What is an ABA Routing Number?

What is an ABA Routing Number?

The routing transit number (RTN) is a nine-digit code that appears on checks drawn from personal or merchant accounts. Each discrete code identifies a different banking institution; currently, there are approximately 26,895 active routing and transit numbers in use. The code is referred to as an ABA routing number because it was first designed by the American Bankers Association (ABA) in 1910; the company is still responsible for assigning new ABA numbers today.

Identifying the ABA Routing Number

The RTN is the first series of numbers printed at the bottom of a check, appearing just left of the code designating an individual account number. The first four digits of the code identify the Federal Reserve Bank district in which the banking institution is located. The second four digits identify the bank itself while the last one classifies the type of check or negotiable instrument.

Uses for an ABA Routing Number

The original use of RTNs was to expedite the time it took for a paper check to make its way from any number of merchant accounts back to the banking institution from which it was drawn. Like the zip code on a letter, an ABA routing number facilitated the sorting process and reduced the time it took for payment processing to be completed.

With the advent of electronic payment processing, however, the primary role of the ABA routing number has shifted from a sorting to a tracking and identifying function. There are now two types of ABA routing numbers, one for funds being credited to or debited from an account and the other for wire transfers. The code is used to set up direct deposits that will pass through the Automated Clearing House, to bill payments directly to customers, and to direct wire transfers. ABA routing numbers are also used in the process by which companies clear checks written at local businesses, such as the grocery store.

Finally, the ABA routing number is used by the Federal Reserve’s Fedwire, a real-time gross settlement funds transfer system. This network of over nine thousand participants allows for time-sensitive electronic transfers of large sums of money, including national debt payments. By 2009, over 631 trillion dollars had been transferred via Fedwire.

Limitation of the ABA Routing Number

ABA routing numbers are only used in domestic US money transfers; international money transfers use the SWIFT, IBAN, and BBAN code systems.