Electronic Funds Transfer vs Wire Transfers - Differences, Similarities, and All You Should Know

The advent of the digital age has made electronic payments become increasingly popular. Essentially many individuals and businesses now opt for sending and receiving payments digitally, as it is easier and more convenient. Two of the most popular electronic payment methods people use to execute digital transactions are electronic fund transfers (EFT) and wire transfers. While these methods seem the same (and some people still use them interchangeably), their differences are glaring. This brings us to the question - What is the difference between EFT and Wire Transfers and which method is more suitable for payment? We’ve provided answers to these questions and other related questions concerning electronic and wire transfers below.    

What is an Electronic Funds Transfer (EFT)?

An EFT is a general term that refers to the electronic transfers of money from the account of the sender to the account of the receiver. Some examples of EFT transactions include debit and credit cards, ATMs, e-checks, as well as Point of sale (POS) transactions.

Since EFTs are completely digital, they don't have any paper footprint. Also, they can be completed on the same working day, you initiate them. For these reasons, EFTs are a very easy and convenient payment method for both businesses and individuals alike.

How Do EFTs Work?

Generally, EFT transactions involve two main parties; the bank account sending the cash transfer and the bank account receiving the cash. Once the sender initiates the transfer and the request is logged, the cash will go through an ACH (Automated Clearing House), an ATM, or a payment terminal before it reaches the recipient’s account. The speed largely depends on the exact type of payment method being used. However, EFTs speed of completion varies between 1-3 business days.

What Are The Types of EFTs?

There are various types of transfers you can select from when making use of ETFs. The most suitable transfer method for you depends on your needs. Here is a list of the different types of EFTs and when they are best used:  

1. Debit and Credit cards

Debit and credit cards can be used to settle one-off or any other recurring online transactions. If you have to do a transaction online, this may be your best option.

2. ATMs

ATMs allow you to instantly withdraw or deposit money into your account, without having to visit any bank branch directly. If you want to withdraw or deposit money, this is most suitable.

3. Point of sale (POS) transactions

This function as a card reader that allows bank account holders to purchase goods in-store. To use this method, you need to have a card attached to any bank account.

4. ACH Transfers

ACH transfers are the most popular type of EFT transfer. They are also extremely affordable for financial institutions because they require just minimal supervision by bank workers and are not liable for any card network charge.

While all ACH transfers are categorized as EFTs, not all EFTs go through the complete ACH process. EFTs like credit cards, debit cards, and other card payments are done digitally but do not go through the ACH network.

How Do ACH Transfers Work?

Basically, ACH payments function by processing all payments via a specific network of banks and other financial institutions that are regulated. The National Automated Clearing House Association (NACHA) regulates the network of financial institutions involved in this process.

The transfer originator (the financial institution that initiates the transaction) will transfer cash to the clearing house. Processing of payments generally takes place in different batches, instead of by single transactions. This helps to keep the expense down for financial institutions. Once the cash gets to the receiving bank, the bank will credit the relevant bank account by the next working day.

Here is a list of payment services that are generally said to be ACH transactions:

1. Direct Debit

This is when a creditor, like a subscription or utilities company, is allowed to withdraw money from an account at regular intervals.

2. Direct deposit

This comprises both fund deposits and withdrawals for both one-time and recurring payments.

3. Bank transfers

You can decide to execute direct payments via account-to-account transfers. This will require you to provide the bank account information, such as the routing number and bank account number.

4. Person-to-person (P2P) Payments

Third-party payment processors like PayPal and Venmo need ACH to transfer cash cheaply between digital wallets.

5. E-checks

E-checks are a safer option than conventional paper checks. Essentially, these checks allow bank account holders to withdraw cash easily from their checking account and put it into another account through an online payment platform or phone authorization.

Recommended - Bank Transfers vs Bank Remittances Explained - What are the Differences?

What is a Wire Transfer?

Wire transfers are a type of electronic fund transfer (EFT) where single transactions are made between two banks. Generally, wire transfers depend on a protected messaging system, such as SWIFT for International (global) wire transfers and Fedwire for local wire transfers.

Since wire transfers are processed fast, they serve as a very useful method of payment for timely and convenient transactions that involve huge sums of money. For instance, if you want to make house deposits or repay a loan, this may be the most convenient method for you.

Note that wire transfers are generally more expensive than other types of transactions due to their expedited nature.

How Do Wire Transfers Work?

The sender initiates the wire transfer by providing the recipient’s details to their bank or a transfer service provider, such as SanaTransfer. The details of the recipient needed for this transaction include:  

• The payment amount
• The account number of the sender (where the money is originating from)
• The recipient’s bank account number
• The contact information of the recipient (name, phone number, and address)
• The SWIFT code or routing number of the recipient’s bank

After the transfer amount gets deducted from the sender's account, they will be charged a specific cost for the wire transfer transaction. Also, the receiving bank may deduct a specific fee from the transfer amount once the fund arrives.

What  Are the Similarities Between EFTS and Wire Transfers?

Here is a list of the similarities between electronic transfers and wire transfers.

1. Convenience

EFTs and Wire transfers both offer you a way to transfer money easily without going to the bank since the whole process is done digitally.

As long as you can provide all the important details of the recipient account, you can execute both methods in a few steps. You can set up this payment via your online banking platform or a third-party transfer platform, such as SanaTransfer.

2. Both are considered electronic payments

Wire transfers are considered a certain kind of electronic payment while EFT is the umbrella term for all electronic payments. Both of these payment methods can be used by people to transfer money both domestically and internationally between two bank accounts via a mobile app or online platform. For this reason, both EFTs and wire transfers are considered secure methods of sending and receiving cash.

Electronic Transfer vs Wire Transfer: What Are The Differences?

EFTs and wire transfers are very similar due to the fact that they are both forms of electronic payment and it is quite difficult to tell their differences. However, we will be listing some of the crucial differences between both types of payments. This will help you to understand better how they function and which is the most suitable option for you depending on your circumstances.

1. Processing timeframes (Speed)

If you want fast transfer speed, a wire transfer is your best option. Since wire transfers are just single transactions, they are processed and completed faster than ACH transfers. ACH transfers may be held up for a while until the financial institution receives enough money to create a batch transfer.

Generally, domestic wire transfers can be transferred and received within one business day and this makes it suitable for situations where the recipient needs the money urgently. Similarly, global wire transfers (also called remittances) guarantee you fast delivery of your funds to other accounts abroad. Usually, it takes between 1-2 working days.

2. Security

Although both wire transfers and EFT offer you security, EFTs have a better advantage in this area. Wire transfers pass through fewer intermediaries, however, they generally denote a permanent type transfer which cannot be reversed if the recipient’s bank information is incorrect. Hence, once you initiate a wire transfer to the wrong recipient, it is impossible for the bank/transfer platform to reverse the payment. The transfers are completed too quickly for funds to get recovered.

Contrarily,  EFT payments like ACH transfers are regulated by the Federal Reserve. Hence, they must go through the NACHA network system. This makes it possible for payments that fall into this category to get reversed and for you to retrieve funds.

3. Types of payments

Wire transfers have relatively limited types of payment options. You can only choose between domestic or international (global) wire transfer payments, depending on your transfer destination. On the hand, Electronic Funds Transfer (EFT), is the umbrella term for a wider range of payments. EFTs cover both in-person payments, such as credit card and ATMs transactions and ACH payments executed through online banking platforms or P2P payment apps. For this reason, EFTs are far more flexible than wire transfers

4. Fees

Wire transfer fees are far more costly than EFT transfers because of the fast transfer speed. The cost of executing a wire transfer largely depends on the amount of money you are transferring and the specific fees charged by both banks involved in the transaction.

Fees charged for global wire transfers are generally higher than fees charged for domestic transfers. Also, third parties may charge you additional fees during the transfer process. This makes it quite difficult to know the total amount of charge your transaction will attract.

For this reason, wire transfers are extremely costly for executing recurring payments like bills and utilities.  ACH payments may be more suitable for payments like these.

5. Transfer limits

Both methods of electronic transfers have their specific transaction limits. These limits are fixed by the bank/ financial institution which you are using to transfer the money. Generally, transfer limits vary between different payment providers.

EFT payments, such as ATMs, ACH, and even credit cards, have far lower limits for the amount of money you can send and withdraw daily, every month, or for a single transaction. To know your transaction limit, contact your bank’s customer service.

Since wire transfers are a bit more expensive than EFTs, they typically have a much higher transfer limit. You can also check with your bank’s customer service to know the wire transfer limits.

Which Payment Method is Better: EFT or Wire Transfer?

Both wire transfers and EFTs offer individuals and businesses a secure and easy way to send and accept money. The usefulness of one method against the other depends on the circumstance surrounding the transaction and how fast you want them to arrive.

Since wire transfers are very fast and offer a larger transfer limit, they tend to be more suitable during these circumstances:

• When you need to send a very huge sum of money e.g pays a house deposit.
• If you have to transfer money urgently.
• When you have to execute a one-off payment e.g. paying a remittance.
• You have to execute a secure cross-border payment.

If you want to send smaller amounts of money and the transfer is not urgent, EFTs are far more suitable. EFTs are also suitable when:

• You have to schedule frequent recurring payments (payments to employees or your utility providers).
• You are trying to minimize the cost of transfer fees.
• It’s your first time executing a transfer to a third party, and you want to be able to reverse the transactions if it’s necessary.
• You want a wider range of payment methods to select from.

Final Thoughts

EFT vs Wire Transfers is a never-ending subject of discussion. Although they seem similar, there are two major differences between them. Generally, EFTs process funds through the automated clearing house (ACH). On the other hand, wire transfer payments are sent directly between two different banks.

Secondly, wire transfers are faster and offer you higher transaction limits than all EFT methods, however, the downside is that they are not reversible and they attract higher transaction fees. Before you select any one of the two, compare their advantages and disadvantages and use the best method depending on the circumstance of your transaction.

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