Electronic funds transfer (EFT) is the transfer of money electronically from one bank account to another. It takes without a manual transaction for single or multiple institutions.
It is basically a system of transferring money from one bank account to another in cashless form. It’s commonly used via ATM, Fedwire, point-of-sale (POS) via an electronic medium for both credit transfers and debit transfers.
How does an EFT payment work?
- The sender first authorizes an amount for transfer via EFT.
- The amount is then deducted from the sender’s account and deposited into the recipient’s account.
- The process of transfer requires between 1-4 days.
The sender should possess the following information:
a) Receiver’s account bank number.
The receiving party should possess the following documents:
- The name of the bank receiving funds
- The type of account receiving funds (e.g., checking or savings)
- The bank’s ABA routing number
- The recipient’s account number
The funds are then transferred directly to the company’s bank account.
The transactions are carried out in a batch process by the ACH network, and then sent to the financial institutions.
Types of EFT
There are many ways to transfer money electronically.
- This method is commonly used for providing payroll to the employees.
- The employer deposits an amount of money in each employee’s bank account by notifying the respective service provider.
- A direct deposit is then made to each employee’s account on payday.
- This method is commonly used for transferring a lump sum amount.
- These transfers are very fast, but the sender is charged a certain fee for the transfer of the amount.
- Infrequent large sum payments to vendors for building equipment is done via this transfer.
- The Electronic Federal Tax Payment System (EFTPS)
- As the name suggests, it’s used for paying federal duties like IRS tax payments.
- It’s the ideal and most used form of EFT by the working-class population.
- An ATM is used for this mode of transfer.
- It lets you deposit, withdraw, and even transfer funds.
- Transactions are carried via a card that consists of a chip.
- It allows the consumer to pay bills online, in person, or over the phone by simplifying entering the card details.
- It’s very similar to a paper check but in an electronic mode.
- The account details like account number and routing number are required to make payment electronically.
- It let you pay bills, transfer money between accounts, or receive payments over the phone via an app from the respective bank.
Advantages and Disadvantages of EFT
|The transfer of money is fast.||The details need to be entered correctly before making a transaction.|
|The money is securely transferred without the involvement of any bank staff.||The transfer once initiated can be stopped.|
|The other benefits of EFT include reduced administrative costs and simplified bookkeeping.||The transfer can be stopped if the respective financial institution is informed not less than 3 business days before the scheduled transfer.|
- Automatic teller machines (ATM)
- Direct deposit payroll systems.
- Direct payments between buyer-seller businesses.
- Electronic bill-paying via online banking.
- International cash wire transfers.
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