ACH (Automated Clearing House)

An ACH (Automated Clearing House) is an authorized interaction directly with someone’s bank account. In general, the process where funds either enter or leave a checking or savings account, with the account owner’s permission, is completed via ACH. 

What is an ACH?

Also referred to as a direct deposit, the ACH process happens when someone receives money straight to their checking account. Additionally, funds leaving someone’s bank account are also part of the ACH process. 

It’s important to note that an ACH can only be completed with the account owner’s permission. Money cannot go in or out of someone’s checking, or savings account without the account owner’s specific authorization. While written permission and a signature are usually preferred for ACH authorization, verbal permission is also acceptable in some situations. 

ACH deposits are also known for being quick and efficient. When an ACH payment is scheduled, the money is available to the account owner almost instantly. While the funding may be marked as pending direct deposit for a day or so, the account owner can usually spend the money from an ACH deposit right away. Since many ACH payments are scheduled and can be tracked, they can be a helpful tool to utilize for people who want to keep their finances organized

What Do I Need for an ACH?

In the past, it was standard practice for businesses to request a voided check from new employees to set up direct deposit payments. This is because a check has most of the information required to set up ACH payments. When gathering the necessary information for an ACH payment, a bank account number and routing number are required. 

There are three sets of numbers at the bottom of a traditional check. The first set of numbers is the routing number, the second set of numbers is the account number, and the third set of numbers is the unique check number. A check number helps people keep track of how many checks they have used in their checkbook. 

A routing number contains nine digits and represents the bank or financial institution where the account owner keeps their money. An account number includes eight to twelve digits and represents the individual account information within the bank or financial institution. 

Now, with the increased popularity of mobile and online banking, it isn’t always common for someone to have a check on hand to present to employers. That is why it is now common for employers to simply prepare a form requesting the information required for an ACH deposit.

Some employers give the options for ACH funding delivery to go directly to a savings account instead of a checking account. However, it is usually most common for an ACH to go into a checking account over a savings account because of convenience. Most employers pay their employees via ACH because it can make submitting payment to many different people a more streamlined process. 

Who Can Request ACH Permissions? 

It is not just employers who can request ACH permissions. Any institution, individual, or company looking to either take or deposit money from a bank account via ACH would need authorization from the account owner. Other parties who may request ACH permissions from a bank account owner are:

  • Lenders (including lenders for online personal installment loans, credit cards, etc.) 
  • Banks
  • Stores
  • Subscription services 
  • Certain bill collectors 
  • Companies that offer services with automatic payments 

While most of these parties require written authorization to send or take money via ACH, some do not. For example, stores may request ACH permissions in order to credit money back into your account after a return, exchange, or refund. 

Do I Have To Get Paid via ACH?

ACH direct deposits are definitely the most common way employees get paid, but they are not the only way. If you do not have a bank account, you could request payment in the form of a written check or even cash. Some jobs like babysitting, housework, or dog walking are usually paid via check or cash. 

If you decide to opt out of ACH deposits and receive your payments via checks or cash instead, there are some important factors to consider. When you do not have your payments sent directly to your bank account, you will be responsible for cashing your checks or money on your own. If you have a checking account, you can simply go to your bank or an ATM and deposit your money there. If you do not have a checking account, you can cash your checks with a currency exchange. Either way, you will have to take time out of your own schedule to cash your checks or store your money when you refuse ACH payments. 

There may also be a waiting period when you deposit money on your own. When you cash a check on yourself, sometimes you won’t be able to utilize the funding until the money clears. This can take one to several business days. That means if you deposit your funds on a Saturday night, they may not be available until the following Monday morning. 

If you are looking to get paid conveniently, without much hassle on your part, you may want to opt for ACH direct deposit payments. 

What Are the Benefits of an ACH?

If you’re looking to become financially independent, getting money into your bank account should be prioritized. ACH deposits can be a great way to do this. There are also many other benefits of an ACH that are worth noting. Check out some of the perks you can enjoy when you give permission for ACH transactions into your bank account. 

Get Paid Directly With No Waiting 

When you have a scheduled ACH payment coming, you don’t have to worry about taking time out of your own day to deposit your checks or go to a currency exchange. Instead, you can receive your money from the comfort of your own home! You also won’t have to deal with a long waiting period, so you can have access to your money as soon as possible. 

Easily Manage Money Online 

With mobile and online banking being such a popular way to manage money, an ACH can make it even easier to organize your finances. If you need to pay a bill or transfer money, you can usually do so online or from a banking app on your phone. Instead of sending checks or cash in the mail to take care of your expenses, you can make payments easily online. 

A Helpful Tool When Looking To Improve Your Credit Score

Want to raise your credit score? When used responsibly, ACH payments can help you do just that! While ACH deposits and extractions won’t directly impact your credit, they can indirectly help you improve your score. 

Credit bureaus cite these actions as financially responsible when you use ACH to set up automatic payments for your bills and expenses. How on-time you are with paying your bills and expenses can significantly affect a credit score. The more positive financial activity associated with your credit, the more likely you will see a significant improvement. 

Furthermore, as you make these on-time payments, the amount of debt you have will go down. ACH deposits can help you track the payoff of your debt, which credit bureaus also consider as positive financial activity. 

Lastly, receiving money via ACH can help you boost your savings if you want them to. If you create a budget and set aside a specific amount for savings, you will see an increase in the amount of savings you have over time. Since credit scores are affected by how much money someone has in their savings account, the more you have saved, the better.

 

 

References:
Routing Number vs. Account Number

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