Sending money fast or slow

(In this article I said “Zelle cannot be used by a business”.  That has changed, as I mention here.)

Over a decade ago when our firm opened the Wells Fargo bank account that is our firm’s present operating account, the bank told us that there were two “ABA routing numbers” that we needed to know.  I never really understood why there were two, or how a person might know when to use one or when to use the other.  Very recently in my efforts to learn about international business money transfer options, I have gotten to the point of understanding the two routing numbers better.  It turns out that there are two ways for a business to send money from one US bank to another, and one is faster and more expensive, and the other is slower and less expensive.  In this blog article I will explain what I have learned about this.  This information might possibly be helpful to you in either of two ways:

• maybe you have in the past been using the more expensive way for transactions where you were not really in a hurry, and you would benefit from knowing about the slower and less expensive way, or
• maybe in the past you only knew about the slower way, and you would benefit from knowing how to use the faster way in cases where you do not mind paying the higher fee.

Some thirteen years ago when we opened the bank account at Wells Fargo that is our present operating account, the bank told us that we needed to know two ABA numbers:  102000076 and 121000248. 

The first number 102000076 is the number that shows up in MICR characters across the bottom of our printed checks along with our bank account number. 

The second number 121000248 is a number that our bank described to us as the number that someone would use to send us a wire transfer.

For many years our firm told our foreign clients and foreign associates to pay us by means of wire transfers to Wells Fargo.  Eventually we caught on that:

• Wells Fargo was charging us anywhere from $14.20 to $27.20 for each incoming bank wire, and
• nowadays there are smart ways (for example Afex and TransferWise) to receive incoming business-related foreign bank wires, ways that do not incur any fees at all.

Because of this, recently we started telling our foreign clients and foreign associates to pay us by means of transfers to our (fairly recently opened) Afex account and our (very recently opened) TransferWise account.  

But then the question is, when the money arrives from a foreign client or foreign associate in our Afex account or our TransferWise account, how do we get the money from there into our Wells Fargo account?

And this is what finally forced me to get a clue about how there are two distinct ways for a business to send money from one US bank to another US bank, and one is slow and cheap and the other is expensive and fast.

If you are sending money from one US bank to another, you get to pick whether you want to do a “wire transfer” which will arrive the same day (if you initiate it by some cutoff time), or by an ACH transfer. 

A wire transfer means that the money is specifically sent all by itself from one bank to another, not connected with anybody else’s money that is being transferred.

An ACH transfer (Wikipedia article) means that a particular bank will save up a bunch of transfers and send them as a first batch to a clearinghouse where eventually the money will find its way in a second batch (along with a bunch of other transfer) to the destination bank.  This “batching” process greatly reduces how many times money actually has to pass back and forth between banks.  But of course it means the money does not move right away.  The money sits somewhere for a while, waiting until a bunch of other transfers have accumulated that will justify sending a “batch” into the ACH system.  Later the ACH system waits until a bunch of transfers have accumulated that will justify sending a “batch” to the destination bank, and that bank has to unpack the batch, eventually posting individual amounts of money to individual accounts.

From this one may appreciate perhaps why it is that ACH transfers take longer than bank wires, and why bank wires cost more money than ACH transfers.

It is interesting to compare the terminology used by various service providers for these two mechanisms, and it is interesting to compare the fees charged for these two mechanisms.  I will describe how it works for sending money with the three service providers that I have worked with most recently.  Your bank might charge different amounts of money and might use different terminology, but the same general principles probably apply.

service provider	Wells Fargo	Afex	TransferWise
what they call a bank wire	wire	high value	service not offered
what they charge for a bank wire	$30	$15
what they call an ACH transfer	ACH	low value	transfer
what they charge for an ACH transfer	Around $5*	$5	$1.13

There are several learning opportunities lurking in this table.  One is that you sort of have to learn the terminology that a particular service provider uses, to make good choices about how to send money.  In the case of Afex, they simply call a proposed transaction “high value” or “low value” which is their rather cryptic way of saying “bank wire” or “ACH”.  With Afex, “high value” means “fast” and “more expensive” and “low value” means “slower” and “less expensive”.

With Wells Fargo, if we were to wish to send ACH transfers, we would have to enroll in a program that has a monthly fee.  We have not chosen to do that.

Note, finally, that of the three service providers listed, by far the least expensive for ACH transfers is TransferWise.  

Now back to the main point of this article, which is to shed light on why your service provider might have given you two different ABA routing numbers for people to use when they send money to you.   The answer turns out to be that with some banks, there is one routing number to be used if the other party wants to use a bank wire to send money to you, and a different routing number to be used if the other party wants to use an ACH transfer to send money to you.  Here are two examples:

service provider	Wells Fargo	TransferWise
wiring to you	121000248	26073008
ACH to you	102000076	26073150

What’s going on here is that if you are going to give instructions to someone else as to how to send money to you, it might be important to pay attention to whether the sender intends to use a wire transfer or an ACH transfer.  If the sender does not mind paying a higher fee, then the wire transfer will get the money to you sooner, but this will work only if you give the sender the routing number that works for wires.  If on the other hand the sender wants to send money less expensively, they will want to do an ACH transfer and you will want to give the sender the routing number that works for ACH transfers.

So back to one of the earlier points.  Suppose some foreign associates have sent some money transfers to our Afex account.  And suppose I now wish to transfer some of that money to our Wells Fargo checking account.  It turns out that I can do that fast (and expensively) or I can do that slow (and less expensively).  And indeed I have two distinct beneficiaries set up in the Afex system — a first beneficiary that I call “OPLF slow” which goes to the ACH routing number at Wells Fargo, and a second beneficiary that I call “OPLF fast” which goes to the bank-wire routing number at Wells Fargo.  Of course if I use “OPLF fast” this is expensive not only because Afex charges $15 instead of $5 to send the money by wire instead of ACH, but it is also expensive because Wells Fargo charges us at least $14 to receive the bank wire.  (Wells Fargo does not charge us a fee to receive an incoming ACH transfer.)

The alert reader will be itching to post a comment pointing out “hey come on what about Zelle which is free of charge and it works instantly!”  And the response is that Zelle cannot be used by a business.  Zelle can only be used for personal transfers.  What’s more, there are limits on how much money per transaction or per month a person can send through Zelle, and there are limits on how many transfers per week or per month that one can make through Zelle.  No, this article is talking about ways that businesses can transfer money, and Zelle does not work for businesses.  

The alert reader will also be itching to post a comment about Swift codes.  For many international bank wires, the way to identify the bank to which money is being sent is not an ABA routing number but a Swift code.  For a US-based firm such as ours, we often find ourselves explaining to a foreign client or to a foreign firm what Swift code to use to send money to us.  For example if a foreign firm wishes to send money to us using a Swift code, we might tell them any of these:

• TransferWise:  CMFGUS33
• Afex:  BKTRUS33
• Wells Fargo:  WFBIUS6S

Of course as mentioned above, some months ago we stopped telling our foreign associates to send money to Wells Fargo since they charge a lot of money for each incoming bank wire.  So it has been a long time since we gave the WFBIUS6S Swift code to anyone.

The alert reader will also be itching to post a comment about IBANs.  An IBAN (International Bank Account Number) is very convenient.  An IBAN is a long sequence of characters that all by itself provides complete information about the bank to which money is being sent, and also the account number at that bank of the intended recipient of the money.  Various check digits are included which minimize the chances of someone making an error in typing the number and accidentally sending money to the wrong bank or to the wrong account number.  Unfortunately banks in the US do not participate in the IBAN system.  So if you want to receive money in a US bank, you have no choice but to communicate not only your account number, but also either a Swift code or an ABA routing number, to the would-be sender.

Finally, the alert reader will be itching to point out that if the would-be sender and the would-be recipient have the good luck that they have accounts with the same service provider (for example both have accounts with TransferWise or both have accounts with Afex) then a transfer will be instant and will be free of any fees.

In your business-related money transfers from one US bank to another, do you pay attention to whether you are using an ACH transfer or a wire transfer?  Can you share a word or two about your experiences and the fees that you have been charged?  Please post a comment below.