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I live in Kentucky, USA. I rent out a house in Alabama, USA. My tenant wants to pay rent using electronic funds transfer rather than by mailing a check. This makes it easier for him to get my payment on time and it also comforts his fear of the check getting lost in the mail.

My understanding is that I must supply him with a routing and account number in order for him to electronically transfer the funds from his bank to mine. I am cautious about this but I couldn't find anything that explained why this might be dangerous to me. I even called my bank to find out if there is a more secure means of transferring funds and they advised me that someone would be able to make withdrawals from my account as well as deposits. That did not help ease my concern.

My plan is as follows:

  • Send my tenant the routing and account number for the checking account that I use solely for automatic withdrawals to a financial planner, some utilities, etc. It has, on average, about $300 in it.
  • Monitor the account as closely as I do all my finances - I keep track of everything to the penny - and watch for any abnormalities.
  • As a backup, rely on my bank as they stated that any abnormal withdrawals from an account will get flagged and held until they can confirm with me.

My question is, in general, is this a safe plan? In particular, I have these thoughts:

  • How can someone use the account number to withdraw money without my consent? (I'm satisfied with the reassurance that my plan is safe but this is the question I still can't figure out.)
  • I have 1 savings and 3 checking accounts with the same bank. Would they be able to gain access to the other accounts?
  • Is there a more secure and still free option that I have overlooked?
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    ` they advised me that someone would be able to make withdrawals from my account as well as deposits.` That does not make any sense. All banks include methods to transfer funds without using checks, and these methods do not allow withdraws. I have gotten wrong advise from my bank before, i would go in again an ask their advice on fund transfers. – Jonathon Aug 10 '15 at 20:28
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    In Europe you just give them your IBAN and they send you money, quite simple. Never heard of anyone paying via cheque… – o0'. Aug 11 '15 at 8:02
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    "I must supply him with a routing and account number" You realize that any time you write a check, you supply the recipient with both of these, right? They're both printed at the bottom of your check. – Kenneth K. Aug 11 '15 at 11:55
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    @BenjiWiebe That problem was already solved decades ago, in pretty much all the rest of the developed world apart from the US. Paying per bank transfer is the standard way to pay things like rent in many European countries like say Germany or Austria and it's a good deal more secure, faster and simpler than sending around checks (I had to deal with both systems in the past). – Voo Aug 11 '15 at 19:37
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    These banking questions from USA are always astonishing. What, "electronic funds transfer"? Does a non-electronic transfer even EXIST still? – Nemo Aug 11 '15 at 19:51

17 Answers 17

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Yes, it is safe, we have been doing it for years. We prefer our tenants to make their rent payments in this manner. In fact, we prefer that they set up an automatic payment for the rent, either through their online banking or through their bank directly.

Apart from getting your rent on time, this method also has the added benefit of both parties having their own records of rent payments through their bank statements, in case there is a dispute about the rent sometime down the track.

Having a separate bank account just for the rent does make sense as well, it makes it easier for you to check if rent has come in, it makes it easier if you need to compare your statement without having to highlight all the rent payments amongst all other payments (you might not want to show your other incomes and spending habits to others), and you can withdraw the rents to your other account (which might offer higher interest) after it has come in, leaving a small balance most of the time in your rent account.

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    I've ticked this answer because it is detailed, speaks from experience, and mentions a few advantages I hadn't thought of. I gave other helpful answer +1 so all those who contributed can receive some thanks. – Engineer Toast Aug 11 '15 at 21:02
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    I recently had a landlord ask to have automatic withdrawal from my checking account set up to pay the rent, and I refused. I don't pay anyone that way; it's too difficult for me to control if problems arise. Instead, I use his bank number and routing information to write a check each month for deposit only and give it to a teller in his bank branch. It deposits (almost) immediately, he doesn't have to bother with depositing my checks, and I don't have to submit to an automated payment scheme. – Robert Harvey Aug 12 '15 at 3:10
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    +1 This is how it's done in Germany by all the landlords I've had so far and the hand full of people I know beyond that who are landlords. I know that this is a US question but it might be helpful to others to know how it's done in Germany. – Sumyrda - Reinstate Monica Aug 12 '15 at 6:08
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    @RobertHarvey - so you would rather waist your time going to the bank every time the rent is due instead of setting up an automatic payment through your internet banking, which is very easy to cancel through internet banking as well. You simply select the payment schedule and cancel it. Takes less than 5 minutes to setup and less than 5 minutes to cancel. Get into the 21st century already! – Victor Aug 12 '15 at 21:58
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    @RobertHarvey - activating automatic payments from your own account is different from authorising service providers to make regular automatic withdrawals from your account. With the former you have total control through your bank. – Victor Aug 13 '15 at 5:53
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I'd consider this offer. Keep in mind, any time you write a check, there's the information he's asking for.

If it makes you feel comfortable, use the small balance account, or set up a 4th one you'll use for these incoming deposits only.

  • I had the same thought about the information being on my checks but I was thrown when my bank said that the information would allow someone to make withdraws as well. – Engineer Toast Aug 10 '15 at 17:03
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    If your bank allows someone to make a withdrawal with only the routing and account numbers, it might be time to look for a new bank. – BobbyScon Aug 10 '15 at 17:49
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    @BobbyScon: I've repeatedly heard Americans claim this is a (mis-) feature of the US routing system. The UK has some protection, in that it's possible here for someone to withdraw (via so-called "direct debit") using only your account number, but the "someone" has to be a corporate entity that has agreed the transaction will be reversed if you inform your bank that it was unauthorised. A random tenant can't set up a direct debit to himself from your account, but could e.g. supply your details to a charity, who would take money in good faith and your bank would have to sort out the mess. – Steve Jessop Aug 10 '15 at 18:31
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    ... and ultimately if the bank can't recover the money from an unauthorised direct debit it still must refund the customer. I haven't ever seen a conclusive statement either way from a US bank (perhaps because it doesn't affect me, I haven't looked hard), whether it's truly possible to set up a transfer out of an account using only the routing details, and if so what the procedure is for returning the money in case of unauthorised transfers. Either it's a massive urban myth (that convinced e.g. Don Knuth) or else it's true but something banks aren't too keen to trumpet about the place. – Steve Jessop Aug 10 '15 at 18:36
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    @BobbyScon Here in the US basically every bank permits that. Anywhere that accepts an e-check just needs the routing and account numbers. I can print off a physical check with someone's numbers if I wanted. – ceejayoz Aug 10 '15 at 20:08
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It's safe. You give people those numbers every time you write a check.

If a check is forged, and doesn't have your signature on it, the bank has to return the money to you; they get it back from the other bank, who takes whatever action it deems necessary against the forger. They've been doing this for a few hundred years, remember.

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    Note that writing personal checks is itself unsafe, at least according to Donald Knuth. – Kevin Aug 10 '15 at 15:24
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    @JoeTaxpayer: According to my link, he has written at least 275 checks to (largely) random strangers for small amounts of money. He concluded it is no longer safe to do so after having to close three checking accounts, and now writes checks from the fictitious "Bank of San Serriffe" (since most of the real ones had not been cashed anyway). – Kevin Aug 10 '15 at 16:26
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    @JoeTaxpayer: By the point one reaches the ~275 mark, I don't think it's an "anecdote" any longer. It's an (admittedly uncontrolled) experiment. – Kevin Aug 10 '15 at 16:31
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    I had the same thought but I was thrown when my bank said that the information would allow someone to make withdraws as well. – Engineer Toast Aug 10 '15 at 17:02
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    Moreover, people who get Knuth's checks often post scans online since getting one is worth serious bragging rights. So way more than a few hundred people have seen his numbers. – Almo Aug 10 '15 at 18:00
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What you've described is the norm in Australia, where it's rare for anyone under sixty to use cheques. Assuming they're transferring the funds using internet banking, I would have the following suggestions:

  1. You make it clear that the the funds must reach your account by the due date for rent. It is their (the tenant's) responsibility to allow for the normal transfer delay from their account to yours. This will save unpleasant arguments later if the rent is late.

  2. If you're not comfortable with your tenant knowing your banking details, set up another account specifically for receiving rental income payments and paying your costs associated with the property. This may have the added benefit of simplifying things at tax time.

Another alternative, which I think others have mentioned, is to use an escrow service like PayPal, but be aware that these kinds of services will usually charge a small percentage when you withdraw your funds.

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    +1 - Hey, I'm under 60 and still use cheques from time to time. Mostly do things by ETF over internet, but cheque payments can be useful to pay tradespeople (when they haven't got credit card facilities). They can be handy as well because you can make the payment but the funds remain in your account (earning you interest) until the tradesperson banks the cheques. – Victor Aug 11 '15 at 10:28
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How can someone use the account number to withdraw money without my consent?

They can use your account number to game your banks phone support and try to phish their way into your account.

Banks have gotten very good at combating this, but theoretically with just the address he lives in, your name, and a bad bank phone rep, he could get into your business.

The account number would just be one more piece of information to lead with.

I have 1 savings and 3 checking accounts with the same bank. Would they be able to gain access to the other accounts?

Dependent on how incompetent the bad bank rep I referenced above is, sure. But the odds are incredibly low, and if anything were to happen, the bank would be falling over itself to fix it and make reparations so that you don't sue for a whole crap ton more.

Is there a more secure and still free option that I have overlooked?

Opening up yet another checking account solely for accounts receivable and transfer to accounts payable would keep your financial records more transparent.

Also, banks are doing "money transfer by email" now, so I don't know how great that is for business transactions, but in that instance you're just giving out an email linked to a money receiving account instead of an actual account number.

Paypal is also a pretty good EFT middleman, but their business practices have become shady in the past 5 years.

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    I didn't consider phishing attacks. However, considering that I already have his SSN, credit history, and authorization to perform a background check, he's a lot more vulnerable to me than I am to him (for now). – Engineer Toast Aug 11 '15 at 20:55
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    Paypal business practices have been shady for closer to 15 years. – Timbo Aug 11 '15 at 22:02
  • Yup, you can get phished without ever having contact with anyone, because someone who has your sensitive information can give it up. I need to find a video I saw once. Dude calls a bank with a name and a phone number. Walks away with account numbers, ssn, addresses... the whole nine yards. – user2989297 Aug 11 '15 at 22:27
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    @user2989297 - gee, security in US banks musk be almost non-existent. In Australia we need to provide name, date of birth, address, security password (as a minimum), sometimes they even ask what the latest balance on the account was. Most business and private individuals here give out their account details for payments all the time, and I have never heard of anyone having their money ripped off. – Victor Aug 12 '15 at 21:53
  • The only difference between my experience and your experience is that id replace your use of "never" with "almost never". A lot of the points I raise go back to 2005 or earlier, where phone banking wasnt nearly as well regulated and most vulnerabilities were related banks trying to factor in handling online banking. When you call, generally its name, date of birth, and last 4 of social security. As you go into the conversation, more and more verification is needed. If the phone teller follows the guidelines, noone is stealing your identity. – user2989297 Aug 13 '15 at 15:34
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It isn't EFT, but you might mention to your tenant, that many banks offer a Bill Pay service (example) where the bank will automatically mail a check to the right person for you.

I have my rent setup this way. My bank will send a rent check directly to my landlord 5 days before it is due.

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    "comforts his fear of the check getting lost in the mail" - How does your answer address this? (by the way, I use this service nearly 100%. But I understand the postman still handles most of these) – JTP - Apologise to Monica Aug 14 '15 at 13:06
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I am able to set this up for my tenants by providing them with a form to fill out so that they provide their name and bank account information, and then I gave that to my bank and they establish a recurring ACH transfer. This way the tenant never gets my bank information.

One note about this, I had a tenant break her lease and move out. She notified me a couple of days before the first of the month, and by the time she had moved a few days later the rent had been automatically paid. She called her bank and asked them to reverse the most recent transaction so she could have that month's rent refunded, and much to my surprise, they did. So the financial transfer is not necessarily one-way.

This is in the US.

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In Britain it's standard practice to use an electronic bank transfer, otherwise known as a "standing order" for the monthly rent payment. Many letting agents insist on it here in Britain. It's rare to hear of fraud. It is possible to setup a Direct Debit with the account numbers, as happened in a famous case where Jeremy Clarkson claimed losing account numbers wasn't a problem. If a direct debit is taken from your account, then you are protected by the the Direct Debit guarantee which means that you get a full and immediate refund if there is any fraud or unexpected payments spotted.

Some landlords, particularly of bedsits accept plain old cash, however that's not recommended as there is no trace of it being paid, which could lead to legal disputes.

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The biggest disadvantage to you is that your tenant now knows your bank information, which means he can easily identify your source of money in the event he wins a lawsuit and wins a judgement. He will be able to have a court marshall freeze your account.

However, if you deposit your tenant's check into your account as opposed to an EFT, then your tenant can basically still obtain your bank account information and freeze your account, it would just take him a bit longer to get that information.

I am definitely anti-landlord in these situations because I've had to deal with so many bad ones here in NYC, but as a landlord, the best thing you can do is to create a "buffer" account for you to deposit tenant rent money into, then transfer the money from the buffer account to your regular account. This would prevent the tenant from knowing your personal bank information and greatly delay the tenant receiving his judgement from an assumed court win against you.

My source: I had to take my landlord to court, and after obtaining a judgement, I got a court marshall to begin the process of closing access to her account (she couldn't access the money in that account). The process resulted in her sending me a check (assuming from her other account) for the judgement since her account was frozen and she couldn't access any of her money.

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Other options would be to use paypal, your tenant would only need your e-mail address. Most banks have a similar system to do a person-to-person transfers. My bank uses an e-mail address and only the last 4 digits of the account number.

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    Paypal is an option, but it's not always free. – psmears Aug 10 '15 at 15:26
  • @psmears, isn't it never completely free? I thought they took a small % for each transaction (which may or may not be acceptable in OP's case). – Broots Waymb Aug 10 '15 at 16:22
  • @DangerZone: They have different fees based on country, whether you're funding from a credit card, debit card, bank account, whether it's a "friends and family" or "seller" transaction... some transactions are free, but I don't know whether any of those situations would apply to the OP. – psmears Aug 10 '15 at 16:56
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    It's a commercial transaction, so they'll want a cut. – user3757614 Aug 10 '15 at 17:28
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Similar to @SoulsOpenSource's answer, I would suggest Venmo, which works like PayPal but is free for debit-card-to-debit-card transactions. More information here.

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The mode of payment mentioned by your bank is called the ACH(Automatic Clearing House) which means that anyone(Trusted payment gateway owners like banks themselves) can process payments. There can be a fraud declared against any payment that you have made and you can get every single penny back. This amount can not be withdrawn in cash at all.

However for your situation I would suggest that you ask your bank to block any transactions above the amount of a specific sum, this way they will require your authorization to finalize the payment. You should feel safe after this.

Also no one can access any other account apart from the one whose details you are giving out so do not worry about this guy(or anyone else for that matter) to be able to access your other accounts.

Hope this helps. (I have experience in payment gateways so I do understand these procedures.)

Cheers!!

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You can consider opening accounts either in Paypal or Google Wallet. In this way, you link your bank information to these accounts and the only information you need to provide your tenant is your e-mail id. Its safe and in this scenario -- just money transfer through bank account, there is no fee either for the sender (your tenant) or the receiver (you).

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I live in Kenya, and also here we have corruption. However, we use EFT, RTGS, Mobile Money and its more safe than cheques.

Beware, that paper based payments cost you way more than anything electronic. Often the bank charge you for the cheque book, they charge for receiving paper based payment instruments, and settlement is often a day or two, while mobile/electronic settlement is instant.

Seen from a tenants perspective, its also easier. Imagine too, the small likelihood that you loose the cheques from your tenants?

Your fear for your account is understandable, but you may need to learn a little now, about how accounts are handled. In an online community only the persons with the necessary electronic credentials can withdraw from your account, being it online via your screen, or at the cashier, or by other means.

Therefore, your money are safer via the electronic means.

The cause of your concern / unease can be that you are relinquishing your control from a paper-based, visible system, into a system which you may not know so much about, maybe because of that you have not done so much on computers, yet.

As a most recent caveat, though, don't get into the so called bitcoin technology, it is not safe, and as you saw, most recently, the very owner himself became the perpetrator breaking his very own bank by artificially inflating amounts on his own account, according to Japanese authorities.

Now, electronic banking has been in existence since soon 40 years. Its based on cash, so behind the scenes, between the banks, huge deposits of cash are being moved physically, around from vault to vault, in the bank's money exchange / transaction settlement system.

Thereby, a bank does not need to physically transfer money from one physical bank building to another - as they have huge loads of cash stashed in central depositories, between which they can now exchange money as compensation for cheques and electronic transfers.

So, behind the scene of the electronic world, there are still physical cash being moved around, deep under the ground, in such vaults.

I hope this has given you a little bit of confidence in the "modern times". If you have further questions, you are welcome.

These were my 50 cents :-).

My background is in software development, where I have worked on banking systems for more than 10 years, making banking systems, as part of huge teams, working for the largest banks in the world.

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    A good answer. I just disagree on this statement ... "Its based on cash, so behind the scenes, between the banks, huge deposits of cash are being moved physically, around from vault to vault, in the bank's money exchange / transaction settlement system." This is not true in modern banking. The Physical Cash is less ... between banks as well its all electronic via central banks. Most money today is electronic [and no not bitcoins] – Dheer Aug 14 '15 at 12:03
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You could setup a Ally account to use solely for this. There is no minimum, no opening balance requirement, and you can do up to 6 transfers a month for free.

This would partition your money from other accounts, while giving you the flexibility to move it to other accounts with ease.

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Given a routing number / account number, it's easy to print a check with those details. All you need is a MICR font. No EFT needed.

I would recommend that instead, you get his account information, and set up a direct withdrawal. Of course, then you could potentially use HIS account fraudulently, but that would be true even if he just wrote you a check.

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    Technically you'd probably need MICR-compatible ink and/or toner too. Not that it's hard to obtain, but without it automatic check sorting systems will reject it because they can't read the numbers magnetically. – Doktor J Aug 11 '15 at 17:41
  • No, because of the Check 21 law, images of checks are valid to be presented to pay. – Brian Minton Aug 11 '15 at 19:58
  • Having worked at a bank, with automatic check sorting systems (from Unisys/Burroughs and NCR), I can verify that in many cases, the sorter has a camera that uses OCR if the magnetic ink doesn't read correctly. – Brian Minton Jan 19 '17 at 16:25
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Alternative solution with possibly better results: Use a 3rd party to transfer money between both of you.

2 Services you may want to look at:

Rent share might be the best option. We are using it to split payment between 3 people in our unit. The owner is getting a single check that appears to be coming from all of us. The payment is automatic and goes through every month. I'm not sure if you as the owner could collect money electronically as opposed to receiving a check. It sounded like you didn't necessarily care about that though.

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