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ACH vs wire transfers: what’s the difference?

A closer look at the two popular money-transfer products, how they differ, and how they’re changing in the future

October 07, 2021

Tom Sullivan Pic
Tom Sullivan

Tom is a writer at Plaid. He's passionate about the freedom that the union between financial services and technology can create.

There are four principal systems for digitally exchanging money in the US, two of which don’t involve the use of a card: the ACH transfer and the wire transfer. While the advantages of the latter are more widely understood, the former is primarily known both by other names and by a reputation that no longer fits it.

This article will clearly define what ACH and wire transfers are, explain the differences between them, and explore how they’ll be changing in the future. 

What's ACH?

The Automated Clearing House (ACH) network is a system for moving money between bank accounts in the US. It’s the direct evolution of the paper check—just transformed into a digital process to improve efficiency and reduce the need for human inputs. It’s often referred to by functional nicknames like direct deposit, direct debit, auto-pay, and the generic term “bank transfer”. It’s also the underlying technology behind most peer-to-peer transfers made through services like Venmo, PayPal, Cash App, and Zelle.

ACH transfers can occur between any two financial institutions on the network, and can either push or pull money through the system as needed. Each transaction is submitted to the network as part of a batch, which the network’s operators repackage into new bundles for each receiving institution 5 times per business day. The party initiating the request can either choose to pay for same-day service or default to one business day (for debits being pulled through) or two business days (for credits being pushed through). 

For more in-depth information about ACH, read our comprehensive post on what ACH is and how it works.

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What’s a wire transfer?

Wire transfers, named after their origin in the days of the telegraph wire, are direct point-to-point transfers between any two financial institutions; or, for international wires, sometimes with one or two intermediaries along the way. Sometimes called remittance transfers, they’re typically used for higher-value items like property purchases or for settling large institutional transactions.

Both ACH and wire transfers work on similar principles for clearance and settlement, just with different timelines and rules. Where wires generally clear immediately and forever, ACH messages are slowed down both by the batching mechanism and by being subject to various error messages (if something goes wrong with the transaction) that can take up to a few business days to be returned to the originator.

Sending and receiving banks in both systems also settle their transactions with the help of the Fed, just on different schedules. In both systems, funds are typically released to recipients shortly following settlement.

What are the differences between ACH transfers and wire transfers?

There are seven major differences between ACH transfers and wire transfers, explored in detail below.

Please note: “cleared” here means that the transaction details have been passed on, “settled” means the two banks have exchanged money to make good on the underlying transaction, and “disbursed” means the funds have been released to the end account holder.

1. Transfer speed differences

Domestic wire transfers typically clear within minutes and settle within a business day, while ACH transfers can take between hours and days to both clear and settle.

Wire transfers are cleared as soon as the receiving bank signs off on the incoming message, which is either immediate or following any routine due diligence. If the sender paid a premium to use Fedwire, these transfers then settle and disburse immediately thereafter. If the payment was instead routed through CHIPS (Clearing House Interbank Payment System), the timeline will depend on when the transfer was initiated. If sent by the specific bank’s mid-day deadline, it will typically settle early that evening. Otherwise, it will settle the next business day.

ACH transfers are more variable. If the originator paid the extra fee for same-day processing and the transaction was initiated within one of the three same-day processing windows that occur each business day, then clearing, settlement, and disbursement will all happen that day. Otherwise, clearance will happen by the end of the current business day, and settlement either the morning of the next business day (for debit transactions) or that of the business day after (for credit transactions). Unless there is an error, disbursement happens within minutes to a few hours.

2. Settlement differences

Wire transfers generally settle permanently, while some ACH transfers can be recalled up to 3 months later.

Wire transfers can be cancelled up until they’re cleared (which could be just minutes), then are largely irrevocable beyond that. The main exceptions are when the bank mistakenly sends the transfer to the wrong account or sends the wrong amount. In cases of sender’s remorse, the sending bank is permitted to try to work with the receiving bank, but has limited recourse if the funds have already been withdrawn on the other end.

ACH transfers can’t be cancelled, but can be recalled or disputed. Credit transfers can be requested to be reversed within five business days if sent to the wrong account, for the wrong amount, with the wrong date, or as a duplicate. Debit transactions can be disputed by the payer as non-authorized for up to 60 days after the statement date of the transaction in question. Debit transactions can also be returned because of insufficient funds for up to two business days. 

3. Cost Differences

When a consumer uses ACH to make or receive a payment, they almost always pay no fee. Instead, the organization or business they’re transacting with incurs a fee from their payment processor or bank. However, if a consumer uses a wire transfer, the fee is charged to them in the same manner it would be charged to a business.

Wire transfers typically charge both parties. Domestic wires tend to cost up to $35 for the sender and up to $20 for the receiver. For international wires, it’s usually another $15-30 for the sender, plus any currency exchange fees. 

ACH transfer fees are highly variable, but generally quite inexpensive. Processing fees can be as little as tenths of a cent per transaction with banks and into the tens of cents or more with payment processors. Higher dollar-value transactions can also incur percentage-based fees with some processing partners of up to 1-1.5%, but those are usually capped at $5. They also tend to incur less administrative cost as they are processed in bulk with little to no human intervention. ACH fees are rarely passed on to consumers.

4. Directional differences

Wire transfers can only push money, while ACH transfers can either push or pull. 

Wire transfers are purely credit transactions, moving money from the sender to receiver. This means only the sender can initiate.

ACH transfers are bi-directional in that they also allow payees to initiate transactions on the behalf of payers. This makes them more suitable for more use-cases.

5. Frequency differences

Wire transfers are generally one-off only, while ACH transfers can be recurring.

Wire transfers are singular transactions by design (for consumers at least). Each new transaction generally requires a new authorization and a new fee.

ACH transfers can allow for recurring transactions, making them attractive for regular billers and employers. Payers or employees can give standing authorization, allowing for inexpensive regular debit or credit transactions.

6. Size differences

Wire transfers are typically used for high-value transactions only, while ACH transfers are most often used for smaller and more frequent transactions.

Wire transfers are much larger on average. Fedwire, which settles the majority of wire transfers within the US, handled $840 trillion in transfers in 2020 across 184 million transactions, for an average value of roughly $4.6 million per wire transfer. Though this is somewhat inflated, as many transactions initially clear through CHIPS and then settle on a netted basis later through Fedwire. Even so, the true average value is considerable.

ACH transfers are much more volume-heavy. The ACH network processed $62 trillion in transfers in 2020 across nearly 27 billion transactions, for an average value of $2,300. While the $100,000 maximum only applies to same-day transactions, the slower settlement time of the ACH network has historically made it more suitable for smaller transactions. 98% of ACH transactions are smaller than $25,000.

7. Global differences

Wire transfers are widely used internationally, while ACH transfers are currently only used in the US and a few special bilateral agreements.

Wire transfers are broadly supported internationally, with a mature network of correspondent banks allowing transfers across countries and currencies with usually only one or two intermediary stops. Though currency exchange fees can be quite costly at 2-3%.

ACH transfers are largely limited to the US. While there have been occasional pushes for more interoperability between major ACH-like networks globally, the number of parties required to coordinate this is quite high.

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Learn why more consumers are choosing to pay with their banks.

How are ACH transfers and wire transfers changing?

After years as the leading incumbents for money transfer between banks, ACH and wire transfers are now both being renovated to allow for new and better user experiences. 

Wire transfers are being reimagined by fintech companies like Wise, who’ve replaced traditional chains of correspondent banks with pools of money in each country. If someone in the US wants to send a wire to someone in Australia, they can send an inexpensive ACH transfer to Wise’s US account instead. Wise will then send a local ACH-like transaction from their Australian account to the local recipient. Cutting out the middle parties saves a lot of money, which Wise passes on to its customers.

ACH transfers are getting faster and more efficient as new solutions are built on top of the old infrastructure. For example, Plaid has tools that enable businesses to validate account information, verify account ownership, and ensure accounts have sufficient funds before an ACH transfer is initiated. These tools help innovators create new financial services solutions that leverage the ACH network. 

Wire transfers and ACH transfers serve different needs. Luckily for business owners, both user experiences are being improved, but especially ACH, as it’s likely to get faster and easier for everyone. An example of this is the expansion of Same-Day ACH, which will soon increase its transaction limit from $100,000 to $1 million. This increase will make ACH a viable and cost-effective alternative to wire transfers for larger transactions.

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