Difference Between ACH and EFT (With Table)

Consumers these days rarely make payments with the traditional means of payment. 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 trends 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 distinct from EFT. ACH is a specific type of digital payment method within EFT.

ACH is the abbreviation for Automated Clearing House and is 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. 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

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 financial institutions.

When the banking transactions involve different financial institutions, the banks cannot separately deal with them. 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 to clear 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 benefits, and tax refunds are treated as direct deposits. On the other hand, transactions like payments 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 occur 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 processed individually, excluding ACH payments. Unlike ACH transactions, which are settled in bunches, other EFT transactions like PayPal and ATM transfers get processed individually. Moreover, the transaction is completed now, excluding ACH payments, since they are settled singly. 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 through computers. There is tremendous scope for the growth of modes of Electronic Fund Transfer as it is more efficient and fast and can potentially 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 part and parcel of the latter, it contains various other digital payment modes besides ACH. This makes the scope of EFT quite diverse and broadened.
3. In ACH, transactions can only occur when they involve interaction between accounts of two financial institutions. In contrast, 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 occur 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 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 clearing 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