NEFT (National Electronic Funds Transfer) and RTGS (Real Time Gross Settlement) are two common platforms for online money transfers in India. NEFT is a reliable and convenient method of transferring money between bank accounts, whereas RTGS enables high-value transactions immediately. 

Understanding RTGS and NEFT is essential to choose the best method for carrying out transactions. This article discusses the differences between NEFT and RTGS and explains how they work.

What is NEFT?

NEFT stands for National Electronic Funds Transfer. It is an electronic mode of payment operated by the Reserve Bank of India (RBI) for easy funds transfer between bank accounts. NEFT allows you to transfer funds conveniently through online banking, mobile banking apps, or by physically visiting the bank branch. 

A net settlement system is employed through NEFT, which means transactions are accumulated and processed through batches the entire day. This kind of batch processing system contributes to low NEFT transaction charges in comparison with real-time payment systems such as RTGS. 

No minimum limit applies to NEFT transactions. However, individual banks can impose their own charges for the transaction service. Thus, checking with a bank regarding any further applicable fees is necessary.

Advantages and Disadvantages of NEFT

NEFT has its own advantages and disadvantages as discussed below. 

Advantages of NEFT

• NEFT allows businesses and individuals to easily transfer funds electronically, eliminating the need to visit banks physically. Customers can do this from the comfort of their home or office through online banking or by going to the bank.
• Carrying out NEFT transactions is safe and secure as they are usually done through the banking system, with robust security measures in place. Moreover, RBI takes the complete responsibility of finalising payments.
• The majority of banks and their branches in India offer NEFT services, making it widely accessible to a large number of people throughout the country.
• NEFT transactions are usually cost-effective, with most banks providing the same service at nominal charges.
• NEFT transactions might not be as instant as RTGS. However, they are faster than other traditional methods of transferring lump sum amounts. Transactions are usually processed throughout the day in batches, ensuring quick transfer of funds. 

Disadvantages of NEFT

• NEFT transactions are mostly not processed in real-time. They are usually done in batches, which implies a delay in reaching out to recipients if particularly initiated after the cut-off time for any particular batch.
• Some banks impose limits on the amount that can be transferred through NEFT. This amount, however, might not be subjected to very large transactions.
• Many banks are offering NEFT without any charges. However, some may charge fees for carrying out NEFT transactions. This is particularly applicable for a lump sum amount.
• NEFT might not be suitable for urgent payments as it does not offer real-time payment settlement like RTGS.

What is RTGS?

RTGS stands for Real-Time Gross Settlement, which is a crucial financial instrument that allows high-valued transactions between banks and other financial institutions on a gross basis in real-time. In simple words, it means each transaction is processed individually without binding with other transactions. Thus, it gets settled immediately. 

RTGS is used specifically for carrying out large fund transfers that include large business payments, interbank transfer, and transactions that involve huge amounts of money. This service ensures transfer of funds quickly and easily without further delay so that the funds are also being available to the recipient instantly. Thus, RTGS plays an important role in serving as an electronic payment infrastructure in India. 

Advantages and Disadvantages of RTGS

Here are the most notable advantages and disadvantages of RTGS.

Advantages of RTGS

• Processing of RTGS transactions takes place instantly and provides immediate transfer of high-valued funds to recipients. This makes RTGS the ideal option for providing financial assistance during emergencies and urgent needs, such as business transactions and admission fees. 
• Carrying out RTGS transactions is safe and secure as they are mostly carried out with the banking system, which maintains robust security measures. Like NEFT, these transactions are settled by the RBI.
• RTGS is designed specifically for carrying out high-valued transactions due to the presence of high transaction limits. Thus, lump-sum amounts can be transferred with ease from one bank account to another.
• After initiating and approving any RTGS transaction, the recipient is assured that funds will be received without delay. After funds are transferred, both parties get confirmation.

Disadvantages of RTGS

• RTGS transactions are comparatively costlier than any other mode of electronic payment, with banks often found to be charging more fees for the service.
• RTGS can only facilitate transfers to bank accounts in India. RTGS cannot be used for cash transfers or sending remittances/international payments.
• When you put in the request for an RTGS transaction, you can't stop it or take it back. It is very important to have all the correct beneficiary information to avoid mistakes, including the full name of the beneficiary, account number, and IFSC code. 
• Because of its high charges and minimum limit for transactions, RTGS is not suitable for small transactions or transactions on an everyday basis.

Difference Between NEFT and RTGS

The key differences between NEFT vs RTGS are as follows:

NEFT and RTGS – Prerequisites for Fund Transfers

While carrying out NEFT and RTGS transfers, it is essential to provide some details about the beneficiary and their respective bank account. These details include:

• The beneficiary's name
• The name of the bank branch and the bank name of the beneficiary
• IFSC bank code of the beneficiary
• The contact number of the beneficiary
• The bank account number of the beneficiary 

NEFT or RTGS – Which is Faster or Better?

In terms of speed between NEFT vs RTGS, RTGS occupies the leading position. With RTGS, it is possible to process transactions immediately. This is indeed the fastest option for transfer of high-value transactions. On the other hand, NEFT transactions take place in batches, and that too in specific intervals.

Whether to choose NEFT or RTGS, depends on the value of the transaction and its urgency. For immediate transfer and preference of immediate settlement, go for RTGS mode of transfer. For less valued transactions with slight delays in procedure, NEFT is more appropriate and cost-effective. 

Both NEFT and RTGS play an important role in addressing the diverse transactional needs of individual customers. Processing of funds in batches makes NEFT a preferred choice for carrying out high-valued transactions, while RTGS performs the best in carrying out large-valued transactions. Both these systems help carry out seamless financial transactions and foster trust and efficiency. 

A proper understanding of the features and differences between NEFT vs RTGS helps customers to use these services effectively, ensuring banking experience aligns with respective demands. However, both these financial instruments are vital in supporting the cashless and digital initiative toward building an advanced economy. 

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