The acronym “ACH” stands for the English term “Automated Clearing House” and means in German “automated clearing house”. This network comes from the USA and has been active there since the 1970s. It verifies and carries out electronic payment transactions, for example by bank transfer or direct debit . This gives an additional security factor and therefore makes ACH transactions particularly reliable. Find out everything you need to know about ACH payments in this article.
What is an ACH payment?
An ACH payment takes place in electronic payment transactions. This can be, for example, paying by credit card or making a bank transfer. Automatic processes, such as the regular collection of SEPA direct debits by direct debit authorization or direct debit order, are also ACH payments. For the latter, you may need to fill out an authorization form, similar to a SEPA mandate , to enable the transaction.
Most commonly, ACH payments are used when customers pay a service provider, employees get their salaries paid, or companies pay their suppliers. Important: ACH payments are only available to those who have an account in the US.
But what is so special about ACH payments?
An ACH payment does not take place directly, but is made through secure ACH payment processors. The ACH network uses two clearinghouses: the Federal Reserve and the Clearing House.
These processes are regulated on the banking side by the NACHA, the “National Automated Clearinghouse Association” in the USA. It acts as a legal entity and oversees all transactions made via ACH payment. The ODFI (“Originating Depository Financial Institution”), also a US institution, keeps an eye on the processes and is legally authorized to check ACH transactions for accuracy.
This extra level of security makes ACH payments particularly low-risk. On the other hand, they make the payment process a bit slower. As a rule, transactions via the ACH network should be completed in a maximum of three business days.
A distinction is also made between push and pull payments for ACH payments :
With direct ACH deposits , a business or consumer sends an amount of money to another bank account (push payment).
Direct ACH payments withdraw funds from a business or consumer’s account (a pull payment).
What are the benefits of making an ACH payment?
Various methods such as bank transfer, debit or credit card payment are available. This is particularly advantageous for companies that want to provide their customers with a range of payment options.
Due to the low processing fees and the fact that there are no card network costs, ACH payments are very cost-effective.
ACH network payments are compatible with mobile devices. As a result, customers who shop via their smartphone can use this payment method conveniently and easily.
There are a number of providers, such as PayPal, Stripe or Bill.com.
Online ACH Payment: Examples
Let’s say a company wants to pay its employee X via ACH payment. Monthly salary is $2000. This example of a push payment could then proceed as follows:
The company notifies its bank that an ACH payment for $2000 should be sent to employee X.
The bank deducts the $2,000 from the company’s account and forwards the request to the appropriate ACH network.
The ACH network logs the request to employee X’s bank.
Once the Federal Reserve clears the transaction, the money arrives in Employee X’s bank account.
Of course, this also works as a pull payment. Here, let’s assume that a fictional person has authorized an electric utility company to charge a monthly sum of $30 from their account.
The utility company sends the request to collect the $30 to their bank.
The bank forwards the request to the ACH network.
The ACH network sends the request to the person’s house bank.
The bank debits the amount from the person’s account.
After the Federal Reserve has checked the whole thing, the money arrives in the electricity company’s account.
What is a bank CD?
A bank CD, or certificate of deposit, is a simple but useful tool for securing financial security for the future. As a money market instrument, the interest rate earned on a bank CD is based on current money market rates. Many consider the bank certificate of deposit to be one of the safest investment options available today.
Creating a bank CD involves depositing money into a special bank account. This deposit remains in the account until a predetermined maturity date is reached. In exchange for leaving money in the CA account until maturity, the bank applies a certain or fixed interest rate to the deposited funds. You can create a banking CD with a duration of one to five years.
In the event that a depositor decides to withdraw funds from a CD account before the maturity date, most banks will assess severe penalties. The penalties are often enough to offset any returns that would have been realized if the bank CD had been left in place until redemption. This process serves to encourage investors to leave the bank CD in place unless there is an emergency.
Upon maturity, investors are presented with several options. One option is to transfer accrued interest to a savings or checking account and renew the CD for another period of time. The second approach is to reinvest the principal and interest in another interest-bearing period. Finally, the investor can choose to receive both the principal and accrued interest in cash or transfer the funds to an existing account. It is important to remember that taxes are usually charged on any funds generated by a bank CD, and possibly also on the principal if that balance has been used as a deduction in past years.
Both banks and investors can benefit from creating a bank CD rather than simply depositing funds into a standard savings account. Because there is a repayment period that allows the bank to use these funds for an extended period of time, bank CD rates typically exceed the amount of interest that can be earned on a savings account. Banks get reasonable assurance that the funds will remain in the bank’s possession for an extended period of time, while the depositor can withdraw funds from the savings account at any time.
For those who have an amount of money they won’t need for the foreseeable future and who want a higher interest rate, a bank CD is a much better option than a savings account. While not yielding returns comparable to bonds or stock options, the bank’s CD rates provide decent returns with a much lower level of risk. This makes the bank CD an attractive savings tool for people who are very conservative with their money.