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Difference between NEFT and RTGS


When it comes to transferring funds between bank accounts, the two terms 'NEFT' and 'RTGS' are used extensively. Both NEFT and RTGS are electronic payment methods used to transfer funds between different bank accounts. Both methods are maintained by RBI (Reserve Bank of India), enabling individuals to transfer money.

Because both terms seem very co-relevant, most people get confused between them and use them interchangeably. However, there are considerable differences between them based on different aspects. This article discusses the significant differences between NEFT and RTGS, which will help us understand the usage and benefits. This will also help us understand which one we should consider when we will transfer funds between accounts.

Let's first discuss both with the definitions:

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

Few key differences between NEFT and RTGS are listed below:

  • 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

The other major differences between NEFT and RTGS can be explained in a tabulated form, as below:

Attributes NEFT RTGS
Complete Form NEFT is an abbreviation used for 'National Electronic Fund Transfer'. RTGS is an abbreviation used for 'Real Time Gross Settlement'.
Settlement The settlement of funds is done in batches. The settlement of funds is done in real-time.
Processing Speed It is a comparatively slower method of transferring funds between accounts. A real-time settlement is very fast and the best option for transferring funds quickly between accounts.
Timing on weekdays (Mon-Fri) On weekdays, the funds can be transferred between 8:00 am to 6:30 pm. RTGS allows transferring funds between 9:00 am to 4:30 pm on weekdays.
Timing on weekends (Sat) Through NEFT, the transactions on weekends can only be made between 8:00 am to 01:00 pm. Through RTGS, the transactions on weekends can only be made between 9:00 am to 1:30 pm.
Minimum Transfer Limit (in Rupees) The NEFT method does not have any limit for a minimum transfer. The minimum amount to be transferred using the RTGS method is two lakhs.
Maximum Transfer Limit (in Rupees) There is no limit for a maximum fund transfer in NEFT mode. There is no limit for a maximum fund transfer in RTGS mode.
Credit in the beneficiary account The funds are credited into the beneficiary accounts in hourly batches scheduled by the banks accordingly. The funds are credited within a few minutes because RTGS supports real-time fund settlement between the banks.
Charges as per RBI Charges in NEFT-
  • Rs. 2.5 (Up to 10,000)
  • Rs. 5 (From 10,001 to 1 lakh)
  • Rs. 15 (From 1-2 lakh)
  • Rs. 25 (Above 2 lakhs)
However, the charges may vary from bank to bank according to the time.
Charges in RTGS-
  • Rs. 25-30 (Up to 2- 5 lakhs)
  • Rs. 50-55 (Above 5 lakhs)
Like NEFT, the charges in RTGS may vary from bank to bank accordingly as per time.
First implemented on NEFT mode was first implemented in November 2005. It replaced the SEFT (Special Electronic Fund Transfer) method, which was very common. RTGS mode was first introduced in March 2004. It was implemented as a major technology-based funds transfer method across India.
Suitable for It is best suited for the transactions of smaller values. It is best suited for the transactions of higher values.
Refund Processing In case the transaction gets failed or didn't process properly, the destination banks revert to the particular transaction and return the funds to the originating branch. It should be done within two hours after the specific batch is processed in which the transaction was included. In case the transaction gets failed in RTGS, the funds are credited back to the corresponding sender's account as soon as the funds are received back by the remitting bank. Typically, the funds are credited back to the originating bank account within one hour or before the end of the RTGS business day or whichever comes first.

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