What Is a Routing Number, and Why Is It Important?

A routing number is a digit code found on paper checks that denotes the financial institution that issues the checks. The American Bank Association (ABA) initially created the routing number to smooth the process of writing paper checks. If a paper check is lost, the bank can trace the check back to its routing number.

If the check is found, it would have no bearing on the account holder’s bank account. According to the experts at SoFi, “Your account’s routing number identifies your financial institution, while your account number is unique to your checking or savings account.” You can always find more information on the above at Sofi Invest (SoFi Bank).

What is the difference between routing and account numbers?

When considering routing vs. an account number, the main difference is that the account number identifies a person, while the routing number identifies a bank or other financial institution.

The Federal Reserve Board assigns routing numbers, and each bank gets only one number. Therefore, it is impossible to change your bank’s routing number. Instead, banks must apply for a new one and pay an annual fee for this privilege. In addition, the Federal Reserve Board can revoke any existing routing numbers if they are deemed illegal or fraudulent by a court of law.

On the other hand, the account number is issued by the bank or other financial institution to the customer. This number is usually the same for all bank or financial institution customers, but it may vary from one account to another. For example, the account number is sometimes called the ATM number.

Purpose of A Routing Number

Identifies the Financial Institution

A person who wants to register with a financial institution needs to provide their routing number. Each financial institution has its own unique numbering system for its customers. For example, if a person wants to open an account at Bank ABC, they must provide their Bank ABC routing number. The bank will then assign the customer an account number and record it in the customer’s ledger records.

Tracking of Transactions

If a person pays bills with their own money, they can attach their routing number to the check so that it has a direct bearing on their account. This prevents the payment of fake bills. The bank will then record the transaction and update its ledgers accordingly.

Credit Card Fraud

Some banks use the routing number to prevent credit card fraud. For example, when a person signs up for a bank’s credit card, they must provide their bank routing number so that the bank can trace the payment back to its owner. The use of routing numbers effectively prevents fraud and other financial crimes.

Tax Payments

If a person pays taxes, they can attach their Bank ABC routing number to the check to directly trace it to them.

Insurance Fraud

Some insurance companies use the routing number as a means of preventing fraud. For example, when an insurance company receives a check for an amount less than the actual value of the policy, it may return it for insufficient funds or refuse to pay altogether. The credit card number is used to prevent fraud and other financial crimes.


Is it mandatory to have a routing number?

Routing numbers are mostly required while recording checks, for payment of consumer bills, for establishing a direct deposit, or for tax payments. Also, routing numbers are essential for both domestic and international wire transfers.

Is the IFSC and routing number the same?

No, IFSC is specific to banks in India. However, there are similar codes, like routing numbers.

Does every country have a routing number?

The USA is the only country that uses routing numbers. They use these numbers to receive money from a foreign bank account as well.

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