What Is a Routing Transit Number?
A routing transit number is a nine-digit number used to identify a bank or financial institution when clearing funds for electronic transfers or processing checks in the United States. A routing transit number is also used in online banking and clearinghouses for financial transactions. Only federally chartered and state-chartered banks that are eligible to maintain an account at a Federal Reserve Bank are issued routing transit numbers.
- A routing transit number is a nine-digit number used to identify a bank or financial institution when clearing funds or processing checks.
- The American Bankers Association (ABA) established routing transit numbers in 1910.
- These numbers are also used in online banking and clearinghouses for financial transactions.
- Routing transit numbers are often used when setting up a wire transfer or direct deposit.
How Routing Transit Numbers Work
A bank’s routing transit number is located at the bottom of a check and is the first nine digits on the far left. The first four digits designate the Federal Reserve Bank of the district where the institution is located. The next four digits denote the bank itself, while the last digit is a classifier for the check or negotiable instrument.
The numbers following the routing transit number on a check are the account number and check number for the bank from which the funds are to be drawn. All checks written on state or federally chartered banks will have routing transit numbers on the bottom.
How Routing Transit Numbers are Used
Routing transit numbers are often used when setting up a wire transfer relationship with one’s personal or business bank. A wire transfer is an electronic funds payment across a network administered by hundreds of banks worldwide. While no physical currency moves among financial institutions during a wire transfer, information does pass between banks, including the recipient's account information, the receiver's bank account number, and the amount of the transfer. As a result, a correct routing transit number is critical to ensure sensitive information is directed to the appropriate receiving party and that the transaction goes through smoothly.
Routing transit numbers are also involved in direct deposits of money from employers paying employees and income tax refunds from the Internal Revenue Service (IRS). A direct deposit allows a sender to deposit funds directly into the receiver’s bank account electronically, instead of issuing a paper check.
"Routing number," "transit number," and "ABA number" are synonymous and can be used interchangeably.
Transit Number vs. Routing Number
There are a few terms that are synonymous with "routing transit number," including "routing number," "transit number" and "ABA number." ABA is an acronym for the American Bankers Association, which established these numbers in 1910. The terms "routing," "transit," and "ABA" are often used interchangeably. Routing numbers were originally established for checking accounts, but have since evolved to include identifying banks during electronic transactions as well.
Before the invention of the internet and the widespread use of computers, check fraud was a major issue. Fraudsters could falsify a routing number on a check and attempt to cash the check at a local bank. Without the banks being on an interconnected computer system, it was difficult to verify checking account routing numbers, leading to instances of fraud and theft.
Despite advancements in technology and improvements in security involving electronic transactions, fraud continues to be an issue for federal authorities. In February 2018 in Knoxville, Tenn., a jury found Randall Keith Beane and Heather Ann Tucci-Jarraf guilty of money laundering. Beane was also found guilty of wire fraud.
Under the guidance of Tucci-Jarraf, a former prosecutor who has a substantial online following as an advocate of the radical "sovereign citizens" movement, Beane took advantage of automatic delays present in money transfers within the United States banking system to purchase certificates of deposit (CDs). He used the U.S. Federal Reserve's routing number coupled with a fake checking account number to achieve this. Then Beane, a U.S. Air Force veteran, quickly liquidated the CDs and placed the new funds in his bank accounts with the United Services Automobile Association (USAA), an online banking service for military personnel. USAA rules allowed the funds to be withdrawn prior to the transaction's approval and funding, and Beane immediately did so.
He took that money, opened $31 million in CDs, and was able to cash in about $2 million before the USAA learned of the fraud. Beane used the cash to pay off debts and purchase a $500,000 motor home, with said purchase concealed by a trust set up by Tucci-Jarraf, according to prosecutors. The routing number of the U.S. Federal Reserve was key in allowing Beane and Tucci-Jarraf to pull off the financial stunt.