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FedACH is the automated clearing house (ACH) service of the Federal Reserve Banks. As one of two primary ACH operators in the US, this system processes most commercial-bank-based ACH transactions. It also processes a large number of government-issued electronic transfers, including Social Security payments.
How does FedACH work?
The Federal Reserve System (the “Fed”), composed of 12 banks and 24 branches, is the central banking system of the US government. FedACH acts as its ACH payment operator, handling millions of transactions each day.
FedACH is involved in a few steps of the transaction process. The bank that initiates the transaction, known as the Originating Depository Financial Institution (ODFI), sends an ACH payment to FedACH. Following a fast but thorough sorting process, FedACH delivers the payment to the bank on the receiving end of the transaction, or the Receiving Depository Financial Institution (RDFI). Finally, FedACH settles the payment by debiting and crediting the ODFI’s and RDFI’s settlement accounts.
Unlike real-time processing systems, FedACH doesn’t settle payments directly. Instead, FedACH tracks all transactions that occur within a specific transaction window, debiting and crediting accounts in batches after that window closes.
What are the origins of FedACH?
With support from the Federal Reserve, ACH emerged in the early 1970s. By the end of the decade, the Federal Reserve introduced a standardized national network of local ACH operators.
How did the Fed help grow this nascent industry? One key factor: technology. Though early ACH was partially driven by a handful of private operators, the Fed’s computing technology enabled unprecedented processing volume. In time, two parties came to dominate ACH: the Fed and The Clearing House, a private payment infrastructure corporation. They remain the nation’s only ACH operators.
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ACH (Automated Clearing House) is a payment processing network that’s used to send money electronically between banks in the United States.
ACH APIs enable companies with high transaction volumes to write software that automates payments over the ACH network.
An ACH credit refers to the process of electronically depositing, or “pushing,” funds into a bank account using ACH.
In an ACH debit, funds are electronically withdrawn, or “pulled,” from a bank account using ACH.
A Notification of Change (NOC) is used to notify the sender of an ACH payment to correct or change information related to a customer’s bank account.
A return is a credit or debit entry initiated by the Receiving Depository Financial Institution (RDFI) that returns a previously originated payment to the Originating Depository Financial Institution (ODFI).
ACH return codes identify the reason an ACH payment was returned by the recipient's bank. They make it easier to spot and resolve payment failures.
An ACH reversal refers to an erroneous ACH payment that a payment originator requests to take back, or reverse.
Credits and debits are two kinds of ACH transactions. Whereas a credit involves depositing, or “pushing,” funds into a bank account, for a debit, funds are withdrawn, or “pulled,” from an account.
FedACH is the automated clearing house (ACH) service of the Federal Reserve Banks.
Part of the FedACH system, FedGlobal ACH offers low-cost and efficient cross-border ACH payments.
The two kinds of financial institutions in the ACH network are ODFIs (Originating Depository Financial Institution) and RDFIs (Receiving Depository Financial Institutions).
A Standard Entry Class or SEC code is a three letter code that describes how a payment was authorized by the consumer or business receiving an ACH transaction.
US companies moving money internationally will likely weigh the pros and cons of SWIFT vs. Global ACH when it comes to attributes like speed and cost.
ACH (Automated Clearing House) is a payment processing network that’s used to send money electronically between banks and financial institutions in the United States.
An electronic funds transfer (EFT), also known as a direct deposit, is the digital transfer of money between bank accounts. As digital transfers, they reduce the need for manual input and paper documents.
Global ACH can help companies move money from US-domiciled accounts across borders using local rails. Learn how and when to use this payment rail.
A Request for Payment (RFP) is an ACH Network message that can be used by businesses to send electronic invoices to their customers.
Same-Day ACH is an improvement to the ACH network that allows the processing of credit, debit, and return transactions several times a day.
A pre note or prenotification is a zero dollar payment to validate the account and routing details of a bank account before debiting or crediting it.
An International ACH Transfer—also known as Global ACH—is an ACH payment made cross-border from a US-domiciled account.
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