What is ACH?
ACH (Automated Clearing House) is a method of direct payment used to facilitate online transactions. They are a good alternative to cash and cheque payments. Even if you’re unaware, the ACH system is used to facilitate your electronic payments.
What you need to do to use ACH is sign up for the automated payments with your bank and sign a recurring payment authorization form. The bank will handle the rest, sending money as long as you have enough funds in your account.
It is easier, more convenient, and cheaper because these transactions cost little. ACH applies solely to checking accounts and savings accounts.
ACH is governed by NACHA, a government organization that oversees and regulates ACH payments. It is mainly available in the United States as it is based there, but it can also be used in Puerto Rico. There are two types of ACH payments;
- Debit transactions
- Credit transactions.
Debit transactions include transferring money from your account, whereas credit transactions include money being transferred to other accounts.
What is NEFT?
NEFT, the Nation Electronic Fund Transfer, is an online money transfer method used widely to promote cashless transactions. It does not have a time limit, NEFT transactions can be processed 24×7, including on holidays. There is no limit on the number of transactions, but per transaction, the maximum amount that can be transferred is 50,000 rupees.
To process a NEFT transaction, you will have to provide details such as your name, account number, IFSC code and type of account. You can make these transactions in the net banking option of your bank, available on the bank’s website. Receiving money requires no payment, but sending money will require a small fee that depends on the bank and transaction cost.
This method is simple, easy to use and does not require you to visit a bank physically. However, if you want to go through the bank or do not have a bank account, a NEFT transaction can also be done offline. After the transaction is done, you will receive an SMS and e-mail that gives you a confirmation. NEFT only works with NEFT-enabled banks, and this information is available on the RBI website.
Difference Between ACH and NEFT
- ACH is a service that provides automated transactions, whereas NEFT allows the consumer to transfer money between banks or bank accounts.
- ACH requires the client to sign up, and then the bank handles the recurring transactions independently. NEFT requires the consumer to mandate the transaction each time.
- In NEFT transactions, repeated entering of details could cause security concerns. In ACH transactions, the service provider’s access to the consumer’s details could cause privacy concerns.
- ACH has transaction limits that allow only small amounts to be transferred, but NEFT has no limit on the number of transactions that can be made.
- RBI is the apex body for NEFT transactions as it is based in India. NACHA is the regulatory body for ACH transactions as it is based in the United States.
- ACH does not update the client about the transaction’s status. NEFT sends SMS and E-mails that inform the consumer of their transaction’s status.
- Time taken for the transaction to be processed is lesser in the case of NEFT transactions and more for ACH transactions.
- Details need to be entered only once in ACH transactions, but they must be entered each time in NEFT transactions.
Comparison Between ACH and NEFT
| Parameters of Comparison | ACH | NEFT |
| Region | Used in the USA and Puerto Rico only. | Used in India and Nepal only. |
| Process | Faster because it has more automated and includes less work. | Slower, as it needs the client’s permission each time and has paperwork. |
| Security | A few agents will have access to the client’s bank details. | It is technical and complicated, and could be considered safe. |
| Transaction Limit | Allows transfer of smaller funds to avoid mistakes. | It does not have a lower or upper transaction limit, but per transaction, the limit is 50,000 rupees. |
| Time Taken | It could take a few days for the transaction to be completed, around three to five business days. | The transaction is completed in a few hours, sometimes even in two hours. |