Electronic funds transfer (EFT) and wire transfer are dominant money transfer technologies used today. Whether you want to send money quickly and safely, send remittance to recipients abroad, or even buy a gift for a loved one, either of these methods for sending money is beneficial. However, many often confuse EFT and wire transfer and sometimes use them interchangeably. What exactly makes them different?
What is Electronic Funds Transfer?
Electronic funds transfer, or EFT, involves transferring money digitally between bank accounts using a computerized network. It is the electronic transfer of funds from one bank account to another. EFT relies on innovative financial solutions, such as Automated Clearing House (ACH) and the Federal Reserve system, making money transfers quicker, safer, and more reliable than traditional sending methods.
EFT is an umbrella term covering an array of several growing digital payment methods. Examples include ATM transfers, bank transfers, online money transfers, e-checks, point-of-sale transfers, credit/debit card payments, telephone money transfers, and direct deposits. This means that EFTs are an integral part of our lives and can be used by anyone.
The benefits associated with EFT offers are plenty and quite significant. Its biggest advantages are its safety, cost-effectiveness, and speed. The recipient can receive funds securely and in real-time, no matter where they are, free from the hefty transaction charges. Other benefits include the ability to dispute a transaction, convenience, automated payments, and transactions not requiring a hold on funds.
What is a Wire Transfer?
A wire transfer is a digital money transfer between individuals or organizations across networks of banks or other financial institutions. It is bank-to-bank EFT where money is transferred through a secure messaging system like Fedwire or SWIFT.
Here’s how it works. As the payer, you must provide your bank account with the amount to be wired. You’ll then provide the recipient’s name, account number, bank routing number, phone number, and address. Once processed, the payment is deducted from your account along with the wire transfer fee. Wire transfers can either be domestic or international.
Since the transactions involve banks or financial institutions governed by regulatory authorities, wire transfers are safe. It is also fast, with transactions completed in minutes to hours and the recipient accessing the funds on the same day. However, wire transfers are relatively slow for global transactions and can be expensive.
Differences Between EFT and Wire Transfer
Although EFT and wire transfer are common methods of sending money electronically, they have some subtle distinctions.
Process – A wire transfer is a specific type of EFT. Through wire transfers, money is sent digitally, but the transaction is limited to banks or non-bank financial institutions, unlike EFT. So, a wire transfer differs from an EFT in the processes involved in completing a transaction.
Timing – Other differences include speed, reliability, transfer fees, convenience, and the ability to reverse a transaction. Wire transfers are faster with relatively shorter processing timeframes than EFTs. A transaction can be completed almost instantaneously for a domestic wire transfer.
Security – EFTs and wire transfers are reliable and secure, with both incorporating safety measures to safeguard money and transactions. However, wire transfers are safer.
Cost – Wire transfers tend to be more expensive than EFTs. They incur higher transfer fees, which are usually justified by transactions being processed faster.
Flexibility & Convenience – While you must involve a third party for a wire transfer, you can complete a transaction with an EFT by yourself. In fact, EFTs offer a wide range of options, meaning you can transfer money from anywhere.
Other Differences – Transactions are irreversible with wire transfers. You cannot dispute a transaction once it is completed, nor get your money back. However, as stated earlier, you can dispute a transaction with EFT and have your funds reversed.
The Future Payment Systems
Electronic Funds Transfer and wire transfers provide a safe, fast, and convenient way to move funds across the globe. They are both great forms of money transfer but have some subtle differences. A wire transfer is best if you want to send money urgently. But, if you want a more flexible payment system that you can automate, that doesn’t include additional fees, and provides you the ability to dispute a transaction, you’re better off with EFT.