ACH vs. EFT: What You Need to Know

Automated Clearing House (ACH) and Electronic Funds Transfers (EFTs) are both terms used to describe the way money moves digitally. An ACH is a specialized form of EFT, meaning that all ACHs are EFTs, but not all EFTs are ACHs. If you send or receive money in your bank account, chances are it’s processed via ACH. More than 29 billion ACH network payments were made in 2021, valued at close to $73 trillion, according to Nacha, the organization that administers them.

A financial advisor can offer valuable insight and guidance on how to move money from one account to another.

What Is an EFT?

An Electronic Funds Transfer (EFT) is a way for individuals, companies and governments to send and receive money electronically. EFTs are regulated by the Consumer Financial
Protection Bureau and must comply with the Electronic Fund Transfer Act (EFTA). All ACH transactions are EFTs, and other types of EFTs include:

● Wire transfers
● Electronic checks
● Prepaid card transactions (not linked to a bank account)

While wire transfers have the same security features as an ACH, many other EFTs do not.
Prepaid cards and reloadable gift cards that aren’t linked to a bank account either do not have identity verification processes or have less strict processes than a traditional account would have. This makes them a favorite among scammers since they’re easy to get, usually aren’t monitored, and are rarely shut down for suspicious activity.

How Do EFTs Work?

EFTs work differently depending on the type you’re using. For example, a wire transfer takes place one at a time, instead of in batches like an ACH. This allows a wire transfer to go through much faster than an ACH, but you’ll pay for the privilege. ACH transactions are free with many bank accounts, but some accounts may charge a fee of a few dollars per transaction. In comparison, depending on your bank, a domestic wire transfer may cost over $10 and an international wire transfer could cost over $40.

What Is an ACH?

An Automated Clearing House (ACH) is a type of electronic fund transfer (EFT) made between banks, credit unions and other financial institutions across an Automated Clearing House (ACH) network.

ACH payments can be made for many types of transactions. You can use them to:

● Move money between your own bank accounts at different institutions
● Move money between your account and someone else’s
● To make bill payments
● To request money from a business
● Move money between companies (B2B transactions)
● To request money from a client or customer

If you’re using your bank’s bill payment portal then those funds are likely being sent via ACH. If you receive your paycheck by direct deposit, it was probably sent through ACH.

How Do ACHs Work?

The ACH network is administered by the National Automated Clearing House Association
(Nacha), which has been managing ACHs since 1974. The actual processing of transactions is completed by the Federal Reserve and The Clearing House.

According to Nacha “ACH is a batch process, store-and-forward system that provides for
value-dated settlement transactions for both disbursements (credits) and collections (debits).” What that means in simpler words is that when you request a credit or debit via ACH, your bank or credit union will hold your request and send it out electronically in batches with several other requests that day. The Federal Reserve or clearing house system then moves the money between entities to its final destination.

Here’s a hypothetical example. Jane signs up for direct deposit from her employer, Smith’s Consulting Services. Their payroll department inputs Jane’s payroll into their system with their financial institution. Their financial institution submits a payment through the ACH system and Jane receives her direct deposit via ACH.

Which Is Faster: ACH or EFT?

ACH used to take several days to process, but in 2016, Same Day ACH was implemented,
allowing the payments to go through almost as quickly as non-ACH EFT payments. Your bank may allow you to characterize your transaction requests as same-day ACH, next day ACH, or traditional ACH, which typically takes three to five business days. Some banks include same day ACH as part of their account services packages, but many still charge users a higher fee for faster processing.

If you frequently use ACH for money transfers and regularly need same-day processing, you may want to consider finding an account that won’t charge you extra for it.

Which Is More Secure: ACH or EFT?

An ACH involves more steps in the verification process and transfers through a more secure process than a non-ACH EFT. The accounts of both the sender and receiver are verified through the ACH process. If account numbers don’t match the name, the ACH may not go through. If an account has several fraud complaints, it may be frozen, preventing inbound or outbound ACH transactions from being completed.

Which Has More Scammers? ACH vs. ETF

It’s possible for scams to occur with all electronic and in-person transaction types. Scammers have been tricking people out of their hard-earned cash since before cash existed. ACH accounts can still have fraud, but in practicality, non-ACH EFTs are easier for scammers to receive and are more likely to be used fraudulently. A new bank account takes time and verification to open. While it can be possible to open fraudulent accounts, it’s not as easy as just buying a reloadable gift card and convincing
someone to put money on it.

Bottom Line

ACH is a type of EFT, and if you send and receive money digitally, you’re likely using ACH to do it. ACH allows funds to securely move between institutions quickly and efficiently.

Tips on Banking

Consider working with a financial advisor as you chose what type of bank to use. SmartAsset’s free tool matches you with up to three financial advisors who serve your area, and you can interview your advisor matches at no cost to decide which one is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
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