Wire Transfer vs. ACH: What's the Difference?

Author: 
Elie Toubiana
 | 
Date: 
April 12, 2022

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!

What Is A Wire Transfer?

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.

What Is ACH?

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.

ACH vs. Wire Transfer: Head-to-Head

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:

Payment Size

  • Wire transfers are typically used for larger payments. For Fedwire, the average amount sent through wire transfer was over $4 million.
  • ACH payments are typically used for smaller payments. About 98% of ACH transfers fall in the under $25,000 category.

Processing Speed

  • Wire transfers are processed faster than ACH payments. For accounts at the same financial institution, you can expect your money within the day. International transfers can sometimes take several days (3 to 5), but a typical wire transfer clears instantly.
  • ACH transactions are processed slower than wire transfers. Even though they're domestic, ACH transfers can take up to 3 days. Since ACH transfers are processed in batches, their reversibility is a tradeoff.

Reach

  • You can use wire transfers for global payments. Since we've been using wire transfers since the days of the telegraph, they're supported across a vast network of international banks. However, watch out for the currency exchange fees!
  • You can only use ACH transfers for domestic payments. Unless you're plugged into a global ACH network, these transfers are best for domestic payments.

Fees

  • Wire transfers typically have higher fees than ACH payments. You might have to pay anywhere from $15 to $100 to send a wire transfer. Often, the recipient must pay a fee as well.
  • ACH transfers have lower fees than wire transfers. If your ACH transfer isn't free, there's likely only a 1% processing fee involved. Even then, it is often limited to $5 at max.

Reversibility

  • Wire transfers are final. It's impossible to undo a wire transfer, even if you've been defrauded.
  • ACH transfers are reversible. If there was an error during the payment, you could request a reversal of the ACH transfer.

Security

  • Wire transfers are not quite as secure as ACH. Since payments are so fast and impossible to reverse, you're taking on a bit of risk. However, wire transfers are protected in part by the CFPB.
  • ACH transfers are more secure than wire transfers. Nacha (The National Automated Clearinghouse Association) provides oversight to ACH payments. Since you can reverse an ACH transfer, you have some more protection against fraud.

ACH and Wire Transfers: When To Use Them

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:

ACH Transfers

Best for:

  • Smaller and recurring payments.
  • Domestic transactions.
  • Non-urgent payments.

Since ACH transfers are inexpensive, secured by the ACH system, and reversible, they're ideal for day-to-day transactions.

Wire Transfer

Best for:

  • Large, one-off payments.
  • International transactions.
  • Urgent, pressing payments.

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.

ACH or Wire Transfer: The Final Verdict

While the ACH vs. wire transfer debate will vary between cases, the most common verdict is this:

  • ACH Transfer: Day-to-day, non-urgent, frequent, and small transactions.
  • Wire Transfer: One-off, pressing, large transactions.

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Frequently Asked Questions

What's the difference between ACH EFT and wire transfer payments?

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.

Is a wire transfer the same as a bank transfer?

A wire transfer is a type of bank transfer. You can also make bank transfers through other methods, such as ACH. 

Can I cancel a wire transfer?

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.

Which is better direct deposit or wire transfer?

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.

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