ACH vs. Wire Transfers: What Is The Difference?

Non-cash transactions are continuing to grow at a steady pace. In 2016, the total value of global non-cash payments jumped by more than 10 percent, exceeding over $482 billion. Experts projected the market would grow more than 12 percent in the years following, but the real numbers far outpaced their expectations. In 2019, over 708 billion non-cash transactions took place, marking a record growth of 14 percent in just one year. When looking at how consumers send and receive non-cash transactions, they have countless options, from credit cards and mobile wallets to peer-to-peer payment providers like PayPal. However, two types of electronic payments continue to dominate the industry: ACH and wire transfers. As non-cash transactions increase, so do the number of these transaction types, but there’s confusion surrounding them. If you’re interested in learning more about ACH vs. wire transfers, along with what makes them distinctly different, this guide is for you.

What Is an ACH Payment?

Automated clearing house (ACH) payments represent all transactions where money is moving from one financial institution to another (i.e., between banks and/or credit unions). All ACH payments pass through a national network, which batches transactions into groups.

The national network puts all ACH payments through a clearinghouse, which means the banks aren’t the ones processing the payments. Instead, the network batches ACH payments and processes them daily, with the clearinghouse ensuring that the proper amount is debited from the sender’s account and deposited into the recipient’s account.

Just as ACH payments are processed in batches, banks also receive their ACH payments in batches. When banks receive a batch of ACH payments, they must direct each deposit into the right customer account. Fortunately, the network batching process and the bank distribution process are both entirely automated, so there’s no room for manual error or delay.

Consumers who opt to use ACH payments over paper checks enjoy a faster and more secure transaction, and they pay fewer fees. However, ACH payments are not instant. While the clearinghouse process is automated, it can take up to 72 hours before the funds reach the recipient.

Additionally, until the clearinghouse finishes its processing for the payment, there could still be issues. For instance, it’s possible that the sender does not have enough money in their account to make the payment, which means the customer’s account may be overdrawn or the payment may be cancelled, depending on the amount and the bank.

Amazingly, ACH processing has fueled banking for over 40 years, and the use of ACH payments continues to grow year over year. Over 24 billion transactions pass through the ACH network each year, adding up to more than $41 trillion in value. Some of the most common uses for ACH payments are to pay vendors, taxes, and salaries. You can set up ACH payments to happen on a schedule, so they’re ideal for recurring payments.

What Is a Wire Transfer?

Many people confuse ACH payments and wire transfers because they can sound quite similar on paper. Like an ACH payment, a wire transfer is also an electronic payment involving a funds transfer between two banks or other financial institutions. However, wire transfers do not pass through a clearinghouse. The lack of a clearinghouse in the wire transfer process makes the funds transfer immediate.

If you wire money to a person or business directly from your bank account, the wire transfer service will move the money electronically. As soon as the bank successfully transferred the funds, both the sender and recipient will receive a notification.

Wire transfers are a common solution for large transactions, like paying off a big loan or making a major purchase, like a home. Many lenders ask home buyers to wire the down payment into the lender’s account, and the closing process cannot proceed until the lender has those funds.

Wire transfers are an appealing solution because they give same-day access to the money being sent, which can expedite transactions. However, the differences between an ACH payment and a wire transfer don’t stop with speed, so let’s dig deeper into what makes an ACH payment different from a wire transfer.

ACH vs. Wire Transfers: Key Differences

Both ACH payments and wire transfers allow a person to move funds between financial institutions, but they work differently. The key differences resulting from these two transfer methods include:

  • Processing: Sending an ACH payment means that your funds will need to pass through a national clearinghouse before reaching the recipient. Meanwhile, the bank(s) process wire transfers directly.
  • Speed: While ACH payments can take up to 72 hours to complete, wire transfers generally provide same-day access to the funds being transferred. This makes wire transfers more appealing for certain transactions, like home closings, because they can expedite the process.
  • Fees: Consumers often prefer ACH payments, especially if they’re handling a recurring bill, because there are no fees associated with them. Wire transfers often charge both the sender and the recipient a fee. The wire transfer fee varies from bank to bank, and it may depend on the transaction amount. The sender might pay up to $25, while the recipient might pay up to $20.
  • Security: The clearinghouse that checks ACH payments imposes certain requirements that can add security to the process. Wire transfers have fewer restrictions. Sending or receiving wire transfers from an untrusted party is risky and this method is commonly used by fraudsters.
  • Initiation: Only the person sending the funds can initiate a wire transfer. By contrast, either the sender or the recipient can initiate an ACH payment. For instance, a consumer can provide their banking details to a business, allowing them to initiate an ACH transfer out of their account.

Using ACH Payments and Wire Transfers

For many banking customers, both ACH payments and wire transfers will come in handy over time. Using either is straightforward, although the process differs for each method.

Only the sender can initiate a wire transfer. They may be able to do so online through their bank’s web portal or they can likely initiate one over the phone by providing some verified details to the bank’s support line. In some cases, a bank might require the customer’s signature in order to initiate a wire transfer.

Either the sender or recipient can initiate an ACH transfer. Some banks allow customers to set up ACH payments online. Other banks require the recipient (typically a business) to complete a form with your details and authorization, which they will then share with your bank or financial institution.

So, when might you use ACH payments or wire transfers? Both have plenty of practical applications, especially in real estate. As an industry professional, you’ll find that managing payments is becoming much easier thanks to emerging solutions like paymints.io.

Are you interested in learning how paymints.io is taking real estate payments to the next level? Explore what paymints.io has to offer and the benefits it brings to consumers and real estate professionals. Schedule a demo today!

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