Difference Between ACH and EFT (With Table)

Consumers these days rarely make payments with the traditional means of payments. These include paying through cash or signing a cheque to pay the seller of a commodity or service. Instead of these, digital and electronic transactions are the trend of the day. Two forms of digital transactions are Electronic Fund Cigarette (EFT) and Automated Clearing House (ACH).

ACH vs EFT

The main difference between ACH and EFT is that EFT is a diverse umbrella topic consisting of several types of digital or electronic modes of payment. ACH comes within this topic and is not a very distinct topic from EFT. ACH is the name of a specific type of digital payment method within EFT.

ACH is the abbreviation for Automated Clearing House and it is a part and parcel of the broader term ‘EFT’. In ACH, the transfer of funds takes place from a bank account or credit union account to an account in another bank account or credit union account.

EFT is an abbreviation for Electronic Funds Transfer and it incorporates all forms of digital payment mechanisms including the Automated Clearing House. In Electronic Fund Transfer system, funds are transferred between bank accounts, irrespective of whether they are in the same bank or not. This mode of transaction is most preferred between B2B types of business deals as it is cheap and more efficient than traditional means of cash and cheque.

Comparison Table Between ACH and EFT

Parameters of ComparisonACHEFT
Full formACH stands for Automated Clearing House.EFT stands for Electronic Fund Transfer.
ScopeThe scope of ACH is very narrow and it is a subset of EFT.The scope of ACH is very broad and it is a superset of EFT.
MeaningTransactions take place between bank accounts from different financial institutions.Transactions take place between bank accounts irrespective of the financial institution.
Speed of transactionsTransactions are not made instantly but after some time.Transactions take place instantly.
Frequency of transactionsACH transactions are made in batches. EFT transactions can be completed without any need for batches.
Geographical SpreadACH is more prevalent in the United States of America.EFT is used all over the world.

What is ACH?

ACH is a particular type of EFT transaction. It is a system most used in the USA and involves payments between bank accounts of two different financial institutions.

When the banking transactions involve different financial institutions, they cannot be separately dealt with by the banks. The mechanism of ACH comes into action here. The Automated Clearing House clears those transactions.

These transactions are not made on a one-to-one basis, but the transactions of a period and similar nature are rather grouped and cleared at once. This helps in reducing the bulk load of transactions. Since the ACH transactions are made in batches, it takes considerable time in clearing them. Thus, these payments are not processed as they are made but there is a time gap between them.

ACH transactions are divided and grouped into direct deposits and direct payments. Transactions like interest, government schemes benefit, and tax refunds are treated as direct deposits. On the other hand, transactions like payments either to or from an individual or an organization are direct payments.

What is EFT?

EFT is a broad term housing several mechanisms of digital transfer. These include ACH transactions, e-checks, and wire payments. EFT also includes popular means of transactions like PayPal, ATM transactions, and wallets.

Transactions in Electronic Fund Transfer take place irrespective of the financial address of the receiver of funds. Payments take place both within and outside a financial institution. It comprises all forms of digital and electronic transfers.

Transactions in the EFT category are usually processed individually, excluding ACH payments. Unlike ACH transactions which are settled in bunches, other forms of EFT transactions like Pay Pal and ATM transfers get processed individually. Moreover, since they are settled singly, the transaction is completed at the moment, excluding ACH payments. As soon as they are made, they normally get processed.

The reason behind instant transactions in EFT is that they are online and thus, hassle-free. There are no paper evaluations to be made but a great degree of payments is helpful by way of computers. There is tremendous scope for the growth of modes of Electronic Fund Transfer as it is more efficient and fast and has the potential to change the traditional banking landscape.

Main Differences Between ACH and EFT

  1. ACH stands for Automated Clearing House while, EFT, on the other hand, stands for Electronic Fund Transfer.
  2. ACH is a very narrow term compared to EFT. While the former is a part and parcel of the latter, the latter contains various other modes of digital payment besides ACH within its fold. This makes the scope of EFT quite diverse and broadened.
  3. In ACH, there can be transactions only when it involves interaction between accounts of two different financial institutions. In contrast to this, there can be digital transactions in EFT that can take place between accounts of the same financial institution. In addition to that, since ACH is part of EFT, transactions between different banks are also entertained.
  4. Transactions take place instantly in EFT but the same takes time in ACH.
  5. Payments are processed in bunches in ACH while EFT transfers money in individual units or bunches.
  6. ACH is most predominant in the United States of America while EFT is a global phenomenon.

Conclusion

The era of traditional modes of payment with cheques and cash are gradually moving away. This is the era of the electronic transfer of funds. EFT is a major factor in driving this change. It encompasses various forms of digital payment techniques through which funds can be transferred to any bank account irrespective of bank.

An important component of EFT is ACH. ACH or Automated Clearing House involves the clearing of payments between two different financial institutions.

References

  1. https://www.sciencedirect.com/science/article/abs/pii/0016718585900028
  2. https://books.google.co.in/books?hl=en&lr=&id=fqpAAAAAIAAJ&oi=fnd&pg=PP13&dq=info:VIzhcrW0MqgJ:scholar.google.com/&ots=KQfcTUSP4S&sig=eTC9qDdgLgYnT3WxbrUSn2A0U4w&redir_esc=y