There’s more than one way to get money from one person to another. While yes, there is such thing as simply passing cash from one hand to another or writing a check from you to them, these traditional means aren’t always the most convenient or the most efficient anymore. Not with the advent of so many innovative new money transfer types. You can still transfer money the old-fashioned way if you so please, of course, but these days, many prefer to take advantage of some more technologically advanced money transfer types, especially in the real estate industry.
With that being said, it can be difficult to tell all these money transfer types apart. From ACH to wire to money order to real-time payment, it’s worth breaking down all these money transfer types and explaining their respective advantages and downsides. Not only will this help you know the difference between each of them, but it will also help you know each of their ins and outs. Let’s take a look at ACH, wires, money orders and real-time payments — and how they compare to one another for real estate transaction purposes — below.
ACH
ACH stands for Automated Clearing House. An Automated Clearing House is a network that facilitates both electronic payments to an account and automatic transfers of money from one account to another. The Automated Clearing House’s system is made up of computers working in conjunction to automatically process payments to and from accounts. For real estate transactions, ACH payments never need any hands-on assistance from anyone. The network is completely automatic and millions use ACH to make payments each day.
See how ACH compares to wire.
The ACH network relies on two main clearinghouses to do its job correctly: The Federal Reserve or The Clearing House. These clearinghouses are responsible for facilitating the most seamless and most timely payment processing from one financial institution to another. It’s a cheap and easy way to get money from one person to another and it requires no labor whatsoever to do it.
See how ACH compares to a money order.
Wire Transfers
A wire transfer is the electronic transfer of money from one network to another, typically via a bank or a wire transfer service agency. To work, wire transfers need both a sending and a receiving institution. They also need the sender to provide some info about the recipient, such as their name and their account number. Like ACH, these transfers are done electronically and don’t require any sort of transfer of physical money from one person to another. This ease is part of why they’re so popular — almost 200 million wires were made in 2020 alone.
See how wire transfers compare to a money order.
With wire transfers used for real estate transactions, the sender is required to pay for the transfer of money upfront — typically at their bank. Once the financial institution has all the necessary info about the recipient from the sender, the wire transfer is initiated. The sender’s firm first sends a message to the recipient’s firm, passing along payment instructions from one institution to another through a secure payment system. The recipient’s financial institution then deposits its funds into the proper account. After the recipient gets their money, the two financial institutions will settle their debts once the deposit clears.
See how wire transfers compare to RTP.
Money Order
A money order — sometimes referred to as a traveler’s check — is a certificate granted to a person by a government or financial institution that says that person is entitled to a specified amount of cash on demand. In this way, a money order works almost like a check: The money order is issued from one person to another via a financial institution for a specified amount and the person who sent the money order has the right to stop the payment if they so please.
See how money order compares to RTP.
Money orders are hugely popular among people without a checking account because they can be accepted and cashed without one. This makes the money order a great way to settle minor debts, whether they’re professional or personal. They tend to come with a small service fee, but nothing too major. Typically, money orders have a limit of $1,000. If you want to send one for a larger amount, you’d have to buy multiple money orders, making them somewhat difficult for real estate transactions. Still, this limit doesn’t stop over $83 million from being sent via money order each day. Money orders come with a receipt that lists the serial number. This info needs to be held onto until the money order has cleared. Without it, tracking the money order is next to impossible.
Real-Time Payment
Real-time payments, also seen abbreviated as RTP, are payments that are sent and received almost immediately. To do this, an RTP relies on a real-time payments rail — the digital infrastructure that makes these real-time payments happen. By design, RTP networks can be accessed any day, any hour, any time, including weekends and holidays. Interestingly enough, many real-time payments rely on the Automated Clearing House’s network to work.
See how RTP compares to ACH.
Real-time payments are interesting in the way they allow both payer and payee to communicate. Typically, communication with money transfers flows in just one direction: from the sender to the receiver. If these two ever wanted to exchange information with one another back and forth, they’d need to do it separately from the money transfer type. RTPs, however, combine the transfer of money with the transfer of information into one transaction. This is what makes them such a hugely popular money transfer type these days and a promising way to make a real estate transaction: they bring together the immediate availability of funds, an instant settlement, an automatic confirmation and a more accessible transfer of information and it brings them together in a matter of seconds.
The Bottom Line: Money Transfer Types
One of the main reasons one might need to know all there is to know about these different money transfer types is for real estate transactions. Given the speed and the ever-changing nature of the real estate market, you need to know which money transfer type is going to be the best, the easiest and the fastest way to make a real estate transaction. Each one of these four money transfer types has value in and of itself, but each also comes with its own unique set of flaws or setbacks. As it turns out, there is an excellent option for quick, simple and secure real estate transactions: paymints.io.
Paymints.io is a fully electronic, completely secure and compliant solution that gets rid of the need for borrowers, buyers, sellers and real estate agents to write paper checks. Whether you’re a broker, an agent or a title company, you can disburse funds to clients or vendors using paymints.io. The goal is to cut down on time, avoid having to make a trip to the bank, reduce fees and help the environment by minimizing both the use of paper and emitting CO2. If you’re interested in trying out paymints.io, consider scheduling a demo today!
