Key Differences Between ACH and Wire Transfers

 © The Balance 2018

When you need to send or receive money, an electronic transfer is often a good option. The funds move safely, there’s nothing to get lost in the mail, and banks keep transaction records that make it easy to track what happened.

You can move money electronically in several different ways. Two of the most popular and well-established choices include ACH transfers and wire transfers, but these methods sometimes get confused. It’s helpful to understand the pros and cons of each option so you choose the right one the next time you need to move money.

Transfer Speed

Wire transfers move funds from one bank to another within one business day, and the money can even be available for spending that same day.

That said, sometimes the funds aren’t visible in the recipient’s account, or you don’t have access to funds immediately after you receive a wire transfer. Although the process is mostly automated, a bank employee often needs to review wire transfers and get the funds into the destination account. If time is of the essence, request wire transfers first thing in the morning so there’s plenty of time to complete the process. International wires can take an extra day or two.

ACH transfers typically take two to three business days to complete. Banks and clearinghouses process ACH payments in batches—they’re all done together instead of being handled individually, first-come-first-served. However, the ACH system is moving toward same-day transfers, and some payments are already eligible for same-day treatment. Increasingly, you’ll see payments take place more quickly as organizations adapt to new rules.

Certainty and Safety

Wire transfers are similar to an electronic cashier’s check:

  • When receiving funds, the bank treats the payment as cleared money and allows the recipient to spend or withdraw as soon as the payment is credited to the final account.
  • When sending money, the funds must be available in the sender’s account before the bank sends funds. The bank will immediately remove the money from the sender’s account while processing the request.

Scam risks are always high when you send money, but your risk is relatively low when you receive funds.

  • If you receive a genuine wire transfer, you can be confident that the sender had funds available and that their bank sent the money. Wire transfers are a relatively safe way to get paid, and unlike cashier’s checks, they aren’t often faked. Just make sure you receive a real wire transfer, as opposed to another type of electronic payment. Western Union, Venmo, and other services are not bank-to-bank wire transfers, even though people sometimes use the term “wire.”
  • If you send money by wire, you need to be completely certain that you know who you’re sending the funds to. A wire transfer generally cannot be reversed, and the recipient can withdraw the funds immediately.

    ACH transfers are also quite safe, but ACH transfers into your account can be reversed. This is true of mistakes that your employer makes (if they overpay by accident) as well as fraudulent transfers out of your account. However, there are rules about when and how banks authorize reversals, so most transfers are going to stay unless there was clearly fraud or a mistake.

    That said, if payment processors credit your account with ACH, the processor may be able to reverse those deposits. For example, if your business accepts credit cards or PayPal, a customer chargeback (whether legitimate or fraudulent) may result in the processor taking that money back later.

    With either type of transfer, you may need to provide information about your bank account, including your account number, bank routing number, and name. Those details can be used to steal funds from your account, so only provide that information if you trust the recipient.

    Cost to Send and Receive

    Wire transfers: Banks and credit unions typically charge between $10 to $35 to send a wire within the United States, and international transfers cost more. There is almost always a fee to send a wire transfer. Receiving a wire transfer is often free, but some banks and credit unions charge small fees to receive funds by wire. If you fund the transfer with your credit card, you'll pay much more due to higher interest rates and cash advance fees.

    ACH transfers are almost always free for consumers—especially if you’re receiving funds in your account. Sending money to friends and family using apps or P2P payment services is usually free or around $1 per payment (those services often use the ACH network to fund payments). Businesses and other organizations that pay wages or accept bill payments by ACH typically pay for that service. Transaction charges are usually less than $1 per payment.

    The Process

    You can often arrange both wire transfers and ACH payments online, but it depends on your bank.

    Some institutions require additional steps for wire transfers—especially when sending out large transfers. Your bank might require you to verify wire transfer instructions by phone, and you might even have to use paper-based or electronic forms to complete your request.

    To send a wire transfer, provide information about your account and the account you want to send funds to. The required information includes bank names, account numbers, ABA routing numbers, the names of each account owner (see where to find this information on a check).

    To send an ACH transfer, you usually use a form (online or physical) from the organization you’re paying or the service you’re using. Most consumers cannot create ACH payments to third parties from personal bank accounts, but businesses have several options available. When using P2P services, you might just need to provide the recipient’s mobile phone number or email address, and the recipient provides their bank account information separately.

    Common Uses

    Because of the differences described above, wire transfers and ACH transfers serve different needs.

    Wire transfers are best when speed and certainty are critical. Otherwise, why pay the fee and take the extra steps to complete a wire? A typical example is a down payment for a home purchase. Sellers won’t release the title unless they’re confident you can pay, so guaranteed checks and wire transfers are useful.

    ACH payments are good for small, frequent, non-mission-critical payments. As long as everybody involved trusts each other, it’s cost-effective to use this automated system. Common examples of ACH payments include:

    Some merchants and organizations also like ACH transfers for one-off payments. For example, you might have the option to pay by e-check. Doing so authorizes the organization to deduct funds from your account, and it minimizes processing fees (payments are more expensive when you pay with a credit card).