ACH vs. wire transfer: 4 key differences and benefits for small business

What is an ACH transfer?

An ACH transfer, or payment, is a type of electronic payment between bank accounts through the Automated Clearing House (ACH) network. This network of banks and other financial institutions uses batch processing to transfer funds from bank to bank.

Essentially, these financial institutions group ACH transactions together and transfer them three times each day. Nacha oversees this process, which connects all US bank accounts and implements rules and standards for financial transactions.

How do ACH payments work?

ACH transfers don’t require the bank to be a middleman. Instead, they use the ACH Network to make transfers. This allows people to send and request money transfers independently. These transfers are usually used for payroll, bill payments, and recurring transactions.

ACH payments fall into two different categories:

• ACH direct deposit: A government entity or a business makes payments to an individual.
• ACH direct payment: An individual or business sends money through the ACH Network. It uses a debit and credit system to send money from one bank account to another.

ACH transfer examples

ACH payments are fairly common. Many people and businesses use ACH transfers to pay bills, conduct payroll, or complete other routine transactions.

Some of the most common ACH transfers include:

• Direct deposit
• Venmo
• Paypal
• Zelle
• Reimbursements
• Government benefits
• Digital tax refunds

What is a wire transfer?

A wire transfer is an electronic payment that sends money from one bank account to a different bank. This type of transfer is also known as an interbank payment.

The sender issues a payment to their bank, which issues it to the recipient’s bank and finally to the recipient. This way, the bank acts as the middleman for the payment.

Some people think of wire transfers as eChecks because they're similar to cashier’s checks—as soon as you initiate the transfer, the funds are taken out of your account.

How do wired payments work?

Unlike transferring money from your checking account to your savings account, a wire transfer doesn't require linked bank accounts.

Instead, a wire transfer uses the recipient’s bank account number and American Bankers Association (ABA) routing number, a unique nine-digit number that identifies each banking institution. International wire transfers use codes from the Society for Worldwide Interbank Financial Telecommunications (SWIFT) banking system.

Although wire transfers can send any amount of money, they're typically used to transfer larger transactions. For example, companies may wire payments during mergers and acquisitions because they have a faster transfer speed and usually a high transfer limit.

Wire transfer examples

Wire transfers are slightly less common for people to use when sending funds. However, those sending funds to family abroad or paying larger invoices might be more familiar with them.

Some of the most common wire transfer examples include:

• International invoices
• International transfers to family
• Down payment and closing cost transfers
• Legal fees or penalties
• Western Union

ACH payment vs. wire transfer: 4 key differences

Though people may use the terms interchangeably, ACH and wire transactions are two distinct transfer services. Let’s look at the key differences between the two.

1. Speed

Winner: Wire transfer

When it comes to money transfers, speed is always key. Recipients don’t want to wait days for payment processing to access their funds, so wire transfers are better for faster transactions.

Wire transfer payments for domestic transfers are almost always available by the next business day. In many cases, wire transfers can even be available on the same day as long as you meet the bank’s deadline for same-day transfers. However, human error, holidays, and location can extend this period up to 10 days.

On the other hand, ACH payments can take three to five days for the funds to become available, though sometimes they can be available much sooner. You might also have the option to pay extra to get funds transferred faster.

2. Costs

Winner: ACH transfer

If you’re looking for a cost-effective way to send money, ACH is the way to go. ACH transactions are usually free for consumers, depending on the bank. However, payment services like PayPal or Venmo may charge a higher fee.

For business bank account transfers, the average cost ranges from 26 to 50 cents per transaction. Business owners and institutions that use ACH payments for direct deposit have to pay a fee, but it’s never charged to individuals. Therefore, ACH transfers can be a great choice for payroll.

Wire transfers, on the other hand, always have fees. Most domestic wire transfers cost between $20 and $35 to send, and the cost is higher for international wire transfers. Depending on the bank, the recipient may also have to pay a fee to access funds.

3. Availability

Winner: Wire transfer

While both services send money within the United States, wire transfers are much more common for international transfers. ACH typically facilitates domestic money transfers, although it has a partner system called Global ACH that can be transferred internationally through other bank-to-bank networks.

ACH transfers are bidirectional and allow the receiver to initiate the request to transfer funds. On the other hand, only the sender can start the transfer with wire payments.

4. Safety

Winner: ACH transfer

ACH payments are considered the more secure payment option for senders since Nacha oversees the ACH Network to ensure safety. There are ways to reverse the payment if there’s an error or mistake with the money transfer.

While there have been scams and business fraud associated with ACH payments, the transfers typically require you to enter a significant amount of bank account information, which makes them a more secure money transfer option.

Wire transfers are a less secure system for money senders. Wire transfers are relatively instant and cannot be reversed once processed. If your money is transferred in error or due to fraud, it’s almost impossible to get back.

What to consider before choosing a payment method

When you decide between ACH and wire transfer, consider a few additional factors that can affect your costs and timing.

Recipient needs and expectations

Some vendors prefer one method over the other. For example, international suppliers may request wire transfers because they can receive funds more quickly. Confirm what works best for your recipient before sending payment.