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Global Work Glossary

Lost in a maze of global employment jargon? Find your way out with our handy collection of work and HR terminology

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Automated clearing house (ACH)

What does an Automated Clearing House refer to?

The automated clearing house (ACH) is an electronic funds transfer system (EFT) that’s used for financial transactions across the United States. It’s most commonly used for direct deposit of salary paychecks, bill payments, and transferring money between bank accounts.

The ACH helps businesses and individuals manage their financial transactions electronically, reduces the need for paper checks, and improves payment accuracy. It also speeds up payments as companies/individuals can transfer funds on the same day. However, it’s important to note that this process can also take longer.

Behind the scenes, the ACH operates through a network of financial institutions and a centralized clearinghouse. Once a payment is initiated, the originator’s bank, known as the ODFI, processes the transaction and sends it to the ACH network. The ACH acts as an intermediary, collecting and distributing the transactions between ODFIs and Receiving Depository Financial Institutions (RDFIs). Then the recipient’s bank, the RDFI, processes and settles the funds.

Depending on your bank, ACH payments may come with fees on either outgoing or incoming payments. Certain banks also limit the amount that can be transferred in one go. These fees and limits can vary widely, so it’s important to carefully review your bank’s terms and conditions to understand them.

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