ACH is an acronym for , an electronic network used to process bank-to-bank transactions. An ACH credit occurs when funds are deposited electronically into an account. The payer initiates a payment through her bank, which then electronically transmits the payment through the ACH to the recipient's bank account. You can receive funds or make payments by .
The most common ACH credits are direct deposits, which can include paychecks and government benefits. When you elect to have your IRS or state tax refund directly deposited into your bank account, it's an ACH credit as well because it pushes funds into your account.
You also can make payments by ACH credit. For example, business owners in may use an ACH credit to pay state taxes. You authorize your financial institution to transfer a specified payment amount from your account to the state's account.
An occurs when you authorize a department, agency or company to take money from your account, generally on a reoccurring basis. Unlike an ACH, your bank isn't initiating the transfer. You'll need to sign up with the company or agency you plan to pay. It will need your account number and permission to deduct the payment amount each month. Examples of ACH debits include insurance and mortgage payments. Some states also offer the ACH debit option for business owners to pay their taxes.
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Benefits of ACH Transfers
ACH credits and debits are fast and convenient. You don't have to worry about checks getting lost in the mail or remembering to make a payment each month. Payments are received within 1 to 3 business days. For business owners, payments using electronic funds transfer through ACH help reduce costs, including printing and check processing fees.
Cons of ACH Transfers
An ACH transfer requires you to give out your personal banking information to an employer or company. If there's a billing error, you may be charged an incorrect amount. Since you aren't making the payments yourself, there's a risk you could forget about the payment and overdraw your account if the funds aren't available.