The Complete Guide to ACH vs. Wire
ACH Payments vs. Wire Transfers
The top choice between ACH vs. wire transfers is ACH. Wire transfers edge out ACH in terms of speed and international payments. However, ACH payments come with lower fees and better security than wires. These factors make ACH ideal for most payor’s needs.
Advantages & Disadvantages of ACH payments versus Wires
- Wire transfer speeds are faster than ACH payments.
- ACH payments are less expensive than wire transfers.
- ACH payments are generally more secure compared to wire transfers.
- Wire transfers can be sent internationally whereas ACH is a US-only network.
- ACH transactions are ideal for businesses that process payments in bulk.
What is a Wire Transfer?
Wire transfers are electronic interbank payments used to transfer funds directly from one entity’s bank account to another’s. Wire instructions include the bank account number and ABA bank routing number for the payee receiving the money.
Each financial institution sets its cutoff time policy for sending same business day bank wires. With wire payments, funds are immediately available within 24 hours upon arriving in the payee’s bank account. Once funds have been wired, because of the immediacy, recalling erroneous transactions is much more difficult. When sending money via wire transfer, especially at high volumes, transaction fees can be high.
Wire transfers are well-suited for constantly changing cross-border payments made by parties in the transaction to bank accounts located in different countries.
What is an ACH Transfer?
An ACH transfer (a.k.a. direct deposit) is a method of sending funds from one bank to another using the Automated Clearing House (ACH) network. To process an ACH transfer, a request is made from the payor’s bank account. Then, funds are sent via the ACH network to a recipient’s bank.
The Automated Clearing House network is a network of financial institutions, including banks and credit unions, that are batching transactions between them, guided by the rule-making organization, Nacha. ACH is a US-only network, thus not available for payees outside the United States.
Some people may refer to ACH payments as either direct deposit or direct pay via ACH.
ACH transactions are lower cost than wire transfers, but they can take longer to land in the payee’s bank account, which delays when you verify that the payment was received. ACH transfers are generally done in groups or batches and can take anywhere from a few hours to several days to be completed.
Effective September 2019, a Nacha operating rule speeds funds availability for receiving certain Same-Day ACH and Next-Day ACH credit payments.
What is Global ACH?
Global ACH is conceptually an international version of US ACH used for cross-border payments made through international transfers. Unlike the US ACH system, global ACH has no standards like those provided by Nacha for network financial institutions in the United States. Instead, where possible, international ACH leverages the existing ACH capabilities of a country’s banks outside of that country to execute cross-border payments efficiently and cost-effectively.
Wire Transfer: Wires don’t have the cross-border payment limitation that ACH does. Wire transfers can send funds to a bank outside the United States.
ACH: Domestic ACH is limited to the US, although global payments can be made through other bank to bank networks in what’s called Global ACH.
Advantage: Wire transfers (or global ACH) for cross-border payments
Wire Transfer: When a customer submits a bank wire transfer request by their US financial institution’s same business day deadline, the money must be sent by the bank on the same day and received (as available funds) in the payee’s bank account in the United States within 24 hours. If it’s after the time cutoff for sending wire transfers, the originating bank sends the wire the next business day. International wire transfers take longer to complete than domestic wires.
ACH: An ACH payment transaction can take up to three days to receive in the US. However, a September 2019 Nacha operating rule provides faster funds availability for certain same day and next day ACH credits received. And a March 2021 Nacha rule change adds two hours via a third processing time window to the business day submission deadline for ACH debits, also quickening the ACH transfer speed.
The September 20, 2019 Nacha rule “establishes additional funds availability standards for ACH credits:
- Funds from Same Day ACH credits processed in the existing, first processing window will be made available by 1:30 p.m. in the RDFI’s local time
- Funds from non-Same Day ACH credits will be available by 9:00 a.m. RDFI’s local time on the Settlement Date, if the credits were available to the RDFI by 5:00 p.m. local time on the previous day (i.e., apply the existing “PPD rule” to all ACH credits)”
RDFI is the receiving depository financial institution, otherwise known as the receiving bank for the transfer of funds.
The March 2021 rule change “creates a third Same Day ACH processing window that expands Same Day ACH availability by 2 hours
- Currently, the latest that an ODFI can submit files of Same Day ACH transactions to an ACH Operator is 2:45 p.m. ET (11:45 a.m. PT)
- The new window will allow Same Day ACH files to be submitted until 4:45 p.m. ET (1:45 p.m. PT), providing greater access for all ODFIs and their customers
- The timing of this new processing window is intended to balance the desire to expand access to Same Day ACH through extended hours with the need to minimize impacts on financial institutions’ end-of-day operations and the re-opening of the next banking day”
ODFI is the originating depository financial institution (originating bank) sending the ACH transfer.
In August 2019, Nacha issued a statement encouraging the Federal Reserve Board’s plan to move to an ACH real-time payment and settlement system.
Advantage: Wire transfers but ACH has and will become more competitive and may win
Costs & Fees
Wire transfer fees for domestic transactions range from $20 to $100 to send, receive, or act as an intermediary in a wire transfer transaction. International wire transfers are more expensive. Each bank sets its wire transfer fees and any other costs, including service fees and investigation costs, and any wire resubmission fees for which consumers are not protected by CFPB rules.
ACH fees are small fees in comparison to wire transfer fees. Payment processors, including Intuit Merchant Services (IMS), process debit cards and credit cards besides ACH payments. IMS charges ACH transaction fees for payments. As an example, Intuit Merchant Services ACH processing fees via QuickBooks Payments are 1% of the transaction amount up to $10 for eligible QuickBooks Online users or $3 per ACH transaction for QuickBooks Desktop users. IMS also charges an ACH/Electronic Bank Reject Fee of $25 for each rejected ACH transaction. For many bank customers, receiving ACH payments is free, although their bank can charge a fee.
Advantage: ACH transfers
Security & Risks
Wire transfers: Wire transfers are secure if the transaction is proper and not resulting from fraud. But wires are often used in scams.
Fraudsters may use phishing schemes to have users click on an email link for a fraudulent website made to look like the authentic one. Or, as another example, they may send an email posing as an escrow company to a real estate agent requesting funds to be transferred to the scammer’s bank account instead of the seller’s bank account in a real estate transaction.
The risk is not being able to trace the perpetrator and restore the funds to make the intended recipient whole. Banks and the Consumer Financial Protection Bureau (CFPB) offer some fraud protection and consumer protection if the consumer alerts in time and negligence isn’t a factor.
In 2016, the United States government’s CFPB issued rules for remittance transfers over $15 to protect U.S. consumers who make international electronic payments to foreign countries using wire transfers, ACH transactions, or transactions made through retail “money transmitters.” The CFPB rules include:
- upfront disclosures about:
- all fees, taxes, and the exchange rate, including those charged by agents abroad and intermediaries
- when the funds will be available at the destination
- receiving a receipt or detailed amounts equivalent to a receipt in the disclosure,
- and the right to cancel the transfer within a short time window of at least up to 30 minutes
- What to do in case of an error
- how to submit complaints
- other protections:
- consumers get their money back if they cancel on time
- payment transmitting companies must:
- investigate errors when a consumer reports a problem to them
- give consumers a refund or resend the transfer again free if the money didn’t arrive
ACH: ACH electronic transfers are securely handled as transfers between different banks. The risk is having a fraudulent vendor invoice or supplier in the payables system. An automated payables and global mass payments software app provides extensive fraud prevention controls to mitigate this risk.
Advantage: ACH transactions are more secure and less likely to attract fraud
Business to Business (B2B) Payments
Wire transfers: Wire transfers make sense for the high-dollar business to business payments like commercial real estate transactions or M&A transaction payments. In these cases, wire fees are not considered high in relation to the transaction amount and quick funds availability is essential.
ACH: Businesses that perform B2B payments often rely on an ACH API or a bank API to make these payments. Payables automation software is very efficient for batch processing vendors, suppliers, and other payments. Because businesses make so many bill payments, the volume justifies using small fee ACH rather than wire transfer payments.
Advantage: ACH transactions for normal business to business payments
Wire transfers: Wire transfers make sense for large personal residential real estate purchases, including down payments. They are often used for international cross-border payments made by individuals either directly or indirectly.
Customers can choose to pay for international money transfers made through the Western Union money transfer services system with a wire transfer using their bank account. Western Union calls this method a wire transfer payment option.
ACH: Banks allow individuals to use ACH for bill payments through their online bank accounts.
Advantage: Wire transfers, especially for large one-time transactions
When to Use ACH Payments
Use ACH payments for business to business (B2B) payments, where batch processing yields efficiency and payment amounts may be smaller. Also, consider using ACH for personal online bill payments in the United States to save money on fees. Some banks and other financial institutions offer free bill pay via ACH.
When to use Wire Transfers
Use wire transfers for large domestic transaction amounts for which the higher wire transfer fee is insignificant and you need 24-hour funds available if you meet the time window for same-day submission. This includes large B2B transaction payments, like commercial real estate and M&A transaction payments. Use wire transfers for large personal payments, including real estate down payments and the remaining payment due on the real estate sales price plus closing costs. Consider using wire transfers for other one-time personal payments that justify paying the wire fee. When making international payments, use either Global ACH or wire transfers.
More About ACH Transfers and Payments
An ACH payment is an electronic money transfer made through the Automated Clearing House. “NACHA’s membership is composed of representatives of the 40 regional ACH associations in the United States. All of the institutions in the ACH associations must be depository institutions—commercial banks, savings banks, savings and loan associations, U.S. branches of foreign banks, Edge Act corporations, and credit unions”, according to the Federal Reserve Bank of New York.
The ACH Network electronically processes large numbers of transactions in a single batch. The batch processing method used in ACH transfers means that sometimes payments can take several days to clear and settle.
Like many other payment methods, ACH transfers are financial transactions that move funds from one account to another. ACH is a payment method of choice among public, private, and governmental entities. Both small businesses, as well as enterprise corporations, use ACH as a payment method. ACH transfers are commonly used for B2B payments as well as B2C payments. In some cases, such as automatic bill-pay, ACH transfers are also used in C2B transfers (consumer to business).
To execute an ACH transfer, the originator needs the bank account number and routing number (ABA RTN) of the payee. These are the same numbers that are generally found at the bottom of a check – or the banking institution can provide them. ACH transfers can be sent by the payer individually or in batches, but the Automated Clearing House almost always processes them in batches.
EFT vs ACH
In some cases, An ACH transfer is referred to as an EFT or electronic funds transfer. EFT is an ‘umbrella’ term that encompasses various types of financial transactions, including ACH transfers. The difference between ACH and EFT is specificity. An ACH, by default, is an EFT – but an EFT is not always an ACH transfer. An EFT is simply an electronic transfer of funds between accounts. EFT transactions can be between different accounts within the same bank or financial institution or across multiple banks. EFT payments include everything from ACH and eChecks to wire transfers to retail money transmitter transactions to ATM or POS transactions.
The Difference Between ACH Transfers & ACH Payments
The term ACH also describes a specific type of Electronic Funds Transfer (EFT). Terms like ACH transfer or ACH payment refer to transactions that rely on an electronic clearing system (i.e., the ACH network) to batch process debit and credit transfers between participating financial and depository institutions. Breaking the terms down a little bit more, the phrase “ACH transfer” is an umbrella term that encompasses ACH payments, ACH credits, and ACH debits.
Processing ACH transfers and ACH payments is a task split between the public and private sectors. The Federal Reserve Bank and its subsidiary FedACH process about 60 percent of domestic ACH transactions while the Electronic Payments Network process the remaining 40 percent.
The Difference Between ACH Debit vs. ACH Credit
ACH credits and ACH debits are both types of EFTs processed through the ACH network; however, their differences lie in how they handle transactions:
- An ACH credit withdraws funds from the payer’s account and deposits those funds to the payee’s account. In other words, an ACH credit is a transaction initiated by the payer. ACH credits are common for making one-time payments and B2B payments.
- An ACH debit authorizes the payee to withdraw money from the payer’s account. ACH debits are common for recurring charges like auto bill pay.
Who Uses ACH Transfers?
ACH transfers are becoming increasingly common as they replace paper checks for a variety of applications, including payroll (direct deposit), U.S. Treasury payments, including Social Security, and consumer and corporate bill pay.
ACH’s strengths include “ACH’s ability to process large volumes of payments efficiently and its ability to allow an originator to debit the banking account of the payer,” according to the Federal Reserve Bank of New York.
As businesses and accounting organizations digitize their accounts payable processes, ACH has become a payment method of choice for many supplier and vendor payments. Many corporations, both large and small, use ACH transfers for their B2B payments. Digital economy businesses such as Airbnb and Uber often rely on ACH transfers for their partner payouts (especially domestic).
Comparing Other Payment Options
Traditional payment options include money transfer services like Western Union and cash advance loan services.
More modern payment methods include:
- Venmo for person-to-person (P2P) online payments using money in the Venmo mobile app or from a bank checking account,
- Zelle, which allows you to make bank account to bank account payments to friends or others with just their mobile phone number or email address, using either the Zelle app or your bank’s mobile app, and
- PayPal offering better security over credit card and personal information.
The Bottom Line
Wire transfers can move funds quickly between accounts (even between different banks or other financial institutions). Wire transfers are flexible enough for cross-border payments with continually changing rules, although Global ACH is another payment method to consider. Wires are generally used when reliability and speed are critical factors and for large one-time transactions.
ACH transfers are increasingly becoming the go-to payment method, especially for mass payments. Lower cost and less risk (in some cases) make ACH an attractive option. ACH payments tend to be better suited for transactions where the amount is smaller, or the frequency is more regular. The Federal Reserve’s plan under consideration to move to real-time ACH payments and settlements would make ACH an even more attractive payment method.
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