HomeFinanceElectronic Funds Transfer: Definition, Types, and Benefits

Electronic Funds Transfer: Definition, Types, and Benefits

EFT transfer, also known as Electronic Funds Transfer, has gained immense popularity among businesses and individuals as a secure digital payment method. EFT enables the transfer of funds between bank accounts through reliable payment gateways.

This article aims to provide an in-depth understanding of EFT transfer by defining it, discussing its working mechanism, examining its different types such as ACH transfers, wire transfers, and mobile payments.

Furthermore, we will highlight the various benefits of using EFT for making payments.

What is an Electronic Funds Transfer (EFT)?

Electronic Funds Transfer (EFT) is a method to transfer money electronically between accounts, including those at different banks if both are on the Automated Clearing House (ACH) network.

EFT payment system is a fast and convenient alternative to physical payment methods like cash and checks, and can include direct deposit, credit card transactions, ATM transactions, electronic checks, phone payments or mobile payments.

This technology is widely used for bill payments, compensating workers each payday, and sending money to friends and family. The benefits of EFT transfers include secure wire transfers via mobile payments and increased efficiency in financial transactions.

An Example of an EFT

As a small business owner, you might be utilizing EFT transfer to conveniently pay your employees’ salaries directly into their bank accounts. This process involves collecting relevant details from your staff members, initiating an ACH transfer via the bank’s online platform, and authorizing the transaction.

One of the key benefits of EFT transfers is that they are highly secure and encrypted thanks to the payment gateway used. Additionally, funds are typically deposited within two to three business days after authorization. Employees are promptly notified of the payment and can immediately access their funds through their bank accounts.

It’s important to note that EFT transfer is just one type of electronic payment method available to businesses, with wire transfers and mobile payments being other options worth considering. However, utilizing this method can offer numerous benefits for both you and your employees alike.

How Does Electronic Funds Transfer (EFT) Work?

For an EFT payment to work, it will require a sender and a receiver to transfer funds through the appropriate payment network, typically the ACH network in the United States. The ACH network connects all banks, credit unions, and financial institutions and processes transfers in batches at the end of each business day.

Types of Electronic Fund Transfers

There are 8 types of electronic fund transfers:

Direct Deposit

Direct deposit has become the preferred choice of payment for many employers. This method involves electronically transferring payroll funds straight into the employees’ bank accounts, making it a hassle-free option that requires minimal maintenance from the employer. Setting up direct deposit is a breeze and can be done quickly and easily.

ATM Transactions

ATM transactions are a popular form of electronic funds transfer (EFT) payment method. Whenever you withdraw or deposit money from an ATM, you are essentially conducting an EFT payment via ATM transaction.

These transactions can be carried out at banks, retail stores, or even outdoor kiosks situated across the world. Although some ATMs charge a fee for their services, most ATM transactions conducted through your own bank are usually free.

ACH Transfer

ACH transfer offers a safe and inexpensive way to transfer funds between the banks and financial institutions in the United States. It functions similarly to wire transfers, but people and businesses usually use it for domestic transactions.

An ACH transfer is a practical choice for individuals who aren’t in a hurry because you can anticipate your payments being processed in two to three business days. For a fee, ACH transfers can be routed within one day. This payment method is commonly used for payroll deposits, bill payments, and direct deposit transactions.

Wire Transfer

Wire transfers are a dependable and quick method of transferring money across bank accounts. It uses the ACH network, but it is not an ACH transfer. The funds are deposited straight into the recipient’s account, and the transfer is generally completed the same day.

This type of transaction is typical when large sums of money need to be transferred domestically or internationally. The most common example of this is sending money through Western Union, or for real estate acquisitions.

Additionally, Wire transfers are often more costly than ACH transfers.

Debit and Credit Cards

Debit cards draw on funds you have deposited at the bank, while credit cards allow you to borrow money up to a certain limit. Debit transactions typically result in lower fees for merchants. Both types of cards are secure and allow for instantaneous funds transfer.

Pay by Phone System

Pay-by-phone payment systems operate by sharing your banking details with the service provider who then debits the agreed-upon amount from your account. This method ensures that you can conveniently settle bills using pay-by-phone services.

Mobile Payments

Mobile payments is a method of transactions done between individuals, consumers, and businesses using a portable electronic device, such as a smartphone or tablet.

Mobile payment also facilitates as a  gateway to other mobile financial services including mobile banking or m-banking, insurance, credit/lending, and investments.

Electronic Check (eCheck)

eCheck, also known as electronic check, is a highly convenient form of EFT payment that replaces traditional paper checks. It involves generating a digital check using the account information provided by the checking account holder.

This process has eliminated the need for physical paper checks and allows for swift and secure transactions. While eChecks are not commonly used for personal payments, they are widely accepted for all other types of digital transfers.

Benefits of EFT

EFT is really popular in use among businesses and individuals as it provides a lot of advantages:


EFT eliminates the possibility of misplaced or stolen cheques. Because there are strong policies and processes in place to guard against fraud, payments received through the ACH network are regarded as secure.

When making payments electronically, both your personal and financial information are protected by secure systems that use strong encryption and other cutting-edge security features.


EFT transfer is a cost-effective payment method that eliminates the need for paper checks or cash. It is usually free or has low processing fees, although some banks may charge a fee as small as $3 for sending an EFT to a different bank. Payroll direct deposits are generally free, and there is usually no fee for receiving an EFT payment.


EFT transfer is an automated method that no longer requires manual processing, reducing any risk of human errors. The requests can be made anytime as it is available for 24 hours. The RBI notifies banks and customers in case of service disruptions.


Using EFT transfer, individuals can make payments digitally anywhere, any time. Furthermore, it enables real-time fund transfers to beneficiary accounts. As most banks are EFT-enabled, transferring funds across the country has become hassle-free.

Is It Safe to Use EFT for Large Transactions?

EFT transfer is a secure payment method that is suitable for large transactions.

Pay International or Domestic Vendors Securely and Conveniently with Peakflo

EFT is a method of electronic payment transfers between bank accounts authorized under the ACH network. There are different types of EFT, so evaluate your needs properly when selecting which method to go with.

When it comes to processing payments, the most important factors are security, convenience, and time-efficiency. Peakflo provides all these benefits with its AR and AP software to simplify payments both on business’s and customer’s end.

With Peakflo’s all-in-one customer portal, get paid in your sleep while providing versatility in payment methods for your customers. Peakflo maps your customers’ payment with the right invoice instantly, so you can just relax while we handle the record-keeping for you.

Additionally, Peakflo helps you pay bills 2x faster. Our end-to-end automation will streamline your procurement-to-payment operations and you can save 90% on FX markup rate.

Interested? Try out Peakflo today!

Frequently Asked Questions

How Long Does It Take for an EFT Transfer to Process?

How long an EFT transfer will take to process is highly dependent on the type of transfer you’re doing. While wire transactions are processed on the same day,  ACH transfers typically take two to three business days to complete.

How Much Does It Cost to Make an EFT Transfer?

Depending on the type of transfer and the bank, EFT transfers have different costs. Wire transfers are more expensive than ACH transfers, which are typically free or have little processing fees.

Lulu, as a content marketer in Peakflo, is passionate about educating users on accounts payable and receivable management to help businesses maximize their cash flows. When not glued to the screen, she has her attention either on her annoying brother or five adorable cats.
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