The rapid growth of the Internet and cyber spaces have made everything online. Those who are not well familiar with the Internet and need help trusting it might get skeptical about two of the widely used methods of fund transfer online:
NEFT and RTGS. The significant difference between NEFT and RTGS is that the former is associated with transferring funds in batches. In contrast, the latter is associated with transferring funds one-to-one.
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Key Differences
NEFT
- It is an abbreviation for National Electronic Funds Transfer. It is estimated to have emerged before the emergence of RTGS, i.e., in 2005.
- It can be best described as a method of online transfer of funds known for transferring money in batches. This means that the whole amount intended for transfer gets transferred in various bundles or batches. This is also referred to as net settlement.
- It is most commonly used to transfer small to moderate to large chunks of money. This is because this fund does not demand a minimum amount of money to be transferred. One can pay even Rs 1 with this transfer.
- It is generally considered slower compared to RTGS as, under this method, the transfer is processed in several batches.
RTGS
- It is an initial for Real Time Gross Settlement. It is believed to have originated before the emergence of NEFT, i.e., in 2004.
- It can be best described as a method of online transfer of funds associated with transferring money on a one-to-one basis meaning the transfer takes place as it is instead of bundled in batches.
- It is most commonly used to transfer moderate to large chunks of money because there is a minimum amount of funds associated with the transfer under this method. An amount less than Rs 2,00,000 can not be transferred through this method.
- It is typically faster in comparison with NEFT, as here, the transaction does not take place in the form of batches.
Comparison Between NEFT And RTGS:
| Parameter | NEFT | RTGS |
|---|---|---|
| Emergence | It emerged after the emergence of RTGS. It is believed to have emerged in November 2005. | It emerged before the emergence of NEFT. It is believed to have emerged in March 2005. |
| Meaning | It refers to an online or electronic fund transfer that stands for National Electronic Fund Transfer which prevails in India only. It is considered very suitable for transferring small amounts of money. | It refers to an online or electronic fund transfer that stands for Real Time Gross Settlement which prevails in India only. It is known to be ideal for transferring large amounts of money. |
| Type of settlement | It transfers money based on Net Settlement or Deferred Net Settlement. Under this method, the transaction is broken down into the forms of various batches or bundles. Each batch is sent at a different specified time. | It transfers money based on Gross Settlement or a one-to-one basis. This method sends money just as it is in real-time. However, here the transaction is not broken down into batches. Instead, it is just sent once. |
| Completion | Since this transfer method breaks the transaction into various batches, it takes longer to complete it. On average, it takes about two hours to complete a transaction, depending on the number of batches. The more batches, the more time is taken, and vice versa. | Transaction done under this method gets completed in real-time as and when it is made as it is concerned with using Gross Settlement. |
| Speed | The speed of completing transactions under this method is relatively slower than the speed of RTGS, as this method transfers a single transaction in several batches. | The speed of completing transactions under this method is relatively faster than the speed of RTGS as this method transfers a transaction in real-time or on a one-to-one basis instead of using batches. |
| Credit representation | The credit reflects in accounts as the batches get transferred. Whenever a single batch is completed, it will start to reflect in the accounts meaning there will be several records of every batch. | The credit reflects in accounts as and when the transaction is completed in a single transaction. |
| Limit | There is no limit on the minimum and maximum funds that can be transferred through this method. However, it should be noted that a single batch can hold up to Rs 50,000. And this is known to be the most significant advantage of this fund transfer method. | There is no limit on the maximum amount that can be transferred through this method. However, there is a minimum limit of Rs 2 lakh. Anything less than that can not be sent through this transfer method, which has its most significant disadvantages. |
| Charges | The charges associated with this transfer method are relatively cheaper than the prices related to RTGS. The costs of this method fall between Rs 2.50+GST to Rs 25+GST. | The charges associated with this method are relatively more expensive than the prices related to NEFT. Therefore, the costs of this method fall between Rs 30 to Rs 55. |
| Suitable for | This funds transfer method is highly suitable for transferring small amounts of money because the small amounts can be quickly sent in fewer batches meaning faster transactions. | This transfer method is highly suitable for transferring large amounts of money because it will transfer them faster as large amounts of cash through NEFT would not be the first choice of anyone as it would take lots of time. |
Major Differences Between NEFT And RTGS
What exactly is NEFT?
It is an acronym for National Electronic Funds Transfer. This method of funds transfer was found in 2005 and currently only prevails in India. This transfer method is widely used to transfer small amounts of money, but that doesn’t mean large amounts of money can not be transmitted through this method.
This method sends a transaction in the form of various batches, and it is also known as Net Settlement. There is neither any limit on the minimum nor the maximum amount that can be transferred through this fund.
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Features of National Electronic Funds Transfer (NEFT):
- It is a method of funds transfer that prevails in India and is founded in November 2005.
- It is known for transferring money in Net Settlement, meaning the transaction is not sent as it is. Instead, it is sent in the form of various batches.
- Since this method uses batches to complete a transaction, it is generally considered a slower method of transferring funds. The average time for this method of completing a transaction is 2 hours. However, it can take longer, depending on the number of batches.
- The credit is shown in the records as and when the different batches get transferred.
- There is neither a minimum nor a maximum limit upon the transfers under this funds transfer method. Hence, it can even be used for minimal money transfers.
- One can transfer funds through this method either online or offline.
- This method operates all the time, i.e., 24*7*365 days.
- It charges a few charges for transferring the funds, usually in small amounts. The costs of this method range from Rs 2.50+GST to Rs 25+GST.
What Exactly Are RTGS?
It is an initial for Real Time Gross Settlement. This funds transfer method was found in March 2004 and currently only prevails in India. This method of funds transfer is primarily used to transfer large amounts of money because there is a minimum limit on the amount that can be transferred, which is Rs 2,00,000.
However, there is no maximum limit on the amount that can be transmitted through this method. This method sends transfers on a one-to-one basis meaning the whole transaction occurs as it is. It is also known as Deferred Net Settlement.
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Features of Real-Time Gross Settlement (RTGS):
- It is a method of funds transfer that prevails in India and is founded in March 2004.
- It is known for transferring funds in Deferred Net Settlement or just Net Settlement, meaning the transaction is sent just as it is and not in batches.
- Since this method of fund transfer sends the transaction just as it is and not in batches, it is considered a fast method of funds transfer.
- The credit is shown on the records as and when the transaction is completed.
- There is no maximum limit to the amount that can be transferred under this method. However, this method generally has a minimum limit which is of Rs 2,00,000. Hence, it is suitable for transactions involving a large amount of transfer.
- This fund supports online as well as offline transfers.
- This method operates all the time, i.e., 24*7*365.
- It also charges for transferring funds which are generally small amounts. These charges typically range between Rs 30 to Rs 55.
The Contrast Between NEFT And RTGS
Emergence
- NEFT – This method of transfer emerged after the emergence of RTGS. It is estimated to have originated in November 2005.
- RTGS – This method of transfer emerged before the emergence of NEFT. It is estimated to have originated in March 2004.
Meaning
- NEFT – It is an abbreviation for National Electronic Funds transfer. This method of funds transfer prevails in India only. However, this fund is known for transferring small amounts of funds over the whole country.
- RTGS – It is an initial for Real Time Gross Settlement. This method of funds transfer prevails in India and is associated with transferring a large amount of money over the whole country in real-time.
Type of settlement
- NEFT – This type of fund transfer is concerned with transferring funds based on Deferred Net Settlement or just Net Settlement. As per this type of settlement, the transaction is completed in the form of several batches. Therefore, the whole transaction is broken down into bundles or batches sent at different intervals.
- RTGS – This type of fund transaction is concerned with transferring funds based on Gross Settlement. As per this type of settlement, the transaction is sent as it is in real-time. Unlike NEFT, the transaction is not broken down into batches; instead just sent in one time. This method is also known as a one-to-one basis.
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What Are Deferred Net Settlement And Gross Settlement About NEFT And RTGS?
Deferred Net Settlement can best describe a form of settlement wherein a transaction is first broken down into various small amounts, also known as batches or bundles, and each batch is sent out as a single transaction. Then, when every batch is delivered, one single whole transaction is completed. This method is known for its usage in NEFT.
Gross Settlement can be best described as a type of settlement that is completely opposite of Net Settlement. In this settlement, a transaction is kept from various batches. Instead, it is sent just as it is in the form of a single transaction in real-time. It is largely used in RTGS.
Completion
- NEFT – Transactions made through this method of funds transfer are completed after all the batches of transactions are successfully made. This usually takes a longer time. The average time associated with completing transactions under this method is 2 hours. But it largely depends upon the number of batches. The lower the number of batches, the faster the transaction, and vice versa.
- RTGS – Transactions made through this funds transfer method are completed in real-time as the transaction is made. This is because this method does not use batches to complete the transaction; instead, it just sends it as it is.
Speed
- NEFT – Since this method of funds transfer uses various batches to complete the transaction, it is done in real-time. Hence this method is typically considered slower in comparison with RTGS.
- RTGS – Since this method of funds transfer completes the transaction in one go and in real-time. Thus this method is considered faster in comparison to NEFT.
Credit representation
- NEFT – The credit amount is shown in the accounts as and when the batches reach. If there are a total of 12 batches, the credit will reflect in accounts 12 times as and when each batch reaches.
- RTGS – The credit amount is shown in accounts when the transaction completes. There are no batches under this method, so thus the credit is shown only once as and when the transaction happens in real-time.
Limit
- NEFT – One of the significant advantages of this method of funds transfer is that it does not have any limit on the minimum or maximum amount. However, it should be noted that its batches do have a limit of Rs 50,000. This is because a single batch of the whole transaction can hold up to Rs 50,000.
- RTGS – One of the significant disadvantages of this method of transfer of funds is that it limits the minimum amount that can be transferred, which is Rs 2,00,000. However, there is no maximum limit on the amount that can be transferred through this method.
Charges
- NEFT – This method charges some amount for transferring money. However, the rates associated with this method are lower than those of RTGS. This method of transfer charges Rs 2.50 + GST for transfers that are up to RS 10,000, Rs 5 + GST for transfers that fall between Rs 10,000 to Rs 1,00,00, Rs 15 + GST for transfers that fall range within Rs 1 lakh and Rs 2 lakh, and Rs 25 + GST for transfers greater than Rs 2 lakh.
- RTGS – This method also charges some amount for transferring money, but the rates associated with this transfer method are higher than the rates of NEFT. This method of transfer charges up to Rs 30 for transfers between Rs 2 lakh to Rs 5 lakh and Rs 55 for transfers that are more than Rs 5 lakh.
Suitable for
- NEFT – This transfer method is largely suitable for those transferring a short amount of money. Not that it can not transfer large amounts of money, but in that case, it would take a significant period of time as it transfers money in the form of batches. The more batches, the more time it would take. Since we can not send small amounts of money through RTGs, this transfer method is considered best for transfers involving small amounts.
- RTGS – This transfer method is largely suitable for transferring large amounts of money, as transferring large sums of money through NEFT would require a lot of time, and small amounts of money can not be sent through this transfer method.
CONCLUSION
People often confuse the terms NEFT and RTGS and use them interchangeably. In a time where everything happens through the Internet, it becomes crucial to be aware of the most common methods of transferring money, i.e., NEFT and RTGS.
The significant difference between NEFT and RTGS is that the former is suitable for transferring small amounts of money and works on Net Settlement. At the same time, the latter is suitable for transferring large amounts of money and works on Gross Settlement.
FREQUENTLY ASKED QUESTIONS (FAQs)
Q1. What is meant by Deferred Net Settlement?
It is a transferring method that is largely used in NEFT. As per this basis of sending transferring, the whole transaction is broken down into various batches or bundles, and each batch is sent at a different specified time.
Q2. Which is faster: NEFT or RTGS, and why?
The RTGS method of transferring funds is faster than the other because, unlike NEFT, this method does not use several batches to complete a single transaction. Rather it happens in real-time on a one-to-one basis.
Q3. What are the charges associated with NEFT and RTGS?
The charges associated with NEFT range between Rs 2.50 to Rs 25 without GST, and those associated with RTGS range between Rs 30 to Rs 55.
Q4. When should you choose NEFT over RTGS?
One should choose NEFT over RTGS when they are transferring a very small amount of money or when they are transferring a large amount of money and are okay with it completing the transaction slower.
Q5. When should you choose RTGS over NEFT?
One should choose RTGS over NEFT when they are transferring large amounts of money and want it to reach faster.
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