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What Is an ACH Deposit?

ACH direct deposits are frequently used by employers to ensure all employees are paid regularly.
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  • Written By: N. Madison
  • Edited By: Jenn Walker
  • Last Modified Date: 27 October 2014
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An Automated Clearing House (ACH) deposit is an electronic transfer of funds using the Automated Clearing House. The Automated Clearing House is a secure network in the United States through which banks and other financial institutions can transmit electronic transactions. An ACH deposit means that funds are electronically deposited into an account. This means there is no need for a person to write a check and no one has to visit a bank to complete the transaction.

To understand how an ACH deposit works, it may help to consider an example. For example, a person may owe a loan payment to one of his creditors. In such a case, he could write a check for the loan payment and send it through the mail, or he could visit the company in question and pay in person. To save time and enjoy convenience, however, he may pay using an ACH deposit. This means he sets up a deposit to the creditor's account on the Internet or over the phone, and the transaction is handled electronically; he never has to physically handle money or leave his home to complete a transaction this way.

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Some employers use ACH deposits as a way to pay their employees through a process known as direct deposit. With direct deposit, a company arranges to have payroll funds electronically deposited into each employee’s account. This eliminates the need for the company to print and distribute checks. It also eliminates trips to a bank for an employee and time spent waiting for payroll checks to clear. When the deposit is posted to the employee's account, all the funds are usually available immediately.

An individual may also use an ACH deposit to transfer funds from one account to another. For example, if he has a bank account at two different institutions, he could visit the first institution to withdraw cash and then deposit that money into an account at a second institution. He could also choose to write a check from the first account and then deposit the check in the second account. He may, however, find it both faster and easier to transfer the money using an ACH deposit.

Besides speed and convenience, there is another reason some people prefer ACH deposits. Many banking experts assert that errors are less likely to occur with electronic transactions. Additionally, if an error does occur with an ACH deposit, it may be easier to correct than if a person performed a traditional deposit.

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Discuss this Article

Ceptorbi
Post 2

@Nefertini - ach transactions offer an attractive option for deposits and payments. If you schedule an ach debit for any of your bills, though, make sure you leave enough in your checking account to cover the bill and don't forget the date any payments are scheduled to be withdrawn. Otherwise, you might end up with an overdraft.

Nefertini
Post 1

In addition to getting an ach direct deposit of your paycheck, you can also get a direct deposit of your IRS tax refund or state tax refund. You receive the refund more quickly by this method than if you opt to get a check instead. You can also select an ach payment method for paying any taxes you owe. This option is available to both individuals and businesses.

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