Electronic Funds Transfer (EFT)

Updated July 6, 2020

What Is an EFT (Electronic Funds Transfer?)

An electronic funds transfer (EFT) allows payment between two parties by using electronic signals to transfer money. The current systems of electronic funds transfer began in the 1960s but became widespread in the 1970s with the introduction of the automatic teller machine (ATM). Since then, EFT has become commonplace, with millions of transactions taking place every day.

How Does Electronic Funds Transfer 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 the data, the transfer is complete.

Examples of EFTs

EFTs are part of modern life and most people use EFTs daily without thinking about them. You can even use EFTs to pay your taxes and receive refunds through direct deposit.
Throughout any given day, you’ve probably used some – or all – of these types of EFTs:

  1. Automatic teller machines (ATMs)
  2. Payroll direct deposit
  3. Direct payments from buyers to businesses
  4. Electronic bill payments 

Perhaps 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, so you use your debit card. When you get home, you pay your bills on your computer. 

How Long Does an Electronic Fund Transfer Take?

EFTs typically process 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 whether the sender or the receiver bears the cost depends on the transaction type. Some banks charge ATM fees, for example, 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 set forth the rights and responsibilities of both consumers and financial institutions when sending and receiving EFTs. 
The Electronic Funds Transfer Act authorized:
●      24 hours ATMs 
●      ATM fees
●      Direct deposit of paychecks
●      Pay by phone
●      Internet banking
●      Debit cards
●      Electronic check conversion
Rights Under the Electronic Funds Transfer Act
The EFTA sets standards for consumers’ rights when they transfer electronic funds. The Act specifies that financial institutions and third parties must include the contact information for the persons who should be notified in the event that consumers see an unauthorized transaction on their account (as well as the process for reporting such an event). It also sets forth liability for all parties regarding unauthorized transactions and transfers.
Financial institutions and third-party agents involved in the transfer of funds must disclose the type of transfers consumers can make, as well as any limitations or fees associated with the transfers. They must also provide consumers with a summary of their rights, including the right to request point of purchase receipts, transaction confirmations, and statements.

Institutions are mandated to disclose how they collect information from consumers, and if they share it with any other entities. Institutions are also required to provide consumers with the timeframe for reporting errors, how to file such reports, and how to request more information.

Ask the Expert

InvestingAnswers is on a mission to help consumers build and protect their wealth through education. That’s why we have experts answering your pertinent financial questions at the end of every article.

Are electronic funds transfers and wire transfers the same thing?

A wire transfer is the digital transfer of money from one individual or 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.

Are electronic funds transfers 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 is unscrambled at the receiving end. 128-bit SSL encryption renders 1 million unique combinations, which would be 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.'

Is EFT the same as ACH?

ACH stands for Automated Clearing House and is a type of EFT. It is the process of moving funds electronically from one bank account to another. EFT includes ACH, as well as other means of transferring money electronically (e.g. online bill pay systems, credit card use, ATMs).