A guide to electronic funds transfers

Swiped your debit card at the store to pay for groceries? Called an 800 number to order a kitchen gadget you saw on a TV infomercial? Whether you know it or not, you’ve probably been a part of many electronic funds transfers (EFTs).

Read on to learn more about EFTs and how they work.

Key takeaways

• An EFT is an electronic transaction that moves money.
• EFTs can be initiated through direct deposits, ATMs, debit card transactions and more. 
• Typically, EFT payments are more efficient, secure and less costly than paper-based payment methods.

Federal law defines an electronic funds transfer as “any transfer of funds that is initiated through an electronic terminal, telephone, computer, or magnetic tape for the purpose of ordering, instructing, or authorizing a financial institution to debit or credit a consumer’s account.” 

It basically means that any digital transaction that moves money into or out of a person’s account might be considered an EFT. That includes things like peer-to-peer (P2P) transactions using money transfer services like Zelle® or PayPal, mobile payments made using digital wallets and automated clearing house (ACH) transactions.

Signed into law in 1978, the Electronic Fund Transfer Act (EFTA) is meant to protect people who use EFTs. The EFTA “establishes a basic framework of the rights, liabilities, and responsibilities of participants in the electronic fund and remittance transfer systems,” according to the Consumer Financial Protection Bureau.

The following are some examples of EFTs:

• Direct deposits: Authorizing paychecks and other deposits to be sent from one bank account to another.
• ATM deposits/withdrawals: Using an ATM to do things like withdraw cash, deposit cash and transfer funds.
• Debit card transactions: Using a debit card to make purchases or transfer money out of the linked checking account.
• P2P payments: Using an app like Zelle® or PayPal to transfer funds.

EFTs can offer consumers several benefits, including efficiency, savings and security.

When transferring money electronically, the money is often sent almost instantly. Using a more traditional method, like writing a check, requires filling it out and waiting for it to clear your account. 

But because certain EFTs—like P2P payments—happen almost instantly, there may be limits on what can be done to get back mistaken transactions. 

According to the U.S. Department of the Treasury’s Tax and Trade Bureau, EFTs are estimated to be 10 times less costly to process than paper transactions. That’s why some businesses may encourage them. EFTs are also more environmentally friendly.

EFTs offer consumers security under the EFTA—if they notify their bank in a timely manner. Financial institutions must adopt the practices outlined in the EFTA and have error resolution procedures in place for unauthorized transfers. The EFTA also sets liability limits for any financial losses consumers may incur from unauthorized transfers. 

When submitting a dispute, there are a few steps consumers need to take. First, they’ll need to contact their financial institution promptly. Depending on their bank, consumers may be required to submit their dispute in writing. Generally, they’ll be asked to supply the following information: 

• Personal information to include account impacted
• The date of the transaction
• The amount of the transaction
• The type of transaction
• Why they believe an error occurred
• Whether or not their debit card was lost during this time

The bank then investigates the dispute, typically within 10 business days of being notified. How long it takes to resolve it can depend on factors like how long the account has been open.

You’ve likely made an EFT payment if you’ve ever sent money electronically to a friend or paid a monthly bill over the phone or online. Many transactions can be considered EFTs.

P2P payments are a common type of EFT. And Zelle® is a popular platform that supports EFTs, often with no fees. Capital One customers can access Zelle® online or through the Capital One mobile app.