ABA Transit Number - Explained
What is an ABA Transit Number?
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Table of ContentsWhat is an ABA Transit Number?How Does an ABA Transit Number Work? ABA Transit Number EligibilityHow is an ABA Transit Number Used?
What is an ABA Transit Number?
ABA Transit Number refers to a 9-digit code number assigned to financial institutions (banks) for the purpose of identification. It is reflected on standard checks.
Back to: BANKING, LENDING, & CREDIT INDUSTRY
How Does an ABA Transit Number Work?
ABA Transit Number which is also known as the ABA Routing Number (RTN) was created in 1910 by the American Bankers Association for the purpose of indicating check processing endpoints. The number has, however, expanded to include check clearing between financial institutions, online banking, and Fedwire transfers. The number also applies when doing automated clearing houses. The ABA number can tell someone the branch in which your account is located. There are two forms of ABA routing number. They are as follows: A nine-digit number on the bottom left that is computer-readable. The nine-digit number is usually followed by the checking account number. This form is also known as the Magnetic Ink Character Recognition (MICR). It is used for checks processing using special computerized machines. Since the numbers are written in MICR font, it is easier for the machines to identify the numbers. The nine-digit number on the check signifies the following:
- The first four digits-They are given to a financial institution by the Federal Reserve Routing System to represent the banks physical location. However, due to acquisitions and bank mergers, these numbers do not most of the time match the banks geographical setting.
- The fifth and sixth digits-It shows which Federal Reserve Bank a banking institution will route their electronic and wire transfers.
- The seventh digit-It denotes the initial Federal Reserve check processing center in which a bank institution is assigned.
- The eighth digit-It indicates a banks Federal Reserve district.
- The ninth digit-It gives a checksum. This refers to a mathematical calculation usually done using the first eight digits. In case after the calculation, the outcome does not match the checksum number, flagging of the transaction is done and it is then redirected for manual processing.
It appears as a fraction at the top- Here the same information is reflected in this one though, its format differs from the nine-digit number. It is used as a holdover from the manual processing time. This is still commonly used as a fallback in the event that the machine-readable format becomes unreadable. Note that some of the big banks do have more than one ABA transit number. Large federal banking institutions give different RTNs to their different branches. The number of RTNs to be assigned to a branch is determined by the branch's geographical setting.
ABA Transit Number Eligibility
For a financial institution to be able to qualify for an ABA transit number, it must be entitled to hold an account at a Federal Reserve Bank. It is also important to note that the ABA transit number is currently under the management of Accuity, a London-based RELX Group subsidiary. For employers to be able to find their right RTNs, they are required to contact the branch in which they opened their account.
How is an ABA Transit Number Used?
The following are the uses of ABA transit number:
- Used by an employer to prepare payroll direct deposits. In other words, employers will need their ABA transit number so that they can be able to work on the payroll direct deposits.
- ABA router number can also be used to facilitate checks clearing, and to also transfer money to and from banks. The passed 2004 Check Act enabled electronic check clearing. Initially, the checks had to be flown by air and/or truck for it to get to the banks. That is no longer the case. ABA router number has provided a situation where funds are cleared immediately. Customers can, therefore, get their cash instantly without having to wait for some days as it was the case back then.
- It can be used to tell the exact Federal Reserve Bank which a given financial institution (commercial bank) is associated with.