In 1910, The American Banker's Association (ABA) devised a numerical system to identify the bank on a negotiable item, such as a check. These numerical identifiers are still found on checks today. They consist of nine number and are usually listed in front of the account number on the bottom of the check. These nine-digit numbers are referred to as bank routing numbers because they locate or create a route back to the check's paying bank. The check's paying bank is responsible for crediting the bank cashing or depositing the check for the customer.
From 1910-1911, as the customer base grew and new banks opened, the ABA decided to appoint Accuity to serve as Registrar of the routing transit numbers. Accuity was able to create and assign new routing numbers, also known as ABA numbers, to banks that requested them. The ABA number consists of identifying numbers including the Federal Reserve Routing Symbol (four digits), the ABA institution Identifier (four digits), and a the check digit (one digit). Each Bank has been assigned at least one routing number. However, many banks have several routing numbers due to recent technology of processing means, such as the use of paper checks, wire transfers via the Federal Reserve, and electronic transfers.
Many people in the United states use paper checks for all sorts of reasons. They can be used to pay for goods or services, used as a paper trail for donations to charity, or used as gifts for holiday or birthdays. When these paper checks are deposited or cashed, bank us the routing number to look-up the paying bank in order to credit the customer. When a customer is depositing into their bank account another bank routing number, usually found on the deposit slip, may be used in order to credit their account.
Wire transfers are commonly used when people need to send cash quickly to another person. A good example of this would be when a customer purchases a home. The individual or institution selling the home usually wants to be paid with cash. The cash could come from an individuals account or a loan, either way it needs to be guaranteed. A wire transfer sends guaranteed funds from an account to another using the wire transfer routing and account number. These funds can be sent and received within minutes by using the Federal reserve to route the money to the receiver.
Many of the employed people in the United States are payed via an electronic funds transfer called a direct deposit. This type of processing uses the Automated Clearing House to send money from the employers bank account directly to the employees bank account using the employees routing and account numbers. By using this form of processing, the money is almost instantly transferred from the employer to the employee, and make it immediately accessible.
Another benefit from using ABA numbers in the United States is to prevent fraud. Criminals have been creating counterfeit checks since checks first appeared. As a security feature routing number directory's have been created and can be viewed by the general public. If an individual cannot find the ABA number for the check in question it cannot be cashed. Some counterfeit checks have fake routing numbers. Another security feature regarding the ABA number is the ability to search the check it self for the corresponding fraction form routing number. This fraction is usually found on the upper right hand side of the check near the date. The fraction will have the Federal Reserve routing symbol, the ABA institution identifier, and the check digit. If the ABA institution identifier is not a match within the routing number and the fraction form then the check may be a counterfeit.
As you can see, routing numbers are very important in the everyday activities of banking. Without routing numbers, banking would be very difficult and time-consuming.