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ACH vs. Wire: what’s the difference and which is better?

Small business owner paying online

So, you need to pay your vendor. You know that paying online is the way to go – it’s fast, reliable, and convenient. But as you start researching online payments solutions, you come across terms like “wire transfer” and “ACH transfer”, and you wonder: What are the differences between them? Are there even differences? Well, yes there are, and they’re substantial. And you should know the differences because they can have a real impact on your business in terms of costs and operational efficiency.  

Businesses have different options to send and receive business-to-business payments online. The general umbrella term for all online money transfers is EFT, or Electronic Funds Transfer. ACH and wire transfers are both popular types of EFT. 

So, what are wire transfers and ACH transfers and how do they differ from one another? Let’s dive deeper and find out.

What are ACH transfers? 

ACH is a way to transfer funds electronically from one bank account to another through the Automated Clearing House network. The network includes the Federal Reserve and is managed by the National Automated Clearing House Association (NACHA).

When you make an ACH payment to your vendor, the money is moved from your bank to an Automated Clearing House network, and, pending their approval, it’s deposited into your vendor’s bank account. 

Businesses are increasingly choosing ACH over traditional methods like checks. According to NACHA, over the past decade, ACH transactions between businesses increased in volume from $22.4 trillion in 2011 to $41.7 trillion in 2020, with a 135% increase in volume in Q1 2021, in part because of COVID-19. ACH continued to grow steadily over Q2 and Q3. So we can safely say ACH is the rockstar of online money transfers. 

ACH transfers are a fast and secure way to pay your business bills. Let’s go over their main features:

  • Time: ACH transfers usually take up to three business days, though some ACH providers offer expedited processing for an added charge.
  • Cost: ACH is relatively inexpensive, and the charge per transaction is usually no more than a few dollars. Some ACH providers also charge monthly subscription fees, but with some research, you can find ACH service providers that offer ACH transfer for free
  • Domestic only: You can only send or receive money inside the US with an ACH transfer. 
  • Amount limit: The maximum amount you can send in a single transaction varies from one service provider to another, and it’s anywhere from $3,000 to $25,000. 
  • Recurring payments: You can schedule recurring ACH transfers, which makes it perfect for paying rent and utilities. 

What are wire transfers? 

Wire transfers are a different way to send funds, by direct point-to-point transfers between any two financial institutions. Wire transfers are also on the rise: The federal reserve’s Fedwire transfer network reached a volume of over $840 Billion in 2020, with a 9.8% increase from 2019. 

Wire transfers are normally used for more sporadic and large-amount transactions. Let’s go over their main features:

  • Time: Wire transfers are faster than ACH transfers – they are normally processed on the same day in domestic transfers. 
  • Cost: The largest drawback of wire transfers is their cost. Around $25-$30 for domestic transfers within the US, and around $45-$50 for international transfers. Some banks also charge fees from whoever gets the transfer. The costs make wire transfer one of the most expensive online fund transfer methods. 
  • International and domestic: Wire transfers can be used not only within the U.S., but you can also send money internationally. This is a tremendous advantage if your business depends on foreign suppliers. 
  • Amount limit: Wire transfer amount limits vary between services providers, but they are much higher than ACH transfers. Bank of America, for example, has a $100,000 limit per day. Citibank has different limitations on different types of transactions and accounts, varying from no limit (for transfers made in the U.S. dollars) to hundreds of thousands of dollars for a single transaction. 

Which one is better for B2B payments: ACH or wire?

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 the transaction. But we can cautiously announce the winner here, and it’s (drumroll)… ACH. 

ACH is better for everyday transactions because of the significantly lower charges. As your business grows and the number of transactions grows with it, the fees you pay for each transaction add up. So being able to pay little to nothing for your money transfer is a tremendous advantage. As an added bonus, you can set up recurring payments with ACH, which is great for payments like utilities and rent. 

Wire transfers, on the other hand, are better for urgent payments, when you’re willing to pay extra to get the money transferred as soon as possible. But even though, as we mentioned before, wire transfer numbers are on the rise (as part of the growth of the general EFT market) they’re starting to lose their competitive edge to ACH: Same-day ACH is also available and gaining popularity (for an added charge, very close to that of a wire transfer). So, we’re left with geography: If you need to pay someone outside the US, wire transfers are the way to do it.

*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.