When is a Wire not a Wire? When it's an ACH.
Banking lingo is confusing. Like healthcare, it is full of abbreviations, inside baseball terminology, and specialized jargon that can drive the average person or small business crazy. On top of that, different banks like to use their own terminology to "brand" their services. So today I hope to demystify one set of jargon that should be relevant to every real estate professional - the electronic funds transfer.
An electronic funds transfer (sometimes referred to as the EFT) is a peer to peer (could be bank to bank, but could be brokerage account to bank) transfer of funds from one specific account to another specific account. These transfers are authorized by either the sender of the funds (when the EFT is for outgoing funds) or the receiver of the funds (when the EFT is sending funds to an account). Outgoing payments might be for bill payments, business to business payments or person to person payments (these include authorizations you may give to a payee to draw on your bank account to pay a bill). Incoming payments might be direct deposits of wages (or real estate commissions!). These transactions are regulated by the federal government as well as NACHA - the Electronic Payments Association (in the case of ACH transactions). Scheduled payments must be made available to the recipient on the day the funds are collected. Unscheduled payments must be made available to the recipient the day after funds are collected (your bank may make them available to you sooner based on your banking relationship).
So what is a wire transfer? It is a form of EFT where funds are transfered real-time to the Federal Reserve for delivery to another financial institution. Wire transfers can deliver funds from one account to another on the same day the wire is initiated - it is the fastest means of transfering funds from one party to another. These transfers can be made only during the Federal Reserve business hours - thus banks have cutoffs for when a wire transfer must be initiated in order to occur on that day (usually by 5PM ET). Banks incur additional costs for performing wire transfers (employing people to ensure the debiting and crediting of accounts and timely transfer of funds, as well as performing fraud checks on these transactions). Thus they charge account holders fees for transfers - usually higher fees for outgoing wires than incoming wires.
Not all EFTs are wire transfers. The other dominant system for EFTs is using the ACH system. ACH stands for Automated Clearing House. These transfers have been around for 40 years. In the US, there are two ACH networks - the FedACH (run by the Federal Reserve and accounting for 60% of all ACH transactions) and the Electronic Payments Network (a private ACH network, retaining the other 40% of the market). Bill payments, direct deposits, and most recurring scheduled transactions are made using ACH. It is not a real-time system, so payments are scheduled for delivery on a date in the future (usually 1 - 3 days ahead of when the ACH transaction is initiated). ACH transactions are less costly, and usually reduce costs for banks so there is usually no cost for receiving an ACH payment. Individual ACH payments may still be costly if they must be delivered quickly (within 1 day), but not as costly as a wire transfer.
Commission Express of Western Washington, my company, offers both ACH and wire transfer options for commission advances (in addition to simply depositing a check in a bank at a local branch or handing a check to a client). The client can choose how they receive their commission advance, based on their own needs and urgency.
So next time you say you are getting a wire, remember that you may be getting an EFT through ACH - or whatever other acronym you may use at your bank.
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