ACH Payments Versus Wire Transfers

ACH Payments Versus Wire Transfers

An ACH payment is an electronic money transfer that moves through the Automated Clearing House (ACH) Network in the United States. An ACH transfer quickly and easily allows bank-to-bank transfers using online banking, without the need to visit a bank in person.

ACH payment processing is similar to wire transfer except it cannot process funds outside of U.S. currency.

 

Process Differences Between ACH Payments and Wire Transfers

Both ACH payments and wire transfers are a method of sending an electronic payment from one bank account to another. The main difference between the two is who is doing the payment processing. 

 

ACH Payment Processing

ACH payment processing moves through the ACH Network, which is comprised of designated ACH Operators who approve to process an ACH debit and ACH credit

To complete this transaction request, you need the following information:

 

  • The name of the bank or credit union that will be receiving the funds on behalf of the individual
  • The type of account that the funds will be deposited into (i.e., checking or savings account)
  • The bank’s ABA routing number
  • The recipient’s account number
  • The name on the receiving bank account
  • The desired funds

 

An ACH entry request is submitted by a bank with the above information. It is then sent through the Clearing House to ensure that the request is in no way fraudulent or erroneous. If it is, then the Clearing House will send back a return code, which will be eventually issued to the Originator. Once the payment has been approved, processed, and transferred, the funds will land in the bank account of the Receiver. 

A common example of an ACH transfer is getting paid through direct deposit. As an employee, you will provide your banking information to your employer who submits an ACH credit for your paycheck to be deposited into your checking account each month. If you’re paid through direct deposit, then you are receiving an ACH transfer. 

This process usually takes a few days but since there is no human intervention required, it is more secure and more affordable than a wire transfer. You can send and request payments, as opposed to wire transfers where you can only send payments.

 

Wire Transfer Payment Processing

Wire transfers are very similar to ACH transfers. The only difference is that the transfer goes from the originating financial institution to the receiving financial institution with no intermediary. 

To complete a wire transfer, you will need the same information as an ACH transfer request:

 

  • The name of the bank or credit union that will be receiving the funds on behalf of the individual
  • The type of account that the funds will be deposited into (i.e., checking or savings account)
  • The bank’s ABA routing number
  • The recipient’s account number
  • The name on the receiving bank account
  • The desired funds

 

Unlike ACH transfers, a wire transfer will not issue a return code. Instead, the funds will be deposited and a refund would need to be issued for the funds to be returned. 

With wire transfers, you can send a lot of money faster than an ACH transfer, but the fees are usually higher. Fees are also charged for both sending and receiving payment and can range as follows:

Wire transfer fees typically look like this:

 

Domestic Incoming   Domestic Outgoing    International Incoming    International Outgoing   
$15 $25 $15 $45

 

Lastly, you can only send wire transfer payments, as opposed to ACH payments where you can send and request payments. 

 

Speed of ACH payments and Wire Transfers to be Processed and Deposited

The speed of an ACH transaction will depend on whether or not that payment is sent as a same-day ACH payment or standard. In general, sending an ACH payment is a bit slower than sending a wire transfer. 

 

Speed of ACH Payments

An ACH transfer can take anywhere from 2 to 4 business days to be completed. This timeline depends on several factors. If a bank can process your ACH payment as a same-day ACH payment, then you can expect those funds faster. 

There are time frames that the request would need to be submitted by in order to be included in that batch.  Therefore, if your bank submits only one batch of Entries at the end of the day, then your ACH transfer will be delayed already by one day. 

A standard ACH transaction will take about 3-4 business days in order for the transfer to be completed. But, ACH transactions can be expedited with same day ACH transactions. This allows banks to make more than one ACH request per day (up to two, in batches) and it expedites the time between a user submitting an ACH request and the processing time of the bank or credit union that you use.

 

Speed of Wire Transfers

Wire transfers are the fastest way to send money. Because a wire transfer is transferred from one bank to another, then this means that it will take less time and it needs less approval than an ACH transfer. 

A domestic wire transfer usually takes about 24 hours. It may take less than 24 hours if the wire transfer is completed within the same bank. It can take a few days (1 to 2 days) for international bank wires.

International wire transfers can take up to five days, and it is common to expect delays even in domestic wires. There are ways to expedite this process, but be sure to expect some mistakes as there are personnel handling the transfer of these funds. 

Once the wire transfer has been processed, the funds appear in the recipient’s bank accounts and are immediately accessible.

 

Security Considerations Between ACH Payments and Wire Transfers

A study by the Federal Reserve based on payment fraud data from 2012-2016, showed the total number of fraudulent ACH transactions decreased and fraudulent card activity increased in both volume and activity. And in 2018, wire transfer fraud was impacting nearly $5.3 monthly.  

If you are sending or receiving an ACH payment or wire transfer, then you need to be aware of the inherent risks. 

When completing an ACH transaction, consider the following security measures:

 

  • The financial institution that you are working needs to be approved by NACHA as an ODFI and/or RDFI and abide by NACHA’s Operating Rules in order to send an ACH transfer.
  • All transfers made electronically should be encrypted, properly authenticated, and authorized by the originator.
  • The financial institution should properly inform you, the user, as to return codes and authorization times.

 

When completing a wire transfer, consider the following security measures:

 

  • Wire transfers cannot be automatically reversed in cases of fraud or payment error, so make sure that you know who it is sending or receiving the transfer. 
  • Wire transfers cannot be faked as easily as a cashier’s check.
  • It’s important to confirm the account that you’re sending to as money can be withdrawn right away. 
  • As long as the transaction isn’t fraudulent, it is very secure.

 

If you are an organization that is interested in sending a bank-to-bank transfer in the form of an ACH payment and/or wire transfer, then it’s important to consider the security measures that need to be taken in order to avoid fraudulent attacks and the ways to mitigate those attacks should they occur. 

Here are some things to consider:

 

  • Seek an appropriate NIST maturity level. Characteristics for NIST and your cybersecurity will vary by maturity level.
  • Maintain multiple lines of defense and distribute your cyber risk exposure
  • Appropriate a number of funds of your IT budget for cybersecurity
  • Store data on PCI approved hardware and software
  • Use only approved service providers (those marked as a PCI DSS Validated Entity)
  • Do not store card security number or electronic track data
  • Encrypt the electronic storage of all bank account information, credit card account information and cardholder data
  • Encrypt phone recordings containing bank account information and credit card account information

 

Since both an ACH transaction and a wire transfer involves the sharing of sensitive information, typically through an online network, it’s important that these transactions are secured and insured. 

 

How to Determine Whether You Should Use an ACH Payment or Wire Transfer

Determining whether you want to use an ACH payment or a wire transfer to send payment will depend on what you need. 

 

Security

If you are looking for more security, then you will have to determine the security clearances of your bank or credit union. 

If you aren’t confident in the recipient that is receiving the funds and you are sending the funds, then you can go through the ACH transaction process and the bank will be able to confirm and authorize the recipient’s account.

 

Speed

Wire transfers may be faster than ACH transfers, but this is not guaranteed. If you are sending money to a recipient within the same bank, then this process can take 24 hours. 

For domestic transfers, then you can expect the process to be 1-2 days. And once they arrive in the recipient’s bank account, the recipient is able to access the funds. Unfortunately, all of these timelines can be delayed if there is an error in handling.

With same-day ACH transfers, the recipient can receive and access the funds with 1 to 2 business days.

 

Affordability

ACH transactions are far cheaper than wire transfers. On average, an ACH transfer only costs about $0.29 USD. This is far cheaper than the typical wire transfer fees that banks charge; a wire transfer can range from $15 to $45 depending on if you have to pay for the recipient to receive the wire transfer and if it is being sent domestically or internationally.

 

International Payment

Wire transfers are a common way to send electronic money internationally. ACH transfers are typically only used to send transfers domestically as the ACH network processes payments in USD. However, certain ACH APIs can facilitate the transfer of funds in non-US currency.

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