ACH Debit for Consumers
What is an ACH Debit Payment?
Wondering if you should use ACH debit to make your payments, and what that even means? Automated Clearing House (ACH) payments are electronic payments that pull funds directly from your checking account. Instead of writing out a paper check or initiating a debit or credit card transaction, the money moves automatically.
ACH can make your life easier, but it can also cause problems. Familiarize yourself with the pros and cons so you know what to expect.
How ACH Debit Works
To pay with ACH, you’ll need to authorize your biller, such as your electric company, to pull funds from your account. This typically happens after you provide your bank account and routing numbers for your checking account, and give your authorization by signing an agreement with your biller.
In most cases, you'll use an online or paper form to establish ACH payments, but it might also happen over the phone.
Automatic payments: If you choose automatic recurring payments, your biller will pull funds from your account every time your bill is due. For example, you may allow a utility company to automatically charge your account for monthly bills. The biller initiates the transaction, and you do not have to take any action. This helps if you tend to get busy and forget to pay bills on time.
On-demand payments: You can also set up a link between your biller and your bank account without authorizing automatic payments. This gives you greater control of your account, allowing you to transmit payment funds only when you specifically allow it.
Benefits of Paying with ACH
The main benefit of ACH is convenience. You'll make your payments more easily because you've automated some or all of the process. As a result, you have more time for other things and you don't have to stress about bill cycles. You’re also less likely to miss payments, thereby avoiding the additional fees and other headaches that come with missed payments.
Some of the most popular reasons to use ACH debit include:
- No need to remember to make payments
- No need to write out checks (and no need to re-order checks once you've used them all)
- No need to mail payments and pay postage
- No need to wait for the postal service to deliver payments or worry about lost mail
- Easier to track payments since payee names appear on your bank statement or financial software
- More environmentally friendly (checks and envelopes use paper, and transporting them uses fuel)
Pitfalls of ACH Payments
While ACH debit is an excellent choice for some of your most important bills, it does have a few drawbacks:
- In exchange for the convenience of ACH debit programs, you give up some control
- You hand over information about your bank account, including your account number, which gives the other party access to your account
- A biller error may accidentally lead to you paying more than you should, and a large error could drain your account, causing you to bounce other payments and rack up fees
- You might overdraw your account if you don’t keep enough money available in checking; you might have the money, it’s just in the wrong account
- You may forget what you’re paying for if you don’t actually see the bills come through, potentially resulting in continued payment for services that you no longer use
Is ACH Debit Safe?
If you’re concerned about security, ACH is a safe way to pay. In some ways, ACH is safer than writing checks. You only need to expose your bank account information once to establish ACH payments, whereas paper checks expose your information every time you write one. Checks can also get lost or stolen, while ACH payments move money directly from your account to your biller’s account.
Even though problems are rare, you’re protected under federal law if any ACH errors or fraud do turn up in your account. The only catch is that you need to act fast and report those problems to your bank within 60 days.
Consumer protection laws only apply to your personal accounts. Any business accounts you have are not as well-protected.
Unlike wire transfers, ACH payments are not immediate, irrevocable, and difficult to reverse. That makes it harder for a con artist to get your money and disappear overnight. ACH payments are also safer than Western Union money transfers because the recipient of an ACH payment generally needs a U.S. bank account, which requires that they provide enough identification for law enforcement to find them if the need arises.
Board of Governors of the Federal Reserve System. "Automated Clearinghouse Services." Accessed March 28, 2020.
National Automated Clearinghouse Association. "Sample Authorization for Direct Payment Via ACH (ACH Debit)," Pages 1-2. Accessed March 28, 2020.
National Automated Clearinghouse Association. "Direct Payment for Consumers - FAQs: Is Direct Payment Via ACH Safe?" Accessed March 28, 2020.
VeriCheck. "Is ACH a Secure Payment Option?" Accessed March 28, 2020.
Consumer Financial Protection Bureau. "12 CFR Part 1005 - Electronic Fund Transfers (Regulation E)." Accessed March 28, 2020.
Consumer Financial Protection Bureau. "What Is an ACH?" Accessed March 28, 2020.