Your complete guide to ACH, ABA, Wire, EFT, and checks in the US


 

If you need to get a payment to someone, sending it electronically is usually the most convenient - and safest - way to go. But the choice of payment route can be confusing, with options including ETF, bank wires, electronic checks and more.

This guide covers all you need to know about the main electronic payment methods available in the US, including the features, fees, and processes used for each. We’ll also look at which method may be best for different transfer types, and cover a smart alternative for sending money internationally - TransferWise, for low cost cross border transfers which use the mid-market exchange rate.

Payment methods available in the United States

The US has a complex banking system involving many different financial institutions and intermediaries which help individuals, businesses, and the banks themselves hold, move and manage money. Financial institutions in the US are chartered at the state or federal level, and overseen by a variety of regulatory bodies and agencies to make sure customers - and their money - are safe.

The range of different financial institutions and widely varied consumer needs means that there are many ways to send and receive a payment. Of course you could rely on cash or physical checks, but these days it’s getting more common to use different types of electronic transfer methods, including:

  • ACH
  • EFT
  • Electronic checks
  • Direct / Bank debits

This guide will walk through these electronic payment options, and how to use them.

What is an EFT payment? 

One of the most common acronyms you’ll find when looking at ways to send payments is EFT. EFT stands for Electronic Funds Transfer.

EFT is an umbrella term which covers payments made directly from one bank account to another, where the money is moved digitally. Even if you didn’t know it, you probably make or receive EFT payments frequently - these can include bank wires, transfers you initiate online, by phone or using an ATM, credit card payments and direct debits for example.

How do EFT payments work?

EFT payments are arranged with little or no human intervention. You won’t usually need to handle any cash, or have a bank teller key a payment on your behalf. 

Instead the payment is set up and authorized electronically. This may mean you enter the transfer details into your online banking system, or you might set up the payment by swiping your bank card, entering a PIN, or giving a signature as authorization. Once authorized, secure messages are used to move the money digitally from your account to the recipient. 

What is an ACH payment? 

Many EFT payments are also ACH payments. ACH stands for automated clearing house

The ACH network, which is administered in the US by Nacha, facilitates automated, electronic payments between banks. ACH payments are typically cheap, or even free, which makes this a popular way for businesses to pay salaries, or for individuals to receive Social Security transfers, settle bills online, set up recurring mortgage payments or pay off the credit card at the end of the month.

The flipside of this is that ACH payments may take a day or two to process. That’s because they’re settled in batches, rather than instantly. This is one of the features which drives down the costs of ACH transfers, but may mean this isn’t the best way to move your money if you’re in a hurry. Instant ACH payments are an option being rolled out - but not all institutions can offer this service as yet.

What is an electronic check?

An electronic check - or e-check - is a way to make a payment from your checking account without needing to write out and mail a physical paper check. Usually you’ll just need your bank routing number, checking account number and name to get the payment started. Just like with a physical check, you’ll have a record of the payment in the form of an electronic receipt, but the money can be received much more quickly than when using the option of a traditional paper check.

Electronic check payments are processed via the ACH network, and payments will usually arrive in the recipient’s account a day or two after being sent. 

What is a direct debit payment?

Direct debit payments are often used for recurring bills, such as paying for a subscription or covering your mortgage every month. With a direct debit you’ll authorize the recipient to request payment directly from your bank, and the payment will be settled electronically using the ACH system according to your authorization instructions.

Direct debit payments are sometimes described as ‘pull’ payments. That’s because these payments are initiated by the recipient sending an invoice or requesting a recurring payment, which you’ve authorized in advance. This is different to an e-check which is a ‘push’ payment, in which the account holder has proactively sent the money to the recipient without needing that request or invoice to arrive first.

What is an ABA routing number? 

Routing numbers are another important element of making sure electronic payments are processed quickly and safely.

Your ABA (American Bankers Association) routing number is the 9-digit number printed on the bottom of your physical checks. It’s a sort of zip-code for check payments, and helps to identify the accounts involved when sending money within the US. You might also see this number called a routing transit number - and it’s worth noting that different routing codes exist for different payment types. Checking the number you need to send or receive a payment is the best way to make sure your money arrives safely, and without unnecessary delays.

What’s the difference between an ACH and ABA routing number?

ABA routing numbers are used when making paper or check transfers. ACH routing numbers are used for electronic transfers. Both are 9 digits long.

Depending on which bank your account is with, you may find that the ABA and ACH routing numbers used are the same. However, it’s worth checking before you process any payments, because some institutions use different numbers depending on how the payment is being processed.

Wire routing numbers

While many payments in the US are made through the ACH network, there is also the option of making or receiving a wire transfer. Wires are often used for larger, or international payments - they may cost a little more to set up, but they can arrive more quickly in some cases.

If you’re expecting a domestic wire transfer, you’ll need to give the sender your wire routing number to make sure the payment arrives safely. Confusingly, your 9-digit wire routing number may be the same as your ABA or ACH routing number - but this is not necessarily the case. Some banks prefer to use different numbers based on the type of payment, which means the only way to be sure which number you need for a wire payment is to check directly with your own bank.

International wire transfers may need different details again. You’re likely to be asked for your bank’s SWIFT/BIC code, which is used in a similar way to a routing number, but is more common in international transactions.

Sending money internationally to or from the US?

Before you make any payment you’ll want to understand the process and costs involved, to make sure you’re getting the best available deal. 

It’s worth knowing that international payments can be much more expensive than domestic transfers, if you arrange them through your regular bank. That’s because banks typically process international wires using the SWIFT payment network - a system of intermediary banks which can each take a fee for their part in moving the transfer toward the destination account. 

Banks may also use marked up exchange rates which means more fees to cover to get your money to your recipient overseas. All in all, this can make for a slow and costly payment.

Instead of using your regular bank for international transfers, check out the fast, low cost payments available through TransferWise. TransferWise does things differently to traditional banks, using the real mid-market exchange rate with no markups, and charging just a low transparent fee. By avoiding the SWIFT system, and using its own network of local bank accounts TransferWise can cut the costs of sending money abroad, and pass those savings on to customers. 

Ready to make an international payment? See how you can save 4x compared to your regular bank, with TransferWise and the TransferWise multi-currency account.

Disclaimer: This publication is provided for general information purposes only and is not intended to cover every aspect of the topics with which it deals. It is not intended to amount to advice on which you should rely. You must obtain professional or specialist advice before taking, or refraining from, any action on the basis of the content in this publication. The information in this publication does not constitute legal, tax or other professional advice. Prior results do not guarantee a similar outcome. We make no representations, warranties or guarantees, whether express or implied, that the content in the publication is accurate, complete or up to date.

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