I often talk about banks using ACH transfers so I thought I’d write a post about what an ACH transfer is for those that don’t know. ACH is short for Automated Clearing House which is an electronic network that handles a lot of financial transactions in the US. ACH transfers are very reliable and efficient with trillions of dollars transferred every year through this network.
It’s so reliable that the US government often uses ACH transfers for its business and every direct deposit made in your account is made through an ACH transfer. Every ACH transfer must pass through either the Federal Reserve or the Electronic Payments Network (EPN). In 2002 the Federal Reserve processed 60% of ACH transactions while the EPN processed 40%.
An ACH transfer is made by first the receiver authorizing the transaction, then the sender sends the information to the Originating Depository Financial Institution (ODFI). The ODFI then transmits the information to an ACH operator, which acts as a middleman between the sender and receiver.
The data is then sent to the Receiving Depository Financial Institution (RDFI) or the receiver’s bank. The RDFI then credit’s the receiver’s accounts with the appropriate funds. Every time you pay a bill through your checking account or make a debit card purchase you’re making an ACH transfer. It’s very easy for customer’s to use which is why it’s so popular.