Difference between Wire Transfer and EFT
Key difference: Electronic funds transfer (EFT) is the electronic exchange, transfer of money from one account to another, either within a single financial institution or across multiple institutions, through computer-based systems. Wire transfer is a type of EFT.
EFT or electronic funds transfer are commonly used ways to transfer money from and to accounts. Due to industrialization and globalization, the need to send money to other cities and oversees grew. The need was further reinforced due to large influxes of immigration. People moving to different cities and to different countries needed a way to send money back to their families. To counter this need the electronic funds transfer was developed.
EFT is an electronic exchange, the transfer of money from one account to another. The transfer can be from either within a single financial institution or across multiple institutions. The transfer is done through computer-based systems. There are many different types of EFT:
- Wire transfer via an international banking network
- Cardholder-initiated transactions, using a payment card such as a credit or debit card
- Direct deposit payment initiated by the payer
- Direct debit payments, sometimes called electronic checks, for which a business debits the consumer's bank accounts for payment for goods or services
- Electronic bill payment in online banking, which may be delivered by EFT or paper check
- Transactions involving stored value of electronic money, possibly in a private currency
- Electronic Benefit Transfer – an electronic system that allows government's states benefits departments to issue money, accessible via a payment card.
Wire transfer is a method of electronic funds transfer from one person to another that can be made from one bank account to another bank account or through a transfer of cash at a cash office, such as Western Union. Wire transfer is also known as credit transfer or bank wire.
The process of a wire transfer starts with a person telling the bank to transfer a certain amount of money to an account, identified by IBAN and BIC codes. The sending bank transmits a message, via a secure system, to the receiving bank, requesting that it effect payment according to the instructions given. The receiving bank then must accept the transfer. The transfer however does not happen instantaneously. It may take up several hours or even a day to move the funds from the sender's account to the receiver's account. Once the funds are transferred, the receiving person can access the funds in their own account.
The banks, however, do charge for this service, as it is a secure transaction facilitated by the bank. The banks often collect payment from both the sender, as well as the receiver. The sending bank typically collects a fee separate from the funds being transferred, while the receiving bank and intermediate banks through which the transfer travels deduct fees from the money being transferred. Therefore, the recipient receives less than what the sender sent.
EFT, on the other hand, is usually free or charged a nominal fee at times. This is mainly due to the fact that EFT is a method created for ease and availability. However, a wire transfer is an add-on service, as it does the same thing as an EFT but faster and more securely.
The advantage of a wire transfer, over other types of EFT, despite its additional fees, is the fact that, a wire transfer may take place in less than half the time. Wire transfers are usually preferred by people who need to transfer significant amounts of funds very quickly and can't wait the 2-4 business days that a standard EFT will take. However, due to the fees of a wire transfer, it is mainly used by businesses or wealthy individuals to quickly transfer funds. Most people tend to stick to EFT for normal everyday tasks, such as bill payment or payment for purchased merchandise. Some small businesses also may use EFT to pay employees and receive payment for merchandise.
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