Most people don’t really know what a routing number really is or how it works. You can’t cash a check, set up a direct payroll deposit, or transfer money without it. So, it must be pretty important. Could you live out the rest of your life without knowing? Actually, not really. It’s an important piece of information that directly concerns your bank account.
What Exactly is a Routing Number?
A routing number, or routing transit number, is a nine-digit number that identifies all the players involved in the processing of a check. The number is assigned to a bank or credit union primarily to distinguish one institution from another. Instead of relying simply on the name of the bank to know where to send the check, the routing number provides a direct route to the correct bank to eliminate confusion and delays. In the old days, a processing bank would use the routing number to identify the originating bank and address to mail the check for payment. In the digital age, the routing number can be digitally captured so check payment can be made nearly instantaneously.
The routing number is actually a set of three different numbers that identify all parties involved in the transaction. Here is an example:
The first two digits identify the institution responsible for clearing bank transactions, which is typically a Federal Reserve Bank. There are twelve Federal Reserve Banks located across the U.S., so the number will range from 1 through 12. If you bank with a credit union, the first two digits would range from 21 to 32. The third digit corresponds to the bank processing center and the fourth digit represents the state in which the bank is located. The next four digits are the bank’s ABA identifying number – 0035 in the above example. The final digit – 8 – is referred to as the check digit.
Due to the many bank mergers that have occurred over the years, one bank may have several routing numbers, but customers will only see the one that applies to their bank’s particular location. No two banks will ever have the same routing number.
How Can You Find Your Bank’s Routing Number?
Since 1910, when routing numbers were first established, they have been imprinted at the bottom of checks just to the left of the account number. But, in an increasingly check-less society, many people never see the routing number until they are asked for it when they need to set up an online financial transaction, such as a direct deposit or a money transfer. If you don’t use checks, you can locate your bank’s routing number on your bank statement or on your bank’s website.
Most banks provide a link to your account number which will also include the routing number. Alternatively, you can look up your bank’s routing number online by typing in your bank’s name and the state in which your branch is located.
Why Might You Need Your Routing Number
You will need to provide your bank’s routing number any time you want to set up a transaction using your checking account. This would happen when you set up direct payroll deposit with your employer. Any time you set up a bill payment – one time or recurring – using your checking account, you will be asked to provide your bank’s routing number. Other types of transactions would include a money transfer using an electronic funds transfer. If you want to receive your tax refund as a direct deposit, you will have to provide the IRS or your state tax board with a routing number.
A question that invariably comes up is what happens when you provide an incorrect routing number. Quite simply – nothing. Whatever transaction you were trying to make will not go through. In most cases, you will be informed right away if the routing number you provide is incorrect. When entering the routing number online, a message will appear confirming the name of the bank. If you enter a wrong number, you will be asked to re-enter a number. It’s important to note that routing numbers can change, especially if your bank goes through a merger or reorganization.
Where Did Routing Numbers Come From?
In the early 20th century, commerce was increasingly being conducted with check payments. It was a time when the banking industry was growing very quickly, making it more difficult to distinguish banks that had similar names. It became clear that a system was needed which could definitively identify the bank on which a check was written.
The ABA introduced routing numbers in 1910 for that purpose and as a way to speed up check processing. There weren’t any computers back then, but having the nine digits printed on the check allowed bank processors to direct the checks more quickly and with greater accuracy. Instead of months, a check could be processed within a matter of weeks or even days.
Flash forward to the electronic check-cashing networks where banks and merchants can run a check through a machine and instantly capture the routing number. In the early stages of computerized check processing, it could still take days before the paying bank received and cleared the physical check. Now, with remote capture technology, checks are processed within a day, sometimes within hours. So much for check float where you could write a check and count on the slow processing system to give you a couple of extra days to get funds in your account. Today, your funds need to be available the day you write the check. It is largely because of routing numbers that money is able to move at digital speed these days.