Sending money transfers sometimes come with fees. If you send a lot of money, especially by wire transfer, then you know that these fees can definitely add up.
Sending money as an ACH transfer can save you from spending a portion of your income on bank fees. But how much does it cost to send an ACH payment? What fees are associated with ACH payments?
This article will address whether ACH payments have fees, and other ways to reduce the cost of sending money within the United States.
What is an ACH Payment?
An ACH payment is a money transfer that moves through the Automated Clearing House (ACH) Network. This Network is located in the United States and is comprised of private banks, the Automated Clearing House, and the Federal Reserve.
This Network operates as checks and balances for all the bank-to-bank money transfers. In essence, since so many money transfers are sent daily (setting a record high of over 100 million ACH payments per banking day in February of 2019), the ACH Network processes allows each individual bank and the federal reserve to administer these payments and to properly monitor ACH payment fraud.
When using an ACH transfer, recognize that there are two main types of payment options: an ACH debit and an ACH credit.
An ACH debit is when one person requests that money is taken out of another person’s account. An ACH credit is when one person requests that money is deposited into another person’s bank account.
Think of the transaction in terms of who requests the transfer to happen. The person who makes the request is known as the Originator, and the request is made at the Originator’s bank-also known as the Originating Depository Financial Institution (ODFI). The person who does not make the request but is on the other end of the transaction is referred to as the Receiver and their bank is known as the Receiving Depository Financial Institution (ODFI).
Each entity involved in ACH processing for the ACH Network must be approved as they are responsible for reporting fraudulent activity and for verifying identification. These actors are referred to as an ACH Operator.
Why Does Sending Money Cost Money?
As you can probably tell by the scenario previously described, sending an ACH debit or ACH credit from one bank to another, or one person to another, involves a number of individual actors to facilitate this transfer.
Any form of sending money in the United States requires that a third-party is involved. This means that if you are sending money by wire transfer, ACH transaction, or using an app that sends an ACH transfer, the banking system that you use needs to be involved.
This is largely due to security and fraud protection. Think about sending money transfers the same way you would think about sending cash. Instead of handing cash over to the person you want to give the money to, you are giving the cash to someone at the bank who then is transferring it to another bank.
Because there other actors facilitating this return, and a system to verify the bank account holder’s information, a small fee is charged for ACH payment processing. By charging a fee, financial institutions and the ACH Network can affordably provide ACH billing for companies, timely processing of these transactions, schedule recurring payments, offer expedited processing services, and ensure that your money is not subjected to fraud.
The Cost of Sending a Wire Transfer
Wire transfers are an effective way to send a lot of money and quickly. However, the fees for sending wire transfers are typically pretty high.
According to NerdWallet, median wire transfer fees look like this:
Unfortunately, these fees are changed for both sending the payment and for receiving it. So, often, if you are sending a wire transfer you end up forking out up to $40 USD for domestic transfers and $60 USD for international transfers.
Of course, these fees will range depending on the bank that you use. Some banks and other financial institutions do not charge any fees for receiving a wire payment, for example, or they charge fees as low as $15 USD. However, other intermediary banks may also be used during the payment transaction, and they might also charge a fee.
The actual cost of sending or receiving payment by wire will depend on the financial institution that you bank with. The fee schedule could also fluctuate depending on your account type. A premium checking account, for example, might subsume fees associated with processing a wire transfer.
What Are The Fees for ACH Payments?
Another way to send a money transfer is with the ACH payment method. An ACH payment is not an electronic debit card. Instead, it is a way to securely link a bank account to another to transfer money.
ACH payments can be used for bill payment, paying down a credit card, or sending money to a savings account. Sending money via ACH transaction is a far more affordable payment option than a wire transfer, and can easily be sent as an electronic payment.
Similar to the wire transfer costs, you might be charged an ACH transfer fee for certain types of payments. For example, if you are sending an ACH transfer to a friend through a third-party service, then you might be charged a fee for each payment. Usually this a small flat fee (around $1.50) or a small percentage of the transaction total (1 to 2%), but it might also be free depending on the number of payment requests that you have.
The median internal cost of sending and receiving an ACH transfer is only $0.29 USD and the median external cost is $0.27 USD. However, the use of a third-party app or banking institution, as well as the time that it takes to send that money, and other security measures, bumps the cost up.
Here’s a break down of the estimated ways an ACH transfer fee can be charged:
- Flat fee, charged for each transaction: $0.20 – $1.50
- Percentage fee, charged for each transaction: 0.5% – 1.5%
- Monthly fee: $5 – $30
- Batch fee, charged for each batch of payments sent: << $1
- A return fee, charged for only when an ACH is returned: $2 – $5
- A reversal fee, charged for only when an ACH chargeback is required: $5 – $35
This is far more affordable than wire transfers and/or receiving a check. A benchmark survey with Bottomline Technologies found that the estimated monthly cost of a receiving 20,000 checks per month was around $1,000 USD daily, $30,000 USD monthly, and $360,000 annually.
ACH transfers sent between a bank account that is linked to another financial institution (also known as an external transfer) might be charged a fee to transfer, however, this is not always the case. Some banks may charge a nominal fee, ranging from $3 to $30 USD, but many banks don’t charge a fee.
The scheduled fee might only exist for the person who sent the ACH debit transaction. For example, it does not cost anything for an employee to receive a direct deposit payment from their employer. However, the financial institution of the employer will probably charge a fee depending on the number and size of transactions sent.
So while sending an ACH transfer might cost, notice that it does cost drastically less than a wire transfer. These fees are also substantially more controllable than credit card transaction fees.
How To Reduce Fees Associated With ACH Payments
If you are looking to reduce the fees associated with sending money transfers consider sending via ACH transfer. If you are still looking to reduce the fees associated with sending an ACH transfer, then you can consider the following:
The ACH fee that you charge will depend largely on the number of ACH transactions that you process and the transaction size. So if you process a lot of ACH transactions frequently, then you can begin to reduce the cost of the ACH transfer by sending the ACH payment requests in batches.
Nacha, the National Automated Clearing House Association in charge of administering the ACH Network, recently introduced same-day and next-day payments, which allows financial institutions to submit up to two batches of ACH transfers per day, one at 10:30 AM ET and one at 2:45 PM ET. This means that with same-day batch processing, you can submit more ACH transfers more often, and settlement through the ACH Network will occur quickly (on the same day).
If you aren’t processing a lot of ACH transactions, then you can consider a percentage fee. This will reduce the cost because the percentage would only account for the fee of that transaction. This might reduce the amount that a person is willing to spend with you and your business, but it would save money for those who are consistently spending less.
With all your ACH transactions, you need to consider the ACH return fee and the ACH reversal fee. If you can, you can hold the banking information until the ACH transfer has been processed. Once it is processed and no return fees apply, then you could get away with not charging that fee for the client. Instead, you would only charge those who issued a return fee.
The same holds true for reversal fees. If you are forced to reverse the ACH transfer as per a request made, then you will charge only when that request is being made. This means that you don’t have to include an amount that is the average of a reversal or return fee in the flat rate or percentage fee. Instead, the payment will only be charged for the amount to process it, and any additional fees will be applied at a later time.
Using ACH APIs As Affordable Payment Processing
When sending an ACH transfer, you must always consider the financial institution and the rate and frequency of transfers to be made. If the financial institution you are using presents fees that are too high and cannot be reduced, you can consider switching to an ACH API, which can be integrated into a financial software system, website, app, or other types of payment system to reduce these fees.
ACH APIs are powerful pieces of code that can quickly and securely process an ACH transfer. APIs can also facilitate the processing of credit card payments, so you can integrate this form of payment method into your business transactions as well.
Most ACH APIs are facilitated through third-party software, so make sure that the software company has ensured the API for accuracy and security. The API should allow for account verification, authorization, and authentication.
Also, note that some ACH APIs can even facilitate international transactions. For example, Sila is a powerful API that uses the Ethereum blockchain as cryptocurrency and a way to send money. They call their transfers Sila tokens. So, if you need to consider accepting and/or receiving international money transfers, the Sila API allows you to transfer that money into the blockchain.