Wire Transfers versus Automated Clearing House (ACH) Transfers

Wire Transfers versus Automated Clearing House (ACH) Transfers

In the many years since BestCashCow was founded, we have received a fair number of emails from readers asking various technical questions about how their online savings accounts operate.  Perhaps the most common question relates to the difference between a wire transfer and an Automated Clearing House (ACH) transfer.

I have hesitated to write an article on this topic because the issue has become less and less important to those using online banks for their savings and CD products, and ACHs have generally become more transparent and faster.  The largest online banks (Goldman Sachs Bank, Purepoint Bank, Ally Bank and others) now process all inbound and outbound transfers instantaneously (and free).  As a result, transfer speeds and times have become less burdensome for those banking online and occasionally transferring cash to a separate savings or checking account at a branch where they do most of their daily financial transactions. But, we nonetheless seek to clarify this matter further here.

Wire transfers are a direct bank-to-bank process that technically moves money instantaneously between two financial institutions and can only be initiated by the institution holding the account from which cash is being transferred.  Since the process may not be completely automated and a bank employee at the receiving institution may review all transactions before an account is credited for an inbound transfer, it may take several hours to a day for the money to move from one account to another.   Otherwise, however, a wire transfer is basically an electronic cashiers’ check - payment received in an account is treated as cleared money and may be withdrawn immediately (and for this reason there is obviously also risk in this process).  Likewise, the funds must be available in the outbound account before the payment is issued, and will be immediately debited from the sender’s account as the request is processed.  Banks may charge to send or to receive wire transfers, but the fee on either side is ordinarily not greater than $35 for a domestic wire transfer (international transfers may be a little higher).

ACH transfers are similar to a wire transfer, except that they use a clearinghouse and a batch process and may be initiated by the outbound or the inbound account.  Since a clearinghouse and a batch process are used, transactions are stored and reviewed and the money may not actually be transferred for a day or even several days (as pointed out above, the largest online banks process these transactions through the clearinghouse immediately, but the smaller ones may take several days – look to the comments in BestCashCow’s tables to see what types of speeds users experience).  Even if the money is received immediately, the recipient bank may not allow the account holder to withdraw the money right away, especially when the transfer is initiated through that bank’s interface, as they need to protect themselves from fraud liability laws that ordinarily apply to ACH transfers.  When initiating an ACH transfer from an incoming account at an online bank, there is a risk of overdrawing from the account from which you are pulling cash (and being charged an overdraft fee). 

BestCashCow believes that smaller banks that offer slower outbound or inbound ACH transfers can still make sense for the consumer.  Assuming that you can prepare for transactions where there may be a day or two delay in moving your cash, the extra yield in a higher savings or CD rate may more than offset your loss of interest over that day or two.  Often, this delay can be avoided by initiating the transfer at the recipient bank (although you will ordinarily be subject to a hold there too).

In the 21st Century, the ACH process is ordinarily completely free to the user for both outbound and incoming transfers.  We strong encourage all consumers to avoid the few financial institutions, such as Salem Five Direct, that still charge for ACH transfers initiated through their websites.  

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