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External transfers allow you to transfer money between your accounts at different banks, send money to a friend or family member's bank account, or pay bills or services. External transfers are a no- or low-cost way to move money between accounts.
Key Takeaways
- An external transfer is a way to move money electronically between an account you have with one financial institution and an account in another bank.
- You can use external transfers to move money between accounts, to pay friends and family, or (with caution) to pay bills.
- While EFT transactions are often processed in seconds, ACH transactions are usually batched. For this reason, external transfers via EFT are usually processed faster.
- Financial institutions may limit the number or dollar amount of external transactions you perform in a given period.
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Investopedia / Yurle Villegas
How an External Transfer Works
When you log into your online banking portal, use your bank app, or call your bank’s telephone banking number, you generally have the option to complete an external electronic transfer. External transfers send money from your account to a different institution's account.
Using an external transfer, you can send money to either an account you hold or one held by someone else. The process is usually the same, regardless of where you send funds. External transfers can be used to send money to a friend or family member—for example, to settle a shared expense or to send money for a birthday or a holiday.
Sometimes, a company might ask you to pay for goods or services via an external transfer. You should be cautious, as it could be a scam. Because there are fewer protections for your money with an external transfer, you should only use it to pay for goods or services if you know and trust the seller. It could be a scam if you're asked to make an external transfer to pay for goods or services, so proceed cautiously.
Limits and Fees
Financial institutions may impose amount limits or other limits on the number of external transactions you're allowed to perform. This limit is often tied to the day and/or month. For example, no more than three external transactions in a single day and no more than 10 in a single month.
Some banks offer the external transfer service for free, while others may charge a few dollars per transaction. Money can often be transferred between accounts within the same institution for free.
Most electronic transfers that debit your bank account, including P2P payments, are regulated by The Electronic Fund Transfer Act (EFTA) and Regulation E.
Types of External Transfers
There are two primary types of external transfers—EFT and ACH transfers. You may prefer one or the other depending on whether you're sending money domestically or internationally and how soon you need funds to arrive.
EFT Transfers
External transfers are just one type of a broader set of money transfers known as electronic funds transfers (EFTs). Given that there are many types of EFTs, you probably use quite a few of them without realizing it. When you use your debit or credit card, you set up an EFT happening in real-time, and many checks are processed as EFTs.
Sending money internationally must be done via a wire transfer, another type of EFT payment moving money quickly between financial institutions around the globe. Wire transfers are typically conducted via specific bank-to-bank networks like the Society for Worldwide Interbank Financial Telecommunication (SWIFT) or Fedwire systems.
Sending money internationally presents specific risks and offers special federal protections. It's important to learn about your risks and protections with regards to international wire transfers.
ACH Transfers
One of the most common sources of confusion regarding external transfers is the difference between EFT and ACH. ACH stands for automated clearing house, which is becoming a popular way to make external transfers.
ACH transfers are processed in batches each day. Funds sent via ACH can take 1-4 days to move from one account to another, depending on the two financial institutions involved in the transaction. Larger banks can often process ACH payments faster than smaller banks.
In addition to the option of near-immediate transfer, ACHs can be scheduled 1-2 days in advance to ensure transactions are processed on time at a specific time, such as payroll processing on a Friday morning.
Example of an External Transfer
You can use your online banking platform or your bank app, call your bank’s telephone banking number, or visit a branch to make an external transfer. You will need:
- The account number of the account you're sending funds from.
- The bank routing number of the account you want to send money to.
- The account number of the account you are sending money to.
Sometimes, the person or organization you are sending money to can help you set up a transfer by providing these details or even by guiding you through setting up a transfer.
Banks usually make it simple to set up the same transfer again. Most banking apps will automatically add your recipient to a list of people to whom you can send money, and online banking systems will also remember that certain recipients have already been verified.
You can also set up automatic external transfers from an account. Most banks will allow you to set up a “standing order” to transfer a specified amount of money regularly to an external account.
What Is an External Transfer?
An external transfer is the movement of money between one financial institution and another. Funds are being transferred outside of the bank currently holding the funds. An external transfer can be made between accounts owned by the same entity or between accounts owned by different parties.
How Long Do External Bank Transfers Take?
EFT payments are initiated in seconds, although it takes banks up to 72 hours to fully settle and process the transaction. ACH payments often occur in 2 days or less. The total time to process largely depends on the timing of the transfer, as there are daily settlement cutoffs for processing electronic deposits. In addition, larger banks can often process ACH payments faster than smaller banks.
Which Banks Allow External Transfers?
Most banks allow external transfers, offering features to link external accounts to your banking profile. After creating an connection to the account you wish to transfer into, your bank automatically saves this information. Some banks require an external account to be created and linked before deposits or withdrawals be made into that account.
Is There a Transaction Limit to External Transfers?
Some financial institutions impose limits on external transfers, whether an amount or number of transactions. For security reasons, some banks have external banking transaction limits tied to the transaction, day, or month. For example, a bank may limit external transactions to $5,000 per transaction, $10,000 per day, and $50,000 per month.
The Bottom Line
External transfers are a fundamental part of the modern banking system, and allow individuals and corporations to move money easily between accounts. They are typically simple to set up, but use caution if you are asked to make an external transfer to a company or individual you don’t know personally.
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