Both domestic wire transfers and ACH transfers (Direct Deposit is a type of ACH transfer) are used to transfer money electronically from one account to another, however, there are some differences between the two modes of money transfer. The key differences between a wire transfer and a ACH (Automated Clearing House) transfer are as follows:
- Speed of transfer: Wire transfer is the fastest possible way to transfer money from one account to other and most domestic wire transfer usually happen the same day. ACH transfers may take up to 3 days to complete.
- Cost of transfer: The speed of wire transfer comes at a price. A domestic wire transfer sending fees borders around $25 for most banks. Most banks even charge for incoming wire transfer in the range of $10-$15 per transfer, however, most credit unions don’t charge for the incoming transfers. ACH transfers on the other hand are generally free for most banks and credit unions or have a very nominal fee.
- Operators: Wire transfers operators are Fedwire (maintained by Federal Reserve) and CHIPS. ACH operators are FedACH (maintained by Federal Reserve) and EPN (Electronic Payments Network, a private sector entity).
- Settlement Process: Fedwire wire transfer is a real-time gross settlement (RTGS) process of transferring funds where credit and debit of both banks’ accounts (maintained by different banks with Fedwire) happens in real time and the receiving bank will then take sometime to credit the receiver’s bank account but is usually done the same day. CHIPS although is net settlement process but settlement happens the same day at different intervals. ACH transfers, on the other hand, are done through batch processing and settlement happens the next business day. Wire transfers are usually done by a bank personnel manually while ACH is an automated process and thus costs much lower than wire transfer.
- Irrevocable: Wire transfers are real-time, final and irrevocable once processed by the fedwire/CHIPS system and thus it is mostly used by corporations and businesses for sending and receiving payments. ACH on the other hand allows reversals under certain situations.
Should you choose Wire transfer or ACH transfer?
In most cases, normal users can stick to ACH transfers owing to the minimal cost and most transfers does happen within 3 days which is not so bad. However, wire transfers should be used when the money needs to be sent immediately or when there is a risk of other party reversing the transaction – which are valid reasons for spending some extra dollars towards wire transfer.