ACH vs Wire Transfer: Differences Summed Up
An ACH transfer is the best to use for smaller transactions that aren’t time-sensitive, since they can take longer to process but are usually free. A wire transfer is the best to use for larger, cross-border transactions that need to be done quickly, but usually include a fee.What Is an ACH Payment?
The main difference between an ACH transfer and a wire transfer comes down to how fast they’re processed and whether or not there are any fees associated. An ACH transfer is completed through a clearing house — a network of financial institutions — and is used most often for processing direct deposits or payments. A wire transfer is typically used for high-value transactions and is completed through a bank, which makes it faster, but it 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 U.S.-only network of over 10,000 financial institutions, including banks and credit unions. ACH institutions batch transactions and process them on a fixed schedule.
To process an ACH transfer, funds are requested from the originating bank account and transferred into the receiving bank account. Transactions for each receiving institution are submitted in batches up to five times a day. While these can take anywhere from a few hours to several days to be completed, the request’s initiator may choose to pay a fee for same-day service. Otherwise, the default turnaround time is generally one business day for debits and (up to) two business days for credits.
How ACH Transfer Works
ACH has transformed issuing checks into a more efficient and reliable digital process. This evolution has enabled the expansive growth of peer-to-peer payment platforms like Venmo, Zelle, and PayPal. ACH can also be thought of as synonymous with direct deposit and is the best method for recurring payments like payroll processing and automated bill pay. For a business, a typical ACH payroll process works like this:
- The company submits its payroll to a processing partner.
- The processor coordinates with the originating depository financial institution (ODFI), i.e., the company’s bank, to submit a file to the ACH with the company’s payroll information and authorize payment.
- The ODFI debits the company’s account and sends the ACH files through as credit requests to the receiving depository financial institutions (RDFIs), i.e., every bank where the company’s employees have accounts.
- The RDFIs process the individual payments, and the funds clear and become available in the employees’ accounts.
For a consumer who wishes to set up a recurring payment through their bank, like a monthly utility bill, the merchant — in this case, the utility company — originates the transaction by providing the amount due. The customer sets up the monthly utility payment through their own bank, which sends the ACH files with the payment information to the utility company. The utility company is the ODFI which passes the files to the ACH institution, which in turn sends a file with the payment request back to the customer’s bank, which is the RDFI. The bank then makes the scheduled payment on the consumer’s behalf.
Some common examples of ACH transfers also include:
- Government benefits like Social Security
- Tax refunds
- Healthcare claims payments
- Peer-to-peer payments (P2P)
- Business-to-business payments (B2B)
What Is Global ACH?
Global ACH is an international version of a United States ACH. It’s used for cross-border payments made through a financial agency outside of the jurisdiction of the U.S. but is still held to the standards required by NACHA (National Automated Clearing House Network). In Europe, SEPA (Single Euro Payments Area) is the equivalent clearing entity comprising 36 participating countries. However, every country banks differently, not all have similar clearing mechanisms, and there is no global infrastructure or standard for processing payments. Read our detailed guide on international ACH and transfer options to learn more.
What Is a Wire Transfer?
Wire transfers still carry the name of their origin: the telegraph wire. Simply put, wire transfers are point-to-point transactions between two financial institutions. A sending bank forwards a message (which includes payment instructions) to the recipient’s bank through a secure transfer system, like Fedwire.
Wire instructions include basic details such as the amount to be transferred and the personal details (name, address, phone number) of the payee. Wire transfers can be facilitated between institutions as well as individuals. Other required information includes:
- The account number that will be used to complete the transfer
- The ABA routing number for the recipient’s bank (or SWIFT code for international wire transfers)
- The bank account number for the recipient.
The most typical use case for wire transfers is sending large sums in one-time payments, such as making a down payment on a property. Each financial institution sets the cutoff time for sending same-business-day bank wires, and limits on same-day transfers may apply. Funds are typically available within 24 hours after arriving in the payee’s bank account. Senders also have the option of paying a premium for Fedwire to ensure an expedited delivery that settles and disburses immediately on transfer.
The tradeoff for this fast turnaround is that when sending money via wire transfer, especially at high volumes, transaction fees can be high. Also, once funds have been wired, reversing transactions is difficult.
In terms of transaction safety, wire transfers might be compared to electronic cashier’s checks, which, unlike the paper version, are far more difficult to be used fraudulently. The bank regards the payment as cleared upon receipt of funds because the money must first be available in the sender’s account before the transaction is processed. This means that the recipient can withdraw their money as soon as it’s credited to their account.
There are both domestic and international wire transfers, which are also called remittance transfers. There is a $15 minimum for sending funds from the United States to another country.
ACH vs. Wire Transfer: Key Differences
In a nutshell, there are five key differences between ACH and wire transfers:
- 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 U.S.-only network.
- ACH transactions are ideal for businesses that process payments in bulk.
Let’s compare and contrast each of the variables that have an impact on how these transfers work behind the scenes:
|Processing Speed||An ACH can take up to 3 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).||Wire transfer 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.||Wire transfer fees can range from $0 to nearly $100, depending on the bank and location.|
|Payment Options||ACH payments use direct payment from bank accounts.||Wire transfers can be facilitated between bank accounts, debit cards or credit cards, 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 limitations.|
|Security||NACHA oversees the ACH network.||CFPB offers some fraud and consumer protection.|
|Transfer Limits||Daily ACH 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?
Domestic ACH is limited to the U.S., although global payments can be made through bank-to-bank networks in what’s called Global ACH. There have been some initiatives to support greater interoperability between ACH-like networks around the world but coordinating a global set of standards for regulation and compliance is challenging.
Wires don’t have the cross-border payment limitation that ACH does. Wire transfers are able to leverage a more mature network of banks and can send funds across countries and currencies with greater fluidity. However, the ease comes at a cost, for domestic transfer fees can range from $0-$35, while international outgoing fees can be from $35-$50.
Advantage: Wire transfers (or global ACH) for cross-border payments
What are the Transaction Speeds for ACH & Wire Payments?
While many ACH payments are sent the same day, they can still take up to one or two business days to process. 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.
A bank 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?
Costs are minimal 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.
Fees for domestic transactions range from $0-$35 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 Consumer Financial Protection Bureau (CFPB) rules.
Advantage: ACH transfers
How Secure are ACH Payments & Wire Transfers?
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 transfers are secure if the transaction is proper and not fraudulent. But wires are often used in scams. Banks and the 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
How Do ACH and Wire Transfers Resolve Settlement Differences?
ACH transfers are somewhat easier. They cannot be canceled once in process, but can be recalled or disputed, although resolution (i.e., return of funds) cannot be guaranteed. The system may automatically reject and reverse a transaction if there are errors routing to the right account. If a credit transfer is sent to the wrong account or with the wrong date or amount, the sender can request its reversal. Debit transfers can be returned for insufficient funds or disputed as non-authorized for up to 60 days after the transaction posting date.
Wire transfers have a much shorter window to resolve any issues. It’s possible to cancel a transfer before it’s cleared, but clearance may only take a matter of minutes. Past that point, wire transfers are irrevocable, with minor exceptions. A transfer can be reversed if the bank is responsible for the error, e.g., sending the funds to the wrong account or for the wrong amount. If there’s an error (or change of mind) on the sender’s side, the sending bank can work with the receiving bank to resolve the situation, but they’re under no obligation and have limited recourse if the funds have already been withdrawn.
Advantage: ACH transfers offer more flexibility in terms of resolving errors, issues, and disputes
Is ACH or Wire Transfer better for Business to Business (B2B) Payments?
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 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?
Banks allow individuals to use ACH for bill payments through their online bank accounts. Much like an e-check, ACH serves as the middleman between consumers and the vendor for personal finance.
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
A key advantage of ACH transfers is their utility for recurring transactions. This makes them ideal for business-to-business (B2B) payments, where batch processing yields higher efficiency for billers and employers. For employees, ACH streamlines direct deposit with standing authorization. ACH is useful for personal online bill payments to save money on processing fees. Some banks and other financial service providers offer free bill pay via ACH.
When to use Wire Transfers
Wire transfers are designed for one-off payments. Each transaction requires a new authorization and incurs a separate fee. Use wire transfers for large transaction amounts that must be processed quickly. This includes large B2B transaction payments, like commercial real estate and M&A transaction payments. For consumers, it’s preferable to 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 when available or wire transfers.
The Bottom Line
Comparing an ACH vs. a wire transfer is simple: transaction speed and cost are the main differences. 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.
Both types of transfers are secure, but the (nearly) irreversible nature of wire transfers makes them prevalent among scammers committing fraud. Consumers are targeted with attractive offers, such as windfall payments or winning sweepstakes. In order to claim the money, the scammer will require their targets to first wire a “processing fee.” The scammers collect the fees, but of course, no actual payouts or prize money exists.
ACH is increasingly becoming the more affordable option for mass payments. The lower costs and less risk are 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 and money and mitigate risk.
Today, both the ACH and wire systems are undergoing significant user experience updates in order to create more accessible, seamless, and fast transactions for everyone around the world.
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