What Do Those Direct Deposit Acronyms Mean?

Most of us know what direct deposit is; in simple terms, it’s an EFT (Electronic Funds Transfer) from our employer to our bank of wages we have earned, made available to us on pay day.  But when it comes down to it, there are many helpful acronyms that you should be familiar with and be able to define.  

Let’s begin with NACHA, or National Automated Clearing House Association, which is the association that develops and maintains the operating rules and oversees ACH activities and procedures.  They also call themselves The Electronic Payments Association.

We start the direct deposit process by obtaining a void check from the employee.  First, find the ABA number (a 9 digit number or routing number of a specific bank, assigned by the American Bankers Association) and the employee’s bank account number.  Then, in order to send a file of employee direct deposits to the company’s bank, there is a setup of information that is required to direct the file to the proper bank through the ACH (Automated Clearing House network).

Next, identify the originator of the file, which is the individual or business, and then enter the correct ODFI (Originating Depository Financial Institution) information to identify which ACH institution will begin the process.  This file is then sent though the RDFI (Receiving Depository Financial Institution) and routed through the ACH network which disburses the funds appropriately.

Keep in mind this is only a high level overview of the intricacies involved with direct deposit!

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