Q: If I want to send money to a customer at another bank, what’s cheapest way to do this? I know there are various ways to transfer money. Do I have to pay for a wire transfer or is it free of charge?
– Sobirjon T.
A: In general, there are three main electronic methods of transferring money to a customer of another bank: ACH transfer, wire transfer and electronic transfers via third-party systems.
ACH stands for Automated Clearing House, an electronic network used by financial institutions to process transactions in batches. Because ACH transfers are automated, they are rather inexpensive for banks and they tend to be free for customers (but some banks and institutions may impose a small fee, depending on the transaction).
The typical ACH transfer takes a few days to clear because it requires confirmation and by the receiving party.
Examples of ACH transfers include payroll direct deposit, online bill pay, distribution of Social Security benefits and person-to-person (P2P) payments.
Unlike the batching-processing nature of ACH transfers, wire transfers are designed for individual transactions. Wire transfers involve more interaction between the institution that sends and receives the money, which is why wire transfer fees (usually a flat fee ranging from $10 to $50 or a percentage of the transferred amount) are typically more expensive than other forms of money transfer. Wire transfer fees may be charged to the sender, the recipient or both.
The biggest benefit of wire transfers is speed. You can send money to a person located halfway around the world in a matter of minutes instead of days.
Banks, credit unions and some financial services providers (e.g., Western Union and Moneygram) offer wire transfers — their fee policies may vary. Wire transfers to foreign institutions tend to cost more than domestic wire transfers.
Transfer Method Cost Delivery Time
ACH Usually free 3-7 Days
Wire Transfer -Bank Avg. of $26.40 for domestic outgoing transfers at the 10 largest banks in the U.S. 1-3 Days
-Credit Union Avg. of $17.30 for domestic outgoing transfers at the 10 largest credit unions in the U.S. 1-3 Days
Third-party providers Varies Varies
Other portals to send money electronically include e-commerce entities like PayPal, Dwolla and others. These companies allow users to send and receive money, possibly without fees associated with ACH and wire transfers. However, many consumers don’t use them because of the time and effort to set up accounts.
PayPal doesn’t impose a fee when a customer sends money to another PayPal user through a linked bank account. Dwolla charges only 25 cents per transaction over $10, and any amount less than that is free.
As for the cheapest option to send money to someone, it would most likely be ACH transfer. Wire transfers would be the way to go if a transaction is urgent. Services like those from PayPal and Dwolla could be a better option if you and the recipient have user accounts.