Difference between NEFT and RTGS

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What is NEFT?

NEFT or ‘National Electronic Funds Transfer’ is an online method of transferring funds from one financial entity to another within India, especially between the bank’s accounts. In 2005, RBI made it mandatory for every bank to migrate to NEFT instead of using SEFT (stands for ‘Special Electronic Funds Transfer System’). Later in starting 2006, the SEFT mode of fund transfer was almost discontinued. The primary purpose of migrating to NEFT was to enable electronic cash transfer processes between different bank accounts. This approach helped to manage the bank accounts more securely and digitally.

How does NEFT work?

Let’s understand the working of fund transfer in an NEFT mode with a general example. Assume, we are going to transfer fund from an account which is registered in a Citi bank. We need to transfer 50,000 Rs. to a user who has an account in an SBI bank. As soon as we initiate the transaction from our end, our bank registers the same. However, all the NEFT requests are processed in hourly batches. If we initiate a transaction using NEFT service at 12:30 pm, the transaction is queued instantly in a slot of 12:00 pm to 1:00 pm. All the transactions are processed at 1:00 pm based on that particular slot. According to the process, our transaction, which was initiated at 12:30 pm, gets cleared after 30 minutes, specifically at 1:00 pm.

What is RTGS?

As the name suggests, RTGS or ‘Real Time Gross Settlement’ is a type of fund transfer system where huge amounts are transferred from one account to another in real-time on a gross basis. The term ‘Real-time’ indicates that the transactions made using RTGS are not subject to any waiting period. It means transactions will be processed on a priority basis and settled as soon as the sender has done the processing. Besides, the gross settlement indicates that the funds will be transferred or settled on a one to one basis without clustering with other transactions. When it comes to transferring funds using bank accounts, RTGS is considered the fastest available method.

The primary purpose of RTGS is to enable an electronic cash transfer system for high quantity funds. Once the transaction is done, it is treated as final and cannot be canceled or reverted. Because the transactions are settled on a real-time basis, the settlement history or records are updated instantly in RBI books. Therefore, the transactions in RTGS are irrevocable once processed.

How does RTGS work?

Assume we initiate a fund transfer request of 2,00000 Rs. from Citi bank to an SBI bank account at 12:30 pm. The corresponding funds will be settled within minutes in the beneficiary account. In the case of RTGS, all the requests are processed in real-time. That means if we initiate the transaction using RTGS mode, the money will be credited into the beneficiary account instantly. It is important to note that we must transfer at least two lakhs Rs when using RTGS mode. RTGS mode has a minimum limit of 2,00000 Rs.; however, there is no maximum limit.

Key Differences between NEFT and RTGS

NEFT is a short form of ‘National Electronic Fund Transfer’, whereas RTGS is a short form of ‘Real-Time Gross Settlement’.

The funds are processed in batches in NEFT mode, and the process of fund-transfer is slower. Besides, the funds are instantly transferred in RTGS mode, making it faster than NEFT.

NEFT has no minimum transfer limit for fund transfer, while RTGS requires at least two lakhs to be transferred between bank accounts.

NEFT is beneficial for small money transfers. RTGS, on the other side, is beneficial for large money transfers.

The settlements of funds in NEFT happens on a half-hourly basis, while the settlements in RTGS is instantaneous and happens in real-time.

Major Differences between NEFT and RTGS

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