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What is an EFT? (Electronic Funds Transfer)

What is an EFT? (Electronic Funds Transfer)

What is an EFT? There is a lot of confusion about what an electronic funds transfer actually is because it is often confused with a wire transfer. Here are two quick tips to help you remember which is which:

1 – A wire transfer is the one your account provider is probably going to charge you for.
2 – A wire transfer usually happens very quickly whereas an EFT often happens overnight.

What Is An EFT?

Its broadest definition is a transfer of money from one account to another. That means that you may also define an EFT as a wire transfer, direct deposit, and whole host of other transfer methods. The typical definition of an EFT is the movement of funds digitally from one account to another.

What Is A Traditionally Recognized EFT?

If somebody says the words “EFT” to you or they say “Electronic Funds Transfer,” there is a good chance they are talking about an ACH transfer.

An ACH transfer is where money is moved from your account to another account by a third party. ACH means Automatic Clearing House. Think of an ACH as a money mover.

How ACH Transfers work

For example, let’s say you put in an EFT request to move $100 from your account to your friend’s account. At the end of the working day, the bank hands over a list to the ACH. That list contains the details of all the people who wish to conduct an EFT. Your name will be on the list. The ACH takes the list and moves the money from your account to your friend’s account. The day after, the funds will appear in your friend’s account.

In almost every circumstance, an ACH takes at least one night to process because the Automated Clearing House receives its list of transfers at the end of the working day. When most people and account providers talk about EFT, they mean using an ACH to move money overnight.

What Is An EFT And Why Aren’t Bank Staff Involved?

These days, a funds transfer doesn’t have to be processed by a human. We are now able to use global networks to transfer money automatically using computers that have no human intervention at all.* (note the * there because there is one exception that is discussed later).

Electronic funds transfers (EFT) is the electronic transfer of money in digital form. It may move from one account directly to another, or numerous institutions may be involved. Here are the other names that an EFT may take:

  • Electronic check
  • An e-check
  • Cardholder-initiated transactions
  • Online manual transfers
  • Direct debit
  • Direct deposit
  • Wire transfer
  • SWIFT payment
  • Bill Pay
  • Currency transfer
  • Online transfer

*A human may be involved with an EFT if a transaction is flagged for extra security. This is where your transfer takes a little longer than usual because the bank has chosen your transaction at random to run extra security checks. A human may have to look at your transaction to see if it is suspicious. There are also times when your account activity creates a red flag, which will also trigger extra security checks. One example of a red flag is if you suddenly decide to transfer large amounts of money overseas.

A Rose By Many Different Names

To clarify the list given above, here are a few definitions of what the transfers typically mean. When people ask, “What is an EFT?” they may be talking about one of the funds-transfer methods listed below.

An electronic check or e-check

It is an electronic payment that is funded by your bank account. The easiest way to explain it is to use a PayPal example. You may have just paid for a rock tumbler on eBay, but your PayPal account doesn’t have the required $77 balance to cover the cost of your rock tumbler. In this case, you have paid for your rock tumbler with an e-check. PayPal will draw the $77 from your bank account (the same way a paper check would), and will pass that $77 on to the seller of the rock tumbler.

Cardholder-initiated transactions

In simple terms, it is the use of your debit or credit card to perform a money transfer. It is used if you wish to pay extra into a certain account and you have found a suitable device that allows you to transfer money. The most common cardholder-initiated transactions are with pay-as-go phone accounts where people dial up an automated system and use their debit card to move money into their phone account. Despite the fact that any sort of purchase with your debit card is also a cardholder-initiated transaction, when most people talk about a cardholder-initiated transaction, they are talking about a purposeful manual transfer of funds using your debit/credit card.

Direct debit

This is where you create an agreement with your account provider to allow another company to draw money from your account on a regular/frequent basis. You may set up direct debits that draw out a certain amount of money, or you may set them up in a way that allows the other account to draw out however much it likes.

Direct deposit

This is where an order is given to the sender’s account provider. It allows funds to be drawn from the sender’s account and placed in a recipient’s account. The amount that is sent may vary from one occasion to the next, or it may remain the same every time. Such transactions often occur frequently, such as on a monthly basis if a person is paid by direct deposit.

Wire transfer

In simplest terms, the sender has its account provider’s computer connect with another account’s computer. The two computers link up, and money is sent from one to the other. The process usually takes between seconds and up to two hours, but your account provider or the recipient’s account provider may cause the process to take longer. Wire transfers are very difficult to reverse, which is why scammers often want you to wire money to them.

The Ultimate Guide To Wire Transfers Cover image


Bill Pay

This is the name of a banking function that allows you to pay bills from your bank/credit union/money-company account. You may set up single payments, recurring payments and scheduled payment.

Currency transfer

In this case, your money is moved digitally, but it may also be converted into a different currency. A currency transfer may also involve moving your currency or your converted currency to an account in another country.

Online Transfer

Online wallets allow you to transfer money from your online wallet into somebody else’s online wallet, and many times you only need their email address to do it. An online transfer from your bank/credit union/money-company account is very similar except that you need the recipient’s account information and not the recipient’s email address. It is a manual process that is most easily initiated online.

SWIFT payment

The company Transferwise transfers money all around the world, and they rely heavily on something called the, “SWIFT international payment network.” It is simply a network of computers that allow the movement of digital money from one country to another.

how transferwise works

How Come I Can Transfer Between My Own Accounts Quickly And For Free?

When you transfer money from one of your online accounts to another of your online accounts, you may be able to do it for free and very quickly. This often happens if you are transferring money within the same company.

For example, if you are moving money from your checking account to your savings account with the same bank, then it may take seconds for the transfer to occur. On the other hand, if you are moving money from your checking account to the credit card account (all within the same bank), then that may take overnight.

How Come I Can Transfer From My Bank To Another Person’s Bank In Just Minutes?

There are times when you are able to transfer money from your account to another person’s account and it only takes seconds and it is free. This sometimes happens if you have the same account provider as the recipient, and it sometimes happens if you don’t.

For example, if you have a HSBC account and you wish to transfer money to your friend who also has a HSBC account, then that transfer may happen very quickly, and it may happen for free too.

There are some occasions where transfers happen from one account to another, and the sender and recipient do not have the same account provider. The transfer may happen quickly and it may be free. These occasions happen because you have an awesome account provider that doesn’t charge for these types of transfers and allows them to occur quickly.

About The Author

Ash The Great

After a varied career in different industries from the hospitality industry to the financial consultancy industry, Ash now spends his days working as a professional writer.

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