What is the difference between ACH and wire transfers?
The Automated Clearing House (ACH) is an electronic network (called an ACH network), allowing fund transfers between more than 25,000 banks and financial institutions. ACH transfer information is sent in batches to the Automated Clearing House, which then clears and sends payments to recipient bank accounts.
Wire transfers do not require the ACH to act as a middleman because banks do this instead, transferring funds electronically from one account to another. Traditional wire transfers refer to bank-to-bank transactions. However, the term sometimes refers to bank transfers through online services and cash stores.
Costs: ACH vs wire transfers
Sending money from person-to-person through the ACH tends to be free, especially for the recipient. If there are charges for the sender, they will be around $1 per payment. Businesses that use ACH transfers to pay employee wages or collect bill payments can face low transaction charges of less than $1 per payment.
Wire transfers are more expensive. Banks and credit unions charge up to $35 to send domestic wire transfers, with international wire transfers costing even more. It is sometimes free to receive a wire transfer, but charges can apply. Using a credit card for wire transfers can also incur cash advance fees and higher rates of interest.
Speed: wire transfer vs ACH
Wire transfers are much faster than ACH payments. Funds can appear in the recipient bank account in one business day. There is also no hold on the money, meaning the recipient can withdraw it straight away.
However, there can be delays. While some parts of the process are automated, a bank employee will still need to review the transfer and authorize the funds into the recipient’s account. As a result, there may be some delay between the funds leaving the sender’s account and being visible in the recipient’s.
International wire transfers take longer than domestic ones. The process can require an extra day or two, although some online transfer services can cut this time down to a few hours.
ACH transfers can take between two to three business days. This is because banks process ACH payments in batches rather than handling them individually. Banks are making advances to try and match wire transfers for speed though, and some ACH payments can be processed on the same day.
Security: ACH vs wire transfer
ACH transfers are a safer option for senders. This is because if there is an error, or a fraudulent transaction, a transfer reversal can be requested. Banks can have strict criteria for reversing ACH transfers however. This also means that recipients can see the funds removed from their account.
Wire transfers are better for the receiver, as the bank treats the funds as cleared money and they can withdraw it immediately. They also cannot be faked like cashier’s checks. To avoid scams as a receiver, check the payment is a genuine bank-to-bank transfer and not made via transfer services like Western Union. These are sometimes referred to as wire transfers but do not always come with the same security as bank-to-bank transfers.
As reversals are not possible, wire transfers pose more risk to the sender. While they are generally secure, you should make sure you have confirmed the recipient’s identity to ensure the correct person receives the funds.
Common uses: ACH payment vs wire transfer
Due to their differences in speed and cost, ACH and wire transfers have different common uses. ACH transfers are ideal for recurring payments, such as for businesses who need to pay employee wages.
They are also a convenient option for recurring bills, which can be automated using ACH debits. By setting up an ACH debit, customers don’t have to worry about late or missed payments. ACH credit can also be used for one-off payments, to authorize an organization to pull funds from your account. This method is more affordable for organizations, too, as it reduces processing fees.
Due to their higher cost, the main advantage of a wire transfer is speed. If it is critical to get funds from one account to another quickly, such as when making a down payment on a property purchase, then a wire transfer may be the best option. Otherwise, an ACH payment may offer more benefits.