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FinTech

What is Automated Clearing House?

Quick answer

A US electronic network, known as ACH, that moves money between bank accounts in batches for payroll, bill payments, and transfers.

Automated Clearing House, explained

The ACH network is governed by Nacha and operated through the Federal Reserve and The Clearing House. It handles direct deposits of salaries, recurring bill payments, business-to-business payments, tax refunds, and many person-to-person transfers. Rather than settling each payment individually in real time, ACH processes payments in batches several times a day. Same Day ACH, introduced in 2016, allows faster settlement for eligible payments.

For example, a small business paying employees by direct deposit or collecting monthly membership fees from customers' bank accounts typically uses ACH. It is usually cheaper than card payments, making it popular for large or recurring transactions. The trade-offs are slower settlement than instant payment systems and the possibility of returned payments, for instance when an account has insufficient funds.

Related terms

FedNow

An instant payment service run by the US Federal Reserve that lets banks and credit unions send and receive payments in seconds, around the clock.

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