Difference between NEFT and RTGS

Because of technological improvements, the majority of banking transactions are now successfully completed online.

Following the creation of the NEFT, RTGS, and IMPS banking systems, the method through which we can transfer money has undergone a complete transformation. In only a few minutes, money can be transferred easily across bank accounts. 

The Reserve Bank of India's efforts to promote a cashless economy has been successful. Digital payments have recently been increased by the government through several initiatives.

The two most commonly used digital payment methods are RTGS and NEFT. 

A majority of people have adopted them as a result of the reduction of fund transfer fees. Depending on the needs of the user, each of these procedures is suitable and has perks and drawbacks of its own. Here, we will discuss these procedures following their differences. 

What is NEFT?

NEFT stands for National Electronic Funds Transfer. This funds' transfer service can be used around the clock and transactions are handled in batches of half an hour. No minimum or maximum transfer amount limits have been established by the RBI. It was introduced in 2005. 

One may not incur any additional fees if they transfer money utilising a bank's mobile app or through online banking using the NEFT procedure. However, there are some transfer fees applied if one chooses to make a NEFT transfer in person at a bank.

For instance, depending on the amount of money you want to transfer, XYZ bank may charge you anywhere between Rs. 2.50 and Rs. 25 (excluding GST). Because the RBI permits remittance of the cash in two hours, this payment of funds is carried out using batch systems on an order-by-order basis.

Any settlement made utilising the InterBank Transfer Scheme (IBTS) or the RBI's books renders the transfer irrevocable and final. Following that, the RBI notifies the sending bank, which notifies the sender, of such money transfers.

What is RTGS?

RTGS, or Real-Time Gross Settlement allows money to be transferred instantly from one account to another.

Introduced in 2004, the RTGS system is mainly designed to handle large volumes of transactions. Therefore, while there is no cap on the transfer amount, you must send at least Rs. 2 lakhs at a time. 

When the transaction amount is large and payment must be done right away, RTGS is particularly helpful.

For instance, the maximum recommended transfer limit for an ABC bank may be Rs. 10 lakh, while the daily maximum transfer limit for an XYZ bank may be Rs. 20 lakh.

Similar to the NEFT procedure, there is no additional price for completing the RTGS transferring online, however, there is a fee from the bank if you use the RTGS transferring in person at a bank branch.

NEFT Vs. RTGS

The primary difference between RTGS and NEFT is that the former is founded on gross settlement, whereas the latter is founded on net settlement.

Gross settlement refers to the one-to-one completion of a transaction without grouping it with other transactions. On the other hand, net settlement refers to the completion of the transactions in batches at predetermined periods.

In this case, all transfers will be put on hold until a certain time. RTGS transactions are handled throughout the system's business hours.

Secondly, when using RTGS, the money is transmitted right away and appears in the beneficiary's account within the allotted 30 minutes.

The amount of transfer time for NEFT transactions often takes up to two hours, but this is dependent on batch times and cutoff times.

There are numerous batches between the hours of 8 am and 7 pm, which results in a batch every half-hour; this is only true on working days. As a result, RTGS transfers funds far more quickly than NEFT.

Thirdly, The minimum amount required to complete an RTGS transaction in retail banking is INR 2 Lakhs, but there is no maximum transaction amount set forth.

There is no set minimum or maximum amount for NEFT transactions in retail banking.

As a result, NEFT can be used for smaller transactions as well, whereas RTGS should only be used for larger transactions.

Important Factors to consider for Fund Transfers

• Timing: The timings for each transfer may vary depending on the bank. Important Things to Consider Before Starting a Fund Transfer The operation hours for RTGS will vary based on the bank and the area. IMPS and NEFT payment methods are accessible around-the-clock.

• Transaction Fee: A separate fee is charged for the transfer of funds. However, there is no charge if you are the one receiving the money.

• GST: Following current regulations, GST will be charged on the transaction fee.

• Network: For the transfer to occur, both banks must be enrolled in the program.

NEFT Vs RTGS

The minimum amount required to complete an RTGS transaction in retail banking is INR 2 Lakhs, but there is no maximum transaction amount set forth. There is no set minimum or maximum amount for NEFT transactions in retail banking. As a result, NEFT can be used for smaller transactions as well, whereas RTGS should only be used for larger transactions.

Which method is most effective for oneself?

This depends on the need for the money to be transferred and the motivation behind the move.

For instance, NEFT is the greatest method for transferring little sums of money, although it takes some time to reach the recipient.

Only when transacting business with larger sums or sending money to someone for any asset or property dealings is RTGS effective.

Conclusion

Regardless of which method you choose, both are equally safe, secure, and controlled by the Reserve Bank of India. In order to develop the country's advanced economy, both NEFT and RTGS are trustworthy payment methods.