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How Do ACH Transfers Work and Are They Safe?



Over the last two decades, online money transfers have gained traction due to the spread of technology. Also, more people are comfortable with online money transfers. There are several ways to transfer funds like ACH transfers and wire transfers. PayPal and fintech companies like TransferWise have also challenged banks' domination in online money transfers. How do ACH transfers work and are they safe? 

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What is an ACH transfer

In an ACH transfer, money moves electronically between banks. The Automated Clearing House Network, which is one of the largest payment systems in the U.S., processes the transaction. You can transfer funds to individuals and pay bills through ACH transfers. The transfers can be person-to-person, business-to-business, or business-to-consumer.

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How do ACH transfers work?

There are two types of ACH transfers—credit transactions and debit transactions. In an ACH debit transaction, say in a recurring bill payment, the money would be deducted from your account. In an ACH credit transaction, money is deposited in your bank account—for example, your salary credit. In an ACH transaction, the payor’s bank account makes the request to transfer funds that are then sent to the payee or the recipient’s bank account using the ACH network.

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How ACH transfer differs from wire transfer

There are many differences between ACH transfers and wire transfers. 

  • There are geographical constraints. An ACH transfer can be made only within the U.S., while wire transfers can be used for domestic as well as international money transfers.
  • The process of money transfer is different between ACH and wire transfer. In an ACH transfer, you might need to fill out a form—either physically or online—to make the transfer. 
  • The speed of the transfer differs. A wire transfer is real-time and faster compared to an ACH transfer.
  • A wire transfer is more expensive than an ACH transfer. 
  • A wire transfer is almost impossible to reverse unless it’s a fraudulent transaction. However, the reversal rules are much less stringent for an ACH transfer.
  • An ACH transfer is generally safe compared to a wire transfer.

What information is needed for an ACH transfer?

To make an ACH transfer, you need to provide the following information.

  • The name of the person or the entity that you wish to transfer funds to.
  • The account number of the concerned person or business.
  • The nature of the account, which means specifying whether it's a personal or a business account.
  • The nine-digit routing number, which is also known as the ABA number.
  • The transaction amount or the amount that you wish to transfer.
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Apart from the above-mentioned information, which is mandatory, there's optional information like the nickname for the entity to whom you intend to transfer funds.

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Are ACH transfers safe?

ACH transfers are safer compared to wire transfers. If you are transferring money, it's relatively easier to reverse an ACH transfer compared to a wire transfer. According to the National Automated Clearing House Association guidelines, the reversal requests should be made within five business days of a transfer.

The reversal would be considered only if one of the following conditions are satisfied.

  • You had erroneously transferred the money to the wrong bank account.
  • You transferred the wrong amount.
  • A duplicate transfer was made.

Because of the sender-friendly rules over reversals, an ACH transfer is safer if you are sending the money. On the flip side, you are better off receiving funds through a wire transfer since it's almost irreversible.


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