Clearing House Funds

Clearing House Funds is money that passes between Federal Reserve Banks in the form of personal or business checks prior to approval of credit. These funds are in the process of clearing and reconciliation through a central processing mechanism. Because of this, they are often not available for withdrawal on the day of deposit.

Clearing house funds differ from federal funds, which settle on the same day. Because clearing house funds are not drawn on reserves like federal funds, they generally take at least three days to clear. Clearing house funds are also used to settle any transaction on which there is one day's float.

An automated clearing house (ACH) is an electronic funds-transfer system run by the National Automated Clearing House Association (NACHA). This payment system deals with payroll, direct deposit, tax refunds, consumer bills, tax payments and many more payment services. The use of the ACH network to facilitate electronic transfers of money has increased the efficiency and timeliness of government and business transactions. The ACH system oversees more than 90% of the total value of all electronic payment transactions in the United States. NACHA reports that the ACH network increases by upward of $40 trillion a year, on average.

According to NACHA: The ACH Network is a batch processing system in which financial institutions accumulate ACH transactions throughout the day for later batch processing. Instead of using paper to carry necessary transaction information, such as with checks, ACH Network transactions are transmitted electronically, allowing for faster processing times and cost savings.

The ACH Network processes two types of transactions: Direct Deposits via ACH and Direct Payments via ACH. Direct Deposit via ACH is the deposit of funds for payroll, employee expense reimbursement, government benefits, tax and other refunds, and annuities and interest payments. It includes any ACH credit payment from a business or government to a consumer. Direct Payment via ACH is the use of funds to make a payment. Individuals or organizations can make a Direct Payment via ACH as either an ACH credit or ACH debit.

A Direct Payment processed as an ACH credit pushes funds into an account. An example of this is when a consumer initiates a payment through his/her bank or credit union to pay a bill. A Direct Payment processed as an ACH debit pulls funds from an account.  An example of this is when a consumer establishes a recurring monthly payment for a mortgage or utility bill, and his/her account is debited automatically.