Cash Deposit: A Definition

The term “cash is king” is still as relevant as ever. But sometimes making a cash deposit could make you look suspicious. In other words, if you deposit a large amount of cash into your bank account, banks may hold your money temporarily because the transaction may be flagged for fraud.

That’s not to say you can’t make a large cash deposit – it’s all in how you do it. It’s important to know what cash deposits are, why they’re important, and how they might impact your mortgage application during the home buying process.

What Is A Cash Deposit?

A cash deposit is an amount of money that a person deposits into their bank account through an electronic transfer, ATM or in person with a bank teller. The cash is usually put into money market, checking or savings accounts. Some examples of common cash deposit sources include:

• Income earned from tips or side gigs paid in cash
• Repayment of a personal loan you provided to someone else
• Money you borrowed from a personal loan
• Gift money from a birthday, wedding or graduation
• Donations or fundraiser collections
• Money from a garage sale or sale of large assets, such as a car, boat or piece of furniture
• Cash stashed or saved somewhere other than a bank account

What Forms Of Money Can You Use For A Cash Deposit?

Deposits can be in the form of cash, checks or money transfers. The money may come from various income sources, including:

• Paychecks
• Money orders
• Tax refunds
• Distributions from retirement accounts
• Social Security
• Trusts
• Stocks
• Bonds
• Mutual funds

Why Are Cash Deposits Important?

Cash deposits are crucial to understanding how to transfer money without incident. For instance, if you make a cash deposit of $10,000 or more, the bank must report this activity to the IRS in accordance with the Bank Secrecy Act of 1970. The point is to monitor where money comes and goes to prevent potential fraud – think counterfeit money and stolen cash. In most cases, you’ll be fine, but the bank may hold on to the deposit temporarily if it suspects fraud.

Plus, if you’re buying a house, lenders will scrutinize large cash deposits to ensure the money was obtained legally and wasn’t loaned to you. More specifically, lenders are looking to see that you’re not borrowing money to inflate your income, that the funds are from legal sources and that you’re not misrepresenting your financial situation in any way.

How To Deposit Cash Into A Bank Account: 5 Common Ways

As mentioned briefly above, you can make a cash deposit through financial institutions. Here are more specific ways you can do so depending on your location and type of financial institution.

1. ATM

You can deposit cash into a bank account using an ATM – all you need is your debit card. First, insert or tap your card, then follow the prompts on the machine on how to make a transaction. If you have physical cash on you, you’ll be prompted to put it into the correct slot. Keep in mind many third-party network ATMs may not accept cash deposits.

2. Local Bank Or Credit Union

Heading to a local bank or credit union to make a deposit is as simple as showing up and filling out a deposit slip. Information you’ll need includes the account holder’s name, account number and the amount you want to deposit. To deposit money into someone else’s account, you’ll need their banking details, which includes the account number, routing number of the financial institution and their full name.

3. Online Bank

Using an online bank to make a cash deposit is as easy as following the prompts once you log in to your account. Though you won’t need a physical deposit slip, you’ll be asked to provide some of the same information to successfully make a cash deposit at an ATM that is affiliated with your bank. Not all online banks accept cash deposits through ATMs, however, so be sure to check with yours.

4. Wire Transfer

When transferring money from one bank account to another, a wire transfer is an option many people use for its convenience. From the comfort of your own home, you can send or receive cash via wire transfer. All that’s needed is the recipient’s account number, routing number and name.

5. Personal Check

While not nearly as prevalent as they once were, personal paper checks are still a reliable way to deposit money into a bank account. All you need to do is fill out the check correctly, or, if someone else is giving you money and has filled it out already, endorse the check by signing it. The check can then be deposited into your account of choice at your financial institution, online or from the institution’s smartphone app.

How Do Cash Deposits Affect Your Ability To Buy A Home?

When verifying your income and assets for a mortgage, there are two main things your lender wants to know: that the money you have was obtained legally and that it’s not loaned to you.

Here’s why this type of information is important to lenders – and the government.

Legal Implications

Because of fraudulent mortgage activities in the past, lenders are thorough when it comes to proving the source of a borrower’s income and assets. When a lender looks at your income sources, they’re looking for possible fraud. This could include:

• Using borrowed money to inflate your income
• Borrowing money from the seller to make a down payment
• Misrepresenting or faking employment status

But fraud isn’t the only thing lenders are looking for. Believe it or not, a lot of money laundering, funding for terrorist groups and other illegal activities are done through real estate transactions. As part of the Bank Secrecy Act and the Patriot Act, lenders are required to report to and work with the U.S. government when money laundering or terrorism activity is suspected.

Mortgage Eligibility

Your debt-to-income ratio (DTI) is your monthly debt (auto loans, credit card payments, student loans, etc.) compared to your monthly income. It helps lenders determine whether you can afford a mortgage. When it comes to DTI, the lower the better.

To qualify for a mortgage, you must be under a certain DTI ratio – typically around 43% or less, although it depends on the lender and type of loan. Cash deposits that are borrowed from a personal loan are considered debt and will be calculated into your DTI. If this raises your DTI over the maximum, you could be denied for a mortgage.

Keep in mind that some loan programs don’t allow you to borrow money from other sources, so even if your DTI is low, you could still be denied. You must disclose if a cash deposit is from a personal loan. Hiding this information or lying about it is considered fraud.

As a reminder, mortgage preapproval is a great first step when you’re ready to buy a home and can help you avoid some potential pitfalls of the mortgage qualification process.

How To Prove Cash Deposits For Your Mortgage

Sourcing cash deposits means proving where they came from. What’s accepted as legitimate proof may depend on the lender or type of home loan you get. Here are some examples of how to verify a cash deposit:

• Pay stubs or invoices
• Report of sale
• Copy of marriage license
• Signed and dated copy of note for any loan you provided and proof you lent the money
• Gift letter signed and dated by the donor and receiver
• Letter of explanation from a licensed attorney
• Signed letter from the person who provided funds
• Discussion with your mortgage lender

You should ensure you’re keeping a paper trail of any previous or future transactions by organizing receipts, gift letters, checks, contracts, certificates and other useful documents involved in the transaction.

It’s best to refrain from depositing any cash funds that may be hard or impossible to source when getting a mortgage to purchase your home. The downside is you won’t be able to use that cash to qualify for your mortgage.

As a good rule of thumb, always talk to your lender before making any financial transactions during the home buying process.

A Note On Gift Deposits

Gift deposits can be tricky. What’s deemed an acceptable gift will depend on the specific loan’s requirements.

Money gifted from family members such as parents, grandparents, siblings, in-laws, aunts, uncles, cousins and children is acceptable. However, money gifted from people who have an interest in your mortgage transaction isn’t allowed. This includes the seller, builder, real estate agent or developer.

Along with a gift letter, you’ll need to show the actual transfer of funds, which could be withdrawal/deposit slips or wire transfer receipts.

If you’re making a cash deposit from money received, such as wedding gifts, make sure you deposit that money no later than 60 days after the marriage.

How Far Back Must You Source A Cash Deposit?

Mortgage lenders typically look at bank deposits from the past 2 months, or 60 days, to verify your assets and income. Any money in the account before that is typically seen as “seasoned” funds and are owned by you regardless of the source. However, keep in mind that you still need to obtain those funds legally and shouldn’t take money from parties who have an interest in your transaction. Doing so can still get you into trouble whether or not those funds are seasoned.

Remember, banks are legally required to report any cash deposits of $10,000 or more to the IRS. This happens with one-time deposits of that amount, or smaller deposits made over time that accumulate to that amount, known as “layered deposits.”

If you do have cash from legitimate sources, like selling a car or money you saved over time, deposit it at least 60 days before you apply for a mortgage to avoid the hassle.

Cash Deposit FAQs

Now that we have an established understanding of what a cash deposit is and how it could impact buying a home, we’ll look into some common questions.

What is a deposit?

A deposit is an amount of funds one party gives to a separate party, such as a financial institution, to hold onto. Deposits can be made physically, such as a cash deposit, or electronically, called direct deposit. In some cases, deposits are provided to secure a product or service, known as a security deposit.

What are the different types of deposits?

Deposits are commonly divided into two categories: demand deposits and time deposits. With demand deposits, funds can be withdrawn upon demand. For example, a cash deposit made to a checking account will usually be a demand deposit.

Time deposits accrue interest until they reach a maturity date, upon which the funds can be withdrawn. Fees may be charged for early withdrawals. Deposits made to certificate of deposit (CD) accounts are commonly time deposits.

How much cash can I deposit before it’s reported?

When a person deposits a cash payment of $10,000 or more, your financial institution will report the transaction to the IRS. Payments can be in the form of a single transaction or multiple cash transactions that add up to this dollar amount over the year.

What should I do if the deposit I made doesn't match the receipt?

If the cash deposit doesn’t match what shows up in your transaction report or deposit slip, you need to contact the financial institution right away. When you make a deposit in person, be sure to have the teller count the cash in front of you and confirm the deposit amount before you leave.

How soon will my checks clear after depositing them?

It typically takes 1 – 5 business days for checks to clear. This can apply to both physical and mobile check deposits.

What determines when your funds will be made available?

The timing for when deposited funds will be available is determined by the type of deposit, the deposit method and the amount deposited.

How do I deposit cash if my bank is far away?

If your bank’s nearest brick-and-mortar location is far away from you, you can still deposit cash on your bank’s website or, in many cases, on their smartphone app. If you are looking to deposit physical cash, you’ll need to purchase a money order before depositing, which you can get at any U.S. post office.

Some banks will allow you to deposit cash at ATMs as well. Check with your bank to see if they allow it, and then look online to find the nearest ATM. You may have to pay a fee to deposit cash if the ATM is out-of-network.

The Bottom Line

Cash deposits can be a safe and secure way to transfer or withdraw money from a bank account. As great as it is to have extra money in your bank account, it’s crucial for lenders to see a clean and clear paper trail for any cash deposits when buying a house.

Making traceable cash deposits can be an important part of financially preparing to buy a house. If you’re ready to start the home buying process, start your mortgage approval today with Rocket Mortgage^®.