DEFINITION of '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.

BREAKING DOWN 'Clearing House Funds'

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.

ACH Clearing

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 payrolldirect deposittax 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.  

RELATED TERMS
  1. Automated Clearing House - ACH

    An automated clearing house (ACH) is an electronic funds-transfer ...
  2. Electronic Payments Network (EPN)

    The Electronic Payments Network (EPN) is one of two clearing ...
  3. Clearing

    Clearing is when an organization acts as an intermediary to reconcile ...
  4. Same-Day Funds

    Same-day funds is a term for money that can be transferred or ...
  5. Cleared Funds

    Cleared funds are the balance in an account that is able to be ...
  6. Business Banking

    Business banking is a company's financial dealings with an institution ...
Related Articles
  1. Tech

    Is the Payment Processing Industry Evolving? (PYPL, TGT)

    Learn about the many changes in commerce and payment systems that are happening in the rapidly evolving payment processing industry.
  2. Tech

    5 Useless Financial Products That Will Disappear Soon

    Bank deposit slip: what's that? Everyday tools of our financial life that went from indispensable to obsolete.
  3. Managing Wealth

    Review: Discover Checking Account

    Will having a Discover checking account save you money? It will save you fees.
  4. Personal Finance

    Rules That Could Trash (or Help) Your Credit

    Cable bills and similar financial obligations will soon be factored into your credit score. Good news if you're an on-time payer. If not, become one!
  5. Small Business

    Best Checking Accounts For Small Businesses

    What you need to know to choose the best checking account for your small business – and where to look.
  6. Taxes

    Form 9465: Don't Pay Your Back Taxes Without It

    This form can lighten your tax load if you owe Uncle Sam. And you can often apply online.
  7. Personal Finance

    Is Making Biweekly Mortgage Payments A Good Idea?

    Do you think making two payments a month for your mortgage is a good idea? Think twice about that. We tell you why.
  8. Tech

    JPMorgan Applies for Blockchain-Payment Patent

    The bank filed for a patent for a distributed-ledger-based interbank payments system: USPTO.
  9. Investing

    How to Save Money on Your Mortgage

    These strategies can potentially save you thousands of dollars over the length of a mortgage.
  10. Personal Finance

    Where to Put Your Cash: Call Deposit vs. Time Deposit Accounts

    Time deposit accounts and call deposit accounts allow customers to earn higher interest in exchange for less access to their cash.
Trading Center