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6 Things to Know about ACH & Wire Transfers

You may think you already know what the differences are between ACH & Wire Transfers; well, let’s test that theory. Read on for our list of six things you should know about these money vehicles. Let’s start with a few basics.

Wire Transfers

Wire transfers take place moving funds from your bank account to deposit to someone else’s bank account (or vice versa) in a transaction that moves directly from bank-to-bank. Wire transfers generally take place within just a few minutes but sometimes may take a few days. The reason these types of transfers happen is because the banks have entered into an agreement to accept such transfers. The agreement sets out the rules for transferring and receiving the monies. A few of those rules are:

  • The banks verify both bank accounts and the account holders.
  • The banks verify the amount of money in each account to avoid charge backs.
  • Banks and credit unions charge a fee to send the money from their accounts.
  • Banks and credit unions sometimes charge for receiving money, too, because there’s extra administrative time to handle bank-to-bank receipt transactions.
  • The charge for receiving is lower than the charge for sending. Banks usually charge $25-$35 to send and $10-$20 to receive money.

Institutions other than banks can send wire transfers

We are all familiar with Western Union and MoneyGram wire transfers. Western Union initiated its wire transfer service in 1872 over telegraph wires. Today, you simply give Western Union’s (or MoneyGram’s) wire transfer staff the money you want to transfer, along with the company’s fee for doing so, and the staff verifies the transfer details with the person on the receiving end. The whole process takes about ten minutes. Wire transfers:

  • complete in real-time; that is, the money posts to the receiver’s account on the same day it transfers out of the sender’s account;
  • on the international level, money generally credits to the receiving account within five business days but that can vary depending on the country and the banks involved.

Automated Clearing House (ACH) Transfers

These transactions are what you use when you make automatic bill payments online and sometimes when you use your debit card. ACH is similar to a wire transfer. The difference is that ACH uses batched transactions. In practical terms, that means the bank holds on to the transactions it receives each day and then batches them at the end of the day. That means the money transferred doesn’t hit the receiver’s account until the next business day. ACH transfers are less expensive than wire transfers.

The Automated Clearing House system is relatively new

ACH developed in the 1970s to function as the electronic alternative to paper checks. It’s intended for use in transactions that are high-volume/low-value and where banks electronically handle the information and settlement process. ACH was a handy alternative to the older process which included time lost due to mail processing, the available funds, and the paper checks clearing process. ACH transactions avoid these delays.

People also call ACH transfers EFT, which stands for electronic funds transfer. Anytime you give your bank account information (your account number, bank’s routing number) in order to pay a bill online, you are using ACH or EFT to transfer the money from one account to another.

To muddy the waters further, there’s another electronic transaction that business owners call an e-check

If a customer in a store provides the storekeeper a paper check to buy a new washer/dryer and the storekeeper converts that paper check electronically via a check reader, that is an e-check. We can think of the e-check as the actual payment. The store owner converts the paper check electronically via the check reader for his convenience. E-checks are convenient for storekeepers because they avoid backroom copying/filing issues and they process in four days rather than the 7-10 days required for paper checks.

Remember, ACH and wire transfers are generally safe

when using a financial institution at both ends of the transaction. However, the usual caveats apply for using computer and network protections against cyber criminals when using ACH for online transactions.

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