ACH and Wire Transfers - How they work and differ - By Dave Hutchison
Many folks use ACH to automatic payments etc. Clients who need money from their investment accounts can set up either ACH or Wire order standing instructions. I am often asked the difference and how soon they can get funds to their checking accounts.
ACH (Automated Clearing House) Transfers
A typical transaction could take anywhere from a few hours to a few days to clear depending on how much traffic passes through the regional clearing houses. Since March 2018 there is a new "same-day" clearing option - Details later in this paper.
If same-day is not used these old rules apply. The receiving institution/bank doesn't immediately make the money available when its receiving in its batch processing (typically four times a day) from the ACH system. They will be "pending ACH transfers." Then the accounts are balanced, proven to have sufficient funds to complete the transaction ("cleared"), and the money is officially deposited into your account.
Once the bank has the money and its cleared, under NACHA rules, the receiving bank must make funds from an ACH deposit available to the account holder by the business day following the day that the funds are received. Generally, banks make all ACH deposits available on the day that funds are received, but your bank's depository agreement must specify whether your bank gives same day credit or next day credit.
NEW Same-Day Option
As of March 2018 new rules are being phased in allowing originating institutions to offer same day crediting. If used, the receiving institution must make funds available from the same day ACH credits to their depositors by 5 PM at the receiving institution's local time.
A Same Day Entry Fee of 5.2 cents per transaction is paid from the originating institution to the receiving institution *.
There are two submission deadlines for originating financial institutions specifically for the Same Day option:
1) A morning submission deadline at 10:30 AM ET, with settlement occurring at 1:00 PM.*
2) An afternoon submission deadline at 2:45 PM ET, with settlement occurring at 5:00 PM *
Virtually all types of ACH payments, including both credits and debits, are eligible for same-day processing. Only international transactions and transactions above $25,000 are not eligible. Eligible transactions account for approximately 99 percent of current ACH Network volume. *
There are plans to increase the maximum to $100,000 with faster submission options and to consider the feasibility of ACH processing on weekends and banking holidays.*
In 1980, the Monetary Control Act was passed that gave private-sector ACH operators the right to compete with the Federal Reserve Bank. As a result, there are three private sector ACH operators: American Clearing House Association, The New York Automated Clearing House, and VisaNet ACH Services. Currently, the Fed ACH Operator, otherwise known as the Federal Reserve, handles more than 85 percent of ACH transactions. **
The ACH Network consists of more than 12,000 financial institutions, 650 industry councils, and a network of regional ACH associations that are governed by The Electronic Payment Association (NACHA) from its headquarters in Herndon, VA.
In 2017 the ACH Network moved $46.8 trillion in value of 21.5 billion electronic financial transactions. This represents 66 transactions per person in the U.S.
Since 1974, NACHA has been the steward of the ACH Network, employing a collaborative, self-regulatory model to facilitate the expansion and diversification of electronic payments on the ACH Network. For more see https://www.nacha.org/ach-network
How Wire Transfers Work
Initially, wire transfers happened through telegraph wires. That’s where the phrase wire transfer comes from.
A traditional wire transfer goes from one bank to another using a network such as Clearing House Interbank Payments System (CHIPS) or Fedwire. Once "wired" there is usually no way to cancel or reverse the transaction - which can be done with ACH transfers.
Within the U.S. funds clear immediately. Then a bank employee may be needed to verify the account and transfer. It may take several hours for the receiving bank to show the wire proceeds in the recipient’s account.
If you’re sending money to another country, it may take as many as five days for the recipient to receive their funds. Under the Dodd-Frank Wall Street Reform and Consumer Protection Act consumers sending money internationally usually have the right to cancel their wire transfers for free within a 30-minute period.
Charges for incoming wire transfers usually cost around $15 to $20. Outgoing domestic wires cost $25 to $30 as of June 2018 survey of 18 largest banks by mybanktracker.com
* Source nacha.org
** Source depositaccounts.com