Routing Number: A routing number is a nine-digit number that is used to identify a bank or any financial institution that partakes in transactions.
What is a routing number?
A routing number is a bank code that is used to identify a particular bank during any and all transactions. Each bank or financial institution is assigned a unique routing number. The routing number is printed on the bottom of all negotiable instruments, such as checks (or cheques) in order to specify on which bank or institution is the check drawn. Furthermore, routing numbers differ for checking and savings accounts, IRAs, lines of credit, and wire transfers.
The routing number is derived from a previous list of bank's transit number, which was formed by the American Bankers Association (ABA) in 1910. Now, in addition to banks and financial institutions, these routing numbers are also used by Federal Reserve Banks to process Fedwire funds transfers, and by the Automated Clearing House (ACH) to process direct deposits, bill payments, and other such automated transfers.
What are the other names for a routing number?
Routing numbers are also known as banking routing numbers, routing transit numbers (RTNs). In countries outside of theUnited States, the routing number may also be known as a clearing code or a sorting code. The SWIFT Code is a similar but different concept than a routing number. The SWIFT Code is an international labeling system that is essentially used for international money transfers. In some countries, other than theUnited Statesand inEurope, the SWIFT Code may also used for domestic transfers.
What are the different types of routing numbers?
There are two main types of routing numbers: one that is assigned and used by the American Bankers Association (ABA) and the one used by the Automated Clearing House (ACH). Both are essentially used for transfers within theUnited States of America.
TheABArouting numbers are used for debiting or crediting money to or from bank accounts, whereas the ACH routing numbers are used for wire transfers. In numerous cases, theABArouting numbers and the ACH routing numbers for a particular bank are the same. However, in some instances they are different. TheABArouting number is the one that is printed on the bottom of the check. The ACH routing number can be obtained from the bank.
What is the format of a routing number?
Both, theABA routing number and the ACH routing number are made up of nine digits. The first four digits are representative of the Federal Reserve Routing Symbol. The first two digits of these four must be in the ranges 00 through 12, 21 through 32, 61 through 72, or 80. They correspond to the 12 Federal Reserve Banks located in various different states. The third digit corresponds to the Federal Reserve check processing center originally assigned to the bank, while the fourth corresponds to which state in the Federal Reserve district the bank is located.
The next four digits of the routing number represent the ABA Institution Identifier, while the ninth and last digit is the Check Digit. The check digit provides a checksum test using a position-weighted sum of each of the digits. It effectively reduces the chances of the check being incorrectly routed.
How do routing numbers work?
Let’s consider an example:
Tom has an account with HSBC, while Harry has an account with Bank of America. When Tom writes a check and gives it to Harry, Harry will likely deposit the check with his own bank, Bank of America. Bank of America then uses the routing number to find the bank that issued the check, in this case HSBC. Bank of America, who got the check, will send an electronic request to HSBC, which issued the check. HSBC will then ensure that Tom is good for the check and has the specified amount in his bank account. HSBC will then debit Tom’s bank account of the specified amount and transfer the funds to Bank of America. Bank of America will then credit the bank account of Harry for the same amount.
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