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ACH vs wire transfer: what’s the difference?

A young man working from his living room uses a laptop to send payments for his small business.
Gilad Idisis
Published at | Updated:

So, you need to pay someone. Whether you’re a private consumer or a small or medium-sized business (SMB), you’ve probably realized that an electronic transfer is the way to go. It’s fast, reliable, and convenient. 

But, should you choose an ACH bank transfer or a wire? What’s the difference between these two payment options? Which is better for your needs? And, how much will it cost you? 

In this article, we’ll deep dive into all of these questions and more, to make sure you understand everything you need to know about wires and ACH.

💡ACH is cheaper but wires are faster

Wire vs ACH: key takeaways

  • Both ACH transfers and wires are forms of electronic funds transfers (EFTs). 
  • Due to their low price and reliability, ACH payments are better for everyday transactions, especially for small and medium-sized businesses (SMBs) that have to be price-conscious to maintain cash flow health
  • Wires are delivered on the same day and sometimes instantly, making them a good choice for urgent payments. 
  • Same-day ACH is now gaining popularity as a cheaper fast payment option for smaller transactions. 
  • International wires are more widely available but ACH is gradually being offered as a cross-border payment solution.

What’s ACH?

An ACH bank transfer is a type of electronic funds transfer. In other words, it is a way in which financial institutions digitally move funds between bank accounts. 

ACH stands for automated clearing house, a term that refers to banks and other financial institutions that belong to the ACH network. Member organizations can digitally communicate with other members to ensure safe and secure transactions.   

The ACH network is governed by an organization called Nacha or the National Automated Clearing House Association. Together with the Federal Reserve and other government agencies, Nacha enforces strict regulations and security measures on clearing houses. 

When you send an ACH payment, the money is moved through the ACH network. The ACH operator, a central clearing facility, then receives an ACH data file which it validates using information from member organizations. After the data is validated, the operator authorizes the transfer and the money is sent to the recipient’s bank account.

Businesses are increasingly choosing ACH over traditional payment methods like checks for business-to-business (B2B)Business-to-business (B2B)Business-to-business refers to operations done between businesses. B2B payments are transactions made between two businesses or companies. transactions. According to Nacha, over the past decade, ACH transactions between businesses increased in volume from $26.6 trillion in 2014 to $54.2 trillion in 2023.

Types of ACH transfers

There are two main types of ACH transfers: ACH credit and ACH debit. 

ACH credit is a standard bank transfer where funds are taken from one account and deposited in another at the request of the payorPayorAll transactions have at least two players–the payor is the one who’s paying, and the payee is the one who receives the payment.. Businesses often choose ACH credit for accounts payable (AP) and employee salaries.

An ACH debit—which is also known as ACH withdrawal or e-check—is a type of ACH transfer where funds are pulled from the payor’s bank account at the request of the payeePayeeAll transactions have at least two players–the payor is the one who’s paying, and the payee is the one who receives the payment.. This requires the payor’s approval which is typically given in advance. 

ACH debit is often used for recurring payments such as utility bills as they allow the payee to charge the up-to-date sum each time, without additional action needed by the payor.

Common uses of ACH for businesses

Businesses use online ACH payments for various purposes and reasons.

Illustration of the most popular use cases of ACH payments for businesses.

Here are some of the most common use cases for ACH transfers among SMBs: 

  • Paying vendors for goods and services. ACH bank transfers are widely accepted by U.S. vendors. 
  • Employee salaries. Using direct deposit, a form of ACH credit, is a popular way to deposit paychecks into workers’ accounts. 
  • Tax payments. Most U.S. tax agencies accept ACH as a payment method.  
  • Donations. Nonprofit and charity organizations often collect donations through ACH transfers, whether they are one-time or recurring contributions. 
  • Utility payments. With an ACH debit, businesses authorize utility providers to charge their account with the current balance each month, without further action on their part.
  • Rent. It’s convenient for many businesses to set up a recurring ACH payment for predictable monthly expenses such as rent for their commercial space.

What are wire transfers?

Wire transfers are another way to send funds electronically, by direct point-to-point transfers between any two financial institutions. With the gradual decline of checks and cash, wires are getting even more traction as a popular payment method for businesses and consumers alike. 

In 2023, for example, the Federal Reserve’s wire transfer network Fedwire processed an average daily value of $4.34 trillion compared to $3.52 trillion in 2014.  

Wire transfers are normally used for more sporadic and large transactions due to their pricing model, speed, and availability.

Common uses of wires for businesses

Wire transfers are a popular method of sending money from one bank account to another.

Illustration of the most popular use cases of wire transfers for businesses.

Businesses, including SMBs, tend to prefer wires for specific use cases, such as:   

  • Urgent payments. Wire transfers are completed on the same business day and sometimes even within a few minutes. That’s crucial when paying an invoice that’s due today or if you’re looking to collect an early bird discount or seal an otherwise sweet deal.   
  • Vendors who only accept wires. Vendors and suppliers are crucial partners for any business and it’s important to keep them happy. So, if they prefer to stick to their workflows and receive a wire, then business customers will usually need to fall in line.  
  • Large international payments. While ACH is now available for more affordable cross-border payments, it’s still far more limited than an international wire. Also, as international wires typically charge a flat fee and not a percentage of the payment, they can be cheaper for very large payments.
  • Cash payments. If you’re sending a wire in person, some money transfer services allow you to pay with cash and have the money transferred to the recipient’s bank account. It’s also possible to send a wire that arrives as cash for pickup at a branch near your recipient.

What is the difference between ACH and wire?

As we’ve already covered, both ACH and wires are ways to send money electronically. If you’re wondering how to choose between them, let’s quickly review how they differ. 

Here are four key differences between ACH and wire:

Speed

If speed is of the essence, a wire would typically win over ACH. While wires are completed on the same business day (and often even within minutes), a standard ACH transfer takes one to three business days. 

Same-day ACH options are sometimes available and are beginning to gain traction as well as they are usually cheaper than wires, especially for lower sums.

Price

Fees for ACH and wires vary depending on your processor or bank. ACH typically costs between $0.5 and $1.5 for a domestic transfer while wires range from $15 to $35. 

An international wire transfer can cost as much as $50 or more while an international ACH typically costs about 1.5% of the total sum, making it attractive for smaller transactions.

Payment options

An ACH transfer is generally done between bank accounts, meaning the money is deducted from one account and sent to another. 

If you use a digital payment platform like Melio to send an ACH, you can choose any payment method that suits your needs, while your vendor receives the money directly to their bank account.  

Depending on your processor, with wires you can choose to use a multitude of payment methods including bank, card, or even cash if you’re performing the transfer in person. In some cases, you can also send a wire as cash that the recipient can collect from a financial institution near them.

Destination

While international ACH is gradually becoming available, it is still not as widely used around the world and is still more reliable as a payment method within the U.S. 

Wires, on the other hand, are used extensively both within the U.S. and internationally.

Is ACH or wire better for business payments?

Don’t you just hate it when you ask a question and the answer is “Well, it depends”? Well, it really does depend here, on the purpose and circumstances of your transaction. 

So, when to choose an ach transfer vs. wire transfer? Let’s break that down for you.  

ACH is usually better for everyday transactions because of the significantly lower fees. As your business grows and the number and volume of transactions grow with it, the fees you pay will start to really add up. Reducing your spending on transaction fees can be crucial for your business’s cash flow and longevity. 

ACH also gives you the added convenience of setting up recurring payments or using ACH debit for rent and utilities.

Wire transfers are better for urgent payments when you’re willing to pay extra to get the money transferred as soon as possible. This edge, however, is beginning to fade with same-day ACH on the rise as a more affordable option, especially for lower sums. 

Geography can also tip the scale towards wires, as international ACH isn’t always available to countries and banks around the world.  

You also need to take your vendor’s preferences into account as some merchants may not accept ACH

Choose Melio for all your B2B payment needs

Sign up for Melio to pay all vendors, domestic and international, using the payment and delivery methods that work for both of you. Use ACH or card,1 pick pay over time, same-day ACH, or an international wire. The choice is always yours. Your vendor gets paid how they choose, via ACH or check.

Send payments to your vendors with Melio.Start now

*This blog post is intended for informational purposes only and is not intended as financial advice.
**Melio does not provide legal, tax or accounting advice, and you should consult with a professional advisor before making any financial decisions.