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The difference between ACH and Wire transfer

ACH meaning

Automated Clearing House (ACH) transfers occur between banks, often for bill payments or direct deposits. They have the same functions and processes as electronic funds transfers (EFTs). The process is also similar to making traditional wire transfers, except it’s done over an internet connection. 

The clearinghouse merely acts as a middle man in the transfer of funds. ACH is a system that originated from the Federal Reserve Bank for money transfers between accounts.

What is ACH transfer?


An ACH transaction involves transferring funds electronically from one bank account to another. Within the batch sent to the automated clearing house is information about each transaction. 

ACH transfers were designed to give individuals and businesses the options for making inexpensive electronic transactions.

It has become a very reliable and common way to move money between businesses.

Use of ACH transfer

There are a variety of uses for ACH transfer:

  • A business can use them for sending and receiving e-payments with suppliers or customers. This payment method works well with bulk shipping.
  • It’s also an effective and efficient solution for Accounts Payable departments to make mass payments to vendors. It’s particularly useful for a publishing site that must pay thousands of writers and affiliates on a regular basis.
  • Another type of enterprise that can benefit from these electronic transfers is one that employs a diverse group of remote contributors, such as a software company with team collaborators from around the globe.

The ACH solution provides an easy way to make borderless payments, with the ability of easily changing payment methods for any given account. It’s also an automated process, which reduces the chances of errors.

What is ACH debit

Just like having a debit account, this type of account allows a company to make electronic payments that pull funds from an existing account. The first step is to authorize vendors to access funds on a regular basis. Payments to recipients can be set up as automatic or on-demand as determined by the payer.

A major benefit to this method is that payments will no longer get missed if they are scheduled. It further eliminates the need to pay for postage and there’s no chance a check will get lost in the mail. It’s a much more seamless method for tracking payments and making sure vendors are paid on time. It’s also a paperless solution that moves in the direction of eco-friendly sustainability, which is forming metrics that are gaining value with investors.

There are certain drawbacks to an ACH account, such as it’s possible to overpay vendors, which can lead to overdrafts that trigger penalties. But a well-managed operation in which accounts are verified to be up-to-date usually resolves this problem.

What is ACH credit?

When funds are deposited electronically into an ACH account, the account is given a credit. ACH credits are commonly used by employers to make direct deposits to employees. Taxpayers who choose to allow the IRS to deposit a tax refund into their account are facilitating a credit transaction. Businesses, in turn, can use ACH credits to pay state taxes.

ACH form

In order for an enterprise to send or receive ACH transfers, it must sign an ACH form with its bank that authorizes certain billers to use its bank account number and routing number for transfers.

What are wire transfers and the uses? Many times wire transfers are the solution for immediate problems, such as replacing hardware or other expensive equipment. There are plenty of other reasons why businesses or individuals would want to use wire transfers, such as for investing in overseas properties, sending money to people in other countries or paying for an employee’s travel expenses.

ACH vs Wire

Wiring money is a much faster process, as funds can be available immediately. When it comes to wiring money there usually is no holding time involved. In the big picture, the only real advantage that wire offers is speed in delivering funds. 

Overall, when comparing the ACH vs Wire argument, ACH is otherwise more convenient, cheaper and more secure. ACH is also becoming a more common way for businesses to handle transactions.
ach vs wire infographics

ACH vs Wire process

While wiring money is more reliable if you need the funds quickly, ACH payments are commonly free, although mainly for the recipient. The fees are still under a dollar for senders. Wire transfers, by comparison, often cost up to $35 or more for senders.

How long does an ACH deposit take? A complete ACH transaction process takes about two to three business days due to how banks process the information, which requires human verification. It’s important to remember that this option cannot be expedited and is used for saving money.

The best time to use an ACH transfer is in the case of recurring transfers. ACH transfers are commonly used by businesses for direct deposit to pay employees. They are useful for automated monthly invoices in which scheduled payments to vendors are made by the system automatically. It’s easy to reverse transactions if the company makes a mistake and must reissue a payment. ACH payees will not know the money has arrived until it appears in their bank account.

Wire transfers are often used for emergencies or when money must be transferred immediately. They tend to be rare and mainly used for critical situations, especially when regular funds are tied up. It’s usually more economical to wait and make ACH transfers. Keep in mind that almost all money transfers are done electronically these days, which creates confusion over the definition of “wiring” money.

Using a money transfer service such as Western Union or Money Gramm is a different type of “wiring” process that doesn’t involve banks. They are still referred to as “wire transfers” and sometimes can be fast transactions that take a matter of minutes.

How long does an ACH deposit take?

A complete ACH transaction process takes about two to three business days due to how banks process the information, which requires human verification. It’s important to remember that this option cannot be expedited and is used for saving money.

ACH

The best time to use an ACH transfer is in the case of recurring transfers. ACH transfers are commonly used by businesses for direct deposit to pay employees. They are useful for automated monthly invoices in which scheduled payments to vendors are made by the system automatically. It’s easy to reverse transactions if the company makes a mistake and must reissue a payment. ACH payees will not know the money has arrived until it appears in their bank account.

Wire Transfer

Wire transfers are often used for emergencies or when money must be transferred immediately. They tend to be rare and mainly used for critical situations, especially when regular funds are tied up. It’s usually more economical to wait and make ACH transfers. Keep in mind that almost all money transfers are done electronically these days, which creates confusion over the definition of “wiring” money.

Using a money transfer service such as Western Union or Money Gramm is a different type of “wiring” process that doesn’t involve banks. They are still referred to as “wire transfers” and sometimes can be fast transactions that take a matter of minutes.

ACH vs Wire – transferring cost comparison

Cost is one of the most important factors in deciding what type of payment method to use. It mainly comes down to how fast the payment needs to be made. If there’s no emergency, it’s best to use the free to low-cost ACH method, whereas if payment is needed immediately by the recipient it should be wired, which has a much higher cost.

Businesses have the option of working with financial institutions that specialize in reducing transfer costs, particularly for international transactions. Exchange rates can come into play when transferring money between different nations.

ACH transfer cost

One of the most attractive elements of ACH transfers is that they are usually free. For those who don’t mind waiting a few extra days to receive the money, it’s a no-brainer choice for saving money.

Cost of wire transfers

Wire transfers, unlike ACH transfers, usually cost money. They may cost anywhere from $10 to $35, depending on the financial institution or transferring service.

Is it Safe?

ACH is considered a safer solution for senders than to transfer funds by wire because it allows for funds to be reversed. Each bank determines its own criteria for reversals, but it usually involves fraud or error.

While wire senders should be concerned about the account where the money is going, wire recipients have little to worry about. For the most part, both ACH and wire are secure methods for transferring funds. When sending money by wire it’s important to verify the exact bank account of the recipient. Hackers can infiltrate emails to change wire information, but if the exact number is verified the money should get to the right place.

ACH Safety. One of the reasons that ACH is a safe process is that there’s no way funds can get lost electronically. In that sense it’s safer than sending cash or a check in the mail. Since all transactions are electronic, it’s easy for banks to track where the money goes.

The main risk involved with ACH is exposing bank account information to recipients, which only needs to happen once. It’s up to the company to know the trust level of the recipient. ACH users are protected against fraud by federal law.

Wire Safety. A recipient can feel safe about money received from wire transfers that the funds were available and did not come from a fraudulent account. The main point to remember when sending money by wire is knowing who the recipient is and not mixing them up with someone else.

The Process

With any type of money transfer process, the applicant will need to provide information such as name, bank account number and bank routing number. It’s important to remember this information can be used to steal money from an account, so it should only be given to trusted money recipients.

The ACH process is fairly straight-forward just like the wire process, except it usually takes a little longer, sometimes up to three business days. Each bank has its own way of structuring ACH transfers so it’s best to consult with the financial institution that will handle these transactions.

The wiring process usually takes place within one day. It involves going to a bank or center that services wire transfers, paying an upfront fee and completing the transaction to another bank account quickly. In some cases, however, the money is not visible or available immediately in the recipient’s account, especially with international transfers, which sometimes take up to two business days.

ACH vs Wire – restrictions

Each state has its own laws about wire and ACH transactions. Generally, when sending funds by any method, the amount of money being transferred must exist in the sender’s account before the transfer request can be made.

A business can integrate ACH into its operation by obtaining an ACH merchant account, which is similar to the type of accounts used for conventional credit or debit card processing. The applicant provides general business information then must go through a business credit check. Each bank has its own way of dealing with ACH services. Banks process ACH transfers in batches scheduled to take up to three days, but they are moving toward innovations leading to same day processing.

Many times a wire transfer is automated, but still requires a bank employee to review the information and approve the transaction. For the fastest results, it’s best to request wire transfers early in the morning to allow for the extra time it may take for processing.

Wire transfers are treated as cleared money by banks, allowing the recipient to use the funds however they want immediately.