How ACH works (that thing where your employer deposits your check in your account)

I’m a big fan of clear explanations, especially when they involve a complex process. This is a clear explanation of ACH, or Automated Clearing House.

ACH is sort of like PayPal, an easy way for someone to move money into someone else’s bank account. Happens all the time. Employers use it to direct deposit paychecks into their employees’ accounts. You might use it to move money from your 401K or mutual fund into your own account. Even PayPal uses ACH to move money around.

As I said, this is a clear explanation. Worth reading, if only to familiarize yourself with the process.



  • GadgetGav

    Except it doesn’t really work like that… Yes, your bank decrements your balance by $100 as soon as you hit ‘send’ but they don’t add it to balance of the person your sending it to “early the next morning”. In the USA it typically takes ACH 5 days to process payment, even now that such payments are totally electronic. In Europe electronic payments can be processed in a little as seconds and certainly less than hours. Think of all the money that’s in limbo between one account and another for several days on every transaction in the country. Someone is making a lot of money on that delay. Planet Money did a piece on this a while back. It goes into more detail that the over simplified Zenpayroll article linked, but they still don’t get to the bottom of who has all that money while it’s in transit. http://www.npr.org/blogs/money/2013/10/04/229224964/episode-489-the-invisible-plumbing-of-our-economy