When is a Wire Transfer not a Wire Transfer? When it is an ACH Payment. These two types of electronic funds transfers are often referred to interchangeably but they in fact are very different. Both are methods of sending electronic payments but let’s look at them separately.
A Wire Transfer is the movement of funds from an account at one bank to an account at another bank. Payment instructions are provided to the originating bank and they in turn send this payment on to the Fed who in turn sends it on to the receiving bank. Payment instructions include the amount you wish to send, the account number and bank routing and transit (R/T #) number, and the name of the recipient. Wires are usually done for larger amounts of money.
Conversely, ACH transfers are often done in smaller amounts and are sent in an electronic format from you, the customer. They can be initiated online through your online banking service or you might generate a payment file out of your A/P software or payroll software to send these payments to the bank for further settlement to the recipient. ACH transactions can be used to make payments as well as to collect payments.
The major differences are as follows:
- Wire Transfers are unconditional. Once they go, they are gone for good. Conversely, an ACH payment is conditional meaning it can be reversed, if done within the proper timeframe.
- Wire Transfers settle same-day; ACH payments have a 1-2 day settlement.
- Wire Transfers are much more expensive than ACH payments. Expect to pay between $20-25 to send a wire. The recipient also pays $10-15 to receive the wire. ACH payments typically cost approximately $0.07 to $1.00 for each payment.
- Wire Transfers are sent only with collected funds. ACH payments can be initiated without this requirement, although this requires a prearranged credit approval.
- ACH Payments are governed by Reg E while Wire Transfers are covered by Article 4A of the Uniform Commercial Code (UCC).
Because of cost, most electronic payments are of the ACH nature because they facilitate direct deposit of payroll, direct payment, direct debit, and cash concentration. For a modest investment, you can simplify your payment processing by utilizing such services. Ask your banker to go over the options that are readily available to you. Hopefully this information gives you a starting point to make those inquiries.