ACH: What is it and when to use it?

You might not be familiar with the term ACH but there is a high chance that you have been using it without even realizing. A quick Google search will give you a brief definition:

An automated clearing house (ACH) is a computer-based electronic network for processing transactions, usually domestic low-value payments, between participating financial institutions.

If you are not a big fan of finance jargon, you may find the definition above a bit intimidating. So to put it simply: ACH is a series of banks using the same network for safer and cheaper transactions.

What is ACH

In layman’s terms, ACH or Automated Clearing House is a fund-transfer system that allows you to transfer money electronically from one bank account to another. You might have used it to pay for your recurring bills, transferring funds, or receiving your payroll.

ACH transactions are usually free or cost significantly lower than wire-transfers. And because it is the cheaper option, most businesses prefer this method for online transactions.

But ACH isn’t without its drawbacks. While it’s evidently cheaper and more secure, ACH transfers may take 1-3 days to process. This is because ACH transactions are processed in batches. Transferring funds from one account to another may take a couple of days to reflect.

When to use ACH:

  • Paying for recurring bills – it is best to used ACH when paying for recurring bills to avoid late fees. This may sound counter-intuitive from what was said previously, but it isn’t the case when you apply it for automated recurring payments such as paying for your electric bill, mortgage, etc.
  • Without a credit card – if you don’t have a credit card or want to avoid credit card fees, then paying online via ACH is the better option.
  • If you prefer paperless transactions – electronic transfer means no paper receipts. You’re not only saving yourself from having too much trash that contains your bank information, but you are also doing mother earth a favor.
  • Saving up from processing fees – as mentioned earlier, ACH is usually free or costs lower compared to other options.

When not to use ACH:

  • You want more control over your payments – because ACH allows you to pay your recurring bills automatically, it is not ideal to use it if you are short on budget or saving up for something else.
  • Transfer is urgent – if you need to do a one-time transfer or payment and it is urgent, then you might want to opt for wire-transfer as it moves your money in an instant.
  • Giving your bank details to your biller makes you paranoid – when using ACH for recurring payments, you will have to provide details of your bank account to your billers in order for them to charge your due amount when the time comes.
  • You prefer to pay the old-school way – if you simply like writing checks or paying in cash, then ACH definitely isn’t for you.


Whether to use or not use ACH really just boils down to your preference. In this modern day, majority of business are already accepting ACH payments, not only because it’s more advantageous for them due to its lower processing cost and more security in payments but also because it has been the preferred method of many consumers, regardless if they know how it works or not.

Security isn’t something you should worry about when using ACH. It is far more secure than writing checks if anything. And while ACH deposit may take some time to process compared to wire-transfers, its low cost is enough to justify the extra waiting day.