A business pays its employees. A contractor gets paid for the work they did on a project. A company pays its supplier for inventory. These situations all have one thing in common: money moves from one account to another. That is, after all, the fundamental function of a monetary transaction. But how, exactly, do these entities transfer money from one bank to another?
On the surface, it’s a few simple screen taps or mouse clicks—but behind the scenes, the mode of payment has a lot to do with how the funds actually get from one institution to another. Various payment rails come with different stipulations and criteria for transferring money between accounts. Selecting the best rail depends on how it lends itself to the current situation. Where’s that money going? How much? How quickly?
Here’s a look at the four primary ways to transfer money from one bank to another, including domestically and internationally, as well as within a single bank’s ecosystem or between multiple banks.
1. Automated Clearing House (ACH) Bank Transfer
Most times, the most convenient way to send money from one bank account directly to another is via ACH transfer. Banks process these transfers in bulk at the end of the day or every couple of days, facilitating a transfer of money from a sender’s account to the recipient account. So long as there’s a routing number and a valid account at both ends of the transaction, the ACH will go through without much trouble—usually in a few days.
While ACH is common and efficient (often free), it does come with some drawbacks. The most glaring is that banks can stop, hold or return these payments for any reason that might trigger suspicion. For example, if your business sends a one-time large-sum payment to a recipient, the bank might put a hold on it until you verify its legitimacy.
The other major downfall? ACH transfers only work bank-to-bank in the United States. When sending payments internationally, you’ll need to look to the SWIFT system (read: wire transfers) or digital payments.
2. Bank-to-Bank Wire Transfers
The quickest, safest way to get money from one bank to another is via wire transfer. Domestic wires can send funds between accounts as quickly as same-day, while international wires can facilitate the transfer in 3-7 days, depending on the destination country. This bank-to-bank transfer is very safe, which makes it a favorite for international transfers—there’s little-to-no risk of holds or returns on wire transfers.
The downfall of bank-to-bank wire transfers is that they’re expensive, costing an average of $25 for domestic outgoing wires and $50 for outgoing international wires. If that’s not enough, there are also fees for incoming wires, averaging $15. These costs depend on the institution and aren’t standardized. Nevertheless, they make regular wire transfers impractical.
It’s also important to understand that wire transfers are final. Once you execute the transaction, there’s no stopping it. Sure, it’s a timely way to get money from one bank to another, but that quickness comes with a sense of finality.
3. Checks and Money Orders
While they still serve a purpose for many businesses, checks and money orders are quickly going the way of the dinosaur as the digital global payables landscape grows. Businesses still use them as a means of leaving a “paper trail,” but there are more downfalls associated with these money transfer methods than positives.
For starters, they rely on snail mail, which means more float time between issuing a payment and cashing it. There’s also the prospect of these payments getting lost in the mail. And, of course, it’s easier to forge a paper fraud than it is to try and intercept a direct deposit ACH transfer. Oh, and these problems are only magnified when it comes to sending money overseas and across borders.
The only real positive to checks and money orders is that float time can sometimes help cash flow for businesses. Less tech-savvy companies and individuals might also prefer a hard copy. In any case, these are forms of depositary receipts that are, in fact, a type of bank transfer.
4. Digital Payments
While digital payments present an extra step when it comes to transferring money from one bank to another, it’s a beneficial one. We’re talking about funds transfer between digital wallets, which can then send funds to a linked bank account. These payments offer great transparency for funds in transit and exchange rates for cross-border payments. They’re also ideal for holding multiple types of currency at once.
The only real pitfall of digital payments is that they require both sender and recipient to have digital wallets. Thankfully, signup is easy and managing a digital wallet is simple enough for any individual or business. With it comes plenty of optionality.
As commerce grows more and more digital, so too will funds transfers. Digital payments stand poised to solve some of the biggest problems and address some of the most in-demand needs for sending money from one bank to another.
Give digital payments a try
If you need a fast and efficient way to send or receive money—and want control over how you handle those funds—it’s time to try digital payments. From wallet to wallet and into your bank, it’s becoming the preferred way to transfer money from one bank to another.
Schedule a demo of Veem today and get started with digital payments, including all the support you need to start sending money around the world.