ACH vs. EFT Payments: What’s the Difference?

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    Barely a couple of decades ago, there were just a few options available for transferring money from one account to another, but the rise of internet banking has given way to a bunch of different services with different names, processes, fees, and waiting times.

    The banking world has, thankfully, moved on quite a bit from the days of telegram wires, and most transfers these days are quick, free of major hassle, and relatively secure. But with so many options to choose from, which one suits your needs the best?

    Two of the more common methods are known as ACH and EFT transfers. But what exactly are they, how do they work, and is your money in safe hands? Time for a deep dive, but first, let’s have a basic, simple-terms introduction to the two services before looking closer at ACH vs. EFT payments and transfers.

    What Exactly is an ACH?

    Online banking

    Depending on your end goal, there are a few different types of ACH. They pretty much break down into ACH payments and ACH transfers, both encompassed within the ACH network.

    An ACH payment is a digitally processed transfer between various banks, which at some stage will go through a dedicated center set up to process this specific type of payment. ACH stands for Automated Clearing House Network.

    This network is based within the US, interlinked through thousands of financial houses such as banks, banking centers, and credit unions. These organizations will group each ACH transaction into one bundle and transfer them through a fixed daily routine.

    Each receiving bank or organization will process payments in groups of five scheduled times each working day. The sender can pay a fee, which is completely optional, in return for the same banking day service. Without this fast-track fee, the payment can take five or six days to process in full. Excluding this, the processing time is usually one banking day for direct debit and two or three banking days for credits.

    What Exactly is an EFT Transfer?

    Again, the first thing to bear in mind here is that an ACH transfer is actually a form of EFT. This in itself makes the question a moot point, really – almost like asking, “what’s the difference between a Rolls Royce and a motor vehicle.”

    However, when people refer to an EFT transfer, they usually think of a few different, specific types of transfer or payment. Unlike an ACH transfer, there is no fixed definition of an EFT transfer – at least not in the singular sense. EFTs constitute a whole range of digital transfer and payment methods.

    An EFT, or rather an Electronic Funds Transfer, is a type of digital payment between banks or banking institutions of a very broad description and is used by private individuals and businesses alike.

    The main types of EFT include banking, mobile banking (such as Venmo, Stripe, and Paypal), digital wire transfers, and transferring between bank accounts. Using your debit card to buy groceries or withdraw cash from an ATM is technically an EFT in the broader sense.

    So, it is a broad term for any electronic, digital payment, and it has become way more widespread over the last few years. Online shopping has seen a boom in EFT payments and transfers over recent years, and with the rise of smartphones, they have become second nature to most people. It’s not difficult to imagine a period in the future when EFT payments and transfers replace fiat currency. In truth, we are very likely only a decade or so away from that right now.

    The simplest way of describing an EFT would be any form of digital payment or transfer, whether person to person or bank to bank, that does not come with any form of paperwork. In that sense, an EFT actually encapsulates ACH payment.

     EFT vs. ACH Payments

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    The prime difference between EFT and ACH payments or transfers is that EFT encapsulates a host of different transfer methods, whereas an ACH offers a specific type of transfer between two banks, orchestrated and cleared through an Automated Clearing House.

    EFT stands for Electronic Fund Transfer, while ACH stands for Automated Clearing House. EFT essentially means to transfer money from one account to another instantly, while ACH means to settle all the transactions of two bank accounts electronically.

    An EFT transfer is usually relatively quick, especially compared to its ACH counterpart, which usually takes three banking days to clear. That said, there are pros and cons to both forms of transfer.

    EFT Payments Vs. ACH Payments

    Let’s examine the specific differences between ACH payments and EFT payment options.

    Type of Transfer

    An ACH payment is the transfer between two banks of the same network (but not institutions, they can be different banks entirely).

    An EFT is the transfer of funds digitally between any financial network, institution, platform, or device – absolutely anything that is digital and requires no paperwork.

    ACH VS EFT Payment Times

    EFT Transfers, depending on the platform used, usually happen instantaneously. For example, if you are transferring funds through Paypal, the funds will show in the recipient account within seconds of transferring.

    On the other hand, ACH transfers always take two days at the very least but will typically show in the recipient’s account in three banking days. This is because different clearing houses, credit unions, and banks might be involved in the process.

    Use Cases

    EFT payments are useful for purchases, transfers between friends and family, And any kind of day-to-day banking payment or transfer. An EFT Payment will usually be quite small in nature, like grocery shopping, paying for a holiday with a travel agent, or transferring money to a family member. That said, EFT payments can be more significant amounts; it’s just that, more typically, they are pretty small.

    ACH payments are used mostly in the business world, usually to transfer large sums of money. For example, employee payroll or maybe a down payment for a vehicle.

    Platforms Used

    EFT payments incorporate any kind of digital payment, including but not limited to ATM withdrawals,  direct debit payments, electronic checks, or person-to-person transfers through online banking or smartphone apps.

    ACH payments are strictly transferred between banking institutions.

    EFT transfer system vs. EFT payment processing services

    There are two quite different types of EFT transactions that govern all other transactions under it. An EFT transfer usually refers to transferring funds between people, banking institutions, and businesses. This type of payment is used to pay things like utility bills, give money to friends and family, or pay employees’ salaries.

    EFT payments are a far quicker alternative to the two quite old-fashioned options of things like cash or checks. Direct deposit, credit card transactions, ATM withdrawals, e-checks, and telephone payments are all types of EFT payments under the broad umbrella of EFT payment processing.

    What Is an EFT Payment?

    An EFT payment is simply another name for an EFT transfer. The chances are that you have used online banking in one way or another – even something reasonably straightforward like moving money from personal savings accounts into a personal checking account. Being such a broad term, you might even use EFT payments and transfers most weeks without even realizing it.

    By the same token, if you have ever used an app on your phone to transfer money to a friend or family member, you have used EFT technology.

    What Are Peer-to-Peer Payments?

    P2P payment processing usually takes place through a smartphone app. Paypal and Venmo are good examples of P2P platforms, both of which have simplified the process of sending money.

    After joining something like Venmo, you will sync your cards (debit, usually) along with your bank account. Then, if you want to send a payment to another person, company, or banking platform, you just click the app, tap out the recipient’s details, confirm the transaction and send the payment.

    Most P2P companies can also be used for holding funds sent to you. Many people simply prefer to leave funds inside one of these apps and use it as and when they need to. In that sense, many people are actually using apps like these, almost like a virtual bank account, in some way.

    More recently, many of these P2P apps are beginning to roll out debit cards to their members, again making it more like using an actual bank.

    How Do EFTs Work?

    EFT transactions require two parties to facilitate: the sender and the recipient. When the sender authorizes the transfer of funds, the money will pass through the relevant network and switches funds from the sender’s account to the recipient’s account.

    In layperson’s terms, here are a couple of real-world examples to offer a more tangible grasp of the process:

    You’re at the supermarket and ready to pay for your goods. You slide your debit card through the payment machine at the checkout to pay for the amount due. As soon as you type out your PIN number, money is transferred almost instantaneously from your account to the supermarket’s bank account. The transaction is complete.

    We could also look at a salary check as an example deposited into your bank account. In this example, the employer sends the money, and you are the recipient. A direct deposit would have been created at some point previously, in which you gave your employer the necessary banking information, such as account and routing number. The employer will enter your bank details into the payroll system, and the initiating bank will confirm the release of funds to your bank account. This would be classed as an ACH payment.

    What Are the Types of EFT Payments?

    ACH vs. EFT Payments

    In the late seventies, the US government passed an act known as the EFTA, confirming various consumer protections for different methods of ‘electric’ money. Under this act, the following payment options are protected under the EFTA;

    Electronic Checks

    This is the modern-day replacement for paper checks. Usually, you will instruct a vendor that it’s fine to use your checking account information to create a virtual check and process it for payment.

    Direct Deposit

    Instead of being paid with an actual paper check, this type of EFT payment method will electronically deposit your salary funds into your private bank account.

    Phone Payments

    You can now pay for things over the telephone by handing over your banking information. The receiver will then create a debit to your personal bank account for the specified amount.

    What Are the Benefits of EFT?

    EFT transfers allow you to move money around far more quickly than you would with a traditional paper check.

    The technology of EFT also makes it much easier to do business anywhere you like. For example, you can shop while sitting in your armchair and even tip the pizza delivery guy using your smartphone. This kind of thing has become second nature for many of us, and you will quite often see people paying for things with their handset, almost like it is second nature to them.

    With EFT payments, you can organize your household utility bills, rent, government services, or any other type of household overhead into one single autopay on a monthly cycle. This will help negate any late charges and serves to make everything far more convenient.

    Also, on a personal or even a social level, EFT is revolutionizing payments as we know them. It is pretty common these days to see a group of friends transferring money to each other, for example, while buying a round of drinks in a bar, something that would have been unthinkable just a decade ago but is now quite commonplace.

    EFT transfers and payments make life far more convenient, with access to a whole range of banking options in our pocket, on a smartphone. It’s really quite impressive when you ponder it.

    Are EFT or ACH Transfers Risky?

    EFT Security

    Sharing your bank account information or, indeed, any kind of personal information at all might seem fairly daunting to many people. However, ordinary consumers and businesses alike are getting used to the fact that in this digital world we live in, electronic banking and handing over personal information with it are the norm these days.

    While that might sound precarious to many, it’s worth remembering that EFT payments and transfers are legally protected through the EFTA (Electronic Fund Transfer Act), which will give you a firm legal position if something is wrong with any transaction.

    Through the EFTA, consumers are protected in the following ways:

    • Unauthorized payments. Consumers have 60 days from the point of initiation to file any unauthorized transactions to their bank or payment handler for further investigation.
    • Lost or stolen debit cards. If you report your lost or stolen debit card within 48 hours, the EFTA will limit your personal liability for all unauthorized transactions to $50. However, if you fail to report the fraud within 60 days, you could be liable for all fraudulent transactions.
    • Compensation. If your bank violates any guidelines created by the EFTA, you can potentially recover damages through the court system against your bank.

    It’s important to note that reacting quickly is a prime factor in limiting your liability for fraudulent transactions. It’s important to review your bank statements regularly to check for transactions you didn’t authorize.

    You also can set up instant alerts from your bank through text or email that can help shed light on any transactions.

    ACH transactions are incredibly safe, but occasional fraud cases appear more frequently than you might imagine. While that sounds rather dramatic and probably of a surprise to you, we must stress that even still, the chances of a security breach in some way are still quite slim.

    For an ACH fraud, scammers need to acquire simply an account number and bank routing number. As you are likely aware, modern-day phishing techniques are the prime culprit in obtaining them, which happens daily.

    However, even if an illegal, fraudulent funds transfer is processed from your account, you can avoid liability for the payment if you notify your bank or processing house within two months. For the most part, ACH transactions are a very secure method of sending money.

    The Bottom Line

    Again, the question is slightly moot – there is no clear way to answer which is better out of ACH vs. EFT transactions because ACH transactions are classed as EFT’s.

    That said, there is a distinction between the two in some ways. The ACH network is basically a method of transferring funds from one bank account to another. As mentioned previously, it takes a few days and is probably the better option for larger payments.

    EFT payments in the context of this article refer more to a specific type of platforms, such as Paypal, Venmo, or Google Pay, through to debit card and ATM transactions- anything that might be classed as digital. These payments are better suited for daily life, such as grocery shopping, bill payments, or sending money to friends and family.

    Brandi is a highly motivated, results oriented and accomplished creative with over 15 years of experience in Financial Services Operations.
    Her passion for helping others, attention to detail and dedication help ensure our clientele receive the excellent payment solutions and support we strive for.