ACH VS Wire Transfers: What’s The Difference For Sending & Receiving Payments?
Are ACH or wire transfers better for your small business? Find out everything you need to know about ACH versus wire transfers in this guide.
For businesses that need to transfer money, ACH payments and wire transfers have long been the most common means of doing so. But when it comes to choosing ACH vs. wire transfers, as a business owner, you should be familiar with these two tools and understand the differences between them well enough to choose the best method.
The two main factors in selecting the best money transfer method are (1) price and (2) speed.
For most transactions, ACH payments will be the best choice due to their lower cost. However, wire transfers may be a better option if you need to transfer a large amount of money or if time is of the essence in getting the money to its intended recipient.
Read on for more information about ACH and wire transfers.
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What Are ACH Payments?
ACH stands for Automated Clearing House, and it’s a service provided by a private organization called Nacha (previously NACHA, an acronym for the National Automated Clearing House Association). ACH is mostly a US-only money transfer service, but it does have a small and growing number of banks outside the US beginning to accept or initiate ACH transfers.
You can learn more about the basics of ACH payments in our ACH payments beginner’s guide.
ACH uses the Federal Reserve as a middleman for their transfers, so transfers only happen during regular business days (i.e. no weekends or holidays). With ACH, you can transfer a maximum of $100,000 per payment per day. Money changes hands three times a day, so if you miss these windows (sometimes there’s a long line), your money will be transferred at the next window. This is why, with ACH transfers, most banks estimate 2-3 days for the money to arrive, even though technically, the ACH transfer can be done on the same day. (It can still be done on the same day if you’re willing to pay a higher fee to jump the line.)
There are two types of ACH transfers: ACH credit and ACH debit.
With ACH credit, the money is sent at a time and in an amount designated by the sender. The bill payment service connected to your bank account is typically an ACH credit payment.
With ACH debit, the exact amount is controlled by the recipient, but the timing is controlled by the sender. This means the bank account holder pre-approves payment to a particular vendor (e.g. your electric company), and the vendor takes the appropriate amount from your bank account at an appointed time.
What Are Wire Transfers?
Wire transfers are typically a one-time money transfer between two banks for a very specific amount and can be done at a time of your choosing or done immediately (unless you miss the operational cut-off times of your bank, in which case you’d have to wait until the next day). Sometimes, a middleman bank will be involved, but other times it’s a direct transfer between the origination bank and the destination bank. Wire transfers can be done domestically or internationally as long as the two banks involved have direct or indirect contact with each other.
Typically, you have to go through a bank to initiate a wire transfer. There’s no upper limit to the amount you can transfer, so any time you’re transferring six figures, a wire transfer is the only type of electronic transfer available to you. Wire transfers are especially prevalent in international transactions since ACH is typically not available outside the US.
What’s The Difference Between ACH Payments & Wire Transfers?
Of course, just because the mechanics of ACH and wire transfers are similar doesn’t mean that the services are marketed or cost similarly. There are some differences to keep in mind as you make your decision on which one to use for a particular transfer.
Using Wire Transfers & ACH Payments Internationally
International money transfers are usually done with wire transfers. However, ACH payments are making inroads in this area. Some banks not located in the US can now initiate an ACH transaction (ACH debit or credit), and when they do so, this is counted as an international ACH transaction. If the transaction is initiated by a bank in the US (debit or credit) but ends at a bank outside the US, this is not an international ACH transaction, but such transfers can still be made as long as the bank outside the US recognizes the ACH computer file transfer format.
So, if you do business internationally, you’ve probably been using wire transfers to pay your suppliers or customers overseas. You might want to look into international ACH transfers instead if the amount to be transferred is less than $100,000. Using ACH to make the transfer can save you a substantial amount of fees. Ask your ACH provider to make sure.
FedNow And The Future Of Money Transfers
FedNow is a new real-time payment system developed by the Federal Reserve that is expected to launch sometime near the end of the first half of 2023. It will allow individuals and businesses to transfer money instantly, 24/7, 365 days a year.
The FedNow service will be much faster than traditional ACH payments, and less expensive than wire transfers. However, it won’t be able to accommodate international transfers. Anticipated pricing for FedNow is as follows:
- $25/month account fee (each routing transit number (RTN) will require its own account)
- $0.045/transfer (paid by sender)
- $0.01/request for payment (RFP) message (paid by the requestor)
- $500,000/transaction maximum transfer limit ($100,000 default limit, which account holders can optionally adjust up or down)
Note that these fees are paid by your bank for participating in the FedNow service. You can expect that these costs will be passed on to businesses and individuals who wish to use FedNow to send or receive a payment, with a markup added to cover the bank’s costs and ensure a profit.
When available, FedNow is very likely to shake up the world of money transfer services in a significant way. It will eliminate many of the bottlenecks that currently make ACH transfers such a slow way to send or receive money, while costing much less on a per-transaction basis than wire transfers.
While it may not offer quite as much security for very large transfers, it’s likely to become the preferred method for smaller transactions. FedNow is expected to lead to a more seamless and efficient payment system that ultimately benefits consumers and businesses. We anticipate that it will be particularly useful to businesses that process a lot of B2B transactions.
Are ACH Or Wire Transfers Better For My Business?
While ACH and wire transfers are both ways to transfer money, each is better for a different purpose. Which one is better for your specific business depends on several factors, which we’ll summarize here:
Choose ACH Payments If…
- You’re sending a domestic US transfer
- The transfer is not time-sensitive (i.e., 2-3 days transfer time is OK)
- You’re sending less than $100,000 per transfer per day
- Sending in a large batch is preferred (payroll is typically sent out in batches)
- You want to automatically send/withdraw to/from a specific source on a specific date
- You wish to take advantage of free or smaller per transfer fee
- Your transfers are mostly for B2C use
Choose Wire Transfers If…
- You’re sending an international transfer
- The amount to be transferred is very large
- The transfer is time-sensitive
- Paying a larger per-transfer fee is not an issue
- Individual transfers are OK, but wire transfers are primarily for B2B use
As we’ve seen, ACH payments and wire transfers can be useful ways to make payments and get paid for your business.