What is an Automated Clearing House (ACH) payment?
An ACH payment is a domestic electronic funds transfer between a sender and receiver's U.S. bank accounts facilitated by the Automated Clearing House Network of member financial institutions, including banks and credit unions.
Governed by Nacha (originally the National Automated Clearinghouse Association), ACH member financial institutions can make direct ACH payments (and direct deposits) that are electronic bank transfers to any bank account or credit union account in the U.S., meaning all U.S. banks allow ACH transfers.
Here are a few examples of ACH payments in action:
- Every time you use Venmo to move funds from your Venmo wallet to your bank account that is an ACH payment.
- New homeowners or real estate investors typically use ACH to facilitate mortgage down payments.
- Many businesses use ACH deposit services to process paychecks via payroll.
- The U.S. government also uses ACH services to distribute government benefits.
ACH payments are designed to go automatically through the ACH Network once set up as recurring payments. However, certain problems for one-time or newly set-up recurring ACH payments are exceptions that stop them from being completed.
A common question is, ‘Do ACH payments automatically go through?’ – the answer is no.
The Accredited Clearing House provides notification return codes for problems like insufficient funds, improper or missing authorization, and other wrong details. The ACH network also provides a 15-digit trace number to check the status of an ACH transfer.
Why use ACH payments?
Businesses, consumers, and government agencies use ACH payments as an efficient, timely, and cost-effective payment method they can use for domestic transactions within the United States.
ACH payments – when combined with other payment methods like corporate credit cards and checks – can help businesses with cash flow management as ACH payments may be set up as recurring or one-time bank transfers.
To fully understand how to do an ACH transfer, review the Nacha website; member financial institutions of the Automated Clearing House follow a rules book published by Nacha.
How long do ACH payments take?
This depends on the type of ACH payment speed used and the time of the day the transaction is initiated. By days, we mean business days. Ordinary ACH payments take 1 to 3 business banking days to process.
However, some businesses may prefer to use Same-Day ACH payments or Next Day ACH payments, which are typically faster to settle, depending on ACH request submission windows in the Nacha schedule.
There are restrictions applied to Same-Day ACH payments. For example, they are limited to $1 million per transaction, with three settlement windows offered daily.
The linked Nacha schedule table includes columns for ODFI Deadline (for the Originating Depository Financial Institution), RDFI Receipt Time (for the Receiving Depository Financial Institution), Settlement (time), and Credit Funds Availability Requirement (time or day).
Another important consideration is that many banks and financial institutions charge fees for Same-Day or Next-Day ACH payments.
Here are a few examples:
- Chase – Same-Day ACHs carry a fee of 1% of the value of the transaction with a max charge of $25 per transaction.
- Bank of America – For Next-Day ACHs, the fee is $25 per transaction.
- Valley State Bank – For Same-Day ACHs, the fee is $25 per transaction.
Did you know? Rho has zero platform fees and does not charge any fees for Same-Day ACH payments or domestic wires. Learn more about Rho’s pricing here.
ACH payment vs. ACH direct deposit vs. global ACH
Not all ACH types have the same meaning. Differences exist between ACH payment vs. ACH direct deposit vs. global ACH.
ACH payment is a Direct Payment completed through the Accredited Clearing House network as an ACH debit or ACH credit transaction pushed or pulled from a sender or receiver’s bank account.
ACH direct deposit is a transfer method used for ACH network system recurring deposits. Global ACH is an informal term that refers to ACH-like money transfers using similar systems in different countries, like SEPA Euro payments.
An example of ACH Direct Deposit is employers making net payroll deposits into each employee’s bank account to pay them for their work. ACH payment examples follow.
ACH payment examples
Some ACH payment examples are:
- Businesses paying vendor invoices through accounts payable
- Recurring bill payments for monthly utilities and mobile phone services
- Paying income taxes
- Governments issuing tax refunds
ACH payment fees
The cost of ACH payment fees charged by banks, credit unions, and payment processors can range from free to between $3 and $10 per electronic transfer of funds going through the Accredited Clearing House network.
Rho, a comprehensive financial platform, lets your business make these domestic ACH payments for free (see Rho pricing) when it becomes a customer. Rho business pricing is also $0 for making Same-Day ACH payments.
What is a wire transfer?
A wire transfer is an electronic funds transfer between bank accounts using banking instructions from the sender to make payments to a recipient’s account.
Domestic wire transfers are made by the Federal Reserve in the U.S., whereas international wire transfers go through the SWIFT communication system used by financial institutions, including banks or services like PayPal.
Why use wire transfers?
Businesses or consumers use wire transfers to make payments securely in different currencies for large amounts that may exceed the ACH limit and need security and relatively fast settlement.
Because international wire transfers have large fees, they should be restricted to payment instances that justify their use.
How wire transfers work
When determining how wire transfers work, different procedures and systems apply for domestic vs. international wire transfers.
Domestic wire transfers go through the Federal Reserve System (also known as The Fed), the central bank of the United States.
International wire transfers go through the SWIFT communications network (Society for Worldwide Interbank Financial Telecommunications) and also require a SWIFT code to send.
You may differentiate an ACH v. wire transfer in this way: A bank transfer is generally used to describe a bank account-to-bank account transfer like an ACH transfer.
In a wire transfer, the money is transferred from bank to bank, but the receiving bank gets the transferred funds from the originating bank, notifies its customer when funds are received, and transfers to that customer’s savings account or checking account.
Customarily, a wire transfer is not called a bank transfer. And more specifically, an ACH transfer is not the same as a wire transfer.
In a later section, we explain the key differences between wire transfers vs. ACH payments with a comparison table.
How to send a wire transfer
To make a domestic wire transfer, businesses furnish payment instructions, including business name, bank name, contact information, bank routing number, and bank account number for the sender and receiver.
An international wire transfer uses the SWIFT communications system for use by financial institutions, including banks, and also requires choosing a SWIFT code for sending payments to different countries.
Most domestic wire transfers are received within 24 hours, whereas international wire transfers usually take at least one to three days (or more), depending on the receiving country's banking infrastructure.
Because international wire transfers have large fees, they should be restricted to payment instances that justify their use.
Wire transfer example
A corporate wire transfer example uses a wire transfer to send the cash payment for a business acquisition upon closing an M&A deal that’s not a stock-for-stock exchange.
The large transaction amount justifies the wire transfer fee. It can be used to complete a domestic or international business purchase with funds sent in U.S. dollars or in the currency of the acquired company.
Businesses that use this type of transfer transaction do so because the amount is well above the $1 million ACH Same-Day limit.
Funds will be transferred quickly and securely when the recipient’s bank account details are correct, perhaps arriving on the Same-Day for a domestic U.S. transaction or within a few days for an international transaction.
If your business is the buyer party to this transaction, the wire transfer must be right, or heads will roll.
Don’t click on any fraudulent payment information links from imposters in an email or texting scheme before sending your wire transfer payment to the right bank account of the legitimate payee.
We advise you and your team members to check the payment instruction details of this wire (and any other) transfers closely a few times to ensure that the receiver is authentic, and the bank account and other financial details in the wire transfer instructions are correct.
Wire transfer money is gone once sent and usually can’t be reversed.
Wire transfer fees
Wire transfers can be expensive to make. Wire transfer fees may range from $0 to $35 for a domestic wire transfer and $50+ for an international wire transfer.
Receiving bank fees, intermediary fees, and correspondent bank fees, plus miscellaneous junk fees and investigation fees for problems receiving the wire transfer, can add to the business costs incurred for wire transfers.
Did you know? Rho has zero platform fees and does not charge any fees for domestic wire or international wire transfer services. Note: International wires in USD can be subject to additional fees set by the recipient, correspondent, or intermediary banks, in addition to the SWIFT network.
The key differences between ACH payment vs. wire transfer
Here are the main differences between ACH payments and wire transfers:
- Processing speed
- Posting times
- Cost to sender
- International options
- Payment option protocols
- Transfer limits
Your business may choose to use ACH payment over wire transfer if you’re making domestic payments up to $1 million per transaction, you’d like to minimize business costs, and you want the peace of mind of getting an ACH reversed to return your funds.
Your company may choose wire transfer over ACH as a payment method when transaction amounts are large, justifying the wire transfer cost; you will not need funds returned through a wire transfer reversal, you trust the payee as legitimate, and can ensure by your thoroughness of review that the wire transfer instructions are to the right payee and bank account.
The following table highlights the differences between an ACH payment and a wire transfer.
Wrap-up: ACH payment vs. wire transfer
Understanding ACH payments and wire transfers is an essential part of business banking for business owners.
Even a small fee can add up if your company has a significant payment volume.
Making cost-effective ACH payments in the U.S. or domestic wire transfers with no added payment processing fees makes Rho an excellent payment platform choice.
For international wire transfers, Rho adds no fees beyond the receiving bank, correspondent bank, and intermediaries fees, except a fixed $15 SWIFT network fee and a 1% FX fee for foreign currency exchange.
Learn more about our competitive pricing model, corporate credit card offering, finance automation capabilities, and the benefits of using Rho for your company’s global payments and business banking needs.
FAQs: Business banking
Which is faster, ACH or wire transfer?
Wire transfer is generally faster for making electronic payments domestically than ACH transfer. Wire transfers are sent for individual transactions.
For many customers, the ACH payments requested during the same submission window are processed in batches.
ACH staff may internally review ACH transactions and issue exception notifications by rejection code if an ACH transaction can’t be completed as submitted.
What’s the difference between ACH vs wire vs SWIFT?
While ACH is a U.S.-only bank-account-to-bank-account transfer sent through the Accredited Clearing House by member financial institutions (as ODFI and RDFI), both wire and SWIFT refer to wire transfers.
The Federal Reserve processes domestic wire transfers; international wire transfers go through the SWIFT communications network.
Can I use an ACH routing number for a wire transfer?
Although both are nine-digit numbers, you can’t use an ACH routing number for a wire transfer. ACH routing numbers were created specifically for ACH transactions and have different first two numbers ranging from 61 to 72.
In contrast, domestic wire transfers use ABA (American Bankers Association) routing numbers from 00 to 12. ABA numbers are also used as bank routing numbers for paper checks.
International wire transfers go through the SWIFT system and use 8 to 11-character SWIFT/BIC codes for banks and financial institutions in various countries.
What is FedNow?
FedNow is an instant payment infrastructure launched in July 2023 by the Federal Reserve that allows eligible financial institutions to allow customers to send and receive money in real-time, 24/7.
The initial class of participating financial services institutions include JPMorgan Chase and Wells Fargo, which also offer the Zelle person-to-person payment service.
The proposed advantage of FedNow over traditional ACH payments is the ability to process payments faster.
However, some are concerned that FedNow payments are irreversible, cross-border payments (e.g., remittance transfers) are not currently available, and no single point-person for customer support for scenarios where fraud occurs is unclear.