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Electronic funds transfer

Electronic funds transfers let people send money over a network. Bankrate explains.

What is an electronic funds transfer?

An electronic funds transfer (EFT) is the electronic transfer of money over an online network. Electronic funds transfers can be performed between the same bank or a different one, and can be accomplished with several different types of payment systems. An EFT can be initiated by a person or by an institution like a business and often doesn’t require much more than a bank account in good standing.

Deeper definition

An electronic funds transfer is a widely used method for moving funds from one account to another using a computer network. Electronic funds transfers replace paper-based transfers and human intermediaries, but provide the customer with the convenience of doing her own banking.

Every time a banking customer uses her credit or debit card, whether at a physical point-of-sale or online, she’s engaging in an electronic funds transfer. Any preauthorized charges, such as direct deposits or utility bills, also utilize an EFT.

Certain services use EFTs to create a peer-to-peer payment environment. In such a situation, the sender simply uses an app or website to indicate that she wants to send money to a recipient. Often, this means sending money from a bank account to another bank account, but it can sometimes mean transferring it to the service itself, from where the recipient can withdraw the funds into her bank account manually.

Electronic funds transfers are secured by a personal identification number (PIN) or the login information that unlocks the customer’s online banking service. An automated clearing house (ACH) processes the payment.

With online banking, you can make your own EFTs. Open a savings account to get started.

Electronic funds transfer example

The most popular form of electronic funds transfer is a direct deposit, in which an employee of a company preauthorizes her employer to pay her salary directly into her bank account. However, numerous other electronic funds transfers exist, including the following:


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