EFT vs. ACH – In a Nutshell
ACH and EFT payments are similar in that they’re both electronic payments, but ACH is a type of EFT (electronic funds transfer) payment and EFT payment is an umbrella term that includes all ACH payments, wire transfers, and all other types of digital payments. An ACH payment is simply moving money from one bank account to another.
What is EFT Payment?
EFT payment (electronic funds transfer) is a term that includes many types of electronic payments, including ACH transfers and wire transfers. EFT payments are also called e-Payments or e-Checks (electronic checks) because each transaction is completed online and doesn’t include paper checks in the payment process.
EFTs are becoming increasingly common in B2B payments as many businesses shift from traditional paper checks towards more efficient and lower-cost ePayment methods such as ACH. The EFT can happen between accounts within one bank or between accounts across multiple banks. Other transaction types that are considered EFT include direct deposit, ATMs, virtual cards, e-Checks (used globally), and personal computer banking.
How to receive EFT payments is easy. Recipients get a notification that an amount of money has arrived from a payer and whether the status of funds is pending or available for use.
As traditional paper processes become digitized, computerized systems like EFT transactions will continue to grow and evolve. Activities such as utility bill payments have traditionally been paper-intensive, requiring physical statements, invoices, checks, and receipts. These processes now primarily take place over digital networks – this change is shifting the banking world’s paradigm.
What is ACH?
ACH, one type of EFT in the U.S., is the digital transfer of money from one financial institution account like a bank account or credit union account to another. An ACH payment transaction is processed by bank and credit union members through the Automated Clearing House, regulated by Nacha.
The Automated Clearing House offers Same Day ACH and Next Day ACH or traditional ACH time windows, with time windows for submittal shown in this Nacha table. Same Day and Next Day ACH refer to business day.
What is ACH Payment and Transfer?
ACH payment is the go-to payment method for U.S. domestic bank transfers. ACH is a reliable, efficient, and cost-effective way to move funds between accounts electronically. The Automated Clearing House system leveraged by the ACH network processes inter-institution transfers.
The Automated Clearing House uses batch processing for ACH payments, grouping together many ACH transfer requests to pay them at the same time.
ACH transactions, which include ACH debit and ACH credit transactions, are growing in popularity. Nacha statistics track ACH transactions by year and quarter. In 2020, the ACH network processed 26.8 billion transactions, up 8.2% from 2019. The value of 2020 ACH transactions was $61.9 trillion, up 10.8% from 2019.
According to Nacha, ACH usage trends are increasing:
- “Volume has increased by MORE THAN 1B every year for the last 6 years
- Value has increased by MORE THAN $1T every year for the last 8 years.”
ACH is becoming more common as a payment method for payroll (direct deposit) and recurring utility payments (auto bill-pay). Substantial ACH B2B payments volume, including accounts payable payments, grew by 4.4 billion transactions or 10.7% in the year 2020, according to Nacha.
How is an ACH Payment or Transfer Used?
Businesses, non-profits, individuals, and city, state, and federal governments in the U.S. use ACH (the Automated Clearing House network) to make payments.
Businesses and non-profits use ACH transactions as a remittance to suppliers, including the independent contractor or freelancer payee. Companies and non-profit organizations pay employees with a direct deposit transfer into their designated bank account. (Non-profit donors typically use a credit card, debit card, or ACH to make electronic payment donations.)
Government entities, including states and the IRS, use the Nacha ACH network to make payments to entitled citizens and refund a taxpayer whose tax withholdings or estimated tax payment total exceeds their tax return balance due. (These government entities also receive payments from taxpayers and others that send payments to them via ACH).
The IRS website Payments page indicates that taxpayers can choose from a variety of payment options.
IRS taxpayer payment methods are:
- Bank Account (Direct Pay)
- Credit card
- Debit card
- Electronic Federal Tax Payment System (EFTPS)
- Electronic Funds Withdrawal (during e-filing)
- Same-day wire
- Check or money order
The IRS Bank Account (Direct Pay) method is an ACH payment from a taxpayer’s bank account, which the IRS says is free.
Electronic Federal Tax Payment System (EFTPS) is a program used primarily by businesses and for large tax payments. Individuals can also use EFTPS. EFTPS offers taxpayers the choice of phone or online payments.
EFTPS is primarily an ACH payment method, although it rarely allows same-day wire transfers for payment. EFTPS debits an enrolled taxpayer’s bank account on the taxpayer-selected scheduled date, in time for payment by the tax due date.
Taxpayers enroll in EFTPS with their taxpayer identification number (TIN). To make ACH payments, they provide banking information, including routing number and bank account number.
More information, including payment status and how to track payments, are available at EFTPS.gov. Note that banks may charge EFTPS participants if a taxpayer has their financial institution initiate an ACH credit for tax payments.
ACH vs EFT
Weighing the pros and cons of ACH vs EFT is like comparing apples to fruit. Apples are a type of fruit, but not all fruits are apples. ACH is a type of EFT. However, not all EFTs are ACH payments. Due to the wide range of payment methods considered types of EFT, many variables can influence the transaction’s cost, risk level, and timeliness.
Why Should You Use Electronic Transfers?
Using electronic funds transfer generally lowers your payment processing costs and saves time compared to using paper checks.
ACH electronic transfers are much lower cost than wire transfers, which are both payment options using EFT transactions. Wire transfer may make sense for a high-dollar real estate transaction that justifies the wire cost. Using ACH transfers in the U.S. or globally equivalent eChecks for cross-border transactions are lower-cost payment methods.
More EFT Payment Methods
EFT is a broad and nebulous term requiring some thought.
Several payment methods can be considered electronic funds transfers. While ACH payments, e-Checks, and wire transfers are universally considered EFTs, some other electronic payment and transfer methods may be part of the EFT family. Other electronic payment methods include PayPal, SEPA payments, local bank transfers, ewallets, and ATM transfers.
ATM transactions include transfers between a savings account and a checking account.
Summarizing EFT vs ACH Payment Method Differences
With online banking and online money transfers gaining immense popularity, EFT payment and ACH payment are widely used. Definitions for EFT and ACH, examples, and how EFT payment and ACH payment work are provided.
EFT (electronic funds transfer) is a term that includes ACH bank transfers, wire transfers, and other online electronic payment methods.
ACH payment is an electronic bank transfer within the United States from a bank account to another bank account, made through the Automated Clearing House by financial institution members of Nacha.
ACH payment processing is lower cost than paper checks and wire transfers. ACH processing time and receipt time Is faster and ACH is less expensive than issuing paper checks.
For international or cross-border transactions outside the U.S., eCheck, sometimes called “global ACH” to highlight the similarities, is used to make electronic bank transfers.
Because ACH is a type of EFT, the difference is that ACH is a specific name for one electronic payment method.