Automated Clearing House (ACH)

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Since 1974, the Automated Clearing House (ACH) Network has been an electronic funds-transfer system operated by the former National Automated Clearing House Association (NACHA).

In the United States, the ACH payment system facilitates ACH transactions for payroll, direct deposit, tax refunds, consumer bills, tax payments, and various other payment services. To read more about AGMARK, click here.


How the ACH Network Functions

NACHA is a self-regulatory organisation that manages, develops, administers, and rules for the ACH Network. The operating rules of the organisation are intended to facilitate growth in the size and scope of electronic payments within the network.

The ACH Network is an electronic system that serves financial institutions in the United States to facilitate financial transactions. It represents over 10,000 financial institutions, and in 2019, ACH transactions totalled more than $55 trillion, enabling nearly 25 billion electronic financial transactions.

The ACH Network serves as a financial hub, allowing individuals and businesses to transfer funds from one bank account to another. ACH transactions include direct deposits and direct payments and business-to-business (B2B) and government-to-consumer (G2C) transactions.

An originator uses the ACH Network to initiate a direct deposit or direct payment transaction. Individuals, organisations, and government agencies can be the originators of ACH transactions, including debit or credit. The originating depository financial institution (ODFI), also known as the originator’s bank, accepts the ACH transaction and batches it with other ACH transactions to be sent out at regular intervals throughout the day.

The ODFI sends a batch of ACH transactions to an ACH operator, either the Federal Reserve or a clearinghouse, including the originator’s transaction. The ACH operator sorts the collection and makes the transactions available to the intended recipient’s bank or financial institution, also known as the receiving depository financial institution (RDFI). The transaction is received by the recipient’s bank account, which reconciles both accounts and concludes the process.

Benefits of the ACH Network

Because the ACH Network groups financial transactions and processes them at regular intervals throughout the day, online transactions are swift and straightforward. The average ACH debit transaction settles within one business day, and the average ACH credit transaction determines within one to two business days, according to NACHA rules.

The use of the ACH network to facilitate electronic money transfers has improved the efficiency and timeliness of government and business transactions. ACH transfers have recently made it easier and less expensive for individuals to send money to each other directly from their bank accounts via direct deposit transfer or e-check.

Personal banking services traditionally took two or three business days for funds to clear, but in 2016, NACHA started to roll out same-day ACH settlements in three stages. Phase 3, which began in March 2018, requires RDFIs to make same-day ACH credit and debit transactions available for withdrawal to the receiver no later than 5 p.m. in the RDFI’s local time on the transaction’s settlement date subject to the right of return under NACHA rules. Do you want to know what is advertising, click here to read about it.  


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