By Barbara Davidson

Posted on July 22, 2019

ACH vs. Credit vs. EFT vs. Wire Transfer: Which Should You Use?

All small business owners depend on their customers to maintain the costs of operating a business. With the digital transaction industry becoming more complicated and advanced, it can be difficult to decide which is the best digital payment solution for your company.

However, business owners have plenty of options and reliable methods when it comes to accepting payments from your clients and customers. When determining which digital payment option works best, consider what your needs are and pick the service that serves those needs.

Here are some examples of digital payments available for you and your company.

Electronic Funds Transfer (EFT) Payments

Electronic Funds Transfer, commonly known as an EFT, is a type of ePayment. EFT is a general umbrella term that covers various electronic payments, including but not limited to ACH transfers and wire transfers.

EFTs are becoming increasingly widespread with the advancement of B2B payments, with both big and small businesses moving away from traditional paper checks toward cheaper and productive alternatives: ePayment methods. Underneath this broader category lies various transaction types: ATMs, virtual cards, eChecks, direct deposit, and personal computer banking.

Sounds similar to ACH. What’s the difference?

Well, weighing the comparisons of ACH v. EFT is like comparing apples to fruit. Apples are a type of fruit, but not all fruits are apples. ACH is a subset of EFT, but not all EFTs are ACH payments. The central difference is within its specificity and detail — due to the extensive range of payment practices considered to be EFTs, there are various factors that can affect the cost, timeliness, and risk level of the transaction.

ACH: Automated Clearing House Network

We’re all familiar with that glorious day that comes every 2 weeks, perhaps every month – ACH day, or as everyone calls it, payday!

Not familiar?

When you notice that your salary was automatically deposited into your bank account, that’s ACH. When you pay your car loan or set your mortgage (or any recurring payments in general) to automatically pay on any day you decide, that’s ACH.

Known as the Automated Clearing House Network, ACH is used by tens of millions of Americans, handling everything from credit card payments to salaries to Social Security and more. Whether you call it Direct Deposit, electronic check, or direct pay, just set it and forget it — now, there’s no more worrying about getting payments in on time. In 2018, ACH moved almost 23 billion electronic payments and $51 trillion dollars, making the ACH network the most commonly-used and reliable payment system in the world.

You may be wondering if you’ve ever used ACH — if you’re familiar with these circumstances, you have probably taken advantage of the ACH network.

• When you get paid in the form of a direct deposit.
• When you receive a tax refund via direct deposit.
• When you transfer money between different bank accounts.
• When you set up a recurring payment with your electric company or internet provider.

Sure, ACH sounds promising, but how long will it take?

ACH payments are processed in batches, meaning that the ODFIs will collect a number of requests and then send them to the ACH operator. Though delivery time is dependent on the type of ACH transaction, a standard ACH transaction can take up to three to four days to complete. However, since 2014, NACHA, the National Automated Clearing House Association, established a new standard that allows both ACH credit and debit to be eligible for same-day processing. Consequently, funds are available by 5:00 PM at the RDFI’s local time.

Credit Card

We all appreciate the ease of use a credit card offers, but that ease comes at a cost in the form of APR for remaining balances. Credit cards offer you a line of credit that can be used for purchases, cash advances, or balance transfers that requires you to repay the loan amount in the future. There will be a minimum payment due every month, and if the entire balance is not paid by the deadline, interest charges are applied.

Despite it being a simple swipe, a lot goes on behind the scenes of a credit card transaction. Once swiped, the merchant’s credit card terminal asks your credit card issuer if your card is valid, and if you have enough available credit. If the transaction is approved, your purchase is complete. With every good or service bought, your available credit decreases by the same amount.

What makes a credit card separate from a regular loan is that your credit limit is still available after paying the owed balance on the credit card. This process — spending up to your credit limit and repaying the costs — can be repeated perpetually, provided that you abide by the terms of the line of credit (which include paying your dues on time and not going beyond your credit limit).

Wire Transfer

When time becomes an urgent issue and you need to send or receive money immediately, a bank transfer (otherwise known as a wire transfer), is your go-to. Wire transfers are reliable, safe, and instantaneous — even for greater transactions, where funds will be available to the recipient more or less instantly.

Easily put, a wire transfer is a direct electronic transfer of money between banks or credit unions. If anyone asks for a “bank wire,” it typically indicates that they want the traditional bank-to-bank transfer. Otherwise, a money transfer service or another type of electronic payment may be acceptable. On the other hand, ACH payments rely on the ACH operator to act as a middleman between the ODFIs and RDFIs. Likewise, there are numerous differences between ACH and Wire Transfers:

• Speed of transaction: Domestic wire transfers can be processed within the same day, mostly within several hours. However, the recipient’s bank still needs to validate the funds before releasing its availability to the recipient. With Same-Day ACH, transactions are made available to the recipients by 5:00 PM local time.
• Security of the Transaction: Wire transfers are secure for the recipients because the sender has to have adequate funds before initiating any wire transfer. However, a wire transfer cannot be reversed, thus, the sender must be accurate to who the money is being sent to. For ACH, payments allow greater safety for the sender because there are standards for banks to authorize reversals on deposits.
• Cost of the Transaction: Wire transfers, depending on the type & bank, range from $15 to $30. On the other hand, ACH transactions are much more affordable.

Barbara Davidson

Babs is Lead Content Strategist and financial guru. She loves exploring fresh ways to save more and enjoy life on a budget! When she’s not writing, you’ll find her binge-watching musicals, reading in the (sporadic) Chicago sunshine and discovering great new places to eat. Accio, tacos!