Anchorage Digital Selects Modern Treasury to Power Money Movement Infrastructure.Learn more →
When an ACH debit takes place, funds are withdrawn, or “pulled,” from a bank account using ACH, an electronic payment processing network. For an ACH debit to be processed, the owner of the account being debited (the “payer”) must opt-in and provide account details to the “payee.”
ACH debit provides a convenient, inexpensive way for one party to collect funds from another. For this reason, businesses that collect recurring payments from consumers have widely adopted ACH debit—customers also appreciate the added convenience. And compared to checks sent through the mail, ACH debit is generally faster and more secure for both parties. On average, an ACH bank debit can be issued, processed, and reconciled within 3-5 business days (unless Same Day ACH is used).
How does an ACH debit work?
Online bill pay is a great example of ACH debit in action. Let’s say you’ve just moved into a new apartment and want your monthly bill for electricity automatically deducted from your checking account. Once your electricity provider, PowerTower, has your permission to initiate a recurring ACH debit, here’s how the process works:
- First, PowerTower will confirm your checking account, either using a popular verification method like a microdeposit or through their integration with a service like Plaid.
- Once a month, PowerTower will request payment using ACH files that include your account and routing number, as well as the amount you owe for electricity. These files will be sent to PowerTower’s partner bank. This bank is known as the Originating Depository Financial Institution (or ODFI) because PowerTower was the originator of the payment request.
- Next, the ODFI will batch process the ACH files, which means they’ll compile all ACH files received that day. These files are then sent to a clearinghouse, either the Federal Reserve or EPN (the Electronic Payments Network).
- On the following business day, the clearinghouse will sort ACH transactions and send them to the correct bank. This is when your bank will receive PowerTower’s ACH debit request. In this scenario, your bank is referred to as the Receiving Depository Financial Institution, or RDFI, because they are receiving ACH files from the ODFI on behalf of PowerTower.
- Once it has the ACH files, your bank will debit your account for the total bill and place the money into a “Settlement Account.” At this point, you will be able to see that PowerTower has deducted funds from your checking account.
- Once the ACH debit is cleared by the clearinghouse, the payment is settled and the funds become available to PowerTower at its bank.
Dig deeper into the meaning of ACH debit by downloading this comprehensive free eBook on ACH.
What is the fee for an ACH debit?
The fee for an ACH debit is usually between $0.20 - $1.50 per payment—the same fees apply to an ACH credit. Same Day ACH ranges between $1 - $5 per payment and generally clears the same business day. Other methods for moving money over bank rails (and skipping interchange fees) include wire transfers and RTP, with different fees tied to each.
What is the difference between an ACH debit and an ACH credit?
The difference between an ACH debit and an ACH credit is determined by the direction money is moving. For an ACH debit, funds are withdrawn (or pulled) from a bank account. For an ACH credit, funds are paid out (or pushed) to a bank account.
Because consumers may have only encountered the terms debit and credit in reference to cards they use for the same purpose (to make a payment), the meaning of ACH debit can be confusing. Bottom line—understanding ACH debit vs. ACH credit is all about the direction funds flow.
To learn more about ACH debit and the ACH network, check out the following resources:
Learn
Everything you need to know about the payment rails that power the world’s economy, from ACH and wires to RTP, FedNow, and more.
ACH credits and debits are two kinds of ACH transactions. Whereas a credit involves depositing, or “pushing,” funds into a bank account, for a debit, funds are withdrawn, or “pulled,” from an account.
The two kinds of financial institutions in the ACH network are ODFIs (Originating Depository Financial Institution) and RDFIs (Receiving Depository Financial Institutions).
US companies moving money internationally will likely weigh the pros and cons of SWIFT vs. Global ACH when it comes to attributes like speed and cost.
The Clearing House (TCH) is a banking association and payments company owned by 20 of the world’s largest commercial banks.
For business-to-business (B2B) companies, embedded payments integrate payment processing directly into software platforms
ACH (Automated Clearing House) is a payment processing network that facilitates electronic transfers between banks in the United States. It enables automated electronic debiting and crediting of checking and savings accounts. ACH payments work by batching transactions together, which are then processed at scheduled daily intervals.
A return is a credit or debit entry initiated by the Receiving Depository Financial Institution (RDFI) that returns a previously originated payment to the Originating Depository Financial Institution (ODFI).
ACH return codes identify the reason an ACH payment was returned by the recipient's bank. They make it easier to spot and resolve payment failures.
An ACH reversal refers to an erroneous ACH payment that a payment originator requests to take back, or reverse.
Payment rails are the underlying systems and networks that facilitate the movement of funds between parties in financial transactions.
Pix is Brazil’s instant payment platform that launched on November 16, 2020. Created and managed by the Central Bank of Brazil, Pix enables fast payments and transfers at any time, year-round.
A Standard Entry Class or SEC code is a three letter code that describes how a payment was authorized by the consumer or business receiving an ACH transaction.
A SWIFT code, also known as a SWIFT ID or Bank Identifier Code (BIC), is a unique 8-11 character code assigned to a bank for SWIFT wire transfers.
SWIFT payments or international wires are global payments made through the Society for Worldwide Interbank Financial Telecommunication (SWIFT) network.
ACH (Automated Clearing House) is a payment processing network that’s used to send money electronically between banks and financial institutions in the United States.
The Clearing House Interbank Payments System, or CHIPS is the largest private sector USD clearing system for wire transfers.
Electronic check presentment (ECP) is the process of electronically submitting a check to a bank for payment.
An electronic funds transfer (EFT), also known as a direct deposit, is the digital transfer of money between bank accounts. As digital transfers, they reduce the need for manual input and paper documents.
FedACH is the automated clearing house (ACH) service of the Federal Reserve Banks.
Part of the FedACH system, FedGlobal ACH offers low-cost and efficient cross-border ACH payments.
FedNow is a new payment rail that enables faster bank payments for financial institutions of any size, in any community, 365 days of the year.
Fedwire Funds Services, commonly known as Fedwire, is a real-time gross settlement transfer system that allows participating financial institutions to send and receive same-day fund transfers.
Fiat money is a form of currency issued by a government and declared legal tender, though not backed by a commodity.
Global ACH can help companies move money from US-domiciled accounts across borders using local rails. Learn how and when to use this payment rail.
The National Electronic Funds Transfer (NEFT) is a centralized payment system that facilitates transfers between certain bank accounts across India.
The National Automated Clearing House Association (Nacha) is responsible for overseeing the Automated Clearing House (ACH) Network, which is used to send money electronically between banks throughout the United States.
RTP (Real-Time Payments) is a payment processing network used to send money electronically between banks in the United States. It transfers funds between two bank accounts instantaneously and is available year round.
A Request for Payment (RFP) is an ACH Network message that can be used by businesses to send electronic invoices to their customers.
Same-Day ACH is an improvement to the ACH network that allows the processing of credit, debit, and return transactions several times a day.
Wire fraud is a serious criminal offense that uses electronic or interstate communications methods to defraud someone out of money or property.
A take rate refers to the fees online marketplaces (such as Amazon or eBay) or third-party service providers (such as PayPal) collect for enabling third-party transactions.
A wire transfer is an electronic payment made through a global network, allowing for fast, irreversible, foreign or domestic electronic money transfers.
ACH APIs enable companies with high transaction volumes to write software that automates payments over the ACH network.
An ACH credit refers to the process of electronically depositing, or “pushing,” funds into a bank account using ACH.
In an ACH debit, funds are electronically withdrawn, or “pulled,” from a bank account using ACH.
A Notification of Change (NOC) is used to notify the sender of an ACH payment to correct or change information related to a customer’s bank account.
A pre note or prenotification is a zero dollar payment to validate the account and routing details of a bank account before debiting or crediting it.
An International ACH Transfer—also known as Global ACH—is an ACH payment made cross-border from a US-domiciled account.
The issuer identification number (IIN) is the first eight or nine digits on a payment card tied to the financial institution that issued the card.
Originally known as Bankers’ Automated Clearing System (BACS), BACS Payment Schemes Limited clears and settles direct debit, BACS direct credit, and current account switch service in the United Kingdom.
The Bulk Electronic Clearing System (BECS) is a streamlined electronic payment method used to process low-value, bulk transactions in Australia and New Zealand.
The Faster Payments Service (FPS) is a banking service in the United Kingdom. The FPS was instituted in order to reduce payment times between accounts held by different customers.
The Single Euro Payments Area (SEPA) is a system of payment schemas that standardizes cashless transactions in euros.
Unified Payments Interface (UPI) is a real-time payments system for mobile applications designed and launched by the National Payments Corporation of India.