What’s the Difference Between ACH & Wire Transfers?
The main difference between an ACH transfer and a wire transfer is that an ACH transfer is completed through a clearing house and is used to process direct deposits or payments, whereas a wire transfer is completed through a bank and is typically faster because it doesn’t require clearing, but does have a fee.
What is an ACH Payment?
ACH payments are interbank digital money transfers that are processed through the Automated Clearing House Network. The ACH network is a group of financial institutions, including banks and credit unions, that are batching transactions between them. They are guided by the rule-making organization, Nacha. ACH is a US-only network, thus not available for payees outside the United States.
To process an ACH transfer, funds are requested from the originating bank account and transferred into the receiving bank account. ACH transfers are generally done in groups or batches and can take anywhere from a few hours to several days to be completed.
ACH transfers are convenient, quick, and often free. Some people may refer to ACH payments as either direct deposit or direct pay via ACH. They are best used for recurring payments like payroll and utility bills. A small business may also use this payment processing method as a way to get away from paper checks.
What is a Wire Transfer?
A wire transfer is a financial transaction in which a sending bank forwards a message (which includes payment instructions) to the recipient’s bank through a secure system, like SWIFT or Fedwire. Wire instructions include the bank account number and ABA bank routing number for the payee receiving the money.
Each financial institution sets the cutoff time for sending same business day bank wires. Funds are typically available within 24 hours after arriving in the payee’s bank account. Once funds have been wired, reversing transactions is difficult.
When sending money via wire transfer, especially at high volumes, transaction fees can be high. Wire transfers are best suited for one-time cross-border payments or transactions of a large amount.
What is Global ACH?
Global ACH is an international version of a United States ACH. It’s used for cross-border payments made through international transfers. A global ACH has no standards for network financial institutions, like those provided by Nacha in the United States.
An international ACH works by leveraging the existing ACH capabilities of a country’s bank to execute cross-border payments efficiently and cost-effectively.
Key Differences for ACH vs Wire Transfer
- 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.
| ACH | Wire Transfer | |
| Processing Speed | An ACH can tak up to three days for a recipient’s bank to receive. | Most wire transfers are processed the same business day. |
| Posting Times | Funds will appear in “pending” status and aren’t released until they clear the ACH system (up to 3 days). | Recipients can access funds the moment they hit an account. |
| Cost | Processing fees are around 1% of the transaction amount and an ACH is typically free to receive. | Fees can range from $20 to $100, depending on the bank and location. |
| Payment Options | ACH payments use direct payment from bank accounts. | Bank accounts, debit card or credit card, and online payment services like PayPal. |
| Risk | ACH payments are considered the more secure option for senders as they use the NACHA network. | Wire transfer is a less secure system for money senders. Payments are instant and impossible to reverse. |
| Global Reach | Domestic ACH is limited to the United States. Although a global ACH can transfer internationally, it must be done through other bank-to-bank networks. | A wire transfer does not have cross-border payment limitation. |
| Security | NACHA oversees the ACH network. | CFPB offers some fraud and consumer protection. |
| Transfer Limits | Daily transfer limits apply | Daily transfer and maximum amount limits apply. |
| Reversals | Can request a transaction reversal for ACH transfers if there’s an error. | Wire transfers cannot be reversed, even when there is fraud involved. |
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What Are the Geographical Limitations of ACH & Wire Payments?
ACH
Domestic ACH is limited to the US, although global payments can be made through bank-to-bank networks in what’s called Global ACH.
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.
Advantage: Wire transfers (or global ACH) for cross-border payments
What are the Transaction Speeds for ACH & Wire Payments?
ACH
An ACH payment can take up to three days to receive. However, Nacha operating rules provide faster funds availability for certain same day and next day ACH credits received. 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.
A March 2021 Nacha rule change adds two hours to the business day submission deadline for ACH debits, also improving the ACH transfer speed.
Wire Transfer
Abank wire transfer that is sent by the same business day deadline should be received (as available funds) in the payee’s bank account 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.
Advantage: Wire transfers for now, but ACH will become more competitive
What are the Costs & Fees of ACH & Wire Transfers?
ACH
Costs are small fees in comparison to wire transfer fees. ACH processing fees via platforms like QuickBooks Payments are 1% of the transaction amount up to $10. For many bank customers, receiving ACH payments is free, although their bank can charge a fee.
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, investigation costs, and any wire resubmission fees for which consumers are not protected by CFPB rules.
Advantage: ACH transfers
How Secure are ACH Payments & Wire Transfers?
ACH
ACH electronic transfers are securely handled as transfers between different banks. The risk is having a fraudulent 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.
Wire Transfer
Wire transfers are secure if the transaction is proper and not fraudulent. But wires are often used in scams.
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.” They give consumers a refund or resend the transfer again free if the money didn’t arrive
Advantage: ACH transactions are more secure and less likely to attract fraud
Is ACH or Wire Transfer better for Business to Business (B2B) Payments?
ACH
Businesses that perform B2B bank transfers 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 a small fee ACH system rather than wire transfer payments.
Wire Transfer
Wire transfers make sense for 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. The quick transfer of funds is also critical for business owners.
Advantage: ACH transactions for normal business-to-business payments.
Is ACH or Wire Better for Personal Payments?
ACH
Banks allow individuals to use ACH for bill payments through their online bank accounts. Much like an echeck, ACH serves as the middleman between you and the vendor for personal finance.
Wire Transfer
Wire transfers make sense for large personal purchases like residential real estate, 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 a money transfer services system like Western Union. Western Union calls this method a wire transfer payment option.
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 higher efficiency and payment amounts are smaller.
Also, consider using ACH for personal online bill payments to save money on fees. Some banks and other financial service providers offer free bill pay via ACH.
When to use Wire Transfers
Use wire transfers for large transactions amounts that must be processed quickly. 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 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.
The Bottom Line
Comparing an ACH vs wire transfer is simple. Wire transfers move large amounts quickly, but are less secure than a domestic ACH. However, wire transfers are flexible enough for cross-border payments with continually changing rules. It all depends on the circumstance like the amount of money being sent and exactly where it’s being transferred.
ACH is increasingly becoming the more affordable option for mass payments. The lower costs and less risk is best suited for frequent, recurring transactions in smaller amounts. The Federal Reserve plans to move to real-time ACH payments and settlements in the near future.
Most successful companies, big and small, use both methods to save time, money, and mitigate risk.
You may also be interested in:
Echecks: Efficient Global B2B Payment Methods
Automated Invoice Processing Software: What is it and How Does it Work?
Global Payments Methods: 4 Popular Types of ePayment – Tipalti
