ACH Credit

ACH credit is an easy-to-use and inexpensive method for sending digital payments. It’s no wonder so many businesses and organizations (including the US government) have adopted ACH credit (or “direct deposit”) to push funds—from social security to payroll, ACH credits are commonplace in our daily lives. Compared to checks or cash, especially for payments issued at scale, ACH offers greater convenience, security, and speed. An ACH credit can be issued, processed, and reconciled within 3-5 business days (unless Same Day ACH is used).

How does an ACH credit work?

Payroll offers a perfect example of how ACH credit works. Let’s say your employer, AmazingJob, uses ACH to issue bi-monthly paychecks to employees (aka direct deposit). Here’s how ACH credit works in this case:

• To begin, AmazingJob will confirm your bank account. HR might use a microdeposit, a service like Plaid, or if AmazingJob runs payroll with software like Gusto or Rippling, this platform will verify your bank account.
• Twice monthly, AmazingJob will issue payment using ACH files. These files will include your name, bank account and routing numbers, and the amount of your paycheck after deductions. AmazingJob sends the ACH credit files to their partner bank, the Originating Depository Financial Institution (or ODFI)—this bank originates the payment.
• Then, the ODFI will compile and batch process the ACH files received that day. Once this is completed, the files are sent to one of two clearinghouses—the Federal Reserve or EPN (the Electronic Payments Network).
• The next business day, the clearinghouse will sort ACH transactions and submit them to the right bank. At this point, your bank will get the ACH credit request from AmazingJob’s bank. Your bank, in this case, is the Receiving Depository Financial Institution, or RDFI, since they received the ACH credit request from the ODFI.
• When it receives the ACH files, your bank will deposit your paycheck, placing the funds in a “Settlement Account.” Inside your account, these funds will likely appear as “Pending.”
• The payment will settle once the ACH credit has been cleared by the clearinghouse. At this point, you will have full access to money from your AmazingJob paycheck.

For more on the meaning of ACH credit, download this free eBook about all things ACH.

What is the fee for an ACH credit?

The cost for ACH processing (including ACH credits and debits) is generally $0.20 - $1.50 per payment. Compared to payments sent via credit card which can trigger interchange and card processing fees between 1.5% to 3.5%, ACH credit can offer big savings. If you’re looking to avoid credit cards and explore other payment rails, you can find a fee comparison here.

What is the difference between an ACH credit and an ACH debit?

The difference between an ACH credit and an ACH debit is based on the direction money moves. An ACH credit deposits (or pushes) funds into a bank account. An ACH debit withdraws (or pulls) funds from an account.

Understanding the meaning of ACH credit (vs. ACH debit) can be initially confusing for consumers who use credit and debit cards for an identical purpose—to make payments. The best way to remember the difference is that, in each case, funds flow in opposing directions.

To learn more about ACH credit and the ACH network, check out the following resources:

• What is ACH?
• ACH Timings
• The Fastest Ways to Send a Payment
• What is the Difference Between ACH Returns and Reversals?