Tenant wants to pay rent with EFT
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 0 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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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).
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.
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.
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.
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.
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.
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.
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:
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.
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.
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.
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.
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:
venmo.com/ https://rentshare.com/
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.
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.
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.
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.
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!!
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.
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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