ACH and wire transfers are among the most common methods of transferring money around the world. In fact, the two terms are often used interchangeably for sending money both within the US and internationally. However, there are actually subtle but important differences between the two, along with certain benefits and risks associated with each method. If you want to know how ACH and wire payments work, their cost, speed, security features and the best option to use for personal and business payments, this guide will take you through everything you need to know about ACH vs wire transfers.
Both wire transfers and Account Clearing House (ACH) transfers are methods of sending money electronically, but there are a number of differences between the two. The main difference between ACH and wire transfer is that ACH payments are predominantly US-based and are processed in batches through the ACH network as opposed to individual processing. ACH payments are fully automated while wire transfers have human interventions at various points in the process. Here’s a quick summary of each:
Wire transfers are electronic fund transfers processed individually from one person or entity to another. They can be sent through banks or high street money transfer operators like Western Union and MoneyGram. Thanks to fintech, wire transfers can now also be sent online by using money transfer companies like WorldRemit, TransferWise, XE, and Xoom.
These kinds of transfers are enabled through international banking networks such as SWIFT and Fedwire. The receiving bank processes the instructions and credits the recipient’s bank account with the amount stated. Despite the level of automation, wire transfers are usually verified by human tellers at every end of the transfer process.
Automated clearing house (ACH) transfers, on the other hand, refer to payments sent through the ACH network in the United States. They are a method of transferring funds through the banking system from individuals or businesses to their respective beneficiaries.
ACH operates as a batch processing system. When a customer makes an ACH transaction at the bank, the transaction is placed in the batch open at the time together with similar customer transactions. When the batch cut-off time is reached, the ACH transaction file is closed and pushed over to the ACH network for processing. Any transactions entered after the cut-off time are aggregated and submitted in the next batch. In a typical business day, the ACH system processes about three batches.
ACH transfers come in many shades including Direct Deposit for wages and social security payments and Direct Payment for bills, tuition fees, and charitable donations. The ACH Network is governed by the National Automated Clearing House Association (NACHA), which in 2019 processed over 24.7 billion payments valued at more than $55.8 trillion.
The first consideration is the transfer destination. When making international transfers-outside the US, you’ll tend to find that wire transfers are much simpler to execute and are faster than ACH transfers. Most banks do not process International ACH Transfers (IAT), instead opting for the more straightforward option of using international wire transfers.
If you are trying to set up a direct debit internally within the USA, however, then an ACH is your best bet. Wire transfers don’t support direct debit recurring payments, whereas the ACH system facilitates these quickly and easily. These are a couple of the most notable reasons why you might consider using either a wire transfer or an ACH, but if you keep reading we’ll take you through some of the more specific comparisons between the two.
Apart from the differences so far covered, there are more specific differences in cost, speed, and security between ACH and wire transfers. Here is what you need to know on all these factors.
Transfer costs can quickly add up hence the need to watch out for both upfront and hidden costs. Here is what to expect:
According to NACHA, the cost of processing an ACH transaction is about 11 cents. However, the total cost may vary significantly depending on the volume, and value of transactions among other factors. Here are the typical costs charged when making an ACH transfer:
Other fees to look out for include setup fees, high ticket surcharges, and expedited processing fees.
Wire transfer costs vary depending on whether you are making a domestic or cross border transfer. Domestic wire transfers can range anywhere from $15 for incoming transfers to $25 for outgoing transfers. Banks such as Capital One charge up to $40 for outgoing domestic transfers in the US.
On the other hand, international transfer fees can be steep – costing up to $65 for outgoing international transfers when sending through banks such as BB&T. Incoming international transfer receiving fees can go up to $30.
Having said that, wire transfers made through online money transfer services tend to cost a fraction of what high street banks charge for similar transfers.
Always check for hidden costs such as exchange rate margins (the percentage the provider adds on top of the mid-market exchange rate) when your transfer involves currency exchange.
The speed of a transfer largely depends on the provider you choose and the transfer destination. However, there are other specific speed features worth looking at when comparing ACH and wire transfers.
Most ACH transfers are completed within 1-2 business days. Customers looking for quicker delivery times, including same-day delivery, can use the expedited processing service where they pay a small convenience fee.
ACH transfers through banks such as HSBC and Nationwide, usually take anywhere from 3-4 days.
International bank-to-bank wire transfers can take from 1-3 days to be delivered. Local wire transfers can be completed the same day if they are made during business hours.
For faster wire speeds, you can use online money transfer services like WorldRemit and TransferWise. These providers deliver wire transfers in about 24 hours on average, so if your priority is the speed you can find the right provider by comparing your options.
Safety is highly prioritised by companies enabling both ACH and wire transfers. There are specific measures put in place to minimise or prevent theft of funds during transfer and warnings to customers to ensure vigilance on their end. Here’s an overview of how the security of your funds is guaranteed.
ACH transfers rely on the security protocols put in place by the individual banks and the ACH network. With over 40 years since its establishment in the 1970s, the ACH transfer system has learned lots of useful security lessons which have led to measures being implemented to secure modern-day transfers.
The ACH network has also received immense infrastructural support from its members some of whom are Bankers Associations, Electronic Payment Associations, and finance professionals. The security of the ACH network is characterised by access controls, data validation systems, layers of encryption technologies, customer identification measures, and many other protocols.
Wire transfers are secured by way of being sent through a secure messaging system such as SWIFT or Fedwire. Fedwire is guided by Core Principles for Systemically Important Payment Systems developed by an elite Committee on Payment and Settlement Systems (CPSS) drawn from over ten countries.
The SWIFT system also has strong policies on payment system risks and is used by banks the world over to send money securely and quickly over international borders.
Business payments could either be business to business (B2B), business to customer (B2C), or customer to business (C2B). Most business payments such as invoice payments, overseas salary payments, major asset purchases, and property purchases are usually processed through wire transfers. The reason is that wire transfers are easier to send internationally, and also give the customer control and flexibility when initiating payments and it doesn’t have to wait for batching of transactions.
Whether customers are making domestic or international vendor payments, wire transfers can handle large sums of money, something that ACH transfers are not purposely built for.
When making person-to-person payments including sending money to friends and family, customers can conveniently schedule their payments using the ACH transfer system. ACH transfers are also best suited for regular payments. All you need to do is to simply set up the debit instructions and the payments will be pulled at the intervals specified.
Apart from ACH and wire transfers, there are other ways individuals and corporations can move money both locally and across borders. Here is a breakdown of the alternatives available.
ACH and wire transfers are among the safest, most cost-effective, and reliable money transfer methods available. If you are in the United States, ACH transfers can be convenient for making bill payments or for receiving your social security benefits and wages, whereas if you’re making a one-off purchase it is usually most convenient to use a wire transfer.
However, wire transfers are a much better option for international transfers and moving large sums of money, as ACH transfers tend to be restricted to payments within the USA. In terms of cost, international wire transfers can see you charged up to $65 to have your money moved across borders once all the fees and exchange rate margins are taken into account. However, this cost can be significantly reduced if you shop around and compare your transfer options.
Since most ACH transfers are domestic within the USA, you won’t have to worry much about hidden costs such as exchange rate margins. However, you need to check for less obvious costs like check verification and check guarantee fees, high ticket surcharges, and chargeback fees to make sure you’re getting a good deal on your transfer.
Instead of using international ACH transfers when sending money to other countries, you could opt for online money transfer services. These services can help facilitate wire transfers at low-cost rates, along with giving you a host of other money transfer and business payment options.
To find out the best deal for your money transfer, the best place to go is our simple money transfer comparison tool. By entering the details of the transfer you wish to make, you can compare all your options in seconds and find out if a wire transfer, ACH, or different money transfer method altogether is best for you.
Elliott is a former investment banker with a 20 year career in the city of London.
During this time he held senior roles at ABN Amro, Societe Generale, Marex Financial and Natixis bank, specialising in commodity derivatives and options market-making.
During this time, Elliott’s client list included Goldman Sachs, JP Morgan, Credit Suisse, Schroders Asset Management, and the Pennsylvania State Public School Employees Retirement System, amongst others.
April is a trained journalist and the Content Editor for MoneyTransfers.com. She has 10 years experience writing about a diverse range of subjects, from financial services to arts and entertainment. When she’s not writing about global remittances she can be found daydreaming about her next holiday abroad.