Money Movement: RTP Payments vs ACH vs Wire Transfers

As we’re sure you’re aware, moving money in and out of accounts and between banks to process payroll, pay vendors and contractors, and maximize the return on idle funds, is one of the most important (and often overlooked) functions of a modern finance team. While there are a ton of rails on which money can move, ACH, RTP, and Wire Transfers are the most common.

While the big three are taken for granted by most, we’ve recently been asked how they work and what the benefits/drawbacks of each are, so we decided to break them down to the basics and analyze their speed, limits, cost, settling time, and more—let’s dig in!

What are RTP Payments?

Real-time payments (RTP) are electronic payments used by banks to send funds to one another. Funds sent via RTP settle instantly and are accessible 365 days a year, including bank holidays, and weekends, and can be sent/received at anytime (e.g. outside traditional bank hours). Startups that use RTP payments typically do so to satisfy last-minute payroll, utility bill payments, or insurance premiums, as they reduce transaction risk. In addition to banks, payment facilitators such as Visa and Mastercard have recently started to adopt the RTP network.

What are ACH Transfers?

Automated Clearing House (ACH) transfers are electronic payments processed directly from one bank account to another using account numbers and routing numbers. ACH transfers are processed by the National Automated Clearing House Association and are typically used for small-medium-sized transactions, such as direct deposits and recurring payments. ACH transfers are beneficial for startups as they provide a reliable and inexpensive way to send and receive regular payments.

What are Wire Transfers?

Domestic and international wire transfers, like ACH transfers, are electronic payments processed directly from one bank account to another. They are processed using account and routing numbers using the Society for Worldwide Interbank Financial Telecommunication (SWIFT) network. Wires are typically used to send large amounts of money quickly and can be used to send money internationally. Startups typically use wire transfers to push funds into their operating account monthly and to pay one-time large invoices.

Availability: RTP Payments vs ACH Transfers vs Wire Transfers

In the United States, most banks support ACH and Wire Transfers. RTP on the other hand is only supported by ~300 banks in the US. For a full list, visit The Clearing House.

Sending Limits: RTP Payments vs ACH Transfers vs Wire Transfers

Between these three forms of money movements, all your needs should be met.

• ACH transfers support transactions of up to $1,000,000, though most financial institutions limit the total to just $25,000 without additional verification
• RTP payments support transactions of up to $1,000,000
• Wire transfers can support payments of all sizes, from a few dollars to hundreds of millions, even billions of dollars, though most financial institutions limit it to $200,000 without additional verification

Uses: RTP Payments vs ACH Transfers vs Wire Transfers

Due to their instant settling, RTP Payments are typically used for one-off expenses such as payroll, utility bill payments, insurance premiums, and other time-sensitive transactions. ACH transfers on the other hand are typically used for smaller recurring and routine payments, and wire transfers are for large one-time payments, such as the purchase of a new piece of software, a security deposit on a new building, or the payment of outstanding invoices. Wire transfers are also typically used when moving funds between primary and secondary accounts.

Speed: RTP Payments vs ACH Transfers vs Wire Transfers

While all three forms of money movement now support same-day transactions, ACH and Wire transfers are not processed on bank holidays or weekends and must be initiated by a designated cutoff time. Typically ACH transfers are typically processed within one to two business days and Wire transfers take two business days to process and settle. RTP payments on the other hand can be initiated and processed 24/7, 365, they also settle instantly.

Cost: RTP Payments vs ACH Transfers vs Wire Transfers

Generally speaking, domestic wire transfers cost the most, followed by ACH transfers and RTP payments. Same-day wires, international wires, and same-day ACH transfers cost more. In most cases, so long as you maintain a minimum balance banks will waive these fees, however, some will charge you for them no matter how much you store with them.

Directionality: RTP Payments vs ACH Transfers vs Wire Transfers

Unlike ACH payments, RTP and wire transfers only support credit or 'push' payments, which send funds from your account. You cannot 'pull' funds or debit another bank account with RTP or wire transfers. Note: if you initiate an RTP payment it cannot be reversed, however, if you send a wire transfer or ACH you can reverse it (assuming it hasn’t been accepted).

Ideal Use Case: RTP Payments vs ACH Transfers vs Wire Transfers

RTP payments are ideal for small-medium-sized transactions, that need to be processed immediately, even on the weekends or after traditional banking hours. 
ACH payments are ideal for small, recurring transactions that occur on an ongoing basis.
Wire transfers are perfectly suited for large, one-time transactions, such as your seed round, or friends and family round.

Final thoughts on moving money using RTP payments, and ACH and Wire transfers

Today the world is more interconnected than ever before, and having sufficient money movement protocols is a crucial tool in the metaphoric belt of every modern finance team. The ideal program satisfies both short-term recurring needs as well as one-off transactions. When deciding whether to use RTP, an ACH, or a Wire, consider the following factors: the amount, the ideal speed, and the cost. In general, ACHs and Wires are most commonly used, though given their instant settling nature and 24/7 availability, RTPs are quickly becoming the norm. One final note, if you are being charged for ACHs and Wires, it’s probably time to consider making the switch to a fee-free provider, like Arc.