What are Electronic Transfer Funds? (with pictures)

Felicia Dye
Felicia Dye
Records of an international wire transfer.
Records of an international wire transfer.

There are several ways that money can be exchanged. For example, one person can send a check through the mail and the receiver can take it to a bank and obtain cash. Electronic transfer funds refer to a method where monetary value can be exchanged in the same manner as cash without the use of physical monetary instruments.

Electronic transfer funds rely on computerized money management and accounting. For this system to function, electricity, computers, and networks are essential. When funds are exchanged in this manner, it is important to understand that money is not physically moved for every transaction. Instead, monetary value is deducted from one account and credited to another.

Debit cards use electronic transfer funds.
Debit cards use electronic transfer funds.

There are many types of transactions that utilize electronic transfer funds. This includes debit card use, electronic accounts, and wire transfers. In many cases, the money is moved in succession at such a rate, that if this option did not exist, certain transactions would not be possible. For example, a person may have her paycheck automatically deposited into her account at 12:00. By 12:02 she may make a purchase using a portion of the money. The merchant with whom she spent that money may have an automatic payment for goods deducted from his account at 12:10, which utilizes the money that he received at 12:02.

Electronic transfer funds are used in both the public and private sectors. An example of public use is when the Internal Revenue Service (IRS) in the United States (US) issues tax refunds electronically. There are many benefits of electronic transfer funds.

The speed at which transactions can be conducted is one that is important to many people. When such a transaction is initiated, it commonly takes place within seconds. This means that such capabilities provide the benefit of being able to exchange funds across the globe almost instantly.

Another of the benefits of electronic transfer funds is safety. Reducing the exchange of cash can protect individuals and businesses from losses that could occur in the event of robbery or property destruction. Transactions made using electronic transfer funds are generally recorded automatically and they are easily traceable, which can simplify accounting tasks. They also reduce the cost associated with the movement of physical monetary instruments.

Although this type of exchange can be fast, convenient, and cheaper, it may not be free. In many cases, fees are charged to the party who pays, to the party who receives, or to both parties. One reason for this is because such transactions commonly involve multiple parties and they may incur costs for interacting with one another. For example, when a person goes into a store and swipes her debit card, her bank must communicate with the merchant’s bank.

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    • Records of an international wire transfer.
      Records of an international wire transfer.
    • Debit cards use electronic transfer funds.
      Debit cards use electronic transfer funds.