• Many of today's financial transactions occur electronically.Robert Kirk/Photodisc/Getty Images
  
  When you get paid via direct deposit, your company's bank transmits funds to your bank electronically. Paying bills online also requires a similar transaction mechanism. Electronic Funds Transfer (EFT) and Automated Clearing House (ACH) are the two main systems used for electronic banking transactions, and although they serve a similar purpose, there are several key differences between them.
  
  

Purpose

• Which system--ACH or EFT--your electronic transaction utilizes will first and foremost depend on the type of transaction in which you're engaging. ACH typically handles business-to-business transactions and payroll services. Another example of an ACH transfer is government payment of Social Security benefits. You engage in EFT when you purchase something using your debit card and PIN number and, in some instances, when you write a paper check. If this is the case, the merchant will inform you in advance they are processing your check electronically.
  
  

Mechanism

• Although finding distinctions between ACH and EFT may seem perplexing--both systems, after all, involve the electronic transfer of funds--certain aspects of the transaction types each system handles can help explain this apparent ambiguity. For example, the term "Automated Clearing House" itself refers to the fact ACH acts as a transfer point for funds between different banks. As such, it's not surprising that company payments to suppliers and employees fall under this category. EFT, on the other hand, involves the removal of funds from a single account and their immediate payment to someone else. When you pay your bills, you take money out of your bank account and give it to another person or entity, who may or may not place the funds into its bank account.
  
  

Authorization

• Another important difference between EFT and ACH is the issue of authorization. ACH transactions, for example, function more like checks: a person or institution's signature act as authorization for the transaction to complete. If funds are later found not to be available, the party who wrote the "bad" check must pay a fee or, in certain instances, a legal penalty to rectify this mistake. Conversely, EFT transactions verify funds availability prior to authorizing the transaction--if you don't have enough money in your account at the time you make a transaction to pay for it, the transaction will fail.