Differences Between a Deposit and Withdrawal

Differences Between a Deposit and Withdrawal

If you’re wondering what is the difference between a deposit and a withdrawal, the truth is that they are exact opposites: A deposit is money put into a bank account for safekeeping until you need it. A withdrawal is money that’s taken out of your account. At the most basic level, one of these transactions is about getting money and the other is all about paying, or spending.

But that’s not the full story about deposits vs. withdrawals. You have many choices when it comes to getting money into your account and taking it out. Read on for more about how deposits and withdrawals work, their similarities, and their differences. Once you know the different ways that funds can flow through your accounts, you’ll be that much savvier a financial customer.

What Is a Deposit?

A deposit, from the ancient Latin word deponere, means to “place in the hands of another.” In terms of banking, a deposit means you put your money in the hands of a brick-and-mortar or online bank to safely hold it for you. Deposits add to your funds, which helps your bank accounts pay your bills or stash your cash until you are ready to spend it. This influx of money can happen in a few different ways, which we’ll review in a moment.

How a Deposit Works

A deposit involves adding cash or check(s) to your bank account. You can do this in person at a bricks-and-mortar branch of your bank, at ATMs in your bank’s network or, for checks, by using a bank’s mobile app.

You can also receive a deposit by electronic transfer from one bank account to another account (whether yours or someone else’s). For example, if you are paid by direct deposit, that moves money from your employer directly into your account. Or perhaps you receive a government benefit this way. In addition, you might receive funds via a P2P service, like PayPal or Venmo, and could then move the money into your checking or savings account.

Worth noting: Both bricks-and-mortar and online banks offer many different kinds of deposit accounts. You could consider a high-interest checking or savings account at a traditional or online bank, or, if you don’t need to access the money every day, you may want to look into a money market account or a certificate of deposit (CD).

Whether you are a college student with birthday gift money you want to save or a parent raising a growing family, you can find a place to safely put your money and track it until you need it.

Types of Deposits

There are many ways to put money into your bank account today. A generation or two ago, only cash or a check could do the trick, but now you have many options to top up the funds in your bank. To be specific, here are the ways to make a deposit and give your bank account an infusion of cash:

•   Cash deposit at one of your bank’s ATMs or branches

•   Check deposit at one of your bank’s ATMs or branches

•   Check deposit electronically via your bank’s mobile phone app

•   Payroll direct deposit

•   Electronic funds transfer from a linked savings or checking account or via mobile payment services such as PayPal, Venmo, Cash App, or Zelle

What Is a Withdrawal?

Now, let’s take a look at the other vital aspect of banking: withdrawing, or taking money out of your account. You can do that several ways, including using your debit card at an ATM, requesting the money in person from a bank teller, writing a check, scheduling an electronic bill payment, having the money transferred via a payment app, and wiring the money to someone.

As you may know, some of these methods of withdrawing funds can involve fees. If you use an out-of-network ATM, for instance, you can get hit with a charge. Some companies add a surcharge if you sign up for the convenience of electronic payments vs. writing a and mailing a check.

How a Withdrawal Works

The difference between a withdrawal and deposit is that withdrawals draw, or take, money out of your bank account. You might withdraw cash from your bank account to put in your niece’s Bat Mitzvah card, write a check (or authorize an electronic payment) to pay the electricity bill, or use a P2P service to pay a friend back.

Any funds removed count as a withdrawal. Depending on your bank’s checking account terms, you may have limited or unlimited withdrawals. Often, there are savings account withdrawal limits. In the past, the number was typically six per month, though these restrictions have largely been eased in recent years.

Types of Withdrawals

Let’s take a closer look at how to withdraw or debit funds from your bank account. Know these ways to get money out when you need it.

•   Cash withdrawal at ATM with a bank or prepaid debit card (though there will likely be ATM limits to the amount you may withdraw)

•   Cash withdrawal in person at one of your bank’s branches

•   Checks written from your account

•   Cardless withdrawals of cash using phone app at ATMs in your bank network

•   Bank-issued cashier’s check in person or online

•   Cashing a certificate of deposit (CD) at bank (if this is done before the maturity date, you may owe an early withdrawal fee)

•   Funds transfer from brokerage account

•   Electronic funds transfer from a linked savings or checking account or via mobile payment P2P services such as PayPal, Venmo, Cash App, or Zelle

•   Electronic bill pay (recurring or not)

Similarities and Differences Between Deposits and Withdrawals

Deposits and withdrawals are two of the most common banking terms. Here are the differences and similarities you should know. It comes down to deposit (plus) vs. withdraw (minus). Check this chart for more details.

Differences

Deposits

Withdrawals

Adds to bank account balance
Immediately reflected in bank account balance
Transaction can only be done at in-network ATMS
Cashier’s checks can be managed at your bank branch

How Deposits and Withdrawals Are Similar

Here’s what these two kinds of banking transactions have in common.

•   Both can be done in person at ATM or branch in your bank’s network (except for check withdrawals, which can only be completed in person or online).

•   Both can involve electronic funds transfer from a linked bricks-and-mortar, an online savings or checking account, or via mobile payment services, such as PayPal, Venmo, Cash App, or Zelle.

How Deposits and Withdrawals Are Different

Now, let’s take a look at some of the key ways in which these transactions are different.

•   A withdrawal leaves you with less money in the bank while a deposit puts more money in the bank. In this way, they are opposites.

•   A withdrawal will immediately be reflected in your account balance, while a deposit may take longer to show up, until the funds clear.

•   Cash deposits generally have to be made at your bank or bank’s branded ATM network locations, while cash withdrawals can be made at any ATM. (But beware, if the ATM is out of your bank’s network, you could be charged an ATM fee by both the ATM owner and your bank.)

•   Check deposits have to be made at your bank or bank’s branded ATM network locations, or via a bank’s mobile phone app.

•   Check withdrawals via cashier’s checks, on the other hand, are likely only available in person at one of your bank’s or credit union branches. Alternatively, you could request one online from your brick-and-mortar or online bank or credit union.

The Takeaway

Now you know the difference between a deposit and a withdraw. They are inverse transactions: While a deposit adds funds to your account and boosts your balance, a withdrawal whisks money away, subtracting an amount from the funds you have on balance. There are many ways to conduct each of these transactions today, largely due to tech offering new options. You can now do your banking in person or use an array of digital tools to send or receive money.

SoFi can make banking much better than basic. Our high interest bank accounts are super-convenient to set up and use, and we offer a hyper-competitive 1.25% APY. You can also write checks, set up bill pay, and have access to 55,000+ (fee-free) ATMs worldwide. Oh, and did we mention? No account fees, period.

See how much your money can grow with SoFi.

FAQ

What is a cash withdrawal?

A cash withdrawal involves converting funds you are holding in an account (perhaps an investment plan, a trust, or a pension) into cash that you can then deposit elsewhere or use.

What is a cash deposit?

A cash deposit is money that you add to your bank account. It could come via an electronic transfer, an ATM deposit, or currency that you hand off to a bank teller.

What is the difference between a deposit and a withdrawal?

The difference between a deposit and a withdrawal is that a deposit adds funds to your bank account while a deposit takes funds away.


SoFi® Checking and Savings is offered through SoFi Bank, N.A. ©2022 SoFi Bank, N.A. All rights reserved. Member FDIC. Equal Housing Lender.
SoFi members with direct deposit can earn up to 1.25% annual percentage yield (APY) interest on all account balances in their Checking and Savings accounts (including Vaults). Members without direct deposit will earn 0.70% APY on all account balances in their Checking and Savings accounts (including Vaults). Interest rates are variable and subject to change at any time. Rate of 1.25% APY is current as of 4/5/2022. Additional information can be found at http://www.sofi.com/legal/banking-rate-sheet
Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.
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Guide to Environmental, Social, and Governance (ESG) Investing

When it comes to making investment decisions, more and more individuals and organizations consider environmental, social, and governance (ESG) factors. ESG investing focuses on companies that are considered to be leaders in sustainability and have a positive impact on the environment and society.

If you’re interested in ESG investing, it’s essential to understand the nuances, benefits, and risks of this growing trend. It would help if you did the research to make sure you invest in companies that align with your values and follow ESG standards.

ESG Definition

ESG, which stands for environmental, social, and governance, refers to non-financial criteria that investors use to determine whether companies are socially and environmentally responsible.

There is, however, no universally shared set of ESG criteria used by all investors or financial firms to evaluate a company’s soundness or risk along these lines. Nonetheless, the following are some of the most common factors that investors consider when evaluating ESG standards.

Environmental

The environmental component of ESG criteria might include metrics on a company’s energy emissions, waste, and water usage. Investors may also focus on the risks and opportunities associated with the impacts of climate change on the company and its industry.

Some company information that environmentally conscious investors may evaluate include:

•  Pollution and carbon footprint

•  Water usage and conservation

•  Renewable energy integration (such as solar and wind)

•  Climate change policies

💡 Recommended: How to Invest in EV Stocks

Social

The social component of ESG generally describes the impact of a company’s relationships with people and society. Factors as varied as corporate culture, commitment to diversity, and how much a company invests in local organizations or communities can impact socially-conscious investors’ decisions on buying into a specific corporation.

Some other social factors can include:

•  Employee pay, benefits, and perks

•  Diversity, equity, and inclusion

•  Commitment to social justice causes

•  Ethical supply chains (e.g., no sweatshops, conflict-free minerals, etc.)

Governance

The governance component of ESG generally focuses on how the company is run. Investors want to know how the board of directors, company, and shareholders relate to one another.

Some additional governance factors that investors evaluate include:

•  Executive compensation, bonuses, and perks

•  Diversity of the board of directors and management team

•  Transparency in communications with shareholders

•  Rights and roles guaranteed to shareholders

What Is ESG Investing?

ESG investing is a type of strategy that considers environmental, social, and governance factors when making investment decisions. Investors use these criteria to screen potential investments; if a business’s operations don’t follow ESG standards, investors may avoid putting money into the company.

There are several reasons people and institutions might choose to invest in companies that prioritize ESG factors. For some, it is a way to align their values with their investment portfolio. Others believe that companies that take ESG factors into account are likely to be more financially successful in the long run.

But, as mentioned above, there is no agreed-upon set of standards for what makes a company ESG friendly. Companies committed to ESG operations may publish sustainability reports to give investors some insights into the firm. Additionally, third-party organizations have stepped in to create ESG scores for companies and funds based on their adherence to various ESG factors.

How ESG Scores Work

ESG scores – sometimes called ESG ratings – are designed to measure a company’s environmental, social, and governance performance. Investors use them to assess a company’s risks and opportunities concerning these three areas.

An ESG score is calculated by analyzing a company’s data on environmental, social, and governance policies and practices from various sources, like SEC filings, government databases, and media reports.

A high ESG score means a company manages ESG risks better than its peers, while a low ESG score means the company has more unmanaged ESG risks. Evaluating a company’s ESG score, along with financial analysis, can give investors a better idea of the company’s long-term prospects.

Some of the most prominent ESG score providers are MSCI, Morningstar Sustainalytics, and S&P Global.

ESG vs SRI vs Impact Investing

ESG investing is sometimes called sustainable investing, impact investing, or socially responsible investing (SRI). However, impact investing and socially responsible investing are often viewed differently than ESG investing.

Some of the differences between the three investment strategies are:

•  ESG investing focuses on a company or fund’s environmental, social, and governance practices and traditional financial analysis.

•  Socially responsible investing eliminates or selects investments according to specific ethical guidelines. Investors following an SRI strategy may avoid investing in companies related to gambling and other sin stocks, along with companies that may damage the natural environment.

•  Impact investing is generally done by institutional investors and foundations. Impact investing focuses on making investments in companies or projects specifically designed to generate positive social or environmental impact.

Types of ESG Investments

Investors can make ESG investments in the stocks and bonds of companies that adhere to ESG criteria or have high ESG scores. Other potential investment vehicles are mutual funds and exchange-traded funds (ETFs) with an ESG strategy.

Stocks

Buying stocks of companies with environmental, social, and governance commitments can be one way to start ESG investing. However, investors will often need to research companies that have ESG credibility or rely on third-party agencies that release ESG scores.

💡 Recommended: How to Analyze a Stock

Bonds

The bonds of corporations involved in ESG-friendly business practices can be a good option for investors interested in fixed-income securities. Green and climate bonds are bonds issued by companies to finance various environmentally-friendly projects and business operations.

Additionally, government bonds used to fund green energy projects can be an option for fixed-income investors. These bonds may come with tax incentives, making them a more attractive investment than traditional bonds.

💡 Recommended: How to Buy Bonds: A Guide for Beginners

Mutual Funds and ETFs

Investors who don’t want to pick individual stocks to invest in can always look to mutual funds and exchange-traded funds that provide exposure to ESG companies and investments. A growing number of index funds invest in a basket of sustainable stocks and bonds. These funds allow investors to diversify their holdings by investing in one security. However, not all ESG funds follow the same criteria and may focus on different aspects of environmental, social, and governance issues.

💡 Recommended: A Beginner’s Guide to Investing in Index Funds

Benefits of ESG Investing

ESG investing has several benefits, including:

•  Improving long-term financial performance: A growing body of evidence suggests that companies with solid ESG ratings may be good investments. They tend to outperform those with weaker ratings, both in share price performance and earnings growth.

•  Mitigating risk: ESG factors can help identify companies with poor governance practices or exposure to environmental and social risks, leading to financial losses.

•  Creating social and environmental impact: By investing in companies that are leading the way on environmental, social, and governance issues, investors can help drive positive change and make a positive impact on society.

These potential benefits are increasing the popularity of ESG investing. According to Bloomberg, global ESG assets may surpass $41 trillion by the end of 2022 and reach $50 trillion by 2025, up from $22.8 trillion in 2016.

How to Start an ESG Investment Portfolio

If you are interested in creating an ESG portfolio, you can start by contacting a financial advisor that can help you shape your investment strategy.

However, if you are ready to start investing and want to build a portfolio on your own, you can follow these steps:

•  Open a brokerage account: You will need to open a brokerage account and deposit money into it. Once your account is funded, you will be able to buy and sell stocks, mutual funds, and other securities. SoFi Invest® offers an active investing platform where you can start building your ESG portfolio.

•  Pick your assets: Decide what type of investment you want to make, whether in a stock of a company, an ESG-focused ETF or mutual fund, or bonds.

•  Do your research: It’s important to research the different companies and funds and find a diversified selection that fits your desires and priorities.

•  Invest: Once you’re ready, make your investment and then monitor your portfolio to ensure that the assets in your portfolio have a positive social and financial impact.

It is important to remember that you should diversify your portfolio by investing in various asset classes. Diversification will help to reduce your risk and maximize your returns.

ESG Investing Strategies

ESG investing can be different based on values and financial goals. It’s therefore essential to start with your investment goals and objectives when crafting an ESG investing strategy. Consider how ESG factors can help you achieve these goals.

It’s also crucial to understand the data and information available on ESG factors; this will vary by company and industry. When researching potential ESG investments, you want to make sure a company has a clear and publicly-available ESG policy and regularly discloses its ESG performance. Additionally, it can be helpful to look at third-party scores to determine a company’s ESG performance.

The Takeaway

If you want to learn more about ESG investing, several resources are available online and from financial advisors. Doing your research and talking to a financial advisor can help you determine if ESG investing is right for you.

There is no “right” way to invest in ESG companies. What matters most is that you are comfortable with the companies you are investing in and believe in their ability to create long-term value.

Investors interested in making ESG investments can use the SoFi app to help. With SoFi Invest®, you can trade stocks and ETFs to build an ESG portfolio. And if you’re not ready to pick stocks and ETFs by yourself, SoFi’s automated investing robo-advisor will build a portfolio for you with no SoFi management fee.

Get started investing with SoFi Invest


SoFi Invest®
The information provided is not meant to provide investment or financial advice. Investment decisions should be based on an individual’s specific financial needs, goals and risk profile. SoFi can’t guarantee future financial performance. Advisory services offered through SoFi Wealth, LLC. SoFi Securities, LLC, member FINRA / SIPC . SoFi Invest refers to the three investment and trading platforms operated by Social Finance, Inc. and its affiliates (described below). Individual customer accounts may be subject to the terms applicable to one or more of the platforms below.
1) Automated Investing—The Automated Investing platform is owned by SoFi Wealth LLC, an SEC Registered Investment Advisor (“Sofi Wealth“). Brokerage services are provided to SoFi Wealth LLC by SoFi Securities LLC, an affiliated SEC registered broker dealer and member FINRA/SIPC, (“Sofi Securities).
2) Active Investing—The Active Investing platform is owned by SoFi Securities LLC. Clearing and custody of all securities are provided by APEX Clearing Corporation.
3) Cryptocurrency is offered by SoFi Digital Assets, LLC, a FinCEN registered Money Service Business.
For additional disclosures related to the SoFi Invest platforms described above, including state licensure of Sofi Digital Assets, LLC, please visit www.sofi.com/legal. Neither the Investment Advisor Representatives of SoFi Wealth, nor the Registered Representatives of SoFi Securities are compensated for the sale of any product or service sold through any SoFi Invest platform. Information related to lending products contained herein should not be construed as an offer or pre-qualification for any loan product offered by SoFi Lending Corp and/or its affiliates.

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ACH vs Check: What Are the Differences?

ACH vs Check: What Are the Differences?

Nowadays there are plenty of options for moving money around, and two of the most common, ACH and checks, have some key differences. Both of these popular payment methods are convenient and secure, so it can be hard to know which one to choose. But in your financial life, there will probably be times when one is a lot better suited to your needs than the other. Don’t worry, we’re going to walk through everything that’s important to know about ACH payments and checks to help you use the right method.

Keep reading for a breakdown of ACH vs. check, the pros and cons of each, and how they stack up. Then you’ll totally understand the differences between the two.

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What Is ACH and How Does It Work?

An ACH transfer (named after the Automated Clearing House network) is an electronic banking transaction that is processed through the ACH network. The network is a major financial hub, made up of around 10,000 institutions. Through the ACH network it is possible to process the following transactions:

•   Direct debits

•   Direct deposits

•   Direct payments

•   Electronic checks (eChecks)

•   Electronic funds transfers (EFTs)

Businesses and consumers have the option of using ACH transfers to make direct payments (known as ACH debit transactions) or direct deposits (ACH credit transactions). Some financial institutions even make it possible to schedule and pay bills electronically via ACH transfers. You are probably familiar with ACH transactions when you set up autopay on an account, whether its a utility bill or your gym membership.

You may wonder how long ACH transfers take. Because they are electronic, ACH transfers can clear banks in a matter of a few business days as long as there are enough funds in the account. However, there are times where ACH transactions will take longer. This is especially common if a transaction is suspected to be fraud.

However, for something like a direct deposit of a paycheck, ACH can be quite quick. When the payment hits your checking account, it’s immediately available. You don’t have to run around with a paper check that needs to be deposited. That can make a big difference between getting paid by ACH vs. a check, for sure.

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Pros and Cons of ACH

Like any financial tool, ACH transfers have some advantages and disadvantages worth considering. Here’s a closer look at some important pros and cons.

Pros

Cons

•   Free. Most ACH transfers are free

•   Errors can be reversed. You can sometimes request a transaction reversal for ACH transfers if an error occurs

•   Simple and straightforward. Convenient form of payment allowing you to pay without cash

•   Fees can apply. May need to pay a fee to expedite bill-pay services or to make a transfer to an outside bank

•   Slow timeline. Can take up to three days for a transfer to go through

•   Potential roadblocks. Daily transfer limits apply

What is a Check?

A check is a payment method that involves making a payment using a paper check that has the payment amount and the payee’s bank account information on it. Once someone writes a check, the recipient can cash it and receive the funds.

Pros and Cons of Using a Paper Check

Checks are one of the most basic and time-honored financial tools at your disposal. They allow you to move money around without paying a fee, and they are a secure way to do this. What’s more, checks create a paper trail with proof that funds have been received.

But they can wind up costing you, they can take longer than you might expect, and sadly, there are scams that prey upon those who use checks. Let’s see what some of the pros and cons of using a check to make payments or to receive payments are in chart form.

Pros

Cons

•   No fees. Electronic payments can come with fees but there are no fees associated with checks.

•   Safe way to send money. Cash can be lost or stolen. If a check is lost or stolen, the person who finds it will have a hard time cashing it thanks to handy security features.

•   Proof of payment. Checks have a paper trail confirming proof of payment.

•   Check scams exist. Check scams can be dangerous and easy to fall for.

•   Checks cost money. Typically, you don’t pay a fee when you use a check, but it costs money to buy checks, and depending on your situation, you might have to pay a fee to cash a check at some locations.

•   Processing delays occur. Paying by cash, credit, or electronic transfer can occur more quickly than paying by check.

ACH vs Check: The Differences

Now that we’ve examined both separately, let’s look at what the difference is between ACH and checks side by side. It’s important to note that both have their own unique set of advantages and disadvantages, but overall stack up against each other fairly evenly. Much of the choice about which to use will depend on your particular circumstances and preferences. Here’s the difference between ACH and checks.

ACH

Check

•   For the most part, ACH transfers are free unless a rush fee or a fee for transferring to an outside bank applies.

•   It is sometimes possible to request a transaction reversal for ACH transfers if an error occurred.

•   ACH payments are fairly simple and easy to conduct.

•   ACH transfers can take a few days to clear.

•   There are no fees associated with checks, but consumers do have to buy the checks to be able to use them.

•   Checks offer a safe way to make payments. Even if they are lost or stolen it’s hard for anyone other than the recipient to cash them.

•   Checks provide a conienvent paper trail that cash payments lack.

•   Checks can take several days to clear.

Recommended: Average Savings by Age

Which Should You Consider Using?

There’s no right or wrong answer when it comes to choosing a check over an ACH transfer. Both have unique advantages and disadvantages. Consider these scenarios:

•   Because it’s possible to set up recurring ACH transfers, that can be a much more convenient option if someone wants to schedule ongoing payments such as rent or bills.

•   Checks, which are very secure and convenient, may be a better fit for one-off payments such as paying the babysitter or a hairdresser.

As you see, the decision depends on what best suits your needs for a particular transaction.

The Takeaway

It’s worth understanding the difference between check and ACH payment options. Both ACH transfers and checks offer benefits. They are very secure, can transfer money within a few days, and provide easy ways to make payments. Neither is better than the other; they’re just different. Which one is the “best” will often depend on the unique preferences of both parties involved in the transaction. You may well find yourself toggling between the two during your everyday financial life.

While you’re thinking about which kinds of payments work best for you, consider this great way to bank better with SoFi. Our linked checking and savings accounts, when opened with direct deposit, offer an easy way to help your money grow. You’ll earn a super-competitive 1.25% APY, pay no account fees, and get access to your ACH paycheck up to two days early.

See how much better banking can be with SoFi.

FAQ

Is an ACH payment a check?

No, ACH payments are an electronic transfer processed through the Automated Clearing House network, which is a network made up of around 10,000 financial institutions. A check is a different kind of payment, using a paper document and being processed in a different way.

Is ACH better than checks?

Not necessarily. Whether or not an ACH is a better payment method than a check depends on the unique preferences of the two parties involved in the payment. That being said, generally ACH payments are free whereas it costs money to buy checks for use.

Is ACH cheaper than checks?

When it comes to check vs. ACH costs, ACH payments can be cheaper than checks in some cases, but not always. ACH payments are free, whereas consumers generally need to buy checks to use for payments. However, you may run into fees when doing an ACH payment.

Is ACH safer than a check?

Both checks and ACH transfers are very secure, but ACH payments are known to be more secure, thanks to the extra layers of protection in place due to encryption that occur during the transfer. Both checks and ACH transfers do require that the identity of the recipient be verified before the transaction can complete. Fraud and mistakes can occur for both payment types.


SoFi® Checking and Savings is offered through SoFi Bank, N.A. ©2022 SoFi Bank, N.A. All rights reserved. Member FDIC. Equal Housing Lender.
SoFi members with direct deposit can earn up to 1.25% annual percentage yield (APY) interest on all account balances in their Checking and Savings accounts (including Vaults). Members without direct deposit will earn 0.70% APY on all account balances in their Checking and Savings accounts (including Vaults). Interest rates are variable and subject to change at any time. Rate of 1.25% APY is current as of 4/5/2022. Additional information can be found at http://www.sofi.com/legal/banking-rate-sheet
Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.
Third-Party Brand Mentions: No brands or products mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third-party trademarks referenced herein are property of their respective owners.

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ACH Return Codes (R01 - R33): Understanding What They Mean and What to Do

ACH Return Codes (R01 – R33): Understanding What They Mean and What to Do

ACH return codes are generated when an ACH (Automated Clearing House) payment fails to process and therefore gets returned. Usually, ACH payments can be a huge convenience for so many transactions, like setting up automatic monthly bill pay or receiving direct deposit of one’s paycheck. But when conducting business, there are likely to be times when a transaction doesn’t work as expected. ACH return codes indicate exactly what went wrong.

Here, we’ll take a look at what ACH return codes are, what the most common ones mean, and what to do if you receive one. With this knowledge, you’ll be better prepared to understand and respond if you get an ACH return code notification.

What Are ACH Return Codes?

To understand what an ACH return code is, it helps to understand what ACH returns are. ACH returns occur when an ACH payment (in other words, an online payment transaction) can’t be completed.

There are a few reasons why these transactions aren’t successful, including:

•   The originator providing inaccurate payment information or data

•   The originator providing non-existent or inadequate authorization

•   The originator isn’t authorized to debit the client’s account with an ACH payment

•   The recipient doesn’t have enough funds

Once an ACH transaction is returned to the originator (the one who requested payment), a specific return code — sometimes referred to as ACH return reason codes — will be generated. This return code will let all parties involved in the transaction know why the ACH payment needed to be returned. These parties can include originators, receivers, and banks.

Essentially, each ACH return code provides the reason for why the assets weren’t collected from the originator’s account; say, why an automatic bill pay that was previously running well suddenly stopped or why a one-time payment could go through. To put it a different way, it explains why the Originating Depository Financial Institution (ODFI) or why the Receiving Depository Financial Institution (RDFI) wasn’t able to transfer the assets to the recipient’s account.

ACH return codes can help identify the problem with the transaction and quicken the ACH transfer processing time.

If an ACH return occurs, the consumer will be on the hook for an ACH return charge. It’s similar to when a check bounces; the consumer pays a small fee; in this case, usually $2 to $5.

The timing of ACH transactions is usually quite quick. Similarly, ACH returns tend to be processed pretty fast. If you’re tracking ACH transactions, you’ll see that most ACH refunds only take about two banking days to occur. That being said, some ACH return codes can result in the return taking as much as sixty banking days to process.

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Common ACH Return Codes

Now that you have a solid overview of ACH returns, let’s take a look at some common ACH return codes. We’ll explain what they mean, as well as what to do when faced with one.

Code: R01
Meaning: Insufficient funds (the account’s available balance isn’t sufficient to cover the funds transfer, similar to being in overdraft)
What to do: Attempt the transaction again as a new transaction within 30 days of the original authorization date (up to two times)

Code: R02
Meaning: Account closed (a once-active account has been closed)
What to do: Request the customer provide a different bank account or form of payment

Code: R03
Meaning: No account exists or unable to locate account (even though the account number structure is valid, it doesn’t pass the check digit validation)
What to do: Contact the customer to confirm their routing number, bank account number, and the name on the bank account. If this information differs from what was originally entered, submit a new payment with these new details

Code: R04
Meaning: Invalid account number
What to do: Obtain the correct bank account number and submit a new payment with that account number

Code: R05
Meaning: Unauthorized debit entry
What to do: Contact the customer and ask for a new form of payment or for them to call their bank and remove the block on transactions (aka authorize the funds transfer)

Code: R06
Meaning: Returned at ODFI’s request (ODFI requested that the RDFI return the ACH entry)
What to do: Request that the RDFI agree to return the entry and then the ODFI must indemnify the RDFI according to Article Five

Code: R07
Meaning: Authorization revoked by customer
What to do: Suspend recurring payment schedules entered for this specific bank account to prevent additional transactions from being returned. Then address the issue with the customer and try to resolve the issue by getting a new form of paying or asking to debit a new bank account

Code: R08
Meaning: Payment stopped or stop payment on item (the receiver of a recurring debit transaction can stop payment on any specific ACH debit)
What to do: Contact the customer to resolve the issue and then re-enter the returned transaction again with proper authorization from the customer, or get a new form of payment

Code: R09
Meaning: Uncollected funds (even though a sufficient book or ledger balance can meet the transaction value, if the transaction brings the available and/or cash reserve balance below the dollar value of the debit entry, then a return will occur)
What to do: Try the transaction again, and re-enter it as a new one within 30 days of the original authorization date (up to two times)

Code: R10
Meaning: Customer advises not authorized, item is ineligible, notice is not provided, signatures are not genuine, or item is altered (adjustment entries)
What to do: Receiver can request credit from the RDFI for an unauthorized debit within 15 days after the RDFI sends the receiver information regarding the debit entry. It’s also possible to immediately suspend any recurring payment schedules entered for this bank account or to ask the customer for a different form of payment or account to debit

Code: R11
Meaning: Customer advises that the entry doesn’t comply with authorization terms
What to do: The originator can correct the underlying error and resubmit the corrected entry as a new entry

Code: R12
Meaning: Branch sold to another DFI (development financial institution)
What to do: Obtain the customer’s new routing and bank account information, and submit a new transaction

Recommended: What is Liquid Net Worth

More ACH Return Codes

The following ACH return codes are less common than those mentioned previously, but still occur and are worth knowing. Here’s a look at what makes these codes tick:

Code: R13
Meaning: RDFI not qualified to participate in ACH or the provided routing number is wrong
What to do: Confirm originally submitted routing information is correct, or get the correct routing number from the customer to use when submitting a new payment

Code: R14
Meaning: Representative payee is deceased or can’t continue in that capacity
What to do: No further action can be taken

Code: R15
Meaning: Beneficiary or account holder is deceased
What to do: No further action can be taken

Code: R16
Meaning: Account is frozen and funds are unavailable
What to do: Obtain a new payment form

Code: R17
Meaning: File record edit criteria — specify (or, to rephrase it, the entry cannot be processed by the RDFI)
What to do: The fields causing the processing error need to be identified in the addenda record information field of the return

Code: R20
Meaning: Non-transaction account (aka an account against which transactions are prohibited or limited)
What to do: Contact the customer and request the authorization to charge a different bank account or for a new form of payment

Code: R21
Meaning: Invalid company identification
What to do: No further action can be taken

Code: R22
Meaning: Invalid individual ID number
What to do: No further action can be taken

Code: R23
Meaning: Credit entry is refused by the receiver until certain conditions are met
What to do: Work with the customer to clear up the issue, or have them work with their bank to resolve it. The customer needs to confirm the refund will be accepted, and then it’s possible to refund the transaction

Code: R24
Meaning: Duplicate entry
What to do: The originator can generate a reversal transaction

Code: R29
Meaning: Corporate customer advises ACH payment is not authorized
What to do: Suspend recurring payment schedules, and then address the issue with the customer. Have them provide new payment information or contact their bank to authorize the payment

Code: R31
Meaning: Permissible return entry (CCD, or cash concentration disbursement, and CTX, or corporate trade exchange, only)
What to do: The business bank account holder or the bank can request a return and the ODFI can choose to accept this late return. It’s also possible to ask for a different form of payment or bank account

Code: R33
Meaning: Return of XCK, or destroyed check, Entry
What to do: No further action can be taken

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The Takeaway

To recap, what are ACH return codes? In short, ACH return codes represent the reason why an electronic Automated Clearing House payment could not be completed. Knowing what each code represents can help determine what the next steps should be to keep payments flowing smoothly or refunds being completed. Typically, ACH transactions are a convenience and allow for faster, easier transfers of funds. Codes are part of this quick way to conduct transactions.

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FAQ

What causes an ACH return?

ACH returns occur when an Automated Clearing House payment can’t be completed. When this happens, an ACH return code is generated; this code provides a reason for the return.

What is ACH return fee?

When ACH returns occur, a fee is charged. It’s similar to how a bounced check incurs a fee. How much this fee will cost varies, but generally it costs around $2 to $5. The consumer pays this fee.

How long does an ACH refund take?

ACH refunds move fairly quickly. Typically an ACH refund only takes about two banking days to occur. However, for some ACH return codes, the refund period can be as long as sixty banking days.


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What Is Flight to Quality?

What Is Flight to Quality?

Flight to quality, also known as flight to safety, is when investors shift their assets away from riskier investments — like stocks — into conservative securities – like bonds. This reaction often occurs during turbulent times in the economy or financial markets, and investors want to put their money into relatively safe assets.

Because flight to quality is a term that’s often thrown around in the financial media, investors need to know what it is and how it can potentially impact an investment portfolio. A flight to quality is a short-term trading strategy that might not be ideal for long-term investors. But it’s still important for investors to know how the broader trend affects the financial markets.

What Causes Flight to Quality?

Economic uncertainty is why investors look to rejigger their portfolios away from volatile investments to conservative ones. Moments of economic uncertainty that spook investors can arise for various reasons, including geopolitical conflict, a sudden collapse of a financial institution, or signs of an imminent recession.

A flight to quality usually refers to a widespread phenomenon where investors shift their portfolio asset allocation. This large-scale change in risk sentiment can generally be seen in declines in stock market indices and government bond yields, as investors sell risky stocks to put money into more stable bonds.

Though a flight to quality usually refers to a herd-like behavior of most investors during economic uncertainty, individual investors can make a similar move at any time, depending on their risk tolerance and specific financial situation.

💡 Recommended: Bear Market Investing Strategies

What Are the Effects of Flight to Quality?

During periods of flight to quality, investors trade higher-risk investments for lower-risk ones. This shift commonly results in a decrease in the price of high-risk assets and boosts the price of lower-risk securities.

As mentioned above, investors can see one effect of a flight to quality in the price of major stock market indices and bond yields, as the market shifts money from the risky stocks to safer bonds.

But a flight to quality doesn’t mean that investors will necessarily shift out of one asset (stocks) into another (bonds). For example, investors worried about the economy might sell growth stocks in favor of more reliable value or blue-chip stocks, pushing the price of the growth stocks down and boosting the price of the blue chips.

💡 Recommended: Value vs. Growth Stocks

A flight to quality may also shift investment from emerging market stocks to domestic stocks or from corporate bonds to government bonds.

In addition to moving funds from stocks to bonds or other assets, investors may also move money into cash and cash-equivalent investments, like money market funds, certificates of deposit, and Treasury bills, during periods of economic uncertainty. These cash investments are very liquid and will not usually fluctuate in value, making them ideal for investors that desire stability.

Real-World Example of Flight to Quality

A flight to quality occurred during the early stages of the Covid-19 pandemic and related economic shutdowns. Investors scrambled to figure out their portfolio positions in the face of an unprecedented global event, selling stocks and putting money into relatively safe assets.

The S&P 500 Index fell nearly 34% from a high on Feb. 19, 2020, to a low on Mar. 23, 2020, as investors sold off equities. But investors didn’t rush to put this money into high-grade corporate and government bonds, as many would have thought in a regular flight to quality. A record $109 billion flowed out of fixed-income mutual funds and exchange-traded funds (ETFs) during a single week in March 2020. Instead, investors moved capital into cash and cash-like assets during this volatile period in a desire for liquidity.

The Takeaway

A widespread flight to quality that creates volatility in the financial markets can be scary for many investors. When you see decreases in a portfolio or 401(k), it can be tempting to follow the broader market trends and shift your asset allocation to safer investments. However, this is not always the best choice, especially for investors trying to build long-term wealth.

Are you ready to invest and build wealth for the long term? You could start investing today by opening an online brokerage account with SoFi Invest®. SoFi Invest offers an active investing solution that allows members to choose stocks and ETFs without paying commissions.

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For additional disclosures related to the SoFi Invest platforms described above, including state licensure of Sofi Digital Assets, LLC, please visit www.sofi.com/legal. Neither the Investment Advisor Representatives of SoFi Wealth, nor the Registered Representatives of SoFi Securities are compensated for the sale of any product or service sold through any SoFi Invest platform. Information related to lending products contained herein should not be construed as an offer or pre-qualification for any loan product offered by SoFi Lending Corp and/or its affiliates.

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