Dec
10
2024

Tips for Spotting a Fake Money Order

By | Financial Topics, Terminology | Comments Off on Tips for Spotting a Fake Money Order

A money order can be a convenient way to make payments or receive funds, but fake ones are out there, perhaps without the usual watermarks or in too high denominations. These fraudulent paper documents can leave you vulnerable to being scammed.

Knowing how to tell if a money order is real can protect you against financial losses. Read on to learn how to spot a fake money order.

Key Points

•   Fake money orders often lack watermarks, have incorrect amounts, or show signs of tampering.

•   Verifying authenticity of money orders involves checking serial numbers and consulting the issuer to confirm legitimacy.

•   Accepting fake money orders can lead to financial loss and legal issues, underscoring the need for caution.

•   Reporting money order scams to the issuing entity and your bank is crucial to prevent further fraud.

•   Protecting yourself involves avoiding money orders from strangers and verifying payment methods before acceptance.

Common Money Order Scams

First, a quick refresher on what a money order is. It’s a common way to pay for things when you can’t or don’t want to write a check, use a debit card, or pay cash. When someone purchases a money order, they’re getting a financial instrument that the recipient can cash or deposit just like a check.

Typical places to buy money orders include financial institutions, U.S. Post Office branches, Western Union and similar businesses, and major retailers (such as Walmart). Money orders are usually only available in denominations up to $1,000, and the fee to get one is usually just a dollar or two.

Money orders are often used by scammers as a means of fleecing unsuspecting victims out of their money. Some scams are obvious but others are more subtle in nature. Here, some specifics:

•   Fake buyers. Scammers may target people who are selling items on Craigslist, Facebook Marketplace, or other online forums by making a purchase and sending payment via money order. However, the money order is a fake, and by the time the seller deposits it into their bank account and learns the truth, the scammer has made off with their item.

•   Fake sellers. It’s also possible to fall prey to a money order scam if you’re trying to purchase something online. The seller, who appears legitimate, may ask you to send payment via money order while sending you a tracking number for the item you purchased. When the item arrives, however, you’re left holding nothing but an empty box while the scammer has cashed the money order and disappeared. Or worse, nothing ever arrives at all.

•   Refund scams. Another common money order scam involves buyers who purchase something from you, mail a fake money order, and then say they’ve changed their minds. They ask you to refund the amount of the money order and send it back to them via wire transfer or through a person-to-person payment app. Meanwhile, you try to deposit the money order when it arrives, only to find out it’s a fake and you’ve lost money.

•   Overpayment scams. One money order scam involves a buyer paying you for something via money order, only the amount is more than the purchase price. They’ll say they made a mistake and ask you to refund the difference. You do so, then find out later that you’ve been paid with a counterfeit money order. You are out the amount you refunded the buyer.

•   Deposit scams. Scammers may try to take advantage of your goodwill by offering you a money order in exchange for cash. They might claim they don’t have a bank account to deposit the money order into and you agree, thinking you’re doing someone a favor. However, you end up losing money when your bank refuses to accept the fake money order.

Recommended: Can You Purchase a Money Order With a Credit Card?

Tips for Spotting a Counterfeit Money Order

Fake money orders may not be easily recognizable at first or even second glance. Taking a close look at the money order can help you identify some clues that may suggest it’s a fake. Here’s what to look for to detect counterfeit money orders.

•   Watermarks. If you’re trying to cash a postal money order, the lack of watermarks is a sign that it’s a fake. The Postal Service includes a series of repeating watermarks on its money orders. If those are missing, you might have a counterfeit money order on your hands.

•   Dollar amounts. Check if the dollar amount matches the amount that the money order is supposed to be for. Are there any signs that someone has tried to erase or write over the dollar amounts or add an extra zero or two? Those can indicate attempted tampering or forgery.

•   Money order limits. Domestic postal money orders cannot exceed $1,000; the same is usually true for Western Union money orders within the U.S. International postal money orders cannot be more than $700. If you receive a money order that exceeds the allowed limit, then it’s likely a fake.

•   Discoloration. Any discoloration or what looks like an ink bleed could suggest that someone has tried to alter the money order in some way or that they’ve printed it themselves, which would make it a fake.

Worth noting: While the U.S. Postal Service is a popular place to get money orders, keep in mind that options are available. Money orders obtained through other sources typically deploy different measures to prevent tampering or duplication, which may include watermarks or security strips. You can familiarize yourself with them via their websites or customer service to help detect a falsified money order.

Recommended: 10 Personal Finance Basics

Tips to Verify a Real Money Order

If you receive a money order as payment, here are some steps you can take to ensure it’s not a fake before trying to cash or deposit it.

•   Examine the money order. As mentioned, there are several physical indicators that can tip you off to fake money orders. Once you receive a money order, give it a thorough examination to see if there’s anything that hints that it might be a fake. How to spot a fake money order can involve looking for discoloration, watermarks, and the like.

•   Check the serial number. Money orders are issued with a unique serial number. If you’d like to make sure a money order is real, you can call the customer service number that’s listed on it to double-check that the serial number is legit.

•   Take it to the issuer. Another option for verifying that a money order is real is to take it back to where it was issued. That might mean visiting a post office or calling their verification line at 866-459-7822. Or you might go to a Western Union location or a branch of the bank from which it was issued, or you could try phoning. Someone who works at one of these locations should be able to determine whether the money order is authentic.

•   Wait it out. If someone gives you a money order as payment, you could deposit it into your checking account and wait for it to clear. In the meantime, you would not want to spend any of the funds from the money order, nor would you want to send any money back to the other person until your bank has verified it and made the funds available to you.

You might try one or all of these methods to prove that a money order isn’t a fake. If you send payment to someone else via a money order, it’s also a good idea to keep your receipt so you have a means of tracking it. That could help you avoid any issues later if the person you sent the money order to claims they never received it.

What Happens If You Accept a Fake Money Order?

Accepting a fake money order or any other type of fake check can lead to unintended financial consequences. Here’s what can happen if you try to deposit a counterfeit money order to your bank account:

•   You won’t receive any of the funds the sender promised to you.

•   If funds are deposited, you’ll be responsible for paying the money back to your bank.

•   The bank may charge you a returned item fee for the deposited money order, meaning it cannot be processed.

•   Should you make purchases against the money order amount and the deposit is later reversed, you may be charged overdraft fees if the reversal leaves your account balance in the red.

There is a possibility that you could also get into legal trouble if the bank believes that you knowingly deposited a fake money order. In a worst-case scenario, you may be charged with bank fraud or money laundering, both of which could result in jail time and fines if convicted.

Recommended: 7 Money Management Tips

Ways to Report a Money Order Scam

If you believe you’ve been scammed by someone using a money order, it’s important to report it to try and minimize any financial damage. How you report a money order scam can depend on which entity issued the money order.

•   In the case of postal money orders, to report fraud, call the U.S. Postal Service’s hotline at 800-372-8347.

•   For Western Union money orders, you’d need to get in touch online or by phone; their number is 800-448-1492.

With bank-issued money orders, you could call or visit a branch of the bank. You’ll also want to let your bank know that you’ve received and deposited what you believe is a fake money order. That can prevent the bank from attempting to honor the money order and potentially triggering bank fees for you when it fails to clear.

Tips to Protect Yourself From Being Scammed

Money order scams continue to make the rounds, but that doesn’t mean you have to get taken in. Taking steps to protect yourself can help you avoid potentially costly scams.

•   Avoid accepting money orders from strangers or anyone who isn’t a trusted sender.

•   Ask for alternative forms of payment, such as a wire transfer or person-to-person payment.

•   When sending money orders to others, first verify the identity of the recipient to make sure they’re legit.

•   Look for signs of forgery or tampering if you receive a money order from someone as payment.

•   Attempt to verify a money order before depositing it to a bank account.

Finally, it’s important to trust your gut. If something feels off to you or you’re buying something with a money order, and the deal seems too good to be true, it probably is.

The Takeaway

Money orders can be a convenient way to pay, but they can also leave you vulnerable to scammers. You can attempt to verify money orders before depositing them, using such techniques as checking for watermarks on U.S. Postal Service money orders and looking for signs of tampering with the amount. If you have a bank account, you might consider using other ways to pay bills or send funds to eliminate the odds of being hit by a money order scam.

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FAQ

Can you file a complaint about a fake money order with your bank?

If you receive a fake money order and deposit it into your bank account, it’s a good idea to let the bank know as soon as possible. While you could complain to the bank, there may be nothing the bank can do about the scammer, but your actions might help you avoid, say, overdraft fees. You could also report fake money orders to the issuing entity, such as the postal service or Western Union.

Do scammers get your information if you fall victim?

Most financial scams involve the exchange of information. For example, a scammer might ask for your name and address so they can purchase a money order to send to you. Other scams may attempt to gain direct access to your bank account. When buying or selling online, it’s important to use caution, protect your sensitive personal and financial information, and keep it out of the hands of scammers.

What is the most common tell of a fake money order?

A lack of watermarks is usually a sign that a money order is a fake, as most issuers include them as a security measure, most notably the U.S. Postal Service. Other red flags include smudged ink, numbers that don’t match up to the amount the money order is supposed to be, and signs of physical alteration or damage.

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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.

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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.

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Dec
10
2024

Wire Transfer vs Direct Deposit

By | Financial Topics, Terminology | Comments Off on Wire Transfer vs Direct Deposit

Wire Transfers vs. Direct Deposit: How They’re Different

Wire transfers and direct deposit are both methods for moving money, but they have significant differences. Wire transfers are usually done on an individual basis and allow you to send money from your bank account to someone else’s account electronically, either domestically or internationally. Direct deposit, however, is typically used by businesses and organizations, often on a recurring basis, to transfer funds between bank accounts, though these transactions are typically limited to U.S. banks only. These two kinds of financial transactions are also processed differently and can involve dissimilar fees.
Read on to learn more about the differences between a wire transfer vs. direct deposit so you can use the technique that best suits your needs.

Key Points

•   Wire transfers and direct deposits are both methods for moving money, with significant differences in usage and fees.

•   Wire transfers are typically used for one-time payments, both domestically and internationally, and often involve fees.

•   Direct deposits are commonly used for recurring payments, such as wages and government benefits, usually within the U.S., and are often fee-free for recipients.

•   Wire transfers are fast and secure but can be costly and irreversible once sent.

•   Direct deposits offer convenience and possibly early access to wages but require accurate account information and initial set-up time.

What Is a Wire Transfer?

A wire transfer is an electronic transaction that allows money to move from one bank account to another. You initiate the wire transfer through your bank if you’re the person who’s sending money. The bank executes the transfer on your behalf and typically charges you a fee for that service. Some points to be aware of:

•   Wire transfers can be domestic, meaning you’re transferring money from one bank to another in the U.S., or international. For example, you might live and bank in the U.S. but need to send money to relatives living in Spain. A wire transfer would allow you to do that, without having to send cash or put a check in the mail.

•   Banks and credit unions can offer wire transfer services. The timing can vary, with domestic transfers typically being completed within a business day, while international ones can take between one and five days.

•   The fees you pay for a domestic or international wire transfer will depend on which financial institution completes the transfer for you. Some banks also charge a fee to receive a wire transfer into your account. Typically, outgoing wire transfers can cost anywhere from $0 to $50 depending on the transaction’s details.

•   It’s also possible to wire money through nonbank providers, such as Western Union or MoneyGram, if you don’t have a bank account or you need to send cash to someone. Each company has its own fee schedule that determines how much you’ll pay to send or receive money.

How Do Wire Transfers Work?

Wire transfers work by allowing you to send money directly from your bank account to someone else’s. You can use a wire transfer to send money to an individual or to a business.

Each bank has its own wire transfer policies but generally, the process works like this:

•   The sender provides their bank with the required information to initiate a wire transfer, making sure they have enough funds for the transaction.

•   The bank verifies the information and calculates the wire transfer fee, if applicable.

•   The sending bank initiates a transfer action with the recipient bank through a secure messaging network.

•   The recipient bank acknowledges the message and deposits funds equal to the amount of the transfer into the recipient’s account.

Wire transfers can be sent through SWIFT (Society for Worldwide Interbank Financial Telecommunication), the Federal Reserve Wire Network, or the CHIP (Clearing House Interbank Payments) system.

In terms of processing times, domestic transfers are typically completed within one business day, while international wire transfers may take one to five business days. There may also be cutoff times at a given financial institution, which can impact how quickly the funds are transferred and made available.

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What You Need to Send a Wire Transfer

Wiring money is a fairly straightforward process, and it starts with organizing the required information. Here’s what you’ll need to send a wire transfer at a bank.

•   Domestic transfers. You’ll need the recipient’s name, address, their bank account number, and their bank’s routing number. Some banks may request the recipient’s phone number as well.

•   International transfers. You’ll need the recipient’s name, address, and bank account number (IBAN), as well as their bank’s SWIFT code (this may be referred to as a BIC, or bank identification code).

You’ll also need to have sufficient funds in your bank account to cover the amount of the transfer, plus any wire transfer fee the bank charges. Depending on whether the transfer is domestic or international and the type of account you have, the wire transfer fees could range from $0 to $50, as noted above.

If you’re sending money via wire transfer through Western Union, MoneyGram, or another nonbank provider, you’ll typically need the following:

•   Your government-issued photo ID and personal details

•   Funds for the transaction and to cover any fees (you may be able to pay with cash, a credit card or debit card, or via your bank account, depending on the specific transfer and service involved)

•   Recipient’s name, phone number, and address

•   Recipient’s bank name, account number, and routing number

•   SWIFT code for international transfers

One thing to note is that once a wire transfer is sent, it’s very difficult to get the money back or cancel the transaction. So it’s important to double-check all of the information beforehand to make sure you’re sending the right amount of money, to the right person, and the right bank account.

Advantages and Disadvantages of Wire Transfers

Wire transfers can be a good choice for sending money in certain situations. For example, if you need to deliver funds to someone within one business day, a domestic wire transfer could allow you to do that. There are, however, some downsides to consider.

Advantages Disadvantages
Wire transfers are typically quick, with domestic transfers usually processing within one business day. In most cases, you cannot reverse or change a wire transfer once it’s been sent.
Wire transfers can allow you to send large amounts of money without having to write checks.

Your bank may impose limits on the amount of money you can transfer in a single transaction.
A wire transfer can be a secure way to send money domestically or internationally. Scammers may use ploys involving wire transfer requests to defraud consumers.
There is no risk of incurring overdraft or nonsufficient funds fees, as there is with payments by check. Banks can charge fees for domestic and international wire transfers, up to $50 each.

In terms of what’s good about wire transfers, they’re a fast way to send money and they’re more reliable and secure than checks or cash. On the other hand, there are the fees to contend with and the inherent risk of sending the wrong amount or directing funds to the wrong bank account. Additionally, other money transfer services may be just as fast without charging steep fees.

What Is a Direct Deposit?

Direct deposit allows you to receive money into your bank account electronically, without needing to deposit a paper check or cash. Funds move from the sender’s account to your account on a scheduled date. To delve in a little more deeply:

•   Direct deposit can be a convenient way to receive funds in the U.S. There’s no need to wait for a check and then deposit or cash it.

•   Depending on where you bank and the kind of account you have, you may be able to get paid up to two days early with direct deposit payments.

•   This method is often used for recurring payments, such as wages.

•   You can set up direct deposit to receive your paychecks, tax refunds, or payments of government benefits if you receive them.

•   Direct deposit can also be used to send payments for court-ordered child support. Parents who are required to pay support through a wage withholding plan may opt to have that money withdrawn from their paychecks automatically. Those funds can then be routed to the recipient parent’s bank account via direct deposit.

It’s worth noting that direct deposit is a very popular technique for getting paid. In fact, more than 95% of Americans are paid this way.

Also, there are some exceptions to the U.S.-only rule. For instance, if you are eligible to receive Social Security payments but live outside the U.S., you may be able to receive your benefits via direct deposit to an American financial institution or one overseas that has an international direct deposit agreement with the U.S.

How Does Direct Deposit Work?

Direct deposits are a form of ACH (or Automated Clearing House) payment. The ACH is a network that links banks in order to allow for the transfers of funds. An ACH transfer is one kind of electronic funds transfer, or EFT. In terms of the difference between ACH vs. EFT, the former refers to a specific category of payment methods, while the latter includes a broader range of electronic payments.

That’s important to understand when discussing how direct deposit works. Here’s what the process involves:

•   On a scheduled day, the sender forwards a direct deposit request to the Automated Clearing House.

•   The ACH processes the transaction and forwards the appropriate amount of funds to the recipient’s bank.

•   The recipient bank verifies the details of the direct deposit and credits the recipient’s bank account with the money.

•   The deposit amount is then deducted from the sender’s bank account.

There’s typically no fee to enroll in direct deposit as the recipient, though senders may pay a fee to the bank. That can include a set-up fee as well as a fee for each direct deposit transaction.

The average time for direct deposit to be completed and clear your bank account can vary based on where you bank. You may be able to get paid early (up to two days before “payday,” typically). However, the bank’s funds availability policy will determine when you can access the money in your account.

One additional note: Although direct deposit is typically initiated by businesses and government agencies using ACH transfers, individuals may be able to send a version of direct deposit via an app (either your bank’s or a third-party app) to transfer funds to, say, a friend or family member’s account.

What You Need to Send a Direct Deposit

If you would like to receive direct deposits of your paychecks, you’ll likely need to fill out a direct deposit form with some personal and banking details. These may include:

•   Your name and Social Security number

•   Bank account number and routing number where the money should be sent

•   Account type (checking or savings)

•   Possibly a voided check and/or deposit slip

•   Details on whether you want the full paycheck sent to checking or perhaps some of it deposited into a savings account.

You’ll usually sign and date the form; then, your employer’s payroll department will typically handle the processing of these materials. Keep in mind that it may take one to two pay cycles for the direct deposit to take effect, as well as the fact that direct deposit is usually only for use within the U.S.

If you want to send money to someone via direct deposit as an employer, you’ll have to coordinate with your payroll processor to initiate a program. You’ll need to provide your employees with a direct deposit form and get their personal and bank account information, as noted above, in order to start direct deposit payments.

Advantages and Disadvantages of Direct Deposit

Just like wire transfers, direct deposit can have some pros and cons. It’s important to consider both if you have the option to enroll in direct deposit to receive your paychecks, tax refunds, government benefits, child support, or other payments.

Advantages Disadvantages
No need to visit a bank branch to deposit payments to your bank account. Tech snafus could result in delays in receiving direct deposit payments.
Potentially get paid up to two days early when you enroll in direct deposit of your paychecks. Initial set-up can take time to process, and you may still need to get paid via paper check in the meantime.
Direct deposit is typically free for employees. Changing banks means updating direct deposit information, which can slow down payments temporarily.
You can split direct deposit payments into multiple accounts to make paying bills or saving easier.
Direct deposit payments of certain government benefits may be protected from being seized by creditors.

Direct deposit can be a convenient and cost-effective way to get paid. As with wire transfers, it’s important to make sure your account information is accurate and up-to-date. Sending a direct deposit to a closed account or to the wrong bank account could create financial headaches that may take time and effort to untangle.

Why You Might Use a Wire Transfer Over a Direct Deposit

There are some situations where it might make sense to choose a wire transfer in place of a direct deposit payment. For example, you might choose a wire transfer if you:

•   Need to make a one-time payment to another person or business

•   Want to send a large amount of money securely, without having to write a check or purchase an official check from the bank

•   Are making a time-sensitive payment and don’t mind paying a fee to be able to do so

•   Want to send money to another person or business internationally

•   Have sufficient funds in your account to cover the payment and fees

The most important thing to consider may be the fees you’ll pay. Again, the cost of sending or receiving a wire transfer can vary by bank. Also, you might find yourself in a situation in which the recipient of the wire transfer has to pay a fee to receive it and wants you to cover that cost. Being aware of fees upfront can help you decide if a wire transfer is the best option.

Why You Might Use a Direct Deposit Over a Wire Transfer

Direct deposits can be useful in a number of situations. You might choose to enroll in direct deposit if you:

•   Want to get paid without having to deposit a paper check and waiting for it to clear

•   Prefer to access your pay up to two days early, thanks to your bank’s policies

•   Receive government benefits that you may be able to protect from creditor actions

•   Would like to be able to split your paychecks, government benefits, or tax refunds across multiple checking and savings accounts

•   Receive child support payments and would like them to be delivered to you without having to interact with the other parent

•   Prefer to avoid the fees associated with wire transfers

Whether you choose a direct deposit vs. wire transfer can ultimately depend on the situation. If you need to send money, you can do that with a wire transfer. If you want to receive money, you could do so using wire transfers or (in the case of paychecks and certain other payments) direct deposit. Direct deposit is often a convenient way to receive recurring payments from a business or government agency.

The Takeaway

Wire transfers and direct deposit are both convenient ways to move funds. Typically, a wire transfer is a one-off way to quickly and securely send funds, domestically and internationally, though fees are often involved. Direct deposit, on the other hand, is usually used by businesses and government agencies to send money (such as paychecks or tax refunds) within the U.S., with the recipient not having to pay any fees.

SoFi currently offers incoming and limited outgoing domestic wire transfers, and our Checking and Savings accounts can offer a great place to receive direct deposits. Qualifying deposits may even be available up to two days early.

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.


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FAQ

Can you send direct deposits with a mobile app?

It’s possible to send direct payments to friends and family via a mobile app. Person-to-person payment apps allow you to forward funds from your bank account to someone else’s; your bank’s app may also have this capability. Depending on the particular transaction, there may be little or no fees involved.

Can you send direct deposits internationally?

It is possible to send direct deposit payments internationally in some situations. For instance, if you live abroad and receive Social Security benefits, you might receive them at a bank which has an international direct deposit agreement with the U.S.

Can you send wire transfers with a mobile app?

You can send wire transfers with your bank’s mobile app if the app is equipped with this feature. You’d need to provide the same information as you would if you were completing a wire transfer in person and make sure that the account you’re sending the money from has sufficient funds to cover the transfer and the fee.

Is there a fee with sending direct deposits?

If you’re sending direct deposit as an employer to one or more employees, your bank may charge a fee for that. If you’re receiving direct deposit of paychecks, tax refunds, or government benefits, there’s usually no fee for that. If you’re sending a direct payment to someone else, the app you’re using might charge a fee.

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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.

*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.

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Dec
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2024

The SAVE Plan: What Student Loan Borrowers Need to Know

By | Student Loans, student_loan | Comments Off on The SAVE Plan: What Student Loan Borrowers Need to Know

The Saving on a Valuable Education (SAVE) program, an income-driven repayment plan for federal student loans, was launched in 2023 by the Biden Administration. However, SAVE was put on hold in the summer of 2024 because of court challenges. As of December 2024, SAVE is still frozen. This limbo is expected to continue until at least April 2025, according to the Department of Education (DOE).

All SAVE participants are in forbearance, meaning if you are enrolled in the SAVE repayment plan, you don’t have to make any payments until the courts decide the program’s future. You can still enroll in SAVE, but if your application is accepted, your account will be placed in immediate forbearance. The DOE is advising those who seek an income-driven repayment plan to either sign up for SAVE or an alternative plan.

Here’s what you need to know about the SAVE program, its history and current status, and the alternatives you can pursue to lower your payments on your federal student loans.

History of the SAVE Plan

In August 2023, President Joe Biden originally announced the creation of the SAVE plan. It was part of his effort to make student loan debt more manageable, especially for low-income borrowers. It replaced the REPAYE program.

The SAVE Plan was the most affordable repayment plan for federal student loans ever created, according to the DOE. If you were single and made less than $32,800 a year, you didn’t have to make any payments at all. (If you were part of a family of four and made less than $67,500 annually, you also didn’t have to make payments.)

For federal borrowers who were required to make payments and had only undergraduate school loans, the monthly payments could be cut in half and go to as low as 10% of discretionary income. The plan was for payments on undergraduate debt to be further lowered to 5% of income beginning in the summer of 2024. Because of the court challenge, that never happened.

For federal borrowers who had graduate school loans, their monthly payments could be 10% of their discretionary income. Also, under the SAVE Plan, those who originally took out $12,000 or less in loans were eligible for forgiveness after at least 10 years of monthly payments.

Recommended: Discretionary Income and Student Loans, and Why It Matters

Why SAVE Was Put on Hold

In June 2024, judges in Kansas and Missouri issued injunctions against the SAVE plan, arguing that the administration didn’t have the authority to forgive student debt on the scale the SAVE plan allows. Such widespread loan forgiveness could only be authorized by Congress, the lawsuits said.

At first, the injunctions halted only the part of the SAVE plan that lowered the minimum amount owed to 5% of discretionary income for qualifying borrowers. The injunction from Missouri also paused debt forgiveness for SAVE enrollees.

However, in August 2024, the 8th Circuit Court of Appeals went further and officially blocked President Biden’s administration from moving forward with lowering monthly payments and forgiving debt for long-term borrowers under SAVE.

A period of limbo for SAVE is underway. The DOE released guidance in October 2024 saying, “Borrowers in SAVE and anyone who has applied for SAVE should expect to remain in interest-free general forbearance for six more months or longer, pending further developments from the 8th Circuit Court of Appeals.” This would end the limbo in April 2025 at the earliest.

💡 Quick Tip: Enjoy no hidden fees and special member benefits when you refinance student loans with SoFi.

Do You Still Make Payments Under Your SAVE Plan?

No, if you are one of the 8 million people enrolled in SAVE, your monthly payment is in forbearance.

While in forbearance, you do not have to make monthly payments on your student loans. Interest will not accrue during this time. Borrowers, and employers on borrowers’ behalf, can make payments during the forbearance, but those payments will be applied to future bills due after the forbearance ends.

The problem with halting payments for months is that some people are trying to reach a minimum number of payments so that their student loan debt would be entirely forgiven under a program like Public Service Loan Forgiveness (PSLF). You must make 120 months’ worth of payments to qualify for PSLF loan wipeout.

According to the Federal Student Aid website, “Time spent in this general forbearance will not count for PSLF or IDR forgiveness.” The FSA also says that for those who want to keep making payments, “Borrowers can apply to enroll in a different PSLF-eligible repayment plan. We encourage borrowers to look at the specific terms of each plan to make the best choice for their individual situation.”

Other Loan Repayment Programs

Borrowers may still apply for income-driven federal loan repayment plans or loan consolidation by using the online applications linked below:

•   Income-Driven Repayment (IDR) Plan Application

•   Loan Consolidation Application

Within income-driven repayment, the options are SAVE or Income-Based Repayment (IBR).

“The terms of the SAVE Plan and other IDR plans are subject to the outcome of ongoing litigation,” according to the FSA website.

Borrowers should note that, under the court’s injunction, no new enrollments are being accepted for the Pay As Your Earn (PAYE) or Income-Contingent Repayment (ICR) Plans, with one exception: Borrowers with a consolidation loan that repaid a parent PLUS loan can continue to enroll in the ICR Plan (but not the PAYE Plan).

The Takeaway

The Saving on a Valuable Education (SAVE) program was put on hold in the summer of 2024 because of court challenges to President Biden’s loan forgiveness plan. The 8 million people enrolled in SAVE are currently in forbearance. This period of limbo is expected to last until at least April 2025. This article will be updated as the DOE releases more information about SAVE. To find more details yourself, this StudentAid page is a good place to start.

Looking to lower your monthly student loan payment? Refinancing may be one way to do it — by extending your loan term, getting a lower interest rate than what you currently have, or both. (Please note that refinancing federal loans makes them ineligible for federal forgiveness and protections. Also, lengthening your loan term may mean paying more in interest over the life of the loan.) SoFi student loan refinancing offers flexible terms that fit your budget.

With SoFi, refinancing is fast, easy, and all online. We offer competitive fixed and variable rates.

Photo credit: iStock/Pekic

SoFi Student Loan Refinance
SoFi Student Loans are originated by SoFi Bank, N.A. Member FDIC. NMLS #696891. (www.nmlsconsumeraccess.org). SoFi Student Loan Refinance Loans are private loans and do not have the same repayment options that the federal loan program offers, or may become available, such as Public Service Loan Forgiveness, Income-Based Repayment, Income-Contingent Repayment, PAYE or SAVE. Additional terms and conditions apply. Lowest rates reserved for the most creditworthy borrowers. For additional product-specific legal and licensing information, see SoFi.com/legal.


External Websites: The information and analysis provided through hyperlinks to third-party websites, while believed to be accurate, cannot be guaranteed by SoFi. Links are provided for informational purposes and should not be viewed as an endorsement.

Non affiliation: SoFi isn’t affiliated with any of the companies highlighted in this article.

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.

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2024
Closing a Credit Card With a Balance: What to Know

Closing a Credit Card With a Balance: What to Know

By | Credit, Debt Payoff, Family Finances | Comments Off on Closing a Credit Card With a Balance: What to Know

Closing a credit card with a balance remaining is possible to do. However, keep in mind that even if your credit card account is closed, you’ll still have to pay off the remaining balance. Additionally, you’ll need to cover interest that’s accrued as well as any fees, and you could face other consequences, including losing out on rewards and seeing potential impacts to your credit score.

Still, there are instances when closing a credit card can be the right move. If you’re thinking about closing a credit card account with an outstanding balance, you’ll want to weigh these considerations — and also ensure you have a plan for paying off your remaining balance.

What Happens If You Close a Credit Card Account With a Balance?

Once you’ve closed a credit card account with a balance, you’ll no longer be able to use that card to make purchases. Beyond that, here’s what else you can expect after your account closure.

Payment of Balance and Interest

Perhaps the most important thing to keep in mind when a credit card is closed with balance is that you’re still liable for the credit card balance you’ve racked up. You’ll also owe any interest charges that have accrued on your outstanding balance.

As such, expect to continue receiving monthly statements from your credit card issuer detailing your balance, accrued interest, and minimum payment due. And until you’re absolutely positive your debt is paid off, keep on checking your credit card balance regularly.

Recommended: What is a Charge Card

Loss of Promotional APR

If the card you closed offered a promotional interest rate, this offer will likely come to an end. If you’ve been carrying a balance on a credit card, your balance could start to accrue interest. Plus, you may have to pay the standard APR (annual percentage rate) on the remaining balance rather than the lower promotional rate.

Loss of Rewards

Before you move forward with canceling a credit card that offers rewards like points or airline miles, make sure you’ve redeemed any rewards you’ve earned. That’s because you may forfeit those rewards if you close your account.

Policies on this can vary from issuer to issuer though, so just make sure to check with your credit card company to be safe rather than sorry.

How Closing Credit Cards With Balances Can Impact Your Credit

There are a number of ways that closing credit card accounts with a balance can adversely affect your credit score given how credit cards work. Closed accounts in good standing will remain on your credit report for 10 years, whereas those with derogatory marks may fall off after seven years.

•   For starters, closing your account could drive up your credit utilization ratio, one of the factors that goes into calculating your score. This ratio is determined by dividing your total credit balances by the total of all of your credit limits. Financial experts recommend keeping your ratio below 30% and preferably closer to 10%. Losing the available credit on your closed account can drive up this ratio.

•   Closing your account can impact your credit mix, as you’ll have one fewer line of credit in the mix.

•   Closing a credit card could decrease your length of credit history if the card you closed was an old one. This too could potentially decrease your credit score.

That being said, the impacts can vary depending on your credit profile and the credit scoring model that’s being used. If, after closing your account, you pay off your account balance in a timely manner and uphold good credit behavior across other accounts, your score can likely bounce back.

Recommended: What is the Average Credit Card Limit?

Is Keeping the Credit Card Account Open a Better Option?

In some scenarios, it may make sense to keep your credit card active, even if you don’t plan on spending on the card. Here’s when opting against closing your credit card account might be the right move:

•   When you can switch credit cards: If your card carrier allows it, you might be able to switch to a different credit card it offers rather than closing out your account entirely. This might make sense if you’re worried about your card’s annual fee, for instance. You’ll still owe any outstanding debt on the old credit card, which will get moved over to the new card (the same goes if you happen to have a negative balance on a credit card).

•   When you have unused credit card rewards: With a rewards credit card, closing the account may jeopardize the use of earned rewards. Avoid that scenario by keeping the credit card active until you’ve used up all the rewards earned on your current credit card or at least until you’ve transferred them to a new credit card, if that’s an option.

•   When you don’t use the credit card: Even if you don’t use your credit card or use it sparingly, keeping the card open could build your credit score. This is because creditors and lenders usually look more favorably on credit card users who don’t rack up significant credit card debt, which is why maintaining a low credit utilization ratio is one of the key credit card rules to follow.

Nevertheless, there are certainly some scenarios when it can make sense to say goodbye to your credit card account. Here’s when to cancel your credit card, or at least consider it:

•   You want to avoid the temptation to spend.

•   You want to stop paying your card’s annual fee.

•   The card’s interest rate is rising.

•   You’d like to have fewer credit card accounts to manage.

Recommended: How to Avoid Interest On a Credit Card

Guide to Paying Off a Credit Card Balance

No matter what you do with your credit card account, you’re going to have to pay down your credit card debt. Here are some options you can explore to pay off your closed credit account with a balance as soon as possible.

To avoid making that mistake, here are some options you can explore to pay off your closed credit account with a balance as soon as possible.

Debt Consolidation Loans

A personal loan at a decent interest rate can make it easier to curb and eliminate your card debt. Once the funds from the loan hit your bank account, you can use the cash to pay off all your credit card debts. Then, you’ll only have to keep track of paying off that one loan with fixed monthly payments, making it easier to manage.

Keep in mind that you’ll generally need good credit to secure a personal loan with competitive terms, though.

Balance Transfer Credit Cards

A balance transfer card with a 0% introductory interest rate can buy you some time when paying down debt. You can transfer your existing debt to the new card, allowing you to pay down credit card debt at a lower interest rate, without racking up any additional interest payments during the promotional period.

Just make sure to pay off the entire balance before the card’s introductory interest rate period ends and the interest rate rises significantly. Otherwise, you may be right back where you started — with high credit card debt and a high interest rate. That’s not likely to be a good way to use credit responsibly. Also note that a ​​ balance transfer fee will likely apply.

Debt Avalanche or Snowball

For credit card debt repayment, consider the debt avalanche or snowball approach.

•   With the avalanche debt repayment method, you prioritize paying off your credit card with the highest interest rate first. Meanwhile, you’ll maintain minimum payments on all of your other debts. Once your highest-rate debt is paid off, you’ll roll those funds over to tackle your balance with the next highest interest rate.

•   The snowball method, on the other hand, is all about building up momentum toward debt payoff. Here, you pay as much as possible each month toward your credit card with the lowest outstanding balance, while making minimum payments on all of your other outstanding debts. When the smallest debt is paid off completely, repeat the process with the next smallest balance.

Debt Management Plan

If you’re still having trouble paying down your credit card either before or after you close the account, that could be a red flag signaling that you need help. In this case, consider reaching out to an accredited debt management counselor who can set you on the right path to credit debt insolvency.

In addition to helping you create a debt management plan, a credit counselor can help by negotiating a better deal on interest rates and lower monthly payments. That could result in paying down your credit card debt more quickly, which not only saves you money, but also helps protect your credit score.

Recommended: Does Applying For a Credit Card Hurt Your Credit Score?

The Takeaway

If you decide to close your credit card account with a balance, it’s critical to do so in a way where your debt obligations are covered and your credit score is protected. The key to doing the job right is to work with your card company, keep a close eye on outstanding balances and payment deadlines, and work aggressively to pay your card debt down as quickly as possible.

Since closing a credit card can have consequences, it’s especially important to consider a credit card ‘s pros and cons carefully before you apply.

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 that are best for you. Learn more about credit cards by exploring this credit card guide.

FAQ

Can you close a credit card with a balance?

Closing a credit card with a balance is possible. However, you’ll still be responsible for the outstanding balance on the card, as well as any interest charges and fees.

Does it hurt your credit to close a credit card with a balance?

Closing your credit card with a balance remaining has the potential to impact your credit score. However, the exact implications for your score can vary depending on your overall credit profile and which credit scoring model is being used.

Is it better to close a credit card or leave it open with a zero balance?

That depends on your personal situation. Closing a card for good may impact your credit score, but you also won’t be able to use the card again and risk racking up unwanted debt in the process.

What happens if you close a credit card with a negative balance?

If you close a credit card with a negative balance, that means the card issuer owes you money instead of vice versa. In this situation, the card issuer will typically refund you that money before closing out the account.

How do I close a credit card without hurting my credit score?

You can mitigate the impacts of closing your account by paying off the balance on that account and all other credit card accounts you have. If you have $0 balances, then closing your account and losing that available credit won’t affect your credit utilization rate.

Photo credit: iStock/staticnak1983

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.

Disclaimer: Many factors affect your credit scores and the interest rates you may receive. SoFi is not a Credit Repair Organization as defined under federal or state law, including the Credit Repair Organizations Act. SoFi does not provide “credit repair” services or advice or assistance regarding “rebuilding” or “improving” your credit record, credit history, or credit rating. For details, see the FTC’s website .

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2024
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Avoiding Loan Origination Fees

By | Budgeting & Goals, Financial Independence, Home Ownership, mortgage | No Comments

One thing you should always look out for — regardless of the type of loan you’re applying for — is a loan origination fee. Many lenders charge origination fees for new loans to help cover costs on their end. What these fees are called and what they amount to, however, can vary quite a bit from lender to lender.

Knowing these things about origination fees before you settle on a lender can help you make the best borrowing decision for your financial situation.

What Is a Loan Origination Fee?

An origination fee is a cost the lender charges for a new loan. It’s a one-time expense you are generally asked to pay at the time the loan closes. The fee covers the costs the lender incurs for processing and closing the loan.

How Are Origination Fees Determined?

Loan origination fees depend on a number of factors. They include:

•   Loan type

•   Amount of loan

•   Credit score

•   Inclusion of a cosigner

•   Your financial situation, including assets, liabilities, and total income

Do I Have to Pay Origination Fees?

You don’t necessarily have to pay origination fees — while most lenders charge this fee, not all do. Additionally, origination fees may be negotiable. If you ask, a lender could simply lower the fee, or they could offer a credit to offset at least a portion of it. Or, they might agree to lower the fees if you pay a higher interest rate.

To minimize the sting of loan origination fees, research your loan options. Compare how much you’d pay overall for different loan offers, factoring in the term of the loan, the interest rate, and any fees.

One way to effectively compare and contrast different loan options is to check each loan’s annual percentage rate (APR), an important mortgage basic to understand. A loan’s APR provides a more comprehensive look at the cost you’ll incur over the life of the loan. This is because the APR factors in the fees and costs associated with the loan, in addition to the loan’s interest rate.

The Truth in Lending Act requires lenders to disclose an APR for all types of loans. Along with the APR, you’ll also see any fees that a lender may charge listed, including prepayment penalties.

How Much Are Loan Origination Fees?

How much a lender charges — and what the fee is called — varies based on the type of loan and the lender.

A traditional origination fee is usually calculated based on a percentage of the loan amount — and that percentage depends on the type of loan. For a mortgage, for instance, an origination fee is generally 0.50% to 1%. Origination fees for personal loans, on the other hand, can range from 1% to 8% of the loan amount, depending on a borrower’s credit score as well as the length, amount, and sometimes intended use of the loan.

There are a variety of other origination fees that lenders may charge, and these can be flat charges rather than percentages of loan amounts. Other fees that lenders may charge to originate a loan could be called processing, underwriting, administration, or document preparation fees.

Can Loan Origination Fees Affect Your Taxes?

Loan origination fees, categorized by the IRS as points, may be deductible as home mortgage interest. This can be the case even if the seller pays them. Borrowers who can deduct all of the interest on their mortgage may even be able to deduct all of the points, or loan origination fees, paid on their mortgage.

To claim this deduction, borrowers must meet certain conditions laid out by the IRS. They’ll then need to itemize deductions on Schedule A (Form 1040), Itemized Deductions.

The Takeaway

Loan origination fees are important to consider when shopping for a loan during the home-buying process. These fees are charged by lenders to help cover their costs of processing and closing a new loan application. While many lenders charge origination fees, not all do, and some may be willing to negotiate.

Origination fees are just one reason it’s important to shop around and compare home loans. With a SoFi Home Loan, for instance, qualified first-time homebuyers can make a down payment as low as 3%.

Looking for an affordable option for a home mortgage loan? SoFi can help: We offer low down payments (as little as 3% - 5%*) with our competitive and flexible home mortgage loans. Plus, applying is extra convenient: It's online, with access to one-on-one help.


SoFi Mortgages: simple, smart, and so affordable.

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SoFi loans are originated by SoFi Bank, N.A., NMLS #696891 (Member FDIC). For additional product-specific legal and licensing information, see SoFi.com/legal. Equal Housing Lender.

*SoFi requires Private Mortgage Insurance (PMI) for conforming home loans with a loan-to-value (LTV) ratio greater than 80%. As little as 3% down payments are for qualifying first-time homebuyers only. 5% minimum applies to other borrowers. Other loan types may require different fees or insurance (e.g., VA funding fee, FHA Mortgage Insurance Premiums, etc.). Loan requirements may vary depending on your down payment amount, and minimum down payment varies by loan type.

Tax Information: This article provides general background information only and is not intended to serve as legal or tax advice or as a substitute for legal counsel. You should consult your own attorney and/or tax advisor if you have a question requiring legal or tax advice.

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.

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