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The Basics About ACH Holds

By Timothy Moore · June 28, 2022 · 5 minute read

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The Basics About ACH Holds

ACH, which stands for Automated Clearing House, is a common form of electronic fund transfer (ETF) that individuals and businesses use to move money from one bank account to another. When you authorize a business or government to perform an ACH debit (electronically removing funds from your bank account), you may see that there is an ACH hold on funds in your account ahead of the official transfer.

This situation can cause account holders to have some questions and wonder if everything is okay with their bank accounts. So read on to learn more about:

•   How ACH works

•   What an ACH hold means

•   Why your bank might put an ACH hold on your account

•   What to do if there is an unauthorized ACH hold on your account.

Understanding Automated Clearing House

ACH stands for Automated Clearing House, a U.S.-based network governed by Nacha (National Automated Clearing House Association). The system enables businesses and individuals to electronically debit (take money from) or credit (put money into) accounts.

ACH credit transfers are quite common today. Examples of a company or government agency putting funds into an individual’s or company’s account include direct deposit payments from an employer to an employee, social security benefits, and tax refunds.

As an individual, you likely utilize ACH debit as well. If you have connected your online bank account to a peer-to-peer or P2P payment app like PayPal, Venmo, or Cash App and you utilize standard transfers, you are likely using ACH debit when you pay friends and family.

You may also use ACH when you enable autopay for bills each month, such as your mortgage, rent, or utilities. When you sign up for this kind of payment, those companies are using ACH debit to withdraw the necessary funds to cover your monthly payment.

But money does not go directly from one account to another. Before your direct deposit paycheck reaches your bank account — or your automatic payment reaches your landlord or the electric company — it goes through the clearing house, which batches payments multiple times a day. That means ACH payments are not immediate, though they can be same-day.

Recommended: How to Balance Your Bank Account

What Is an ACH Hold?

So what does ACH hold mean? When a company or institution that you have authorized to make a withdrawal from your account submits an ACH debit, your bank will receive and acknowledge the transaction. At that point, the bank might place an ACH hold on your account.

While there is a hold on your account for the amount of the ACH debit, you will not be able to use those funds for a purchase. During the ACH hold, the bank is verifying that you have the funds in your account to cover the requested debit. Once confirmed, your bank will deduct the money from your account.

In such an instance, the ACH hold simply makes the funds you will owe unavailable before they are actually debited from your account.

On the flip side, you may sometimes notice a pending ACH credit in your account. For example, if you open your mobile banking app a day before payday, you might see the pending direct deposit, but the funds are not yet available. That means your employer has sent the money through ACH, but your bank has simply placed a hold until it can verify the transaction and push the funds through to your account.

It typically flows like this:

1.   The ACH request is sent to your bank.

2.   The bank receives the request and begins work.

3.   The bank put a hold on the funds.

4.   The bank ensures the funds are available.

5.   The transaction is completed.

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Why Do Banks Perform an ACH Hold?

ACH holds allow banks to verify that funds are in place before approving the transaction. For example, say your account has $100 in it, but a bill collector has initiated an ACH debit for $500. It will be in the bank’s best interest to place the hold on your account. Once the bank realizes that your account does not have the funds to complete the transaction, it will reject the ACH transfer.

This protects the bank’s assets, but it means you have an unpaid bill. In this example, you may also have to pay late fees in addition to the funds you owe. What’s more, the bank might charge you an ACH return fee. These fees can certainly add up.

It is a good idea to monitor your account closely and set up low-balance alerts. As a best practice, you might want to keep track of scheduled automatic payments via calendar reminders so your account balance is always high enough to cover charges.

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Unauthorized ACH Holds

ACH holds can benefit you as well as your bank. For example, if you monitor your checking account closely and notice a pending ACH transaction that you weren’t expecting, you can contact your bank to learn more about the transaction.

If a person or entity is attempting to debit your account without your authorization, this could mean that your banking details have been compromised. Your bank will be able to help you with next steps to protect you from fraud.

Another scenario to consider: The Consumer Finance Protection Bureau (CFPB) advises that you can stop electronic debits via ACH by payday lenders. These payday loans are a way to get an advance on your paycheck. To curtail unauthorized account deductions, you must revoke their payment authorization (or ACH authorization) by calling and writing to the loan company and your financial institution or by issuing a stop payment order. Visit the CFPB website for sample letters.

Note: Stopping payment via ACH debit does not cancel your contract with payday lenders. You must still pay off the full balance of your loan, but you can work with the lender to determine an alternate method.

Removing an ACH Hold

If an ACH hold appears on your account and it is for a payment you have authorized, your bank will likely soon remove the hold. Typically, the sequence goes like this:

•   The bank places the funds on hold.

•   The bank determines whether funds are available to process the transaction.

•   If funds are available, the bank eliminates the ACH hold.

•   The payment moves forward and funds are transferred.

You do not need to take any action as long as the funds are available.

Recommended: How to Open a Bank Account

The Takeaway

ACH (or Automated Clearing House) holds protect banks during transfer processing. While delays may seem annoying at times, there are pros and cons to them in this situation. When a company initiates an ACH debit from your account, the hold allows the bank to confirm that funds are available to complete the transaction, which can ensure good flow of finances. Such holds also give you an opportunity to identify any unauthorized ACH debits, which is definitely a plus.

Having a bank that looks out for your best interests is another thing that’s usually a big plus. Which is why SoFi makes sure you can manage all your automatic payments seamlessly so your finances can stay on-track and organized. But that’s not all. When you open an online bank account with direct deposit, you’ll earn a stellar 1.80% APY and pay no account fees.

SoFi: Our Checking and Savings help you bank better.

FAQ

How long can a bank hold an ACH transfer?

When an entity, such as your employer or the government, issues you a direct deposit via ACH transfer, your bank must generally make the funds available for withdrawal by the next business day. However, weekends and bank holidays do not count as business days, so it may take a few days to get your money even after an ACH transfer has gone through.

How long does it take an ACH check to clear?

Financial institutions may be able to choose to have ACH transfers process in one to two business days or on the same day. However, a bank or credit union might hold onto transferred funds once it receives them, generally until the next business day.

What is the ACH hold check order fee?

In your banking life, you might encounter the phrase “ACH hold check order fee.” It typically just means that your financial institution charges a fee for ordering checks, which may be automatically deducted from your account.


Photo credit: iStock/max-kegfire

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