Electronic funds transfers are on the rise: according to Nacha, $19.7 trillion were processed through the ACH network in the second quarter of 2022. The amount of USD sent through wire transfers has also been on the rise since 2020. Both are popular, so the question is ACH vs wire transfer: which is best? The short answer: it depends on your business needs. For the long answer, read this article!
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What is an ACH transfer?
ACH transfer, a definition
An ACH transaction consists in moving funds between banks, credit unions, and the like through an electronic interbank network that includes approximately 10,000 financial institutions.
ACH stands for Automated Clearing House. It’s the digital equivalent of the paper check, with less human labor. Many payment apps like PayPal, Stripe, Zelle, and Venmo rely on it to offer their payment services.
ACH transfers are used both in B2B and P2P (person to person) payments for:
- ACH debit transactions (direct payments),
- ACH credit transactions (direct deposits).
For example, many use ACH for paycheck deposits, to pay bills, or to send money online to friends and family. Businesses use it too for payrolls or even tax payments.
How do ACH payments work
Once an ACH has been initiated, it is processed in batches and cleared by the Clearing House. That happens several times a day, at set times.
The receiving banks then credit or debit the account accordingly. This is the overall process, although there are slight variations depending on whether the transaction is based on direct payment or a debit.
What is a wire transfer?
Wire transfer, a definition
A wire transfer is initiated by the sender through a bank that moves funds from one account to another in a different financial institution. You have two types of wire transfers:
- Domestic wire transfers if both banks are based in the U.S.
- International wire transfers (or remittance transfers) when one bank is based outside of the U.S.
They’re typically used for quickly sending money in large amounts. You can send a wire transfer through a financial establishment or a payment service provider like MoneyGram, Transferwise, or WesterUnion.
How do wire transfers work
In a bank wire transfer, the sender’s and the receiver’s banks communicate together to move the funds between the two accounts.
To send a wire transfer, you need bank details like:
- The bank account number of the payee,
- The account holder’s personal information (like their full name and address),
- The routing number of their financial institution used specifically for wire transfers, or the SWIFT code in case of international transfers,
- Their bank’s address.
The wire transfer is then processed by the sender’s account: it debits their bank account and credits the recipient’s.
What are the key differences between ACH transfers and wire transfers?
The main difference between ACH vs wire transfer is speed. ACH usually takes about 1-3 business days to be processed as it moves along the clearing network. Think of it as putting your funds on a train alongside other shipments. The train follows a set-up route (the electronic payment network) and needs to be manually checked.
Wire transfers tend to be quicker because they go straight from the payor to the payee’s account, regardless of geography or network. It’s the equivalent of a helicopter flying straight to the payee’s account.
Sending wire transfers domestically usually takes 1 to 3 business day (or can even be received the same day), while international wire transfers can take up to 7 days to be delivered, although same-day payments are also possible.
While those are the general rules, there are now different payment options with varying speeds, like instant ACH payment or even FedNow, which is a form of instant payment launched by the Federal Reserve.
ACH payment is typically used to send smaller amounts. Most financial establishments only allow ACH transactions up to 25,000 USD. That’s why ACH is mainly used for bill payments, receiving government benefits, or tax refunds.
Wire transfers deal with larger amounts and are better suited for B2B payments or big one-off payments, like real estate transactions. Depending on your bank, you can send up to several million dollars in one transfer. To give you an idea, the average value of wire transfers daily was 4,5 million in June 2023.
Another important argument when it comes to ach vs wire transfers is the cost. ACH transfers usually have no fee — if they do, the transfer fee is cheaper than wire transfers.
Wire transfers cost more both to send and receive. Indeed, some financial institutions charge you for receiving internal wire transfers. Sending a wire transfer will also cost you between $15 and $50 per transaction depending on whether it’s domestic or international.
Those wire transfer fees aren’t limited by federal laws, but some business accounts or online bank accounts come with free wire transfers. It’s best to ask them directly to factor this into your decision.
International vs domestic
While it is technically possible to send ACH transfers abroad, they work best for domestic cash transfers.
Wire transfers on the other hand can easily be sent anywhere in the world — except for countries subject to U.S. sanctions.
That’s why wire transfers are used by individuals to send remittances to their friends or family, and why international businesses use them. Most overseas suppliers and contractors have international bank accounts and therefore cannot accept ACH.
The last (but not the least) key difference between ACH and wire transfer is security.
With ACH, you can more easily retrieve your funds in case of a problem and there is a lesser risk of fraud — although it still exists!
Scammers use ACH all the time to try to divert direct deposits from governmental agencies, friends and family, etc. It also happens a lot in the corporate world too, so you must protect yourself.
If you realize you made a mistake with your ACH transfer (you used the wrong account number, sent it twice, or sent the wrong amount) you typically have 5 days to retrieve it. You can also dispute payments for up to 60 days.
Wire transfers on the other hand are final, which is why wire transfer scams are so popular. Hackers know that once the transfer of funds has done through, it’s impossible to cancel it. By the time you realize you’ve fallen victim to fraud, the money is generally long gone.
Unfortunately, cases of wire transfer fraud have increased in the past few years. Our recent study found that 56% of US companies were targeted by at least 1 fraud attempt in 2022.
CEO fraud, vendor fraud, phishing, and spoofing are all elaborate ways for hackers to try to defraud your business. Being aware of those cyber risks is important so you can be proactive in your fraud protection.
Whether it’s ACH or wire transfer, fraud prevention platforms like Trustpair wipe out all types of third-party fraud by continuously auditing their data and controlling all payments before they are executed. Learn all there is to know about payment fraud and how to increase security in our latest fraud report.
ACH vs wire transfer: what’s better for your business?
In the ACH vs wire transfer debate, the answer really depends on your business requirements:
- How much money do you typically send?
- Do you need to be able to transfer funds internationally?
- How fast do you want the money to arrive?
Answering these questions will help you come to your own answer, which might be a mix of both.
At Trustpair, we recommend ACH transactions for local businesses. It’s a cost-effective option for recurring payments like payroll and paying your US-based suppliers, as long as you’re not in a hurry.
Larger businesses tend to make bigger transactions and do business overseas, so they need wire transfers as a payment method. However, they need to pair it with an adequate anti-fraud strategy that includes software like Trustpair to be secure.
Our solution completely eradicates the risk of fraud by running automated checks of your third party before any money is sent. That’s the level of protection you need to protect your business against fraudsters.
- ACH is better used for domestic transactions that aren’t urgent, while wire transfers are best suited for large international businesses or those who require same-day payment.
- Both types of electronic transfers need to be paired with an anti-fraud strategy and a tool like Trustpair to ensure financial fraud doesn’t happen.