In banking, what is the difference between electronic funds transfer EFT and a wire transfer?

Introduction / Context:
Customers and finance professionals often hear two terms, electronic funds transfer and wire transfer, in banking and payments. Although they sound similar, interviewers expect candidates to know that one is a broad category and the other is a more specific method within that category. Understanding this difference is important for explaining payment options, settlement time, cost and risk in corporate finance and treasury discussions.

Given Data / Assumptions:

• EFT stands for electronic funds transfer.
• Wire transfer refers to a specific payment method used by banks.
• Both methods move money electronically between accounts.
• The question is conceptual and not limited to the rules of any single country.

Concept / Approach:
Electronic funds transfer is an umbrella term for any transfer of money that happens electronically without physical cash or cheques. This can include automated clearing house payments, card transactions, online banking transfers, direct deposit of salaries and many other methods. A wire transfer is one type of EFT where banks communicate directly over a secure network to move funds from one bank account to another, usually with faster settlement and higher fees. The correct option should clearly present EFT as the broad category and wire transfer as a specific form inside that category with real time or near real time settlement.

Step-by-Step Solution:
Step 1: Recall that EFT is any movement of funds using electronic systems instead of paper. Step 2: Remember that wire transfers are structured messages between banks over networks such as SWIFT or domestic wire systems. Step 3: Compare the scope of each term and note that all wire transfers are EFTs, but not all EFTs are wire transfers. Step 4: Review the options and find the one that explicitly states EFT as a broad term and wire as a specific type within it. Step 5: Reject any option that claims they are identical or that EFT uses paper instruments, which would contradict the definition.

Verification / Alternative check:
To verify, think of a salary credited to an employee account via direct deposit. This is clearly an electronic funds transfer but is usually processed through an automated clearing system, not as an expensive wire. On the other hand, when a business urgently sends money to a foreign supplier the same day, it commonly uses a wire transfer with a specific reference and high fee. Both are electronic but only the second is called a wire. This confirms that EFT is the broader category and wire transfer is a more specialised method used when speed and certainty are more important than cost.

Why Other Options Are Wrong:
Option B is wrong because EFT by definition does not rely on paper instruments. Option C is incorrect because wire transfers can be domestic or international, and EFT methods can also be used inside or across borders. Option D is wrong since both EFT and wire transfers may involve fees, and wires are often more expensive. Option E is incorrect because many banking regulations and textbooks treat EFT as a broad concept with several methods, one of which is wire transfer.

Common Pitfalls:
A common mistake is to use EFT and wire as if they were interchangeable, which can confuse customers about fees and timing. Another pitfall is assuming that any fast transfer is a wire, even when it is actually a fast clearing house payment. Some learners also think wire transfers always cross borders, while domestic wires are very common in many countries. Keeping the broad versus specific relationship in mind helps avoid these misunderstandings in exams and in daily banking work.

Final Answer:
EFT is a broad term for any electronic transfer of money, while a wire transfer is a specific type of EFT that sends funds bank to bank in real time or near real time.