Technology has made it much easier for individuals and businesses to exchange funds. Sending money online is more convenient and affordable than ever, with various methods to do so. Some of the most common methods are ACH payments and wire transfers. While the two methods seem similar, they do have multiple differences.
Both methods allow you to send money directly from a bank account, but the method, cost, speed, and availability differ. In today’s guide, we’ll walk you through the primary differences between an ACH payment and a wire transfer, and which one you should use based on your needs.
If you’re needing a way to receive and send ACH payments and wire transfers through your business, Dots can help. In the meantime, read on to learn more about the differences between these two payment methods.
What are ACH Payments?
ACH payments are processed through the Automated Clearing House network. The ACH network is made up of banks and other financial institutions that can handle direct payments and direct deposits.
The Automate Clearing House was founded in 1974 and is now trusted by many to conduct consumer, B2B, government, and other monetary transactions.
As mentioned, ACH payments allow you to either make a direct payment or a direct deposit. Direct payments electronically move funds to make or receive a payment from an individual or business. For example, purchasing a product or sending money to a family member. Direct deposits are made by businesses or government entities to a consumer. Examples would be payroll or a tax return.
ACH transactions usually clear in three to four business days and are much more affordable than making payments through credit card networks.
What Are Wire Transfers?
Wire transfers are electronic payments that move money from one account to another. These transfers can be made both domestically or internationally. Wire transfers are commonly used for large payments, but they can be used for smaller payments as well.
Typically, domestic wire transfers are processed on the same day while international transfers may take several days. Wire transfers also typically come with fees attached, though the cost of those fees will vary based on the financial institution, the processing, time, and the amount you’re sending. In general, you can expect wire transfers to be quick, secure, and convenient.
How Do They Work?
So, we know what ACH transfers and wire transfers are, but how exactly do they work? Let’s break them down.
First, the way that ACH transfers work depends on if you’re doing ACH credit or ACH debit. One pushes funds into an account, like when you pay for a product, and the other pulls funds from an account with the account owner’s permission on a specified date or recurring basis. An example would be setting a bill on autopay.
An ACH transfer requires multiple parties to go through. First, the originator requests a transaction. The originator’s bank initiates the transfer, which is cleared through the clearing house. The receiver confirms the transaction and the receiver’s bank accepts the transaction request and credits or debits the account. ACH transfers are usually sent in batches by banks, rather than processing them individually as they come in.
Wire transfers move funds between accounts after the sender provides the necessary details to initiate the transfer. Someone who wants to initiate a wire transfer will need to provide the amount, account numbers for the originating and payee account, a routing number for the payee’s bank, and the payee’s name, address, and phone number. Once these details are submitted, the bank will push the wire transfer through. Usually, a fee will be paid by the sender at this time. Sometimes payees will also have to pay a fee of their own.
How Safe Are They?
You can trust both ACH transactions and wire transfers to be very secure. Of course, no system is perfect and both are subject to user error. When sending or receiving a wire transfer or ACH payment, you should always trust the other party and not transact with unknown parties.
Wire fraud is a common scam, but people are really only subject to it if they’re tricked into choosing to send money to a scammer. While ACH transfers are regulated, you should still make sure to only transact with parties you’re familiar with or that are trusted and verified.
What Fees are Involved?
Fees are where ACH transactions and wire transfers really start to distinguish themselves from each other. ACH transfers are usually free when you do a standard processing time, though there can be small fees for expedited processing. Even with expedited processing, these fees are usually a small flat rate or a small percentage, making them much more affordable than processing a payment through something like a credit card network.
Wire transfers are relatively affordable as well, but they’re usually a little more expensive than ACH payments. Domestic transfers are usually cheaper than international wire transfers. It’s also worth noting that it may cost more if you’re needing the wire transfer to go through ASAP. Keep in mind that wire transfers are usually processed on the same day, but you can reduce that time to hours if you really need to.
What are the Transfer Limits?
While you can usually send fairly large amounts using ACH and wire transfers, there are limits. Both methods of payment have daily transfer limits. Since the money is coming directly out of a bank account, these limits can be higher than credit cards and other payment processing methods. To know the daily limits of an ACH or wire transfer, you’ll need to check with your bank or credit union, as it varies by location.
How Long Do They Take?
This is another major way that ACH transfers and wire transfers differ. In general, you can expect that wire transfers will be slightly speedier. Wire transfers typically go through on the same day, if you do a domestic transfer. If not, they’ll go through the next day. International wire transfers typically take a few days or more, depending on the country.
ACH transfers generally take longer, as a standard transfer typically takes 3-4 days. Again, these transfers are usually cheaper, but if timing is priority, it might not be ideal. Still, ACH payments can be made same-day or in two days if you submit the payment request before the day’s cutoff period. It’s important to consider how quickly you want your transaction to go through when choosing between these two methods.
Which One Should You Use?
Now, the only question that remains is – which of these electronic payment methods is the right choice for you? While they’re both good options, there are some factors that may cause you to choose one over the other. That’s not to say either are better, just that there are better options depending on the situation. Here are some factors you'll want to look at:
Security - As mentioned, both of these methods are safe and secure. While they’re not immune to errors and fraud, the process of sending money through a wire transfer or a clearing house isn’t something you need to worry too much about. However, it is worth mentioning that the speed of wire transfers can make it difficult to cancel a transaction. ACH transfers have processes in place to prevent fraudulent payments, and the standard processing time can give you time to reverse a transaction if need be.
Transfer limits - You will need to check with your bank or credit union to see what the daily limits are for ACH and wire transfers. Depending on which institution you work with, one could be higher than the other.
Fees - Wire transfers tend to cost more money than ACH transfers. Depending on the bank or financial institution, domestic transfers can run you around $35 to $50 per transaction. Domestic transfers can be free, but they usually cost anywhere from $10 to $35. Expect to pay additional fees for faster processing.
If you do an ACH transfer, it is usually free. However, you can pay a small flat rate or a small percentage of the money sent to speed up the processing. Many banks will offer same-day and 2-day expedited options.
Processing - If you value speed and don’t mind the fee being a little more expensive, a wire transfer may be the right choice for you. Most wire transfers can go through on the same day, whereas standard processing for ACH transactions can take several days. In general, wire transfers are the fastest out of the two, though there are places that can process your ACH transfer on the same day.
Reversal Options - Remember, when a wire transfer is accepted, there is no reversing the transaction. The money is out of your hands. With an ACH transaction, there are ways to reverse the transfer. While this doesn’t matter as much if you trust the other party, ACH payments may be a better option if you’re working with a new or unknown party.
In short, if you want a speedy transaction between trustworthy accounts, then a wire transfer is your best option. If you don’t mind waiting a little longer for a transaction to go through and you prefer transactions to cost little to nothing, then ACH transactions are the way to go.
Many businesses and individuals will conduct transactions with both ACH transfers and wire transfers. Sometimes one works better than the other for a specific situation, so it’s useful to offer multiple options if you're a business that deals with electronic transactions. However, it can sometimes be difficult to build out multiple payment workflows to accept payments from different sources. Fortunately, there are solutions for this.
If you need your business to easily accept and send multiple types of payments, Dots can help.
Get Started With Dots Today
Dots is the best solution for offering multiple payout options to send and receive money from customers, contractors, businesses, and more. Instead of creating full payment workflows for ACH payments and wire transfers, you can easily offer them using the Dots API. No need for your developers to put in extra work to make it happen.
With Dots, you can send money via the payment processor of your choice and let your payees receive money via PayPal, Venmo, Zelle, Cash App, ACH, debit cards, credit cards, and more. Our intuitive API makes it simple to integrate the payment processors you use most. This makes things simpler for your customers, your accounts payable, and anyone else you transact with electronically. Ready to learn about all of the benefits Dots can offer your business? Get in touch and schedule your demo today.