ACH vs. EFT vs. wire transfers: What’s the difference?
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Say you want to send a relative some money for their birthday, but they live across the country and dropping a check in the mail feels too risky. You may decide to make an electronic, person-to-person transfer instead. Electronic Funds Transfers (EFTs), which include Automated Clearing House (ACH) transfers and wire transfers, offer a few ways of doing that.
Electronic transfers are becoming increasingly popular. McKinsey & Co., a consulting firm, found that 82 percent of Americans used electronic payments in 2021. These payments make it easy and generally safe to send money long distances.
Although ACH, wire transfers and other EFTs all enable electronic payments, they vary somewhat by speed, cost and limitations. These differences make each type of transfer more appropriate for different purposes.
Electronic Funds Transfer (EFT)
EFTs encompass many types of electronic payments, including:
- ACH transfers
- Wire transfers
- Over-the-phone transactions
- ATM transactions
- Peer-to-peer (P2P) payments
- Debit card payments
What to know about EFTs
EFT is an umbrella term for several types of transactions made electronically.
Most EFTs are protected by the Electronic Funds Transfer Act (EFTA), which safeguards consumers against unauthorized electronic transactions. Notably, though, wire transfers are not covered by the EFTA.
Besides ACH and wire transfers, other EFTs are used for a variety of everyday purposes, from withdrawing cash using an ATM to paying someone back for a meal with a P2P app. Many businesses use EFTs to pay vendors and employees as well as to process consumer purchases.
In some cases, there may be fees for processing an EFT. Some fees to look out for include:
- Expedited transfer fees for ACH transfers and P2P payment services
- Incoming and outgoing wire transfer fees
- ATM surcharge and out-of-network fees
- Conversion fees, when making transactions internationally
How do EFTs work?
EFTs can be initiated in a few different ways. Some examples include:
- A consumer swipes their debit card at an electronic terminal
- A consumer submits their card information at a checkout page for an online store
- Someone sends a payment to another person’s account using Zelle
- A biller is authorized to request automatic payments from someone’s financial institution
Once initiated, the transfer may be processed by the Automated Clearing House, the card issuer, the payment service or the financial institution. In some cases, such as with wire transfers and ACH transfers, the receiver needs to accept the payment for it to deposit, while other EFTs automatically deposit into the receiver’s account.
Automated Clearing House (ACH)
ACH transfers are a type of EFT frequently used to process common electronic payments, including direct deposit, online bill pay, automatic loan payments and tax refunds. They can also be used to send money from person to person, domestically or internationally, though it may take a few days for the money to arrive in the receiver’s account.
What to know about ACH transfers
ACH transfers are processed through the National Automated Clearing House Association (NACHA) and are regulated by the federal government. These types of transfers can be made between any person, business or organization with a bank account.
- Cost: Usually free, although some institutions may charge you for expedited processing
- Speed: Funds typically send in one or two business days.
- Protection: Money goes directly from one bank account to another, and it’s regulated by the government. Transfers are also protected by the EFTA.
- Limits: A limit of $1,000,000 per transaction is allowed. Some banks may have tighter limits.
How do ACH transfers work?
There are two general categories of ACH transfers: direct deposits and direct payments. Direct deposits may be set up using a direct deposit form from your employer. The financial institution you bank with may also offer a direct deposit form and automatically fill it out with information from your bank account. Once the form is complete, submit it to the employer, and you should receive direct deposit payment by the next payment period.
Direct payments can be made with your bank or credit union for sending money directly to another person or company. The financial institution will ask for your name, routing number, account number and transaction amount to process the payment.
You’ll also need to select whether it’s a debit or credit payment. Credit ACH transfers authorize the financial institution to withdraw money from your account for a payment, typically for bill payments. Debit ACH transfers involve sending your bank account information to the payee, who initiates the payment request.
ACH payments are built into many electronic payment service providers, including Square, Plaid and Stripe.
Wire transfers are designed for speedy, individual transactions. They can be used to send money domestically or internationally and typically appear in the receiver’s account the same day. But that speed comes with more expensive fees than other types of EFTs.
What to know about wire transfers
Wire transfers can be useful for things like sending a large payment to a relative who lives abroad or making a down payment on a car. The money goes through quickly, but your bank may charge a steep fee.
- Cost: Among large U.S. banks, the average fee for domestic outgoing wire transfers is $26, and the average fee for international outgoing transfers is $44, according to Bankrate research. There are also usually incoming fees of around $10 to $20.
- Speed: Most domestic wire transfers send within a day, though if you initiate the transfer at the end of a business day or before the weekend, it may take until the next business day to arrive. International wires may take significantly longer.
- Protection: Unlike ACH transfers, wire transfers are not protected by the EFTA in the event that money is lost or stolen.
- Limits: Wire transfer limits vary widely by bank. For example, the maximum limit allowed by Bank of America for outgoing wire transfers is $1,000 for consumers, and Capital One allows you to wire $50,000 to any person, $500,000 to title companies and any amount to your own accounts.
How do wire transfers work?
Wire transfers can be set up online or at a branch. You’ll typically be asked to fill out a form with the following before initiating a wire transfer:
- Sender and receiver’s names
- Sender and receiver’s phone numbers
- Receiver’s address
- Receiver’s bank name
- Receiver’s bank account information
- The payment amount
Once the wire transfer form is completed, the bank processes its instructions and sends them to the recipient via a messaging system, such as Fedwire for domestic transfers and SWIFT for international transfers.
The receiving institution reviews the instructions and credits the payee with the designated amount.
ACH vs. wire transfers
|ACH transfers||Wire transfers|
|Purpose||Processing business-related payments and sending money to peers||Sending money to individuals quickly|
|Common uses||Direct deposit, online bill pay, tax refunds, direct debit payments||Making a down payment, sending money that’s urgently needed|
|Fees||Often none, but there may be fees for expedited transfers||$26 on average for domestic outgoing and $44 for international outgoing|
|Speed||1-2 days||Within a day|
|Protection||Protected by the EFTA||Not protected by the EFTA|
|Limits||$25,000 maximum per transaction (may vary by bank)||Varies by bank from $1,000 to unlimited|
EFT is a broad term that describes a variety of electronic payment methods. Two of those methods are ACH transfers and wire transfers. While ACH transfers are usually free but take a couple of days to process, wire transfers are generally quick but may cost a high fee.
There are alternatives to ACH and wire transfers for sending money domestically or internationally that may be more suitable. P2P payment apps, like Venmo or Zelle, might be a good option if you’re looking to send someone money domestically. PayPal is a third-party alternative for international transfers, which doesn’t require you to send your bank account information to process the transaction.