Electronic Funds Transfer (EFT) is a system of making or receiving payments through a system of direct bank transfer. This means no paper money or checks ever changes hands. EFT can be used in many situations including employee payroll, government payments, tax payments, receipt of benefit payments (government or private), or personal payments. Personal EFT payments are commonly called bank wires, while payroll EFT payments are known as direct deposits. EFT can also refer to a range of other money transfer systems including credit card payments and debit card payments either online or at a point-of-sale terminal.
EFT transactions are processed through a secure network of U.S. financial institutions known as the Automated Clearing House (ACH). This method of payments is preferred by many banking, government, and private institutions for several reasons. EFT payments save companies the cost of purchasing and mailing checks. EFT payments are also speedier than traditional check payment systems. People who get paid through EFT usually have their funds available sooner than those who choose to use checks. EFT has become the norm for income tax payments and refunds. Income tax refunds done electronically are issued up to four weeks sooner than paper checks. Additionally, law demands that tax payments of $10,000 or more must be made through EFT. No choice is given.
EFT transactions are growing in popularity every year. Many people now use EFT methods for paying all of their household and personal bills. Many experts say that our modern age is ushering in a new time where paper money will be obsolete. The internet is fast helping to make this vision a reality. Other benefits of EFT payments besides expense and time are reduced administration, increased efficiency, simplified accounting and bookkeeping, and higher security.
EFT compliance is monitored by the U.S. government through the Federal Reserve Board. The Federal Reserve Board is mandated to follow Regulation E, named the Electronic Funds Transfer Act (EFTA). This act covers all aspects of EFT including disclosure of information law, record retention, paper and electronic receipts, resolution of errors, and consumer liability.