ACH vs. EFT: What Are the Key Differences?

Writing paper checks was the standard for secure transactions years ago. However, with the advancement of digital technologies, more business owners and consumers are ditching the checkbook and opting for electronic transfers. Statistics show that 3 in 5 Americans project that all payments will be processed digitally.

Automated Clearing House (ACH) transfers and Electronic Funds Transfer (EFT) are commonly used methods. They come in handy when you need to pay for online purchases, set up automatic bill payments, or receive your salary directly into your bank account.

While both facilitate electronic transactions, they have distinct characteristics and functionalities that cater to different needs. Understanding the disparities between ACH and EFT is crucial for businesses aiming to optimize their financial operations and individuals seeking efficient payment solutions.

Additionally, payment gateway providers like iCG Pay, formerly, provide a suite of solutions for businesses to accept these payments.

In this blog post, we’ll examine the key differences between ACH and EFT, analyzing the pros and cons of each to help you choose the perfect electronic transfer method for your needs.

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Understanding ACH Payments

ACH payments are secure electronic fund transfers from one bank account to another. Nacha governs these transactions, ensuring their protection. They are in high demand, with Nacha statistics showing that the ACH network handled 8.2 billion payments in Q1 of 2024.

There are two main types of ACH payments:

  • Direct Deposits: This is where you receive money electronically, like getting your paycheck deposited straight into your checking account. These ACH transfers are convenient, eliminating the wait time for paper checks and reducing the risk of lost or stolen funds.
  • Direct Debits: This is where you initiate automated payments to someone else electronically, such as paying your rent, utility bills, or subscriptions. It saves you the hassle of writing and mailing checks and allows automatic bill payments.
ACH payments

Understanding EFT Payments

EFT payments involve transferring funds between bank accounts over an internet-enabled computer network. These transfers cover various types of electronic payments, offering convenience and efficiency in financial transactions.

Here are the key types of EFT payments:

  • ACH Payments: ACH is one of the most common types of electronic fund transfers. Businesses rely on ACH transfers for recurring transactions since they have lower processing costs.
  • Peer-to-Peer (P2P) Transfers: Money transfers over apps like Paypal and Venmo are also a type of EFT payment process.
  • Wire Transfers: As one of the fastest modes of electronic payments, wire transfers typically operate on a fixed-cost model. They are ideal for international transactions when you need to transfer a huge amount of money.
  • Direct Deposits: If you want to move cash from one bank account to another without paperwork, you can use direct deposits. This EFT transfer is ideal for payroll management or tax refunds.
  • ATMs: Withdrawing cash via the ATM relies on the EFT network.
EFT payments

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What Are the Key Differences between ACH and EFT?

Should you use ACH or EFT? Which one is better? Understanding the distinction between ACH and EFT can be the key to choosing the best payment processor. Let’s look at some of the key differences:

Scope and Reach

EFTs are a broad umbrella term encompassing various digital payment methods. They can involve anything from swiping your debit card at a store to withdrawing cash from an ATM. These transactions often involve payment processors and gateways that facilitate the exchange between your bank account, the merchant's account, and the financial institution networks behind the scenes.

On the other hand, ACH is a specific type of EFT focused on bank-to-bank transfers. It operates within a dedicated network that securely routes these transfers between financial institutions in the U.S. These transfers utilize routine numbers for accurate delivery.

Processing Speed

When it comes to speed, ACH and EFT differ significantly. ACH payments are typically batched together and processed at specific times throughout the day, leading to a completion timeframe of 1-3 business days. This approach makes them a cost-effective option but not the ideal choice if instant transfers are your priority.

Additionally, the ACH network has recently introduced Same Day ACH options, which can expedite transfers within the same business day for an additional fee, blurring the lines between ACH and EFT processing times.

In contrast, many EFTs, like debit card transactions or online purchases using a payment gateway, happen in real time, providing immediate confirmation and settlement. However, these real-time transactions may involve additional processing fees compared to ACH transfers.

ACH processing time

Cost and Fees

Due to their batch processing nature, ACH transfers generally incur lower fees than most EFTs. This makes them a popular option for businesses and individuals for tasks like recurring payments, B2B payments, accepting online payments through an ACH-enabled platform, or simply sending money electronically to friends and family.

However, it's important to note that some financial institutions or payment processors might charge fees for initiating or receiving ACH transactions, so it's always wise to check the fine print before choosing this method.

When Should You Use EFT or ACH Processing?

So, which option reigns supreme: ACH or EFT? Like most things in finance, the answer depends on your specific needs. Here's a quick breakdown to help you decide:

Need Speed?

For situations demanding immediate payment processing, prioritize EFT methods like debit card transactions or real-time money transfers via a payment app. But remember, speed often comes at a cost. These real-time transactions may involve additional processing fees levied by your bank, the payment processor, or the merchant's acquiring bank.

Is Cost Key?

If minimizing fees is your primary concern, ACH transfers are your champion. They are a budget-friendly option for setting up recurring payments for bills or accepting online payments. While ACH transfers might be cost-effective, some financial institutions or payment processors might charge fees for initiating or receiving them.

Going Global?

For international money transfers, explore options like wire transfers, which fall under the EFT umbrella but operate outside the ACH network. Keep in mind that wire transfers might have steeper fees due to their expedited nature and the potential involvement of multiple financial institutions. According to the World Bank report, the average cost of transferring money internationally is slightly over 6%; therefore, you should account for these costs.

How Secure Are ACH and EFT Payments?

In 2023, 80% of American organizations encountered payment fraud. Therefore, you need to protect your business when accepting ACH and EFT payments. Nacha, the governing body of the ACH network, provides security measures to protect payments.

Additionally, financial institutions that process EFTs have to implement risk mitigation measures such as encryption and authentication to protect customer data. Working with a reliable payment processor like iCG Pay gives you access to secure and compliant payment systems.

Making the Right Choice: ACH or EFT for Your Business?

Your business needs an efficient payment transfer method. ACH offers budget-friendly domestic transfers, perfect for recurring payments or sending money to friends. EFT, on the other hand, is handy for instant transactions and international wire transfers.

Want to set up your business to accept ACH and EFT payments? iCG Pay can help! Contact us today to streamline your payment processing.

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