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Checks seem like a pretty mundane part of banking, but when they say “Do not convert to ACH”, that means the payer doesn’t want the funds transferred electronically. Rather, they’re requesting manual processing.

Here, learn more about the implications of these five little words on a check.

ACH System 101

First, understand what ACH is. It stands for Automated Clearing House, which is an electronic system that transfers funds throughout the United States. This network allows individuals and businesses to move money from one financial institution to another, quickly and securely.

Every time you set up automatic bill pay, receive your paycheck by direct deposit, or write an eCheck, that’s the ACH network at work. Apps such as PayPal and Venmo also use the ACH network to send and receive money.

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How Does ACH Work?

ACH transfers are initiated by either making a withdrawal or a deposit into an account. You can send money to another account on a one-time basis — such as through an ACH debit to a utility company or a money transfer to a friend for your share of a restaurant meal — or opt into recurring payments. For example, some companies allow you to make automatic payments, such as for subscription services. In either case, you give permission for the receiver to initiate a withdrawal from your account.

You can also get money via an ACH credit. This happens when people receive a direct deposit of their paycheck or Social Security.

Once you or someone else initiates a transfer, the request will be processed first by your financial institution, typically in 1-3 days but sometimes by the next business day. You may be able to expedite the request or schedule a transfer for a future date.

Typically, ACH transfers are faster than traditional paper checks but slower than wire transfers. And while there’s a cross-border component, ACH is most closely associated with domestic U.S. payments. That’s one of the distinctions between an ACH vs. wire transfer, incidentally — the latter has a better global reach.

What Is Check Conversion?

Check conversion refers to the process of transforming a check payment into an electronic payment. This usually happens at one of these three points:

•   Point of purchase (POP), meaning when a purchase is made, say, at a store

•   Accounts receivable conversion (ARC), when a business receives a check by mail and then processes it electronically

•   Back office conversion (BOC), when a check is processed electronically after acceptance at, say, the office of a retail location

What Does Conversion to ACH Mean?

ACH conversion describes the fact that a paper check will be converted to a payment that’s processed through the ACH network. In other words, even though a paper check was written and used as payment, it’ll become an electronic ACH transfer.

Recommended: How to Cash a Check With No Fees

Why Might a Check Be Converted to ACH?

The main reason why a check may be converted is to save time and money when processing payments. Plus, converting a check payment to ACH could be more efficient, as it can help financial institutions detect potential bank fraud earlier, make fewer mistakes, and even result in fewer returned payments. The service of ACH transfers is typically free to consumers.

Can a Check Be Converted to ACH?

A check can be converted to ACH in many cases (unless it says “do not convert to ACH”) to help it move swiftly and securely. There’s no paper check to get lost or be forged, for instance.

How the conversion usually happens: When the check gets deposited in a checking account, the payment details are captured from the check. Then, the check itself will be stored securely by the financial institution — unless you have the physical check and are making a mobile deposit. If the check is converted in person, the original check will be voided and given back to the payer.

If the check was converted for ACH, it’ll typically appear on a bank statement as a direct payment (or withdrawal) in the same section as ATM withdrawals or other forms of electronic payments. It could also appear as a check payment — some banks include a scanned image of the check or include the payment details.

Recommended: How Much Are the Average ATM Fees?

What Does It Mean When a Check Says “Do Not Convert to ACH”?

When a check says “do not convert to ACH”, it means that the payer doesn’t want to make a payment electronically. Instead, the payment needs to be processed manually from one financial institution to another through the check collection system.

More specifically, it means the financial institution will contact the other financial institution to request the funds, which are then delivered through a central clearing facility — an ACH operator — which is either the Federal Reserve Bank or a private sector organization.

It’s rare to receive a check that says this on it, but if you do, there’s not much to be done to alter the payer’s request.

What Is the Benefit to the Drawee if a Check Says “Do Not Convert to ACH”?

Checks that say “Do not convert to ACH” may sometimes be printed when a payer is issuing multiple checks (for example, if a class action suit is being paid out). In this case, perhaps the check issuer doesn’t want the much faster electronic processing of their checks. Perhaps it suits them to have a slow payment process.

What Is the Difference Between ACH and a Check?

The difference between ACH and check payments is the network by which they’re processed. ACH payments are processed electronically through the ACH network, whereas nonconverted paper checks are processed manually. In many cases, ACH transfers are processed faster than paper checks since you may have to wait for a check to clear.

The Takeaway

When it comes to getting paid, converting a paper check to an ACH transaction is most likely the fastest, safest way. Unfortunately, there’s not much you can do if the check you receive says “Do not convert to ACH,” however rare that may be. You’ll probably need to deposit it and allow the extra time required for it to become available cash.

Most of us love the conveniences of banking today, and if you want to make a good thing even better, why not check out your options?

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FAQ

Can an ACH payment be declined?

Yes, an Automated Clearing House payment may be declined or rejected for a few reasons, the most common one being that the payer doesn’t have enough funds in their account for the transfer. Other reasons include that the account was closed by the time the transfer took place, the funds have been frozen, or the payer has stopped the payment request.

What does “ineligible for conversion” mean on a check?

If a check says “ineligible for conversion,” it means the check can’t be converted to an Automated Clearing House payment. This may be due to the paper the check was printed on. The payee needs to either cash or deposit the actual check at a local branch.

Why would a bank reject a check?

There are several reasons a bank would reject a check, including:

•   You don’t have an account at the bank where you want to cash the check.

•   You don’t have proper identification to show to the bank.

•   The amount may be too large for the financial institution to process.

•   The check is void (for example, the check is old and the payment is no longer valid).

•   The signature on the check doesn’t match what the bank has on file.

About the author

Sarah Li Cain

Sarah Li Cain, AFC is a finance and small business writer with over a decade of experience. Her work has been featured in numerous publications, including Kiplinger, Fortune, CNBC Select, U.S. News & World Report, and Redbook. Read full bio.

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Photo credit: iStock/fizkes

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We do not charge any account, service, or maintenance fees for SoFi Checking and Savings. We do charge transaction fees for outgoing wire transfers, Instant Transfers, and global remittance transfers. Our fee policy is subject to change at any time. See the SoFi Bank Fee Sheet for details at sofi.com/legal/banking-fees/.
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Although we do our best to recognize all Eligible Direct Deposits, a small number of employers, payroll providers, benefits providers, or government agencies do not designate payments as direct deposit. To ensure you're earning the APY for account holders with Eligible Direct Deposit, we encourage you to check your APY Details page the day after your Eligible Direct Deposit posts to your SoFi account. If your APY is not showing as the APY for account holders with Eligible Direct Deposit, contact us at 855-456-7634 with the details of your Eligible Direct Deposit. As long as SoFi Bank can validate those details, you will start earning the APY for account holders with Eligible Direct Deposit from the date you contact SoFi for the next 31 calendar days. You will also be eligible for the APY for account holders with Eligible Direct Deposit on future Eligible Direct Deposits, as long as SoFi Bank can validate them.

Deposits that are not from an employer, payroll, or benefits provider or government agency, including but not limited to check deposits, peer-to-peer transfers (e.g., transfers from PayPal, Venmo, Wise, etc.), merchant transactions (e.g., transactions from PayPal, Stripe, Square, etc.), and bank ACH funds transfers and wire transfers from external accounts, or are non-recurring in nature (e.g., IRS tax refunds), do not constitute Eligible Direct Deposit activity. There is no minimum Eligible Direct Deposit amount required to qualify for the stated interest rate. SoFi Bank shall, in its sole discretion, assess each account holder's Eligible Direct Deposit activity to determine the applicability of rates and may request additional documentation for verification of eligibility.

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SOBNK-Q126-119

A money order can be a convenient way to make payments or receive funds, but fake ones are out there, perhaps without the usual watermarks or in too high denominations. These fraudulent paper documents can leave you vulnerable to being scammed.

Knowing how to tell if a money order is real can protect you against financial losses. Read on to learn how to spot a fake money order.

Common Money Order Scams

First, a quick refresher on what a money order is. It’s a common way to pay for things when you can’t or don’t want to write a check, use a debit card, or pay cash. When someone purchases a money order, they’re getting a financial instrument that the recipient can cash or deposit just like a check.

Typical places to buy money orders include financial institutions, U.S. Post Office branches, Western Union and similar businesses, and major retailers (such as Walmart). Money orders are usually only available in denominations up to $1,000, and the fee to get one is usually just a few dollars.

Money orders are often used by scammers as a means of fleecing unsuspecting victims out of their money. Some scams are obvious, but others are more subtle in nature. Here, some specifics:

•   Fake buyers: Scammers may target people who are selling items on Craigslist, Facebook Marketplace, or other online forums by making a purchase and sending payment via money order. However, the money order is a fake, and by the time the seller deposits it into their bank account and learns the truth, the scammer has made off with their item.

•   Fake sellers: It’s also possible to fall prey to a money order scam if you’re trying to purchase something online. The seller, who appears legitimate, may ask you to send payment via money order while sending you a tracking number for the item you purchased. When the item arrives, however, you’re left holding nothing but an empty box while the scammer has cashed the money order and disappeared. Or worse, nothing ever arrives at all.

•   Refund scams: Another common money order scam involves buyers who purchase something from you, mail a fake money order, and then say they’ve changed their minds. They ask you to refund the amount of the money order and send it back to them via wire transfer or through a person-to-person payment app. Meanwhile, you try to deposit the money order when it arrives, only to find out it’s a fake and you’ve lost money.

•   Overpayment scams: One money order scam involves a buyer paying you for something via money order, but the amount is more than the purchase price. They’ll say they made a mistake and ask you to refund the difference. You do so, then find out later that you’ve been paid with a counterfeit money order. Then you’re out the amount you refunded the buyer.

•   Deposit scams: Scammers may try to take advantage of your goodwill by offering you a money order in exchange for cash. They might claim they don’t have a bank account to deposit the money order into, and you agree, thinking you’re doing someone a favor. However, you end up losing money when your bank refuses to accept the fake money order.

Recommended: Can You Purchase a Money Order With a Credit Card?

Tips for Spotting a Counterfeit Money Order

Fake money orders may not be easily recognizable at first or even second glance. Taking a close look at the money order can help you identify some clues that may suggest it’s a fake. Here’s what to look for to detect counterfeit money orders.

•   Watermarks: If you’re trying to cash a postal money order, the lack of watermarks is a sign that it’s a fake. The U.S. Postal Service includes a series of repeating watermarks on its money orders. If those are missing, you might have a counterfeit money order on your hands.

•   Dollar amounts: Check if the dollar amount matches the amount that the money order is supposed to be for. Are there any signs that someone has tried to erase or write over the dollar amounts or add an extra zero or two? Those can indicate attempted tampering or forgery.

•   Money order limits: Domestic postal money orders cannot exceed $1,000, and limits can vary by location for Western Union money orders within the U.S. International postal money orders can’t be more than $700. If you receive a money order that exceeds the allowed limit, then it’s likely a fake.

•   Discoloration: Any discoloration or what looks like an ink bleed could suggest that someone has tried to alter the money order in some way or that they’ve printed it themselves, which would make it a fake.

Worth noting: While the U.S. Postal Service is a popular place to get money orders, keep in mind that options are available. Money orders obtained through other sources typically deploy different measures to prevent tampering or duplication, which may include watermarks or security strips. You can familiarize yourself with them via their websites or customer service to help detect a falsified money order.

Recommended: 10 Personal Finance Basics

Tips to Verify a Real Money Order

If you receive a money order as payment, here are some steps you can take to ensure it’s not a fake before trying to cash or deposit it:

•   Examine the money order: As mentioned, there are several physical indicators that can tip you off to fake money orders. Once you receive a money order, give it a thorough examination to see if there’s anything that hints that it might be a fake. How to spot a fake money order can involve looking for discoloration, watermarks, and the like.

•   Check the serial number: Money orders are issued with a unique serial number. If you’d like to make sure a money order is real, you can call the customer service number that’s listed on it to double-check that the serial number is legit.

•   Take it to the issuer: Another option for verifying that a money order is real is to take it back to where it was issued. That might mean visiting a post office or calling its verification line at 866-459-7822. Or you might go to a Western Union location or a branch of the bank from which it was issued, or you could try calling instead. Someone who works at one of these locations should be able to determine whether the money order is authentic.

•   Wait it out: If someone gives you a money order as payment, you could deposit it into your checking account and wait for it to clear. In the meantime, you wouldn’t want to spend any of the funds from the money order, nor would you want to send any money back to the other person until your bank has verified it and made the funds available to you.

You might try one or all of these methods to prove that a money order isn’t a fake. If you send payment to someone else via a money order, it’s also a good idea to keep your receipt so you have a means of tracking it. That could help you avoid any issues later if the person you sent the money order to claims they never received it.

What Happens If You Accept a Fake Money Order?

Accepting a fake money order or any other type of fake check can lead to unintended financial consequences. Here’s what can happen if you try to deposit a counterfeit money order to your bank account:

•   You won’t receive any of the funds the sender promised to you.

•   If funds are deposited, you’ll be responsible for paying the money back to your bank.

•   The bank may charge you a returned item fee for the deposited money order, meaning it can’t be processed.

•   Should you make purchases against the money order amount and the deposit is later reversed, you may be charged overdraft fees if the reversal leaves your account balance in the red.

There’s a possibility that you could also get into legal trouble if the bank believes that you knowingly deposited a fake money order. In a worst-case scenario, you may be charged with bank fraud or money laundering, both of which could result in jail time and fines if convicted.

Recommended: 7 Money Management Tips

Ways to Report a Money Order Scam

If you believe you’ve been scammed by someone using a money order, it’s important to report it to try and minimize any financial damage. How you report a money order scam can depend on which entity issued the money order:

•   In the case of postal money orders, to report fraud, call the U.S. Postal Service’s hotline at 877-876-2455.

•   For Western Union money orders, you’d need to get in touch online or by phone; their number is 800-448-1492.

With bank-issued money orders, you could call or visit a branch of the bank. You’ll also want to let your bank know that you’ve received and deposited what you believe is a fake money order. That can prevent the bank from attempting to honor the money order and potentially avoid triggering bank fees for you when it fails to clear.

Tips to Protect Yourself From Being Scammed

Money order scams continue to make the rounds, but that doesn’t mean you have to get taken in. Taking steps to protect yourself can help you avoid potentially costly scams:

•   Avoid accepting money orders from strangers or anyone who isn’t a trusted sender.

•   Ask for alternative forms of payment, such as a wire transfer or person-to-person payment.

•   When sending money orders to others, first verify the identity of the recipient to make sure they’re legit.

•   Look for signs of forgery or tampering if you receive a money order from someone as payment.

•   Attempt to verify a money order before depositing it to a bank account.

Finally, it’s important to trust your gut. If something feels off to you or you’re buying something with a money order and the deal seems too good to be true, it probably is.

The Takeaway

Money orders can be a convenient way to pay, but they can also leave you vulnerable to scammers. You can attempt to verify money orders before depositing them, using techniques such as checking for watermarks on U.S. Postal Service money orders and looking for signs of tampering with the amount. If you have a bank account, you might consider using other ways to pay bills or send funds to eliminate the odds of being hit by a money order scam.

Looking for a secure home for your money, one that makes transferring funds easy?

Interested in opening an online bank account? When you sign up for a SoFi Checking and Savings account with eligible direct deposit, you’ll get a competitive annual percentage yield (APY), pay zero account fees, and enjoy an array of rewards, such as access to the Allpoint Network of 55,000+ fee-free ATMs globally. Qualifying accounts can even access their paycheck up to two days early.

FAQ

Can you file a complaint about a fake money order with your bank?

If you receive a fake money order and deposit it into your bank account, it’s a good idea to let the bank know as soon as possible. While you could report it to the bank, there may be nothing the bank can do about the scammer, but your actions might help you avoid, say, overdraft fees. You could also report fake money orders to the issuing entity, such as the U.S. Postal Service or Western Union.

Do scammers get your information if you fall victim?

Most financial scams involve the exchange of information, such as a scammer asking you for your name and address so they can purchase a money order to send to you. Other scammers may attempt to gain direct access to your bank account. When buying or selling online, it’s important to use caution, protect your sensitive personal and financial information, and keep it away from scammers.

What is the most common tell of a fake money order?

A lack of watermarks is usually a sign that a money order is a fake, as most issuers include them as a security measure, most notably the U.S. Postal Service. Other red flags include smudged ink, numbers that don’t match up to the amount the money order is supposed to be, and signs of physical alteration or damage.

About the author

Rebecca Lake

Rebecca Lake has been a finance writer for nearly a decade, specializing in personal finance, investing, and small business. She is a contributor at Forbes Advisor, SmartAsset, Investopedia, The Balance, MyBankTracker, MoneyRates and CreditCards.com. Read full bio.

SOBNK-Q126-121

Market value is a common term used in value investing to describe how much a company or asset is trading for on exchanges and in financial markets. Essentially, it’s the value of a security in the eyes of market investors. Understanding the current standing of a business in its particular industry and the broader market is important when making investment decisions.

What Is Market Value?

Market value, also referred to as open market valuation (OMV), is the price of an asset in an investment marketplace or the value the asset has within a community of investors. For publicly traded companies, market value is often reflected by market capitalization, which is calculated by multiplying the current share price by the number of outstanding shares. Read on to learn what market value is and how to calculate market value.

Market value represents the price that investors will pay for an asset and therefore changes significantly over time. The more investors will pay for the asset, the higher the market value.

What investors are willing to pay depends on various factors, including the fundamentals of the asset itself as well as the business cycle and current levels of demand for that asset. Market value could be anything from under $1 million for small businesses to more than $1 trillion for large corporations.

It can be more straightforward to determine the market value of publicly traded assets since information about their outstanding shares and share prices are publicly available. It may be harder to determine the market value of illiquid assets, however, such as real estate or a private company. Market value per share is a company’s market value divided by its number of shares.

Factors That Impact Market Value

Many factors determine market value, including a company’s profitability and its debt levels. Market value fluctuates significantly over time and often moves in tandem with the overall market sentiment.

During bull markets or economic expansions, market values often increase, and during bear markets, they go down. Other factors influencing market value include:

•   The company’s performance

•   Long-term growth potential

•   Supply and demand of the asset

•   Company profitability

•   Company debt

•   Overall market trends

•   Industry trends

•   Valuation ratios such as earnings per share, book value per share, and price-to-earnings ratio (P/E ratio)

Earnings per Share

The higher a company’s earnings per share, the more profitable it is. A more profitable business has a higher market value, and vice versa.

Book Value per Share

Investors calculate a company’s book value per share by dividing its equity by its total outstanding shares. A company with a higher book value than market value may have an undervalued stock.

Price-to-Earnings Ratio (P/E Ratio)

Investors calculate P/E ratio by dividing a company’s current stock price by its earnings per share. A higher P/E ratio means a stock’s price might be high relative to its earnings.

💡 Quick Tip: When you’re actively investing in stocks, it’s important to ask what types of fees you might have to pay. For example, brokers may charge a flat fee for trading stocks or require some commission for every trade. Taking the time to manage investment costs can be beneficial over the long term.

How Is Market Value Calculated?

There are multiple ways to calculate market value. Here’s a look at a few of them:

Income method

There are two methods of calculating market value using income:

•   Discounted Cash Flow (DCF): To find discounted cash flow, investors project a company’s future cash flow and then discount it to find its present value. The amount it gets discounted reflects current market interest rates, along with the amount of risk the business has.

•   Capitalized Earnings Method: With capitalized earnings, investors find the value of a stable, income-producing property by taking its net operating income over time and dividing it by the capitalization rate. The capitalization rate is an estimate of how much potential return on investment the asset has.

Assets Method

Using the assets-based approach, investors determine an asset’s fair market value (FMV) by assessing how many liabilities and adjusted assets a company has, including intangible assets, unrecorded liabilities, and off-balance-sheet assets.

Market Method

Using a market-based approach, there are a few more ways market value can be determined:

•   Public Company Comparable: This method compares similar businesses that are in the same industry or region and about the same size. Ratios like P/E, enterprise value (EV)/Revenue, and EV/EBITDA can help compare all the similar companies.

•   Precedent Transactions: Using the precedent transactions method, market value reflects how much investors paid for other similar companies’ stock in previous transactions. Investors can get a sense of a company’s value by comparing it to similar companies.

Recommended: How to Buy Stocks: Step-by-Step Guide

Example of Market Value

Using the capitalized earnings valuation method, here’s an example of the market value calculation. The formula for calculating capitalized earnings is as follows:

Market value = Normalized earnings/capitalization rate

Normalized earnings reflect a company’s stable earnings over time (discounting one-time events), and the capitalization rate is the required rate of return for investors, a number reached by subtracting a company’s expected growth rate from the investor’s expected rate of return. For this example, we’ll make things simple and say that the capitalization rate is 10%, and the company’s earnings are $1 million.

Using the formula: Market value = $1 million/10%

That calculates to $10 million.

Limitations of Market Value

Market value is a very useful tool for understanding how much a company is worth and whether it’s a good time to invest in or sell its stock. However, it has a few limitations:

•   Fluctuation: Company stocks go up and down every day, so market value is always changing. Various factors affect market value, and it can be volatile, which is important for investors to keep in mind when making trading decisions.

•   Precedent Data: It’s easier to find market value for established businesses because it requires historical pricing data to find it. New businesses don’t have such data, making it harder for investors to determine their market value.

The Takeaway

Market value is very useful for analyzing a stock. It’s more straightforward to calculate the market value of assets such as stocks and futures traded on exchanges because their prices are readily available. Establishing the market value for less frequently traded assets can be difficult and requires some assumptions and calculations.

Calculating market value can be useful for investors of all stripes, but it can be easy to get lost in the math. Be sure to double-check your numbers and consider the limitations of market value before making investment decisions.

Ready to invest in your goals? It’s easy to get started when you open an investment account with SoFi Invest®. You can trade stocks, ETFs, or options through self-directed investing with SoFi Securities, or simply automate your investments with a robo advisor from SoFi Wealth. You'll gain access to alternative investments and upcoming IPOs, and can plan for retirement with a tax-advantaged IRA. With SoFi, you can manage all your investments, all in one place.

FAQ

Is market value the same as market capitalization?

Market value is the price of an asset in a competitive marketplace, reflecting what buyers would be willing to pay for it. It can refer to a company or a security, such as a stock, a future, or an asset. Market capitalization is the value of the total number of outstanding shares of a company, based on its current market value.

Is market value the same as book value?

Market value and book value per share, or explicit value, are different and can vary widely, but they are often used in conjunction by investors looking to gain an understanding of an asset’s value. Book value is the net value of a company’s balance sheet assets, while market value is the price buyers are prepared to pay for an asset.

What factors can affect market value?

Market value can be influenced by factors such as supply and demand, investor sentiment, economic conditions, and industry trends. Company performance, interest rates, and new financial information can also affect how investors value an asset.

Photo credit: iStock/SeventyFour