Category: 

What is an Automatic Clearing House?

Article Details
  • Written By: Malcolm Tatum
  • Edited By: Bronwyn Harris
  • Last Modified Date: 09 November 2016
  • Copyright Protected:
    2003-2016
    Conjecture Corporation
  • Print this Article
Free Widgets for your Site/Blog
President Richard Nixon had an entire speech prepared in case the Apollo 11 astronauts became stranded on the Moon.  more...

December 8 ,  1965 :  Pope Paul VI promulgated Vatican II into ecumenical law.  more...

The Automatic Clearing House is one of the central functions that make modern banking possible. As a network that allows for the orderly and timely transfer of funds between accounts open with different banking institutions, the ACH makes it possible for many people to access funds in their accounts much more quickly. Here are some of the ways that the Automatic Clearing House impacts the flow of finances every day.

One of the most important aspects of the Automatic Clearing House is the orderly processing of electronic funds transfer protocols. Each EFT transfer has to coordinate so that funds are removed from one financial account, moved efficiently through the system to terminate in a deposit to a different financial account. The electronic funds transfer network ensures that these transfers are conducted quickly and accurately.

Ad

For many years, this function involved moving funds from an account at one bank to a different account at another bank. Today, the use of automated teller machines and online purchasing have made the role of the Automatic Clearing House even more important than ever. Today, people expect to be able to draw funds from any ATM machine, regardless of who owns the machine. The advent of the Internet has also impacted the way people do their banking with the ability to transfer funds from one account to another with ease. Online purchasing with a debit card also calls for the quickly and orderly transfer of payments form the buyer's account to the seller’s account. All these important functions rely on the competency of the Automatic Clearing House.

The Automatic Clearing House serves as the link between the point of origin of a financial transaction and the point of termination of the transaction. Essentially, one link of the EFT network initiates the transaction. The Automatic Clearing House receives the transaction and then waits for instructions on where to route the transaction for completion. Once that data is received and verified, the funds are sent on to a second link within the system and reach the terminating account.

The process of receiving, verification, and release of the funds helps to keep transactions orderly and documented. In actual practice, the process may take only a few seconds, although security issues for large amounts of money may take a little longer. There are a number of institutions that work with the Automatic Clearing House, among them the Federal Reserve of the United States, the Electronic Payments Network, and credit card giant Visa.

Ad

You might also Like

Recommended

Discuss this Article

anon179226
Post 1

why is it that when i pay a bill through electronic transfer that it is posted for payment almost immediately or at least the very same day, but when an electronic transfer through a clearing house from my mutual fund to my direct bank account takes sometimes two or three days? where does my money go in this invisible cloud? It is no longer my money that I can account for!

Post your comments

Post Anonymously

Login

username
password
forgot password?

Register

username
password
confirm
email