ACH Transfers vs SWIFT Payments: What's the Difference?

What's the difference between ACH and SWIFT? While they're both types of electronic payments, understanding the difference can be crucial to your overseas money transfer. 

These days, there's no denying that technology is on steroids, and this has reshaped the international payments landscape. ACH and SWIFT are two of the most common examples of how intelligent automation can deliver better value through the convenient, fast and smooth transfer of funds from one account to another.  

It's worth knowing the key differences between these electronic fund transfer methods, which we will discuss below. 

What is ACH?

ACH stands for Automated Clearing House, a network-based payment system that facilitates electronic money transfers between banks and financial institutions across the United States. This system allows for various transactions, including direct deposits, payroll, bill payments, and person-to-person transfers. Due to its reliability, cost-effectiveness, and ability to securely handle large transactions, the ACH network has become increasingly popular among businesses and consumers. 

How do ACH transfers work?

ACH transfers are initiated via a financial institution. When you begin a transfer, it joins a queue of other similar transfers. The Automated Clearing House network processes these transfers as a batch later. The money is then allocated to the appropriate account by the receiving bank. 

What are the types of ACH transfers?

The two types of ACH payments are credit transfers and direct debits. Credit transfers occur when you initiate the transfer. In contrast, debit payments are triggered by the receiver of funds, like when a service deducts money from your account for a bill payment.  

How long does the payment process take?

Fund delivery usually takes 1-2 days, though there may be delays due to incomplete paperwork. You'll need details, such as your name, payment amount, bank routing number and account number, to send an ACH payment. 

Pros and cons of ACH transfers

Pros of ACH transfers

Cost-effective: One of the most significant advantages of ACH transfers is their low cost. Typically, ACH transfers come with minimal or no fees, especially for domestic transactions, making them an attractive option for individuals and businesses.

Convenient for recurring payments: ACH transfers are ideal for setting up recurring payments, such as payroll, utility bills, and subscriptions. Once set up, these payments are automated, reducing the need for manual intervention and ensuring timely transactions.

Security: ACH transfers are generally secure, as they involve bank-to-bank transactions within a regulated network. Additionally, they require verification steps that help prevent fraud and unauthorized transfers.

Accessibility: ACH transfers are widely accepted across the United States, making them a versatile option for domestic transactions. Most banks and financial institutions support ACH transfers, providing easy access to this service.

Cons of ACH transfers

Slower processing time: ACH transfers can take several business days, especially for transfers initiated over the weekend or holidays. This delay can be a drawback if you need to send or receive money quickly.

Limited to domestic transactions: ACH transfers are primarily used for domestic transactions within the United States. If you need to send money internationally, you'll need to explore other options like SWIFT transfers.

Risk of reversal: Unlike wire transfers, ACH transfers can be reversed in certain situations, such as insufficient funds or fraud. While this feature adds a layer of protection, it can cause delays or complications if the transfer is contested.

What is SWIFT?

SWIFT refers to The Society of Worldwide Interbank Financial Telecommunication, a Belgian financial network that facilitates global payments. SWIFT provides a messaging platform banks and financial institutions use to make cross-border payments. 

How do SWIFT payments work?

SWIFT uses unique identification codes to transfer monetary information between financial organizations. The SWIFT network and messaging platforms enable financial establishments to communicate transaction details to one another when making international wire transfers. This facility is used globally and encompasses over 200 countries and thousands of financial institutions.

What are the types of SWIFT transfers?

SWIFT transfers can be categorized into a few different types based on the purpose and the specifics of the transaction:

Bank-to-bank transfers: This is the most common type of SWIFT transfer, where funds are sent directly from one bank to another across international borders. These are often used for personal or business payments.

Corporate payments: Businesses typically use these transfers to pay for international goods and services, settle invoices, or transfer funds between corporate accounts in different countries.

International wire transfers: Similar to bank-to-bank transfers, but often used to describe personal remittances or sending money abroad for personal reasons, such as supporting family members or making purchases.

Spot transfers: These are real-time currency transfers made at the current exchange rate, typically used for urgent payments where the sender wants to lock in a specific rate at the moment of the transfer.

Forward contracts: This type of SWIFT transfer allows the sender to lock in an exchange rate for a future transaction, which is particularly useful for businesses looking to hedge against currency fluctuations.

Recurring or scheduled transfers: These are automatic transfers set up at regular intervals, often used for recurring payments like salaries or vendor payments in different currencies.

How long does the payment process take?

The payment process for a SWIFT transfer generally takes 1 to 5 business days, depending on factors such as the processing times of the sending and receiving banks, the involvement of any intermediary banks, time zone differences, and currency conversion requirements. While most transfers are completed within 1-3 days, more complex transactions involving multiple banks or less common currencies can extend the process to 5 days. Compliance checks for regulatory purposes may also introduce additional delays.

Pros and cons of SWIFT transfers

Pros of SWIFT transfers

Global reach: One of the primary advantages of SWIFT transfers is their ability to send money internationally. SWIFT connects banks and financial institutions across the globe, making it possible to transfer funds almost anywhere in the world.

Speed for international transfers: While not instantaneous, SWIFT transfers are generally faster than other international transfer methods. Most SWIFT transactions are completed within 1-5 business days, depending on the banks and countries involved.

Security and reliability: SWIFT transfers are known for security, as the network is highly regulated and monitored. Each transaction is tracked and verified, reducing the risk of fraud or errors.

No transaction limits: Unlike other transfer methods, SWIFT does not impose strict limits on the amount you can transfer, making it ideal for large payments or business transactions requiring significant sums of money.

Cons of SWIFT transfers

Higher fees: One of the main drawbacks of SWIFT transfers is the cost. These transfers often come with higher fees than domestic options like ACH, and multiple banks may charge fees along the transfer route, increasing the total cost.

Exchange rate markups: When sending money internationally, SWIFT transfers often involve a currency conversion, which can come with unfavourable exchange rates. Banks may apply a markup to the exchange rate, leading to additional hidden costs.

Potential for delays: Although SWIFT transfers are generally fast, delays can occur, mainly if the transfer involves multiple banks or countries with different time zones and banking practices. Unexpected delays can be frustrating, especially when timing is crucial.

ACH vs. SWIFT: A quick comparison

Here's a summary of the main differences between ACH and SWIFT: 

• How it works – ACH is an electronic monetary network that connects banks. SWIFT is an electronic money transfer network that enables financial institutions and banks to send money from one bank account to another globally. 
   
• What it costs – ACH payments are usually more cost-effective, whereas transferring SWIFT payments internationally carries a higher charge. 
   
• How long it takes – ACH payments tend to have a lower transfer speed than SWIFT payments. However, there may be delays with SWIFT payments if more intermediary banks are involved. 
   
• Who uses it? – Although international ACH payments are possible, ACH is commonly used for domestic payments, while SWIFT payments are more suitable for international payments.

Why use MTFX for global payments and international money transfers?

Knowing your options for electronic funds transfer is worthwhile if you want to simplify how you send money abroad. It helps you choose the best international payment service for your needs.

If you need to make an international money transfer, MTFX is your one-stop shop for cheap, fast and secure transactions. Sending money abroad has never been easier, with our currency experts helping you explore your payment options.

By turning to a specialist international money transfer service instead of your bank, you can enjoy competitive exchange rates of 3-5% lower than yours. Our transfer fees are much lower, so you can enjoy increased savings.

Simplify money transfers with MTFX

Efficient delivery times of 1-2 days: With MTFX, you can enjoy fast and reliable money transfers, typically completed within 1-2 days. This ensures that your funds reach their destination quickly, helping you stay on top of your financial commitments without delay.

A wide range of foreign exchange tools: MTFX offers a variety of foreign exchange tools, including spot transfers, forward contracts, and limit orders. These options provide flexibility and control over your transactions, allowing you to optimize your currency exchange strategy.

A 24/7 secure, online platform accessible from anywhere: MTFX’s online platform is available around the clock, allowing you to manage your transfers anytime. With top-notch security features, you can be confident that your transactions are safe and protected.

Industry-leading automation technology for smooth transfers: MTFX leverages advanced automation technology to streamline the transfer process, reducing errors and ensuring your transactions are processed efficiently and accurately every time.

Register your account with MTFX today to enjoy secure, cost-effective and efficient international money transfers.

FAQs

1. What is the difference between ACH and SWIFT transfers?

The main difference between ACH and SWIFT transfers is their usage and scope. ACH transfers are typically used for domestic payments within the United States, while SWIFT transfers are designed for international money transfers between banks across the globe. ACH is known for being cost-effective and convenient for recurring payments, whereas SWIFT is preferred for secure and fast global transactions.

2. How does an ACH bank transfer work?

An ACH bank transfer works by electronically moving money between banks through the Automated Clearing House network. This process is commonly used for direct deposits, bill payments, and other domestic transfers within the United States. ACH transfers are typically processed in batches that take a few business days.

3. What is a SWIFT payment?

A SWIFT payment is a money transfer made through the network, which connects banks and financial institutions worldwide. It’s commonly used for international transfers, allowing individuals and businesses to send money across borders securely and efficiently.

4. When should I use ACH vs SWIFT for money transfers?

You should use ACH for domestic transfers within the United States, especially for recurring payments like payroll or bill payments. SWIFT is the better choice when sending money internationally, as it’s designed for cross-border transfers with robust security and global reach.

5. What is an ACH or SWIFT code?

An ACH code identifies the receiving bank for domestic transfers within the United States. On the other hand, a SWIFT code is an international bank code that helps identify a specific bank during global transactions, ensuring that the money reaches the correct destination.

6. How does a SWIFT payment system work?

The SWIFT payment system sends secure messages to authorize and complete international money transfers between banks. Each bank involved in the transaction, including intermediary banks, processes the payment until it reaches the final recipient.

7. Is an ACH transfer the same as a wire transfer?

While ACH transfers and wire transfers are both methods of moving money between banks, they differ. ACH transfers are typically used for domestic transactions and processed in batches, often taking a few days. Wire transfers, including those sent through SWIFT, are usually faster and used for domestic and international transfers, but they often come with higher fees.

8. What are the benefits of using an ACH payment vs SWIFT?

The benefits of using ACH payments include lower fees and the ability to set up automated recurring payments, making it ideal for domestic transactions. SWIFT payments, however, are beneficial for international transfers, offering secure and relatively fast transactions across borders, even though they might come with higher fees.

9. How do I find my bank's ACH or SWIFT code?

You can find your bank’s ACH code on your checks or by contacting your bank directly. The SWIFT code can usually be found on your bank’s website, your bank statement, or by asking your bank’s customer service. These codes ensure your money is transferred correctly to the intended recipient.

10. Can I use ACH or SWIFT for international transfers?

ACH is generally not used for international transfers as it’s limited to domestic transactions within the United States. The SWIFT network is the preferred method for international transfers, as it’s designed specifically for cross-border transactions between banks in different countries.