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EFT vs ACH
The key difference between EFT and ACH transactions is that EFT is an umbrella term for all digital transactions (including e-wallets and ATM transactions), whereas ACH only refers to transactions used through the Automated Clearing House (ACH). An ACH payment happens when money is moved from one bank to another and is defined as either a direct deposit or direct payment.
What is Electronic Funds Transfer (EFT)?
An electronic funds transfer (EFT) is a broad term for a payer sending money and a payee receiving money through an online payment system. Electronic funds transfers include ACH, wire transfer, instant eWallet payments, and other digital payment methods.
What is an 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 because each transaction is completed online and doesn’t include paper checks in the payment process.
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.
Types of EFT Payments
Several payment methods can be considered electronic funds transfers (EFTs).
8 types of EFT payments include:
- ACH payments
- Global ACH payments
- Wire transfers
- Credit card or debit card transactions
- Phone payments systems
- Local bank transfers
- ATM transfers
Global ACH payments include SEPA (Single Euro Payments Area) payments in the EU for its 36 member-states. ATM transactions include transfers between a savings account and a checking account. Digital eWallets include Apple Pay, PayPal, Venmo, and Zelle, although some of these third-party payment networks have more functionality.
How is an EFT Payment Processed? (EFT)?
How an EFT payment is processed depends on the type of electronic transaction. ACH and wire transfers are processed by banks using a member-based digital payments network. eWallet companies may transfer funds between digital wallet accounts or bank accounts. Phone payments use specialized software. Financial institution ATMs let customers make electronic payments and deposits or withdraw cash.
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.
Nacha, the National Automated Clearinghouse Association, oversees the regulation of the ACH network.
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 2021, the ACH network processed 29.1 billion transactions, up 8.6% from 2020. The value of 2021 ACH transactions was $72.6 trillion, up 17.3% from 2020.
According to Nacha, ACH usage trends are increasing:
- “Volume has increased by MORE THAN 1B every year for the last 7 years
- Value has increased by MORE THAN $1T every year for the last 9 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 to 5.3 billion transactions or 20.4% in the year 2021, 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, including tax refunds to taxpayers 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.
Why Should You Use Electronic Transfers?
Using electronic funds transfer generally lowers your payment processing costs and saves time compared to using paper checks for bill payments.
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 global ACH for cross-border transactions are lower-cost payment methods.
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EFT vs ACH Frequently Asked Questions
Frequently asked questions and answers for EFT transfers and ACH follow.
Are EFT payments safe?
Many types of EFT payments are safe, with ACH transfers and ATM transactions being extremely secure. Wire transfer processing is safe if a scammer is not involved in the transaction, although it’s difficult to reverse an erroneous wire transfer. EFTs are generally sent with data encryption over secure networks.
Venmo and Zelle peer-to-peer transactions are often used by fraudsters. If defrauded, you may not be able to get your money back after sending a payment.
How long do EFT and ACH payments take to process?
EFT transactions, including ACH payments, take one to four days to process and complete. Wire transfers, a type of electronic funds transfer, may be completed as soon as within 24 hours or take more time, depending on the receiving country’s location.
U.S.-based domestic ACH payments may be sent as Same Day or Next Day, referring to business days. The processing time depends on the time window in which the ACH payment request is submitted.
Credit card processors handle real-time transactions.
How do you use electronic funds transfers for international payments?
Global ACH, wire transfers, direct deposit for payroll, pay-by-phone systems, third-party networks like PayPal, and eWallets are types of electronic funds transfers used for international EFT payments.
eWallets may be used to make instantaneous EFT payments between the sender’s and recipient’s account.
Some prepaid debit cards are used internationally, but you may incur foreign transaction fees and additional fees for ATM withdrawals.
Summing It Up: EFT vs ACH Payment Methods
With online banking and online money transfers gaining immense popularity, EFT payment, including ACH payment are widely used for different types of transactions. 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 a form of EFT within the United States for the transfer of funds from a bank account to another bank account, made through the Automated Clearing House by financial institution members of Nacha.
The pricing of 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., global ACH 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.
To understand the business impact of bill-to-pay automation using EFTs, read our white paper: “Accounts Payable: Embracing the Strategic Evolution.”