What is the difference between ach & wire transfer?

Written by brenda coxe
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When transferring funds from one account to another a person can choose between ACH (automated clearing house) or wire transfer. Although the end result is the same, there are differences in both cost and time of delivery. Both are alternatives to writing a check, but a person may prefer one method over the other.

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Defining ACH

ACH, or automated clearing house transactions, have been part of the banking system since the 1970s. They were introduced as an alternative to writing checks. Many people today choose to pay bills using ACH transfers instead of writing a check or using a check card. One of the reasons is the speed of the transaction. Funds are deducted from your account within a day thus making it easier for you to keep track of how much money you have available. In addition, it guarantees the recipient that the funds are available for his company's use almost immediately.

ACH Process

ACH transactions are batch-generated. What happens is the receiving bank takes all ACH transfers that have arrived during the day, batches them and processes them as one transaction. These funds are then available to the recipient the following day. The process is much easier, quicker and cheaper than wire transfers. Many people set up ACH processing as a recurring payment method with creditors and others to whom they owe money on a monthly basis.

Comparing ACH and Wire Transfer

If you are sending a large amount of money you may want to use wire transfer because it works in real time. The individual handling of a wire transfer makes it a safer method. On the down side, wire transfers are much more expensive than ACH. But if you need to make sure funds arrive safely or you have to meet a deadline, a wire transfer is a better alternative than ACH.

Making the Right Choice

Some of the facts you want to consider before choosing beteen ACH and wire transfer include the following:

--How soon does the money need to arrive at the recipient's bank? --How much money is involved in the transfer? --What is the purpose of the transfer? --Does the account need to show immediate transmission of funds?

These reasons may make wire transfer a better alternative than ACH.

Advantages and Disadvantages of ACH

Although ACH is cheaper than wire transfers, there are disadvantages such as the delay in transmission to the recipient because of overnight batch processing. In most cases, this is not a problem. But make sure but you are not costing yourself money by incurring late fees and interest. Make the choice based on research and ascertain you are saving money using ACH instead of wire transfer.

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