ACH transactions and wire transfers are the two most frequent methods of transferring money electronically between companies, institutions, and individuals in the US.
Most organizations and individuals in the US use ACH payments to send and receive payments. ACH is also a popular online payment processing option.
Wire transfers are a faster, yet more expensive option to quickly transfer money between bank accounts.
Now, let’s dig deeper into this matter and explain ACH vs. wire transfer in greater detail.
ACH vs. Wire: Quick Overview
For a brief overview of the most important differences between ACH and wire transfers, see the overview below:
| Category | ACH | Wire Transfers |
|---|---|---|
| Geographical limitations | US Only | Both US and international payments |
| Security & safety | Strictly monitored by the NACHA | Protected by the SWIFT and Fedwire protocols |
| Money transfer fees | No fees for paying bills and for peer-to-peer (P2P) payments; 0.5%-1.5% for business entities | $10-$30 fee for transfers inside the US; higher fees for international transfers |
| Transaction speeds | 2-3 banking days | Up to 24 hours for US transfers; up to 48 hours for international payments |
| Common uses | Used by organizations making batch and recurring payments, as well as by individuals for P2P transfers | International transfers of larger amounts of money |
In everyday business payments, ACH transactions are typically used by companies to send out batch payments. Both US organizations and individuals use them to pay utility bills and other recurring payments. Individuals also turn to ACH transfers for peer-to-peer payments. ACH transactions are convenient for automatic payments, as well.
Wire transfers are a better choice for organizations transferring larger amounts of money to their international clients, suppliers, and employees.
ACH Transfer Explained
An ACH transfer (Automated Clearing House) is a kind of electronic transaction typical for the US when money is transferred between banks and organizations. This payment procedure is monitored by the main US institution for verifying ACH payments – the National Automated Clearing House (NACHA).
In ACH payment processing, the money is not directly moved from the payer’s to the payee’s account. The NACHA allows the transaction only when the prescribed requirements have been met.
Wire Transfer Explained
A wire transfer is a transaction in which money is sent directly from one bank account to another.
It consists of the following steps:
- The payer makes the payment in their bank.
- The payer’s bank submits a payment notification to the recipient’s bank.
- The recipient’s bank collects the necessary payment data from the payer’s bank.
- It transfers its own funds to the recipient’s account.
- Once the money is deposited into this account, the two banks complete the payment and finally transfer the money from the payer’s account to the recipient’s ban.
In wire transfers, there are security systems that mediate wire transfers, like Fedwire and SWIFT. Together with hundreds of different banks and mediating payment companies, they form an international network of financial institutions mutually connected for wire transfers.
Wire transfer systems are mediators, while the NACHA is both a supervisor and a verifying entity for ACH payments.
Note: Not all wire transfers include bank accounts and account numbers. For instance, Western Union is a wire transfer agency where you can make payments directly to individuals, without bank accounts.
ACH and Wire Transfers: Detailed Comparison
1. US-Only vs. International Payments
When comparing an ACH payment and a wire transfer, the major difference is that ACH is limited to the US, so ACH transfers aren’t used for international payments. Still, there have been some recent changes under which ACH is trying to enter the territory or international money transfers.
Note: Depending on whether your business operates in the US or European Economic Area (EEA), you might also want to learn more about the differences between ACH and SEPA.
2. Common Uses
In everyday business payments, ACH transactions are typically used by companies to send out batch payments. Both US organizations and individuals use them to pay utility bills and other recurring payments. Individuals also turn to ACH transfers for peer-to-peer payments. ACH transactions are convenient for automated payments too.
Wire transfers are a better choice for organizations transferring larger amounts of money to their international clients, suppliers, and employees.
3. Security and Safety
Both ACH payments and wire transfers are secure payment options.
The NACHA strictly monitors all ACH transfers made under its jurisdiction. The fact that ACH transfers are conducted via NACHA gives all interested parties a higher level of control.
If something is wrong with the sender’s or receiver’s information, each party is allowed to ask for a return of funds – even though in a limited number of cases, as shown below.
US merchants and their clients can revoke ACH payments under the following conditions:
- The assets were transferred earlier than arranged.
- The transferred amount of money was incorrect (i.e., not the one that was authorized).
- There was no authorization for the ACH transaction in question. The authorization was canceled in the meantime.
The SWIFT payment network and Fedwire have their own protocols to ensure a high level of security for wire transfers, as well.
However, it’s usually not possible to revoke wire transfers. Once the money is sent, it’s gone for good.
4. Money Transfer Fees
ACH transactions are free for clients who pay their bills or make peer-to-peer payments directly from their bank accounts via the ACH system.
For a business entity, fees are typically calculated when such an organization makes batch ACH payments, like paying out workers’ salaries, or collects money from its clients or subscribers.
Such costs vary from 0.5% to 1.5% of the total transferred amount of money.
As for wire transfers, costs are usually higher. A payer needs to pay between $10 and $30 when making a wire transfer inside the US.
As a rule of thumb, international wire transfers are more expensive, because there are several mediating banks between the payer and the recipient.
5. Transaction Speeds
Regarding the speed of ACH payments and wire transfers, it’s faster to send money via wire transfer. If a wire transfer is made before the bank cutoff time, the money is normally deposited to the recipient’s account the same day.
However, international wire transfers sometimes cannot be completed within 24 hours, depending on the number of payment mediators. Two days (48 hours) is a reasonable time frame to finalize international wire transfers.
It takes 2-3 business days to complete ACH payments, mostly because they’re sent by banks in batches, three times a day. This is because the NACHA – together with the payer’s and payee’s banks – needs to check if everything is in order with every ACH payment.
6. Arranging a Money Transfer
When an originator initiates an ACH payment, their bank launches the payment procedure. The relevant ACH system (usually the NACHA) receives a request for an ACH transfer.
If the NACHA approves the transaction, the recipient’s bank receives the ACH request in question. The assets are then transferred to the originator’s bank account.
Note: Banks are not official ACH payment processors, but they work with such entities to ensure a smooth payment experience for their clients.
To complete a wire transfer, you just go to a bank or use e-banking services, provide the recipient’s name, bank account number, and the amount to be paid.
ACH Transfer vs. Wire Transfer: Which One Is Better for Your Business?
Use ACH if:
- Working with US-based clients and suppliers. If your clients and suppliers are mostly based in the US, ACH transfers are a more suitable option for you.
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Money transfer speed is low priority. ACH payments are practical for organizations that don’t need to hurry with money transfers. And you can always make a one-time wire transfer if assets need to be transferred quickly to another entity.
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Money threshold lower than $100,000. US organizations that don’t exceed the threshold of $100,000 per payment on a daily basis opt for ACH transfers.
Use wire transfers if:
- You have a lot of international and/or urgent payments. Wire transfers are convenient for international payments, as well as for urgent transfers.
- Money threshold over $100,000. Organizations making substantial payments to other entities – exceeding $100,000 – pay lower fees if they use wire transfers.
For additional money transfer comparisons, see our articles ACH vs eCheck, Direct Deposit vs. Wire Transfer or Direct Deposits vs ACH Transfers.
Conclusion
Both ACH payments and wire transfers bring certain benefits, but for different use cases. Consider the facts presented in the comparative analysis above and you’ll know how to use ACH and wire transfers in the most convenient and affordable way for your future electronic transactions.