ACH vs. Money Orders: What Is the Difference?

Both ACH payments and money orders are common options when people need to transfer funds, but these two methods are very different. Here’s what you need to know about how ACH vs. money orders compare and the differences between them.

What Is an ACH Payment?

Automated clearing house (ACH) payments are a funds transfer method that a person can use to send money from their bank account to another bank account. ACH payments also work across all financial institutions, for example, between banks and credit unions. Consumers pay minimal or no fees for using the ACH payment service.

ACH payments work in a very straightforward manner: Once the ACH payment is initiated, the transaction is sent to a national network where it passes through a clearing house. The network does the actual processing, not the bank. As the network handles transactions in batches, an ACH payment can take up to three days to clear in the recipient’s account.

Once the network processes a batch of ACH payments, it sends batches of transactions to the appropriate recipient banks. The banks then distribute the funds to the appropriate accounts based on the transaction ledger.

The clearing house and bank distribution processes are all automated, hence the name “automated clearing house.” This means there’s no room for manual error or delay, as long as the initial ACH payment used the correct details for the recipient’s bank account.

Some banks allow consumers to set up ACH payments online, or they may require a paper form. ACH payments are very common for recurring bills, like utility payments. What makes ACH payments especially convenient for repeat transactions is that the recipient can initiate the transaction. So, the sender doesn’t have to remember to send the funds each time they’re due.

What Is a Money Order?

Money orders are a concept almost as old as the country’s postal system itself. Money orders can be purchased through a post office, certain banks, and at some participating retailers and third-party locations.

To purchase a money order, the sender needs to have enough money to cover the amount they wish to send, in addition to any fees. The fees for money orders are low, generally adding up to less than $5. A sender can cover the amount they want to send using cash, a debit card, or a credit card. Credit card issues may charge additional fees, interest, or both because they treat money orders as cash advances.

When issued, a money order looks similar to a check, except the amount printed is firm based on the amount of money the sender paid when requesting the money order. The sender then needs to fill in the recipient’s name and address and then mail or hand the money order to them.

The recipient can cash the money order at any post office, certain retailers, and most banks or deposit it directly into their bank account like they would a check. In order to cash or deposit a money order, the recipient has to show a valid ID that matches the name and address displayed on the money order. If the money order is deposited, the funds are generally available the following business day.

Money orders are considered safer than mailing cash, but they can still be lost, damaged, or stolen like a check. Of course, the single biggest downside to using money orders is that it can be a hassle to purchase, send, and cash them.

ACH vs. Money Order: Key Differences

ACH payments and money orders clearly work very differently, but each method has its place in consumer transactions. Understanding the differences between the two methods, and their advantages and disadvantages, is essential in deciding between them.

Processing Speed

ACH transfers can take up to 72 hours to clear, but money orders tend to take substantially longer. Whereas an ACH transfer can likely be initiated online, a money order must be purchased in person at a participating location. Once the money order is issued, the sender will also have to mail or hand the money order to the recipient. The recipient is then required to find a location where they can cash or deposit it. If they deposit the money order, they might not have the funds for another 24 hours.

Regarding processing speed, ACH payments are the clear winner, but they are not the fastest funds transfer option overall. For instance, wire transfers are also offered by banks and can move the funds as early as the same day, but they come with larger fees.

Fees & Limitations

The great news about ACH payments is that there are generally no limits, or there are very large limits, on the amount you can send in a single transfer. The limits may vary from one bank to the next, and they can often be increased or reduced based on the consumer’s relationship with the bank. Meanwhile, fees for ACH payments are also very low, or zero.

On the other hand, money orders impose a small fee, generally less than $5. However, money orders cannot exceed $1,000 in value, which makes them impractical for large purchases, like real estate transactions. Sending multiple money orders is possible, but it only adds to the hassle. So, anytime someone needs to send more than $1,000, they should consider ACH or another method.

Ease & Security

Money orders have some security concerns that make them less than ideal for funds transfer, especially for large transactions. Money orders might be appropriate if you’re looking for a better alternative to mailing cash gifts, but they’re far from first place for anyone seeking a secure and reliable money transfer solution.

ACH payments, on the other hand, are considered highly secure. It helps that ACH payments pass through a clearing house where all details are verified. Also, since the process is entirely electronic, it allows for a “paper trail” that gives both parties recourse if they need to reverse or cancel the transaction.

Meanwhile, once a money order is issued, it can be hard to get the money back, even if you’re the one sending it. Keeping the receipt for the money order is a must, otherwise only the person with the name and address specified on the money order will be able to cash or deposit it. That means losing a money order or making an error on one can be costly.

ACH vs. Money Order: What’s the Best Option in Real Estate?

ACH payments are a good option for anyone looking for a secure, high-limit, low-fee, and convenient, funds transfer method. At paymints.io, we know that title companies demand speed, ease, and low fees, which is why we’ve set out to revolutionize the payments process.

Are you interested in learning more about paymints.io and how it works? Schedule a demo today and talk to our team.

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