Who's That Acronym? ACH

Acronyms have become a part of our everyday life.  We LOL while texting with friends.  We pull our money out of the ATM.  We trade our pokémon over the GTS.  These shorthand abbreviations are acronyms, words or a group of letters that substitute for a group of words.  With Who’s that Acronym? I pick an acronym that you may, or may not, have seen before, and explain what it stands for, what it is and where we may encounter it in the wild.

For the first acronym of 2018, we take a look at ACH.  ACH stands for Automated Clearing House.  It is basically the most popular method of transferring money electronically between companies and people.  It is most commonly compared to an electronic check.  Most of my money uses ACH for paying my bills, loans, retirement and even my groceries.  ACH is something that we may encounter as part of our daily lives and may never even know it’s there nor what it does.

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What is ACH?
ACH has been around since 1974.  However, it didn’t really start making headway processing electronic transfers until around 1978 when the Electronic Funds Transfer (EFT) Act was passed, which also covered ATMs and pay by phone transactions.  ACH became known for their work on direct deposit paychecks and a way of processing a company’s transactions by using their own network and batching transactions to make transactions more secure and affordable.  Today, ACH makes up a large percentage of the electronic transfers made in the United States.
 
How does ACH work?
ACH works with the NACHN, the National ACH Network, to process transactions and transfers in batches.  First, let’s think of the NACHN, a network of certified businesses, as a network of certified Pokémon Centers all over the nation.  By being in the network, any Pokémon Center can easily transfer pokémon, or money, to and from different locations to and for trainers, or clients, using ACH.
 
When a trainer initiates a pokémon transaction through Pokémon Center B from Pokémon Center A, the ACH first confirms that both Centers are part of the network.  Once it confirms that both Centers are a part of the network and safe, it then confirms that the pokémon to be transferred to Center B is physically or digitally located at Center A.  Once everything is confirmed, the pokémon is marked for transferring.
 
Later in the day, ACH groups all the pokémon freshly marked for transferring at Center A.  ACH then processes the group at the same time by bringing them through the ACH and redirecting the pokémon to Center B where it waits with another group of pokémon to be deposited.  Once the group of pokémon is deposited, Center B may quarantine the pokémon for a day to make sure the pokémon didn’t drop an item along the way or any other error occurred.
 
ACH touches base with each Pokémon Center, or business, in the network numerous times each day to process different groups, or batches, of transactions together.  By processing numerous batches of transfers throughout the day and making the transfers electronically, ACH manages to keep transaction costs low.  These low costs save large businesses, who deal with thousands of financial transactions a day, millions of dollars on their daily transaction fees.  Most of these businesses then return the savings to us, usually by not charging a transaction fee for ACH transactions.  Whenever I make a deposit into my retirement account with TD Ameritrade, I have three different options of how to make the deposit.  Two of the options cost me money, while the free ACH option only takes 24 hours to process and deposit.
 
Where to Encounter ACH?
I have run into ACH many times across these last five years.  I was in college and grad school when I had my earliest encounters with ACH and wasn’t even aware of it at the time.  When I received student loans in undergrad, they would first pay my tuition and any leftovers would be returned to me.  If I remember correctly, these leftovers were direct deposited into my checking account.  I also encountered ACH in grad school when I received my monthly paychecks through direct deposit.  During this time of my young adulthood, I had my keen eyes only on the names and numbers on my statements.  Anything else was easily smokescreened.
 
I want to say the first time I really began learning about ACH was when I started repaying my student loans.  One of them had a payment option titled “ACH/ eCheck” with a little question-mark unown behind it for more information.  It explained that the option was like writing an electronic check because it was free and the money was withdrawn directly from my checking account.
 
I believe that with that brief introduction to ACH, I slowly started to subconsciously notice it on my bank statements.  It evolved from being financial chatter on my statements into a sparkling aria.  By the end of 2015, I was familiar enough with ACH to understand that when I saw it associated with a transaction I felt comfort knowing that the transaction was locked-on and would not fail.  When I opened a new savings account, at a new bank, I learned with my bank to bank transfers to have a lot of trust in the strength and security of ACH transfers.  It was also being used for my student loan payments, my American Express payments and even my Acorn and Digit deposits and withdrawals.
 
Why Do I Care?
ACH is not well-known.  Even my banker didn’t quite understand how ACH transactions work.  In June 2017, my rent check was stolen and my banker advised me to freeze my checking account.  This status condition would allow my weekly paycheck to direct deposit on Friday but would prevent any other money being withdrawn.  I pointed out that I had an ACH transaction to a student loan being processed.  My banker told me that since it was “processing” it was already removed from the account.  However, my money was only marked for transfer and the freezing removed ACH access to my payment arena trapping it in the account.  That payment became late and I had a bunch of clean up to do.
 
ACH does not get much attention in the financial blogging community.  Searching for other blog posts about ACH to feature below was like searching for a feebas in Hoenn, there are just not many out there to find.  Most posts I found discussed the news that as of 2018, ACH can now perform same-day transfers.
 
I find it fascinating to see how ACH facilitates daily financial transactions.  Even with money transaction apps like PayPal, Venmo, and Zelle, ACH continues to maintain a sticky hold on financial transactions.
 
Let’s Chat:  What do you know about ACH?  What financial acronyms would like to know more about and see in future Who’s That Acronym? posts?

Further Reading:
ACH Transfers: How They Work- NerdWallet
Learn How ACH Payments Work- the balance
ACH Payments 101: What is an ACH Payment- Due