Every time you get paid by direct deposit or pay a bill online, an ACH transfer likely moves the money. ACH stands for Automated Clearing House. It is a network run by the Federal Reserve and the Electronic Payments Association that processes batch electronic payments between banks. It is not instant. Transfers typically settle in one to three business days.

The system works on a batch basis. Banks collect payment instructions throughout the day and submit them to the ACH network. The network sorts and nets the transactions, then credits and debits the banks involved. That netting is efficient. If Bank A owes Bank B $10 million and Bank B owes Bank A $9 million, only $1 million changes hands. The volume is enormous. The ACH network processes billions of transactions each year, worth tens of trillions of dollars.

ACH is used for payroll, Social Security benefits, tax refunds, utility bills, mortgage payments, and business-to-business payments. It is cheaper than wire transfers and more reliable than paper checks. But it can be reversed. If a payment is fraudulent or unauthorized, the receiving bank can send it back. That is why some businesses prefer wire transfers for large, irreversible payments.

Same-day ACH is now available for an extra fee. It speeds up settlement but does not make it instant. The network still processes in batches, just more frequently.