What are EFT and ACH in Payments?

What is EFT and ACH in payments

What does ACH and EFT mean?

ACH stands for Automated Clearing House and EFT stands for Electronic Fund Transfer. These are terms used to describe the electronic transfer of funds from one bank to another in the North America. ACH is used in the United States and EFT is used in Canada.

As a consumer, it’s likely you’re already familiar with ACH or EFT payments, even though you might not be aware of the name. If you pay your bills electronically rather than writing a check or if you receive a direct deposit from your employer, the ACH and EFT networks are the ones being used.

How does EFT and ACH differ from online payments?

Online payments typically refers to electronic payments using a credit card. Credit cards are by far the most popular and convenient for most ecommerce, recurring payments, and online services transactions.

ACH and EFT payments let you use your bank account information to make a payment rather than your credit card number. ACH and EFT are also not instant like credit card transactions. 

Why do some people use ACH or EFT?

The major downfalls of ACH or EFT is that it is a little more complicated to set up a payment and it takes more time for a transaction to be finalized. There are a few important benefits of ACH and EFT payments:

  •  For a merchant, it is cheaper to do an ACH or EFT transaction than a credit card transaction. Rather than a percentage and transaction charge like credit cards (2% and $0.25), ACH and EFT typically have a single transaction charge of something like $0.25 to $1.50.
  • ACH and EFT work well if you have people that want to pay that don’t have credit cards. 
  • Compared to using physical checks, ACH and EFT cut down on paperwork and having to go to the bank to deposit checks. ACH and EFT are fully electronic.

How long does an ACH or EFT payment take?

ACH and EFT payments typically take several business days to be completed. The ACH and EFT networks process payments in batches. Wire transfers are single payment transfers individually processed by people. This is one reason wire transfers are much more expensive. 

Once a bank receives the instruction to do an ACH or EFT transfer, they may take one or two business days to submit it. After the other bank receives the transfer, they might also hold the transferred funds for a period of time. Overall, it takes an average of 3 to 5 business days to transfer payments with EFT or ACH.