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What Are ACH Debit and ACH Credit Transactions?

ACH Credit vs Debits: How Are They Different?
Jason Steele
Jason SteeleUpdated March 27, 2023
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ACH, which stands for the Automated Clearing House, is an electronic network that  coordinates payments between bank accounts. If you receive your paycheck via direct deposit or pay your monthly utility bill online, you are using the ACH network. In the case of direct deposit, the transaction is considered an ACH credit. In the case of a recurring online bill payment, it’s an ACH debit. Read on to learn more about ACH debits vs. credits and exactly how these transactions work.

ACH Credit vs Debit

An ACH transaction is an electronic fund transfer made between banks and credit unions across the Automated Clearing House network. With an ACH credit, the transaction is initiated by the sender of the funds. With an ACH debit, the transaction is initiated by the receiver of the funds. Here’s a closer look at both types of ACH transactions.

ACH Credit

With an ACH credit, the payer instructs the ACH network to transfer (or “push”) money into the recipient's bank account. Also known as “push transactions,” ACH credit transactions are entirely electronic, eliminating the need for the payer to write a check to the recipient, as is the case when an employer offers direct deposit to their employees. ACH credit transactions can take up to two business days to process. 

ACH Debit

ACH debits are the most common type of ACH transaction. With an ACH debit, the transaction is initiated by the receiver of the funds. Also known as “pull transactions,” they’re commonly used by merchants to pull money directly from customers’ accounts, typically a checking accountWhen you set up autopay for your utility or credit card bill, for example, you are allowing that company to debit (or pull) funds from your bank account using the ACH network each time a payment is due. ACH debit transactions happen faster than ACH credit transactions — they are typically completed within one business day.
ACH CreditACH Debit
Who initiates the transactionPayerRecipient
Consider push vs. pullPush transactionPull transaction
How long it takes1-2 days1 day
SecuritySlightly more secure Slightly less secure

How ACH Debit and Credit Transactions Work

With an ACH credit, the payer initiates the transfer of money. In order to do this, the payer will need the recipient's banking details, including the account name, as well as the account’s routing and account numbers. The recipient can generally choose whether they want the funds to be credited to a checking account or to a savings account.With an ACH debit, the recipient initiates the transfer of money. An ACH debit is common in the context of automatic bill pay systems. To initiate a transaction, the recipient submits a payment request to their bank to pull funds out of the payer’s account. The ACH network handles the process of pulling funds from the outgoing account and moving them into the receiver’s bank account.Recommended: Guide to Transferring Money Between Banks  

Types of ACH Credit

Different types of ACH credits include: direct deposits, government benefit payments, one-time online payments, and peer-to-peer payments (using a service like Venmo).

Types of ACH Debit

There are numerous types of debits that are supported by the ACH system. Each debit type has its own Standard Entry Class (SEC) code, but they generally fall into two main use types: one-off payments and recurring payments. One-off payments are single transactions and include:
  • Accounts Receivable Conversion (ARC) 
  • Back Office Conversion (BOC) 
  • Cash Concentration or Disbursement (CCD) 
  • Corporate Trade Exchange (CTX) 
  • International ACH Transaction (IAT) 
  • Machine Transfer Entry (MTE)
  • Point of Purchase (POP) 
  • Point of Sale (POS) 
  • Prearranged Payment and Deposits (PPD) 
  • Re-presented Check Entry (RCK) 
  • Shared Network Transaction (SHR)
  • Telephone Initiated Entry (TEL)
  • Check Truncation (TRC/TRX)
  • Internet Initiated Entry (WEB) 
Only a few ACH debit types can perform recurring payments. These include:
  • Internet Initiated Entry (WEB)
  • Telephone Initiated Entry (TEL)
  • Prearranged Payment and Deposits (PPD)

ACH vs Credit Card Transactions

From the perspective of a business, there are a few important differences between ACH and credit card payments. One is the guarantee of payment. With credit card payments, the funds are guaranteed. The credit card network will verify whether the payor is within their credit limit before approving the transaction. With an ACH transaction, however, there are no guarantees. ACH transactions act more like a request for funds.Another difference is processing time — ACH processing can take a couple of days, whereas credit card processing is often immediate. Cost is another consideration. ACH transactions typically have very low or no fees associated with them. Credit cards, on the other hand, typically charge 2.5% of the transaction value in fees, plus an additional processing fee. From the perspective of a consumer, you may sometimes have a choice over whether to pay a bill via credit card vs ACH (meaning directly from your bank account). Which one should you choose? If you pay your card balance in full each month and want to maximize your reward points, you might want to use your credit card. If, however, you often carry a credit card balance and/or the service provider charges a credit card processing fee, you’re likely better off using ACH to make the payment.

Choosing Between ACH Debit vs Credit for Your Business

Whether to use an ACH debit or credit transaction for your businesses will depend on the type of business you own and the nature of your transactions. Generally, if your payment process works better when you initiate the payments (as opposed to your customers), you’re likely better off using ACH debit, since it’s the recipient who initiates the funds transfer.  If however, your payment process works better when the customer initiates the payments, then ACH credit is likely the better option, since ACH credit requires initiation by the payer rather than the payee.When comparing ACH credit vs debit, however, there are also two other things to consider. One is security (ACH credit payments have a slightly lower risk of security issues than ACH debits), and the other is speed (ACH debit transfers are often faster than ACH credit transfers).

The Takeaway

The main difference between an ACH credit and an ACH debit is that an ACH credit transaction is initiated by the sender of funds, whereas an ACH debit transaction is initiated by the receiver of funds. Each type of transaction serves a purpose depending on your payment needs. When you set up a recurring monthly payment for your insurance or utility bill, for example, an ACH debit is used and your bank account will be debited automatically. When you set up direct deposit with your employer, on the other hand, it’s considered an ACH credit transaction, since the payer (your employer) triggers the funds to be sent to the recipient (you). With an ACH credit, you need to supply the payer with your bank account details. You can typically choose your checking or savings account. In some cases, you may be able to choose both, with some money going into checking and some into savings.If you’re in the market for a new savings account, Lantern by SoFi can help. With our online banking marketplace, it’s easy to compare high-yield savings accounts based on annual percentage yield (APY), fees, and balance minimums.Lantern can help you compare online savings accounts and find today’s best rate.

Frequently Asked Questions

Is an ACH payment a debit?
What is the difference between ACH and credit card?
What does an ACH debit mean?
Photo credit: iStock/Poike

About the Author

Jason Steele

Jason Steele

Jason Steele has been writing about credit cards and award travel since 2008. One of the nation's leading experts in this field, he has contributed to dozens of personal finance and travel outlets and has been widely quoted in the mainstream media.
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