RTGS, NACH or NEFT: Which one should you prefer?

Different money transfer systems exist nowadays. Their preference at the user level somehow depends on the differences that exist between the three at the bank level. And to understand the preferences, it is important to know the differences between their work and outcomes.

At the user level, RTGS allows an instant money transfer. While NEFT may take some time for the amount to get debited from the user and credited to the beneficiary account. Both these services are available for single transactions.

While NACH is an automated system. The amount for approved payments for taxes, bills, Easy Monthly Instalments (EMI) and loan repayment amounts gets automatically debited from the customer account and credited into the beneficiary account on the desired date.

The amount of money that your account (savings/current) holds at any particular time is the amount that the bank owes you. And you can demand it anytime you like which makes them also to be known as demand deposits.

RTGS: It stands for Real Time Gross Settlement. For the transfers that occur within the same bank, meaning, the beneficiary and the user both hold the accounts within the same bank. And the transaction that is made within the same bank changes the balance in different accounts, but the total amount the bank holds remains the same. Such transactions are easier and quicker.

However, when there are transfers across different banks, a real-time settlement has to be made with the central bank. The Reserve Bank of India (RBI) is the central bank of India, i.e. the bank of all banks. When the debtor and creditor accounts are in different banks, the amount the banks hold also changes which are settled with their accounts in the RBI. This is called the final settlement.

In the case of an RTGS, this settlement is done for each individual transaction and hence RTGS transfers are done at the same time when instruction for it has been raised. The amount gets credited to the beneficiary account within 30 minutes. The minimum amount for remittance by RTGS method is Rs. 2 lacs with no upper limit.

For each RTGS transaction, the customer is required to provide the bank with the beneficiary account details such as account name, number, address, bank name and branch address.

NEFT: The acronym stands for National Electronic Funds Transfer.

Why does NEFT take time? As mentioned above, during interbank transfers, there’s a settlement at the central level. Now, there are multiple such transfers within a day. To minimise the hassle of each transaction, NEFT transactions are processed in batches. When the bank has accumulated transactions of a particular bank, it settles them together. The bank waits for some time to accumulate the transaction instructions and then processes them for settlement as a single transaction. This takes a few hours (usually 2 hours) and hence NEFT transactions get credited to the beneficiary accounts a little later in the next settlement cycle after the instruction for them has been raised. The minimum amount for an NEFT transaction is Rs. 1 and there is no bar at the maximum limit.

NEFT services are available for initiating the transactions 24 x 7. However, the amount may get credited on the next working day in the next cycle if the transaction happens to be outside working hours or days.

NACH: It stands for National Automated Clearing House. It allows a company to debit a certain amount from the customer on the due date as an automatic transfer. There is no need for manual verification or a physical cheque once the customer signs the e-NACH mandate. 

NACH aims to consolidate current multiple ECS systems and remove local barriers/inhibitors by standardization. In NACH, multiple files are processed in a single settlement involving payment to vendors, contractors or direct-deposit payroll payments.

It aims at facilitating transfers of repetitive nature. Hence, NACH has become a common practice for recurring payments such as paying instalments for commercial loans, business loans etc to different lenders like Oxyzo Financial Services. This allows customers to enjoy credit services uninterruptedly.

It is also used by financial institutions to make direct deposits to multiple beneficiary accounts. For example, it is used for disbursing salaries, pensions, subsidy benefits, etc.

Now you know the differences in the working of different transaction systems and can choose the best according to the nature of the transaction.