ACH Vs Wire Transfers: Key Differences
Updated: Mar 29
When you need to send or receive money, electronic options are usually preferred over sending physical checks. The funds move safely, nothing can get lost in the mail, it takes less time to move from point A to point B, and banks can easily keep transaction records making it easy to track what's going on. Most people opt for either using ACH transfers or wire transfers. These methods often get confused. Its helpful to understand the differences between each method so you can make an informed decision next time money needs to be moved.
Wire transfers move funds from one bank account to another, typically within one business day. However, depending on the size of the transfer, sometimes the funds are not immediately accessible after the wire transfer. Most of this process is automated, yet sometimes a bank employee must approve the wire transfers and ensure the money is sent to the proper destination account. If a situation occurs where the wire transfer is time sensitive, requesting the wires first thing in the morning will give you the most amount of time to complete the process. Wiring money internationally may take an extra day or two for the funds to be active in the destination account.
ACH transfers typically take one business day to complete. ACH transfers take slightly longer to process than wires. This is because banks and clearinghouses process ACH payments in batches, meaning they are all done together at once rather than individually. The ACH system is moving toward same day processing with some payments already eligible for same day handling.
Certainty and Safety
Wire transfers are generally safe options to electronically send money. Think of wire transfers like an electronic cashier check. The bank treats the payment as cleared money and allows the recipient to withdraw or spend the cash once it reaches the account. Likewise, when sending money, the money must already be present in the account before the banks sends the funds. When sending money by wire transfer, you need to be absolutely certain that you know who the money is going to. A wire transfer is not refundable and cannot be reversed.
ACH transfers are thought of to be the safer option compared to wire transfers. This is because ACH transfers can be reversed. However, bear in mind that there are rules about when and how a bank can reverse the transfer of funds. Most transfers will stay as is unless there is clear evidence of a mistake or fraud.
Cost to Transfer Money
Banks, credit unions and other financial institutions charge anywhere from around $10 to $35 to send a domestic wire transfer. An international wire transfer may cost more. Receiving a wire is usually free, but some banks will charge a small fee to receive funds.
ACH transfers are typically free when receiving funds. Think of apps like Venmo or Cash App, which are built on the ACH network. If you’ve ever used one of those apps, you would know that sending money is virtually free. Business and organizations that have payroll or bill payments through ACH may have to pay for that service. However, transaction charges are usually less than $1 per payment.
How They are Used
Wire transfers are the best option when speed is the highest priority. Typical situations where someone would use a wire is if a business owner just bought a new office space. The owner of the office space will not release the tittle unless they are confident the business owner can pay. This is where wire transfers would be useful. Or perhaps your business is running out of inventory, and you need to restock as quickly as possible; this is when you would use a wire transfer.
ACH payments are good for smaller, more frequent transactions. Most full-time employees contribute to some kind of retirement account or education savings account. The amount that is deducted every pay period is a perfect example of an ACH transaction. Common examples include direct deposit of employee wages or Social Security benefits. Some business owners also use ACH for automatic monthly bill payments.
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