ACH vs. Wire Transfer

Consumers and companies have a vast choice of options to transfer money these days through traditional or more modern internet-based banking.

Two of the more common methods are known as ACH or wire transfers. But what exactly is the difference, and how do they work?

This is actually a question we hear pretty much daily. It seems like many folks out there have absolutely no idea what the difference is between the two types of transfers, and with so much uncertainty, we figured it was time we addressed the question and gave more detailed answers on all things relating to ACH vs. wire transfer procedure, and general information.

What Is the Difference Between ACH and Wire Transfers?

Before the deep dive, and for those of you pressed for time or just looking for a quick answer, let’s start the article by giving a nice and brief, straightforward answer to the question before exploring it in more detail.

In the most basic terms, both ACH transactions and wire transfers are pretty much the same. Or at least, they use very similar processes, but with a few key differences: an ACH transfer takes a little longer to process, with a transfer time of approximately 48 hours. ACH transactions are also, in most cases, free to process and also carry a reputation or perception of being highly secure.

On the other hand, a wire is usually instant, same day; in some cases, it might only take an hour or two. However, wire transfers come with a fee that varies from bank to bank, and while they are extremely safe and very rarely pose any kind of risk, they are considered slightly less safe compared to an ACH transfer.

In layperson’s terms, ACH transfers and wire transfers are simply two ways of moving money between a third party.

ACH Vs. Wire, Deep-Dive

So, the basic answer to the question is really relatively straightforward. ACH is free, but it takes a couple of days. Wires are instant (or at least same day) but do come with a charge. However, there are some finer points to consider with the two transfers, so let’s look at their various mechanics.

Main Differences Between the Two

The prime difference between an ACH and a wire transfer boils down to the speed at which they are processed and whether fees are fixed on the process. ACH transfers are processed through a clearing center, which is essentially a group of banks and specialist transfer groups and is mainly chosen for direct deposit standing order type agreements between the payee and the recipient.

On the other hand, sending money through a regular wire is usually chosen for large payments and is orchestrated through an actual bank or banking center. Owing to the nature of a bank’s involvement, the payment is almost always reasonably quick. However, wire transfer fees are known to be fairly costly.

What Exactly is an ACH Payment?

An ACH payment is a digitally processed transfer between various banks, which at some stage will go through a dedicated center set up to process this specific type of payment. This is known as an Automated Clearing House Network. 

This network is based within the US, interlinked through thousands of financial houses such as banks, banking centers, and credit unions. These organizations will group payments into one bundle and transfer them through a fixed daily routine.

Each receiving bank or organization will process payments in groups of five scheduled times each working day. The sender can pay a fee, which is completely optional, in return for the same banking day service. Without the payment of this fast-track fee, the payment can take five or six days to process in full. Excluding this, the processing time is usually one banking day for direct debit and two or three banking days for credits.

How Does an ACH Actually Work?

ACH payments have transformed traditional checks into a quicker and more dependable digital service. This progression has led to the enormous growth of P2P payment transfer services like PayPal and Venmo. An ACH payment can be considered in tandem with direct deposit payments. Usually, this is the best process for regular payments like employee salaries and paying utility bills. For a company with a business bank, ACH salary payments usually work this way:

The business will issue its payroll to an automated clearing house. Then, this processing house will sync with the originating depository financial institution [ODFI], simply known as the business’s bank, to send a request to the ACH with said business employee’s salary information and confirm the payment is ready to move forward.

Next, the ODFI will take funds from the business’s bank and send the ACH information over as requests for credit to the recipient’s depository financial institution, otherwise known as RDFI. In other words, each bank where the business employees have a bank account.

The recipient depository financial institution will then orchestrate each payment; the funds will then clear and will show in each employee’s bank account.

Direct Debits and Recurring payments

ACH payments are also used quite commonly for people who would like to create a direct debit with a third party, maybe for bill payments or purchases. For example, this could be for electricity bill payments or regular direct payments for a previous purchase. Using an electricity company as an example, the company will start the process by confirming the transaction and the amount to be paid. This is the first step in the process.

Next, the consumer will have to create a monthly direct debit payment with their personal bank, sending the ACH information with the payment amount to the electricity company. In this example, the electricity company is the original depository financial institution, which will then transfer all of the payment information to the ACH automated clearing house, who in turn will then send documentation with the request for payment back to the consumer’s personal bank- which is the recipient’s depository financial institution. Going forward, the consumer’s personal bank will adhere to the agreed direct payments each time on behalf of the consumer.

ACH Examples

• Business-to-business payments.
• Healthcare payments.
• IRS refunds.
• Personal P2P payments.
• Social security, or other government payments.

What About Global ACH, What Are They?

A global ACH is essentially just the worldwide equivalent of the USA ACH. This is used when international money transfers outside of the USA are required via a banking agency outside of the USA banking codes and legal frameworks. 

However, there are specific standards that need to be followed created by the National Automated Clearing House Networks. European countries have an organization known as the Single Euro Payments Area, which is pretty much the mirror opposite of the NACHN. The SEPA governs and manages over 30 countries, mainly within the EU.

However, something to be aware of is that each country has different banking processes, rules, and regulations. No ‘fixed method’ exists for payment processing. 

What Exactly Is a Wire Transfer?

You won’t be surprised to learn that no actual ‘wires’ are involved in the process of a wire transfer – this is simply a throwback to when these types of transfers were indeed actually sent through a good old-fashioned wire. Obviously, wires are sent these days digitally and have been for many decades, but as with many things, the name has stuck. 

In its most basic terms, wire transfers are simply peer-to-peer payment transfers from one bank or financial house to another. The sender bank creates and sends a message, including all payment details, to the receiver’s bank or financial institution via a very stable, secure transfer process similar to FEDWIRE.

The transfer details contain the bare bones of the transfer amount and the receiver’s personal information, such as the payment sender’s home address and landline number. Wire transfers are common in both large corporate entities and also members of the public.

In addition to the very basic information (amount, address, etc.), other specific information is required:

The account number that is used to process a transfer.

The recipient routing number (or, for international wire transfers, the SWIFT code).

The receiver’s bank account number.

Wire transfers are primarily used for sending large amounts of money, usually in the form of one-off payments, for example, making direct deposits for a commercial venture or a personal purchase like a vehicle. A cut-off time for sending the same business day will apply, but that will vary from bank to bank. Cleared funds are usually available for withdrawal the same day or within 24 hours after landing in the receiver’s account.

There is also an option to send the same business day with the vast majority of banks and financial institutions, which will be processed through the Fedwire system.

However, one thing you should remember when sending with a same-day service: the fees can be pretty harsh, especially when sending larger amounts of money. Another thing to consider is that transaction reversal is improbable at worst or problematic at best.

Wire Transfers are Considered Quite Safe.

Of the various transfer means available to companies and consumers alike, a wire transfer is arguably the safest, most secure method available. You can think of a wire transfer as a digital cashier check which is incredibly difficult to use illegally. Furthermore, both the sending and receiving banks consider funds cleared on receipt, as sufficient funds must be shown as available in the sending bank before the process takes place. That basically means the receiver can take out the funds as soon as they are credited.

Wire transfers are available in both international wire transfers and domestic wire transfers; these are sometimes known as remittance transfers. At the time of writing, there is a $15 charge (minimum) for transferring funds from the USA to any other country.

What Are The Main Differences Between ACH and Wire Transfers?

There are essentially five main differences between an ACH and a wire transfer:

The first and most appealing difference (to most people) between the two is that an ACH transfer is much quicker than a wire transfer.

Wire transfers are more expensive than ACH transfers.

Wire transfers are considered less secure than ACH transfers.

ACH transfers are only available within the USA. An international wire transfer will be required for cross-border transfers.

 Generally speaking, ACH transfers are more suitable for companies that transfer bulk payments.

Comparisons

Let’s examine the most striking differences between these two payment methods.

Processing Speed

ACH payments usually take around three days to arrive in the recipient’s bank, whereas most wire transfers will land on the same banking day.

Posting Times & Costs

With an ACH transfer, funds will display as pending and will not be cleared until they have been through the ACH network, which takes up to three days. With a wire transfer, funds are available the second they land in the receiver’s account. 

An ACH payment is usually, in most cases, free to receive (depending on your bank, of course). There is usually a 1% handling charge to process payments through the ACH network. Again, wire transfers can vary between $20 and $150, depending on the bank. Some banks are known to run occasional promotions with free wire transfers, although they are quite rare. Either way, in comparison to wire transfer fees, most ACH transfers are relatively low in fees.

Payment Options & Security

Wire transfers are far more malleable, with the option to facilitate between debit cards, bank accounts, or third-party payment providers like Transferwise and PayPal. ACH, on the other hand, only transfers through bank accounts directly.

ACH transfers are generally viewed as the more secure option, employing more secure networks like NACHA. That is not to say that a wire transfer is particularly insecure:  they are simply less secure than an ACH  transfer.  Another Point of note worth remembering is that wire transfers are extremely difficult to reverse.

Global Limitations of ACH Transfers

Again, an ACH payment is restricted to within the USA only. International transfers are possible, however, through specific banking networks inside the global ACH system. There is hope within the banking system that one day soon, ACH payments will be made readily available worldwide, and in our opinion, it’s a question of time before that happens. 

Global Limitations of  Wire Transfers.

Wire transfers do not have the global restrictions that ACH has. Wires are also established with a vast network of banks and clearing houses in countries covering the entire globe, and as a result, they always transfer with far greater ease. That does come at a charge, however, and at times quite a costly one, with the average international wire fee coming in, at the time of writing, around the $50 price point.

ACH Speed

With ACH transfers, payments are always sent over on the same day – but the process involved can take a few days. The average, at the time of writing, is 3.4 days for an ACH payment to clear in the receiver’s bank. There is a plan, slowly progressing, to enable ACH payments in real-time, but this is something that currently hinges on the Federal Reserve and may take some time to implement. It is probably a question of when and not if, however. There was some good news in early 2021, however, when the cut-off point for banking day ACH deposits was extended by a couple of hours, which has improved ACH’s general speed just a little.

Again, it really is a question of time before ACH payments become quicker, however. We expect and predict that in the next five years, a noticeable difference will be made in the time it takes to clear an ACH.

Wire Speed

Wires will always have a far greater advantage over ACH transfers owing to their same-day nature of them – or at the very worst, within 24 hours. If the daily cut-off point has been exceeded, wires are automatically processed the following banking morning and will almost certainly show on that same day.

Wires should also become quicker at some point shortly, and it is not out of the question to expect instant, real-time wire transfers at some point soon.

What are the Fees For ACH & Wire Transfers?

ACH

Fees are quite low, especially in comparison with wire transfers. In most cases, the fee runs out to 1% of the total amount. However, that only applies up to the value of $£10 (depending on which platform you use). For the vast majority of recipients, it is free to receive an ACH payment.  However, some banks may incorporate a charge at their discretion.

Wire Transfer

Average fees for domestic transfers vary from $0-$50 to send and receive or provide an intermediary role in the process. The exception to this is, of course, international wires, which are more expensive, and can cost as much as $100.

How Safe are ACH Payments & Wire Transfers?

ACH

ACH transfers are relatively safe, but occasional fraud cases are appearing more frequently than you might imagine. While that sounds rather dramatic and probably of a surprise to you, we must stress that even still, the chances of a security breach in some way are still quite slim.

For an ACH fraud, scammers must simply acquire an account and bank routing numbers. As you are likely aware, modern-day phishing techniques are the prime culprit in obtaining them, which happens daily. 

However, even if an illegal, fraudulent funds transfer is processed from your account, you can avoid liability for the payment if you notify your bank or processing house within two months.

Wire Transfer

Wire transfers are highly secure, providing, of course, the fund transfer is not fraudulent. Wires are, however, often used in various types of scams from time to time. That said, Banks and the CFPB provide some level of fraud cover if the consumer makes the bank aware in a reasonable time period.

Of the two, ACH transfers offer a greater level of security, the least risk of fraud, and the easiest process to deal with fraud in the event of it happening.

How Do ACH and Wire Transfers Deal With Transfer Differences?

ACH

Once initiated, an ACH can not be terminated (apart from instances of fraud); however, they can be disputed, with no guarantee of a satisfactory outcome. Errors will be spotted by the system, and as a result, transactions will be rejected. If a transfer has been sent using incorrect details, the sender can request to terminate the transfer, but again, there is no guarantee. Debits will be sent back in the case of inadequate funds available or claimed as a non-auth for two months after the transaction date was started.

Wire Transfer

Owing to the speed involved with a wire transfer, the cancelation or dispute window is narrow.  It is possible to cancel a transfer before it arrives in the recipient’s bank. Still, bear in mind, however, that transfers are liable to settle extremely quickly in some cases. If the bank is liable for the issue, a reversal is guaranteed by the bank.

In short, ACH transfers provide greater flexibility with error resolution and disputes.

Wrap Up

In summary, there are a few things to take away here – some quite obvious, others less so. ACH transfers are probably the best option for businesses or anything of an official nature – while wire transfers are probably better suited for personal payments and one-off payments.

There are risks involved with both, although the chances of anything fraudulent transpiring are slim in both cases. The greatest risk lies with human error, wherein an ACH payment is the best option for potential disputes.

The most significant difference between the two lies in speed and cost. The balance isn’t perfect, and you must choose between speed and sometimes costly wire transfer fees or the low ACH costs while compromising on speed.

Discuss your ACH options with Payment Savvy today!