Why Is ACH Slower At Some Places Than Others?

ACH stands for Automated Clearing House. It’s low-cost method to move money from one account to another. When you have payroll direct deposit, it’s done by ACH. When you give your bank account to an insurance company for automatic monthly payments, it’s done by ACH. When you transfer money from a checking account to an online savings account or to a brokerage account, it’s done by ACH. ACH is everywhere.

ACH transfers take longer at some places than others. When I transfer money from Fidelity to my checking account, I see the money the next day. When I do the same from Vanguard, it takes two days. When I do it from E*Trade, it sometimes takes three days. Why is that?

ACH supports both credits and debits. You can ask one institution to move money to another institution (credit, or "push") or you can ask it to get money from another institution (debit, or "pull").

Whether it’s an ACH credit or an ACH debit, the institution at which you request the ACH transfer always takes the lead. It’s called the Originating Depository Financial Institution (ODFI). The institution on the other end is called the Receiving Depository Financial Institution (RDFI). Originating and receiving refer to the ACH transfer request, not where the money comes from or flows to. Whomever you ask to do the ACH is the ODFI.

The ODFI is responsible for making sure they have the authorization to credit or debit the other account. That’s why sometimes you are asked to fill out a form and send in a voided check. The RDFI is required to credit or debit the account on the date the ODFI specifies. Therefore if ACH takes longer at one place than another, the delay is almost always caused by the ODFI, not caused by "the system" or the receiving end.

If the ODFI cooperates, ACH should be a next-day process. You request the transfer today before a cutoff time. The ODFI sends the request to the ACH network in the evening. The RDFI shows it in your account the next morning. That’s how it works if you initiate an ACH transfer at Fidelity or WellsTrade. Everybody else should also be able to do it in one day if they really want to.

Why does it take two days, three days, or even longer at some places? It could be because they use a third party service provider. The third party does the debit first. It makes sure it gets paid the next day before it sends the credit. It takes at least two days in such scheme. Or it could be because the ODFI doesn’t send the request on the same day you request the transfer. They hold your request for extra days.

There are several reasons they hold your request. First, for risk management. If during that hold period you discover an unauthorized transfer request and you notify them, the money hasn’t really left yet. Second, for charging a premium on faster service. A bank may offer a slow ACH for free but charge extra for next-day ACH.

If you like faster transfers, use a more efficient bank or broker. Don’t let them get away with "2-4 days is the standard." The standard ACH service is next-day.

Reference: ACH 102: Who We Are and What We Do, a presentation by Nancy Grant, Senior Director of Research & Standards at NACHA.

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Comments

  1. KD says

    A Capital One guy was touting his company’s ingeniousness at a career fair by claiming that Capital One delays release of funds to the customer by 2 days to deny them interest. It is within their legally alloted time to complete the transaction. They also do the reverse, take the funds from the customer but not transmit it to the other party for next two days. The originator is very critical here. If you pay credit card from the credit card’s website, you can pay next business day. Try doing that using Capital One’s push/pull it takes much longer. Needless to say, I stopped using Capital One after that.

  2. Alex says

    Great article, and it confirms my suspicions on this stuff. I used to use Countrywide Bank as an online savings account before they were bought out by Bank of America (which added a whole host of fees to the account). They used to do next-day ACH transfers. After Countrywide went under, I opened an online savings account with Discover Bank. Their rates are good, but ACH transfers take 3-4 days. What’s amazing is that no matter whether I’m pushing or pulling money from Discover Bank, funds always leave the source account by the next morning. They just don’t show up in the destination account for a few days. I called their customer service number and asked who is earning interest on my money during the four days it’s in transit. His suggestion–use our $4 expedited next-day ACH transfer service.

  3. Jacques Boutet says

    I’ve noticed similar variances in the time to complete ACH transactions between Vanguard and Fidelity. Indeed, it gets even more excruciating with their respective 529 plans. My last ACH deposit to a Vanguard 529 account took 2 weeks to execute! I queried Vanguard’s Help Site and was told that because Vanguard is not a full financial services firm, it uses 3rd party banks for the ACH’s and thus can incur multiple settlement periods. No such issues with Fidelity! In fairness to Vanguard, my recurring ACH fund purchases are credited on the day they are are scheduled. I assume Vanguard “trusts” that I will have the funds available to cover recurring purchases, thus executes my monthly buys and waits for my money to catch up. Regardless, I’m drifting into the Fidelity camp, as the vagaries of a non-profit organization such as Vanguard begin to stand in contrast to a sharper, more nimble, profit-motivated Fidelity (who also manages to keep customer costs down!).

  4. CMF99 says

    One thing that isn’t mentioned in your post is the ACH prenote. A prenote is a zero-amount test transfer to ensure that the routing and account numbers are valid and the RDFI account is open and in good standing. These take a day. A prenote is usually done only during the initial ACH request setup, but some institutions do a prenote each time which would delay ACH completion by at least a day, since the 3 day window.

  5. says

    Another issue with ACH transfers is that some banks limit the amount that can be transferred when initiated from their side. I’ve seen the limit as small as $2,000. It’s likely a risk management issue like the transfer delays.

  6. Random Poster says

    As others have noted, the float time really only benefits the banks.

    I’m particularly annoyed at how it takes Fidelity several days (2 or 3 days, is it?) to credit my account after the sale of a stock (i.e., make available cash for withdrawal), and then take an additional 2 or 3 days to actually deposit the cash into a designated checking account. Clearly, someone is making money from my money off of that 4 – 6 day float process, and it isn’t me.

    Likewise, I have no love for banks that feel the need to place a “hold” on deposits. In one instance, upon opening a new money market account and funding the same with a $92,500 check, the bank puts a hold on the funds for 10 days and then only credits me with interest on the same after such 10 day period has passed. I can partially understand not allowing me to withdraw the $92,500 for a period of time, but to deny me interest on the same? That I don’t understand.

    Too many people are, without my consent, making money off of my money. It has got to stop.

  7. anie says

    Sorry to comment on an old post, but I’ve done my share of this push/pull as well and found that USAA will push and pull the fastest for me, hands down. I can also transfer funds to and from another bank/credit union to or from USAA and they get the money in or out the fastest, whichever benefits me the most. If I push/pulled from the credit union end, it can take 3 business days. Awful.
    On a different note, I have an “old” account at USAA and a “new” one (shared) and I do all this from the “old” one, which seems to not have any of these hold type restrictions. The new one does, however, put holds on most any deposit. Very easy to work around, no doubt, but also very strange. Still love them the best!

  8. Andy says

    Just opened checking and savings with USAA, transfered in $5k on Fri, hold time 3 days and won’t be available until next Thu. Will be closing accounts with them after that.

  9. MN says

    In the case of ACH ‘pulls’, the funds should be delayed until day 3 for risk management purposses.

    When a pull request is submitted on Monday, my bank makes the funds available on Wednesday. However, the RDFI has until THURSDAY to notify my bank that there are insufficient funds to complete the transaction.

    I work in risk management and this is a huge hole that the criminals drive through to steal large amounts of money.

  10. Grant says

    Part 2 of this whole subject. I transferred money via an ACH process. Money left UBS same day and ARRIVED in my People’s United Bank account same day, HOWEVER, People’s put the money on hold for 3 full BUSINESS days making is “available” to me on the morning of the 4th day. Why is this when both banks sent and received? Isn’t this almost like a “wire” at this point?

  11. says

    See the comment right above yours. If you initiated the transfer at People’s United Bank, UBS can come back and reverse it. Therefore People’s United has to put the money on hold in case it gets a reversal.

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