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ACH vs EFT: What Is the Difference?

By Timothy Moore · June 17, 2022 · 6 minute read

We’re here to help! First and foremost, SoFi Learn strives to be a beneficial resource to you as you navigate your financial journey. Read more We develop content that covers a variety of financial topics. Sometimes, that content may include information about products, features, or services that SoFi does not provide. We aim to break down complicated concepts, loop you in on the latest trends, and keep you up-to-date on the stuff you can use to help get your money right. Read less

ACH vs EFT: What Is the Difference?

Given all the automated payments that are used today, you may hear the terms ACH and EFT used interchangeably, but there’s actually a difference: ACH is one kind of EFT.

To understand this better, let’s get some terms defined first: Automated Clearing House (ACH) is a nationwide network that links all U.S. financial institutions, allowing them to electronically debit money from one account and credit it to another. ACH payments, which can include direct deposit and autopay for bills, are a type of electronic fund transfer, or EFT. The term EFT more broadly encompasses other ways of electronically moving money, such as wire transfers.

The main difference between EFT and ACH is that ACH is one type of EFT. That is, all ACH payments are classified as EFT, but not all EFTs are ACH.

Still feeling a little confused? Read on. Below, you’ll learn:

•   What qualifies a payment as ACH?

•   What are other EFT payment methods?

•   How do ACH vs. EFT vs. wire transfers compare?

ACH Transfers

ACH stands for Automated Clearing House, a network governed by Nacha (National Automated Clearing House Association). The first ACH association appeared in 1972 in California; by 1974, multiple regional networks joined together to form Nacha, which has since overseen the ACH network nationally.

But what is ACH? Put simply, ACH is a type of electronic fund transfer (EFT) that allows individuals, corporations, and even the government to electronically move money from one bank account to another. It can be thought of as a hub that keeps funds flowing.

ACH payments work domestically; that is, among banks and credit unions within the United States. You may be able to send money via international ACH transfers, but other countries will have their own networks and governing bodies. Some countries do not have an equivalent network at all.

Funds first go to the Automated Clearing House, which then reviews the payments and releases them in batches throughout the day. For this reason, ACH transfers are not immediate. How long ACH transfers take can vary: Traditional ACH transfers can take one to two business days, but in recent years, Nacha has enabled same-day transfers for eligible transactions.

How Is ACH Used?

Consumers and businesses can use ACH for a variety of purposes. For example, employers often use the ACH network for direct deposit. This enables them to deposit paychecks directly into employees’ bank accounts. When an entity, like an employer or the government, initiates the ACH process to send funds, this is classified as an ACH credit.

Individuals can provide bank account information to businesses, such as mortgage lenders and utility companies, to enable ACH debit transactions. This means those companies are able to directly debit funds from the individual account using ACH as a form of electronic bill payment. Businesses and individuals may utilize ACH debit for autopay (recurring payments) or for one-time payments.

Even peer-to-peer (P2P) payment methods like PayPal and Venmo can utilize the Automated Clearing House network for electronic transfers. (When such services offer instant payments, they may charge a fee and use your credit card instead, so proceed carefully in these situations.)

What Is EFT?

Electronic fund transfers (EFTs) refer to a much broader range of electronic payments. ACH is a type of EFT, but EFT can also include payments like wire transfers, debit card payments, credit card payments, local bank transfers, instant P2P payments, and even ATM transfers. Electronic fund transfers can be domestic or international in scope.

The Consumer Finance Protection Bureau refers to electronic fund transfers as “any transfer of funds that is initiated through an electronic terminal, telephone, computer, or magnetic tape.”

Note: Another common term in finance is ETF (exchange-traded fund). The acronyms are similar, so it’s important to recognize that an ETF is an investment security, not a payment method.

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More EFT Payment Methods

EFT payment is a broad category, including common transfers like ACH and wire transfers. Here is just a short list of payment methods that can be classified as EFT:

•   ACH transfers

•   Wire transfers

•   Peer-to-peer payments (often done through ACH)

•   Debit card transactions (in person or online)

•   Credit card transactions (in person or online)

•   ATM transfers

•   E-checks

•   Telephone orders

What Is the Difference Between ACH and EFT?

We’ve established that the key difference between ACH and EFT is that an ACH is a type of EFT. This table further breaks down the distinction:

ACH

EFT

Availability Traditional ACH is available domestically (in the U.S.). Various types of EFTs can be used internationally.
Security Transfers pass through the ACH, which provides an added level of security over paper checks and debit card transactions. While ACH and wire transfers are less prone to fraud, other forms of EFTs (like debit and credit cards) can be susceptible.
Speed Can be same-day but never instant; may take multiple days. Can be instant.

ACH vs EFT vs Wire Transfers

When banking, you’re likely to hear about different ways to move money, including ACH, EFT, and wire transfers. Here’s a closer look: ACH is a type of EFT, but another common type of EFT is a wire transfer. Wires can be both domestic and international and often have a fee for both the sender and the receiver, depending on the banks or transfer service agencies (like Western Union) involved. Wire transfers allow you to make an electronic payment “by wire,” such as through SWIFT, the Clearing House Interbank Payments System, or the Federal Reserve Wire Network. Wire transfers can take up to two days to fully process.

Should You Use Electronic Transfers?

Electronic transfers are common in modern banking. It is likely that you already utilize some form of electronic transfer, whether you receive a direct deposit from your employer like 96% of American workers, have your utility bills on autopay, pay for groceries with a debit card, or use peer-to-peer transfer apps to split the dinner bill or pay a friend for concert tickets. When you buy a house, the mortgage company may even ask you to wire funds in time for the closing.

The Takeaway

Automated clearing house (ACH) transfers are a type of electronic funds transfer (EFT), which allows for the direct debiting and crediting of funds from one bank account to another. Common examples of ACH include direct deposit from an employer into your bank account or an automatic bill payment debited from your account. ACH is only one type of EFT, however; other types include wire transfers and debit and credit card payments, among others. These kinds of payments are commonly used today to keep funds flowing quickly and securely.

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FAQ

Is EFT the same as direct deposit?

A direct deposit is a type of ACH, which is a type of EFT. More specifically, direct deposit is a type of ACH transfer (an ACH credit), whereby an employer deposits an employee’s salary directly into that employee’s bank account. (Other forms of direct deposit include Social Security benefits and tax refunds.) The term EFT (electronic funds transfer) includes ACH and other ways to move funds from account to account. So it’s not a matter of EFT vs. ACH or EFT vs. direct deposit. One form of EFT is ACH, and one type of ACH is direct deposit.

Is ACH a wire transfer?

A wire transfer is not the same as an ACH transfer. Instead, ACH and wire transfers are two different types of electronic fund transfers.

What is the difference between ACH and autopay?

When you set up bills for autopay using your bank account information, the company you are paying is using ACH debit to take money from your account. In that case, autopay is a form of ACH debit. However, you can also set up autopay with a credit card; in those instances, the automatic bill payment is an EFT, but not an ACH transfer.

Is ACH the same as direct deposit?

Not exactly. Direct deposit is one type of ACH (which stands for Automated Clearing House) payment, whereby an employer or the government directly deposits funds into an individual’s or company’s bank account.

What is the best EFT payment method?

Different types of EFT payments have their own sets of pros and cons, and often, you won’t have a choice regarding which one is used. For example, direct deposits from your employer will come through ACH. However, you may receive a wire transfer from a mortgage company or bank when you sell your house. If you do have the choice between ACH or debit and credit card options for an electronic payment, you should consider things like speed and security of payment, as well as any associated charges, to make the right decision for your situation.


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