Transferring money between accounts you own and making electronic payments utilizes the Automated Clearing House (ACH) system.  The Money Skinny™ article Understanding the ACH Payment System details how ACH works.  Payments are either transferred out (pushed) from your account or received (pulled) by a supplier.  Individual banks and credit unions have different rules regarding when funds are available for use.  A hold or pending status can be placed on the transaction.  Recall The Money Skinny™ mission is to save you time and money.   Let’s review the impact of ACH payment system push versus pull and the most cost-effective ways to use it.

ACH Payment System Push versus Pull

Suppose you want to use an ACH payment to automatically pay your monthly utility bill from your checking account.  You can either push or pull the funds to pay the utility bill.  You can initiate the utility payment from your account to withdraw the funds to send to the utility company.  That creates an ACH credit or a push.  The other option is to provide your account number and bank’s ABA routing number to the utility company.  The company creates an ACH debit or pull to withdraw the funds from your account.

Push versus Pull Difference

The difference between an ACH push versus pull payment is the originator of the request.  With a push, the account holder sends the money.  With a pull, the supplier takes the money from the account.  A push is rejected when there are insufficient funds in the source account.  The utility bill is not paid when the account balance is too low with a push.  However, it does protect the account owner from an insufficient funds fee.  With a pull, the balance in the source account is unknown by the receiving company.  In the utility payment pull example, the company withdraws the money from your account.

 

 

Originator	ACH system	Receiver
Account Holder	Push —>	Utility Co.
Utility Co.	<— Pull	Account Holder

 

With a push, you enter the supplier payment into your account to withdraw the payment.  With a pull, you give the supplier your account info and the supplier withdraws the money.

Insufficient Funds

This is what happens if your account doesn’t have enough money for a payment.  When a supplier does an ACH pull, the payment is rejected.  The supplier doesn’t get paid.  Your account balance doesn’t change.  That’s one issue with one supplier.  Conversely, when you make an ACH push payment with insufficient funds, all heck breaks loose.  You’re zeroing out the balance of your account.  Bounced checks, overdraft fees and a quagmire follow.   Therefore, it may be better for the supplier to pull payments to reduce the impact of insufficient funds.

ACH Payment System Verification

There is often a verification step with an ACH transfer.  Suppose a pull system is used to pay a credit card bill.  Connecting the credit card to a checking account.  The credit card company may send a one-time trial amount of less than a dollar to the account.  Then you verify within the credit card account that you authorize the ACH transfers.

Another common verification step is to provide a voided blank check or deposit slip.  This method is used for direct deposit of payroll checks.

Pending and Hold Categories

Some banks and credit unions display a pending category of activity for payments and deposits awaiting processing in the hold queue.  An example of an ACH push in the pending category is the direct deposit of an IRS tax refund.  Deposits in the pending category are unavailable until the hold expires.  Understand the hold periods at your financial institution to avoid insufficient funds fees from bouncing checks and payments.

Why Checking Account

We are using a checking account in this ACH payment example because there is limit of six transfers or withdrawals from a savings account per month.  Any type of withdrawal – ACH payment, ATM or whatever.  A savings account is not a “transaction account”.  This is the Federal Reserve definition of a savings account.  To avoid a Savings Withdrawal Limit Fee, do not make more than six withdrawals from a savings account per month.  Use a checking account for routine payments.  A checking account has unlimited withdrawals.  It is a transaction account.

Credit Card as Intermediary

ACH payments have lower transaction fees.  Your utility company may not accept automatic payment by credit card.  It costs the company more money to process a credit card payment.  You can’t pay a mortgage, student loan, or property taxes with a credit card.  At least not without an added convenience fee.  However, a cellphone plan often accepts a credit card for monthly payment.  Why?  Increased risk of non-payment.  The credit account is a buffer between the cellphone company and customer.  Read more about fees in The Money Skinny™ article Avoiding Convenience Fees and Other Charges.

• The ACH payment system transfers funds and makes payments.
• Money can either be pushed from an account or pulled by a supplier through the ACH payment system.
• Setting up ACH payments may require a verification step.