Definition
Source of Funds
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The source of funds refers to the origins of money being deposited into a bank.
The purpose of this query is a basic KYC check to assess whether the funds originate from illegal or undesired activities. Money laundering is a big concern.
Should funds deposited into a bank be found to come from shady origins, it can cause bad publicity for the bank.
In addition, the funds can be freezed by the authorities. In some cases, the bank can even be found guilty of aiding money laundering activities.
However, the usual practice for asking such questions to depositors is when the funds amount to a significant sum.
For example, some banks might only require a deeper look into the source of funds when the deposit amount exceeds $250,000.
So small deposits are not investigated.
Saying that, existing customers of a bank might not have to worry about his. New customers would definitely be looked into by the bank.
Funds that originated from business activities or savings are most common.
But when the funds come from third parties, then the bank might require more details of the third party such as the name of the person or organization, country of origin, relationship with depositor, etc.
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