ACH Withdrawal: What Is It & How Does It Work?

Article Summary:

ACH withdrawals are the electronic version of writing a check to a financial institution. They are automated and are done through an electronic process that makes recurring bill payments easier for customers.

If you have a recurring bill, you might have noticed an option to pay via ACH withdrawal. This is one of the oldest forms of digital payment. But, did you ever wonder what this type of payment is and how it works?

ACH stands for Automated Clearing House. An ACH withdrawal is an automatic withdrawal of funds from a bank account associated with the ACH network. These withdrawals transfer funds electronically from one financial institution to another.

If you are curious about what ACH is and how it can help make paying your bills easier, you’re not alone. Let’s talk about it.

What is ACH withdrawal?

ACH stands for Automated Clearing House. It’s a system that was developed via a large network of banks in the 1970s, with the intention of cutting down on the use of paper checks. The concept is fairly easy to understand: an ACH withdrawal is an electronic fund transfer that allows you to pay (as if) by check.

The difference between ACH and other electronic payments is that your ACH payments are directly linked to a bank account. ACH withdrawals are automated, which means that they are ideal for setting up monthly bills on an auto-pay schedule.

What is the Automated Clearing House?

ACH is actually a large organization of banks and government organizations, including the IRS and the U.S. Treasury. It’s managed by a group called the National Automated Clearing House Association, or NACHA for short.

How is ACH transaction speed determined?

Banks get to choose how quickly ACH transactions can go. Some choose to let them release within a business day. Others may choose a more affordable solution with a waiting period of two to five business days.

How do ACH payments work?

There are two different types of ACH payments that can occur: ACH credit and ACH debit transactions. Both involve the electronic transfer of funds from one checking account or savings account to another.

All of the authorizations and processes are handled by NACHA, so the process for payers and payees is fairly streamlined.

How do ACH debits work?

ACH debits are transfers that are initiated by the party that’s getting paid. In most cases, this would be a business — like a utility company where you signed up for autopay.

Debits involve a request sent by the payee to the payer’s bank. The bank agrees to it, then sends money over. This type of ACH is used for recurring payments, such as loan installations or tax payments.

Pro tip — You can use a monthly ACH withdrawal to pay your recurring bills. Because some businesses offer a discount when you sign up for automatic payments, this could save you a little money, in addition to helping you avoid missed payments.

How do ACH credits work?

ACH credit transactions are done the same way as an ACH debit withdrawal, but with one major change. Rather than being initiated by the payee, ACH credits are initiated by the payer. For example, your job’s direct deposits may be ACH credits.

What are the benefits of ACH withdrawals?

Using ACH can be a smart move for both businesses and consumers. Here’s why you might want it.


An ACH withdrawal is much easier than the traditional act of writing a check. Recurring payments done via ACH transactions are also excellent for bill payments. Why? Because they ensure that you won’t forget to pay your bills.

Handy tip — Most companies will allow you to automate payments for recurring bills, like your utility bills or a monthly subscription box, via ACH. If you know that you will be able to afford paying on the due date, you can ensure that you won’t miss any payments by putting them on ACH.

Widespread use

Every major business is going to be able to do ACH transactions. That’s primarily because almost every financial institution from the Federal Reserve to your local bank is part of the ACH network. You’ll never have to worry about being unable to find an ACH provider.


ACH processes are one of the most affordable ways to do a money transfer in America. As a result, many major companies prefer to use them to accept payments or transfer money to workers.

Since ACH transactions don’t require debit cards or credit cards, you save money on typical money transfer fees associated with cards. You also don’t have to pay as many administrative costs as other money transfer methods.

Money transfer fees associated with cards? What are those? If you don’t recall ever being charged a fee for a debit card or credit card transaction, consider yourself lucky to have dealt only with vendors who handle these charges themselves. If a vendor shows a strong preference for ACH or offers you a discount for using it, you can bet card fees are part of the reason. Visa and Mastercard do not provide their payment services for free, after all. This is why many independent gas stations offer a lower price per gallon for cash payments.

With ACH, everything is automated, which makes this payment method appealing to subscription services — so appealing, in fact, that they may let you lock in the current price for months to come if you set up ACH payments. This lets you avoid increased costs due to market fluctuations or price gouging. That’s part of the beauty of being able to have funds pulled directly from your bank account.

Step one to taking advantage of ACH

Before you can take advantage of ACH, you’ll need an eligible account, such as a checking account. Learn about some of the best checking accounts currently available here. Or compare some checking account ratings and reviews below.

What are the pitfalls of ACH withdrawals?

While ACH transactions are incredibly popular, they are not always the best choice. Here’s why they may not always be good for your personal finances.

Slow speeds

ACH withdrawal is not the fastest way to pay bills or transfer money. It takes a few business days for an ACH transaction to go through. Depending on the circumstances, you may not have a few days to wait. When speed is of the essence, other money transfer services may be a better option.

Security risks

To get direct deposits or pay bills through ACH withdrawal, you are going to need to give a company your checking account details or your savings account details. This includes both your routing number and your account number.

If you give this information to a scammer, or if someone gets access to your information through a data breach, the consequences for you and your bank account can be dire.

How to set up ACH payments

The ACH process is pretty simple for people who are customers. In most cases, the institution that you want to send money to will walk you through the process. Here’s what you need to do to set up ACH payments if you are a customer, a business owner, or someone who needs to pay (or get money from) the government:

  1. In order to set up ACH payments as a customer, you only need to provide your bank’s routing number and your account number to the company that you want to pay. The company will handle the rest of the set up after you agree to its terms.
  2. If you are a business owner who wants direct deposits for your employees, then each of them will have to provide a W-4 or W-9, and then you will need to get their banking information. From there, you may need a payments processing company to help you get that money into their bank accounts.
  3. When it comes to government payments, you can simply enter your bank account number and routing number into the online interface that you use to do your filings. This is true for Social Security payments as well as your annual tax refunds (or payments). You can also call most government offices for assistance if need be.


What does ACH mean on your bank account?

When you see “ACH” on your bank statements, it means that an ACH transfer has been initiated. You can generally find out where this payment is going by looking at your transaction details. The recipient’s account will usually be listed among the details.

Expert advice — If you see transfers that you didn’t authorize or that seem suspicious, contact your bank immediately. This could be a sign of bank fraud, and you may need to change your account number if that’s the case.

How long does an ACH withdrawal take?

ACH withdrawals can take anywhere from two to five business days for a traditional transfer. However, some banks and companies choose to receive ACH withdrawals as quickly as the next business day.

Can you stop an ACH withdrawal?

If the withdrawal is already in progress, you may have to wait to reverse it. However, you can always stop future ACH withdrawals. All you have to do is call your financial service provider and say you want to revoke your ACH authorization for future payments.

Are ACH withdrawals instant?

ACH withdrawals are not instant, since they take at least a business day to process.

Key takeaways

  • ACH withdrawals are a way to send money electronically without the use of cards or paper checks.
  • It takes at least one business day for an ACH bill payment to clear.
  • If you have direct deposits from your job or receive your tax refunds digitally, chances are that you have ACH direct deposits to thank.
  • ACH transactions can be done as ACH credits or ACH debits.
  • In order to start an ACH withdrawal, you need to give the payee (or payer) your bank account information.

Getting ready for ACH

It’s hard to find a personal finance writer who won’t suggest using ACH withdrawals as a way to save time and effort with bill payments. However, if you want to set up an ACH direct deposit or start using the Automated Clearing House Network for your bills, you need the basics first.

As we noted earlier, this means that you are going to need to have a checking account. In case you’ve never had a checking account or haven’t had one recently enough to know how to proceed, SuperMoney provides an article with all the information you need to learn how to open a checking account. Once you’ve read up on the best accounts that you can use, you’ll be way ahead of the game.

View Article Sources
  1. Automatic Clearing House (ACH) Payment and Security Policy — University of Colorado
    An example of how institutions ensure proper use of ACH.
  2. Automated Clearinghouse — U.S. Customs and Border Protection
    Interestingly, U.S. Customs treats ACH refunds as a separate category from ACH debits and credits. In most contexts, this extra distinction will not be useful.
  3. History of Nacha and the ACH Network — Nacha
  4. How can I stop a payday lender from electronically taking money out of my bank or credit union account? — Consumer Financial Protection Bureau
  5. Receiving Automated Clearing House (ACH) or Wire Transfer Payment — West Virginia University Shared Services
    Another example of how institutions ensure proper use of ACH. Also contrasts ACH and wire transfers.
  6. Useful background articles by, NorthOne, and Tipalti
  7. Best Checking Accounts — SuperMoney
  8. Best Savings Accounts — SuperMoney
  9. How to Open a Checking Account — SuperMoney
  10. Routing Numbers: Everything You Need To Know — SuperMoney
  11. What Are The Benefits Of A Checking Account? — SuperMoney