What is the Difference Between NEFT and RTGS: Charges & Transactions

Difference between NEFT and RTGS

Electronic Funds Transfer (EFT) systems in India have been in use for several decades and have undergone significant advancements in recent years. These systems allow for the transfer of funds electronically between banks, financial institutions, and individuals. The Reserve Bank of India (RBI) is the regulator for Electronic Fund Transfer (EFT) systems in the country, and it has implemented several measures to ensure the security and reliability of these systems.

The Indian government has also been promoting the use of Electronic Fund Transfer (EFT) systems for various government schemes and services, such as the direct benefit transfer (DBT) scheme, which aims to transfer government benefits directly to the bank accounts of beneficiaries. This has helped to increase the transparency and efficiency of government services and has also helped to reduce corruption.

The Electronic Fund Transfer systems in India have played a significant role in the growth of the digital economy in the country and have greatly increased the accessibility and convenience of financial transactions for individuals and businesses.

One of the most widely used EFT systems in India is the National Electronic Funds Transfer (NEFT) and  Real Time Gross Settlement (RTGS) system. It allows for the transfer of funds between banks in India and is available 24x7. 

What is National Electronic Funds Transfer (NEFT)

National Electronic Funds Transfer (NEFT) is an electronic funds transfer system in India that allows for the transfer of funds between banks. The Reserve Bank of India (RBI) manages the NEFT system, which operates on a deferred net settlement basis, meaning that transactions are settled in batches at regular intervals during the day. NEFT enables customers to transfer funds to any bank branch in the country, using the Indian Financial System Code (IFSC) of the beneficiary bank branch. It is widely used for small and medium-value transactions, such as salary payments, vendor payments, and personal transactions. NEFT transactions are settled on an hourly basis, with settlements taking place at half-hourly intervals from 8:00 am to 7:00 pm on weekdays and from 8:00 am to 1:00 pm on Saturdays.

Real Time Gross Settlement (RTGS)

Real Time Gross Settlement (RTGS) is an electronic funds transfer system in India that allows for the transfer of large value transactions between banks in real-time. The Reserve Bank of India (RBI) manages the RTGS system, which operates during the RBI's business hours. Transactions processed through RTGS are settled on a real-time basis, as opposed to the deferred net settlement used in the National Electronic Funds Transfer (NEFT) system. RTGS is considered to be more secure and reliable than other EFT systems, as it minimizes the risk of fraud and errors. It is mainly used for high-value transactions, such as large business payments, government transactions, and inter-bank transactions.

Both systems are used for the transfer of funds between banks, but they differ in several key ways.

• Settlement of transaction-One of the main differences between National Electronic Funds Transfer (NEFT)  and Real Time Gross Settlement (RTGS)  is the way they settle transactions. National Electronic Funds Transfer (NEFT) transactions are settled in batches, typically every hour. This means that if you initiate a NEFT transaction, the funds may not be credited to the beneficiary's account until the next batch settlement. On the other hand, RTGS transactions are settled on a real-time basis, meaning that the funds are credited to the beneficiary's account as soon as the transaction is initiated.
• Transaction limits -Another key difference between the two systems is the minimum and maximum transaction limits. For National Electronic Funds Transfer (NEFT), the minimum transaction limit is INR 1, while there is no upper limit. For RTGS, the minimum transaction limit is INR 2 Lakhs and there is no upper limit. This means that Real Time Gross Settlement (RTGS) is mainly used for high-value transactions, while NEFT is used for smaller transactions.
• Methods of transferring fund-The way the funds are transferred is also different between the two systems. NEFT transfers funds by debiting the account of the sender and crediting the account of the beneficiary. It can only be done in a net settlement, meaning that the funds are transferred from one account to another in a batch. On the other hand, RTGS transfers funds by debiting the account of the sender and crediting the account of the beneficiary on a real-time basis. This means that the funds are transferred immediately, and the transaction is irrevocable.
• Time taken for the funds to be credited -The time taken for the funds to be credited to the beneficiary's account is also different between the two systems. NEFT transactions are settled in batches, typically every hour however NEFT transactions can also take up to several hours to be credited to the beneficiary's account, while RTGS transactions are credited to the beneficiary's account immediately.
• Fees charged for settlement of transactions -Another important difference is the fees charged for the transactions. NEFT transactions have a fixed charge per transaction, whereas RTGS transactions are charged based on the amount of the transaction.
• Security of transactions-The security of both systems is also different. NEFT transactions are considered to be less secure than RTGS transactions, as they are settled in batches and the funds may not be credited to the beneficiary's account for several hours. RTGS transactions, on the other hand, are settled on a real-time basis and are regarded as the most secure method of electronic funds transfer as it uses advanced encryption and authentication methods to protect the transferred funds. Additionally, the RBI closely monitors the system to ensure that all transactions are conducted in a safe and secure manner.

In conclusion, Electronic Funds Transfer (EFT) systems in India have greatly increased the accessibility and convenience of financial transactions for individuals and businesses. Both National Electronic Funds Transfer (NEFT) and Real Time Gross Settlement (RTGS) system have their own set of advantages and disadvantages. People can make use of any of the two or any other electronic transfer system such as Immediate Payment Service (IMPS), Unified Payments Interface (UPI) etc. according to their preference, needs and requirements.