Many know about routing numbers, the nine-digit codes printed on the bottoms of checks that identify a particular financial institution. Routing numbers help us move money from one account to another, much as the superhighway of our financial system does. Personal and professional account numbers act as exits off the superhighway, guiding money to the correct accounts.
ACH and ABA routing numbers are the two important routing numbers that financial institutions and banks utilize. Since these are common types, it’s important to know their differences to choose the one that suits your business.
Understanding the ACH Routing Number
The Automated Clearing House, or ACH for short, is a system that enables electronic payments and direct deposits between financial institutions. ACH routing numbers are special nine-digit codes that recognize financial firms involved in the ACH network.
In the 1970s, ACH numbers emerged due to a high volume of checks, which slowed down the banking system. This led to an even more extensive, industry-wide shift toward electronic banking.
ACH routing numbers function by directing funds from one bank account to another via the ACH network. This system handles bill payments, direct deposits, and other electronic payments.
Since ACH routing numbers are intended especially for electronic transactions, they differ from ABA routing numbers. ABA routing numbers typically begin with the first two digits ranging from 00 to 12, while ACH routing numbers usually start with the first two digits between 61 and 72.
ACH routing numbers guarantee that money is sent precisely and quickly between financial organizations. Payroll direct deposits, tax refunds, and government benefits use ACH routing numbers. ACH routing numbers are available on bank statements and personal checks, and you can also get them through direct inquiries to your financial institution. Certain financial institutions post this information on their websites.
Understanding ABA Routing Number
The American Bankers Association, or ABA for short, is a trade association representing U.S. banks. Bank ABA routing numbers are unique nine-digit numbers that identify financial organizations engaged in the ABA system.
ABA routing numbers work by transferring money from one account to another through the ABA network. This system is used for processing checks, wire transfers, and other transactions. ABA routing numbers are mainly used for both electronic and paper transactions, unlike ACH routing numbers.
Just like ACH routing numbers, ABA routing numbers make sure that money is sent correctly and quickly from one bank to another. ABA routing numbers are used for numerous operations, such as check processing, wire transfers, etc.
Personal checks, bank statements, or direct inquiries to your financial institution will also provide the ABA routing numbers. Certain financial firms offer this information on their websites.
ACH and ABA Routing Numbers – What’s the Difference?
Let’s understand the major differences between the ABA and ACH accounting numbers.
- Usage and purpose: ACH routing numbers are used primarily for electronic transactions, while ABA routing numbers are for electronic and paper transactions.
- Safety measures: While ABA transactions may be subject to various security measures depending on the financial institution and type of transaction, ACH transactions typically operate through secure networks and are subject to security procedures like encryption and authentication.
- Integration with other payment systems: Although ACH routing numbers are used especially for electronic transactions, they might not be compatible with every payment system. On the other hand, ABA routing numbers are more generally accepted and used for both electronic and paper transactions.
What are the Other Types of Routing Numbers?
Apart from ABA and ACH routing numbers, there are other types of routing numbers, each having a different purpose. Let’s see those in detail:
- Wire transfer routing numbers: Financial institutions might have unique routing numbers intended for wire transfers, which are used for sending and receiving money electronically between banks on a domestic or international level. These routing numbers differ from ABA routing numbers and are often used for large-value or time-sensitive transactions.
- International routing numbers: Banks use other codes, such as SWIFT (Society for Worldwide Interbank Financial Telecommunication) codes or IBANs (International Bank Account Numbers), rather than conventional routing numbers for international transactions. These codes enable the identification of particular banks and branches abroad, allowing cross-border transactions.
- Fedwire routing numbers: Fedwire routing numbers mainly facilitate the processing of time-critical, high-value payments and transfers across national financial institutions. Operating in real-time, Fedwire is a gross settlement mechanism run by the American Federal Reserve Banks.
Decoding Routing Numbers for Better Payments
Both routing numbers differ in their concept and usage, and you should know their differences. While the ABA routing number helps process paper checks and wire transfers, ACH payments are important for electronic transfers, including bill payments and direct deposits.
Using fintech companies will make this procedure more efficient. These businesses can assist you in quickly transferring your money because of their years of field knowledge and innovative technologies.
They also support opening an online bank account, obtaining a Visa debit card, and automating bill payments so you won’t miss a deadline. They offer account management tools and customer assistance to handle all your banking operations in one location.
