August 22, 2019

ACH vs Wire Transfer

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Wire transfers and ACH payments both move money from one account to another. But they aren't the same. Learn about the differences—and some risks—in our guide.

Wire Transfers

Wires are direct, secure transfers from one bank to another. The process can be completed in less than a day domestically. International wire transfers may take a few days.

Before initiating a wire transfer, the bank verifies the identity of the sender and recipient and the available funds in each account. This eliminates insufficient funds and other issues that can arise when dealing with checks.

It also allows for a safer transaction because you're confirming the identity of the person you're transferring money to.

Wire Transfers Are Best For:

  • High stakes transactions where immediate, guaranteed funding is needed
  • Down payments on auto or mortgage loans
  • Urgent need for cash transfer, such as a family member who had their wallet stolen

ACH Transfers Are Best For:

  • Recurring bill payments
  • Automatic bill payments
  • Direct deposit of payroll wages, benefits, or taxes
  • Non-urgent cash transfers

Automated Clearing House

ACH payments are processed by a clearing house, which serves as a middleman in the transaction. They take at least a day to complete.

Here's how the ACH process works:

  1. Transactions are collected by banks throughout the day.

  2. Accumulated transactions are processed together in batches at certain times of the day.

  3. The batch is sent to the clearing house, which handles the transaction.

  4. Banks receive their transactions back in batches after being processed.

There are two types of ACH payments. Each moves money from one account to another in a different way.

ACH Direct Deposit
A direct deposit is an automatic deposit into your account. It's used for:

ACH Direct Payment
A direct payment happens when you use funds to make a payment. Here are the two types:

  • ACH Credits push funds into an account. When you make a payment using your bank account, like credit card payments or cell phone charges, you're initiating an ACH credit.

  • ACH Debits pull funds from an account. When you set up a monthly recurring bill payment, such as utilities or mortgage, to pull from your account, you're using an ACH debit.

Fees: Wires vs ACH

Most institutions charge $20 - $30 to send a domestic. They charge tabout $10 to receive one.

International wires may cost more because the consumer can be charged a higher currency exchange rate.

ACH Payments
These are typically free since the process is paperless and automated. Sometimes you will incur a fee to transfer funds from one bank to another or if you need to expedite a transfer. Those fees are usually around $3.

What Are the Risks?

Wire transfers and ACHs are considered secure transactions, especially if you are receiving one. They are difficult, sometimes downright impossible, to reverse.

Here are some risk to consider:

Beware of any suspicious phone calls or emails, especially if someone urges you to make a quick decision to avoid further problems. People committing fraud want you to act fast without asking questions.

If they're claiming to be an authority, such as government or state officials, offer to call them back at the official phone number listed by the agency—not the number they give you.

Account Takeover
This happens when a fraudster takes control of your account. They use tactics, like stealing your identity or email phishing, to get your credentials. They can then initiate ACH transfers from your account into theirs.

Criminals use impersonation tactics to look like a real merchant. They might send a letter or email informing you of an overdue payment. But their payment instructions direct you to pay the fraudulent account, not an actual merchant.

If you're transferring funds to another account, the recipient may send instructions via email. Hackers can intercept these communications and alter them. Always call the person or institution before sending money to verify instructions.

Here are some other email tactics to watch for:
  • Suspicious links in emails could automatically download programs, called malware, to your computer. These programs can find and steal your login credentials.

  • Phishing is a tactic that fraudsters use to get an email recipient to go to a fake website that appears to be a trusted organization. The reader is asked to update personal information, including Social Security numbers, passwords, and credit card information.

How to Protect Your Payments

Read on to learn how to reduce your risks when sending money.

Use Trusted Financial Institutions
Always work with a bank or credit union that you know. Don't take risks when it comes to your cash.

Know the Recipient
This is especially true for money transfer services, like Western Union. Someone could use a false identity to obtain your funds. Once they have your money, it's almost impossible to get it back.

If someone is asking you to send money in an unfamiliar way or to an unfamiliar address, don't do it.

Use a Credit Card Instead
Most credit cards offer a 0% liability for fraudulent transactions. They may also assist when merchants behave unethically.

The same can't be said for wire transfers. If you've paid for an item via wire and never receive the item, or it arrives damaged, there isn't any liability coverage.

Money Transfer Services

© CreditDonkey

Some money transfer services allow you to wire funds to another person almost immediately. Keep reading to learn more.

Western Union and MoneyGram

Services like Western Union and MoneyGram allow you to wire money to another person both domestically and internationally. The recipient can access these funds immediately.

You can send money online, by phone, or at the retail location using cash, credit, or debit card. Some retailers allow you to use a bank account, but the transfer will be delayed about three days.

The receiving party can pick up cash at the store location, get a direct deposit into an account, or get a third-party gift card. Each retailer sets different fee rates for transferring money, depending on the amount you send. Shop around for the best deals and locations for your needs.

Money transfer services can be very risky. When you're sending cash to another person using Western Union or MoneyGram, be especially careful. The transactions are nearly impossible to reverse and difficult to trace.

App Services Using ACH Transfers

Apps like Venmo or Zelle offer convenient ways to send and receive money with low or no fees. These apps are popular for quickly paying friends, family, and roommates for expenses or gifts.

To send and receive funds, users typically must be active on the same app. Your bank must also support the service. Check with your financial institution to see which services you can use.

Bottom Line

Wire transfers and ACH transfers both transfer money between accounts. But each has their unique benefits, costs, and risks.

Find the best option to save money and make sure your cash gets where it's supposed to. But as with anything related to your finances, it's important to understand the risks.

More from CreditDonkey:

How to Transfer Money from One Bank to Another

How to Open a Bank Account

How Much Money Should I Save a Month


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