Real Time Payments VS ACH: Which Bank-To-Bank Transfer Method Is Best For Your Small Business?
Let's explore the differences between Real Time Payments vs. ACH, including their benefits and limitations.
When it comes to bank account-to-bank account transfers in the United States, there’s traditionally been one game in town: ACH (Automated Clearing House) payments.
What businesses may not realize, however, is that there’s another network that can handle transfers between FDIC-insured institutions, Real-Time Payments (RTP).
Below, we’ll dive into the differences between Real Time Payments vs. ACH as well as their benefits and limitations.
Real Time Payments VS ACH Overview
|Recurring payments, debits, and transfers exceeding $1 million
|Disbursements, payroll and contractor payments, after-hours payments
|Up to 3 business days
|Universal availability, can take credits and debits, transactions are reversible
|24/7 availability, funds available almost immediately
|24/7 availability, fast access to funds
|Debit capability, ability to reverse transactions
Real-time payments and ACH payments both transfer funds between two bank accounts, but do so via completely different networks. In broad strokes, RTP payments trade versatility for speed, expediting the transaction process.
What Are Real Time Payments?
Real-time payments refer to credit push payments made through the Clearing House’s RTP network. These payments are settled individually and near-instantaneously and cannot be reversed. They can also only be used to send funds, so you can’t charge someone’s account through RTS.
The RTP network is much newer than ACH, and as such, it’s not as readily available as ACH, but the number of institutions using the network is growing.
What Are ACH Payments?
ACH stands for Automated Clearing House, which should not be confused with the Clearing House that maintains the RTP even though the Clearing House is also one of two ACH operators (yes, this is confusing). The ACH network is governed by an entity called Nacha.
ACH payments are the settlement layer of most financial transactions within the United States that involve a bank account. Even the final settlement payments of credit transactions are generally completed via an ACH payment. The ACH network is quite versatile and can be used for credit or debit accounts. Settlement takes one to three days. While the network has introduced expedited transfers, these still take hours. The delay does allow for the reversal of transactions, however.
The ACH network operates during traditional business hours Monday through Friday. ACH payments are cleared in batches.
Are Wire Transfers The Same Thing As Real Time Payments?
Wire transfers are another quick way to send money, but they are completely different payment methods than real-time payments.
Wire transfers are sent through the FedWire Funds Service, which is distinct from both ACH and RTP. In the ACH vs. wire transfer debate, it’s best to go in knowledgeable about how these two options stack up in terms of cost, speed, and convenience.
Table of Contents
Real Time Payments VS ACH: Pros & Cons
Both ACH and RTP fill distinct niches. Here’s a rundown of their pros and cons.
ACH Pros & Cons
- Allows bank account-to-bank account transfers
- Cheap, especially compared to credit card network fees
- Allows for both credit push and debit pull transactions
- Erroneous transactions can be corrected
- Transactions are relatively cheap
- Slow settlement time
- Network isn’t always available
Real Time Payments Pros & Cons
- Makes funds available almost immediately
- Operates 24 hours a day, 7 days a week, including holidays
- Allows for credit push transactions
- Transactions are relatively cheap
- Settlements are (usually) final
- More limited use cases
- Not available at some banks
Use Cases For Real Time Payments VS ACH
Use cases for RTP payments overlap with those for ACH, but each has its own distinct niche.
Real Time Payments & ACH Can Both Be Used For…
- Credit push payments from an account based in an FDIC-insured institution
- Low-cost transactions
- Transactions of up to $1,000,000 (Same-day ACH)
- A B2B alternative to credit card payments
- Secure disbursements of funds, including to contractors
Only ACH Offers…
- Universal availability among financial institutions
- Debit pull transactions (initiated by the receiver of the payment)
- Transactions larger than $1 million (except for same-day ACH)
- Tax payments
- Complex payouts like W2 salaries
Only Real Time Payments Offers…
- Instant payments
- 24-hour, 7 days a weeks service
- Advanced remittance data
Transaction Fees: Real Time Payments VS ACH
While exact transaction costs vary by the institution or service using them, the RTP and ACH networks have similar average fees:
- RTP: $0.25 – $1 per transaction
- ACH: $0.20 – $1.50 per transaction
Our guide to ACH fees goes into more detail.
Real Time VS ACH Comparison: The Final Verdict
With the costs of credit card transactions rising rapidly, merchants are increasingly looking for alternative ways to send payments without mailing a paper check or sending an armored truck full of cash. ACH and real-time payments offer the ability to send a payment directly from your bank account. Look for RTP to become a more common offering from the largest payment processors in the near future.