What Is an External Transfer? How It Works, Basics, and Types

Learn how to move money from one financial account to another

An external transfer is a way to move money electronically from an account in one financial institution to an account in another financial institution. External transfers can be used to move money between accounts that you hold at different banks, to send money to the bank account of a friend or family member, or even to pay bills or pay for services.

External transfers are just one of the different types of transfers that you can make, and there are several different types of external transfers that you can use from the average bank account. They represent a no- or low-cost way to transfer 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.
  • There are several different types of external transfers, with EFT (electronic funds transfer) and ACH (automated clearing house) being the most common. Each has different costs and time frames associated with it.
  • 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.

The Basics of an External Transfer

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 two different types of electronic transfers: internal and external. Internal transfers are used to transfer funds between accounts that you hold at the same institution, such as a savings account and a checking account. External transfers are used to send money from your account to a different institution.

Using an external transfer, you can send money to an account that you hold or one held by someone else. The process is usually the same, no matter where you are sending the money within the United States. 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. 

In some cases, 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. The vast majority of companies, even the smallest ones, now use secure online payment platforms thanks to application programming interface-based fintech companies that provide payment as a white-label service. So, very few legitimate uses for external transfers still exist.

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’s safer to use PayPal, Wise, or Payoneer if you are making a purchase from a seller you don’t know since you may recall the money if you have certain issues that are acceptable.

If you are asked to make an external transfer to pay for goods or services, it could be a scam, so proceed with caution.

How to Make an External Transfer

The information you will need to make an external transfer is the same, no matter which type of account you are sending money from and no matter where the funds are going. This is because almost all external transfers go through the same system—more on that below.

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 from which you are sending funds.
  • The bank routing number of the account to which you want to send money.
  • The account number of the account to which you are sending money.

Sometimes, the person or organization to which you are sending money can help you set up a transfer, either by providing these details or even by guiding you through the process of setting up a transfer.

Recurring External Transfers

It may take extra time to set up your first external transfer. Not only will you have to find all the details that you need, but your bank may also do extra security checks to make sure that your transfer is genuine and that the recipient is legitimate.

However, banks usually make it easier 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. (If you receive your paycheck via direct deposit, for example, this is a form of recurring external transfer from your employer’s financial institution to your account.) Most banks will allow you to set up a “standing order” to transfer a specified amount of money on a regular schedule to an external account.

History of External 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. All types of electronic money transfers are overseen by the U.S. government. 

In 1978, in fact, the U.S. government passed the Electronic Fund Transfer Act (EFTA). This law put in place consumer protections around specific types of electronic transfers of money.

Several different types of external transfer are covered by the EFTA:

Wire transfers are another type of EFT payment that moves money quickly between financial institutions around the globe. Sending money internationally must be done via a wire transfer. Wire transfers are typically conducted via specific bank-to-bank networks like the Society for Worldwide Interbank Financial Telecommunication (SWIFT) or Fedwire systems.

The Difference Between EFT and ACH

One of the most common sources of confusion when it comes to external transfers is the difference between EFT and ACH. ACH stands for automated clearing house, which is becoming a very popular way to make external transfers.

ACH networks offer transfers of "same-day", "next-day", or "2-day". In addition to the option of near immediate transfer, ACHs can be scheduled one to two days in advance to ensure transactions are processed on time at a specific time (i.e. payroll processing on a Friday morning).

The ACH network essentially acts as a financial hub and helps people and organizations move money from one bank account to another. ACH transactions consist of direct deposits and direct payments, including business-to-business (B2B) transactions, government transactions, and consumer transactions.

The modern ACH Network experienced significant growth in 2021, with 29.1 billion payments valued at $72.6 trillion, and Same Day ACH payment volume grew nearly 74%. Many fintech companies are now focused on B2B payments as a segment that needs more streamlining, and ACH is one of the new features they added to execute B2B payments. Stripe is one example of these fintechs.

ACH transfers are a little different from standard EFT transfers. When you use your debit or credit card, for example, you are setting up an EFT transaction that happens in real-time. ACH payments, by contrast, are processed in batches each day. 

This means that funds sent via ACH can take from one to four 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.

What Is an External Transfer?

An external transfer is the movement of money between one financial institution and another. The transfer is aptly named as 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 take banks up to 72 hours to fully settle and process the transaction. ACH payments are often transacted in two 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. Some offer the service for free, while others may charge a few dollars per transactions. Money can often be transferred between accounts within the same institution for free.

Most online banking portals now offer features to link external accounts to your banking profile. After creating an identity for the account you wish to transfer into, a bank will automatically save this information. Some banks require an external account 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. For security reasons, some banks have external banking transaction limits that tie 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.

Other financial institutions impose limits on the number of external transactions you're allowed to perform. This limit is often tied to the day and/or month (i.e. no more than three external transactions in a single day and no more than ten in a single month).

The Bottom Line

External transfers are a fundamental part of the modern banking system, allowing individuals and corporations to move money easily between accounts. They are typically easy to set up, but you should be careful if you are asked to make an external transfer to a company or individual you don’t know personally.

Article Sources
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