There are four main systems to digitally exchange money in the United States. Two of these—the ACH transfer and the wire transfer—don’t involve the use of a card. While the advantages of the latter are fairly well known, the former goes by several names and suffers from an outdated reputation.
This article will define ACH and wire transfers, explain their differences, and explore how they're evolving.
What’s an ACH transfer?
The Automated Clearing House (ACH) is a network for moving money between bank accounts in the US. It’s the direct evolution of the paper check, transformed into a digital process for improved efficiency and reduced human input. It’s often referred to by functional nicknames like direct deposit, direct debit, auto-pay, or the generic “bank transfer”. It’s also the underlying technology behind most peer-to-peer transfers in the US. Think services like Venmo, PayPal, Cash App, and Zelle.
ACH transfers can occur between any two financial institutions on the network, pushing or pulling money as needed. Each transaction is submitted to the network as part of a batch, then re-bundled per receiving institution six times per business day. The initiating party can either pay for same-day service or default to one business day.
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What’s a wire transfer?
Wire transfers (named in the days of the telegraph wire) are direct transfers between any two financial institutions—though international wires may include one or two intermediaries along the way). Sometimes called remittance transfers, they’re most often used for higher-value items. Think property purchases or large institutional settlement transactions.
ACH vs. wire transfer: What’s the difference?
Both ACH and wire transfers work in a similar way, but with different timelines and rules. Wire transfers are direct, generally immediate transfers between two financial institutions. ACH transfers, meanwhile, pass through the Automated Clearing House, and can take up to a few business days.
In total, there are seven major differences between ACH transfers and wire transfers. We explore them in detail below.
Note: “Cleared” means that the transaction details have been passed on. “Settled” means the two banks have exchanged money to honor the underlying transaction. “Disbursed” means the funds have been released to the end account holder.
1. Transfer speed
Domestic wire transfers usually clear within minutes and settles within a business day. ACH transfers can take between hours and days to both clear and settle.
How long does an ACH transfer take? The time it takes an ACH transfer to clear can vary. If the originator pays the extra fee for same-day processing and the transaction is initiated on a business day within one of the three same-day processing windows, then clearance, settlement, and disbursement will all happen that day. Otherwise, settlement will happen the morning of the next business day. Unless there is an error, disbursement happens within minutes to a few hours.
How long does a wire transfer take? A wire transfer clears as soon as the receiving bank signs off on the incoming message. This happens either immediately or following any routine due diligence. If the sender pays a premium to use Fedwire, the transfer settles and disburses immediately. If the transfer is routed through the Clearing House Interbank Payment System (CHIPS) instead, the timeline depends on the time of the transfer's initiation. If sent by the bank’s mid-day deadline, it will typically settle early that evening. Otherwise, it will settle the next business day.
Wire transfers generally settle permanently. Some ACH transfers, however, can be recalled for up to three months.
ACH transfers can’t be canceled, but can be recalled or disputed. Credit reversals can be requested within five business days due to an error in account number, amount, or date—or if a duplicate. Debits 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 various other reasons, including insufficient funds, for up to two business days.
Wire transfers can be canceled up until they’re cleared (which can be as quick as a matter of minutes). After that, they are generally irrevocable. The main exceptions are if the bank has sent the transfer to the wrong account or for the wrong amount. In cases of sender’s remorse, the sending bank may try to work with the receiving bank, but has limited recourse if the funds have already been withdrawn.
A consumer using ACH to make or receive a payment does not usually pay a fee. Instead, the organization or business with which they're transacting incurs a fee from their payment processor or bank. A consumer using a wire transfer is generally charged a fee.
What is an ACH transfer fee? ACH transfer fees are variable, but generally quite inexpensive—and rarely passed on to consumers. Processing fees can be as little as tenths of a cent per transaction for banks or up to tens of cents or more for payment processors. Higher dollar-value transactions can also incur percentage-based fees with some processing partners. This can reach up to 1-1.5%, but are usually capped at $5. As processing happens in bulk with little to no human intervention, ACH transfers incur less administrative costs.
What is a wire transfer fee? Wire transfers generally charge both parties. Domestic wires tend to cost up to $35 for the sender and up to $20 for the receiver. International wires can incur another $15-30 for the sender, plus any currency exchange fees.
While ACH transfers can either push or pull money, wire transfers can only push money.
ACH transfers are bi-directional. This means they also allow the receiver to initiate a transaction on behalf of the sender. This makes them suitable for more use cases.
Wire transfers are credit transactions, moving money from sender to receiver. This means only the sender can initiate them.
While ACH transfers can be recurring, wire transfers are generally one-off transactions only.
ACH transfers can allow for recurring transactions. This makes them attractive for regular billers and employers. Standing authorizations can be given, enabling inexpensive regular debit or credit transactions.
Wire transfers are singular transactions by design (at least for consumers). Each new transaction generally requires a new authorization and a new fee.
ACH transfers are most often used for smaller and more frequent transactions, while wire transfers are generally used for high-value transactions.
ACH transfers are much higher in volume. The ACH network processed over $72 trillion in transfers in 2021, across 29 billion transactions. That's an average value of roughly $2,500 per transfer. The slower settlement time has historically made ACH more suitable for smaller transactions.
Wire transfers are much larger on average. Fedwire (which settles the majority of US wire transfers) handled $991 trillion in transfers in 2021, across 204 million transactions. That's an average value of roughly $4.8 million per transfer. This number is somewhat inflated: Many transactions clear through CHIPS before settling on a netted basis through Fedwire. Even so, the true average value is considerable.
ACH transfers are currently only used in the US and in a few places with bilateral agreements. Wire transfers are widely used around the world.
ACH transfers are generally limited to the US. Despite occasional pushes for greater interoperability between global networks, the coordination required is quite high.
Wire transfers are broadly supported around the world. A mature network of correspondent banks enables transfers across borders and currencies, with only one or two intermediaries in general. Nonetheless, currency exchange fees can be quite costly at 2-3%.
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How are ACH transfers and wire transfers evolving?
Changes to ACH and wire transfers are allowing for new and better user experiences.
ACH transfers are getting faster and more efficient, thanks to new solutions built on the old infrastructure. Plaid, for example, offers account verification and authentication tools for businesses. It also has tools to check an account for sufficient funds before initiating an ACH transfer. Such tools are helping innovators to create new financial services solutions that leverage the ACH network.
Wire transfers are being reimagined by fintech companies like Wise. The latter replaces traditional chains of correspondent banks with pools of money in each country. In this way, someone in the US who wants to wire funds to someone in Australia can do so with ease. They simply send an inexpensive ACH transfer to Wise’s US account. Wise then sends a local ACH-like transaction from their Australian account to the local recipient. Cutting out the middle parties saves a lot of money—savings that Wise passes on to its customers.
ACH transfers and wire transfers serve different needs. Luckily for business owners, both user experiences are being improved. This is particularly true for ACH, which is getting faster and easier across the board. For example, in early 2022, Same-Day ACH increased its transaction limit from $100,000 to $1 million. This makes it a viable, cost-effective alternative to wire transfers for larger transactions.