Chances are, you’ve already used Automated Clearing House (ACH) payments – even if you didn’t realize it at the time. The ACH is the main national payment network that can make it easy to send and receive electronic payments. It's commonly used for many types of transactions, from receiving paychecks via direct deposit to paying utility bills.
Let’s explore how ACH payments work, the pros and cons and how to set them up.
How ACH payments work
ACH payments are electronic payments that pass through the ACH network of roughly 10,000 U.S. financial institutions. These payments either go into or out of your personal or business bank account. Once initiated, an ACH payment is added to a batch of payments, which are settled 4 times each business day.
In general, to send money, you’ll need to provide the recipient’s bank account type, routing and account numbers, the payment amount, and their or the business’s name. If someone is sending you money, they’ll need your details – routing and account numbers, account type and your name.
There are two types of ACH payments: credits and debits.
ACH credits
An ACH credit is a deposit to your account. For example, getting your paycheck via direct deposit is a credit. Credits can be made as soon as the same business day, and processed in just a few hours.
ACH debits
ACH debit payments move money from your bank account to someone else’s, for example, to pay a utility bill. When you set a debit up from your account, you can choose the payment date.
Pros and cons of ACH payments
ACH payments can be convenient, but they also come with some drawbacks.
Pros
- Convenient payment option
- Typically free, businesses may pay a small fee
- Can make same-day payments
- Payments may be reversible
Cons
- It sometimes may take days to process these payments
- Your bank may cap how much you can transfer
Setting up ACH payments
ACH transfers can be a convenient way to manage recurring payments like utility bills and rent. Direct deposit can make it easier to get your paycheck and other payments, like your tax return.
How you set up an ACH payment can vary depending on whether you’re initiating a debit or credit, and whether you’re setting it up through the bank or vendor.
For example, if you’re setting up a payment through a utility’s website, you may need to find the payment section and provide your own bank account details. If you’re sending a relative money from your bank account, you’ll need to log into your account and navigate to the payments section. From there, you can specify the payment amount and add the recipient's bank account information.
Alternatives to ACH payments
If you don’t want to use ACH payments or reach the transfer limit with your bank, there are several other options.
- Peer-to-peer payment apps, like Zelle, let you pay your friends back via virtual payments. Some businesses may also accept payment through these apps.
- Personal or business credit cards let you make online payments without immediately withdrawing funds from your bank account. Be aware that carrying a balance may mean paying interest.
- Wire transfers offer a faster electronic payment option, though they generally come with fees
Deciding whether to set up ACH payments
ACH payments offer a simple, reliable way to send and receive money – whether you’re paying bills, getting paid or sending money to a friend. While alternatives can make sense in some situations, like when payments must be expedited, ACH payments can be a convenient choice for both individuals and businesses.
Disclosure: This article is for educational purposes. It is not intended to provide legal, investment, or financial advice and is not a substitute for professional advice. It does not indicate the availability of any Citi product or service. For advice about your specific circumstances, you should consult a qualified professional.
