Sending money electronically is a fast and convenient way to pay for food, services, or even a favor. So when you send the money, you want to make sure that your banking information is safe.
Sending a money transfer through the Automated Clearing House (ACH) is one method that can provide real security when sending money electronically. ACH transactions are very versatile and are often cheaper and more secure than sending a wire transfer.
Many financial transactions are made with an electronic payment of some sort. This might be done with a debit card, or by proxy through a third-party payment processor (like a payment gateway or a digital wallet). Regardless, secure bank account linking is necessary for every transaction so that you can pay without worry.
If you are sending electronic ACH transfers, or you want to facilitate this for other people, then you need to provide secure bank account linking.
To give you a better understanding of secure bank account linking, this article will go over:
- Secure methods for bank account linking
- Pros and cons of linking your bank account
- ACH transfer limitations
- And ACH payment speed between securely-linked accounts
Secure Methods of Linking Bank Accounts for Transfers and Payments
When you send an ACH transfer, also known as an ACH debit, you are submitting a request with your bank to approve the removal of funds from your bank account to be deposited into another bank account.
Typically, this transfer can appear to be seamless because it is likely that the bank has already approved you as a customer under Know Your Customer (KYC) or Customer Due Diligence (CDD) protocols.
However, if you want to transfer money via ACH and it is originating from an external account outside of your home bank, you usually need to operate through a third-party payment processor (TPPP). TPPPs exist as digital wallets, a payment gateway, or through a major corporation financing network. In either case, each TPPP needs to go through their checks to verify secure bank account linking.
Whenever you are linking a bank account for ACH payments, bank account information is needed for each party involved. This information includes:
- The name of the financial institution
- The location of the bank
- The ABA routing number
- And the account number
- Sometimes a transit number
- The name(s) associated with the individual account(s) in question
An ACH transfer can occur between a savings account and a checking account, but it will also depend on the details of your financial institution and any fees associated with connecting that account to an external bank.
A common method of secure linking is through a microdeposit. A microdeposit is a deposit of a few cents that is placed into the account that needs to be verified. The verifying body will usually request that two microdeposits are put into the bank account. It will take a few days for that deposit to land in the account. When it does, the recipient of the microdeposit reports back the amount.
Another method of secure linking is verified through banking credentials. If you want to link your bank card to a digital wallet, for example, the digital wallet will request that you verify the account through your bank credentials. The actual information will vary based on the bank, but this might include logging into online banking and answering a security question or verifying with a code sent via text message, telephone, or email.
Pros and Cons of Linking Bank Accounts for Electronic ACH Transfers
Sending a bank transfer is becoming more and more commonplace. Therefore, being able to send money from one bank to another is not only becoming a necessity for personal transactions but is fast becoming standard in how people do business.
Pros:
It offers more flexibility in terms of how you want to pay (as a consumer or client) and it can positively limit paying by credit card.
An ACH transaction can also be used for bill payment. Therefore, if you are able to use ACH transfer with a securely-linked bank, then you can pay your bills through the online banking source as opposed to mailing a check or paying over the phone.
Most people prefer an ACH transaction over a wire transfer because it so much more affordable comparably. A wire transfer might range from $15 to $45, and this price grows if the Originator pays for the fees of the Recipient. An ACH transaction, to contrast, is usually free or is less than $1.
Cons:
Payment via ACH is not immediately available. In fact, the transaction needs time in order to be processed and approved by the financial institution before it can be deposited and available in the recipient’s account. This is largely because the financial institution needs to verify the information of the external account, transfer the money through the ACH network, and determine if there were any errors in processing, such as faulty bank account information or insufficient funds.
If you want to transfer money to a friend, then you will most likely need to use some time of TPPP as secure bank account linking is not available directly from personal accounts.
Limitations on ACH Transfers
In general, ACH transfers have several limitations on them. These limitations are in place because of the rate at which the ACH Network evolves and for security purposes.
Some major limitations of ACH transactions include:
- No direct international money transfers
- KYC or CDD must be in place in order to limit ACH fraud and other banking crimes
- Normal ACH transfers can take anywhere from 1 business day to 4 business days, depending on the privileges of the bank
- There is a small fee associated with sending the transfer
- Most of the time, the ACH transfer is designed to work with online banking. If you do not have online banking, then you will need to go in branch to make the request
- Once the transfer is approved, there is still a period in which the funds are held (as pending) in order to verify that the funds have been processed in good faith
- ACH transfers are usually only facilitated by major corporations and other banks, and therefore you’re required to know the person or entity that you are sending the funds to
- ACH transfers processed through digital wallets are usually charged a larger fee as there are more steps needed in order to verify banking information and provide security as a third-party
- Payment via ACH can occur through both a checking account and a savings account, but this will depend on the regulations of your financial institution, the external account that you are connecting to, and other payment details
- Sending money to a foreign bank account is not allowed through ACH transfers, only through IATs
- There could be added fees if a transfer is rejected
- There are usually capped amounts that a person can send via ACH transfer, but this number will vary depending on the bank
The limitations around ACH transfers are typically in place in order to provide security sending money online. Limitations will vary depending on the bank, financial institution, or TPPP that the transfer is authorized through.
Speed of ACH Transfers Between Securely-Linked Bank Accounts
An ACH funds transfer between securely-linked bank accounts is relatively easy and can happen fairly quickly.
The time it takes to transfer money will depend on the processing timelines of the bank and of the ACH Network, but typically the speed of this transfer type will be faster than normal timelines because the other external account no longer needs to go through an authorization and approval process.
All ACH transaction requests are submitted in batches. And, the type of submission will depend on how frequently the request is processed.
There are two timelines associated with ACH transfers: Same Day ACH and Standard ACH.
- Most financial institutions are allowed to process one batch of ACH transactions a day. This is known as Standard ACH. With Standard, the batch is submitted in the evening and then the process begins the following day. From there, the request is sent through the Clearing House and to the Receiving Depository Financial Institution (RDFI). The RDFI then has 48 hours in order to wait for any return codes that the request might issue (such as insufficient funds). Funds are processed in total in 4 business days.
- Same Day ACH requests are requests that are submitted in the two allotted time slots for Same Day requests. They are also approved faster and the 48 holding period is waived. This period might be waived if the accounts in the transaction are securely-linked as the RDFI knows that they can trust the other external account. Funds are typically processed in 1 to 2 business days.
When you have securely-linked bank accounts sending ACH transfers, the Clearing House is informed that the bank account information is more secure compared to a first-time transfer. Therefore, all that needs to be done is for the money to move from one player to another, and for the RDFI to verify that there are enough funds in the account that will be debited.
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Secure bank account linking will make electronic ACH transfers faster and more secure. Secure linking can be done through your home financial institution or a TPPP like Sila. Sila can also facilitate the transfer of international funds because it sends the ACH transaction through the cryptocurrency blockchain.