Real-Time Gross Settlement (RTGS)

Real-Time Gross Settlement (RTGS) is a payment system in which banks transfer funds to one another instantly and individually. Transactions are settled in real time and on a gross (one-by-one) basis, making them final and irrevocable once processed. RTGS is primarily used for high-value, time-critical interbank transfers and is typically operated by a country’s central bank.

Key takeaways

RTGS settles each transaction individually and immediately; once settled, payments are final and cannot be reversed.
It’s used mainly for large-value interbank transfers and helps minimize settlement (delivery) risk.
Central banks manage RTGS systems by adjusting account balances electronically—no physical exchange of funds is required.
RTGS reduces the time window that payment data is exposed to risk, but it can require more liquidity and incur higher fees than netted systems.

How RTGS works

Real-time: settlement occurs as soon as a payment instruction is received and authenticated.
Gross settlement: each payment is processed and settled on its own instead of being bundled with others.
Central bank accounting: the central bank debits the sender bank’s reserve account and credits the receiver bank’s reserve account electronically.
Finality: settled payments are irreversible, reducing counterparty and systemic risk associated with delayed settlement.

Examples and history

Fedwire (U.S.) — an early system that evolved into an RTGS-style service starting in the 1970s.
CHAPS (U.K.) — operated by the Bank of England for high-value sterling payments.
TARGET2 (Eurozone) — the Trans-European Automated Real-time Gross Settlement Express Transfer system used across participating countries.
Many other countries operate RTGS systems to support safe, high-value interbank payments.

RTGS vs. net settlement systems

Net settlement (e.g., ACH/Bacs): transactions are accumulated during the day and settled later as a single net position, which is cost-efficient but exposes participants to settlement risk until the netting occurs.
RTGS: processes and settles individual transactions immediately, eliminating end-of-day netting risk but requiring more intraday liquidity and often higher per-transaction costs.

Advantages

Immediate finality reduces settlement and systemic risk.
Shorter exposure window for cyber and fraud risks—sensitive payment data is vulnerable for less time.
Greater certainty for large-value or time-critical transactions.
Supports financial stability by preventing buildup of unsettled obligations.

Trade-offs and practical considerations

Liquidity requirements: banks must have sufficient intraday liquidity to settle payments individually.
Cost: RTGS transactions can be more expensive than netted alternatives; fees vary by country and institution and may sometimes be waived.
Not necessary for low-value, non-urgent payments—those are often routed via slower, cheaper net settlement systems.

Typical use cases

High-value interbank transfers
Time-critical corporate payments (e.g., large corporate settlements, securities settlement legs)
Situations where finality and minimized counterparty risk are essential

Conclusion

RTGS is a core infrastructure for modern banking that enables immediate, irrevocable settlement of large-value payments. By processing each transaction in real time, RTGS greatly reduces settlement risk and supports financial-system stability, but it requires more intraday liquidity and can cost more than net-settlement alternatives. Organizations choose RTGS when immediacy and finality outweigh the additional liquidity and cost considerations.