What is an electronic funds transfer?

Canada By Mitchell Steiman April 27, 2022

Article summary

One of the most popular methods for sending money these days is by using an electronic funds transfer (EFT). You can make electronic funds transfers in various ways. Each one allows you to send money quickly and easily to loved ones when they need your support, or to surprise them on those special occasions.

It’s likely you’re already sending money by EFT without realizing. However, there are many different methods, and each one has its own unique benefits.

In this guide, we explain the different types and how each electronic funds transfer option works, so you can find a convenient method for your needs.


In this article


What are electronic funds transfers?

Electronic funds transfers allow you to digitally move money across an online network, either between banks or person to person. As the transfers are digital, there’s no need for paper documents. This speeds the process up considerably and makes EFTs more accessible than some alternative methods of sending money.

There are many variations on the process, but chances are you’ve already come across EFTs before, as the technology has been around for years. One of the most common electronic funds transfer examples are wire transfers. Or, if you’ve used a debit card to buy anything online or in-store, that’s also an example of an electronic funds transfer.

Some of the latest EFT technology that’s grown in popularity in recent years is the use of mobile wallets on smartphones, such as Apple Pay and Google Pay.

Many businesses also use EFTs to pay their staff promptly. You can use them to buy groceries, pay bills, and send money to friends and family.


How does an EFT work?

Though there are many variations, there are only two parties involved in electronic funds transfers – the sender and receiver.

Here’s how an EFT works:

  1. The sender initiates an EFT.
  2. The request moves through digital networks to the sender’s bank.
  3. The request then moves to the receiver’s bank.
  4. The receiver is notified and gets their money.

If you’re buying groceries in a store and pay by debit card, the checkout operator will ask you to insert your card into the card reader:

  1. You enter your PIN.
  2. Press ‘Enter’ to approve the transfer.
  3. The amount of your bill then moves in real time from your account to the store’s account.
  4. The checkout operator confirms the transfer was successful and you can leave with your groceries.

Your paycheck is paid in through a process known as direct deposit. Each month:

  1. Your employer enters your banking details into the system of their payroll provider.
  2. Their payroll provider initiates batches of transfers and debits your employer’s bank account.
  3. The funds are sent to your bank account, and those of your colleagues.


Types of EFT payments

Over the years, many different types of EFT payments have been introduced to make sending money to people easier and faster.

Direct deposit

This is an electronic deposit of funds into a bank account via an electronic network called the automatic clearing house (ACH). The receiver’s account can be credited automatically and immediately. Pay cheques and tax refunds are often paid by direct deposits.

Wire transfer

A wire transfer is an electronic transfer of funds through a network administered by banks and/or transfer service agencies. Wire transfers may take one to five business days to process, but large amounts can be sent both domestically and internationally. All transfers go through an ACH before being settled.

Debit and credit card transactions

Both debit and credit cards feature 16-digit numbers across the front, expiration dates, and the cardholder’s name. They can also both be used to pay for items online or in-store.

However, debit card transactions are paid for using funds in your bank account. With credit cards, you borrow money from the card issuer to buy items or withdraw cash. Both cards can be swiped in card readers but mainly use chip and PIN or contactless technology.

ATM transactions

ATM stands for Automated Teller Machine. These are electronic banking machines that let customers access cash, complete transactions, pay bills, and transfer between accounts with debit/credit cards. Although there’s sometimes a fee for using ATMs, these can be avoided if you use one directly operated by the bank where you hold an account.

Electronic cheques

Often known as e-cheques, electronic cheques are payments made online or via other networks. They’re similar to paper cheques but can be made in fewer steps and have extra security features including encryption. They usually have low fees (sometimes under $1) and transfers normally take between three and five business days.

Phone and mobile wallet payments

Payments made with your smartphone, tablet, or smart watch are versions of mobile payments. With digital wallets, the user’s information is stored on their device and can be used to make purchases in-store or online.

Mobile wallets are similar but only used with smartphones. You hold your device against a reader in the same way you would a credit/debit card for a contactless payment.


The Electronic Federal Tax Payment System, or EFTPS, is a US system that allows you to process secure tax payments online by direct debit from your bank account. This is useful if you live in Canada and have dual citizenship in the US.


How long does an EFT take?

One of the benefits of electronic funds transfers is the speed they can be delivered. In general, EFTs are quicker than paper methods – other than cash. However, there are many different types, and delivery times vary.

For example, with domestic wire transfers using a non-bank money transfer service to send money to an account held within the same financial institution, it can take minutes1. Send an international wire transfer to a country with slow processing times and it may take up to five days.


How much does an EFT cost?

The cost of an electronic funds transfer varies depending on the type you choose and how much money you want to send.

If you run a business and need to pay someone their salary, direct deposits are free to use. Paying in a store for new clothes can be done for free with a debit card or smartphone by making a contactless payment.

If you need to transfer money to someone else in Canada, Western Union transfer fees also vary but start at $5 when sending to certain banks.



What’s the Difference Between EFT and ACH?

All ACH payments are EFTs, because the Automated Clearing House is an electronic funds transfer network. This network processes more than 20 billion EFTs a year. ACH payments are processed in batches, whereas EFTs happen in real time.

What are the benefits of an electronic funds transfer?

There are various advantages of EFTs:

  • EFTs are quicker than having to mail a cheque and wait for someone to process it.
  • The chances of human error or factors slowing things down are smaller.
  • Fees are often lower or non-existent.
  • The latest EFT technology is convenient, enabling contactless payments with the swipe of your smartphone or smart watch.


Explore more ways to send money.

1 Funds may be delayed or services unavailable based on certain transaction conditions, including amount sent, destination country, currency availability, regulatory issues, identification requirements, agent location hours, differences in time zones, or selection of delayed options. For mobile transactions funds will be paid to receiver’s mWallet account provider for credit to account tied to receiver’s mobile number. Additional third-party charges may apply, including SMS and account over-limit and cash-out fees. See the transfer form for restrictions.

2 Western Union also makes money from currency exchange. When choosing a money transmitter, carefully compare both transfer fees and exchange rates. Fees, foreign exchange rates and taxes may vary by brand, channel, and location based on a number of factors. Fees and rates subject to change without notice.