Finance glossary

Wire transfer vs ACH payments: what’s the difference?

Bristol James
6 Min

Wire transfers and ACH transfers are the two main ways to send money without the use of a card. Both wire and ACH transfers move money between two different accounts. Let’s break down some of the main characteristics of each type of electronic withdrawal.

How Wire Transfers Work

A wire transfer, which is named after the telegraph wire, is a direct transfer of funds between two accounts at financial institutions. However, an international wire transfer might have intermediaries between end users. Wire transfer payments go through the following process:

  1. The sender initiates the wire transfer.
  2. The funds then get withdrawn from the sender’s account.
  3. The sender’s financial institution moves the funds to a settlement institution.
  4. The settlement institution verifies the wire transfer instructions and sends the funds to the recipient’s bank.
  5. The funds arrive in the recipient’s bank.
  6. The recipient can withdraw the funds.

The end location of your wire transfer will dictate the speed. For example, domestic wire transfers can be processed in a few hours, while international wire transfers will take longer.

How ACH Transfers Work

An Automated Clearing House (ACH) transfer is a way to move money between U.S. bank accounts. The process of ACH transfers is similar to issuing a paper check without the long clearing time. ACH transfers leverage technology to improve efficiency, reduce human input, and expedite the clearing of funds. Here’s the general process that ACH transfers follow:

  1. The sender initiates the wire transfer.
  2. The funds get withdrawn from the sender’s account instantaneously.
  3. The sender’s financial institution transfers the funds directly to the recipient’s account.
  4. The recipient can withdraw the funds right away.

The entire ACH transfer process can take as little as a few hours, depending on the institution you bank with. Many third-party platforms, like Venmo and Zelle, work using ACH transfers. For a more in depth look at ACH transfers, check out our CFOs Guide to ACH Payments.

ACH vs Wire Transfers: The Main Differences

Both ACH and wire transfers are forms of electronic payments that clear through financial institutions. However, there are some key differences to be aware of. Let’s explore the main differences between wire transfers and ACH transfers in more detail.

Settlement Options

Wire transfers are generally permanent settlements. This means that it is difficult to get the transaction reversed, cancelled, or disputed. One of the only reasons that a wire transfer can be overturned is if the bank sends the transfer to the wrong account or credits the account for the wrong amount. If you accidentally transpose numbers, put an inaccurate account number, or notice spelling errors, you might be out the money.

ACH transfers offer more flexibility when it comes to mistakes and errors. With most transfers, you can dispute the transaction for up to two to three months after the initiation. In addition, credit reversals can be requested within five business days if you make a mistake with the account number, amount, or payment date.

Cost

Businesses that frequently send electronic payments need to be aware of the costs. Wire transfers can range from $35 to $50 per transaction. If you process just three wire transfers in a week, you could spend $150! ACH transfer fees are less expensive, partly due to the elimination of an intermediary. Most businesses pay around 1-1.5% of the ACH amount, up to $5. This means for a $10 transaction, you might pay $0.15. For larger transactions, the ACH transfer fee cap is extremely beneficial for preserving your profitability.

Direction

Sometimes, you might need to pull money from other accounts. For example, if you overpay an employee through direct deposit, you might want to pull the overpayment out right away. Wire transfers only offer credit transactions, meaning you can only initiate payments. On the contrary, ACH transfers allow you to initiate your own transactions and those of the sender. This gives you more flexibility in your payment collection function, especially if you have recurring revenue and subscriptions.

Frequency

Wire transfers need to be authorized each time, while ACH transfers can be automated. If your business engages in regular billing, you might prefer to use ACH transfers. Additionally, the same fees are charged for each transfer, meaning you will have to pay $35 to $50 for each wire transfer you initiate.

Geography

If you are a business owner who sends international payments, wire transfers will be your go-to. ACH transfers are only available for domestic transactions, which means within the United States. If you need to send cross-border payments, wire transfers might be your only option.

Transfer Size

ACH transfers are commonly used for small, frequent transactions, while wire transfers are used for larger payments, like real estate transactions. This doesn’t mean that you can’t use ACH transfers to remit large amounts, but it can cause longer clear times.

Why ACH is Safer

Wire transfer scams can be a real threat to your organization. Oftentimes, wire fraud is discussed in the context of real estate wire fraud or mortgage wire fraud. However, the risk of wire fraud scams can be present in your organization when wiring money for any reason. As a result, many businesses lean toward ACH transfers. Here are some reasons why:

Less Susceptible to Fraud

Wire transfer fraud has become more popular in recent years. Scammers have added a slue of tactics to their arsenal, including sending a fake check, email, or invoice to try and get you to send money. One example of this wire transfer scam is a scammer sending you a fake check and asking you to wire the funds back. The check would not clear your bank account and you would be out the money.

If you’ve fallen victim to fraudulent transfer requests or identity theft, contact the Internet Crime Complaint Center. Additionally, to lower your risk of fraud, regardless of which transfer method you use, invest in the right expense management software program. Businesses should always consider investing in a final line of defense. This helps minimize the risk of payment error, fraud, and cybercrime, allowing you to process ACH transfers with complete confidence.

Higher Degree of Accuracy

When you involve intermediaries or a wire transfer company in the transfer process, the risk of data being transferred incorrectly increases. For example, the intermediary might read the recipient’s account number wrong or send the wrong amount. Although the risk of inaccurate wire transfer payments has decreased with technology, it is still higher compared to ACH transfers.

Reversal Opportunities

ACH transfers give you flexibility if you need to reverse the transaction. Wire transfers do not provide this option. If you were to be subject to a wire fraud scam, you might not be able to recover your funds. Many financial institutions have more opportunities to pull the money back when you use ACH transfers, safeguarding your account.

Summary

  • ACH transfers allow business owners to send payments domestically, while wire transfers are common for cross-border payments.
  • Wire transfers use an intermediary between end users, while ACH transfers send funds from one financial institution to the other.
  • ACH transfers are cost-effective, provide more settlement options, and give flexibility in the direction of payments. On the contrary, wire transfers are useful for large transactions and international payments.
  • ACH transfers are the preferred method for many business owners because they are less susceptible to fraud, have a higher degree of accuracy, and result in reversal opportunities.
  • Investing in the right expense management program, like Eftsure, provides additional insights into spending and can lower your risk of fraud.

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