What is ACH?

ACH (Automated Clearing House)

The Automated Clearing House or ACH is a network that is a secure and efficient nationwide electronic funds transfer system that connects all U.S. Banks. The ACH networks act as a central hub for all EFT (Electronic Funds Transfer) transactions throughout the U.S. ACH transactions are processed in large batches for both credit and debit transactions. The ACH network is ruled and governed by the Federal Reserve and NACHA (National Automated Clearing House Association).

ACH transactions include:

  • Direct Deposit of payroll
  • Social Security
  • Tax refunds
  • Direct Payment of consumer bills such as mortgages, loans, utility bills, and insurance premiums
  • Business-to-Business payments
  • E-checks
  • E-commerce payments
  • Federal, state, and local tax payments

It must be clear that it is very important to receive pre-authorization from the account holder before completing an ACH transaction, in accordance with the rules and regulations of ACH. Financial institutions will not be able to simply issue the transactions without this prior authorization.

ACH Terms and Definitions

Any individual, corporation, or other entity that initiates entries into the Automated Clearing House Network

Originating Depository Financial Institution (ODFI)
A participating financial institution that originates ACH entries at the request of and by (ODFI) agreement with its customers. ODFI’s must abide by the provisions of the NACHA Operating Rules and Guidelines

Receiving Depository Financial Institution
Any financial institution qualified to receive ACH entries that agree to abide by the NACHA Operating Rules and Guidelines

An individual, corporation, or other entity who has authorized an originator to initiate a credit or debit entry to a transaction account held at an RDFI.