ACH vs Wire Transfer: What’s the Difference?

Sending and receiving money electronically is fast, safe and something most of us do every day. Wire and ACH transfers are two of the most common tools used to move money electronically. While they share many similarities, these two electronic methods of moving money serve very different needs.

What is an ACH transfer?

ACH transfers allow for the electronic movement of money between banks. Typically, the originator of the ACH transfer instructs his bank to debit or credit his bank account with funds from his own account or from another party’s bank account, respectively. ACH eliminates the hassles and relatively higher costs of writing, mailing and processing checks for individuals, businesses and banks.

ACH transfers are similar to writing checks and can be a good option when you want to send or receive money that can take up to 3 days to settle. This is the time banks need to validate and batch ACH requests. ACH transfers are cleared by the Automated Clearing House network whose members include U.S. financial institutions. Because batch file processing generally reduces processing costs for banks, ACH is typically offered at no cost to individuals and at a very nominal cost to businesses. 

ACH is typically used for small dollar or re-occurring payments but is more efficient because individuals or businesses can pre-authorize such transfers from one domestic bank account to another. For example, if you have direct deposit set up with your employer for payroll, then you’ve pre-authorized funds to be deposited into your bank account. Should an error or fraudulent activity occur, ACH transfers may be reversed, subject to NACHA rules for network participants and your bank’s policy.

What is a wire transfer?

A wire transfer allows for an electronic payment between two banks or transfer agencies without processing through a clearinghouse (as ACH transfers do). They are a fast way to send or receive money electronically, using bank-to-bank connections. Same-day transfers can occur for domestic transfers, and international transfers can take more than one day depending on time zones, foreign currencies and banking systems.

Wire transfers are typically reserved for large-dollar, time-sensitive and critical fund transfers, such as a large one-time real estate down-payment to guarantee a future commitment to the beneficiary. 

Each wire transfer order is processed individually by bank personnel only when the sender has sufficient funds that are then immediately deducted. As funds are deposited into the recipient’s account, they have immediate access to the money without having to wait for it to clear. The cost for processing wire (vs. ACH) transfers is therefore substantially higher and varies by bank to offer speed and certainty of funds.

Because of the speed of the transfer and the immediate availability of funds (vs ACH and checks), wire transfers can attract fraudsters pretending to be bank customers. Proper bank controls can confirm the sender’s identity and help mitigate risk. This is important as wire transfers generally cannot be reversed and the recipient can withdraw the funds immediately upon receipt. 

How ACH and wire transfers differ

ACH and wire transfers differ not only in terms of processing method but also in speed, security and cost.

Processing

Although ACH and wire transfers are both secure electronic fund transfers (EFTs), they’re processed differently. ACH transfers go through rules-bound clearinghouses automatically, whereas wire transfers are initiated and processed by banks. Wire transfers are executed manually between banks, which makes them faster but more expensive.

Transfer speed

ACH payments often take one to three business days to be batch processed by banks. Since wire transfers aren’t batched, the funds go to the recipient right away instead of being held for processing. 

This is beginning to change, however. Many ACH services now integrate same-day receipt of ACH payments after NACHA changed its rules to speed up transfer times. Not all banks offer same-day ACH processing, however, so check with your bank about its offerings.

Wire transfers, on the other hand, are instantaneous. The person receiving money often has access to it on the same business day. This may not be the case for international wire transfers, which can take longer to complete. 

Consider timing for ACH and wire transfers when deciding which would be a better fit for you and your business’s needs.

Security

Although both ACH and wire transfers are secure, they vary by level of security. ACH payments go through more intense security measures since transactions pass through clearinghouses, rather than from one banking professional to another.

Wire transfers, on the other hand, are difficult to reverse compared with ACH transactions, and canceling a payment transaction depends on the transfer’s stage in the process. Because of the speed of the transfer and the immediate availability of funds, wire transfers are more likely to attract fraudsters. Wire instructions and identity confirmation can help mitigate this risk for both business and financial institutions.

Cost

Wire transfers can often be more expensive than ACH transfers. 

Received ACH payments are usually free for consumers and also may be free for businesses. Sent ACH payments may be either free or come with a small fee between $0.20 and $1.50 per transaction or 0.5%–1.5% of the payment. This is often the case for businesses that use peer-to-peer payment services and payroll.

Received wire transfers are often free, but some banks and credit unions may charge small fees. Credit card companies may charge more than these institutions. Sending money almost always comes with a fee typically higher than ACH costs at $10–$30 per transaction. Foreign transfers can be more expensive than domestic ones. 

ACH vs. wire transfers: What’s best for your business goals

The best electronic payment processing option for your business, be it ACH or wire transfers, is the one that fits within your budget, transaction style and industry. Each comes with its own pros and cons. 

ACH and wire transfers both offer different benefits, so the best pick is the one that works to meet the needs of you and your business.

Wire transfers can be more beneficial when speed and certainty of payment are critical to support your transaction with the recipient, especially where international bank accounts are involved. 

ACH transfers (vs checks) can be more cost-effective typically for small dollar, re-occurring transfers between trusted parties where there is pre-authorization to move funds via ACH from and to domestic bank accounts.   

If you’re not sure of your needs, you should consult with your banking partner who can help you make a confident decision about which is best for your business.