May
20
2024
Can a Certificate of Deposit (CD) Lose Value?

Can a Certificate of Deposit (CD) Lose Money?

By | Budgeting & Goals, Growing Wealth, money | Comments Off on Can a Certificate of Deposit (CD) Lose Money?

While it’s unlikely, a certificate of deposit (CD) could lose money if you withdraw funds before you’ve earned enough interest to cover the penalty charged. Typically, CDs are safe time deposits that guarantee an interest rate for the term that you agree to keep money at a financial institution. In fact, CDs are considered one of the lowest-risk savings vehicles available. But, if you pull your money out before the maturity date, you might take a loss.

Here’s a closer look at this topic, so you can decide if a CD is the right way to grow your money.

Key Points

•   A Certificate of Deposit (CD) could lose money if funds are withdrawn early, incurring penalties that may exceed earned interest.

•   CDs are generally low-risk and guarantee a fixed interest rate for the term.

•   Early withdrawal penalties can sometimes reduce the principal, not just the interest.

•   CDs offer higher interest rates compared to regular savings accounts, especially for longer terms.

•   CDs are insured up to $250,000 by FDIC or NCUA, providing additional security against bank failures.

What Is a Certificate of Deposit (CD)?

A certificate of deposit is a savings account offered by banks or credit unions that holds a certain amount of money for a fixed period of time. Some specifics:

•   This time frame can typically range from six months to five years, but you might find even shorter- or longer-term products.

•   There may be a minimum deposit amount, too, of possibly $1,000 or a similar sum.

•   The bank pays you interest over the term of the CD. At the end of your CD’s term (you may hear this referred to as when your CD matures), you receive the money you originally put in along with the interest earned from having your money locked away.

•   CDs can be a more attractive savings vehicle than an ordinary savings account because they may offer higher annual percentage yields (APYs).

•   Typically, the longer your money is in the CD, the higher the rates offered.

•   If you get a CD from a bank that is insured by the FDIC (Federal Deposit Insurance Corporation) or NCUA (National Credit Union Administration), you are typically covered up to $250,000 per account holder, per account ownership category, per insured institution in the very rare event of a bank failure.


💡 Quick Tip: Typically, checking accounts don’t earn interest. However, some accounts do, and online banks are more likely than brick-and-mortar banks to offer you the best rates.

How Standard Certificate of Deposits Work

A CD is similar to a standard bank account, but the difference is CDs have a “lock-in” period where you cannot access the money during that time (the CD’s term). In exchange, you earn interest on the account.

When you open a certificate of deposit, you have to determine how long you are able to keep your money stowed away. This term length generally ranges from six months to several years.
If you need to access the money before the term ends, you will usually pay a penalty for withdrawing the money before the account’s maturity. There are CDs that allow early withdrawal without penalties; these are typically called no-penalty CDs, and the trade-off for this flexibility may offer a lower APY.

Get up to $300 when you bank with SoFi.

No account or overdraft fees. No minimum balance.

Up to 4.20% APY on savings balances.

Up to 2-day-early paycheck.

Up to $2M of additional
FDIC insurance.


Can You Lose Money on a CD?

The risk of having a CD is very low. Unlike how the stock market or a Roth IRA can lose money, you typically cannot lose money in a CD.

There is actually no risk the account owner incurs unless you withdraw money before the account reaches maturity. In this case, the early-withdrawal penalty kicks in and typically may eat up some or all of the interest earned. (Read your account’s terms or check a bank’s website for the specifics.)

But to answer “Can CDs lose money?”: In rare cases, an early withdrawal fee might take a bite out of your principal, too. If, say, you deposit $1,000 in an IRA and earn $15 in interest and then decide to withdraw the funds, hypothetically you could be assessed a $25 fee. In this case, you would wind up with $990 vs. the $1,000 you deposited.

Pros of Investing in a CD

Investing in CDs can be a convenient way to grow your money. High-yield checking and savings accounts can be as well, though. Or perhaps you’re tempted by other investments and wonder how CDs vs. bonds perform. Here, consider some of the benefits specific to certificates of deposit, so you can decide what will work best for you.

•   Security. You can count on a CD for its safety. Make sure to open a CD from a federally insured bank or credit union so your money is secure up to the limits of the insurance ($250,000).

•   Dependability. Instead of having your money sit in a bank and not be sure what returns you will receive as interest rates fluctuate, you can expect to get fixed returns from your CD deposit over a specific period of time.

•   Flexible terms. When opening a CD, account holders get to select from a wide range of term lengths. If you prefer a CD with a shorter maturity date, you can choose a term of a couple of months. Looking for a longer duration? Some CDs may be offered with a 10-year term.

Recommended: CDs vs. Bonds: What’s Smart for Your Money?

Cons of Investing in a CD

As with most financial products (and things in life), there are pluses and minuses to certificates of deposit. Here’s a look at the potential downsides of putting your money in a CD.

•   Lack of access. Once you add money to a CD, you won’t be able to access it until the term is over. During this time, you are not able to add money either.

•   Possible penalties. When you open a CD, you are making a commitment with a financial institution that you will not access that money until the CD matures. (Unless you opt for a no-penalty CD, that is.) If you break that commitment and withdraw money from your CD prior to its maturity date, you will incur early CD withdrawal penalties. This could mean the financial institution withholds an amount of interest on the money you withdraw or could even take some of your principal.

•   Low returns. Yields on a CD can be competitive, but when comparing their returns to those historically earned in the stock market, they’re relatively low. That said, remember that risk plays a role in the market. If you are wondering, “Can you lose money with an index fund or other investment?” keep in mind that the answer may well be “yes.”

When you are investing in stocks and exchange-traded funds, investors take on additional risk and are compensated for that risk. But when putting money in a CD, you aren’t taking any risk, which means the returns are lower.

Recommended: What Does Private Banking Offer?

When CDs Work Best

CDs work best when you are able to put away money for a period of time and accumulate interest over the term. There are different scenarios in which a CD can be a great option, such as the following:

Saving for a Purchase in the Near Future

If you are saving up for a big future purchase, such as a home or a car, you can put your money in a CD to help protect it against inflation until you are ready to access those funds.

Building Short-Term Wealth Before You Invest

If you are new to investing and want to build up your funds to have a more consistent strategy, a CD can help. You can often use a short-term CD to steadily grow your cash position before you invest it in the stock market.

Ensuring Returns Without Stock Market Risk

Opening a CD can be a way to grow your wealth, slowly and steadily with low risk. You might consider building a CD ladder to have funds come available regularly in case you need access. This can be a good balance if you are also investing in the market.

The Takeaway

A certificate of deposit is an account you can open at a bank or credit union to lock away your cash for a certain amount of time while earning a predetermined annual percentage yield. CDs are usually considered very safe. If, however, you withdraw your funds before the maturity date, in rare cases, the penalty for doing so could possibly eat into your principal, meaning you’d lose money.

Another way to grow your funds without this kind of potential access issue could be with a high-yield checking and savings account.

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


Better banking is here with SoFi, NerdWallet’s 2024 winner for Best Checking Account Overall.* Enjoy up to 4.20% APY on SoFi Checking and Savings.

FAQ

Are CDs safe if the market crashes?

Putting your money in a CD doesn’t involve putting your money in the stock market. Instead, it’s in a financial institution, like a bank or credit union. So, in the event of a market crash, your CD account will not be impacted or lose value.

Is a CD guaranteed to make money?

In return for allowing the bank or credit union to hold your money for a fixed period of time, the bank pays you interest. These payments are guaranteed.

What determines CD rates?

CD rates are determined by a combination of a few factors, such as the CD’s maturity (or term) and what the current interest rate environment is (banks will likely use an index rate, typically that of the federal funds rate). Search online to review the best options.

Photo credit: iStock/MicroStockHub

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

SoFi members with direct deposit activity can earn 4.20% 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 4.20% 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 4.20% 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 10/31/2024. There is no minimum balance requirement. Additional information can be found at https://www.sofi.com/legal/banking-rate-sheet.

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

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May
20
2024
Tips on Managing a Checking Account

7 Tips for Managing a Checking Account

By | Budgeting & Goals, Financial Independence, money | Comments Off on 7 Tips for Managing a Checking Account

Managing a checking account can be a simple process, thanks to all the tools at your disposal today. You can set alerts to let you know if your balance is dipping too low and use your financial institution’s app to see where your funds are flowing, among other conveniences. Doing so can set you up to avoid fees and charges while maximizing rewards and interest you may earn.

Here, you’ll learn seven simple steps to help you manage your checking account with ease.

Key Points

•   Regularly monitoring your account balance helps avoid overdraft fees and supports budget adherence.

•   Utilizing a mobile banking app can facilitate easy monitoring and managing of transactions.

•   Avoiding extra fees is possible by meeting certain bank criteria like setting up direct deposits.

•   Automating deposits and payments ensures timely transactions and helps in achieving financial goals.

•   Taking advantage of checking account perks can offer additional benefits like identity theft protection and cash back on purchases.

Why Is It Important to Manage Your Checking Account?

Knowing how to manage a checking account effectively will help you with many aspects of your financial life such as meeting your savings goals and protecting your money. If you don’t know where your money goes, how effective will you be when it comes to creating a budget or assessing whether you can take that last-minute weekend getaway with a friend?

Plus, having good account-management skills will protect you against fraud. For instance, let’s say someone stole your debit card and used it to make purchases. You’d want to detect that ASAP before a bad situation got any worse. If you report any losses within two business days, you’re only on the hook for a maximum of $50 according to Federal laws.

Otherwise, you could lose up to $500 if you report it after two business days but within 60. If you don’t notice the fraudulent charges until after the 60 business-day limit, you’re on the hook for all fraudulent transactions unfortunately.

To recap, good checking account management will help you:

•   Keep tabs on your bank account balance and activity

•   Allow you to better fund savings goals

•   Avoid fraudulent activity and potential money loss.

Now, here are the seven steps that answer the question, “How do you manage a checking account?”

💡 Quick Tip: Don’t think too hard about your money. Automate your budgeting, saving, and spending with SoFi’s seamless and secure mobile banking app.

1. Know Your Account Balance

Keeping track of your account balance gives you a clearer picture of where you stand financially. Doing so can help you with tasks such as planning for occasional and unexpected expenses, paying off your student loans on time, as well as simply sticking to your budget.

Plus, monitoring your account can help you avoid overdraft fees by preventing your balance from dipping into negative territory. It’s easy to make an online payment or swipe that debit card and forget about it, so figuring out how often to check your balance is a wise idea. (A couple times a week works well for many people.)

You can log into your account online or through the bank’s mobile app, but other ways to check your balance include:

•   Receiving automated text alerts

•   Speaking to a teller at a branch

•   Calling your bank’s customer service hotline

•   Requesting your checking account balance at an ATM.

2. Download Your Bank’s Mobile Banking App

Here’s another idea for how to manage your checking account: If your bank offers a mobile app, it can be a smart idea to download it. Yes, mobile banking is very secure most of the time. By adopting mobile banking, you can easily keep an eye on your checking account. What’s more, you can conduct an array of transactions with just a few clicks, such as paying bills, depositing checks, setting up automated alerts, and transferring money between accounts.

Depending on the mobile app’s features, you may be able to link your debit and credit cards to your account, which makes it easier to purchase and pay for things. There may be other features such as a budgeting section, money management tools, insights into your credit score, and even access to discounts at your favorite retailer.

3. Avoid Paying Extra Fees

Many checking accounts charge monthly maintenance fees, but you may be able to have them waived if you can meet certain requirements. Most commonly, you can skip the monthly fees if you set up direct deposits or maintain a certain account balance.

Perhaps you want to drill down on one kind of fee in particular: those overdraft fees. Those charges can really add up, and if they are left unpaid, they can harm your credit score. Take a bit of time to understand how your bank handles overdraft fees — will it waive it if your account is in good standing, will it charge you a fee and process the payment, or will it reject the transaction totally and assess you a fee?

Plenty of banks also offer options such as overdraft protection. Typically, this means if you’re at risk of having a negative bank balance, they will transfer the overdrawn amount from a linked savings account to your checking account automatically, without any charges. Still, you’ll probably want to set an alert so you’re notified when your checking account reaches a certain balance or hits zero. That way, you can quickly remedy the situation.

💡 Quick Tip: Bank fees eat away at your hard-earned money. To protect your cash, open a checking account with no account fees online — and earn up to 0.50% APY, too.

4. Automate Deposits and Payments

Automation can make your life so much easier. Letting technology assist you with your banking can help you keep on top of tasks such as depositing your paycheck, paying bills, or meeting savings goals.

•   In terms of how to manage a bank account, direct deposit is a great way for your employer to deposit paychecks automatically. In some cases, banks will even give you early paycheck access.

•   Your bank may have automatic bill payment or transfer tools as well. Consider using these for recurring payments to be made automatically, such as ones for subscription services, auto loans, or your mortgage payments. Doing so can prevent missed payments and may be able to help build your credit score.

•   Also, automatically transferring a certain amount each month into a separate account can help you reach your short- and long-term savings goals.

5. Embrace Potential Earnings

Sure, having a nice big cushion of cash in your checking account can make you feel flush. However, keeping excess cash in your checking account could mean you’re losing out on the opportunity to get more out of your funds. Specifically, that money could be earning you more money. As you balance your bank account, you may find there are better ways to make your money work for you.

For instance, there are plenty of ways to earn interest even if you want your cash to remain more liquid. For instance, high-yield savings accounts linked to your checking account can earn you a bit of extra cash while still being very accessible.

6. Take Advantage of Checking Account Perks

To remain competitive, many banks are starting to offer additional perks with their checking account such as:

•   Identity theft protection and assistance

•   Discounts at shopping and dining retailers

•   Extended warranties on purchases

•   Buyer’s protection

•   Health savings cards

•   Cash back on qualifying debit card purchases.

When shopping around for a checking account, consider your financial habits. If you shop frequently at certain retailers, it may be worth taking advantage of an account that offers discounts. Or if you use the ATM frequently, looking for a checking account that reimburses you for third-party ATM fees may be a smart choice.

7. Consider Consolidating

Do you have multiple checking accounts? It’s not uncommon for people to have, say, their main checking account, one that they opened to get some reward or perk, and the one that their parents opened with them in high school. If you can relate, you might benefit from simplifying your finances and consolidating all of them into one main checking account.

That way, all you have to do is log into a single checking account and monitor your finances. Why overwhelm yourself with many accounts to check on and keep track of?

The Takeaway

Managing your checking account is an important path to staying on top of your finances. It will help you keep on your budget, avoid unnecessary fees, and reach your financial goals. Plus, with all the tech tools and alerts available today and the rewards being offered, it can be faster and more profitable than ever.

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


Better banking is here with SoFi, NerdWallet’s 2024 winner for Best Checking Account Overall.* Enjoy up to 4.20% APY on SoFi Checking and Savings.

FAQ

Why is it important to manage your checking account?

It’s important to manage your checking account so that you can see where your money is coming from and going to. It can help you understand how you can budget better, reach your savings goals, and even detect fraud.

How often should you manage your checking account?

For many people, checking their bank account once or twice a week works well. You can also take actions like establishing alerts when your account balance falls below a certain threshold or setting up automatic transfers for recurring payments to help save you time.

How should you keep track of what’s in your checking account?

The usual ways to keep track of what’s in your checking account are to use your bank’s app, check your balance online, call customer service, or use an ATM to see how your money is tracking.

Photo credit: iStock/jroballo

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

SoFi members with direct deposit activity can earn 4.20% 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 4.20% 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 4.20% 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 10/31/2024. There is no minimum balance requirement. Additional information can be found at https://www.sofi.com/legal/banking-rate-sheet.

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

SOBK0124027

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20
2024
How Do Savings Accounts Work_780x440: Read on to learn about the different types of savings accounts and how they might come into play in a person’s overall financial plan.

What Is A Savings Account And How Does It Work?

By | Budgeting & Goals, Financial Independence, money | Comments Off on What Is A Savings Account And How Does It Work?

Typically, a savings account is a safe, insured place to sock away your cash and earn some interest. You usually don’t use this money for spending, as you do with a savings account, nor is it necessarily the growth vehicle of investments, which also brings risk.

A savings account can be a good place to store funds for future goals. This could mean a short-term goal, like saving for holiday gifts or a beach rental next summer. You might also use a savings account for longer-term goals, like the down payment on a house.

Key Points

•   Savings accounts are secure, interest-bearing deposits where money is stored for future use.

•   They differ from checking accounts by typically restricting withdrawals and offering interest on deposits.

•   Various types of savings accounts include traditional, high-yield, and online, each offering different benefits.

•   Factors to consider when choosing a savings account include interest rates, fees, and transaction limits.

•   Savings accounts are insured by the FDIC, ensuring safety even if a bank fails.

What Is a Savings Account?

Savings accounts can be a great way to diversify a financial strategy. A person might not want to put all their money into a savings account, but a savings account can complement their larger financial plan.

Compared to investments, savings accounts can be a safer spot to put cash away for short-term savings. And, savings accounts typically earn more than checking accounts.

Savings accounts set themselves apart because:

•   They earn interest. Unlike many checking accounts, savings accounts are interest-bearing — that means the bank will pay an annual percentage yield (APY), based on the money in the account.

•   They’re insured. The money in a savings account is insured by the FDIC (Federal Deposit Insurance Corporation). The FDIC was established in 1933 after the stock market crashed. When an account is insured, it guarantees that the customer will be able to get their money even in the rare event that a bank goes out of business. Savings accounts in FDIC-insured institutions are generally a safe place to keep cash.

Savings vs. Checking Account

Are you wondering what the difference is between a savings vs. a checking account?

•   A checking account is designed to be the hub of your financial life, with money flowing in and out.

•   Typically, you will earn no or low interest with checking accounts, but you will not face transaction limits.

•   With a savings account, money typically stays in the bank (or most of it). Since the bank can then use some of it to meet other business needs (such as loans to other clients), it pays you interest for the privilege of using some of your money in this way.

•   Savings accounts typically do pay interest, though it will vary depending on the kind of account and perhaps how much you have on deposit.

•   With a savings account, you may be limited to six outgoing transactions per month, depending on the financial institution. If you go over that number, you may be charged, have your account switched to a checking account, or even have your account closed.

Earn up to 4.20% APY with a high-yield savings account from SoFi.

No account or monthly fees. No minimum balance.

9x the national average savings account rate.

Up to $2M of additional FDIC insurance.

Sort savings into Vaults, auto save with Roundups.


How Does a Savings Account Work?

If you’re wondering, “How do savings accounts work?” know this: They usually work by you depositing funds into a savings account. The bank, as mentioned above, expects you to keep the funds there, where they can use some of the money to make, say, loans to others.

For the privilege to use your money in this way, the bank pays you interest. So, as your money sits there, it is growing. This can help you reach your financial goals sooner.

💡 Quick Tip: Typically, checking accounts don’t earn interest. However, some accounts do, and online banks are more likely than brick-and-mortar banks to offer you the best rates.

How to Use a Savings Account

Generally, a savings account is used for short-term savings goals, like an upcoming vacation or large purchase. This type of account is generally used to save or plan for expenses that don’t come up on a daily basis.

If you have multiple short-term savings goals, you might choose to open multiple savings accounts. You don’t have to open up an account for every goal, but keeping separate savings accounts could make budgeting easier. Watching balances grow could be an excellent motivator to keep saving.

On the other hand, financial minimalists might be overwhelmed by juggling multiple account numbers and balances. In that case, having more than one savings account might cause more confusion than clarity. The important thing is knowing how much you are saving and where.

Some specific reasons a person might open a savings account (or two):

•   An emergency fund. Emergencies crop up when least expected. That means the money always needs to be liquid and available. A savings account can be a good place to build and keep an emergency fund.

•   Short-term saving goals. Many things could fall under this umbrella, including upcoming travel, saving for a downpayment on a home, or putting aside funds to purchase a car. A savings account can be a good place for savings goals you hope to accomplish within the next few months or a year.

These are just a couple of the ways someone could use a savings account when it comes to personal finance.

There’s no one right way to use a savings account, and, depending on a person’s preference and goals, they might keep one or multiple savings accounts.

How Much to Keep in a Savings Account

How much to keep in a savings account will vary depending on a variety of factors, which may include your income level, your expenses and cost of living, and your financial goals.

For starters, experts advise having the equivalent of three to six months’ worth of basic living expenses in an emergency fund, as noted above. This can be a valuable cushion if you have unexpected bills or a job loss.

Otherwise, financial experts typically advise that you save 20% of your pay. Some of this might go towards investments and some might go into a savings account (or a couple of them) at the bank. It’s a personal decision.

Pros of a Savings Account

Savings accounts yield lots of benefits for their users. Account benefits vary by financial institution, so customers might want to check the fine print for rates and details.

•   Earned interest. How does interest on a savings account work? As money sits in a bank account, it makes more money. The bank pays you a rate because your money provides a service to the bank. In a nutshell, customers open a savings account and deposit cash there, earning some interest. The bank takes that cash and loans it out to other customers at a higher interest rate. But don’t worry, savings account holders can access their savings at any time.

•   Easy access. A savings account is typically more liquid than an investment account, making it a good candidate for short-term savings goals, since account owners can easily and quickly access their money. Typically, a customer can transfer the funds online with the click of a few buttons.

•   Low risk. Since savings accounts are liquid and easy to get to, they’re generally regarded as low risk. Savings accounts don’t have the risk associated with investing. If a person is saving up for a big purchase in the next year or two, they might want to consider keeping the money in a savings account, where they can access it easily without the concern of market volatility.

💡 Quick Tip: Want a simple way to save more everyday? When you turn on Roundups, all of your debit card purchases are automatically rounded up to the next dollar and deposited into your online savings account.

Cons of a Savings Account

While savings accounts have their fair share of benefits, they also have a few drawbacks. Depending on a person’s needs and savings goals, these accounts might not always be the best fit. Here are a few things to keep in mind while mulling over where to deposit extra cash:

•   They might require a minimum balance. Some savings accounts require a minimum balance, depending on the financial institution. That means the account can’t fall below a certain amount. If it does, there could be a fee or extra charges headed the account holder’s way.

•   Limited transactions. With the benefit of higher-than-average interest comes the drawback of potentially limited savings account withdrawals, deposits, and transfers. The Federal Reserve lifted its rule that banks must penalize members who make more than six transactions per month from their savings accounts in 2020. However, banks can still penalize you (with fees) if they want to. It’s a good idea to ask your bank about its policy before making more than six transactions in a month.

•   Setup fees. Depending on the financial institution and type of account, there could be fees associated with opening a savings account. This varies by institution.

•   No tax advantage. If you are thinking about saving for your future, you might get tax breaks with a different kind of retirement vehicle, such as a 401(k) or an IRA.

Types of Savings Accounts

While they follow the same general rules, not all savings accounts are built the same. What follows are some different types of savings accounts you’ll likely find available.

1. Traditional Savings

Consider this a beginner’s savings account. A traditional savings account is offered by most financial institutions, and typically comes tied directly to a checking account. A traditional savings account typically will have a low-interest rate compared to other savings accounts.

2. High-Yield Savings

As the name suggests, a high-yield savings account will have a higher yield than a traditional savings account. The higher APY may come with caveats that vary by bank, such as requiring a large initial deposit and/or monthly balance. The bank might also be more likely to limit transactions to six per month.

3. Online Savings

Online-only banks don’t have to support expensive brick-and-mortar branches, which can enable them to offer annual APYs that are higher than traditional savings accounts. These online savings accounts also tend to have low initial deposit requirements and typically don’t charge monthly maintenance fees.

Alternatives to Savings Accounts

There are other short-term savings options that don’t involve investment risk. Here are a few alternatives.

Certificate of Deposit (CD)

A certificate of deposit (CD) is similar to a high-yield savings account when it comes to interest rates. However, when a person sets up a CD, they have to commit to keeping it there for a certain amount of time, and early withdrawal can lead to penalties. As a general rule of thumb, the longer the length of the CD, the better the interest rate.

Money Market Deposit Account (MMDA)


A money market deposit account (MMDA) is often similar to a high-yield savings account, but account holders typically need to meet requirements and adhere to the transaction limits to see the benefits. These may include a minimum balance, and a limited number of transactions per month (including deposits, withdrawals, and transfers).

Cash Management Account

A cash management account (CMA) functions as both a spending and a savings account and often offers a higher interest rate than a traditional savings account. With many CMAs, account holders can write checks, pay bills, transfer funds, and make deposits. CMAs are offered by both brick-and-mortar and online financial institutions.

What to Consider When Choosing a Savings Account

When choosing a savings account, consider the following factors:

•   Interest rates: There is considerable variation, and your money might earn a fraction of a percent or several percentage points. It can be wise to shop around for the highest rates.

•   Fees. Some financial institutions may hit you with fees, such as monthly account maintenance fees. Ask in advance before signing up.

•   Minimum opening deposit and balance requirements. These can stipulate that you put and then keep a certain amount of money in the account. Make sure you are aware of the guidelines and can adhere to them.

•   Transaction limits. As discussed above, some banks place limits on the number of times you can pull money out of your savings account. Know whether your account would have penalties if you exceed the number.

•   Accessibility. You want to be sure you can reach your bank and your money when you need to. Depending on your banking and lifestyle, this could mean a local vs. a national bank, or an online bank vs. a traditional one.

Opening a Savings Account

A savings account is a bank account that lets you store your money securely typically while earning interest.
Using a savings account separates money you intend to use at a later date, say for a large purchase or upcoming event, from everyday spending money that is kept in your checking account.

High-yield savings accounts and online savings accounts often offer higher interest than traditional savings accounts.

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

Better banking is here with SoFi, NerdWallet’s 2024 winner for Best Checking Account Overall.* Enjoy up to 4.20% APY on SoFi Checking and Savings.

FAQ

How exactly does a savings account work?

A savings account is typically a secure, insured way of keeping your money and earning interest.

Can you withdraw money from a savings account?

Yes, you can likely withdraw money from a savings account. Check with your financial institution if they have a monthly limit regarding the number of withdrawals or whether there are fees if your balance falls under a certain amount.

Is a savings account worth it?

For many people, a savings account is a worthwhile financial product. It keeps your money secure and pays some interest as you save towards goals, whether that’s an emergency fund or a travel fund.

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

SoFi members with direct deposit activity can earn 4.20% 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 4.20% 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 4.20% 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 10/31/2024. There is no minimum balance requirement. Additional information can be found at https://www.sofi.com/legal/banking-rate-sheet.

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

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Opening a Savings Account For a Baby

Opening a Savings Account for a Newborn Baby: What You Need to Know First

By | Budgeting & Goals, Family Finances, money | Comments Off on Opening a Savings Account for a Newborn Baby: What You Need to Know First

When a new baby arrives, there’s much to celebrate and so many milestones ahead. It’s not uncommon to want to help secure a child’s future by opening a savings account. That can start Junior off with a little nest egg and hopefully, in time, some good financial habits.

If you’re thinking you might like to open one of these accounts, read on to learn more.

Key Points

•   Opening a savings account for a newborn can secure their future and instill good financial habits.

•   Compounding interest over time significantly increases the initial savings placed in these accounts.

•   Such accounts typically feature low initial deposits, minimal balance requirements, and nominal fees.

•   Essential documents for opening an account include the baby’s birth certificate and Social Security number.

•   Alternatives like 529 College Savings Accounts or custodial accounts offer different benefits for long-term financial planning.

•   At this time, SoFi only allows members 18 years old or above to open a savings account.

Why Open a Savings Account for a Baby?

There are actually some very good reasons to consider opening a bank account for a baby and start saving. You might be wondering why someone would open this kind of account for a newborn. After all, they don’t have any bills or expenses to pay so what would they need to have money in the bank for? Consider how opening an account and saving for a baby can have real benefits:

•   Time is on your side. Compounding interest can help you grow your baby’s savings account over time. The younger your child is when you start saving, the longer that money has to earn compound interest.

•   Plan for specific goals. Opening a savings account for a baby can make it easier to fund long-term goals. For example, you might want to set aside money to help them buy their first car or pay for college when the time comes.

•   Tax advantages. Savings accounts may not be earning a lot of interest right now. Still, the fact that babies usually don’t typically earn enough dough to pay taxes is a bonus.

•   Increase financial literacy. Teaching kids about saving from an early age can help them get into the habit. By opening a savings account for them when they’re young, you can help them learn the money skills they’ll need as adults.

Kids’ savings accounts can also be appealing because they tend to have low initial deposit requirements, low minimum-balance requirements, and low fees. So you don’t need a lot of money to start saving on behalf of your newborn — and you may not have to worry about paying a lot of fees to maintain the account as they grow.

How to Open a Savings Account for a Baby

Opening a bank account for a baby isn’t a complicated process. To open a savings account for a newborn, you’ll need the following:

•   Information about yourself

•   Information about your baby

•   Required documentation

•   Minimum initial deposit and funding details.

You should be able to open a savings account for a baby either at an online bank or a traditional bank or credit union. You’ll need to fill out the savings account application and provide the deposit via check, money order, cash or ACH transfer if you’re opening an account with an online bank. The minimum deposit may be as little as $1 or even $0, though some banks may require a larger deposit ($25 and up) to open a baby savings account.

Keep in mind that some banks may require you to have an account of your own before you can open a savings account for a child. That could influence where you decide to set up a savings account for a newborn.

Also look into any account maintenance fees that may be assessed monthly. You don’t want fees eating up the principal and interest in the account. Let’s look at this a little more closely next.

Can You Withdraw Money from Your Baby’s Savings Account?

Because a child cannot legally open or hold a bank account, an adult is a required presence. The parent or custodian who opens the account holds it jointly with the child and can indeed withdraw funds. It’s similar to a joint account that couples may have. However, there may be limits regarding whether your child can make withdrawals as they age and for how much.

If you were to open what’s called a custodial account (which becomes property of the child at adulthood; more on these accounts below), you may withdraw funds, but the intention is that they only be used for the kid’s benefit.

Types of Savings Account for Newborns

The best savings accounts for newborns are ones that allow you to save regularly, earn interest, and avoid high fees. You might look to your current bank first to open a savings account for the baby. Consider what type of features or benefits are offered. If you have to pay a monthly service fee, for example, you may be better off considering a savings account for a newborn at an online bank instead.

Online banks can offer the dual advantages of higher annual percentage yields, or APYs, on savings and lower fees. You won’t have branch banking access but that may not be important if you prefer to deposit money via mobile deposit or ACH transfer anyway. And once your child gets a little bigger, you can introduce them to the world of mobile banking and how to manage it on their own.

Also, consider how well a newborn savings account can grow with your kid’s needs. Some questions you might ask: Can you switch the account to a teen savings account or teen checking account down the line? Could you add a prepaid debit card for teens into the mix at some point? Asking these kinds of questions can help you pinpoint the best savings account for a newborn, based on your child’s needs now and in the future.

For some people, it can be a benefit to know that the bank has figured out ways to help accounts grow with their youngest customers and coach them along their journey to financial literacy.

Requirements for Opening a Savings Account for a Baby

The requirements for opening a bank account for a newborn are a little different from opening a bank account for yourself. That’s because the bank needs to be able to verify your identity as well as the baby’s.

Generally, the list of things you’ll be required to provide to open a savings account for baby include:

•   Your name and your baby’s name

•   Dates of birth for yourself and the baby

•   A copy of your government-issued photo ID

•   The baby’s birth certificate

•   Your address, phone number, email address, and Social Security number.

The bank may ask for the baby’s Social Security number though it’s possible you may not have this yet at the newborn stage. And if you don’t have a Social Security number of your own, you may have to provide a substitute federal ID.

Alternatives to Newborn Savings Accounts

A savings account at a bank or credit union isn’t the only way to set aside money for a newborn. While these accounts can earn interest, there are other types of savings you might use to fund different goals for your child. Here are some of the other options you might consider when saving money for a baby.

529 College Savings Accounts

Many parents — even brand-new ones! — wonder how to start saving for college. A 529 college savings account is a type of tax-advantaged plan that’s designed to help you save for education expenses. These accounts can be opened by the parent but anyone can make contributions, including grandparents, aunts and uncles, or family friends.

All 50 states offer at least one 529 plan. There are no annual limits on 529 plan contributions and you can open any state’s plan, regardless of which state you live in. Contributions are subject to annual gift tax exclusion limits, which are $17,000 for single filers and $34,000 for married couples filing jointly in 2023.

With a 529 plan, you’re investing money rather than saving it. You can invest the money you contribute in a variety of mutual funds, including index funds and target-date funds. This money grows tax-deferred, and withdrawals are tax-free when used for qualified education expenses, such as tuition and fees, books and room and board.

Coverdell Education Savings Accounts

There are other ways to save for a child’s college tuition. A Coverdell Education Savings Account (ESA) is a type of custodial account that can be set up to save for education expenses. This account grows tax-deferred just like a 529 plan and qualified withdrawals are tax-free. But there are some key differences:

•   Annual contributions are capped at $2,000 and are not tax-deductible

•   Contributions must end once the child reaches age 18 (an exception is made for special-needs beneficiaries)

•   All funds must be distributed by the time the child reaches age 30.

If you leave money in a Coverdell ESA past the child’s 30th birthday, the IRS can impose a tax penalty. Any withdrawals of ESA funds that aren’t used for qualified education expenses are subject to income tax.

Custodial Accounts

Custodial accounts are savings accounts that allow minors to hold assets other than savings, such as stocks or other securities. You can set up a custodial account with a brokerage on behalf of your child. As the custodian, you maintain ownership of the account and its assets until your child reaches the age of majority, typically either 18 or 21. At that point, all the money in the account becomes theirs.

Opening a custodial account could make sense if you want to make irrevocable financial gifts to your kids. This could be one of the best strategies for building an investment plan for your child. The biggest drawback, however, is that once they turn 18 (or 21) you no longer have control over the account or how the money inside of it is used. For some parents, relinquishing that control can be hard, but remember: There’s lots of financial literacy that can be gained between your child’s birth and officially entering adulthood.

FAQ

Can I start a savings account for my baby?

Yes, opening a savings account for a baby is something you can do even if they’re still a newborn. Traditional banks, credit unions, and online banks can offer savings account options for babies and kids. You can also explore savings account alternatives, such as 529 college savings plans or custodial accounts.

What type of savings account should I open for my newborn?

The type of savings account you open for a baby can depend on your financial goals. If you just want to get them started saving early, a basic savings account might work best. On the other hand, you might consider creating an investment plan for your child that includes a 529 savings account if you’re interested in putting aside money for future college expenses.

What are the typical requirements for opening a bank account for a newborn baby?

You’ll likely need to provide your name, address, and phone number, plus your email address, Social Security number, and government-issued photo ID. You’ll probably be asked for the baby’s birth certificate and an opening deposit as well, which may be as little as $1 or even zero.

Photo credit: iStock/michellegibson

SoFi members with direct deposit activity can earn 4.20% 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 4.20% 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 4.20% 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 10/31/2024. There is no minimum balance requirement. Additional information can be found at https://www.sofi.com/legal/banking-rate-sheet.

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

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

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.

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.

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20
2024
man in suit on smartphone

10 Online Banking Alerts to Turn On

By | Budgeting & Goals, money | Comments Off on 10 Online Banking Alerts to Turn On

When it comes to managing your financial life, technology can be your friend. By toggling on banking alerts, you can stay on top of your bank accounts and possibly avoid such issues as overdraft, late fees, and unauthorized use of your banking details.

Setting up automated alerts can be quick and easy, but you may need help knowing which are the right ones to use to suit your needs. Here’s a guide to 10 of the most valuable online banking alerts that you may find useful.

Key Points

•   Mobile banking alerts can enhance financial management and security by notifying users of important account activities.

•   Alerts for low balances help avoid overdraft fees by notifying users when funds are low.

•   Direct deposit alerts confirm when wages are deposited, aiding in financial planning and bill payments.

•   Unusual activity alerts provide immediate notifications of atypical transactions, helping to prevent fraud.

•   Large purchase alerts inform users of high-value transactions, offering a chance to block unrecognized purchases promptly.

What Are Mobile Banking Alerts?

Mobile banking alerts are typically alerts sent by email and/or text that keep you updated on the status of your accounts. They can share important information about your finances (such as, say, you are about to overdraft your account) or they can help protect your account by informing you of a new log-in.

In many cases, you can customize how you want to receive mobile banking alerts, whether by email, text message, and/or push notification. You can also personalize the alerts. For example, one person might want a low balance alert when their account balance falls under $200, while another person might want to be notified when their account gets down to $25.

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

What Are the Benefits of Online Banking Alerts?

benefits of turning on online banking alerts

These alerts can help keep your bank account safe online and protect your financial status in the following ways:

•   Allow you to monitor your banking activity

•   Help you avoid unauthorized activity

•   Prevent scams and fraud

•   Alert you to low balances so you can steer clear of overdraft and related fees

•   Help you manage debit card purchase behavior

•   Know when an important payment or debit is made

•   Feel more in control and secure of your finances.

Mobile Banking Alerts You Should Turn On

10 mobile banking alerts to turn on

Here are 10 important mobile banking alerts. See which ones might suit your particular situation and needs.

1. Low Balance

Cars have gas lights to warn drivers when fuel is close to empty, so why shouldn’t bank accounts?

•   A low balance alert lets you know when funds have dipped below a predetermined amount—it could be $20, $1,000, or any amount you set. This can help keep you from overspending and triggering expensive overdraft fees.

•   When you receive an overdraft alert, you can then decide if you want to transfer money into your account or hold off on making a purchase until your next paycheck clears. You can potentially avoid having a negative bank balance.

2. Direct Deposit

Constantly checking your account to see if your paycheck has been deposited can be a nuisance, particularly if you only recently set up direct deposit (which can take one or two pay cycles to get going).

If you sign up for a direct deposit notification, however, you’ll know exactly when money sent electronically to your account has been deposited and is ready to use.

Being notified of direct deposits each pay cycle can also help you make sure that your employer is paying on time and that you have enough money in your account to cover bills and automatic expenses.

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3. Unusual Activity Alert

Unfortunately, millions of people report fraud and identity theft to the Federal Trade Commission (FTC) each year.

Setting up an unusual activity mobile account alert can save account holders a lot of headaches, as well as time and money, should their accounts ever become compromised.

An unusual activity alert notifies consumers when there’s a change in their account status that’s outside the norm. For example, if a large amount of money gets transferred out of the account all at once and this is something that rarely occurs, you would receive an unusual activity alert.

Or, an alert might let you know if purchases are being made outside your typical travel area.

By alerting you the moment a potential fraud takes place, you can take action quickly, report the transaction, or even freeze your account.

4. New Log-In Alert

Another helpful way to protect your accounts against bank fraud and theft is to set up a new log-in account alert.

This alert lets you know when someone has logged into your account from a computer or device that has never been used to access your account before.

If you weren’t the one logging in, you can possibly stymie the fraudster by immediately changing your password and even freezing your account to prevent spending.

Some financial institutions also allow customers to set up multifactor authentication on their account (which requires users to provide multiple pieces of identifying information, not just a username and password to access an account), which can even further protect your money.

5. Large Purchase Alert

Some banks allow users to set up a customizable large purchase alert. With this kind of online banking alert, you will usually receive a message whenever a purchase over a certain dollar amount (which typically you determine) is about to be charged to your account.

If you see the alert and don’t recognize the purchase, you may then be able to block the transaction.

Having a large purchase alert set up can help prevent fraud, but also human error. If a restaurant server accidentally adds an extra zero to a dinner bill, a large purchase alert could go off. That could save you the hassle of reporting the purchase later and trying to have it reversed.

This mobile bank alert may be especially helpful if you are not in the habit of monitoring your bank account on a regular basis.

6. Overdraft Alert

If you overdraw your account using a check or debit card, your bank might allow the transaction, letting you spend more money than you actually have in your account.

Typically, this comes with a price — an overdraft or NSF fee (which can often exceed $35). And, if you don’t realize you’re overdrafting your account, you might continue to make purchases, and incur a fee on each one.

Depending on the bank, if your account remains in a negative balance for an extended number of days, your account could even be closed.

To avoid these problems, If you get an overdraft alert, you may want to:

•   Add money to your account as quickly as possible to prevent any more overdrafts. If you move quickly, you might possibly be able to avoid the first overdraft fee (check if your bank has a deadline to deposit money that might help you avoid an overdraft fee).

•   Some banks have no overdraft fees up to a certain dollar amount; check and see if yours offers this feature.

7. Profile Changes Alert

Profile change bank alerts notify you if someone has tried to change your password, username, or any personal information in your profile, such as contact information or opting out of bills through mail.

If you see something was changed and you didn’t make the changes, you’ll likely want to change your password ASAP and alert the bank to help protect your account.

8. Large ATM Withdrawal Alert

Setting an alert for withdrawals from an ATM or debit card lets a person know when cash has left their account.

This might be helpful in the event that there are multiple authorized users on the card (so you are aware of a change in the account balance) but also if the card has been stolen.

According to the FTC, the maximum loss for a person who reports their card as lost within two days of discovery is $50. That means even if a thief steals a debit or ATM card and wipes out the account’s balance, the account holder would not be out more than $50.

If a person doesn’t notice their ATM or debit card has gone missing, a withdrawal notification could be the first thing to alert them.

9. Debit Card Alert

This kind of alert clues you in to debit card transactions. It can tell you in real time about your debit card’s usage. It can be especially helpful as it can indicate when someone is using a debit card online that belongs to you.

If this is an unauthorized transaction, you can take action to contact your bank and freeze your account as needed. Remember, if you report misuse of your card number within two days of the event, you are not liable for more than $50, per the Electronic Funds Transfer Act. In this way, online banking activity alerts could help you avoid having to pay for fraudulent charges.

10. Upcoming Payment Alert

An upcoming payment alert can be a good way to stay posted on recurring or one-time scheduled payments. For instance, if you had scheduled a payment of a medical bill a couple of weeks ago to happen right now, the alert could nudge you to check your balance and make sure you’re in good shape to cover the expense.

Or an upcoming payment alert could remind you that you are paying for, say, a streaming channel you haven’t been watching and you might decide to cancel and save some money.

What to Do After Getting an Online Banking Alert or Bank Notification?

If you receive a mobile banking alert or bank notification, you may or may not need to take action.

•   If the message tells you something you already knew or expected (say, that you received your paycheck or your mortgage was paid per your instructions), no action is needed.

•   If you receive an alert that your bank account is low and/or you are tisk of overdraft, you can transfer funds to avoid problems and fees.

•   If you are informed that a transaction or log-in occurred that you do not recognize, you can (and should) alert your bank’s customer service ASAP to avoid fraudulent activity and consequent issues, such as identity theft. In addition, you may want to change passwords or freeze your account.

The Takeaway

Online banking alerts can help you manage your financial life more conveniently. Automatic bank alerts can provide you with important and timely account information, such as when your account balance falls below a certain amount or when your paycheck has been electronically deposited.

This can help you keep track of your account and your spending, as well as avoid costly overdraft fees. They can also notify you right away if there’s unusual activity on your account, which can help you resolve any fraudulent activity on your account. Setting up alerts is a personal decision and can be changed as your needs evolve.

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


Better banking is here with SoFi, NerdWallet’s 2024 winner for Best Checking Account Overall.* Enjoy up to 4.20% APY on SoFi Checking and Savings.

FAQ

What types of bank accounts are eligible for account alerts?

Typically, a variety of bank accounts are eligible for alerts, including checking and savings accounts as well as certificates of deposit (CDs). You can also have alerts for your ATM and debit card.

Is it a good idea to set up mobile alerts on your checking account?

It can be a smart move to set up mobile alerts for your checking account since they can alert you to low balances, direct deposits, upcoming automated payments, and unusual activity. These can help protect your financial wellness.

How do you know if a bank alert is real?

Here are some ways to tell if a bank alert is real or if it’s phishing: Ask yourself if you have opted into this kind of message from your bank. Know that your bank will not ask for confidential information by text. Be aware that a sense of urgency or needing to send money to resolve a “problem with your account” right away can signal a scam. Also look for slight misspellings, such as Citiibank instead of Citibank. You can contact your bank directly to know if an alert is real.

How can you tell if someone is tracking your bank account?

If you are concerned that someone might be tracking your bank account, you can opt into online banking alerts that let you know when there are profile changes or new log-ins.

How do I get bank alerts on my phone?

The process may vary, but typically you get bank mobile alerts by logging into your account and going to your account or account services. Click on “manage alerts” or a similar tab and follow the instructions.


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The SoFi Bank Debit Mastercard® is issued by SoFi Bank, N.A., pursuant to license by Mastercard International Incorporated and can be used everywhere Mastercard is accepted. Mastercard is a registered trademark, and the circles design is a trademark of Mastercard International Incorporated.

SoFi members with direct deposit activity can earn 4.20% 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 4.20% 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 4.20% 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 10/31/2024. There is no minimum balance requirement. Additional information can be found at https://www.sofi.com/legal/banking-rate-sheet.

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

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

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