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ACH vs. Wire Transfer
Two of the options you have when sending money electronically are ACH transfer and wire transfer. Deciding which to use most often depends on how quickly you want the money to 'arrive' at its destination.
What is an ACH Transfer?
Many of us are familiar with automated clearing house (ACH) transfers in the form of bill pay. An ACH transfer goes through a clearing house each day, and this is where it gets its name. These transactions are actually processed in batches. Instead of money being available immediately, a receiving bank collects information about all of the transactions. At the end of the day, all of the transactions are batched and processed as a single transaction. Funds aren't actually available until the day following the batch transaction in many cases.
You can use ACH transfers to set up recurring payments, such as bills. Additionally, when you transfer money from an account at one bank to another, or withdraw money from an investment account or a PayPal account and have it transferred to your bank account, you can use an ACH transfer.
However, you need to be aware of the lag time. When you set up an ACH transfer, it can take three or four business days for processing. This is because the money won't go out of the sending bank until the batch is processed. Then, the receiving bank receives the money, and then it has to be batched and processed, and then the funds are made available. The process is easier for the banks, and less expensive, but it means that it might be less convenient for you.
Using a Wire Transfer Instead
Most consumers choose to use an ACH transfer because many banks won't charge a fee (not yet, anyway) when you use this service. A wire transfer, though, is another matter. Wire transfers occur in real time, with a direct connection bank to bank. The wire transfer requires that your bank establish a direct and secure connection with the receiving bank. When you send money, it happens instantly, without waiting for batching.
As you might imagine, though, a wire transfer is more expensive. The effort involved with arranging an individual transfer instead of a batch ACH transfer results in higher fees. Some banks will charge a flat fee, while others charge a percentage of the transaction. Before you make use of a wire transfer, find out from your bank how much it will cost.
A wire transfer is often used when the money needs to be in place quickly. If you are running against a deadline, and don't have time to wait for the funds to go through the clearing house method, a wire transfer might be worth it. A $15 fee for a wire transfer might be worth the cost if the alternative is a $35 late fee. Additionally, if you are sending a large amount of money, and you want to ensure that it arrives securely, a wire transfer might be preferred.
As you consider your needs, determine which type of transfer is most likely to serve your purposes. In many cases, as long as you plan ahead so that the money arrives when it should, an ACH transfer is usually the way to go.