The difference between RTGS and EFT when making inter-bank money transfers


EFT and RTGS are the terms that are used in context to bank transactions and you will realize that both these terms are related to electronic money transfers from one bank to another.

In a world where cashless payments are taking charge of the economy, and security is key when making inter-bank transfers, it is key and mandatory to know the difference and operation of the terms before engaging.

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RTGS, short for Real-time Gross Settlement is a specialist funds transfer systems where transfer of money or securities takes place from one bank to another on a real time and gross basis. Settlement in real time means payment transaction is not subjected to any waiting period thus transactions are settled as soon as they are processed. Gross settlement means that the transaction is settled on one to one basis without bundling or netting with any other transaction making the payments are final and irrevocable once they are processed.

Electronic funds transfer or EFT is the electronic transfer of money from one bank account to another, either within a single financial institution or across multiple institutions, through computer-based systems and without the direct intervention of bank staff. The EFT system provides fast, convenient, reliable and secure domestic payment and collection of funds.

How do they work?

RTGS systems are usually operated by the central bank since it is a critical infrastructure for a country’s economy. An efficient national payment system will help to reduce the cost of exchanging goods and services, and is indispensable to the functioning of the interbank, money, and capital markets. A weak payment system drags the stability and developmental capacity of a national economy and its failures can result in inefficient use of financial resources, inequitable risk-sharing among agents, actual losses for participants, and loss of confidence in the financial system and in the very use of money.

EFT is predominantly being used by government and corporate customers to transfer salary payments to the employees’/beneficiary’s account. These direct debits also involve periodic financial instructions from a customer to his/her bank authorizing a utility provider or any organization to collect funds from their account to settle an obligation.

A number of schools have embraced EFTs for payment of tuition and some parents have appreciated use of Direct Debit Agreements (DDAs) to pay their children’s fees. Utility consumers are slowly beginning to use EFTs to pay for water, electricity, telephone and insurance bills.

In both the cases, the remitting customer gets back the money if it is not credited to the beneficiary account.

Time to process transaction

RTGS systems are typically used for high-value transactions that require immediate clearing. In some countries the RTGS systems may be the only way to get same day cleared funds and so may be used when payments need to be settled urgently.

As for EFT, Commercial Banks are expected to credit a beneficiary’s account within 24 hours upon receipt of a credit transfer instruction, and to debit the payer’s account within 48 hours on receipt of a direct debit instruction confirmed against a mandate.

Costs of transaction

The differences in summary

Money Transfer SystemSwifterComparatively slow
TransactionsFocus on high value transactionsUsually any transaction
Inter-bank PaymentParticipating banks pay only the net difference of debit and creditEach transaction is generally settled individually
AmountMinimum is fixed at a certain amountNo minimum or maximum stipulation of amount.
No maximum limit