May
30
2024
Understanding ACH Fees: Comparing ACH Cost to Other Payment Methods

Understanding ACH Fees: Comparing ACH Cost to Other Payment Methods

By | Budgeting & Goals, Financial Independence, money | Comments Off on Understanding ACH Fees: Comparing ACH Cost to Other Payment Methods

ACH payments (or ACH transactions or transfers) move funds between financial institutions electronically, eliminating the need for cash, paper checks, and credit card networks. As with most banking transactions, they can involve a range of costs, which are typically competitive with other payment methods.

The exact amount you end up paying for an ACH transaction will depend on multiple factors, such as the way you use the ACH network and the size of your payments. In many cases, these fees will apply if you are a business owner vs. a consumer. Read on to learn more about how ACH pricing works and compares to other payment methods.

What Is an ACH Transfer?

First things first: ACH stands for Automated Clearing House, the network that powers electronic financial transactions. It’s a hub that includes around 10,000 financial institutions and can support payment processing, such as direct payments, electronic checks (eChecks), electronic funds transfers (EFTs), direct debits, and direct deposits. When considering payment apps, like PayPal and Venmo, know that ACH powers those as well.

ACH transfers work similarly to other payment methods. Take your monthly internet bill, for example. If you signed up for autopay, you had to provide your checking account details. You also needed to agree to a scheduled payment.

After the sign-up, your internet provider requests funds from your bank to pay for the cost. From there, your bank processes the ACH transaction as long as you have enough funds. (It’s worth mentioning that ACH payments are quite secure, but there is fraud out there. ACH Positive Pay offers one way to protect yourself if you are concerned about scammers.)

ACH transfers require an initial setup. Following that, you can make bank-to-bank payments using the ACH network. These payments generally fall into two categories: ACH credit and ACH debit. Either way, you may wonder how long an ACH transfer takes. They usually clear within a few business days and for a relatively low cost.

💡 Quick Tip: Banish bank fees. Open a new bank account with SoFi and you’ll pay no overdraft, minimum balance, or any monthly fees.

Typical ACH Payment Fees

As a consumer, you may not pay for ACH processing, though some providers may try to pass along a service charge. In some cases, using ACH may even earn you a discount. For instance, if you automate a home loan payment for a certain date every month, you might be rewarded with a discount on your rate.

However, as a business, you will likely have to spend a bit to conduct ACH business. The usual ACH transfer cost is $0.26 and $0.50, typically landing at $0.40. This means that ACH payments are one of the more affordable options for businesses, although prices may vary depending on the provider you choose to process your payments. That provider is usually known as a third-party payment processor (TPPP).

Here are some standard ACH fees you should be on the lookout for if you accept these payments.

Account Fee

The ACH account fee covers a broad array of costs. It essentially pays for the services needed to manage a payment processing account. These include recording a monthly statement, compliance costs, system maintenance, and transaction monitoring. Generally, your service provider or processor will collect this fee.

ACH Processing Fees

The ACH processing fee covers the expense to send an ACH payment to the recipient’s bank account after going through the Automated Clearing House network. ACH processing fees break up into three categories: debit, credit, and discount, which you’ll now learn about individually.

Debit Fee

The debit fee pays for a customer to make an ACH debit payment to a business. As mentioned above, this ACH debit fee typically costs between $0.20 and $1.50. The charge depends on the risk of the transaction and the type of business.

Credit Fee

ACH credits come into play when a business makes a payment to a third party, vendor, or employee. It’s similar to a debit fee in terms of cost, meaning between $0.20 to $1.50, and it pays for the transaction to be sent through the ACH network.

Higher-risk businesses (which may cluster in certain fields, from financial and travel services, to auctions and tobacco-based businesses) may face an additional charge as well. This can bring the fee to around 0.5% to 1.5% of the payment. In part, this reflects the fact that ACH credit payments tend to be worth a higher dollar amount than ACH debit transactions. As a result, an ACH credit payment is a greater risk for the merchant services provider.

Discount Fee

The name “discount fee” may be misleading for people just learning about ACH charges. It has no connection to discounted prices. Instead, it’s a fee that applies to certain high-risk ACH transactions based on a percentage. With it, payment processors can increase the cost of the service and lessen the risk of the payment.

Other ACH Fees

There are other fees you should know about with ACHs. Because when it comes to paying for financial services, no surprises is often the best policy.

Setup Fee

In some cases, your payment processor may charge you for setup. This one-time fee can be waived sometimes, though; it’s worth inquiring. You’re most likely to be able to avoid the fee if ACH processing comes as an add-on service to another arrangement you’ve made. Alternatively, you can reduce costs by working with a business that does not collect this setup charge.

Monthly Fee

Those who use ACH may also face a unique monthly fee along with processing charges. However, some may be able to pay both fees wrapped into the monthly fee. Usually, this fee costs anywhere from $5 to $30.

Monthly Minimum Fee

This may sound like the monthly fee we just described above, but there may indeed be a monthly minimum fee as well. This is a minimum processing charge that could be assessed in addition to your regular monthly charge. Or it might replace that monthly fee.

Batch Fee

ACH files can contain one or more groupings, called batches. Batches contain one or multiple transactions, and they are sorted based on certain clusters of data. When your ACH transfers are batched in this way, you are charged a batch fee. It’s assessed per each batch processed and is typically under a dollar per batch.

ACH Return Fee

Returning an ACH transfer is possible. However, it usually comes with an ACH return fee that costs between $2 to $5 per transaction.

ACH Chargeback Fee

Customers use chargebacks to dispute what they believe are erroneous payments. This process comes with a chargeback fee, and it’s typically higher than fees for ACH returns. The ACH chargeback fee tends to cost between $5 and $25.

High Ticket Surcharge

The original intention for ACH fees was to apply them to low-ticket (that is, not too pricey) purchases. As a result, there’s an additional charge added for high-ticket transactions. You’ll find that payment processors likely charge a surcharge on purchases over $5,000.

Expedited Processing Fee

You may need expedited processing for an ACH transfer. Depending on the payment processor, this service can come with an additional charge.

Get up to $300 when you bank with SoFi.

No account or overdraft fees. No minimum balance.

Up to 4.00% APY on savings balances.

Up to 2-day-early paycheck.

Up to $2M of additional
FDIC insurance.


Comparing ACH Fees to Other Payment Methods

When it comes to electronic transactions, you may find that different techniques can sound quite similar. However, processes vary, and so too can fees. Here’s what you need to know about the fees associated with other payment methods.

ACH vs Wire Transfer

Wire transfers are transactions between two financial institutions where each is responsible for verification. In a wire transfer, a bank sends money from one account into another. This process can take little or virtually no time when it occurs within the same bank. However, if the money must transfer between distant or international banks, it can take a bit longer, but it is often viewed as one of the quickest ways to make a payment.

While this can be a fast method, it’s also costly, often averaging between $25 to $45 when sending money and around $15 when you receive funds in this way. As a result, wire transfers may be best for one-time, large payments.

ACH vs Paper Checks

Paper checks are the traditional route for payment processing and may work well if you want to transfer money between banks in a way that avoids electronic transactions. But the overall cost can vary depending on the business’s size, where the checking account is located, and timing.

It’s not unheard of for banks or financial institutions to offer free checking accounts to small businesses. They may even throw in checks at no additional cost. These two selling points, along with low monthly fees, can make paper checks an incredibly cheap financial method.

However, experiences vary. The financial institution may offer a free checking account, but only if the business maintains a certain minimum balance. Not only that, but monthly fees and the time spent filling out or processing checks can be costly. According to NACHA, sending money via a check results in a cost between $2 and $4 per transaction.

ACH vs Credit Card and Debit Cards

Credit cards are a standard payment method, particularly for businesses collecting online payments. All the cardholder has to do is use their card to purchase the business’ goods or services. When they do, the credit card network verifies that the payer can indeed afford to do so. This is why credit card transactions are considered “guaranteed funds” payments. ACH doesn’t do this vetting during processing, which means transactions can be rejected. Thus, they may result in a penalty fee. Debit cards are another convenient way to pay. A person swipes or taps their card to pay, and funds are automatically deducted from their account.

ACH processing is relatively slow compared to credit card processing. But ACH pricing is lower than credit card and debit fees.

Recommended: What Is a Credit Card and How Does it Work?

ACH vs Online Invoice with Pay Link

If a vendor includes an easy, clickable payment link in an online invoice to customers, that convenience can trigger fees. In terms of processing, this is likely to cost up to 3.3% of the transaction’s total, and you may also pay a 15- to 30-cent fee for each transaction.

ACH vs PayPal

Now, let’s consider how processing via PayPal stacks up. In the U.S., PayPal fees range from 1.9% to 3.49%, depending on whether the transaction was in-store or online, and then there’s an additional fee per transaction, ranging from $0.09 to $0.49. International transactions will be assessed an additional fee. If you use a QR code with your PayPal transactions, you can lower the cost somewhat.

ACH vs Apple Pay Fees

Apple doesn’t assess a fee from merchants to accept and use Apple Pay for payments, but that doesn’t mean you’re getting a freebie. You will have to pay your processing partner at the standard rates for credit- and debit-card transactions.

The Takeaway

Businesses and individuals alike rely on ACH transfers to process transactions. And there’s a reason for it: These digital payments are quick, convenient, and accessible. ACH transfers also have the benefit of being a lower-cost option compared to methods like wiring funds and some other common techniques. Finding the right way to pay bills and collect payments is a personal decision, with many variables. Money matters, of course, but there may be other benefits to consider as well.

When it comes to your personal banking, finding the right partner is equally important.

Interested in opening an online bank account? When you sign up for a SoFi Checking and Savings account with direct deposit, you’ll get a competitive annual percentage yield (APY), pay zero account fees, and enjoy an array of rewards, such as access to the Allpoint Network of 55,000+ fee-free ATMs globally. Qualifying accounts can even access their paycheck up to two days early.

Better banking is here with SoFi, NerdWallet’s 2024 winner for Best Checking Account Overall.* Enjoy up to 4.00% APY on SoFi Checking and Savings.

FAQ

Do ACH payments have fees?

Yes, ACH payments come with fees. However, these are generally the lowest fees versus any other payment processing option.

Why do banks charge ACH fees?

Banks charge ACH fees to cover the processing service and potential costs, like penalty fees.

How do you avoid ACH fees?

Since ACH fees vary, the best way to avoid them is through research. Reading terms ahead of time can help you find whether a provider is the right option for you. In general, accessing ACH through a third-party can drastically increase the number of fees.

Do US banks charge for ACH transfers?

As a customer, ACH transfers are typically free, and your bank doesn’t collect a fee. As a business conducting ACH transactions, however, you might be charged a fee for an occasional ACH transaction. It’s more likely, however, that if you are completing these transactions regularly that you will work with and pay a third-party payment processing company rather than your bank.

What is ACH on my bank statement?

ACH stands for Automated Clearing House. It is a network used to transfer funds between bank accounts around the United States. When you see it on your bank statement, you know that payment was made electronically through the ACH network.

Photo credit: iStock/Yaroslav Litun

SoFi® Checking and Savings is offered through SoFi Bank, N.A. ©2024 SoFi Bank, N.A. All rights reserved. Member FDIC. Equal Housing Lender.
The SoFi Bank Debit Mastercard® is issued by SoFi Bank, N.A., pursuant to license by Mastercard International Incorporated and can be used everywhere Mastercard is accepted. Mastercard is a registered trademark, and the circles design is a trademark of Mastercard International Incorporated.

SoFi members with direct deposit activity can earn 4.00% annual percentage yield (APY) on savings balances (including Vaults) and 0.50% APY on checking balances. Direct Deposit means a recurring deposit of regular income to an account holder’s SoFi Checking or Savings account, including payroll, pension, or government benefit payments (e.g., Social Security), made by the account holder’s employer, payroll or benefits provider or government agency (“Direct Deposit”) via the Automated Clearing House (“ACH”) Network during a 30-day Evaluation Period (as defined below). Deposits that are not from an employer or government agency, including but not limited to check deposits, peer-to-peer transfers (e.g., transfers from PayPal, Venmo, etc.), merchant transactions (e.g., transactions from PayPal, Stripe, Square, etc.), and bank ACH funds transfers and wire transfers from external accounts, or are non-recurring in nature (e.g., IRS tax refunds), do not constitute Direct Deposit activity. There is no minimum Direct Deposit amount required to qualify for the stated interest rate. SoFi members with direct deposit are eligible for other SoFi Plus benefits.

As an alternative to direct deposit, SoFi members with Qualifying Deposits can earn 4.00% APY on savings balances (including Vaults) and 0.50% APY on checking balances. Qualifying Deposits means one or more deposits that, in the aggregate, are equal to or greater than $5,000 to an account holder’s SoFi Checking and Savings account (“Qualifying Deposits”) during a 30-day Evaluation Period (as defined below). Qualifying Deposits only include those deposits from the following eligible sources: (i) ACH transfers, (ii) inbound wire transfers, (iii) peer-to-peer transfers (i.e., external transfers from PayPal, Venmo, etc. and internal peer-to-peer transfers from a SoFi account belonging to another account holder), (iv) check deposits, (v) instant funding to your SoFi Bank Debit Card, (vi) push payments to your SoFi Bank Debit Card, and (vii) cash deposits. Qualifying Deposits do not include: (i) transfers between an account holder’s Checking account, Savings account, and/or Vaults; (ii) interest payments; (iii) bonuses issued by SoFi Bank or its affiliates; or (iv) credits, reversals, and refunds from SoFi Bank, N.A. (“SoFi Bank”) or from a merchant. SoFi members with Qualifying Deposits are not eligible for other SoFi Plus benefits.

SoFi Bank shall, in its sole discretion, assess each account holder’s Direct Deposit activity and Qualifying Deposits throughout each 30-Day Evaluation Period to determine the applicability of rates and may request additional documentation for verification of eligibility. The 30-Day Evaluation Period refers to the “Start Date” and “End Date” set forth on the APY Details page of your account, which comprises a period of 30 calendar days (the “30-Day Evaluation Period”). You can access the APY Details page at any time by logging into your SoFi account on the SoFi mobile app or SoFi website and selecting either (i) Banking > Savings > Current APY or (ii) Banking > Checking > Current APY. Upon receiving a Direct Deposit or $5,000 in Qualifying Deposits to your account, you will begin earning 4.00% APY on savings balances (including Vaults) and 0.50% on checking balances on or before the following calendar day. You will continue to earn these APYs for (i) the remainder of the current 30-Day Evaluation Period and through the end of the subsequent 30-Day Evaluation Period and (ii) any following 30-day Evaluation Periods during which SoFi Bank determines you to have Direct Deposit activity or $5,000 in Qualifying Deposits without interruption.

SoFi Bank reserves the right to grant a grace period to account holders following a change in Direct Deposit activity or Qualifying Deposits activity before adjusting rates. If SoFi Bank grants you a grace period, the dates for such grace period will be reflected on the APY Details page of your account. If SoFi Bank determines that you did not have Direct Deposit activity or $5,000 in Qualifying Deposits during the current 30-day Evaluation Period and, if applicable, the grace period, then you will begin earning the rates earned by account holders without either Direct Deposit or Qualifying Deposits until you have Direct Deposit activity or $5,000 in Qualifying Deposits in a subsequent 30-Day Evaluation Period. For the avoidance of doubt, an account holder with both Direct Deposit activity and Qualifying Deposits will earn the rates earned by account holders with Direct Deposit.

Members without either Direct Deposit activity or Qualifying Deposits, as determined by SoFi Bank, during a 30-Day Evaluation Period and, if applicable, the grace period, will earn 1.20% APY on savings balances (including Vaults) and 0.50% APY on checking balances.

Interest rates are variable and subject to change at any time. These rates are current as of 12/3/24. There is no minimum balance requirement. Additional information can be found at https://www.sofi.com/legal/banking-rate-sheet.

We do not charge any account, service or maintenance fees for SoFi Checking and Savings. We do charge a transaction fee to process each outgoing wire transfer. SoFi does not charge a fee for incoming wire transfers, however the sending bank may charge a fee. Our fee policy is subject to change at any time. See the SoFi Checking & Savings Fee Sheet for details at sofi.com/legal/banking-fees/.
*Awards or rankings from NerdWallet are not indicative of future success or results. This award and its ratings are independently determined and awarded by their respective publications.

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

Third-Party Brand Mentions: No brands, products, or companies mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third-party trademarks referenced herein are property of their respective owners.

SOBK-Q224-1900532-V1

Read more
May
29
2024

How Much Money Should I Spend on Rent?

By | Budgeting & Goals, money | No Comments

The rule of thumb has been that your rent should account for no more than 30% of your gross income, but that percentage isn’t right for everyone. Figuring out your “magic number” can require a little thought.

Individual circumstances matter: Maybe you have a heavy monthly student loan payment while your best friend has none. That means they can likely afford a higher rent than you can at the moment. Also, economic and social forces are shaping how big a bite rent takes out of a paycheck. According to the most recent U.S. Census Bureau data, almost one-third of Americans are spending more than 30% of their income on housing costs, an increase of almost 5 million households vs. three years earlier. That 30% just may not be realistic anymore.

Keep reading for detailed information on how much to spend on rent and how to budget for it.

How Much You Should Spend Depends on Your Situation

Whether you rent or own, housing is typically the largest expense the average U.S. consumer must pay for every month.

Determining how much you can afford is really a matter of monthly budgeting and striking a balance. You can look at your take-home pay and then consider how much you are spending on all of your monthly expenses.

You’ll want to account for the necessities, like housing, utilities, health care, debt payments, food, and clothing, as well as some discretionary expenses, such as entertainment and travel. Ideally, you will also be saving and have some wiggle room when paying your bills to cover unexpected expenses that can crop up.

As noted above, each person’s situation will be unique. One person might have a high salary but steep debt payments (student and car loans and a credit card balance to contend with). Another might earn less but be debt-free and therefore able to allocate more toward rent.

Where and how you live also makes a difference. In America’s biggest cities, it’s common for renters to pay a larger share of their income for housing. For example, one recent Moody’s Analytics report found that 57% of those in the New York metro area pay more than 30% of their income toward rent and 36.6% of those in Miami are in the same (very pricey) boat. When compared to the person who lives in, say, a small city in the Midwest or South, there’s likely a major price gap.

Get up to $300 when you bank with SoFi.

No account or overdraft fees. No minimum balance.

Up to 4.00% APY on savings balances.

Up to 2-day-early paycheck.

Up to $2M of additional
FDIC insurance.


💡 Quick Tip: Did you know online banking can help you get paid sooner? Feel the magic of payday up to two days earlier when you set up direct deposit with SoFi.

Figuring Out How Much You Should Spend on Rent

There are several ways to come up with solid guidelines for how much to pay in rent based on your particular situation.

Use a Budgeting Rule

You’ve already learned about the rule of thumb — one that’s been around for decades — which puts the ideal housing costs at 30% of your after-tax income, no matter how much you earn.

That rather broad guideline dates back to the Brooke Amendment, which capped public housing rents at 25% of an individual’s income in 1969. Congress raised the cap to 30% in 1981, and eventually it became the go-to guide for determining “cost burden” — the amount of income a family could spend and still have enough left for other expenses — even those who aren’t in low-income households.

Another perhaps more useful approach is the 50/30/20 budget method, which was made popular by Sen. Elizabeth Warren’s book All Your Worth: The Ultimate Lifetime Money Plan.

The 50/30/20 budgeting method suggests dividing your after-tax income into three main categories, putting 50% toward needs (essential costs like housing, transportation, groceries, utilities, etc.), 30% toward wants, and 20% toward savings.

Following those guidelines, your rent would qualify as a need. But it remains up to you to decide how much of that 50% you want to — or feel you have to — spend on housing. If you live in a major city or tech hub, your rent may be high enough that you have to make adjustments to other essentials in your budget and/or borrow from other categories (say, cutting back on those wants, such as dinners out).

Factor in Costs

Another way to look at your rent budget is to remember that your housing costs are more than just your monthly payment to the landlord. If you only do your financial projections using that single expense, you could wind up with a too tight budget.

It can be valuable to consider all the facets of your rent: There may be a security deposit, moving costs if you are heading to a new place, utilities like electricity and wifi, as well as the cost of furniture if you are a first-time renter. Remember to add in any parking costs related to a rental, as well as renter’s insurance.

Develop a budget that acknowledges these expenses. Will you have to dip into savings for that security deposit? Will some expenses have to go on your credit card? Making these calculations can give you a better bead on your housing costs and may lead you to a new and improved budget.

Look at Other Ways to Save

There are other moves you can make to free up funds for rent if your monthly costs are running high. A few ideas:

•   Consider getting a roommate. That can cut your housing costs dramatically and can be a good option if you feel you are living paycheck to paycheck.

•   Look for less expensive locations. These may just be a few blocks or a zip code away from your ideal area, but they can make a major difference in your cost of living. For instance, if you can live 20 minutes further away from your workplace, you might reap significant savings on your rent.

•   Check with providers about monthly charges and interest rates. Sometimes, you may get lucky and find that your wireless provider can lower your bill or your credit card can take your annual percentage rate, or APR, down a notch.

•   Look for other ways to economize on non-rent expenses. Join a warehouse club and split the bounty with a friend or two to save on food costs. Minimize the number of streaming services you have. Cut back on rideshares and take public transportation; check out free music and other cultural offerings in your town.


💡 Quick Tip: When you feel the urge to buy something that isn’t in your budget, try the 30-day rule. Make a note of the item in your calendar for 30 days into the future. When the date rolls around, there’s a good chance the “gotta have it” feeling will have subsided.

The Takeaway

One common guideline says that 30% of your income (before taxes) can be allotted to rent. But everyone’s financial situation is different. Some people live in cities that are pricey; other people have student and car loans that must be paid. By using budget guidelines, you can determine the right figure for your circumstances.

Having the right banking partner may also help you budget better.

Interested in opening an online bank account? When you sign up for a SoFi Checking and Savings account with direct deposit, you’ll get a competitive annual percentage yield (APY), pay zero account fees, and enjoy an array of rewards, such as access to the Allpoint Network of 55,000+ fee-free ATMs globally. Qualifying accounts can even access their paycheck up to two days early.


Better banking is here with SoFi, NerdWallet’s 2024 winner for Best Checking Account Overall.* Enjoy up to 4.00% APY on SoFi Checking and Savings.

FAQ

Is 30% on rent unrealistic? Is it too much?

Spending 30% of your gross income is a popular guideline, but only you can determine if it works for you. For some people, 30% will be too much, given their other expenses. For others, such as those in major cities, 30% may be a desirably low number.

How much of my salary should I spend on rent?

The usual guideline is to spend no more than 30% of your pretax salary on rent, but some people may find that they must spend more than that. Currently, about one third of all renters spend more than that figure.

Am I overspending on rent?

Some ways to tell that you are overspending on rent would be if you are living paycheck to paycheck, if you are not able to pay down your debts, and if you are not able to save money. If you are in this situation, it can be wise to take a holistic look at your budget, including rent, and see where you can find a better balance, which might include lowering your rent.

Photo credit: iStock/Jacob Wackerhausen

SoFi® Checking and Savings is offered through SoFi Bank, N.A. ©2024 SoFi Bank, N.A. All rights reserved. Member FDIC. Equal Housing Lender.
The SoFi Bank Debit Mastercard® is issued by SoFi Bank, N.A., pursuant to license by Mastercard International Incorporated and can be used everywhere Mastercard is accepted. Mastercard is a registered trademark, and the circles design is a trademark of Mastercard International Incorporated.

SoFi members with direct deposit activity can earn 4.00% annual percentage yield (APY) on savings balances (including Vaults) and 0.50% APY on checking balances. Direct Deposit means a recurring deposit of regular income to an account holder’s SoFi Checking or Savings account, including payroll, pension, or government benefit payments (e.g., Social Security), made by the account holder’s employer, payroll or benefits provider or government agency (“Direct Deposit”) via the Automated Clearing House (“ACH”) Network during a 30-day Evaluation Period (as defined below). Deposits that are not from an employer or government agency, including but not limited to check deposits, peer-to-peer transfers (e.g., transfers from PayPal, Venmo, etc.), merchant transactions (e.g., transactions from PayPal, Stripe, Square, etc.), and bank ACH funds transfers and wire transfers from external accounts, or are non-recurring in nature (e.g., IRS tax refunds), do not constitute Direct Deposit activity. There is no minimum Direct Deposit amount required to qualify for the stated interest rate. SoFi members with direct deposit are eligible for other SoFi Plus benefits.

As an alternative to direct deposit, SoFi members with Qualifying Deposits can earn 4.00% APY on savings balances (including Vaults) and 0.50% APY on checking balances. Qualifying Deposits means one or more deposits that, in the aggregate, are equal to or greater than $5,000 to an account holder’s SoFi Checking and Savings account (“Qualifying Deposits”) during a 30-day Evaluation Period (as defined below). Qualifying Deposits only include those deposits from the following eligible sources: (i) ACH transfers, (ii) inbound wire transfers, (iii) peer-to-peer transfers (i.e., external transfers from PayPal, Venmo, etc. and internal peer-to-peer transfers from a SoFi account belonging to another account holder), (iv) check deposits, (v) instant funding to your SoFi Bank Debit Card, (vi) push payments to your SoFi Bank Debit Card, and (vii) cash deposits. Qualifying Deposits do not include: (i) transfers between an account holder’s Checking account, Savings account, and/or Vaults; (ii) interest payments; (iii) bonuses issued by SoFi Bank or its affiliates; or (iv) credits, reversals, and refunds from SoFi Bank, N.A. (“SoFi Bank”) or from a merchant. SoFi members with Qualifying Deposits are not eligible for other SoFi Plus benefits.

SoFi Bank shall, in its sole discretion, assess each account holder’s Direct Deposit activity and Qualifying Deposits throughout each 30-Day Evaluation Period to determine the applicability of rates and may request additional documentation for verification of eligibility. The 30-Day Evaluation Period refers to the “Start Date” and “End Date” set forth on the APY Details page of your account, which comprises a period of 30 calendar days (the “30-Day Evaluation Period”). You can access the APY Details page at any time by logging into your SoFi account on the SoFi mobile app or SoFi website and selecting either (i) Banking > Savings > Current APY or (ii) Banking > Checking > Current APY. Upon receiving a Direct Deposit or $5,000 in Qualifying Deposits to your account, you will begin earning 4.00% APY on savings balances (including Vaults) and 0.50% on checking balances on or before the following calendar day. You will continue to earn these APYs for (i) the remainder of the current 30-Day Evaluation Period and through the end of the subsequent 30-Day Evaluation Period and (ii) any following 30-day Evaluation Periods during which SoFi Bank determines you to have Direct Deposit activity or $5,000 in Qualifying Deposits without interruption.

SoFi Bank reserves the right to grant a grace period to account holders following a change in Direct Deposit activity or Qualifying Deposits activity before adjusting rates. If SoFi Bank grants you a grace period, the dates for such grace period will be reflected on the APY Details page of your account. If SoFi Bank determines that you did not have Direct Deposit activity or $5,000 in Qualifying Deposits during the current 30-day Evaluation Period and, if applicable, the grace period, then you will begin earning the rates earned by account holders without either Direct Deposit or Qualifying Deposits until you have Direct Deposit activity or $5,000 in Qualifying Deposits in a subsequent 30-Day Evaluation Period. For the avoidance of doubt, an account holder with both Direct Deposit activity and Qualifying Deposits will earn the rates earned by account holders with Direct Deposit.

Members without either Direct Deposit activity or Qualifying Deposits, as determined by SoFi Bank, during a 30-Day Evaluation Period and, if applicable, the grace period, will earn 1.20% APY on savings balances (including Vaults) and 0.50% APY on checking balances.

Interest rates are variable and subject to change at any time. These rates are current as of 12/3/24. There is no minimum balance requirement. Additional information can be found at https://www.sofi.com/legal/banking-rate-sheet.

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

Third-Party Brand Mentions: No brands, products, or companies mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third-party trademarks referenced herein are property of their respective owners.

*Awards or rankings from NerdWallet are not indicative of future success or results. This award and its ratings are independently determined and awarded by their respective publications.

SOBK-Q224-1890311-V1

Read more
May
25
2024
ACH Return Codes (R01 - R33): Understanding What They Mean and What to Do

ACH Return Codes (R01 – R33): Understanding What They Mean

By | Budgeting & Goals, money, Terminology | Comments Off on ACH Return Codes (R01 – R33): Understanding What They Mean

ACH return codes are generated when an ACH (Automated Clearing House) payment fails to process and therefore gets returned. ACH payments, which essentially transfer funds between financial institutions, can be a huge convenience. They allow you to set up automatic monthly bill pay and receive direct deposit of one’s paycheck, for instance. There are, however, likely to be times when a transaction doesn’t work as expected, perhaps due to incorrect coding or insufficient funds. ACH return codes indicate exactly what went wrong.

Here, you’ll learn about what ACH return codes are and what steps you can take to help complete this kind of banking transaction, especially if you are managing a business that relies upon them.

What Are ACH Return Codes?

First, know that ACH refers to the Automated Clearing House, a U.S. financial network that provides electronic transfers among banks and credit unions. If you receive your paycheck by direct deposit or set up bill pay from your checking account, you are using the ACH system. It’s considered a fast, secure, and simple way to move money.

ACH returns occur when an ACH payment can’t be completed.

There are a few reasons why these transactions aren’t successful, including:

•   The originator (the entity who requested payment) provided inaccurate or incomplete payment information or data.

•   The originator isn’t authorized to debit the client’s account with an ACH payment.

•   There aren’t sufficient funds to complete the transaction.

The ACH return code alerts the parties involved so they know there’s an issue, whether a recurring automatic bill pay suddenly stopped or a one-time payment could not go through. The specific reason can then help the situation be remedied so the payment can hopefully be sent again properly.

Here’s an example to clarify this concept: Perhaps your wifi provider is authorized to withdraw payment monthly from your checking account. If the Originating Depository Financial Institution (ODFI; the wifi provider’s bank) or the Receiving Depository Financial Institution (RDFI; the entity receiving the payment request; aka your bank) isn’t able to transfer funds, a return code will be generated to explain exactly why the transaction wasn’t completed.

Get up to $300 when you bank with SoFi.

No account or overdraft fees. No minimum balance.

Up to 4.00% APY on savings balances.

Up to 2-day-early paycheck.

Up to $2M of additional
FDIC insurance.


How ACH Returns Work

If an ACH payment can’t be completed, as mentioned above, a specific return code will be generated. The person or business originating the payment request can then work to resolve the issue.

A few details to note about how ACH returns work:

•   If an ACH return occurs due to insufficient funds, the consumer may be on the hook for an ACH return charge. It’s similar to when a check bounces; the end user pays a small fee; in this case, usually $2 to $5.

•   Timing-wise, most ACH returns only take about two banking days, though a few of these ACH codes involve transactions that can take up to 60 days to process.


💡 Quick Tip: Want to save more, spend smarter? Let your bank manage the basics. It’s surprisingly easy, and secure, when you open an online bank account.

Common ACH Return Codes

There are 85 distinct ACH return codes. Here, you’ll learn about some of the most common ones. These return codes are typically received by the entity requesting payment and their bank.

Code: R01
Meaning: Insufficient funds (the account’s available balance isn’t sufficient to cover the funds transfer, similar to being in overdraft)
What to do: The entity requesting payment can attempt the transaction again as a new transaction within 30 days of the original authorization date (up to two times), or contact the customer for an alternate payment method.

Code: R02
Meaning: Account closed (a once-active account has been closed).
What to do: The entity requesting payment can ask the customer to correct their account information or provide a different bank account or form of payment to complete the transaction.

Code: R03
Meaning: No account exists or unable to locate account (even though the account number structure is valid, it doesn’t pass the check digit validation).
What to do: The request’s originator should contact the customer to confirm their routing number, bank account number, and the name on the bank account. If this information differs from what was originally entered, they can submit a new payment with these new details. Or request another form of payment.

Code: R04
Meaning: Invalid account number.
What to do: The entity requesting payment should check the account number, and retry the transaction. Or obtain the correct bank account number and submit a new payment with that account number.

Code: R05
Meaning: This transaction should have been processed as a consumer, not corporate, transaction.
What to do: The request’s originator should check that you have used the right codes. They can contact the customer and ask for a new form of payment. In some cases, they may need to file an appeal with Nacha (the non-profit organization that manages the ACH network) for this kind of returned transaction.

Code: R06
Meaning: Returned at ODFI’s request (ODFI requested that the RDFI return the ACH entry), often because the transaction is believed to be fraudulent.
What to do: The entity seeking payment should contact the ODFI to understand why the transaction was rejected, and then, depending on the response, resubmit or alter the request.

Code: R07
Meaning: The previous authorization for an ACH transaction was revoked by the customer.
What to do: The originator of the request should suspend recurring payment schedules entered for this specific bank account to prevent additional transactions from being returned. Then they need to address the issue with the customer, and try to resolve the issue by getting a new form of payment or asking to debit a different bank account.

Code: R08
Meaning: The customer has issued a stop payment on the item.
What to do: The entity requesting funds should contact the customer to resolve the issue, and then re-enter the returned transaction again with proper authorization from the customer. Or request a new form of payment.

Code: R09
Meaning: Due to uncollected funds, the originator can’t access enough money to cover the transaction.
What to do: The originator should try the transaction again, and re-enter it as a new one within 30 days of the original authorization date (up to two times in 60 days).

Code: R10
Meaning: The customer advised this transaction is not authorized or is improper in some way.
What to do: The entity requesting payment should check the details and authorization on the transaction to determine if an error was made. They can connect with the customer to determine why this code was triggered. If the details can be rectified, they can resubmit the transaction per ACH guidelines.

Code: R11
Meaning: An electronic check deposit was not executed correctly.
What to do: The originator of the request can correct the underlying error and resubmit the corrected electronic deposit within 60 calendar days.

Code: R12
Meaning: The branch where the account is held was sold to another DFI (development financial institution).
What to do: The entity making the request should obtain the customer’s new routing and bank account information, and submit a new transaction.

Recommended: What is Liquid Net Worth

More ACH Return Codes

The following ACH return codes are less common than those mentioned previously, but still occur and are worth knowing. Here’s a look at what makes these codes tick:

Code: R13
Meaning: Invalid routing number provided.
What to do: The request’s originator should get the correct routing number from the customer to use when resubmitting the request.

Code: R14
Meaning: The account was being managed by someone who is now deceased or can no longer continue overseeing the account (such as an account held for a minor or an incapacitated person).
What to do: This is handled on a case-by-case basis; the request’s originator might try to contact the beneficiary or new representative for the account.

Code: R15
Meaning: Beneficiary or account holder is deceased.
What to do: No further action can typically be taken.

Code: R16
Meaning: Account is frozen and funds are unavailable.
What to do: The entity making the request should obtain a new payment form.

Code: R17
Meaning: Known as a “file record edit criteria” code, this indicates that there is a discrepancy in the file code, and the transaction cannot be processed.
What to do: The fields causing the processing error need to be identified (typically by the originator of the request) in the addenda record information field of the return to complete the transaction.

Code: R20
Meaning: The receiving account is not a transaction account (aka, it’s an account against which transactions are prohibited or limited).
What to do: The entity making the request can contact the customer, and request either the authorization to charge a different bank account or a new form of payment.

Code: R21
Meaning: The ACH file contains an invalid or incorrect company identification number.
What to do: The originator of the request should double-check their information, or contact the company to obtain the correct information.

Code: R22
Meaning: The individual ID number is invalid.
What to do: The entity making the request should check their information and resubmit, or contact the customer to obtain the correct information.

Code: R23
Meaning: The account holder or their bank is refusing to accept the transaction.
What to do: The originator of the request can work with the customer to clear up the issue, or ask them to contact their bank to resolve it.

Code: R24
Meaning: Duplicate entry.
What to do: If the transaction is indeed a duplicate, there’s nothing else to do. If it isn’t, the entity making the request can contact their customer or their customer’s bank to resolve the error.

Code: R29
Meaning: The customer has notified their bank that the requesting entity is not authorized to conduct this transaction.
What to do: The originator of the request should suspend recurring payment schedules, and then address the issue with the customer. For instance, they could request new payment information from the customer or ask them to contact their bank to authorize the payment.

Code: R31
Meaning: This indicates that the receiving bank is requesting to return a certain kind of ACH transaction (a CCD, or cash concentration disbursement, and CTX, or corporate trade exchange, only).
What to do: The entity making the request can reach out to their customer to resolve this issue or request a different form of payment.

Code: R33
Meaning: There is an issue with a transaction involving a converted check (known as XCK), such as when a damaged paper check is converted to an electronic version.
What to do: The originator of the request should contact their customer for another payment form.

Recommended: Average Savings by Age

The Takeaway

ACH return codes express the reason why an electronic Automated Clearing House payment could not be completed. Knowing what each code represents can help determine what the next steps should be to keep payments flowing smoothly or get refunds completed.

Need an easy way to receive payments when managing your personal banking?

Interested in opening an online bank account? When you sign up for a SoFi Checking and Savings account with direct deposit, you’ll get a competitive annual percentage yield (APY), pay zero account fees, and enjoy an array of rewards, such as access to the Allpoint Network of 55,000+ fee-free ATMs globally. Qualifying accounts can even access their paycheck up to two days early.


Better banking is here with SoFi, NerdWallet’s 2024 winner for Best Checking Account Overall.* Enjoy up to 4.00% APY on SoFi Checking and Savings.

FAQ

What causes an ACH return?

ACH returns occur when an Automated Clearing House payment can’t be completed, perhaps due to inaccurate or incomplete information or insufficient funds. When this happens, an ACH return code is generated, providing a reason for the return.

What is ACH return fee?

When ACH returns occur, especially due to insufficient funds, a fee can be charged. It’s similar to how a bounced check incurs a fee. The amount is generally around $2 to $5.

How long does an ACH refund take?

Typically, an ACH refund takes about five to 10 banking days to occur, though some situations can take longer to resolve..

Photo credit: iStock/Delmaine Donson

SoFi® Checking and Savings is offered through SoFi Bank, N.A. ©2024 SoFi Bank, N.A. All rights reserved. Member FDIC. Equal Housing Lender.
The SoFi Bank Debit Mastercard® is issued by SoFi Bank, N.A., pursuant to license by Mastercard International Incorporated and can be used everywhere Mastercard is accepted. Mastercard is a registered trademark, and the circles design is a trademark of Mastercard International Incorporated.

SoFi members with direct deposit activity can earn 4.00% annual percentage yield (APY) on savings balances (including Vaults) and 0.50% APY on checking balances. Direct Deposit means a recurring deposit of regular income to an account holder’s SoFi Checking or Savings account, including payroll, pension, or government benefit payments (e.g., Social Security), made by the account holder’s employer, payroll or benefits provider or government agency (“Direct Deposit”) via the Automated Clearing House (“ACH”) Network during a 30-day Evaluation Period (as defined below). Deposits that are not from an employer or government agency, including but not limited to check deposits, peer-to-peer transfers (e.g., transfers from PayPal, Venmo, etc.), merchant transactions (e.g., transactions from PayPal, Stripe, Square, etc.), and bank ACH funds transfers and wire transfers from external accounts, or are non-recurring in nature (e.g., IRS tax refunds), do not constitute Direct Deposit activity. There is no minimum Direct Deposit amount required to qualify for the stated interest rate. SoFi members with direct deposit are eligible for other SoFi Plus benefits.

As an alternative to direct deposit, SoFi members with Qualifying Deposits can earn 4.00% APY on savings balances (including Vaults) and 0.50% APY on checking balances. Qualifying Deposits means one or more deposits that, in the aggregate, are equal to or greater than $5,000 to an account holder’s SoFi Checking and Savings account (“Qualifying Deposits”) during a 30-day Evaluation Period (as defined below). Qualifying Deposits only include those deposits from the following eligible sources: (i) ACH transfers, (ii) inbound wire transfers, (iii) peer-to-peer transfers (i.e., external transfers from PayPal, Venmo, etc. and internal peer-to-peer transfers from a SoFi account belonging to another account holder), (iv) check deposits, (v) instant funding to your SoFi Bank Debit Card, (vi) push payments to your SoFi Bank Debit Card, and (vii) cash deposits. Qualifying Deposits do not include: (i) transfers between an account holder’s Checking account, Savings account, and/or Vaults; (ii) interest payments; (iii) bonuses issued by SoFi Bank or its affiliates; or (iv) credits, reversals, and refunds from SoFi Bank, N.A. (“SoFi Bank”) or from a merchant. SoFi members with Qualifying Deposits are not eligible for other SoFi Plus benefits.

SoFi Bank shall, in its sole discretion, assess each account holder’s Direct Deposit activity and Qualifying Deposits throughout each 30-Day Evaluation Period to determine the applicability of rates and may request additional documentation for verification of eligibility. The 30-Day Evaluation Period refers to the “Start Date” and “End Date” set forth on the APY Details page of your account, which comprises a period of 30 calendar days (the “30-Day Evaluation Period”). You can access the APY Details page at any time by logging into your SoFi account on the SoFi mobile app or SoFi website and selecting either (i) Banking > Savings > Current APY or (ii) Banking > Checking > Current APY. Upon receiving a Direct Deposit or $5,000 in Qualifying Deposits to your account, you will begin earning 4.00% APY on savings balances (including Vaults) and 0.50% on checking balances on or before the following calendar day. You will continue to earn these APYs for (i) the remainder of the current 30-Day Evaluation Period and through the end of the subsequent 30-Day Evaluation Period and (ii) any following 30-day Evaluation Periods during which SoFi Bank determines you to have Direct Deposit activity or $5,000 in Qualifying Deposits without interruption.

SoFi Bank reserves the right to grant a grace period to account holders following a change in Direct Deposit activity or Qualifying Deposits activity before adjusting rates. If SoFi Bank grants you a grace period, the dates for such grace period will be reflected on the APY Details page of your account. If SoFi Bank determines that you did not have Direct Deposit activity or $5,000 in Qualifying Deposits during the current 30-day Evaluation Period and, if applicable, the grace period, then you will begin earning the rates earned by account holders without either Direct Deposit or Qualifying Deposits until you have Direct Deposit activity or $5,000 in Qualifying Deposits in a subsequent 30-Day Evaluation Period. For the avoidance of doubt, an account holder with both Direct Deposit activity and Qualifying Deposits will earn the rates earned by account holders with Direct Deposit.

Members without either Direct Deposit activity or Qualifying Deposits, as determined by SoFi Bank, during a 30-Day Evaluation Period and, if applicable, the grace period, will earn 1.20% APY on savings balances (including Vaults) and 0.50% APY on checking balances.

Interest rates are variable and subject to change at any time. These rates are current as of 12/3/24. There is no minimum balance requirement. Additional information can be found at https://www.sofi.com/legal/banking-rate-sheet.

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

SOBK-Q224-1890250-V1

Read more
May
25
2024
Guide to a Confirmed Letter of Credit

Guide to a Confirmed Letter of Credit

By | Budgeting & Goals, money | Comments Off on Guide to a Confirmed Letter of Credit

A confirmed letter of credit can be an important document to those who are launching or running a business, particularly those engaging in international trade. These letters are used to help protect both the buyer and the seller in a business-to-business transaction by adding an extra guarantee that the seller will get paid. They essentially mean that a second bank will pay the seller if the first bank fails to do so, which can inspire confidence and allow a deal to go through.

Here’s a closer look at what a confirmed letter of credit is, how it works, and its pros and cons.

What Is a Confirmed Letter of Credit?

Also known as a confirmed LC, a confirmed letter of credit is an additional guarantee for a payment by a secondary bank. It states that this additional bank will be responsible for a payment being on time and in full even if the buyer doesn’t meet their contractual obligations and the first bank (called the issuing bank) defaults on the payment. You might think of it as a kind of insurance policy or Plan B if the initial bank responsible for payment fails to do its job.

This type of document can be common in international trades, such as transactions between export and import businesses. In many cases, a guarantee may be required to conduct international transactions or when a vendor or seller has reason to doubt the first bank’s creditworthiness.

💡 Quick Tip: If your checking account doesn’t offer decent rates, why not apply for an online checking account with SoFi to earn 0.50% APY. That’s 7x the national checking account average.

How Confirmed Letters of Credit Work

Confirmed letters of credit are commonly used as negotiable instruments, which are signed documents that promise to pay a certain sum to a specified person. They can be especially valuable in international business transactions that involve a significant payment amount for goods or services. Since the letter acts as guaranteed payment, it may take the place of a request for advance payment.

To get a regular letter of credit, the buyer will likely need to submit required documents to the first bank, including proof that certain steps have been completed. Then the bank will send appropriate documents to the seller’s bank. This paperwork shares detailed instructions on the terms and conditions, as well as how payment should be made. Depending on the agreement between the buyer and the seller, payment may be made immediately or at an agreed-upon date.

Once the letter of credit has been issued, the buyer may need the backing of a second bank, or a confirmed letter of credit. Worth noting: A fee is likely to be involved. The exact amount of this fee may depend on how good (or questionable) the first bank’s credit is. This letter usually reflects the first letter of credit and uses the same terms.

A confirmed letter of credit can protect both parties because it decreases the risk of default for the vendor or seller. Additionally, it ensures that payment is only made if all the terms are met. It can be a step to building good credit when doing a deal with a new client. It can also be helpful for a business that is just starting out and making connections, building contacts, and monitoring its credit.

Get up to $300 when you bank with SoFi.

No account or overdraft fees. No minimum balance.

Up to 4.00% APY on savings balances.

Up to 2-day-early paycheck.

Up to $2M of additional
FDIC insurance.


Parties Involved in a Confirmed Letter of Credit

Here’s a listing of all the parties typically involved in a confirmed letter of credit.

•   Buyer or applicant: This is the party who is requesting the letter of credit and who will pay the seller.

•   Beneficiary or seller: The party who is selling goods or services and is the one who receives payment.

•   Issuing bank: This is usually a bank where the buyer already has a business bank account. It’s the one that issues the original letter of credit.

•   Confirming bank: This is the second bank that will guarantee the funds to the seller once the terms in the letter of credit are met. In some cases, the confirming bank is from the seller’s home country (this may be called a correspondent bank) or is a bank the seller already works with.

Recommended: Guide to Irrevocable Letters of Credit (ILOC)

Confirmed Letter of Credit Example

Let’s look at a fictional example of how a confirmed letter of credit could work. Say that Pauline’s Paper Goods receives an order for 100,000 pallets of customized notebooks from JessCo, a stationery company. Pauline’s Paper Goods has never worked with JessCo before and isn’t sure that this company has the means to pay for the goods. Maybe Pauline’s Paper Goods worries that JessCo doesn’t have what is considered good credit.

In order to prevent non-payment after the notebooks are produced and shipped off to the buyer, Pauline’s Paper Goods outlines an agreement that JessCo needs to pay with a confirmed letter of credit on the date the shipment leaves their warehouse.

If JessCo agrees, it would start applying for a letter of credit at its bank, where it has its checking account, in the U.S. If the bank requires it, the company needs to provide proof it has the funds available or it will apply for financing.

As soon as the issuing bank creates the letter of credit, JessCo then applies for a confirmed letter of credit with another bank, possibly the seller’s bank. When Pauline’s Paper Goods receives the completed confirmed letter, it manufactures and ships the customized notebooks. Once Pauline’s Paper Goods provides proof of when and how the goods were shipped, the guaranteed funds are released.

Recommended: Business vs Personal Checking Account: What’s the Difference?

Confirmed vs Unconfirmed Letters of Credit

If you are conducting international business, you will probably hear the terms confirmed and unconfirmed letters of credit. An unconfirmed letter of credit is simply a letter of credit issued by a bank. A confirmed letter of credit, as we’ve described above, is backed by two banks. This can foster trust if, say, there’s reason to worry the payment won’t be made.

Here’s a look at some other differences between a confirmed vs. an unconfirmed letter or credit.

•   Guaranteed payment: With a letter of credit, the issuing bank guarantees payment. With a confirmed letter of credit, however, two banks confirm payment.

•   Cost: Unconfirmed letters of credit tend to cost less than confirmed letters of credit.

•   Changes: The buyer is allowed to make changes to an unconfirmed letter of credit. With a confirmed letter of credit, both banks can modify the document.

•   Issuance: The seller only has to approach one bank for an unconfirmed letter of credit, but needs to contact two with a confirmed letter of credit.

Recommended: Guide to a Commercial Letter of Credit

Advantages of Confirmed Letters of Credit

Confirmed letters of credit can have several benefits for sellers, particularly those doing business internationally and wanting to ensure smooth transactions. These advantages include:

•   Protection for both the buyer and seller

•   An extra layer of confidence for the seller

•   A lower risk of default thanks to a reputable second bank (perhaps serving as a guarantor if the first bank has a low credit rating)

•   Buyers can seem more creditworthy, which may increase the odds that a seller will do business with them

Disadvantages of Confirmed Letters of Credit

While confirmed letters of credit can be very valuable in business, there are a couple of downsides to recognize. Disadvantages of confirmed letters of credit include:

•   It may take longer to get a confirmed letter of credit since an additional bank is involved

•   Bank fees may be higher than with an unconfirmed letter of credit

The Takeaway

A confirmed letter of credit can be a valuable business tool, especially when conducting international business. For those importing or exporting, the letter will guarantee payment for goods a company is supplying if the buyer and the buyer’s bank can’t complete the deal. Getting a confirmed letter of credit may cost more and take longer compared to an unconfirmed letter of credit, but the effort may be worth it. It can secure a transaction and open doors to doing business with new customers in a way that communicates confidence.

Interested in opening an online bank account? When you sign up for a SoFi Checking and Savings account with direct deposit, you’ll get a competitive annual percentage yield (APY), pay zero account fees, and enjoy an array of rewards, such as access to the Allpoint Network of 55,000+ fee-free ATMs globally. Qualifying accounts can even access their paycheck up to two days early.


Better banking is here with SoFi, NerdWallet’s 2024 winner for Best Checking Account Overall.* Enjoy up to 4.00% APY on SoFi Checking and Savings.

FAQ

What is an unconfirmed letter of credit?

An unconfirmed letter of credit is a letter of credit that’s only been issued by one bank, known as the issuing bank. In a transaction, the buyer requests an unconfirmed letter of credit to guarantee funds will be paid on time to the seller by the bank.

Is an unconfirmed LC safe?

Yes, an unconfirmed letter of credit is safe because there is a guarantee or confirmation from one bank that payment will be made. Assuming that the issuing bank has a high credit rating, the seller can feel confident that the funds will be paid once all the conditions in the contract have been met. If the seller wants an additional layer of security, they may request a confirmed letter of credit — which means a second bank will provide payment if the first one fails to do so.

What is the risk of an unconfirmed LC?

The risk of an unconfirmed letter of credit is that the issuing bank won’t have the funds to pay the seller. That means that even if the seller completes their end of the contract, they risk losing out on funds if the issuing bank doesn’t fulfill their promise.

SoFi members with direct deposit activity can earn 4.00% annual percentage yield (APY) on savings balances (including Vaults) and 0.50% APY on checking balances. Direct Deposit means a recurring deposit of regular income to an account holder’s SoFi Checking or Savings account, including payroll, pension, or government benefit payments (e.g., Social Security), made by the account holder’s employer, payroll or benefits provider or government agency (“Direct Deposit”) via the Automated Clearing House (“ACH”) Network during a 30-day Evaluation Period (as defined below). Deposits that are not from an employer or government agency, including but not limited to check deposits, peer-to-peer transfers (e.g., transfers from PayPal, Venmo, etc.), merchant transactions (e.g., transactions from PayPal, Stripe, Square, etc.), and bank ACH funds transfers and wire transfers from external accounts, or are non-recurring in nature (e.g., IRS tax refunds), do not constitute Direct Deposit activity. There is no minimum Direct Deposit amount required to qualify for the stated interest rate. SoFi members with direct deposit are eligible for other SoFi Plus benefits.

As an alternative to direct deposit, SoFi members with Qualifying Deposits can earn 4.00% APY on savings balances (including Vaults) and 0.50% APY on checking balances. Qualifying Deposits means one or more deposits that, in the aggregate, are equal to or greater than $5,000 to an account holder’s SoFi Checking and Savings account (“Qualifying Deposits”) during a 30-day Evaluation Period (as defined below). Qualifying Deposits only include those deposits from the following eligible sources: (i) ACH transfers, (ii) inbound wire transfers, (iii) peer-to-peer transfers (i.e., external transfers from PayPal, Venmo, etc. and internal peer-to-peer transfers from a SoFi account belonging to another account holder), (iv) check deposits, (v) instant funding to your SoFi Bank Debit Card, (vi) push payments to your SoFi Bank Debit Card, and (vii) cash deposits. Qualifying Deposits do not include: (i) transfers between an account holder’s Checking account, Savings account, and/or Vaults; (ii) interest payments; (iii) bonuses issued by SoFi Bank or its affiliates; or (iv) credits, reversals, and refunds from SoFi Bank, N.A. (“SoFi Bank”) or from a merchant. SoFi members with Qualifying Deposits are not eligible for other SoFi Plus benefits.

SoFi Bank shall, in its sole discretion, assess each account holder’s Direct Deposit activity and Qualifying Deposits throughout each 30-Day Evaluation Period to determine the applicability of rates and may request additional documentation for verification of eligibility. The 30-Day Evaluation Period refers to the “Start Date” and “End Date” set forth on the APY Details page of your account, which comprises a period of 30 calendar days (the “30-Day Evaluation Period”). You can access the APY Details page at any time by logging into your SoFi account on the SoFi mobile app or SoFi website and selecting either (i) Banking > Savings > Current APY or (ii) Banking > Checking > Current APY. Upon receiving a Direct Deposit or $5,000 in Qualifying Deposits to your account, you will begin earning 4.00% APY on savings balances (including Vaults) and 0.50% on checking balances on or before the following calendar day. You will continue to earn these APYs for (i) the remainder of the current 30-Day Evaluation Period and through the end of the subsequent 30-Day Evaluation Period and (ii) any following 30-day Evaluation Periods during which SoFi Bank determines you to have Direct Deposit activity or $5,000 in Qualifying Deposits without interruption.

SoFi Bank reserves the right to grant a grace period to account holders following a change in Direct Deposit activity or Qualifying Deposits activity before adjusting rates. If SoFi Bank grants you a grace period, the dates for such grace period will be reflected on the APY Details page of your account. If SoFi Bank determines that you did not have Direct Deposit activity or $5,000 in Qualifying Deposits during the current 30-day Evaluation Period and, if applicable, the grace period, then you will begin earning the rates earned by account holders without either Direct Deposit or Qualifying Deposits until you have Direct Deposit activity or $5,000 in Qualifying Deposits in a subsequent 30-Day Evaluation Period. For the avoidance of doubt, an account holder with both Direct Deposit activity and Qualifying Deposits will earn the rates earned by account holders with Direct Deposit.

Members without either Direct Deposit activity or Qualifying Deposits, as determined by SoFi Bank, during a 30-Day Evaluation Period and, if applicable, the grace period, will earn 1.20% APY on savings balances (including Vaults) and 0.50% APY on checking balances.

Interest rates are variable and subject to change at any time. These rates are current as of 12/3/24. There is no minimum balance requirement. Additional information can be found at https://www.sofi.com/legal/banking-rate-sheet.

SoFi® Checking and Savings is offered through SoFi Bank, N.A. ©2024 SoFi Bank, N.A. All rights reserved. Member FDIC. Equal Housing Lender.
The SoFi Bank Debit Mastercard® is issued by SoFi Bank, N.A., pursuant to license by Mastercard International Incorporated and can be used everywhere Mastercard is accepted. Mastercard is a registered trademark, and the circles design is a trademark of Mastercard International Incorporated.

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

[ cd_bank_fee]

SOBK-Q224-1885527-V1

Read more
May
24
2024
Is a Credit Card Needed to Rent a Car?

Guide to Renting a Car With or Without a Credit Card

By | Budgeting & Goals, Credit, Financial Independence | Comments Off on Guide to Renting a Car With or Without a Credit Card

Renting a car with a credit card is easier than renting a car without a credit card, but both methods are possible at many major car rental agencies. Car rental companies typically put customers through more hoops to rent a car without a credit card.

In this guide, we’ll cover how to rent a car without a credit card — but also explore the potential perks of paying for a rental car with a credit card, when possible.

Is It Possible to Rent a Car Without a Credit Card?

So do you need a credit card to rent a car? Technically, no, you do not have to have a credit card to rent a car. It’s possible to rent a car with a debit card at some major rental agencies. Some agencies even accept prepaid gift cards, cash, or money orders as a form of payment at the end of the rental.

Each rental agency has its own stipulations about paying by debit card. Some franchises may not follow corporate policy, so it’s always a good idea to call the specific rental agency location to ask about payment options before arriving at your destination.

Common requirements for customers paying for a rental without a credit card include:

•   Security deposit: Many agencies will put a hold on your debit card for the cost of the rental, plus an additional amount. You will not be able to use the money being held for the duration of your trip, which can make funding your vacation more challenging.

•   Credit check: If you are paying with a debit card (or cash), some rental car agencies may perform a credit check. This could result in a hard inquiry on your credit report, which might temporarily lower your score.

•   Identification: Renting a car without a credit card might mean that the rental agency needs to see multiple valid forms of ID.

•   Age: While 25 is often the magic number to rent a car, it is possible to rent a car as a younger driver. Many agencies charge “young driver fees” to do so. However, if you are renting a car with a debit card, agencies may not allow drivers under the age of 25.

•   Proof of return travel: If renting from an airport with a debit card, many agencies want to see a ticketed return travel itinerary as an extra assurance that you will return with the car.

•   Logos: Some rental car agencies require debit or prepaid cards to carry the logo of a major credit card company, like Mastercard, Visa, or Discover.

The following rental car agencies allow you to rent a car without a credit card at participating franchises if you meet their specific requirements (though note this is not an exhaustive list):

•   Alamo

•   Avis

•   Budget

•   Dollar

•   Enterprise

•   Hertz

•   National

•   Sixt

•   Thrifty

•   Turo

Recommended: Buying a Car with a Credit Card

Why Rental Car Agencies Typically Require a Credit Card to Rent a Car

Why do you need a credit card to rent a car at some agencies, and why do others impose a number of requirements for debit card payments? Here are the reasons rental car agencies require a credit card or other information.

Proof of Reliability

Having a credit card inherently demonstrates to a rental car agency that a creditor trusts you enough to borrow their money. Because rental car agencies can ascertain your creditworthiness from a credit card in your name, they don’t need to run a credit check before loaning you a $25,000 piece of machinery.

Ability to Collect Repair Fees

If you return the car damaged, the rental car agency will need to pay for these repairs. Car insurance (whether through your own policy, credit card travel insurance, or the agency’s policy) may cover most of the charges, but you still might owe a deductible. Without proper insurance, there is a risk that the repair costs will exceed your security deposit.

Though you can rent a car without a credit card, if you pay with a debit card, the rental agency runs the risk of your checking account not having enough funds to cover the cost. There is a better chance the agency can charge your credit card without hitting your credit limit.

Ability to Collect Tickets and Fees

Similarly, if you go through any electronic toll booths or receive a ticket without being pulled over (e.g., through a traffic camera), the rental car agency can charge your credit card to pay the outstanding balance. Again, they face less risk of maxing out a credit card than overdrawing a checking account, which is why some agencies prefer customers renting a car with a credit card.

Benefits of Using a Credit Card for a Car Rental

Here are just a few potential perks of swiping your credit card for a car rental:

•   It’s easier. As discussed above, renting a car without a credit card can complicate the process.

•   You might have insurance. Some travel credit cards offer car insurance when you use them to pay for a rental car. Research your card’s policy carefully to understand what coverage it provides and how to use it. For example, many credit cards with travel insurance require that you decline the rental agency’s insurance; some only offer secondary insurance, meaning you need to file claims through your own auto insurance first.

•   You might get discounts. Some credit cards offer special discounts at select car rental agencies. Check your card’s policy to understand where and how to get discounted rates.

•   You could earn rewards. As mentioned above, you might qualify for cash back rewards when you opt to cover your rental car with a credit card payment. Other cards may pay out rewards as miles or points. Travel credit cards might even offer extra points for travel-related expenses, like rental cars.

Typical Rental Car Credit Card Interest Charges

When you rent a car, the agency typically puts a hold on your credit card for a set amount, often the value of the rental car agreement; this is commonly called a security deposit. During the rental period, these funds will count toward your credit limit.

When you return the car, the agency will charge you the amount of the rental, plus any fees incurred during the rental (damages, extra days, late drop-off, etc.). If the initial hold was more than the final cost of the rental, the agency will put that amount back on your card.

Because you pay interest on money borrowed with a credit card, it’s possible you might incur interest on the held security deposit. However, paying off a credit card in full every month is a smart strategy for avoiding interest charges given how credit cards work.

Recommended: When Are Credit Card Payments Due?

The Takeaway

Renting a car with a credit card makes the process much easier and can have benefits for the renter as well. However, it is possible to rent a car without a credit card. Just be prepared to take additional steps to get behind the wheel.

Whether you’re looking to build credit, apply for a new credit card, or save money with the cards you have, it’s important to understand the options so you can use your credit card responsibly.

SoFi Travel has teamed up with Expedia to bring even more to your one-stop finance app, helping you book reservations — for flights, hotels, car rentals, and more — all in one place. SoFi Members also have exclusive access to premium savings, with 10% or more off on select hotels. Plus, earn unlimited 3%** cash back rewards when you book with your SoFi Unlimited 2% Credit Card through SoFi Travel.

Wherever you’re going, get there with SoFi Travel.

FAQ

Do I need a credit card for rental car insurance?

You do not need a credit card to purchase rental car insurance. While using a credit card makes it easier to secure a rental, most agencies allow you to pay upon your return with a credit card, debit card, or even cash, a gift card, or a money order. That includes the cost of insurance provided by the rental agency.

However, many car insurance providers cover rental cars in their policies, especially in the United States. Check with your agent to see if you’re covered. Additionally, some credit cards offer rental car insurance when you use them to pay for the rental. Your credit card benefits administrator can explain how, if, and when coverage applies.

Is it easier to rent a car with a credit card or debit card?

Renting a car with a credit card is easier than renting a car with a debit card. Many agencies will let you rent with a debit card; they just have additional requirements for you to meet before renting.

What form of payments are accepted for renting a car?

While rental agencies generally prefer credit cards for payment, some agencies allow you to book and rent a car with a debit card. Upon return, you may be able to pay for the car with a prepaid gift card, cash, or money order.

Can I use someone else’s credit card to rent a car?

If you use someone else’s credit card to rent a car, that person must be present to pick up the rental and be the main driver. If you intend to drive the rental, you will likely have to pay a fee for an additional driver, as you can’t be listed as the primary driver when using someone else’s credit card.

Photo credit: iStock/skynesher

**Terms, and conditions apply: The SoFi Travel Portal is operated by Expedia. To learn more about Expedia, click https://www.expediagroup.com/home/default.aspx.

When you use your SoFi Credit Card to make a purchase on the SoFi Travel Portal, you will earn a number of SoFi Member Rewards points equal to 3% of the total amount you spend on the SoFi Travel Portal. Members can save up to 10% or more on eligible bookings.


Eligibility: You must be a SoFi registered user.
You must agree to SoFi’s privacy consent agreement.
You must book the travel on SoFi’s Travel Portal reached directly through a link on the SoFi website or mobile application. Travel booked directly on Expedia's website or app, or any other site operated or powered by Expedia is not eligible.
You must pay using your SoFi Credit Card.

SoFi Member Rewards: All terms applicable to the use of SoFi Member Rewards apply. To learn more please see: https://www.sofi.com/rewards/ and Terms applicable to Member Rewards.


Additional Terms: Changes to your bookings will affect the Rewards balance for the purchase. Any canceled bookings or fraud will cause Rewards to be rescinded. Rewards can be delayed by up to 7 business days after a transaction posts on Members’ SoFi Credit Card ledger. SoFi reserves the right to withhold Rewards points for suspected fraud, misuse, or suspicious activities.
©2024 SoFi Bank, N.A. All rights reserved. Member FDIC. Equal Housing Lender. NMLS #696891 (Member FDIC), (www.nmlsconsumeraccess.org).


Third-Party Brand Mentions: No brands, products, or companies mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third-party trademarks referenced herein are property of their respective owners.

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

SOTL-Q224-1883177-V1

Read more

CATEGORIES

  • All
  • No categories
Close modal

See what SoFi can do for you and your finances.

Select a product below and get your rate in just minutes.

Student Loan
Refinancing

Personal
Loans

Online
Investments

Other

Terms and conditions apply. SOFI RESERVES THE RIGHT TO MODIFY OR DISCONTINUE PRODUCTS AND BENEFITS AT ANY TIME WITHOUT NOTICE. To qualify, a borrower must be a U.S. citizen or other eligible status, be residing in the U.S., and meet SoFi's underwriting requirements. Not all borrowers receive the lowest rate. Lowest rates reserved for the most creditworthy borrowers. If approved, your actual rate will be within the range of rates at the time of application and will depend on a variety of factors, including term of loan, evaluation of your creditworthiness, income, and other factors. If SoFi is unable to offer you a loan but matches you for a loan with a participating bank, then your rate may be outside the range of rates listed above. Rates and Terms are subject to change at any time without notice. SoFi Personal Loans can be used for any lawful personal, family, or household purposes and may not be used for post-secondary education expenses. Minimum loan amount is $5,000. The average of SoFi Personal Loans funded in 2023 was around $33K. Information current as of 2/26/24. SoFi Personal Loans originated by SoFi Bank, N.A. Member FDIC. NMLS #696891 (www.nmlsconsumeraccess.org). See SoFi.com/legal for state-specific license details. See SoFi.com/eligibility for details and state restrictions.

✝ To check the rates and terms you may qualify for, SoFi conducts a soft credit pull that will not affect your credit score. However, if you choose a product and continue your application, we will request your full credit report from one or more consumer reporting agencies, which is considered a hard credit pull and may affect your credit.

©2024 Social Finance, LLC All rights reserved.
TLS 1.2 Encrypted
Equal Housing Lender