Investment banking is a specialized area of the financial services industry that focuses on aiding governments, corporations and other entities to raise capital and complete mergers and acquisitions. The term “investment banker” refers to an individual who works for an investment bank that offers these services.
Investment banking is typically considered to be a prestigious career, and becoming an investment banker can be lucrative for those willing to complete the necessary education and training.
What Is an Investment Banker?
Investment bankers work for investment banks, which are effectively middlemen between entities that need capital and entities that provide it. In simpler terms, investment bankers help their clients to expand and grow their businesses or operations.
Another way to think of an investment banker is as a financial advisor to governments, corporations, and other businesses. As part of their professional duties, they may guide clients in making financial decisions that directly or indirectly affect their bottom line.
Investment bankers are most often associated with Wall Street, though they work in cities throughout the world. Some of the largest investment banks in the United States include Goldman Sachs & Co., Morgan Stanley, J.P. Morgan, Bank of America Merrill Lynch, and Blackstone.
💡 Quick Tip: All investments come with some degree of risk — and some are riskier than others. Before investing online, decide on your investment goals and how much risk you want to take.
What Do Investment Bankers Do?
Investment bankers play an important role in helping companies achieve their financial goals. When a corporation is planning an upcoming expansion project, for instance, its board may turn to an investment bank for help. An investment banker can analyze the company’s financial situation to determine the best way to meet its needs.
In terms of the specific tasks an investment banker may carry out, that depends largely on the type of clients they work with.
Assisting With Initial Public Offerings
Investment bankers can play a critical role in helping clients secure capital. Depending on the client, this can be done through a variety of means, including the launch of an initial public offering (IPO).
An initial public offering, or IPO, allows private companies to offer shares of its stock to the public for the first time. The investment banker assists by creating a prospectus explaining the details of the IPO, marketing it to potential investors, and navigating Securities and Exchange Commission (SEC) compliance rules.
Investment bankers are key to whether the company’s IPO is a success. They help determine the initial price of the offering, which is critical. Pricing too high could scare off investors, while going too low could undercut their client’s profits.
Bond Issuance
Government agencies and corporations often use bonds as a fundraising tool. For example, if a city government needs money to improve local roads they might issue a municipal bond to fund the project. Investors purchase the bonds on the bond market, giving the government the capital it needs to complete the road updates. Investors can hold onto the bond and earn interest on it, or they can sell it to another investor.
As with an IPO, an investment banker’s role in issuing bonds may include preparing the bond issuance documents, setting a price, submitting it to the SEC for approval, and marketing the bond to investors to raise capital.
Equity and debt financing are two other ways that companies can tap into funding. With equity financing, companies raise capital by selling an ownership share in the business. Venture capital and private equity are common examples of equity financing.
Debt financing involves taking out loans or lines of credit, without giving up ownership stakes. An investment banker can help companies assess which type of financing makes more sense for their business model, and help them work through the process of securing the funding.
For example, investment bankers may work with startups to pitch angel investors, while they might help more established companies compare and select loan options.
Mergers and Acquisitions
Another common task that investment bankers assist companies with is mergers and acquisitions. In a merger, two companies enter into an agreement to become a single business entity. Each company is treated as an equal in the transaction. An acquisition, on the other hand, involves one company purchasing another.
In either type of arrangement, companies may use investment bankers to oversee the process. This could involve negotiating the terms of a merger or acquisition and reporting the details of the transaction to the SEC to ensure compliance. When a company considers an acquisition, investment bankers can also help identify and vet potential targets.
While investment bankers’ duties primarily revolve around raising capital for their clients, there are other services they may perform. This can include things like:
• Investment research and analysis
• Buying and selling securities
• Offering advisory services
• Asset management
These services are similar to what a personal financial advisor might offer their clients.
💡 Quick Tip: Distributing your money across a range of assets — also known as diversification — can be beneficial for long-term investors. When you put your eggs in many baskets, it may be beneficial if a single asset class goes down.
How to Become an Investment Banker
If you’re interested in a career in investment banking, there are a few things to know. In terms of education, a bachelor’s degree is typically a minimum requirement for most investment banker jobs. Though some investment banks may look for candidates that have earned a higher degree of education, such as an MBA or a graduate-level degree in finance.
Aside from education, there are certain skills that may help you be successful as an investment banker. Those include:
• Ability to perform under pressure
• Good communication skills
• Solid marketing skills
• Firm grasp of financial markets and modeling
• Strong attention to detail
Depending on your responsibilities, you may also need a securities license. That may include completing one of more of the following licensing exams:
• Series 7 General Securities Representative Qualification Examination (GS)
• Series 79 Investment Banking Representatives Exam
• Series 63 Uniform Securities Agent State Law Exam
Before you can take these exams, you first have to be employed and sponsored by a FINRA-member firm or other self-regulatory organization member.
Taking and passing the Securities Industries Essentials (SIE) Exam could help improve your chances of being hired as an intern or junior employee. That process begins early, with many banks hiring summer interns more than a year ahead of the start of the program.
How Much Do Investment Bankers Make?
Investment bankers generally earn above-average salaries. Even at the entry level, it’s possible to make $100,000 or more, and salaries for top Wall Street bankers can easily range into the millions or tens of millions. But investment banking is one of the hardest jobs on Wall Street. So, if you’re not prepared to routinely work 100-hour weeks or constantly be on-call for your clients, it may not be the job for you.
The Takeaway
Investment bankers work primarily with institutional investors, governments and corporations rather than individual investors. But you can still benefit from the work investment bankers do behind the scenes indirectly.
Investment bankers may work in a variety of roles, such as helping facilitate IPOs, or mergers and acquisitions. It can be a lucrative career path, too, but generally requires a graduate-level education, and additional licensing.
Ready to invest in your goals? It’s easy to get started when you open an investment account with SoFi Invest. You can invest in stocks, exchange-traded funds (ETFs), mutual funds, alternative funds, and more. SoFi doesn’t charge commissions, but other fees apply (full fee disclosure here).
For a limited time, opening and funding an Active Invest account gives you the opportunity to get up to $1,000 in the stock of your choice.
About the author
Rebecca Lake
Rebecca Lake has been a finance writer for nearly a decade, specializing in personal finance, investing, and small business. She is a contributor at Forbes Advisor, SmartAsset, Investopedia, The Balance, MyBankTracker, MoneyRates and CreditCards.com. Read full bio.
Photo credit: iStock/fizkes
SoFi Invest®
INVESTMENTS ARE NOT FDIC INSURED • ARE NOT BANK GUARANTEED • MAY LOSE VALUE
SoFi Invest encompasses two distinct companies, with various products and services offered to investors as described below:
Individual customer accounts may be subject to the terms applicable to one or more of these platforms.
1) Automated Investing and advisory services are provided by SoFi Wealth LLC, an SEC-registered investment adviser (“SoFi Wealth“). Brokerage services are provided to SoFi Wealth LLC by SoFi Securities LLC.
2) Active Investing and brokerage services are provided by SoFi Securities LLC, Member FINRA (www.finra.org)/SIPC(www.sipc.org). Clearing and custody of all securities are provided by APEX Clearing Corporation.
For additional disclosures related to the SoFi Invest platforms described above please visit SoFi.com/legal.
Neither the Investment Advisor Representatives of SoFi Wealth, nor the Registered Representatives of SoFi Securities are compensated for the sale of any product or service sold through any SoFi Invest platform.
For a full listing of the fees associated with Sofi Invest please view our fee schedule.
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.
Claw Promotion: Customer must fund their Active Invest account with at least $50 within 30 days of opening the account. Probability of customer receiving $1,000 is 0.028%. See full terms and conditions.
Margin variation is money needed to maintain margin level in a margin account. Variation margins serve as collateral or security against potential losses. Another way to think of it is as unrealized profit or loss in open derivative positions.
When a margin account balance drops below the brokerage’s specified limits, the brokerage can extend a margin call to request a futures variation margin payment. If a trader does not have the funds to meet the margin call, the brokerage may sell securities in their account to make up the difference.
What Is Variation Margin?
Variation margin is a collateral payment made by one party to a counterparty to cover any change in value of underlying assets used in futures contracts.
Traders may make these payments on a day-to-day or intraday basis as directed by the clearing house. Variation margin serves as a risk management tool for the clearing house. By collecting these payments, the clearing house can sustain its targeted risk level while allowing traders to have margin debt in their accounts.
💡 Quick Tip: Are self-directed brokerage accounts cost efficient? They can be, because they offer the convenience of being able to buy stocks online without using a traditional full-service broker (and the typical broker fees).
Margin Trading Basics
To understand variation margins, it’s helpful to review some of the basics of margin trading. When an investor trades on margin, it essentially means they’re trading using borrowed money. So, for example, an investor who wants to purchase futures contracts may invest 50% of their own money and borrow the remaining 50% from their brokerage.
In exchange, the brokerage requires investors to maintain an initial margin, maintenance margin, and variation margin amount in liquid funds. Each one represents a different balance threshold. Margin accounts require investors to meet the minimum requirements.
Variation margin works by filling gaps in margin account balance levels. When trading futures, variation margin allows clearing houses to continue facilitating trades while managing risk. Understanding stock volatility can help with understanding how variation margin works.
Equity prices fluctuate as volatility ebbs and flows in the markets. Changing prices can directly affect investor profits or losses, and trading equity derivatives on margin can amplify those profits and losses.
Variation margins work by accounting for changes in the prices of financial securities being traded. Traders make these payments, typically in cash, from the party who lost value to the party that’s gained value in a margin transaction. The amount due depends on the type of security being traded, expected price movements for that security and overall market conditions. That’s why it’s called variation margin, as the amount may vary from transaction to transaction.
Variation Margin Example
Here’s a simple example of how variation margin works. Assume an investor purchases 100 shares of stock for $30 each. The initial margin for the purchase is set at 50%. This would mean the broker would need to have $1,500 in their account at all times in order to make trades (50% of 100 x $30). Meanwhile, the maintenance margin is $1,000.
If the stock’s share price were to fall to $20, then the brokerages would deduct $1,000 in losses from the initial margin balance. Now the initial margin balance is $500. The new initial margin amount required becomes $1,000 (50% of 100 shares x $20 per share). So the investor would have to add $500 to their account as a variation margin payment to meet the new initial margin requirement.
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Calculating variation margin depends on the type of security being traded and its price movements. So it’s something that must be done on a transaction-by-transaction basis, since every security is different.
But there is a simple variation margin formula that can be used for calculations:
VM = Initial margin – Margin balance
So to calculate variation margin, an investor needs to know three things:
• Initial margin requirement
• Maintenance margin requirement
• Current price of the underlying security
Finding variation margin means doing some math to determine how much the new initial margin requirement works out to when the price of the underlying security drops. But as the previous variation example illustrates, it’s not overly complicated.
Initial Margin vs Variation Margin
Initial margin and variation margin are often mentioned together when discussing margin trading but they’re not the same thing. Initial margin refers to the amount of money an investor can borrow inside a margin account.
Regulation T of the Federal Reserve Board allows investors to borrow up to 50% of the purchase price of securities being traded on margin. Though some brokerages may require a larger deposit to satisfy initial margin requirements.
Initial Margin
Variation Margin
Money that must be paid upfront to purchase securities on margin
Money that’s paid when a security being traded on margin loses value
Paid in cash prior to purchasing securities
Paid daily or intraday, typically in cash
Federal regulations set at initial margin at a minimum of 50% of the security’s price, though brokerages may set the amount higher
Amounts due for variation margin can depend on the type of security, its price movements, and market conditions.
Variation Margin and Maintenance Margin
Maintenance margin is another term often used in discussions of margin trading and it’s often used synonymously with variation margin. The maintenance margin represents the minimum amount of equity a trader must maintain in a margin account at all times. Equity is the difference between the value of securities held in the account and any amounts owed to the brokerage.
Under Financial Industry Regulatory Authority (FINRA) rules, maintenance margin must be at least 25% of the total market value of margin securities being held. Brokerage firms set the bar higher, however, requiring investors to meet a 30% or 40% margin maintenance requirement.
The maintenance margin is not the same thing as minimum margin. Minimum margin is the minimum amount required to open a margin account. FINRA requires this amount to be $2,000 or 100% of the purchase price of margin securities, whichever is less.
💡 Quick Tip: Investment fees are assessed in different ways, including trading costs, account management fees, and possibly broker commissions. When you set up an investment account, be sure to get the exact breakdown of your “all-in costs” so you know what you’re paying.
The Takeaway
To recap, variation margin is a collateral payment made by one party to a counterparty to cover any change in value of underlying assets when discussing futures contracts. It’s a fairly high-level concept, and many investors may not need to worry much about it, or even encounter it if they stick to a relatively simple investment strategy.
With that said, margin trading can potentially yield significant returns for investors, though it has more risks than traditional trading. Understanding variation margin and margin requirements can help traders manage that risk.
Ready to invest in your goals? It’s easy to get started when you open an investment account with SoFi Invest. You can invest in stocks, exchange-traded funds (ETFs), mutual funds, alternative funds, and more. SoFi doesn’t charge commissions, but other fees apply (full fee disclosure here).
For a limited time, opening and funding an Active Invest account gives you the opportunity to get up to $1,000 in the stock of your choice.
FAQ
Is variation margin a derivative?
Variation margin is not a derivative, but is a factor in derivatives markets. It’s one of the chief types of collateral that is required to protect investors or other parties in the market.
Is variation margin the same as mark to market?
Variation margin is a type of collateral, and is determined, in part, but the size of a party’s exposure in a trade – that, too, depends on mark-to-market value of the derivatives at play. As such, the two are not the same.
Can variation margin be negative?
It is possible for variation margin to be negative, and in that case, it would mean that there’s been a loss.
Is variation margin collateral?
Variation margin is a type of collateral, and is payment made by one party to a counterparty to cover any change in value of underlying assets used in futures contracts.
Why is variation margin important?
For investors or traders, variation margin is important as it informs them of the amount of funds that they need to solidify margin levels in order to trade.
Photo credit: iStock/Prostock-Studio
About the author
Rebecca Lake
Rebecca Lake has been a finance writer for nearly a decade, specializing in personal finance, investing, and small business. She is a contributor at Forbes Advisor, SmartAsset, Investopedia, The Balance, MyBankTracker, MoneyRates and CreditCards.com. Read full bio.
SoFi Invest®
INVESTMENTS ARE NOT FDIC INSURED • ARE NOT BANK GUARANTEED • MAY LOSE VALUE
SoFi Invest encompasses two distinct companies, with various products and services offered to investors as described below:
Individual customer accounts may be subject to the terms applicable to one or more of these platforms.
1) Automated Investing and advisory services are provided by SoFi Wealth LLC, an SEC-registered investment adviser (“SoFi Wealth“). Brokerage services are provided to SoFi Wealth LLC by SoFi Securities LLC.
2) Active Investing and brokerage services are provided by SoFi Securities LLC, Member FINRA (www.finra.org)/SIPC(www.sipc.org). Clearing and custody of all securities are provided by APEX Clearing Corporation.
For additional disclosures related to the SoFi Invest platforms described above please visit SoFi.com/legal.
Neither the Investment Advisor Representatives of SoFi Wealth, nor the Registered Representatives of SoFi Securities are compensated for the sale of any product or service sold through any SoFi Invest platform.
For a full listing of the fees associated with Sofi Invest please view our fee schedule.
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.
Claw Promotion: Customer must fund their Active Invest account with at least $50 within 30 days of opening the account. Probability of customer receiving $1,000 is 0.028%. See full terms and conditions.
When a stock is delisted, that means it’s been removed from its exchange. All publicly traded stocks are listed on an exchange. In the United States, that typically means the New York Stock Exchange (NYSE) or the Nasdaq.
There are different reasons for delisting stock, it can occur voluntarily or involuntarily. Owning a delisted stock doesn’t mean you can no longer trade it, but it does change how trades take place. If you own a delisted stock, it’s important to understand what it may mean for your portfolio.
How Stock Listings Work
Before diving into stock delisting, it’s helpful to know more about how stocks get listed in the first place. Stock exchanges can either be physical or digital locations in which investors buy and sell stocks and other securities. The NYSE is an example of a physical exchange, while the Nasdaq is an electronic stock exchange.
To get listed on any stock exchange, companies must meet certain requirements. For example, Nasdaq-listed companies must meet specific guidelines relating to:
Companies must also pay a fee to be listed on the exchange. The NYSE has its own requirements that companies must meet to be listed.
Once a stock is listed, it can be traded by investors. But being listed on an exchange doesn’t guarantee the stock will remain there permanently. Stocks get added to and removed from exchanges fairly regularly.
💡 Quick Tip: The best stock trading app? That’s a personal preference, of course. Generally speaking, though, a great app is one with an intuitive interface and powerful features to help make trades quickly and easily.
What Does Delisting a Stock Mean?
When a stock is delisted, either the company itself or the exchange decides to remove the stock from the exchange.
Exchange-Initiated Stock Delisting
When an exchange delists a stock, it’s typically because it no longer meets the minimum requirements for listing or its failed to meet some regulatory requirement. Using Nasdaq-listed stocks as an example, a delisting can happen if a company’s pre-tax earnings, market capitalization, or minimum share price fall below the thresholds required by the exchange.
Exchanges set listing requirements to try and ensure that only high-quality companies are available to trade. Without stock listing requirements, it would be easier for financially unstable companies to find their way into the market. This could pose a risk to investors and the market as a whole.
In delisting stocks that don’t meet the basic requirements, exchanges can minimize that risk. When and if a company addresses the areas where it falls short, it can apply for relisting. Assuming it meets all the necessary requirements, it can once again trade on the exchange.
Exchanges typically give companies opportunities to rectify the situation before delisting stocks. For example, if a company is trading under the minimum bid price requirement, the exchange can send notice that this requirement isn’t being met and specify a deadline for improvement. That can help companies that experience temporary price dips only to have share prices rebound relatively quickly.
Company-Initiated Stock Delistings
A delisted stock can also reflect a decision on the part of the listed company. There are different reasons a company voluntarily delists itself. Scenarios include:
• A move from public to private ownership
• Merger with or acquisition by another company
• Bankruptcy filing
• Ceased operations
In some cases, a company may ask to be delisted as a preemptive measure if it’s aware that it’s in danger of being delisted by the exchange. For example, if the latest quarterly earnings report shows a steep decline in market capitalization below the minimum threshold, the company may move ahead with voluntary delisting.
What Happens If a Stock Is Delisted?
Once a stock has been delisted from its exchange, either voluntarily or involuntarily, it can still be traded. But trading activity now happens over-the-counter (OTC) versus through an exchange.
An over-the-counter trade is any trade that doesn’t take place on a stock exchange. Investors can trade both listed or delisted stock shares over-the-counter through alternative trading networks of market makers. The OTC Markets Group and the Financial Industry Regulation Authority (FINRA) are two groups that manage OTC trading activity.
Unless the company that issued a now-delisted stock cancels its shares for any reason, your investment doesn’t disappear. If you owned 500 shares of ABC company before it was delisted, for example, you’d still own 500 shares afterward. You could continue trading those shares, though you’d do so through an over-the-counter network.
What can change, however, is the value of those shares after the delisting. Again, this can depend on whether the exchange or the company initiated a delisting, and the reasoning behind the decision.
For example, if a stock is being delisted because the company is filing for bankruptcy its share price could plummet. That means when it’s time to sell them, you may end up doing so at a loss.
Even if a stock’s value doesn’t take a nosedive after delisting, it can still be a sign of financial trouble at the company. If you own delisted dividend-paying stocks, for instance, dividend payments may shrink or dry up altogether if the company begins making cutbacks to preserve capital or reduce expenses.
What to Do If a Stock You Own Is Delisted
If you own shares in a company that delists its stock, it’s important to consider how to manage that in your portfolio. Specifically, that means thinking about whether you want to hold on to your shares or sell them.
It helps to look at the bigger picture of why the reason for the delisting and what it might say about the company. If the company pulled its stock because a bankruptcy filing is in the works, then selling sooner rather than later might make sense to avoid a sharp drop in value.
Also, consider the ease with which you can later sell delisted stock if you decide to keep them. Some online brokerages allow you to trade over-the-counter but not all of them do. If you prefer to keep things as simple as possible when making trades, you may prefer to unload delisted stocks so you no longer have to deal with them.
When a stock becomes delisted, it’s removed from an exchange, either because it no longer met the requirements of the exchange, or because the company chose to delist for financial reasons. You can still trade a company after it’s delisted, but transactions occur over-the counter, rather than on an exchange.
Knowing about delisted stocks and companies can be helpful for investors of all types. It doesn’t necessarily mean that they need to invest in those companies, but broadening your knowledge about the markets is almost never a bad idea.
Ready to invest in your goals? It’s easy to get started when you open an investment account with SoFi Invest. You can invest in stocks, exchange-traded funds (ETFs), mutual funds, alternative funds, and more. SoFi doesn’t charge commissions, but other fees apply (full fee disclosure here).
For a limited time, opening and funding an Active Invest account gives you the opportunity to get up to $1,000 in the stock of your choice.
About the author
Rebecca Lake
Rebecca Lake has been a finance writer for nearly a decade, specializing in personal finance, investing, and small business. She is a contributor at Forbes Advisor, SmartAsset, Investopedia, The Balance, MyBankTracker, MoneyRates and CreditCards.com. Read full bio.
Photo credit: iStock/wacomka
SoFi Invest®
INVESTMENTS ARE NOT FDIC INSURED • ARE NOT BANK GUARANTEED • MAY LOSE VALUE
SoFi Invest encompasses two distinct companies, with various products and services offered to investors as described below:
Individual customer accounts may be subject to the terms applicable to one or more of these platforms.
1) Automated Investing and advisory services are provided by SoFi Wealth LLC, an SEC-registered investment adviser (“SoFi Wealth“). Brokerage services are provided to SoFi Wealth LLC by SoFi Securities LLC.
2) Active Investing and brokerage services are provided by SoFi Securities LLC, Member FINRA (www.finra.org)/SIPC(www.sipc.org). Clearing and custody of all securities are provided by APEX Clearing Corporation.
For additional disclosures related to the SoFi Invest platforms described above please visit SoFi.com/legal.
Neither the Investment Advisor Representatives of SoFi Wealth, nor the Registered Representatives of SoFi Securities are compensated for the sale of any product or service sold through any SoFi Invest platform.
For a full listing of the fees associated with Sofi Invest please view our fee schedule.
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.
Claw Promotion: Customer must fund their Active Invest account with at least $50 within 30 days of opening the account. Probability of customer receiving $1,000 is 0.028%. See full terms and conditions.
Setting up a joint bank account can make your financial life easier. But it’s important to understand all the rules and regulations, particularly should tragedy strike.
Typically, joint bank accounts are set up so that both account holders have the right of survivorship. This means that should one owner die, the remaining partner retains full ownership of the funds in the account, and the account doesn’t become part of the probate estate. However, this may not always be the case. There are also some potential tax consequences to keep in mind. Here’s a closer look at the rules that apply to joint bank accounts after the death of an account holder.
Key Points
• With a joint bank account, owners have equal rights to deposit, withdraw, and manage the funds in the account.
• Joint accounts typically include rights of survivorship, allowing the surviving owner to control the account without probate.
• A joint account may be part of the deceased’s taxable estate, potentially incurring estate taxes.
• Inheritance taxes may apply depending on state laws, but spouses often inherit tax-free.
• Income taxes on account earnings are the responsibility of the surviving owner after the co-owner’s death.
What Is a Joint Bank Account?
A joint bank account is a financial account, such as a checking account, shared by two or more individuals. It’s common for married couples to open a joint account to make it easier to manage shared income and expenses. You might also set up a joint account with an aging parent, an adult child, or a business partner.
Joint bank accounts work in much the same way as other types of bank accounts. The main difference is that both people who own the account have full control over it. Each can get a debit card, write checks, and make purchases or cash withdrawals. The money in a joint account belongs to both owners, regardless of which person deposited the funds. For this reason, it’s important to only open a joint bank account with someone you trust.
Like other bank accounts, joint bank accounts are typically insured by the Federal Deposit Insurance Corporation (FDIC) up to $250,000 per depositor in the event of bank failure. That means that a joint account owned by two people is protected up to $500,000. If one of the owners dies, however, their insurance coverage no longer applies. Credit unions offer similar insurance through the National Credit Union Administration (NCUA).
Joint Bank Account Rules After Death
If two people own a joint bank account and one of them dies, the surviving co-owner will typically become the account’s sole owner. The account will not need to go through probate (the legal process of distributing a deceased person’s assets and paying their debts) before it can be transferred to the surviving account owner.
Rights of Survivorship
Most joint accounts at banks and credit unions are set up as “joint with rights of survivorship,” sometimes abbreviated to JWRS. This means that, upon the death of one account holder, the assets are transferred to the surviving account holder or equally to the rest of the owners if there are multiple people on the account. This directive would override any instructions outlined in the deceased person’s will. Some banks may refer to rights of survivorship as “tenants by the entirety.”
While this is the typical set-up for a joint account, it’s wise to check with your financial institution to make sure your account carries automatic rights of survivorship. In some cases, a bank may require you to sign additional documents to indicate this is what you and your co-owner(s) want.
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What to Do When a Joint Account Owner Passes
If you co-own a joint account with someone else and that person passes away, the first step you’ll want to take is to notify the bank. You can do this by calling the customer service line and asking to speak with a representative.
Typically, you’ll need to provide the bank with a death certificate or other documentation to confirm the death. If the account includes rights of survivorship, you would not lose access to the account and the joint account would not be frozen after someone dies. The bank may offer you a choice of removing the deceased person from the account or opening a new individual bank account.
What Happens When You Inherit a Joint Bank Account?
Unlike most other assets, joint bank accounts usually don’t need to go through probate. That means you can continue using the funds in the account and won’t have to hand them over to an executor. The transfer of assets could, however, trigger certain taxes depending on the value of the estate and the laws in your state.
Generally, inheriting assets from someone who dies can mean paying certain taxes at the federal or state level. Here’s a look at taxes associated with an inherited joint bank account.
Estate Taxes
If one of the owners of the joint account dies, a portion of that bank account will contribute to the deceased person’s taxable estate This happens despite the fact that the joint account is not subject to probate or the wishes outlined in the deceased person’s will. However, the federal estate tax in the U.S. only applies to estates that exceed a certain threshold, which as of 2024, is $13.61 million. Unless the deceased has a very large estate, it’s not likely that you would have to worry about any estate taxes associated with an inherited joint account.
Several states have their own estate taxes with thresholds that differ from federal ones. It’s a good idea to consult with a local attorney to find out whether your state is one of them and whether you have any estate taxes to consider at the state level.
Inheritance Taxes
Inheritance taxes differ from estate taxes in that they are paid by the individual receiving the inheritance, rather than by the estate itself. The federal government does not impose an inheritance tax, but some states do have them.
Even if you live in a state with an inheritance tax, however, you may be exempt from paying inheritance taxes on an inherited joint account. Generally, spouses inherit a deceased spouse’s assets tax-free. Immediate family members often pay a reduced inheritance tax rate; unrelated co-owners or beneficiaries to a bank account tend to pay the highest inheritance tax rates.
Income Taxes
When you take on sole ownership of a joint account after the death of your co-owner, you become fully responsible for paying any taxes owed on income earned by the account (such as interest or dividends). Income earned on the account prior to your becoming the sole owner would be reported in the same way it was before the person’s death. For example, if that person reported all of the income earned on the joint account, then 100% of income earned on the account prior to their death would be reported on their final tax return.
Knowing what to do when there are two names on a bank account and one dies can help you avoid headaches during what’s likely an already trying time. As a first step, you’ll need to report the death and provide a death certificate to the bank. After that, you will likely have sole ownership of the account and can decide what you’d like to do with the money moving forward.
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 3.80% APY on SoFi Checking and Savings.
FAQ
Do joint bank accounts get frozen when someone dies?
Joint bank accounts with rights of survivorship typically do not get frozen when one account holder dies. The surviving account holder usually retains full access to the account without any interruptions. Once the bank receives the death certificate, they will take the deceased person’s name off of the account.
Do joint bank accounts go through probate?
Joint bank accounts with rights of survivorship generally do not go through probate. This is because the funds automatically transfer to the surviving account holder upon the death of the other. The surviving account owner takes over full ownership of the account, regardless of how assets get divided based on the deceased’s will. Once the surviving owner presents the bank with a death certificate, the bank will update the account to reflect the surviving account holder as the sole owner.
Is a joint bank account part of an estate?
If one owner of a joint account dies, a portion of that account will be part of their taxable estate. This is the case even though joint accounts are typically not subject to probate or considered part of the deceased person’s probate estate. Estate taxes may apply to the deceased person’s portion if their estate exceeds certain tax thresholds.
Can creditors go after joint bank accounts after death?
Not typically. After someone dies, their probate estate is responsible for paying off any remaining debts. A joint bank account generally bypasses probate and is transferred directly to the surviving account holder and can’t be used by the estate to pay outstanding debt. One exception: If the co-owner on the joint account co-signed the outstanding debt, they would be fully liable for repayment and a creditor could go after the joint account.
About the author
Rebecca Lake
Rebecca Lake has been a finance writer for nearly a decade, specializing in personal finance, investing, and small business. She is a contributor at Forbes Advisor, SmartAsset, Investopedia, The Balance, MyBankTracker, MoneyRates and CreditCards.com. Read full bio.
SoFi members with Eligible Direct Deposit activity can earn 3.80% annual percentage yield (APY) on savings balances (including Vaults) and 0.50% APY on checking balances. Eligible 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 (“Eligible Direct Deposit”) via the Automated Clearing House (“ACH”) Network during a 30-day Evaluation Period (as defined below).
Although we do our best to recognize all Eligible Direct Deposits, a small number of employers, payroll providers, benefits providers, or government agencies do not designate payments as direct deposit. To ensure you're earning 3.80% APY, we encourage you to check your APY Details page the day after your Eligible Direct Deposit arrives. If your APY is not showing as 3.80%, contact us at 855-456-7634 with the details of your Eligible Direct Deposit. As long as SoFi Bank can validate those details, you will start earning 3.80% APY from the date you contact SoFi for the rest of the current 30-day Evaluation Period. You will also be eligible for 3.80% APY on future Eligible Direct Deposits, as long as SoFi Bank can validate them.
Deposits that are not from an employer, payroll, or benefits provider 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 Eligible Direct Deposit activity. There is no minimum Eligible Direct Deposit amount required to qualify for the stated interest rate. SoFi members with Eligible Direct Deposit are eligible for other SoFi Plus benefits.
As an alternative to Direct Deposit, SoFi members with Qualifying Deposits can earn 3.80% 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 Eligible 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 an Eligible Direct Deposit or receipt of $5,000 in Qualifying Deposits to your account, you will begin earning 3.80% 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 Eligible 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 Eligible 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 Eligible 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 Eligible Direct Deposit or Qualifying Deposits until SoFi Bank recognizes Eligible Direct Deposit activity or receives $5,000 in Qualifying Deposits in a subsequent 30-Day Evaluation Period. For the avoidance of doubt, an account holder with both Eligible Direct Deposit activity and Qualifying Deposits will earn the rates earned by account holders with Eligible Direct Deposit.
Separately, SoFi members who enroll in SoFi Plus by paying the SoFi Plus Subscription Fee every 30 days can also earn 3.80% APY on savings balances (including Vaults) and 0.50% APY on checking balances. For additional details, see the SoFi Plus Terms and Conditions at https://www.sofi.com/terms-of-use/#plus.
Members without either Eligible Direct Deposit activity or Qualifying Deposits, as determined by SoFi Bank, during a 30-Day Evaluation Period and, if applicable, the grace period, or who do not enroll in SoFi Plus by paying the SoFi Plus Subscription Fee every 30 days, will earn 1.00% 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 1/24/25. There is no minimum balance requirement. Additional information can be found at http://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.
This content is provided for informational and educational purposes only and should not be construed as financial 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.
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.
A brokered CD is a CD that’s sold by a brokerage firm or a deposit broker (an individual that can place financial deposits in an institution on behalf of a third party), rather than a bank. Brokered CDs may offer higher rates than traditional CDs sold at a bank, but they may also entail greater risk for investors.
Before investing in brokered CDs, it’s important to understand how they work, how they differ from traditional CDs, and the potential pros and cons of these accounts.
What Is a Brokered Certificate of Deposit?
A certificate of deposit is a type of savings account that allows you to deposit money and earn interest over a set time period called the term, which is usually a few months to five years. When a traditional CD reaches maturity, you can withdraw the principal plus interest, or roll it over to another CD. Traditional CDs are generally FDIC insured.
A brokered CD is a CD that’s offered by a broker or brokerage firm that’s authorized to act as a deposit broker on behalf of an issuing bank. These CDs often function more like bonds and they may be sold on the secondary market. Brokered CDs tend to be FDIC insured — as long as the CD was bought by the broker from a federally-insured bank.
What is a brokered CD in simpler terms? It’s a CD you buy from a brokerage. A deposit broker buys the CDs from a bank, then resells them to investors. Brokered CDs are held in a brokerage account. They can earn interest, but instead of only being static investments that you hold until maturity like traditional CDs, you can trade brokered CDs like bonds or other securities on the secondary market.
Compared to a standard CD, a brokered CD may require a higher minimum deposit than for a traditional bank CD. The trade-off, however, is that brokered CDs may potentially offer higher returns than you could get with a regular CD.
💡 Quick Tip: Help your money earn more money! Opening a bank account online often gets you higher-than-average rates.
How Brokered CDs Work
To buy a brokered certificate of deposit, you first need to find a deposit broker that offers them. Banks can issue CDs specifically for the customers of brokerage firms. These CDs may be issued in large denominations, say several million dollars. The brokerage would then break that large CD into smaller CDs to offer to its customers.
You could buy a brokered CD, depositing the minimum amount required or more. The brokered CD then earns interest, with the APY typically corresponding to the length of the maturity term. While longer terms typically earn higher interest rates, currently, short term CDs are offering higher rates because banks believe the Federal Reserve may cut the interest rate in the future. For example, you might be offered a 12-month brokered CD earning 5.40% or a 24-month brokered CD that yields 5.25%.
Ordinarily, you’d have to keep the money in your CD until the CD matures (if you withdraw the funds before the CD matures, you could face an early-withdrawal penalty). You could then roll the original deposit and interest into a new CD or withdraw the total amount.
With brokered CDs, on the other hand, you have the option to sell the CD on the secondary market before it matures.
Examples of Brokered CDs
Many online brokerages offer brokered CDs, including Fidelity, Vanguard and Charles Schwab, to name just a few. Here are the rates on some brokered CDs, as of late May 2024.
Vanguard: Up to 5.50% APY for a 10- to 12-month brokered CD
Fidelity: Up to 5.40% APY for a 6-month brokered CD
Charles Schawb: Up to 5.51% APY for a 3-month brokered CD
Advantages of a Brokered CD
Brokered CDs can offer several advantages, though they may not be the best option for every investor. Here are some of the potential benefits of a brokered certificate of deposit.
More Flexibility Than Traditional CDs
Brokered CDs can offer more flexibility than investing in bank CDs in the sense that they can have a variety of maturity terms, so you can choose ones that fit your needs and goals. You might select a 90-day brokered CD, for example, if you’re looking for a short-term investment or choose one with a 2-year maturity if you’d prefer something with a longer term. It’s also possible to purchase multiple brokered CDs issued by different banks and hold them all in the same brokerage account for added convenience.
Easier to Get Money Out Early on the Secondary Market
With a standard CD, you’re more or less locked in to the account until it matures. (While you could take money out early if your bank allows it, it’s likely you’ll pay an early withdrawal penalty to do so. This penalty can reduce the amount of interest earned.) Brokered CDs don’t have those restrictions; if you need to get money fast then you could sell them on the secondary market, effectively cashing out your principal and interest gains — without a penalty.
Higher Yields Than Standard Bank CDs
Deposit brokers that offer brokered certificates of deposit can use the promise of higher interest rates to attract investors. Rather than earning 1.00% on a CD as you might at a bank, you could potentially earn 5.00% or more with a brokered CD. If you’re seeking higher returns in your portfolio with investments that offer greater liquidity, brokered CDs could hit the mark.
You may also get a higher yield from a brokered CD versus a bond, with greater liquidity to boot.
Potential to Make Profit Once It Reaches Maturity Even If Interest Rates Fall
Interest rates for brokered CDs are locked until maturity. So even if rates fall during the maturity period, you could still profit when you sell the brokered CD later. As a general rule, shorter-term brokered CDs are less susceptible to interest rate risk than ones with longer terms.
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Disadvantages of a Brokered CD
Brokered CDs can have some drawbacks that investors need to know about.
Long-Term Brokered CDs Expose Investors to Interest Rate Risk
As mentioned, the longer the CD term the more exposure you have to interest rate risk. Brokered CD prices are subject to fluctuations on the secondary market. If interest rates rise, this usually has an inverse effect on the market price of existing brokered CDs. That means if you were to sell those CDs before maturity, you run the risk of getting less than what you paid for them.
Different Risk When Interest Rates Fall
You can also run into a different type of risk when rates are dropping if your brokered CDs are callable. A callable CD means the issuing bank can terminate or call the CD prior to maturity, similar to a callable bond. Callable brokered CDs can be problematic when rates drop because you’re forced to cash in your investment. In doing so, you’ll miss out on the full amount of interest you could have earned if you’d been able to hold the CD to maturity.
Temptation to Sell May Be Costly
The early withdrawal penalty associated with bank CDs actually serves an important purpose: It keeps you from taking money out of your CD early. Since brokered CDs don’t have this penalty, there’s nothing stopping you from selling your CDs on the secondary market whenever you like. That means it’s easier to cash out your investment, rather than sticking with it, which could cost you interest earnings.
Comparing Brokered CDs to Other CDs
When deciding whether or not to invest in a brokered CD, it can be helpful to compare them to other types of CDs to see how they stack up.
Brokered CD vs Bank CD
Bank CDs are typically purchased from a bank. They are purchased for a set period of time and must be held until maturity. If you want to cash out the CD early you will generally have to pay an early withdrawal penalty.
Brokered CDs are purchased from a deposit broker or brokerage house. They don’t have early withdrawal penalties so you can sell them on the secondary market if you choose to do so.
Brokered CD vs Bull CD
A bull CD is a CD that offers investors an interest rate that’s tied to an index or benchmark like the S&P 500 Index. Investors are also guaranteed a minimum rate of return. Bull CDs can also be referred to as equity-linked or market-linked CDs.
Brokered CDs earn interest but the rate is not tied to a market index. Instead, the rate is fixed for the maturity term.
Brokered CD vs Bear CD
Bear CDs are the opposite of bull CDs. With this type of CD, interest is earned based on declines in the underlying market index. So in other words, you make money when the market falls.
Again, brokered CDs don’t work this way. There is no index correlation; returns are based on the interest rate assigned at the time the CD is issued.
Brokered CD vs Yankee CD
Yankee CDs are CDs issued by foreign banks in the U.S. market. For example, a Canadian bank that has a branch in New York might offer Yankee CDs to its U.S. customers. Yankee CDs are typically suited to higher net worth investors, as they may require $100,000 or more to open. Unlike brokered CDs, which have fixed rates, a Yankee CD may offer a fixed or floating rate.
This chart offers an at-a-glance comparison of the CDs mentioned above and how they work.
Brokered CD
Bank CD
Bull CD
Bear CD
Yankee CD
Issued by a bank, sold by a brokerage
Issued and sold by a bank
Issued by a bank, sold by a brokerage
Issued by a bank, sold by a brokerage
Issued by a foreign bank and sold in the U.S.
Earns a fixed interest rate
Earns a fixed interest rate
Earns an interest rate that correlates to an underlying index
Returns are tied to an underlying market index
May offer a fixed or floating rate
Maturity terms are fixed; however, brokered CDs can be sold on the secondary market before maturity
Maturity terms are fixed
Investors are guaranteed a minimum rate of return
Interest is earned based on declines in the market
Maturity rates can be fixed or variable
May be FDIC-insured when issued by a qualifying bank
FDIC-insured
Not FDIC-insured
Not FDIC-insured
Not FDIC-insured
How to Buy a Brokered CD
If you’d like to buy a brokered CD, you’ll first need to find a brokerage that offers them. You can then open a brokerage account, which typically requires filling out some paperwork and verifying your ID. Most brokerages let you do this online to save time.
Once your account is open, you should be able to review the selection of brokered CDs available to decide which ones you want to purchase. When comparing brokered CDs, pay attention to:
• Minimum deposit requirements
• Maturity terms
• Interest rates
• Fees
Also, consider whether the CD is callable or non-callable as that could potentially affect your returns.
Are Brokered CDs FDIC Insured?
Brokered CDs are generally FDIC-insured if the bank issuing them is an FDIC member. The standard FDIC coverage limits apply. Currently, the FDIC insures banking customers up to $250,000 per depositor, per account ownership type, per financial institution. You have to be listed as the CD’s owner in order for the FDIC protection to kick in.
There is an exception if brokered CDs function more like an investment account. In that case, you would have no FDIC protection. The FDIC does not consider money held in securities to be deposits and encourages consumers to understand where they’re putting their money so they know if they’re covered or not.
However, it’s possible that you may be covered by the Securities Investor Protection Corporation (SIPC) if a member brokerage or bank brokerage subsidiary you have accounts with fails.
Are Brokered CDs Better Than Bank CDs?
Brokered CDs do offer some advantages over bank CDs, in terms of flexibility, liquidity, and returns. You’re also free from withdrawal penalties with brokered certificates of deposit. You could, however, avoid this with a no-penalty CD.
What is a no-penalty CD? Simply put, it’s a CD that allows you to withdraw money before maturity without an early withdrawal fee. Some banks offer no-penalty CDs, along with Raise Your Rate CDs and Add-On CDs to savers who want more than just a standard certificate of deposit account.
Here’s something else to keep in mind. You’ll typically need more money to invest in brokered CDs vs. bank CDs. And you’re taking more risk with your money, since brokered CDs are more susceptible to market risk and interest rate risk.
You might choose a brokered CD over bank CDs if brokered certificates of deposit are offering competitive rates and you plan to hold the CD until maturity. Even if rates were to rise during the maturity period, you could still realize a gain when it’s time to cash the CD out.
Paying attention to interest rates can help you decide on the right time to invest in a brokered certificate of deposit. Also, consider the minimum investment and any fees you might pay to purchase the CD.
When to Consider Bank CDs Over Brokered CDs
You might consider bank CDs over brokered CDs if you’d prefer to take less risk with your money. CDs are designed so that you get back the money you put into them, along with the interest earned. Typically, the only time you might lose money from a bank CD is if you cash it out early and have to pay an early withdrawal penalty.
Bank CDs may also be more attractive if you don’t want to tie up your money in a single brokered CD. For example, instead of putting $10,000 into a single brokered certificate of deposit you might spread that out across five or six bank CDs with different maturity dates instead.
This is called CD laddering. Creating a CD ladder can provide some flexibility, since it may be easier to avoid early withdrawal fees if a maturity date is always on the horizon. You could also use a CD ladder to capitalize on rising rates by rolling CDs over once they mature.
Finally, keep in mind that buying CDs is not the only way to save money and potentially help it grow. For instance, if you’re committed to saving, and you want to earn more interest than you’d get with the standard savings account, you might also want to consider opening a high-yield savings account. Taking some time to explore your options can help you determine the best savings vehicles for your needs.
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 3.80% APY on SoFi Checking and Savings.
FAQ
Can you lose money on a brokered CD?
It’s possible to lose money on a brokered CD if you sell it prior to maturity after interest rates have risen. Higher rates can cause the market price of brokered CDs to decline, meaning you could end up selling them for less than what you paid.
Are brokered CDs a good idea?
While it depends on your specific situation, a brokered CD might be a good idea if you understand the risks involved. Brokered certificates of deposit can offer the potential to earn higher interest rates than regular CDs. But it’s also possible to lose money with this type of CD. Be sure to weigh the pros and cons.
What is the difference between a brokered CD and a bank CD?
A brokered CD is issued by a bank and sold by a brokerage. Bank CDs are issued by banks and offered directly to their customers. Brokered CDs may have higher minimum deposit requirements and offer higher interest rates. They are also typically more flexible than bank CDs because you can sell them on the secondary market, while you are required to hold onto bank CDs for the full term or risk paying an early withdrawal penalty.
About the author
Rebecca Lake
Rebecca Lake has been a finance writer for nearly a decade, specializing in personal finance, investing, and small business. She is a contributor at Forbes Advisor, SmartAsset, Investopedia, The Balance, MyBankTracker, MoneyRates and CreditCards.com. Read full bio.
Photo credit: iStock/Anchiy
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.
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.
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.
3.80% APY SoFi members with Eligible Direct Deposit activity can earn 3.80% annual percentage yield (APY) on savings balances (including Vaults) and 0.50% APY on checking balances. Eligible 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 (“Eligible Direct Deposit”) via the Automated Clearing House (“ACH”) Network during a 30-day Evaluation Period (as defined below).
Although we do our best to recognize all Eligible Direct Deposits, a small number of employers, payroll providers, benefits providers, or government agencies do not designate payments as direct deposit. To ensure you're earning 3.80% APY, we encourage you to check your APY Details page the day after your Eligible Direct Deposit arrives. If your APY is not showing as 3.80%, contact us at 855-456-7634 with the details of your Eligible Direct Deposit. As long as SoFi Bank can validate those details, you will start earning 3.80% APY from the date you contact SoFi for the rest of the current 30-day Evaluation Period. You will also be eligible for 3.80% APY on future Eligible Direct Deposits, as long as SoFi Bank can validate them.
Deposits that are not from an employer, payroll, or benefits provider 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 Eligible Direct Deposit activity. There is no minimum Eligible Direct Deposit amount required to qualify for the stated interest rate. SoFi members with Eligible Direct Deposit are eligible for other SoFi Plus benefits.
As an alternative to Direct Deposit, SoFi members with Qualifying Deposits can earn 3.80% 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 Eligible 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 an Eligible Direct Deposit or receipt of $5,000 in Qualifying Deposits to your account, you will begin earning 3.80% 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 Eligible 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 Eligible 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 Eligible 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 Eligible Direct Deposit or Qualifying Deposits until SoFi Bank recognizes Eligible Direct Deposit activity or receives $5,000 in Qualifying Deposits in a subsequent 30-Day Evaluation Period. For the avoidance of doubt, an account holder with both Eligible Direct Deposit activity and Qualifying Deposits will earn the rates earned by account holders with Eligible Direct Deposit.
Separately, SoFi members who enroll in SoFi Plus by paying the SoFi Plus Subscription Fee every 30 days can also earn 3.80% APY on savings balances (including Vaults) and 0.50% APY on checking balances. For additional details, see the SoFi Plus Terms and Conditions at https://www.sofi.com/terms-of-use/#plus.
Members without either Eligible Direct Deposit activity or Qualifying Deposits, as determined by SoFi Bank, during a 30-Day Evaluation Period and, if applicable, the grace period, or who do not enroll in SoFi Plus by paying the SoFi Plus Subscription Fee every 30 days, will earn 1.00% 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 1/24/25. There is no minimum balance requirement. Additional information can be found at http://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.
