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ACH vs. Wire Transfer: What’s the Difference?

November 3, 2023
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Today, both consumers and businesses have a wide array of options for paying their bills with accounts payable software. One of these options is whether to conduct payments via ACH vs. wire transfer.

This article will address the details of how ACH and wire transfer payments are actually executed, and the benefits and risks associated with each payment type.

Table of Contents

What is an ACH Payment?

An ACH payment is an electronic funds transfer processed through an automated clearinghouse network. It is a way to move money from one bank account to another without using paper checks, wire transfers, credit cards or cash. ACH payments are often used for automatic bill payments such as utility payments.

What Does ACH Stand For? How Does ACH Work?

The Automated Clearinghouse, or ACH, is a system created by the Federal Reserve to transfer funds between accounts. ACH can be used for transferring funds between your own accounts or sending and receiving e-payments to/from vendors and clients.

How are ACH Transfers Most Commonly Used?

ACH transfers are typically best for frequent or recurring payments. Some mobile applications, like Venmo, use ACH to transfer funds between users securely.

What are the Differences Between ACH vs. Wire Transfer?

ACH transfers and wire transfers are methods of moving funds from one bank account to another. They may seem similar. However, the two are quite different, and understanding the differences between them is beneficial for anyone who is interested in using electronic methods of payment for moving money to and from bank accounts.

During ACH transfers, information is sent in a batch to the automated clearinghouse, which clears the payments through and then sends them on to the bank. The clearinghouse is essentially the middleman in this process.

Wire transfers also transfer funds from one account to another, but instead of the clearinghouse, banks act as middlemen. They typically charge a fee ranging from $10 to $30, while ACH transfers are usually free. 

graphic explaining the differences and similarities between ach payments and wire transfers

Wire vs. ACH Transfer Speed

An ACH transfer can often take two to three business days to complete. They take a longer time to clear because they are processed by banks in batches.

In 2017, the National Clearinghouse Association (NACHA) launched Same-Day ACH transfer. In September 2022, NACHA announced new requirements and updates for companies and customers using Same-Day ACH, extending the payment submission time by two hours on business days, increasing the transaction cap to $100,000 and facilitating faster access to funds.

Wire transfers send the funds along almost immediately. There is usually no hold on funds received by wire transfer, so the recipient can access it right away.

Cost of ACH vs. Wire Transfer

Some ACH payment providers charge a flat fee ranging from $0.20 to $1.50 per transaction. Businesses may also have to pay a separate fee of $5-30 per month just for using ACH. There are other potential charges such as return fees ($2-5 per return), reversal/chargeback fees ($5-25 per instance) and batch fees of less than $1.00.   

Wire transfers have an expense for the sender and the recipient. Many financial institutions charge $10-35 to send. Smaller institutions may charge a fee to receive a wire transfer. On the high end, those costs can add up to about $55. International transfers can cost even more.

ACH payments are attractive from the standpoint of convenience and cost. The more ACH transactions your business performs, the less you typically pay per transaction. 

Payment Security for ACH vs. Wire

ACH transfers are a bit safer for senders. Unlike most wire transfers, funds can be reversed in cases of fraud or payment error. The criteria for reversals is usually determined by banks.

Wire transfers have little disadvantage for the recipient. When you receive a wire transfer, the funds are accessible immediately.

For senders, there is a little more risk. It’s important to know and confirm the person or account you’re sending money to, because the money can be withdrawn right away and often the transaction cannot be reversed once it is sent.

Is ACH a Better Option than Wire Transfer?

When comparing the two, the advantage of wire transfers is the speed of the transaction.

ACH transfers are more convenient, less expensive and more secure.

If the funds need to be received immediately, go with wire transfer. If it’s something that can potentially wait three days, use ACH transfer.

How Can My Business Take Advantage of These Payment Options?

Getting started with ACH processing requires an ACH merchant account, similar to the merchant account used for credit and debit card processing. Signing up for a merchant account typically requires general business information, a business credit check and a checking account, but each bank and ACH service provider is a little different.

Young financial professionals

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