ACH vs. EFT: How to Decide Which Is Right for You

The average American holds 3.1 credit cards and just over 80% also have a debit card. This makes it easier and quicker than ever to pay at checkout by automating the process.

Other convenient payment options have also hit the scene since the onset of the digital era. Because of this, fewer and fewer people write paper checks or pay in cash.

Is your small business keeping up with the times? And how do you know which payment options are best for you and your customers?

To answer these questions, there are two things you must understand first:

1. While many people use terms like ACH vs EFT interchangeably, they are not the same thing.
2. Beyond ACH and EFT, there are more payment options available to modern consumers than you might think.

If you find yourself overwhelmed by all of the choices, you have come to the right place to narrow your options. Read on to gain more insight so you can make an informed decision.

What is an ACH Transfer?

ACH stands for Automated Clearing House. Automated Clearing House is a large network of banks and an ACH transfer is any payment made electronically that uses this network to move funds. Let’s understand ACH transfers first, then we can clarify the difference between ACH vs. EFT.

What is the Automated Clearing House Network?

NACHA manages the Automated Clearing House (ACH) Network. NACHA was once called the National Automated Clearing House Association, hence the acronym.

Close your eyes for a moment and imagine you are at Grand Central Station.

Grand Central Station connects to every other terminal in New York City. Together, they move huge numbers of people at one time across the city using their network of subways.

That’s how the ACH network works as well. It uses a massive network of 10,000 plus financial institutions to move transactions in batches between bank accounts.

NACHA is the conductor that keeps these transactions moving. In other words, they make and enforce the rules that govern the ACH network.

Common Uses of ACH Transfers

Direct Deposit:

NACHA reported that 82% of American employees got paid via direct deposit in 2016. There have not been any updates since then, but consider this: The second quarter of 2019 saw a movement of $6.1 billion dollars via ACH. This was a 46% increase over the second quarter of 2018. It’s easy to surmise that a huge part of this growth stems from the number of U.S. workers who are paid via direct deposit.

Recurring Transactions:

We take for granted the auto-pay option utility companies offer. But man is it convenient.

Once set up, you don’t have to worry about whether you paid your bill. As long as the money is in your bank account, transactions go through without a hitch.

This type of transaction isn’t limited to utility bills though. Most gym memberships use ACH. And so does your Netflix subscription. Pretty much any payment you make on a recurring cycle is an ACH transfer.

Tax Refund:

Every year you get money back from the IRS, they ask you how you want your refund check delivered. If you choose the direct deposit option as most people do, then the deposit gets made with ACH.

What Is an EFT?

When it comes to ACH vs. EFT, there’s a simple differentiation. EFT stands for Electronic Funds Transfer. It’s a catch-all phrase for any type of transfer initiated electronically. This type of money exchange foregoes the use of paper checks or physical currency.

For clarity, an ACH transfer is a type of EFT. But saying that ACH and EFT are synonymous is like saying an apple is the same thing as fruit. An apple is a prime example of fruit, but you would never define fruit as an apple.

Types of EFT Payment

Companies still give their customers the option of paying with a paper check or cash. But businesses are starting to realize the benefits of EFT. And so, these two options are becoming a thing of the past.

As checks and cash disappear from view, other types of payment methods are stepping up to take their place.

Credit and Debit Card Transactions

A card reader initiates an electronic transfer of funds between a consumer’s bank or credit card company and a vendor’s bank account. This makes any transaction made with a card an EFT payment.

In the case of credit cards, consumers later repay the credit card company for the purchase. This payment is often made with an ACH transfer between the bank accounts of the consumer and credit card company.

Credit and debit card transactions are the preferred payment method for most businesses.

Virtual Wallets

Virtual wallets centrally connect bank and credit card accounts and encrypt payment data. Once connected, you can make payments and receive funds through a central platform.

To make and receive payments, you only need an email address associated with the account. There is no need to provide sensitive data like account numbers. PayPal is one example of a virtual wallet.

Wire Transfers

Western Union has offered wire transfers since 1871, making it the oldest form of EFT. Wire transfers are like ACH transfers, but money isn’t moved between banks or accounts.

Instead, the initiating bank tells the receiving bank how and where to deposit the money. The receiving bank, in turn, deposits the specified amount of money from its own reserves into the correct account.

Both bank accounts get verified before a transfer takes place. Because of this, many consider wire transfers one of the safest ways to exchange money.

Ready to Make a Decision?

Armed with this new knowledge, we hope you can make an informed decision about your ACH vs. EFT payment options. But should you need further guidance, let’s talk.

If you already have a merchant service provider but want a change, get a free savings analysis that lets you compare Seamless Merchant’s pricing with your current merchant’s. All you need is a recent statement.

Either way, we look forward to hearing from you soon!

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