In 2018, the average SMB handled over $18,000 per month in debit and credit transactions. With so many transactions to and from customers, vendors, and clients, it’s easy to get lost in the myriad of payment methods available.
Wire transfers and ACH payments are two of the most common ways to move money electronically. But what's the difference between them? And which one is right for your business? Making the wrong choice could cost you time and money.
But don’t worry. In this blog post, we'll break down the differences between wire transfers and ACH payments, so you can decide which one is best for you. Let’s go!
A wire transfer is a method of transferring money electronically from one bank to another. It's often used for large or urgent payments.
To wire money, you need to provide the recipient's bank account information, as well as your own bank account information. The money is almost instantly transferred, so there's no waiting for the payment to clear.
ACH stands for "Automated Clearing House". It's a system that allows businesses and individuals to make electronic payments and transfers. It's the basic technology behind bank transfers, direct deposit, and P2P apps like Cash App and Venmo.
ACH transfers travel through the ACH network, a connected set of banks and financial institutions facilitating payments.
So, which one is right for you? It depends on your needs and what's you find most important. Whichever one you choose, make sure to research the banking institution before sending any money!
With that out of the way, let’s compare both methods head-to-head:
We need to change our conversation from ACH vs. wire transfer to ACH and wire transfer.
ACH and wire transfers are both beneficial systems, and there's no reason to only use one. Here's when you might want to use each:
Best for:
Since ACH transfers are inexpensive, secured by the ACH system, and reversible, they're ideal for day-to-day transactions.
Best for:
A wire transfer can quickly clear millions of dollars with no border-based limitations. Since they come with their own set of fees, they're helpful for periodic payments with vendors or clients.
While the ACH vs. wire transfer debate will vary between cases, the most common verdict is this:
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ACH is an acronym for the Automated Clearing House, a network of financial institutions that process electronic payments. An EFT is an acronym for Electronic Funds Transfer. This term is generally used to describe any type of payment made electronically rather than by check or cash.
Wire transfers are payments made from one bank account to another using Federal Reserve Bank wire services.
ACH payments are similar to wire transfers in that they are both electronic bank-to-bank payments. However, wire transfers involve using Federal Reserve Bank wire services, while ACH payments use Automated Clearing House processing.
A wire transfer is a type of bank transfer. You can also make bank transfers through other methods, such as ACH.
Once the wire transfer has been sent, you cannot cancel it. ACH transactions are processed in batches, so more opportunities to cancel or reverse the transfer are available. An ACH payment can be reversed up to 60 days after execution.
Direct deposit is an ACH transfer that happens electronically, without the need for physical currency. It's faster and more secure than traditional checks. Wire transfers are better for large sums of money or when there is a time constraint.