Electronic Funds Transfer (EFT) refers to a method of transferring money from one bank account to another one directly. It does not in any way entail the use of paperwork. It includes direct deposits, wire transfers, automated teller machines, debit and credit cards, and electronic checks to name but a few!
An automated clearing house (ACH) is an electronic funds clearing and settlement system. It serves to facilitate the transfers of funds which are conducted in the form of electronics between two or more financial institutions. It exists in two forms namely direct deposits and direct payments.
EFT vs ACH
The main difference between EFT and ACH is that EFT stands for Electronic Fund Transfer, while ACH is the short form of Automated Clearing House. EFT means to transfer money from one account to another instantly, while ACH means to settle all the transactions of two bank accounts electronically.
EFT is faster in comparison with ACH. While on the other hand, ACH has to connect to different banks that take time.
Comparison Table Between Electronic Funds Transfer (EFT) and automated clearing house (ACH)
| Parameter of Comparison | Electronic Funds Transfer (EFT) | Automated Clearing House (ACH) |
|---|---|---|
| Meaning | The transfer of funds from one account to another within the same banking unit or network. | The clearing and settlement of funds and securities between many banks and networks. |
| Scope | Applies strictly within one bank network or unit. | It involves many banking networks, institutions, and units. |
| Timelines | Happens instantaneously and typically within minutes. | Takes 24-48 hours to finalize. This is due to the involvement of many networks and large sums of money. |
| Applicability | Useful for carrying out normal and everyday transactions like sales, purchases, funds transfers and withdrawals. | Useful only for settling dues between banks and other financial institutions in exchange for securities. |
| Instruments used | Utilizes direct deposit, wire transfers, ATMs, debit cards, and electronic checks to implement. | Utilizes direct deposits and direct payments only to implement. |
What is Electronic Funds Transfer (EFT)?
As hinted above, the electronic fund transfer (EFT) refers to the transfer of funds from one bank account to another one electronically i.e. without any paperwork or bank staff involved.
These transfers may take place within a single banking system or across multiple banks. This typically happens via computer-based systems. These transfers generally take place instantaneously as the outcomes are automatically reflected on either party’s accounts immediately.
Many transactions today happen via electronic funds transfers as the method is safer, more convenient, and instantaneous. Common examples include the withdrawal of funds using the automated teller machine or direct deposits in clients’ accounts.
What is an Automated Clearing House (ACH)?
As the name suggests, the Automated Clearing House (ACH) is a facility that clears and settles all financial transactions that are carried out across the various banking institutions.
Clearing updates accounts and makes arrangements for the subsequent transfers of cash and securities. The settlement, on the other hand, refers to the actual exchange of funds for the securities. The automated clearinghouse is so-called because it similarly requires no paperwork or human intervention.
Every aspect of the transactions is carried out electronically by the use of computers and associated programs. In the United States, the automated clearinghouse is run by the National Automated Clearing House Association.
Main Differences between Electronic Funds Transfer (EFT) and Automated Clearing House (ACH)
Character
EFT is the electronic transfer of funds from one bank account to another one either within one bank or across two banks.
The ACH, on the other hand, is the facilitation of the exchange of transactions between two or more financial institutions electronically.
Applications
The EFT is utilized by banks only. It is used to dispense funds directly to depositors or move funds from one account to another one within the same bank.
Its ACH counterpart, on the other hand, moves funds across two or more banks at a time. Thus, the latter has broader applicability.
Instruments
To be able to implement electronic funds transfers, a number of instruments are involved. These include direct deposit, wire transfers, ATMs, debit cards, and electronic checks. The ACH, on the other hand, utilizes only two kinds of instruments. These are direct deposits and direct payments.
Duration
Given that EFT transactions occur largely within one banking unit, they are faster and occur almost instantaneously. As such, they are devoid of those delays that characterize other forms of funds transfers.
The ACH, on the other hand, takes longer as it entails the transfer of funds across various banking networks.
Nature of Processing
The EFT transactions are processed as they come. This also goes a long way in speeding the processes of transfers and facilitation of the settlements altogether. In the case of the ACH, the transactions are piled up in some batches and then handled.
It is for this reason that the process takes too long.
Reliability
As stated, the EFT largely takes place within a banking unit or network. Because of this, it is safer as the banks are capable of maintaining a keen eye on the processes and systems involved.
The ACH, as has already been hinted, occurs across multiple networks. Chances of unauthorized access are hence rife.
Controls
All activities that transpire within the EFT are governed and overseen by the banks that own the networks. An ACH, on the other hand, has to be scrutinized and regulated appropriately using a relevant statutory organ.
That is because no individual bank owns it and the transactions it facilitates are often too hefty.
Fees Levied
Both forms of electronic funds transfers impose some fees or levy on the person who utilizes them. The precise levels of fees, however, vary significantly. The EFT is definitely cheaper as it mainly facilitates lower values and within a banking network.
Its ACH counterpart, on the other hand, imposes higher levels of fees owing to the longer bureaucracy and larger sums involved.
Users
Owing to its limitation of a banking system or network, the EFT applies or is used by the account holders of a bank. They use it to move funds within the various accounts they might own or from their individual accounts to other account holders.
The ACH is however used by banks only to move funds among themselves.
Geographical Scope
All the transactions which are facilitated by the EFT have to happen strictly within a country’s borders. Those facilitated by the ACH nonetheless may take place within and outside a country’s border.
Frequently Asked Questions (FAQ) About EFT and ACH
How long does ACH take to process?
ACH deals are not immediate. That is, you do not obtain the cash attributed to your account promptly when someone initiates a transfer to you. This is due to the fact that ODFIs do not send out the transfer request as quickly as they obtain them.
Instead, an ODFI collects a number of applications, as well as forwards them digitally in a batch to the driver. The driver then accumulates and processing all the transfer ask for a given day before distributing them to the proper RDFI.
Therefore, the procedure typically used to take three to four days to go through the system. But nowadays the transfers move in real-time and even instantly.
What is the maximum ACH transfer?
The ACH transfer has been Increased per-transaction dollar limit for the same-day transactions to $100,000. Currently, very same Day ACH transactions are restricted to $25,000 per purchase.
While the existing limitation covers about 98% of ACH transactions, there are several instances for which a higher buck limit will better allow end-users to utilize same-day ACH.
As an example, a higher purchase restriction would much better enable:
- B2B payments, in which only approximately 89% of purchases are presently eligible
- Insurance claim repayments, which are typically for bigger buck amounts, as well as are time delicate in nature
- Reversals for a bigger pool of purchases, including all the same-day ACH transactions.
What information is needed for an ACH transfer?
You have to provide the following information for ACH transfer:
1) Name
2) Signature
3) Organization
4) Account type
5) Financial institution
6) Transmitting number
7) Account number
8) Payment quantity
References
- https://search.proquest.com/openview/56d363e7d98a5f51145c99fb013e9dce/1?pq-origsite=gscholar&cbl=27768
- https://heinonline.org/HOL/LandingPage?handle=hein.journals/usflr13&div=25&id=&page=
- https://psycnet.apa.org/record/1968-02651-001