What is an Electronic Funds Transfer (EFT)?

Electronic Funds Transfer (EFT) is the electronic transfer of money between bank accounts using computer networks. Banks transmit payment instructions digitally to debit one account and credit another without physical cash or paper checks.

EFT is an umbrella term covering any electronically processed payment:

• ACH transfers for payroll and bill payments
• Wire transfers for high-value business payments
• Debit card transactions at point of sale
• ATM withdrawals and deposits
• Instant payment rails like FedNow and RTP
• Peer-to-peer payment apps

The specific network used depends on the payment type. ACH processes batch payments through the Automated Clearing House network. Wire transfers move individually through Fedwire or SWIFT. Card transactions route through Visa or Mastercard. Instant payment rails like FedNow and RTP settle in seconds.

The Electronic Fund Transfer Act (EFTA) of 1978 established consumer protections for EFT transactions, requiring financial institutions to disclose terms clearly, resolve errors within 45 days, and limit consumer liability to $50 for unauthorized transfers reported within two business days.

How EFT payments work

A sender initiates an EFT through online banking, a mobile app, a payment terminal, or by authorizing a recurring transfer. Their bank verifies sufficient account balance and confirms identity through passwords, biometric authentication, or other security measures.

The sender's bank transmits payment instructions through the appropriate network. ACH processes payments in batches throughout the day. Wire transfers move individually through Fedwire or SWIFT. Card transactions route through Visa or Mastercard infrastructure. Each network applies its own processing rules and settlement schedules.

The recipient's bank receives the payment instructions, credits the recipient's account, and confirms the transaction through the network. Both banks create digital records showing when money moved and between which accounts, establishing an audit trail for reconciliation and compliance purposes.

Common types of EFT

EFT encompasses multiple payment methods, each using different networks and settlement processes:

• ACH transfers: Batch-processed payments through the Automated Clearing House network used for direct deposits, bill payments, and business transfers. Settlement takes one to two business days at $0.05-$5 per transaction
• Wire transfers: Individual high-value payments through Fedwire (domestic) or SWIFT (international). Domestic wires settle within hours at $15-$50 per transaction. International wires take one to five business days
• Debit card payments: Point-of-sale transactions processed through card networks. Authorization happens instantly, with settlement occurring later through batch processing at 0.5%-2% interchange fees
• ATM transactions: Electronic withdrawals and deposits where the machine verifies account balance in real time and processes transactions digitally
• Instant payment rails: FedNow and RTP settle in seconds 24/7/365. FedNow charges $0.045 per transaction with a $500,000 transaction limit. RTP increased its limit to $10 million in February 2025
• Peer-to-peer apps: Platforms like Venmo, Cash App, and Zelle connect to bank accounts and move money using phone numbers or email addresses

EFT vs ACH vs wire transfer: what's the difference?

EFT is the broadest category covering any electronic payment. ACH and wire transfers are specific types of EFT using different networks and settlement processes.

ACH transfers move through the Automated Clearing House network operated by Nacha, processing in batches that settle in one to two business days at $0.05-$5 per transaction. Wire transfers process individually through Fedwire (domestic) or SWIFT (international), settling within hours to five days at $15-$50 per transaction.

The distinction matters when choosing payment infrastructure. A payroll platform needs ACH because employees expect consistent payday timing and low cost per transaction matters at scale. A treasury management tool needs wire transfer capabilities for same-day settlement of high-value payments. A remittance app serving urgent cross-border transfers might need instant payment rails or stablecoin infrastructure that settles faster than traditional EFT options.

EFT processing times and costs

Settlement speed and costs vary by payment rail:

• Standard ACH: One to two business days at $0.05-$5 per transaction. Only processes during business hours, so weekend payments wait until Monday
• Same-day ACH: Within hours if submitted before 10:45 a.m. or 2:45 p.m. EST cutoff times, slightly higher fees than standard ACH
• Domestic wire transfers: Within hours during business hours at $15-$50 per transaction through Fedwire
• International wire transfers: One to five business days through SWIFT, with costs varying by correspondent banks and destination country
• Instant payment rails: Seconds at approximately $0.045 per transaction through FedNow or RTP, operating 24/7/365. Transaction limits are $500,000 for FedNow and $10 million for RTP (increased from $1 million in February 2025)
• Debit card payments: Instant authorization with later settlement, 0.5%-2% interchange fees based on card type and transaction size

Standard ACH works for routine payroll where predictable timing matters more than speed. Wire transfers justify their cost for urgent vendor payments requiring same-day settlement. Instant rails like FedNow offer ACH-like pricing with wire-speed settlement, making them competitive for customer refunds and gig economy payouts. Cross-border payments increasingly use stablecoin infrastructure that combines instant settlement with lower costs than traditional wire transfers.

EFT regulation and compliance

Regulation E under the Electronic Fund Transfer Act requires financial institutions to provide consumer protections across all EFT types. Banks must disclose terms and conditions clearly, establish error resolution procedures that complete within 45 days, and implement security measures to prevent unauthorized transfers.

Consumer liability for unauthorized EFT transactions depends on reporting speed. Reporting within two business days limits liability to $50. Reporting within 60 days limits liability to $500. Beyond 60 days, consumers may be liable for all unauthorized transfers occurring after the 60-day window.

Fintech operators offering EFT services must comply with these consumer protection requirements whether using ACH, wire transfers, instant payment rails, or alternative infrastructure like stablecoin networks. This includes maintaining transaction records, providing clear disclosures about fees and processing times, and establishing procedures for customers to dispute errors or report unauthorized activity.

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