What is an EFT (Electronic Funds Transfer)? Everything You Need to Know
Have you ever paid any bill online, sent money through your mobile banking app, or used your debit/credit card at checkout? If yes, you have used EFT—whether you know it or not.If you are an immigrant, expat, or a small business owner, understanding what an EFT is and how it works will help you save a lot of time and money, particularly when you are sending money overseas.In this guide, you will learn the meaning of EFT, the working of various types of EFT, its benefits and drawbacks, and how to choose the right service for your requirements.What Is an EFT?EFT, short for Electronic Funds Transfer, is a method of digitally transferring money between accounts—sometimes within the same bank, sometimes between two different financial institutions. It is a secure and fast method, and doesn’t require cash or paper checks.How Does an EFT Work?EFT is just a method of moving money digitally. Whether you are sending money from one account to another, paying for online shopping, or giving out employees’ salaries, your bank uses the electronic system to process the transaction.The key players involved in an electronic funds transfer are as follows:The sender: The sender who initiates the transactionThe receiver: The person or the business that is receiving the moneyBanks or payment processors: They move the money between accounts.EFT networks: These comprise systems like SWIFT, ACH, or card networks such as MasterCard and Visa.There is no involvement of physical cash here. The entire process of transferring funds happens through computers and secure protocols.Types of EFT PaymentsThere are various types of electronic funds transfer methods. Let’s break down the top five types, so that you can make an informed decision on which is the best for your needs.1: ACH transfersACH stands for Automated Clearing House. Mostly used in the United States, it is the perfect method for business invoicing, payroll, and recurring bill payments. It takes 1-2 days for the transfer, and the fee is usually free or very low.2: Wire transfersWire transfers are best for large amounts or urgent transactions, especially overseas. Domestic wires are completed within the same day, whereas international wires may take up to 5 business days, depending on the currency and the bank. It can be expensive due to the sender or receiver fees and intermediary bank charges.3: Debit and credit card paymentsEvery time you tap, swipe, or enter your card details online for payment, you are making an electronic funds transfer. Cards are used for everyday shopping and online transactions. It involves the MasterCard and Visa networks. The risk of potential fraud also exists with cards, so always keep your card details secure.4: Mobile wallets and payments appsThere are various apps built for transfer, such as Google Pay, Apple Pay, PayPal, and Venmo. These apps allow store payments and instant peer-to-peer transfers. They are very easy to use, convenient, and quick. The only limitations are geography and the amount transfer limit.5: ATM transfersElectronic funds transfer also involves using your debit or credit card to transfer or withdraw money through bank ATMs. Some banks charge an ATM withdrawal or transfer fee if you are using a card from another bank.EFT vs. Online Money Transfer Services (like Wise or Remitly)When you think of sending money, especially internationally, you must often think of companies like Wise, Remitly, or Western Union. These are money transfer services, not the same as EFTs, although they often use EFTs to move money in the background.Let’s understand the difference.FeatureEFT (Electronic Funds Transfer)Online Service (like Wise or Remitly)DefinitionA digital method to move money between bank accountsPlatforms built specifically for sending money, often internationallyUse casePayroll, paying bills, and bank-to-bank transfersSending money to family/friends abroad, business transfersTransfer modeUses ACH, SWIFT, or card networksUses EFTs, but adds extra services and layersSpeed and feesDepends on type (ACH: 1–2 days, Wire: Same day)Often faster, but may include service fees and markupsBest forDomestic transfers, direct bank-to-bank paymentsPersonal or business transfers with added featuresIf you are wondering which is the ideal fit for you, then:Use EFTs when you are transferring between bank accounts directly or setting up recurring domestic payments (like rent or payroll).Use money transfer services like Wise, Remitly, etc. when you want a more user-friendly experience for international transfers, especially if the recipient does not have a bank account or you want competitive exchange rates.How Long Does an EFT Take?The amount of time taken for electronic funds transfer depends on the type of EFT.Type of EFTSpeedACH1-2 business daysBank wire transferSame day or next dayDebit card or credit card2-5 business daysMobile wallets and payment appsInstant or near instantATM transfersImmediate authorizationTo find out about the fastest and most cost-efficient international money transfer methods, check out CompareRemit’s rate comparison tool.What Does an EFT Cost?While EFTS are very cost-efficient, the fees vary based on the method or the provider. The fees for ACH transfers are usually free or a nominal fee. Wire transfer can cost $15 - $50, depending on the bank and country or recipient. Cards and wallets may include currency conversion costs for international use. Always double-check hidden fees, exchange rates, or delays before finalizing your transfer.Benefits of EFT PaymentsHere are the reasons for you to consider EFT payments:Affordable: No middlemen, printing, or postage involved.Speed: You can send money anytime, anywhere.Security: It is regulated, trackable, and encrypted.Great for recurring bills: It is perfect for payroll and recurring bills. Set it and forget it.Paperless: There is no requirement for any checks or physical cash.Drawbacks of EFT PaymentsEFT payments have some downsides as well. Here's what you should be cautious about:Reversal: If you have sent money mistakenly to someone, it may be lost. Reversals are not at all easy, especially with bank wire transfers.Frauds: Electronic funds transfers are still vulnerable to potential phishing and identity theft.Fees on international transfer: Banks and traditional wire transfers might include many hidden charges.Pro tip: To avoid risks, always use a comparison tool and verified platforms before sending the money.What is the Electronic Funds Transfer Act?The Electronic Funds Transfer Act was passed in 1978. It protects the United States’ consumers making EFT transactions. It limits the liability if you quickly report when your card is stolen or lost. It gives you the right to dispute any unauthorized charges. It also requires the banks to show how EFTs work and what your rights are.Understanding your rights is vital, especially if you are transferring a large amount of money overseas or running a business.Compare and Choose SmartElectronic Funds Transfer is here to stay, and they have made moving money globally without physical cash or paper checks easier than ever. But with so many options available today, choosing the right service to transfer money overseas to save time and money can be difficult.Whether you are transferring money to your family, making a business payment, or managing funds internationally, CompareRemit’s exchange rate calculator tools and comparison engine can help you save a lot of time and money, enabling you to make smart decisions.Frequently Asked Questions (FAQs)Q: What is the difference between an EFT and an ACH?An EFT (Electronic Funds Transfer) is a broad term for any electronic movement of money, while an ACH (Automated Clearing House) payment is a specific type of EFT that uses the ACH network. Essentially, all ACH payments are EFTs, but not all EFTs are ACH payments.Q: What is the difference between RTGS and EFT?RTGS (Real-Time Gross Settlement) enables the immediate, individual transfer of high-value funds, while EFT (Electronic Funds Transfer) is a broader term, which can include various methods of electronic transfer with different processing speeds. Q: Is EFT the same as Swift?No, EFT (Electronic Funds Transfer) and SWIFT are not the same. EFT is a broad term for any electronic movement of money, while SWIFT is a messaging network used by financial institutions to send instructions for international money transfers.Q: Is Wise or Remitly an EFT?No, Wise and Remitly are not EFTs themselves—they are money transfer services that use EFT methods (like ACH or wire) to move your money. These platforms often offer faster delivery, currency conversion, and added services for sending money internationally.Q: What is the difference between EFT and ACH?EFT is a broad term for any digital money transfer—ACH, wire, card, or mobile payments. ACH is a type of EFT that uses the ACH network, mainly for U.S.-based direct deposits and bill payments. All ACH transfers are EFTs, but not all EFTs are ACH.