Electronic Funds Transfer (EFT) Explained

Electronic Funds Transfer (EFT) Explained

Electronic Funds Transfer (EFT) is a convenient and secure way to send and receive money online. It is becoming increasingly popular as more businesses, individuals, and institutions turn to digital methods for their financial transactions. 

This comprehensive guide to understanding EFT will provide an overview of how this type of payment works, the steps involved, and its key benefits and risks. 

You’ll also learn about the different types of EFT, the security features and regulations, and how to make the most of EFT transactions. With this knowledge, you’ll be well-equipped to safely and securely manage your money using EFT. 

What Is an Electronic Funds Transfer? 

An electronic funds transfer (EFT) is a money transfer between two financial institutions. For example, you can use an EFT to send or receive payments electronically.  

More specifically, an EFT payment is an electronic funds transfer that allows you to pay for goods or services using your bank account. When you make an EFT payment, the funds are transferred from your account to the recipient’s account without needing paper checks or cash. 

EFT payments can be made online, over the phone, or in person. You need to provide your bank account and routing number when making an online payment and check number or other information from your checkbook for phone payments. In-person EFT payments can be made using a debit card or credit card. 

EFT payments are convenient because they are quick and easy to process. There is no need to wait for a paper check to clear or funds to be transferred from one bank to another. Additionally, EFT payments can help you avoid late fees and interest charges on your bills. 

What Are Peer-to-Peer Electronic Payments? 

Peer-to-peer electronic payments (P2P) are a type of electronic funds transfer (EFT) that allows individuals to send and receive money without going through a financial institution. P2P payments are typically made using a mobile app or online service, and the funds are transferred directly between the two parties. 

Several P2P payment apps and services are available, such as Venmo, PayPal, Cash App, and Zelle. Each has unique features and benefits, but they all work similarly. To make a P2P payment, you’ll need to create an account with one of these apps or services and link it to your bank account or debit card.  

Then, you can add friends or family members as contacts within the app. When ready to make a payment, you simply enter the amount you want to send and choose the recipient from your contacts list. The funds are then transferred from your account to theirs almost instantaneously. 

One of the biggest benefits of P2P payments is that they’re very convenient. You can use them for things like splitting a dinner bill with friends, paying back someone for movie tickets, or sending money to family members who live far away. 

Another benefit is that they’re usually very affordable; most P2P payment apps don’t charge fees for individual transactions (though there may be some limit on how much you can send per day or week). And finally, P2P payments are usually very fast; once you’ve initiated a transaction, the funds will typically be available in the recipient’s account within minutes (or even seconds). 

There are a few potential downsides to P2P payments worth mentioning as well. First, if you lose your phone or have it stolen, someone might access your P2P payment app and send money out of your account without your permission. This is why you should set up a security measure (like a PIN code) on your phone and your P2P payment app. 

Second, if you accidentally send money to the wrong person through a P2P payment app, getting that money back can be very difficult (if possible). So always double-check that you’re sending money to the right person before initiating a transaction. Finally, while most P2P payment apps are free to use for individual transactions, some charge small fees when sending large amounts of money or making international transfers. 

So if you’re planning on using P2P payments for something significant like rent or tuition payments, check what fees might apply first. 

Overall, P2P payments are a very convenient and affordable way to send and receive money electronically. Each year, they’re growing in popularity, so you’ll likely be using them in the future at some point (if you’re not already). 

How Does EFT Work? 

Here’s a step-by-step look at how an EFT payment is made:

  • You initiate an EFT payment by authorising your financial institution to send funds to another party.

This can be done online, over the phone, or in person. 

  • Your financial institution sends a message to the recipient’s financial institution through the network. 

This message includes information about the transaction, such as the amount of money transferred and the account numbers involved. 

  • The recipient’s financial institution deposits the funds into their account. 

The whole process usually takes just a few days. 

What Are the Types of EFT Payments? 

Electronic Check 

An electronic check is simply an electronic version of a paper check. The payer provides their bank routing and account numbers, and the payee’s bank account is debited for the check amount. The main benefit of an electronic check is that it can be processed more quickly than a paper check. 

Direct Deposit 

Direct deposit is a type of EFT in which payments are deposited directly into a recipient’s bank account. You can use this payment type for payroll, tax refunds, Social Security benefits, and other regular payments. Direct deposit is convenient because it eliminates the need to go to the bank to deposit a physical check. 

Phone Payments 

Phone payments are another type of EFT in which you can make a payment using your phone. You can do this by calling your bank or using a mobile app. Phone payments are convenient because you can make them anywhere, anytime. 

ATM Transactions 

With an ATM transaction, you can withdraw money from the machine or deposit money at a bank. ATM transactions are convenient because they allow you to access your money 24/7. However, fees may be associated with using an ATM not affiliated with your bank. 

Credit Card Transactions 

You can pay with a credit card using EFT at merchants who accept credit cards. Credit card transactions are convenient because they allow you to make purchases without having cash on hand. However, there may be fees associated with using a credit card, and you will accrue interest on any balances you carry over monthly. 

What Are the Benefits of EFT? 

There are many benefits to using electronic funds transfer (EFT) payments. Perhaps the most obvious benefit is that EFT payments are more efficient than traditional paper-based payment methods. For businesses, this can result in lower costs and improved cash flow. 

Another key benefit of EFT payments is that they are often faster than other payment methods. Processing speed can be helpful for businesses when it comes to paying suppliers or employees. Electronic checks, for example, can often be processed more quickly than paper checks. 

EFT payments can also offer greater security than other methods of payment. Because EFT payments are typically made through a secure network, you’ll be better protected against fraud and theft. Additionally, EFT payments can often be traced more quickly than other types of payments if there is an issue with the transaction. 

Overall, using EFT payments can offer many advantages for businesses and individuals. However, when choosing a payment method, you should consider the specific needs of your organisation or personal finances to decide whether EFT is the right option. 

Are EFT Payments Risky? 

EFT payments are generally considered to be very safe. The most considerable risk is usually associated with the potential for fraud, but there are steps you can take to minimise this risk. For example, you can limit the information you share when making an EFT payment. Additionally, you can use a secure service like PayPal or a credit card company that offers fraud protection. 

That said, some risks are inherent in any type of payment system. For example, if your bank account is hacked, theoretically, someone could make unauthorised EFT payments from your account. However, banks typically have strong security measures to protect against fraud. 

Electronic Fund Transfer Act 

The Electronic Fund Transfer Act (EFTA) is a federal law that protects consumers when they transfer money electronically. The EFTA applies to all electronic transfers, including ATM withdrawals, direct deposits, and point-of-sale transactions. 

The EFTA requires financial institutions to disclose certain information to consumers before making an electronic transfer. This information includes the terms and conditions of the transfer and the consumer’s right to stop or cancel the transaction. After an electronic transfer is made, financial institutions must also provide consumers with a receipt. 

The EFTA protects consumers in case of errors or unauthorised transactions. If a consumer believes an error has occurred, they must notify their financial institution within 60 days. Then, he financial institution has up to 45 days to investigate and resolve the issue. If the issue is not resolved, the consumer can file a claim with the Consumer Financial Protection Bureau (CFPB). 

The CFPB is responsible for enforcing the EFTA and investigating complaints about electronic fund transfers. 

How to Set Up an EFT? 

To set up an EFT, you will need the following: 

  • A computer with internet access;
  • An email account;
  • A checking or savings account with a bank or credit union; 
  • The routing number and account number for the account you will be using for the EFT; 
  • The name, address, and phone number of the person or business you are sending money to; 
  • The amount of money you want to send.

Setting up an EFT is easy and only takes a few minutes. Here’s how to do it:

1. Go to the bank or credit union website with which you have an account and log in to your online banking portal. 

2. Look for the section labelled “Transfers” or “Payments & Transfers” – this is where you will initiate the EFT. 

3. Choose whether you want to send money from your checking or savings account– most people use their checking accounts for this transaction. 

4. Enter the routing number and account number for the account you are using for the EFT – you can usually find this on your chequebook or on a sheet of paper that came with your welcome packet when you opened your account). 

5. Enter the name, address, and phone number of the person or business you are sending money to – if you are sending money to someone who also has an account at your bank or credit union, you may be able to just enter their name or username instead of their full information. 

6. Enter the amount of money you want to send – make sure this is accurate because once you hit “submit,” there is usually no way to cancel the transaction! 

7. Review all the information on the screen carefully before hitting “submit” – once again, remember that there is usually no going back after hitting this button! Once everything looks good, go ahead and hit submit/send/transfer (the language may vary slightly depending on which institution you are using). 

That’s it – congrats, you just completed your first EFT! 

What to Do if You Have an EFT Problem?

If you have a problem with an EFT, the first thing you should do is contact your financial institution. And if you’re dissatisfied with their response, you can file a complaint with the Consumer Financial Protection Bureau.

How Do Electronic Funds Transfers Work for International Payments?

You can use EFTs for domestic or international payments. If you are making an international EFT payment, there may be additional fees charged by your bank or the recipient’s bank. These fees vary depending on the banks involved and the amount being transferred. The best thing to do is to check with your bank beforehand to see what fees may apply. 

What Is the Processing Time for EFT Payments? 

The time it takes for an EFT to process can vary depending on the financial institution but it typically takes between 1-3 business days. This is because the sender’s bank will first need to send the funds to the receiving bank, which can take a few days. 

Once the receiving bank has received the funds, they will need to post them to the recipient’s account, which can also take a few days. So, while the actual transfer of funds may only take a day or two, it can take up to 5 business days for an EFT to be fully processed. 

What Is a One-Time EFT Payment? 

A one-time EFT payment is a single electronic funds transfer not set up as part of a recurring payment schedule. 

For example, if you were to make a one-time EFT payment for your monthly rent, you would likely provide your landlord with your bank account information and authorise them to withdraw the rent amount from your account on a specific date each month. 

Alternatively, you could make a one-time EFT payment each month by manually transferring the rent amount from your checking account to your landlord’s account. 

What’s the Difference Between EFT and ACH? 

An electronic funds transfer (EFT) is a type of transaction that occurs via electronic means. This can include wire transfers, direct deposits, and automated clearinghouse (ACH) transfers. An ACH transfer is a specific type of EFT that happens between two financial institutions. 


Electronic funds transfers (EFTs) are becoming increasingly popular when making payments. An electronic funds transfer is an excellent option for making an international payment. It’s fast, efficient, and secure. 

by Matt Woodley
Matt Woodley is the Founder of Money Transfer Expert and is a recognised expert on international money transfers. Matt holds a Bachelor of Commerce (BCom) majoring in Finance and Marketing and a Bachelor of Arts (BA) majoring in Economics and History from the University of Auckland.