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.

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Wire transfers are processed directly by the banks, while ACH transfers are processed by a clearing house. Therefore, ACH transfers take longer to clear. However, they are usually free, whereas wire transfers cost money to send and receive.

Read on to learn more about the differences between the two.

What is an ACH Transfer?

ACH transfers are the most common type of electronic money transfer. Most likely, you're already using them on a daily basis. You use ACH transfers for things like:

  • Paycheck direct deposits
  • Automatic bill payments
  • Transferring money between accounts at different banks
  • Transferring money to/from investment firms
  • Government benefits
  • Tax payments & tax refunds

ACH stands for Automated Clearing House. This is a network that manages electronic money transfers between banks. The clearing house acts as a middleman to process the payments. The Federal Reserve Bank and The Clearing House are the two major ACH operators.

Because of the clearing house processing time, ACH transfers take longer. It usually takes 1-3 business days, and could even take up to 5 days.

When making an ACH transfer, the clearing house won't confirm if you have enough funds for the payment. So there is the possibility of overdrawing your account.

Here's how the ACH process works:
  1. Transactions are collected by banks throughout the day and goes to the clearing house.
  2. The clearing house processes them together in batches at certain times of the day.
  3. After they're cleared, they're sent to the receiving banks in a batch. The banks distribute to the correct accounts.

What is a Wire Transfer?

Wire transfers are money transfers directly from one bank to another. They're processed instantly and individually (instead of in a batch). Therefore, they can be completed in less than a day.

You can make a wire transfer on your online account or in-person with a banker.

Before initiating a wire transfer, the bank verifies the available funds in your account. So you won't have the issue with overdrawing your account.

When to Use ACH & Wire Transfers

You already use ACH for many everyday activities, like:

  • Automatic bill payments
  • Direct deposits, government benefits, or taxes
  • Moving money between banks and brokerages
  • Non-urgent cash transfers

Wires are less commonly used. You'd only use it for special situations, like:

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

Fees

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.

Wires
Most institutions charge $20 - $30 to send a domestic wire. They charge about $10 to receive one. International wires usually cost more around $45-$50.

Transfer Speed

ACH payments
ACH transfers are slower since they need to be processed by the clearing house, which only works during business days. It usually takes 1-3 business days to clear (and sometimes as long as 5). However, many institutions are starting to have same-day ACH transfers available.

Wires
Wires are faster since they're processed directly by the bank. Usually, domestic wires can be received within 24 hours. If the wire transfer is between accounts at the same bank, it can be instant. International wires can take a couple of days.

Which is Safer

Both are safe methods of transferring money. But of course, you have to do your due diligence to make sure you're sending to the right person.

ACH payments could be considered safer because it goes through the clearing house, which has another layer of regulation. You can also reverse an ACH payment if you made a mistake.

You may be able to reverse a transfer if you accidentally paid the wrong account or the wrong amount. Or if somehow a payment went through twice. Your bank will have the final say.

But for wire transfers, you cannot reverse the transfer as soon as the money has been received. So you need to be very sure you got the right recipient details.

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

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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.

Write to Kim Shackleton at feedback@creditdonkey.com. Follow us on Twitter and Facebook for our latest posts.

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