ACH

ACH stands for Automated Clearing House, a United States electronic funds-transfer network that coordinates transfer of money between banks. It is overseen by NACHA—The Electronic Payments Association—whose operating rules govern the network. ACH payments are processed through two main U.S. operators: the Federal Reserve Banks and The Clearing House. The system is used for direct deposits, bill payments, and business-to-business transfers, as well as some person-to-person payments.

In operation, an originating depository financial institution submits batches of payment instructions to an ACH operator, which then forwards them to receiving depository financial institutions for posting to recipient accounts. Settlement occurs in batch cycles, and funds become available after processing by the receiver's bank. NACHA updates the rules to address security, data standards, and risk management.

There are two main ACH transfer types: ACH credit, where the originator pushes funds to the recipient, and ACH debit, where the recipient authorizes the originator to pull funds. Payroll deposits and government benefits are common ACH credits; consumer bill payments are common ACH debits. Same-day ACH, introduced in the mid-2010s, enables faster processing for eligible transactions.

ACH is widely adopted by financial institutions and government agencies for efficiency and cost reduction. It underpins payroll systems, vendor payments, tax refunds, and various consumer payments. While generally secure, ACH transfers carry fraud and error risks, leading to regulatory and industry safeguards under NACHA rules and relevant consumer protections.