Difference Between NEFT & RTGS – Which One is Better in 2024

Today, Electronic Fund Transfers (EFTs) have become an important part of everyone’s monetary activities. They provide a handy, swift, and safe method to move money between bank accounts. Two primary options for ETFs in India include the National Electronic Funds Transfer (NEFT) and the Real-Time Gross Settlement (RTGS). Both help in transferring funds but vary greatly in different aspects. Thus, understanding the difference between NEFT and RTGS is important.

That is where this article comes in. This article will thoroughly explore both methods, examining the differences between NEFT and RTGS. So, let’s get started.

What is NEFT?

NEFT, standing for National Electronic Funds Transfer, is an electronic system in India that enables individuals and businesses to transfer funds from one bank account to another. It’s managed by the Reserve Bank of India, the country’s main financial institution. 

Working of NEFT

Once the sender starts the transaction, the NEFT process starts. The required information, including the beneficiary’s account number, bank branch, and transfer amount, must be provided in order to do this. Through a number of methods, such as mobile banking, Internet banking, or in-person bank branch visits, the sender can start this transaction.

Senders are required to input the beneficiary’s data if they haven’t previously been added to their account. Among these particulars are the bank branch and account number. Once the beneficiary is added and the transaction is initiated, the NEFT system processes the transaction.

NEFT transactions are handled in groups during the course of the day. This batch processing ensures prompt and efficient transfer of funds. After the transaction is processed, the sender receives a confirmation message. This message serves as a receipt and provides peace of mind to the sender that the funds have been transferred successfully. 

Characteristics & Features of NEFT

There are several features and characteristics of NEFT. They are:

1. Characteristics of NEFT

1. Managed by RBI

The Reserve Bank of India (RBI) oversees NEFT. This makes it safe and reliable.

2. One-to-One Payments

NEFT lets one person pay another directly.

3. Not Instant

NEFT payments take a few hours or days to go through.

2. Features of NEFT

1. Always Open

As per RBI rules, you can use NEFT at any time.

2. Security

NEFT transactions use secure communication protocols and two-factor authentication to protect your financial information.

3. No Limit

You can send as little as ₹1 and there’s no upper limit.

Importance of NEFT

NEFT has changed how we send money, making it quicker and easier. The importance of NEFT is due to several reasons, including:

1. Easy to Use

You can use NEFT anytime through the Internet or mobile banking.

2. Low Cost

NEFT doesn’t cost much to use.

3. Works Everywhere in India

You can send money anywhere in India with NEFT.

Charges Associated With NEFT

While NEFT transactions are convenient, there may be charges associated with them. The charges are: 

Advantages of NEFT

NEFT provides several advantages. They are:

1. 24/7 Availability

You can use NEFT at any time, day or night. This includes weekends and public holidays.

2. Cost-Effective

Many banks let you use NEFT for free. This makes it a cheap way to send money.

3. Safe

Because NEFT transactions are done online, there’s no third party involved. This keeps your money safe.

4. Notification System

After the money has been sent, both the person sending it and the person receiving it get a notification. This gives users peace of mind.

Challenges of NEFT

While NEFT is a common way to send money, it does have some drawbacks. Some of them are:

1. Delay in Transfer

NEFT payments aren’t immediate. They’re done in batches every half hour, which can cause delays.

2. Domestic Only

You can only use NEFT to send money within India. It doesn’t work for international transfers.

3. Complexity

Some people might find NEFT transactions complicated. This could make it hard for some people to use.

What is RTGS?

RTGS, or Real-Time Gross Settlement, is a system that allows immediate money transfer. It’s mostly used for large transactions. “real-time” means the processing happens instantly, and “gross settlement” means that funds are transferred individually. The central banks of most countries usually run this system.

Working of RTGS

The process of RTGS is quick and individual, without grouping with other payments. When someone wants to transfer money, the central bank, like the Reserve Bank of India (RBI), electronically adjusts the sender and receiver bank accounts. This is done by reducing the money in the sender’s account and increasing it in the receiver’s account. 

There’s no physical exchange of money. The funds are added immediately to the receiver’s account. Once transactions are settled, they can’t be reversed. This system is very reliable and secure, as the RBI maintains it.

Characteristics & Features of RTGS

There are several characteristics and features of RTGS. They are:

1. Characteristics of RTGS

1. Individual Settlement

Each transaction in RTGS is settled individually, which reduces the risk of systemic failure.

2. High Transaction Value

RTGS caters to high-value transactions with a higher minimum limit, which is usually ₹2 lakh. This makes it suitable for large payments like investments, property transactions, or bulk purchases.

3. Operational Hours

RTGS operates during the bank’s working hours. Typically, this means from 9:00 AM to 4:30 PM (local time) on weekdays, from 9:00 AM to 1:30 PM (local time) on Saturdays and RTGS services are not available on Sundays and official bank holidays.

2. Features of RTGS

1. No Intermediaries

Unlike other payment systems, RTGS eliminates the need for intermediary banks, resulting in a faster and more efficient transfer process.

2. Legal Backing

RTGS transactions have legal backing from the Reserve Bank of India (RBI), offering additional security and dispute resolution mechanisms.

3. Scheduled Transactions

Some banks allow scheduling RTGS transactions in advance for future execution.

Importance of RTGS

RTGS is also important for several reasons. They are:

1. Reduction of Credit Risk

RTGS reduces credit risk by providing immediate finality.

2. Efficiency in High-Value Transactions

RTGS brings efficiency in the settlement of high-value transactions.

3. Transparency

RTGS transactions are transparent and easy to track.

Charges Associated With RTGS

While RTGS offers immediate fund transfers, they may have associated charges. The charges are: 

Advantages of RTGS

RTGS provides several advantages of using it. They are:

1. Absence of a Maximum Limit

Contrary to other transfer methods, RTGS transactions are not bound by a maximum limit per the RBI’s guidelines.

2. No Batching

Unlike NEFT, which processes transactions in batches, RTGS handles each transfer individually, reducing the risk of delays and ensuring faster settlement.

3. No Need for Physical Instruments

The person sending the money doesn’t require a tangible cheque or a demand draft, and the person receiving the money doesn’t have to make a trip to a bank branch to deposit these paper-based tools.

4. Legal Support

The transaction process is legally supported, providing an extra layer of security.

Challenges of RTGS

While RTGS is a sturdy system, it comes with its own hurdles. These primarily include:

1. Maintaining System Availability and Reliability

Ensuring that the system is highly available and reliable is a significant challenge, especially given the real-time nature of RTGS.

2. Operational Implications

Fast Payment Systems (FPS) can considerably impact the operations and services of RTGS systems. This could include potential changes to access criteria and extension of operating hours at the RTGS system.

3. Technological Intricacies

Setting up an RTGS system involves various technical complexities that banks need to tackle to ensure precision in ledger transfers.

Difference Between NEFT & RTGS

Now, it comes to distinguish between NEFT and RTGS. When you need to transfer money electronically, you might use NEFT or RTGS. Which one you choose depends on different things, like how quickly you need the transfer to happen and how much money you are transferring. The NEFT & RTGS difference are:

Important Things to Consider Before Initiating a Fund Transfer

Fund transfers are a crucial part of everyone’s financial life. They enable you to transact business, transmit money to others, and pay bills. Before beginning a fund transfer, it is important to take into account a few factors to ensure a simple and safe transaction. Some of them include:

1. Verify the Recipient Details

Checking the recipient’s information is essential before starting a financial transfer. This contains the name of the beneficiary, the name of the bank, and—above all—the account number. A simple misspelling might cause the funds to be sent to the incorrect account. Some banks additionally need further information, such as the SWIFT code for overseas transfers or the IFSC code for Indian transactions. To make sure your money gets to the right person, always double-check these facts.

2. Check Transfer Limits

Banks often limit the amount of money you can transfer in a single transaction, a day, or a month. These limits can vary based on your account type, banking history, and other factors. If you plan to transfer a large amount, ensure it’s within your bank’s transfer limits. If not, you may need to split the transfer into multiple transactions or contact your bank to request a limit increase.

3. Understand the Fees

Not all financial transfers are free. Fund transfers are sometimes subject to costs from banks, particularly when they are made internationally or to institutions that are not partners. These fees may be a percentage of the money being transferred or a set amount. To prevent unforeseen fees, familiarise yourself with the fee schedule before starting a transfer. Recall that the least expensive choice isn’t necessarily the quickest or most practical.

4. Consider the Transfer Time

Not every money transfer happens right away. A number of variables can affect the transfer time, such as the banks involved, the kind of transfer, and the time of day. Although they are frequently offered, instant transfers may have additional costs. Standard transfers, while cheaper, could take several business days. Consider your needs—do you need to transfer the money immediately, or can you afford to wait?

5. Secure Your Online Banking

Cybersecurity is a critical aspect of online banking. Ensure your device and internet connection are secure when initiating a fund transfer. Make sure to use robust, distinct passwords for your Internet banking accounts and update them frequently. Be wary of phishing attempts—never click on suspicious links or provide your banking details to unverified sources. Think about turning on two-factor authentication for increased safety. 

Final Word

Now you know what is the difference between NEFT and RTGS. NEFT and RTGS are systems for transferring money electronically, making transactions easy. However, they differ in how much money you can transfer when the transfer is completed and what kind of transactions they are used for. 

The decision to use NEFT or RTGS depends on what you need from the transaction. These electronic payment methods are important in making the global financial system more efficient and connected. As technology continues to improve and financial systems keep innovating, it’s interesting to think about how these methods will change.

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Disclaimer

This article is solely for educational purposes. Stable Money doesn't take any responsibility for the information or claims made in the blog.