Need to Transfer Money? This Is the Difference Between a Wire Transfer and ACH

The ability to transfer funds electronically makes paying bills so much easier.

Any time you move money from your bank to another party's bank, it is considered a transfer. There are two ways you can choose to transfer that money -- ACH or wire transfer. Here, we'll break down each of these methods, helping you determine which may best meet your needs.

ACH

ACH stands for Automated Clearing House. The ACH network includes approximately 10,000 financial institutions. ACH is likely part of your everyday life. Any time you swipe your debit card, send an eCheck, or make a direct deposit into your bank account, ACH is involved. If your bank or credit union offers bill payment, the ability to send those payments electronically is thanks to ACH.

ACH transfers are typically free, and unless the system detects potential fraud, an ACH transfer normally clears the bank in a few business days.

Wire transfer

Let's say you're closing on a home and must make a large, one-time payment. The title company will likely require you to have the money wired from your bank. The upside for the title company is that wire transfers are designed for same-day arrival.

There is normally a fee associated with wire transfers, although it varies by the financial institution. These fees are charged to both the party sending the money and the party receiving the funds. It costs more to wire money internationally than domestically. You can expect to pay anywhere between $5 to $35 for a transfer.

The lowest fees associated with wire transfers are found at credit unions and online banks. In fact, many online banks charge you nothing to receive a domestic wire transfer.

Similarities and differences

The two types of transfers share several characteristics, but each has features that set it apart.

Security

One thing ACH and wire transfers have in common is that they are blanketed with security measures. Banks add multiple layers of protection to both types of transfer, including encrypted banking information and identity verification.

Cancelation

Mistakes happen, but if you're using ACH to make a payment, you have the ability to reverse the error. Imagine that you're distracted, and instead of sending $175 to the electric company, you send $1,750. You may be able to cancel the transaction, although the return of your funds can take up to 60 calendar days.

On the other hand, wire transfers are final the moment funds are received on the other end.

International transfers

If you're hoping to transfer money out of the country via ACH, you're out of luck. ACH can only be used domestically. Let's say your child is on a school trip in Rome and needs money. The only way to get it to them is through an international wire transfer.

Posting

As mentioned, wire transfers allow recipients to access the money as soon as it hits their account. If you're transferring money with ACH, the funds will appear in the recipient's account as "pending" and won't be released until they clear the ACH system. Funds are normally released within three business days.

When you have an option

If you're making a large one-time payment, you may be required to use a wire transfer. However, in most cases, you have an option. For example, if your child calls from college saying they need money, you can decide whether to send it via ACH (if they're attending school in the U.S.). If you choose ACH, your child may have to wait up to three business days to retrieve the funds. If the situation is critical and you want them to have the money the same day, a wire transfer can take care of that for you.

Both ACH and wire transfers are designed to make moving money faster and more secure. Knowing the subtle differences between the two can help you make the best decision when you have business to take care of.