Union. My anger has come from deposits paid to me by SSA and enter my Credit Union. I get paid on the 3rd of every month, the ACH is posted on the last day of the prior month and it sits until the 3rd when it should become available to me at 12:00.01. Yet my Credit Union continues to hold my money beyond this time and can go for hours before it is available to me. WTF do they hold my settlement payment for after it is supose to be in my account. This is causing a major problem with my account figuring and payments of bills. The money is mine and should be available instantly after a day change when the clock rolls past the midnight hour.

I need to find a new bank that can have a better transfer time then the one I have now cause it sucks to wait passed the time the money is supose to be mine.

Credit Union I am having this issue with is Numerica CU 

Comment #24 by #23 (anonymous) posted on
Try Chase or US Bank....they both put the ACH payments through immediately.

Comment #26 by Anonymous posted on
You do need a new bank ... my credit union immediately credits any deposit into my account.

Comment #27 by Anonymous posted on
If you can qualify for USAA, we get access to our checks the business day before.

Comment #12 by Anonymous posted on
I never heard anything about any "push" or "pull" info until I read this thread.  All I did was fill out a form granting my bank permission to withdraw certain bill payments on needed dates.  There was nothing on the form as to whether it was going to be a "push" or "pull".  Whatever it is, it has been working fine for years and no problems with the payments being made or withdrawals.

Comment #14 by Anonymous posted on
One disadvantage with using push transfers is that when something goes wrong, the creditor will just claim you didn't pay and assess late fees.  If you are set up with pull transfers, then if the payment doesn't go through it's because the creditor ****ed something up (unless you are overdrawn), and you have recourse with their customer service.

This is not just theoretical - I have run into these situations.  Conversely, I have never had a creditor misuse my authorization for a pull transfer.

Comment #15 by Anonymous posted on
Does the bank have to put ACH on pending when it first recieves it for debit of a recurring ACH

Comment #17 by Anonymous posted on
I don't allow any of my banks to use the ACH system. I simply don't trust them I want the copies of my checks or give me the address so I can go and pay you cash and give me a receipt.  I write a check and put a date several days away so they have to take the check to the bank of we pay cash.

Comment #18 by KasHayes (anonymous) posted on
I might be able to answer some of these quesstions.

#7 - It is true that no bank or CU can prevent a company from converting a check to an ACH. If the company does not provide opt-out instructions, and you feel you have to have a check copy returned, then it may be better to pay the merchants in question via another method.

#10 - SSA often notifies the banks and CUs 3-4 days in advance, but the financial institutions do not receive the funds from the Federal Reserve until 8am on the day of Settlement - in your case, the 3rd of each month. The institute must give you access to the funds no later than 9am on the same day. That is an ACH Rule. The only exception is if there is an error with the transaction - for instance the name is mispelled; in that case the bank has to manually fix it which could delay the posting. Call your CU and ask to speak to the ACH processor directly about why there is a delay. It could be an easy fix.

#12 - Push and Pull are just used to describe which way the money is flowing. Say you want to move money from Bank-A to CU-B. You are going to withdraw from Bank-A and deposit to CU-B. If you do the transaction by logging in to Bank-A, you will 'push' the money to CU-B. If you do the transaction by logging in to CU-B, you will 'pull' the money from Bank-A. So, if you use your bank's billpayer system, you are pushing money out of your account; if you use the vendors' sites to make payments, they are pulling the payment in. Make sense?

Hope that helps!

Comment #19 by Anonymous posted on
I have found a situation where my bank paid the ach a day before it was scheduled, this created a problem with my account because I delayed making a deposit based on the information I had. When I questioned the CU I was told it was because the scheduled day was a saturday so we authorized it on friday. How is that legal? I asked what if it was a post dated check I had written, they told me that those were only agreements that were made between me and the person I wrote the check to and that their policy was to cash the check anyway. Additionally, there is not a notice of "pending ach transaction" is this a standard practice?

Comment #20 by Abhinav verma (anonymous) posted on
Abhinav verma


Comment #21 by Anonymous posted on
On some of my bank transfers are designations such as OMAD:XXXXXXXXXXXXXXXXXXXXX or IMAD:XXXXXXXXXXXXXXXXXXXXX and the desination IM. What are these used to desinate?

Comment #28 by Anonymous posted on
How do you find what the money went for?

Comment #29 by Anonymous posted on
We recently had a situation where a company presented an ACH payment to our bank and the bank paid it.  However, we have never done business with that company - have no policy - have never authorized an ACH.  I don't know if it was a transaction error (maybe someone transposed a number in the account) or a direct attempt to defraud.  t was Progressive Casualty Insurance.  However, now Bank of American says they have to "investigate" it before they can return our money.  To make it even worse, there is another bank involved.  Chase Bank is the bank for Progressive Casualty. The gave the money out immediately - but it looks like it may take 7-10 days to get it back into our account.  This does not seem legal to me.  Even worse, the lady at Bank America informed us "that anyone can set up an ACH withdrawal from your bank account.  All they need is the routing number and your bank account."  Which by the way - is printed on all of your paper checks!