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Electronic Funds Transfer (EFT)

Updated May 10, 2021

What Is an Electronic Funds Transfer?

An electronic funds transfer (EFT) allows payments between two parties via electronic signals. Electronic funds transfers began in the 1960s but became widespread in the 1970s with the introduction of the automatic teller machine (ATM). 

Since then, electronic fund transfers have become ubiquitous, with millions of transactions taking place every day. You can even use EFTs to pay your taxes, then receive refunds through direct deposit.

How Do Electronic Funds Transfers Work?

When an individual or institution initiates an electronic funds transfer, signals are sent from the terminal via 128-bit encryption. This is a highly secure method of securing sensitive data through the internet to the receiving unit. 

Within the data is the information about the transfer, including the account number, account holder name, institution data, and the transfer amount. When the receiving terminal verifies this data, the transfer is complete.

Are EFTs Safe? 

EFTs are an extremely safe and time-tested method of transferring money. The system uses 128-bit SSL encryption to scramble the information and produce new combinations of data that are later unscrambled at the receiving end. 

128-bit SSL encryption renders 1 million unique combinations, making it impossible for the average hacker to guess. Even with computerized "brute force" attacks, it’s estimated that this would take several years to crack the code.

Electronic Funds Transfer Examples

Throughout any given day, you’ve probably used some – or all – of these EFT examples:

  1. Automatic teller machines (ATMs)

  2. Payroll direct deposit

  3. Direct payments from buyers to businesses

  4. Electronic bill payments 

Say that your paycheck is directly deposited into your bank account. You go to the bank to withdraw cash for your weekly grocery shopping trip and use the ATM, but when you go to the store checkout, you’re $20 short. You use your debit card and – when you get home – you pay your bills on your computer. 

How Long Are Electronic Fund Transfer Times?

The electronic fund transfer process typically takes between 1-4 business days, but holidays and weekends can delay the transfer. The actual time for the transaction depends on the type of payment, EFT provider, and when the request is submitted. 

Are EFTs Free?

There is a cost to process EFTs, but the cost depends on the transaction type (i.e. whether the sender or the receiver bears the cost). For example, some banks charge ATM fees while others include it in the service fees for their customers' accounts.

What Is the Electronic Funds Transfer Act?

In 1978, the United States government issued the Electronic Funds Transfer Act (EFTA), which established the definition of EFT and requirements for disclosure. The Act also outlined the rights and requirements for consumers and financial institutions when sending and receiving EFTs. 
 
The Electronic Funds Transfer Act authorized:
 
●      24-hour ATMs 
●      ATM fees
●      Direct deposit of paychecks
●      Pay by phone
●      Internet banking
●      Debit cards
●      Electronic check conversion

Ask an Expert about Electronic Funds Transfer (EFT)
At InvestingAnswers, all of our content is verified for accuracy by Rachel Siegel, CFA and our team of certified financial experts. We pride ourselves on quality, research, and transparency, and we value your feedback. Below you'll find answers to some of the most common reader questions about Electronic Funds Transfer (EFT).

Are EFTs and Wire Transfers the Same? 

A wire transfer is the digital transfer of money from one individual/business to another. With a wire transfer, the receiving party must supply their bank account information to the sender who then begins the transmission. A unique number called the IBAN/SWIFT code must be provided by the receiver so that the sender can transfer the money to the correct financial institution. 

EFTs, on the other hand, can occur automatically once the receiver's bank account information is set up in the system.  

Can EFT Payments Be Reversed?

No, EFT payments cannot be reversed.

Is EFT the Same as ACH?

ACH (Automated Clearing House) is a type of EFT that moves funds electronically from one bank account to another. ACH falls under the EFT umbrella, as well as online bill payment systems and ATMs. 

Rachel Siegel, CFA
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Rachel Siegel, CFA is one of the nation's leading experts at ensuring the accuracy of financial and economic text.  Her prestigious background includes over 10 years of experience in creating professional financial certification exams and another 20 years of college-level teaching.

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