ACH vs EFT: Key Differences and Which Transfer Is Right for You

What is Electronic Funds Transfer (EFT)?

An Electronic Funds Transfer (EFT) is a digital transaction where funds are deducted from one account and sent to another. EFT is fast and effective because it is a payment method that does not involve the exchange of cash or processing cheques. EFT payments can be used for one-time charges, recurring charges, and direct deposit payroll. Examples of EFTs include ATM transactions, wire transfers, debit card transactions, and ACH payments, ideal for businesses with a high volume merchant account.

ACH vs. EFT Payments

Essentially, ACH transfers are a type of EFT, but not all EFTs are ACH transfers. EFT, or electronic fund transfer, is a term that refers to all electronic payments. On the other hand, ACH (Automated Clearing House) is a specific type of EFT that transfers money between financial institutions using the Automated Clearing House network. ACH payments are commonly used in the United States but may be less common in Canada.

Like a wire transfer, ACH transfers rely on banks to complete transactions. In both ACH and wire transfers, customers need to know their transit and bank account numbers to make a payment. Any business looking to accept ACH payments needs to have ACH payment processing set up. An ACH payment or transfer can be useful for automatic payments for large purchases and paying suppliers.

How Do ACH Transfers Work?

Automated clearing house (ACH) transfers work thanks to a data file that includes information about a prospective payment. The file goes to the payor’s bank or credit union account to the clearing house and then to the payee’s bank, with details on the transaction.

One of the biggest benefits of ACH payments is that they are processed in batches, which helps keep per-transfer fees low. However, the downside is that while wire transfers can be processed in a few hours and other ETFs, such as debit card payments, transfer in a few seconds, ACH transfers take longer. The funds may be transferred on the same day or the next day.

Safety and Security of Electronic Funds Transfers

Electronic funds transfers, including ACH and EFT, are safe and secure. Every EFT Payment is trackable and verifiable, with notifications sent to the sender and recipient.

While all electronic bank transfers are safe, ACH transfers and ATM transactions are extremely secure. That's because the ACH network is managed by the National Automated Clearing House Association (NACHA) to ensure secure payment processing.

Choosing the Right Transfer Method

Consider the following factors when determining which of these electronic payment methods to use:

• ACH transfers are processed in batches, while wire transfers are processed individually in real time. This can be advantageous for businesses like those needing a travel merchant account.
• Transfer speed and cost vary depending on the type of EFT, with ACH payments generally taking longer than wire transfers.
• The urgency of the transaction and fees should be the biggest factors in choosing between ACH, EFT, and wire transfers.

ACH Payments vs Wire Transfers

How do ACH payments differ from wire transfers? Wire transfers are a type of EFT that allows for international money transfers, while ACH payments are limited to domestic transactions. Instead of batch processing, wire transfers are individual transactions, which can incur higher fees, but funds reach their destination more rapidly.

If choosing between the two, consider that ACH payments are a cost-effective way to move funds between bank accounts relatively quickly and efficiently, although wire transfers are faster.

Benefits of Using ACH Payments

Using any electronic funds transfer generally lowers your payment processing costs and saves time compared to paper checks. However, some types of EFT payments are cheaper than others. For example, ACH electronic transfers cost much less than wire transfers.

ACH payments offer a flexible way to send and receive funds for various uses, including direct deposit for transactions such as tax refunds and government benefits, paying suppliers, and direct payments. Making them suitable for those with a subscription merchant account.

Common Uses of ACH Payments

Because these online money payments are cheaper but take longer than other EFT transactions, they are used for non-urgent payments. Consumers and businesses often use ACH for various purposes, such as direct deposit, electronic bill payment, and peer-to-peer payments.

Essentially, ACH payments fit two classifications: Direct deposit and direct payment. Employers and the government often use the ACH network for direct deposits, enabling them to deposit paychecks directly into employees’ bank accounts. ACH transactions are also used for remittances, payroll, and recurring utility payments. ACH direct payments allow businesses and consumers to pay bills and make purchases.

Best Practices for Using ACH Payments

ACH best practices mirror best practices for all online money transfers.

• Ensure accurate account information to avoid errors and delays.
• Verify the recipient’s account information before initiating a transfer.
• Use secure payment processing systems to protect sensitive information.
• Monitor transactions regularly to detect any suspicious activity.

Conclusion

ACH payments are a type of EFT that offers a cost-effective and efficient way to move funds between bank accounts. Understanding the differences between ACH and EFT can help you choose the right transfer method for your needs. Every EFT payment method is considered secure, but you can ensure safe and secure electronic funds transfers by following best practices and using secure payment processing systems.