Difference Between Wire Transfer and ACH

What is a Wire Transfer?

One of the fastest ways to send money is via wire transfer. Although a wire transfer can take days, in most cases a wire transfer takes place within minutes. It is a direct bank-to-bank transaction that allows you to move money from your account directly into the account of someone else. This transfer is conducted as part of an agreement set up between banks that establishes guidelines and allows for such transfers to take place.

When a wire transfer is made from one bank account to another, both account holders are verified. Additionally, the amount of money in each account is verified, so there are no charge backs associated with wire transfers. In general, a wire transfer is fast and secure. Since it is handled individually by the banks and does not go through a clearinghouse first, a wire transfer can take place almost in real time.

Financial institutions often charge fees for receiving wire transfers, as well. Because a little more effort has to be made when receiving, since the institution is contacted directly, many banks and credit unions will charge a fee to receive transfers. However, the fee to receive a transfer is often less than the fee to send a transfer. Wire transfer fees vary according to financial institution, but many institutions charge between $20 and $35 to send a wire transfer, and between $10 and $20 to receive one.

Wire transfers also do not have to take place from bank account to bank account. Western Union and MoneyGram are companies that provide wire transfer capabilities. When you go to a Western Union or MoneyGram provider, you can accomplish a cash wire transfer. You take the money to the approved Western Union or MoneyGram counter, pay the fee, and then the person on your end verifies it with the person on the receiving end. A Western Union or MoneyGram wire transfer can take as little as 10 minutes if everything goes well.

Automated Clearing House (ACH)

While it may seem similar to a wire transfer, a transaction accomplished with the help of an automated clearing house (ACH) is not the same thing. The banking system has utilized the ACH method for more than 40 years. These types of transactions can be quite convenient and are the type utilized when when you use online bill pay, and often when you use your debit card.

When you arrange for the electronic transfer of funds, all of the information is included in a batch, which is then sent to the clearing house. All of the transactions in the batch are then handled by the clearing house, rather than as a direct bank-to-bank transaction. Additionally, banks receive their ACH transactions at once, as well, processing those as a single transaction, in a batch. This approach simplifies the process, since each individual transaction does not need individual attention - it is all automated.

As a result, your money is not available as quickly as it often is with a wire transfer. The ACH process can be more convenient and is less expensive, but it also takes a little bit longer. This is why you often have to make sure that bill payments are scheduled a few days early. Additionally, when you deposit a check, the ACH system means that the funds from the check writer’s bank will not be cleared until the batch is run. So you will not have access to all of your money until at least the next day in many cases (and sometimes longer). You need to account for this when making deposits and planning on automatic bill pay and other transactions. Otherwise, your payments might not be received in time, and you might be subject to overdraft fees.

Wire Transfer vs. ACH

Because a wire transfer requires the individual bank-to-bank process, it is usually more expensive than an automated clearing house (ACH) transaction, which requires minimal involvement by individuals at the financial institutions involved. Many ACH transactions come with only a small fee, or even no fee at all, since they are run with more efficiency. However, if you want a better guarantee that your money will arrive on time, it might be worth it to pay the wire transfer fee.

With both cases, it is possible for errors to be made. However, since you often get to review the information before it is sent with a wire transfer, the method is a little more secure. Also, because identities are verified with wire transfers that take place between bank accounts, the chance of fraud is lower. Wire transfers that take place between financial institutions are generally considered quite secure.

Dangers of Cash Wire Transfers

Most of the issues arising from wire transfers are related to cash wire transfers, like those made at Western Union or MoneyGram. While it can be a convenient way to send cash to relatives at a distance when in a pinch, a cash wire transfer also has its problems. The main issue is that there is no verifying of the sender and the recipient. A false identity can be used at one end of the transaction, with a fraudster collecting the money.

Another issue is that someone collecting the money can just disappear with the cash, leaving almost no trace. If you buy something using a cash wire transfer, you have no simple recourse if the seller receives the money but does not send the promised item. Even if you do get the item, if you have used a cash wire transfer to pay for it, you have no guaranteed help if the item is damaged, or if it is not what was promised. A credit card allows you some protection, and ACH transactions have fraud liability laws associated with them. When you send cash via wire transfer, you are not protected in the same way.

Bottom Line

Wire transfers can be fast and convenient. They represent a quick way to transfer money from one bank or credit union account to another bank or credit union account and can also provide a quick way to send cash to someone who lives far away. However, wire transfers are also more expensive. If you have some time, sending money electronically through the ACH system can be a good choice. However, if the money needs to be transferred more quickly, you may have to pay the fee and get a wire transfer.