Oct
16
2024

What Is a Required Minimum Distribution (RMD) for IRAs

By | invest, Investing, Preparing for Retirement | Comments Off on What Is a Required Minimum Distribution (RMD) for IRAs

Individual retirement accounts (IRAs) are retirement savings accounts that offer certain tax-advantages. Some types of IRAs, including traditional and inherited Roth IRAs, are subject to required minimum distribution (RMD) rules.

What is an RMD on an IRA? In simple terms, it’s a withdrawal you make from an RMD every year once you reach a certain age. RMDs are a way for the IRS to ensure that retirement savers meet their tax obligations. Failing to take distributions when you’re supposed to could result in a tax penalty, so it’s important to know when you must take an RMD on an IRA.

Key Points

•   Required minimum distributions (RMDs) are mandatory withdrawals from IRAs that account owners must start taking at age 73, as per IRS rules.

•   RMDs apply to traditional IRAs, SEP IRAs, SIMPLE IRAs, 401(k)s, and other defined contribution plans.

•   The RMD amount account holders need to withdraw is calculated using the IRS Uniform Lifetime or life expectancy tables.

•   Failing to take RMDs can result in a 25% excise tax, reduced to 10% if corrected within two years.

•   RMDs are taxed as ordinary income, and qualified charitable distributions (QCDs) can be used to reduce tax liability.

Required Minimum Distribution (RMD) Definition

A required minimum distribution is an amount you need to withdraw from an IRA account each year once you turn 73. (In 2023 the SECURE 2.0 Act increased the age that individuals had to start taking RMDs to age 73 for those who reach 72 in 2023 or later.) You can take out more than the minimum amount with an RMD, but you must withdraw at least the minimum to avoid an IRS tax penalty.

The minimum amount you need to withdraw when taking an RMD is based on specific IRS calculations (see more about that below).

Special Considerations for RMDs

RMD rules apply to multiple types of retirement accounts. You’re subject to RMDs if you have any of the following:

•   Traditional IRA

•   SEP IRA

•   SIMPLE IRA

•   401(k) plan

•   403(b) plan

•   457(b) plan

•   Profit-sharing plan

•   Other defined contribution plans

•   Inherited IRAs

You must calculate RMDs for each account separately.

Failing to take RMD distributions from IRAs or other eligible investment accounts on time can be costly. The SECURE 2.0 Act allows the IRS to assess a 25% excise tax on the amount you failed to withdraw. That penalty might drop to 10% if the RMD is properly corrected within two years.

Why Do You Have to Take an RMD?

The IRS imposes RMD rules on IRAs and other retirement accounts to prevent savers from deferring taxes on earnings indefinitely. Here’s how it works.

When you contribute to a traditional IRA, SEP IRA, SIMPLE IRA, 401(k), or a simple retirement plan, you fund your account with pre-tax dollars (meaning you haven’t yet paid tax on that money). In exchange, you may be able to deduct some or all of the contributions you make.

Your account grows tax-deferred, and when you make qualified withdrawals in retirement, you pay ordinary income tax on earnings. If you were to leave the money in your IRA untouched, the IRS couldn’t collect tax on earnings, hence the need for RMDs.

Roth IRAs generally don’t have RMDs. When you make contributions to a Roth account you use after-tax dollars — in other words, you’ve already paid taxes on that money. So you don’t have to pay taxes again when you make qualified withdrawals in retirement. However, if you inherit a Roth IRA, you will be required to take RMDs.

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RMDs for Roth and Traditional IRAs

When you open an IRA, you will typically choose between a Roth IRA or traditional IRA. There are differences between them when it comes to RMDs. Traditional IRAs are always subject to RMD rules. If you contribute to a traditional IRA, whether you max out the annual contribution limit or not, you can expect to take RMDs from your account later. RMD rules also apply when you inherit a traditional IRA.

Are there RMDs on Roth IRA accounts? No, if you’re making original contributions to a Roth IRA that you own. But you will need to take RMDs if you inherit a Roth IRA from someone else.

The IRS determines when you must take distributions from an inherited Roth IRA. The timing depends on whether the person you inherited a Roth IRA from was your spouse and whether they died before 2020 or in 2020 or later.

If you inherit an IRA from a spouse who passed away before 2020, you may:

•   Keep the account as your own, taking RMDs based on your life expectancy, or follow the 5-year rule, meaning you generally fully withdraw the account balance by the end of the 5th year following the year of death of the account holder

OR

•   Roll over the account to your own IRA

If you inherit an IRA from a spouse who passed away in 2020 or later, you may:

•   Keep the account as your own, taking RMDs based on your life expectancy, delay beginning distributions until the spouse would have turned 72, or follow the 10-year rule, generally fully withdrawing the account balance by the end of the 10th year following the year of death of the account owner

OR

•   Roll over the account to your own IRA

If you inherit an IRA from someone who is not your spouse and who passed away before 2020, you may:

•   Take distributions based on your own life expectancy beginning the end of the year following the year of death

OR

•   Follow the 5-year rule

If you inherited an IRA from someone who is not your spouse and who passed away in 2020 or later and you are a designated beneficiary, you may:

•   Follow the 10-year rule

IRA withdrawal rules for inherited IRAs can be tricky so if you know that someone has named you as their IRA beneficiary, you may find it helpful to discuss potential tax implications with a financial advisor.

How To Calculate RMDs on an IRA

To calculate RMDs on an IRA, you divide the balance of your account on December 31 of the prior year by the appropriate life expectancy factor set by the IRS. The IRS publishes life expectancy tables for RMDs in Publication 590-B, Distributions from Individual Retirement Arrangements (IRAs). You choose the life expectancy table that applies to your situation.

IRA Required Minimum Distribution Table Example

The IRS uses the Uniform Lifetime Table to determine RMDs for people who are:

•   Unmarried account owners

•   Married IRA owners whose spouses aren’t more than 10 years younger

•   Married IRA owners whose spouses are not the sole beneficiaries of their account

Here’s how RMD distributions break down.

Age

 Distribution Period (Years)

 Age

 Distribution Period (Years)
72 27.4 97 7.8
73 26.5 98 7.3
74 25.5 99 6.8
75 24.6 100 6.4
76 23.7 101 6.0
77 22.9 102 5.6
78 22.0 103 5.2
79 21.1 104 4.9
80 20.2 105 4.6
81 19.4 106 4.3
82 18.5 107 4.1
83 17.7 108 3.9
84 16.8 109 3.7
85 16.0 110 3.5
86 15.2 111 3.4
87 14.4 112 3.3
88 13.7 113 3.1
89 12.9 114 3.0
90 12.2 115 2.9
91 11.5 116 2.8
92 10.8 117 2.7
93 10.1 118 2.5
94 9.5 119 2.3
95 8.9 120 and over 2.0
96 8.4

Source: IRS Uniform Lifetime Table

And here’s an example of how you might use this table to calculate RMDs on an IRA.

Assume that you’re 75 years old and have $1 million in your IRA as of last December 31. You find your distribution period on the chart, which is 24.6, then divide your IRA balance by that number.

$1 million/24.6 = $40,650 RMD

You’ll need to recalculate your RMDs each year, based on the new balance in your IRA and your life expectancy factor. You can use an online calculator to figure out RMD on an IRA annually.

Withdrawing Required Minimum Distribution From an IRA

There are two deadlines to know when making RMDs from an IRA: when distributions must begin and when you must complete distributions for the year. The SECURE 2.0 Act introduced some changes to the timing of RMD withdrawals from an IRA.

When Do RMDs Start?

Beginning in 2023, the minimum age at which you must begin taking RMDs rose to 73 (that’s the same age you must begin taking RMDs for 401(k)s, in case you are wondering). The deadline for the very first RMD you’re required to make when you turn 73, is April 1 of the following year. So, if you turned 73 in 2025, then your first RMD would be due no later than April 1, 2026.

Once you make your first RMD, all other RMDs after that are due by December 31 each year. So, using the example above, if you make your first RMD on April 1, 2026, then you’d need to make your second RMD by December 31 of that same year to avoid a tax penalty. Just keep in mind that taking two RMDs in one year could increase your tax burden for the year.

Qualified Charitable Distributions (QCDs)

Qualified charitable distributions (QCDs) are amounts you contribute to an eligible charity from your IRA. QCDs are tax-free and count toward your annual RMD amount, and you can contribute up to $100,000 per year. Using your IRA to make QCDs can lower the amount of tax you have to pay while supporting a worthy cause.

For a distribution to count as a QCD, it must be made directly from your IRA to an eligible charity. You can’t withdraw funds from your IRA to your bank account and then use the money to write a check to your favorite charity.

Note that QCDs are not tax-deductible on Schedule A, the way that other charitable donations are.

How RMDs Are Taxed

RMDs are taxed as ordinary income, assuming that all of the contributions you made were tax-deductible. If you have a traditional IRA, your RMDs would be taxed according to whichever bracket you fall into at the time the withdrawals are made.

With an inherited Roth IRA, withdrawals of original contributions are tax-free. Most withdrawals of earnings from an inherited Roth IRA are also tax-free unless the account is less than five years old at the time of the distribution.

The Takeaway

The IRS requires you to take RMDs on certain types of IRAs, including traditional IRAs and inherited Roth IRAs. Knowing at what age you’re required to take money from an IRA and your deadline for withdrawing it can help you plan ahead and avoid a potentially steep tax penalty.

In general, coming up with a financial plan for your future can help you work toward your retirement goals. You can consider different options for saving and investing, including IRAs, 401(k)s, or other types of savings or investment vehicles, to help determine the best fit for your money.

Ready to invest for your retirement? It’s easy to get started when you open a traditional or Roth IRA with SoFi. SoFi doesn’t charge commissions, but other fees apply (full fee disclosure here).

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FAQ

What happens if you don’t take RMDs from an IRA?

Failing to take an RMD from an IRA on time can result in a tax penalty. The current penalty is generally a 25% excise tax, assessed against the amount you were required to withdraw.

Do you have to take your IRA RMD if you are still working?

You do have to take RMDs from an IRA even if you’re still working. It’s worth noting that the IRS does typically allow you to defer RMDs from a 401(k) while you’re working — however, that rule doesn’t extend to IRAs.

Are you required to use IRA RMD money for specific purposes?

You can use RMDs money in any way that you like. Some common uses for IRA RMDs include medical expenses, home repairs, and day-to-day costs. You can also use IRA RMDs to make qualified charitable donations (QCD), which could minimize some of the tax you might owe. QCDs must be made directly from your IRA to the charity.

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

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.

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Oct
16
2024

IBAN vs SWIFT Code: Differences Explained

By | money, Terminology | Comments Off on IBAN vs SWIFT Code: Differences Explained

In international banking, transactions can involve IBAN codes, which indicate a specific foreign bank account number, and SWIFT codes, which identify a particular financial institution. Depending on the countries and banks involved, sometimes only one of these codes is needed to make an international transfer, and sometimes both. Knowing the difference between these codes — and how and when each is used — can be valuable when transferring funds globally.

Key Points

•   IBAN codes identify specific bank accounts in international transactions, while SWIFT codes identify specific financial institutions.

•   IBANs are up to 34 characters long and include a country code, check digits, a bank identifier, and a basic account number.

•   SWIFT codes are 8 to 11 characters long and include a bank code, country code, location code, and sometimes a branch code.

•   IBANs are used mainly in Europe and other regions, while SWIFT codes have a broader global reach.

•   Both codes may be required for international transfers, depending on the countries and banks involved.

What Is an IBAN?

An IBAN is an International Bank Account Number. This number, up to 34 digits, pinpoints a person’s individual bank account in participating countries.

Because countries operate with different currencies, regulations, and financial institutions, IBANs help standardize cross-border transactions. IBANs can play an important role in getting funds transferred into the correct checking account or savings account.

Each unique alphanumeric IBAN code contains:

•   A two-letter country code

•   Two “check digits” for error detection

•   Up to 30 alphanumeric characters that signify an individual’s bank account (a bank identifier and a basic bank account number)

Roughly 80 countries currently use IBAN numbers when conducting money transfers. The largest collection of these countries is in Europe, but many North African, South American, Caribbean, and Middle Eastern countries participate as well.

IBANs are not used in America. Instead an ABA routing number and a bank account number identify checking and savings accounts. But if you’re wiring money internationally to a country that uses IBANs, you’ll need to know that number.

(Worth noting: Canada, Australia, and New Zealand also don’t use IBANs but instead use their own systems for identifying accounts.)

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Understanding SWIFT Codes

SWIFT stands for Society of Worldwide Interbank Financial Telecommunication, a messaging network through which financial institutions can communicate securely across borders. This is a popular payment network for international wire transfers, but it’s not the only network.

A SWIFT code is a globally accepted standard BIC (Bank Identifier Number) for SWIFT transfers. Essentially, a SWIFT code refers to a specific bank or financial institution during international transfers. In that way, SWIFT codes serve a similar purpose internationally as routing numbers do domestically in the United States.

SWIFT codes are much shorter than IBANs, with between eight and 11 characters. Each contains:

•   The first four digits are a bank code

•   The next two are a country code

•   The next two signify the bank’s main office location

•   If applicable, the final three digits refer to a specific branch code (these are used by large banks with multiple branches in various countries and regions)

Unlike the case with IBANs, U.S. bank customers do typically have SWIFT codes affiliated with their accounts. (Some smaller banks and credit unions may not use SWIFT codes, however.) Your bank’s code will play a role if you are sending money overseas or if you are receiving funds from abroad.

It’s also important to know that there are several countries that are currently not permitted to participate in the SWIFT payment system, such as North Korea, Belarus, and Russia.

Recommended: All You Need to Know About Wire Transfer Fees

Key Differences Between IBAN and SWIFT

The major differences between IBAN vs. SWIFT codes come down to where each is used, what information each contains, and what kinds of transactions each is used in. Here are important points to know:

Geographic Coverage

IBANs are most popular for identifying bank account numbers in the European Union and nearby countries (such as Israel and Turkey), but other countries in South America and the Caribbean have adopted these codes as well. The United States, again, does not use IBANs; instead, bank account numbers and routing numbers are used domestically.

The SWIFT system has a greater global reach. It is the most popular network for identifying banks when managing international transfers in many countries in North America, the European Union, Africa, Central and South America, as well as China and India, and more. That said, not every nation uses SWIFT codes, either because they choose not to participate or are prohibited (as noted above) from doing so.

Information Contained

SWIFT vs. IBAN codes indicate two separate pieces of banking information, as mentioned above:

•   SWIFT codes, eight to 11 characters in length, can identify a specific bank or financial institution during international money transfers.

•   IBAN codes, up to 34 characters, can identify specific bank accounts during cross-border money transfers.

Usage in Transactions

Which codes you’ll need to make an international transfer will be determined by the code systems used by the countries and financial institutions sending and receiving the money. Sometimes, you’ll only need one of these codes, but often you’ll need a SWIFT and an IBAN code for an international bank wire. (They are separate identifiers, so it’s not a matter of, say, converting IBAN to SWIFT. Each conveys important financial information.)

That said, here are some scenarios you might encounter:

•   If you’re sending money to someone in a country that doesn’t use IBAN, you’ll have to use another way to identify the bank and their checking account.

•   If someone in a foreign country wants to transfer funds to you, they will not have an IBAN code associated with your account and will need to use your bank account and routing number and your bank’s SWIFT code, if available.

•   If you are trying to move money internationally to a country where you can’t use a SWIFT code, you’ll need to use another network to send money electronically. You might explore whether fintech options are available.

Recommended: How to Send Money to Someone Without a Bank Account

Combining IBAN and SWIFT

As mentioned, for many international transfers, you’ll need to know both the IBAN and SWIFT code involved. It really depends on which country you’re wiring money to. In some instances, you may only need one of the numbers. However, in this case, you may need to satisfy other requirements a country has established for transferring funds, as they might use other identifiers.

The Takeaway

SWIFT vs. IBAN codes are used to standardize international transfers and help ensure secure payments. SWIFT information identifies a particular bank in a country, such as in the U.S. or elsewhere, while IBAN characters point to a specific bank account in countries using the IBAN system. When sending funds from the U.S. to someone in a foreign country, you will likely need both of these codes to complete the transfer. U.S. banks typically have SWIFT codes that are used when they are receiving cross-border funds to be directed to a client’s account.

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FAQ

Can a bank have multiple SWIFT codes?

It’s possible for a bank to have multiple SWIFT codes. Bigger banks with multiple branches across the globe may use three extra digits at the end of their code to identify a specific branch.

Is IBAN used in the United States?

The United States does not use IBAN codes. Instead, the U.S. uses a bank account number and routing number to identify financial institutions and the specific accounts within them. However, if you live in the U.S. and are wiring money internationally, you may need to know the recipient’s IBAN code, depending on what country they live in.

How do I find my IBAN or SWIFT code?

If you have a bank account in the U.S., you will not have an IBAN code affiliated with it. If you have a bank account outside the U.S. in a country that uses IBANs, you can typically find an IBAN code on your bank statement or on the bank’s website. If you are wiring money to someone who lives in a country using the IBAN system, you can ask for their IBAN code when discussing the details of the wire transfer.

You should also be able to find a bank’s SWIFT code on its website or on a bank statement (if you are a client). If you’re unable to locate it, you might do a quick online search or call the bank’s customer service number.

What happens if I use the wrong code for a transfer?

If you use the wrong code for a wire transfer and it cannot be completed, the money may be returned to your account. In some cases, you may be charged a fee for this. However, there is the slight possibility that the transfer could be completed and the money sent to the wrong account. That is why, if you know you used the wrong code, it’s important to contact your financial ASAP and see if you can request a cancellation or reversal of the transfer.

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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 4.30% 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 10/8/2024. There is no minimum balance requirement. Additional information can be found at https://www.sofi.com/legal/banking-rate-sheet.

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

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16
2024

What Is a Wire Transfer? A Complete Guide to Fast Money Transfers

By | Family Finances, money, Terminology | Comments Off on What Is a Wire Transfer? A Complete Guide to Fast Money Transfers

Wire transfers can be a convenient and safe way to send and receive money electronically, both domestically and internationally. While wire transfers serve a number of purposes, they can be especially good if you need a secure way to send cash to someone overseas or if you need to transfer a large sum, such as the down payment on a house.

Key Points

•   Wire transfers are electronic money transfers between bank accounts, particularly useful for large sums and international transactions.

•   Domestic wire transfers are typically completed within one business day, while international wire transfers may take up to five days.

•   Wire transfers generally differ from ACH transfers, P2P payments, and checks in terms of speed, fees, and convenience.

•   Wire transfers are considered secure but can be more costly, with fees ranging from $0 to $50.

•   To send a wire transfer, you’ll need the recipient’s bank details and sender’s identification, and once initiated, these transfers cannot be canceled once initiated.

Wire Transfers Explained

A wire transfer, as the name suggests, is a method of transferring money from one bank account to another electronically. Wire transfers allow you to move large sums of money both within the United States and internationally. Wire transfers are convenient, but they are not instantaneous:

•   Domestic wire transfers are typically completed within one business day.

•   International wire transfers usually take a few business days; in some cases, up to five days.

Wire transfers allow funds to flow between individuals and/or businesses, and they may be facilitated by banks or a nonbank money transfer service, such as Western Union or Wise.

It’s worth noting, however, that wire transfers can be a more expensive way to move money out of or into a bank account. Depending on whether they are domestic or international and the bank or service you use, the charge could be anywhere from $0 to $50. Another point to know: Wire transfers typically can’t be canceled, so it’s vital to double-check all details carefully when making one.

How Wire Transfers Differ From Other Payment Methods

Wire transfers aren’t the only way to send money. Other options include:

•   ACH transfers, which electronically move funds from one bank to another

•   Peer-to-peer (P2P) payment services, such as PayPal, Venmo, and Cash App

•   Traditional cash or check payments

•   Money orders and cashier’s checks

Here are some considerations regarding how wire transfers compare to the alternatives above:

•   Speed: Wire transfers are generally faster than writing a check, but P2P payments may be speedier, particularly if you pay a fee for instant transfers.

•   Convenience: While many wire transfers can be done online, you may be required to visit a bank branch or retail location in person in some cases. ACH transfers and P2P payments, however, can be done from a smartphone or computer, wherever you may be.

•   Fees: Senders often pay fees for wire transfers, while recipients may or may not need to pay a fee. Money orders and cashier’s checks also typically come with fees for the sender, and P2P payment apps usually charge for instant transfers.

•   Amounts: Wire transfers typically allow you to send the largest sum of money (upwards of $100,000), which makes them popular in real estate transactions. P2P payment apps usually have daily and weekly limits, and money orders tend to max out around $5,000.

Recommended: How to Send Money to Someone Without a Bank Account

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How Do Wire Transfers Work?

The process for completing a wire transfer is usually pretty straightforward:

•   The sender visits a financial institution or a wire transfer service location or initiates the transaction online.

•   They provide information about themself and the recipient.

•   To initiate or complete the transfer, the sender may also need to pay a fee.

•   The bank or service provider will communicate with the recipient’s institution to verify the transaction. The funds will then be deposited into the recipient’s account, where the recipient can access the money.

•   In some cases, the recipient may need to pay a fee as well.

Domestic vs. International Wire Transfers

Domestic wire transfers refer to electronic funds transfers between two financial institutions in the United States. These generally take a single business day to complete and are more affordable, with the sender often paying between $15 and $30 and the recipient paying between $0 and $15.

International wire transfers are more complex, given different countries’ regulations and currencies. Expect the fees to be higher for international wire transfers, often between $35 and $50 for the sender and $0 and $30 for the recipient. In addition, prepare for these to take a few days (even up to five) to process.

Information Needed for a Wire Transfer

To complete an outgoing wire transfer (that is, to send money to someone else via wire), you’ll need to supply some information, including:

•   The recipient’s full name and contact information (such as their address and phone number)

•   The recipient’s bank account and routing numbers (or, for international transfers, SWIFT/BIC and IBAN numbers).

As the sender, you’ll also need to provide:

•   Your name and contact information (often along with a government-issued ID or driver’s license)

•   The funds for the transfer (either physical money or your bank account information)

•   Your name and phone number

•   Any fees to cover the wire transfer service.

Recommended: ACH vs. Wire Transfers: Which Should You Use?

Advantages and Disadvantages of Wire Transfers

Wire transfers have both pros and cons to consider vs. other payment methods. The table below breaks down some of the benefits and drawbacks of using a wire transfer:

Pros

 Cons
You can wire large sums of money. Wire transfers come with fees for the sender and sometimes the recipient.
Domestic wire transfers are fast, usually within one day. International wire transfers take more time, typically taking a few days.
Wire transfers allow you to send money internationally. You can’t reverse a wire transfer once it’s initiated.
Wire transfers are generally considered safe. Fraudsters have developed a number of bank scams that utilize wire transfers.

Recommended: Pros & Cons of Online and Mobile Banking

Types of Wire Transfer Services

There are two main types of wire transfer services: bank and nonbank.

Bank Wire Transfers

A traditional bank wire transfer requires that both the sender and the recipient have a bank account. The sender will need to know the recipient’s bank account information to transfer money from their own bank account to the recipient. You typically either visit a local bank branch to initiate the wire transfer or use your bank’s online platform. Some banks and credit unions may even waive fees (or offer lower fees) to members.

After initiating the wire transfer, the sender’s and the recipient’s financial institutions will communicate through an electronic system, such as SWIFT, to securely complete the transfer.

Nonbank Wire Transfer Services

You don’t have to work directly with a bank to wire money. You can also use a nonbank transfer service, such as Western Union. To complete the transfer, you may visit a service location in person, fill out a form, and physically provide the money to the wire transfer service provider. Another option that’s often available is to complete the process online, drawing funds from your bank account. The funds can then be made available for pickup in person or be sent to the recipient’s checking account or to a mobile wallet on their phone.

SWIFT and IBAN in International Transfers

International wire transfers require a little more information than domestic transfers. In addition to providing your and the recipient’s basic information (such as name and account details), you’ll typically need to know the recipient’s SWIFT and IBAN codes:

•   The SWIFT (Society for Worldwide Interbank Financial Telecommunication) code identifies the recipient’s bank. In this way, it acts like a routing number, but they are not the same. You may also see this referred to as a BIC (Bank Identifier Number).

•   The IBAN (International Bank Account Number) code identifies the recipient’s account at their bank.

The U.S. and Canada do not use IBANs. For instance, someone wiring money from another country to the U.S. would instead need to know the recipient’s bank account number and routing number. Australia and New Zealand also use different codes.

Wire Transfer Fees and Costs

Wire transfer fees vary depending on the financial institution or nonbank wire transfer service you use, but they typically range anywhere between $0 and $50. Senders almost always must pay a wire transfer fee, though some banks and credit unions don’t charge fees to send, at least domestically. Recipients sometimes have to pay a fee as well, particularly for international wire transfers.

Typical wire transfer fees are as follows:

•   Outgoing domestic wire transfers: $0 to $30

•   Incoming domestic wire transfers: $0 to $15

•   Outgoing international wire transfers: $35 to $50

•   Incoming international wire transfers: $0 to $30

The Takeaway

Wire transfers can be an effective way to electronically transfer money between individuals and/or businesses, both domestically and internationally. While you’ll often pay a fee to initiate a wire transfer (and sometimes to receive one), this payment method has several advantages, such as its speed and the ability to send large sums of money.

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 4.30% APY on SoFi Checking and Savings.

FAQ

How long does a wire transfer take?

Domestic wire transfers typically process within 24 hours; if you time it right, the transfer may even complete in the same day. International wire transfers take a little longer, usually between one and five business days, depending on the country to which you’re wiring money.

Are wire transfers safe?

Wire transfers are typically considered to be a safe way to send money, as long as you know the recipient and have their correct information. However, many fraudsters use wire transfers in a number of common bank scams. To avoid this risk, never wire money to a person you don’t know, and educate yourself on common fraud tactics.

Can I cancel a wire transfer?

You cannot cancel a wire transfer once you have initiated it. Thus, you should always make sure all the information is correct before initiating a wire transfer.

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SoFi members with direct deposit activity can earn 4.30% 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 4.30% 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 4.30% 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 10/8/2024. There is no minimum balance requirement. Additional information can be found at https://www.sofi.com/legal/banking-rate-sheet.

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

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

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

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.

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16
2024

Credit Card Statement Balance vs Current Balance

By | Credit, Debt Payoff, personal_loan, Terminology | Comments Off on Credit Card Statement Balance vs Current Balance

A credit card statement balance reflects your transactions (and the amount owed) during a billing cycle, while your current balance reveals your real-time activity and how much you may owe at a given moment.

When you buy with credit, it’s like taking out a short-term loan to make a purchase. If you’re putting charges on your credit card throughout the month, the value of that loan — your “current balance” — fluctuates. When your billing cycle ends and the amount due is tallied, that equals your statement balance.

Learn more about how these two numbers can differ, along with a few tips for paying down your credit cards.

Statement Balance vs Current Balance

Each credit card issuer may have a slightly different method of presenting and even calculating the numbers on your monthly statement, whether you get a hard copy or check it online or in your card’s app. Still, you will likely see one number called the statement balance and another called the current balance.

•   The statement balance means all transactions during a designated period, called a billing cycle. If a billing cycle covers one month and starts on the 15th of each month, this statement balance will include all of the activity on an account between, say, January 15 and February 15, in addition to any previously unpaid balances. Until the close of the next billing cycle, the statement balance will remain unchanged.

•   ‘Your current balance means the running total of all transactions on your account. It changes every time you swipe your card to pick up Chinese takeout or return a T-shirt that didn’t fit right.

To understand the interplay between the statement balance vs. the current balance, consider this example:

•   ‘On February 15, the statement balance is $1,000, meaning that the total charges between January 15 and February 15 add up to $1,000.

•   ‘Two days later, you make a $50 charge to the card. Your current balance will reflect $1,050 while the statement balance remains the same.

In this case, the current balance is higher than the statement balance. The reverse can also be true, and the current balance can potentially reflect a smaller number than the statement balance.

Recommended: Personal Loan vs Credit Cards

What to Know About Paying Off Your Credit Card

As each billing cycle closes, you will be provided with a statement balance. You will also likely be provided with a due date. At the time you make a payment, you may decide to pay off the statement balance, the current balance, the minimum payment, or some other amount of your choosing.

Paying the Statement Balance

If you regularly pay your statement balance in full, by its due date, you likely won’t be subject to any interest charges. Most credit card companies charge interest only on any amount of the statement balance that is not paid off in full.

The period between your statement date and the due date is called the grace period. During this period, you may not accumulate interest on any balances. It’s worth mentioning that not every credit card has a grace period. It’s also possible to lose a grace period by missing payments or making them late. If you have any questions about whether your card has a grace period, contact your credit card company.

Paying the Current Balance

If you’re using your credit card regularly, it is possible that you will use your card during the grace period. This will increase your current balance. At the time you make your payment, you will likely have the option to pay the full current balance.

If you have a grace period, paying the current balance is not necessary in order to avoid interest payments. But paying your current balance in full by the due date can have other benefits. For example, this move could improve your credit utilization ratio, which is factored into credit scores.

Paying the Minimum Monthly Payment

Next, you can pay just the minimum monthly payment. Generally, this is the lowest possible amount that you can pay each month while remaining in good standing with your credit card company — it is also the most expensive. Typically, the minimum payment will be an amount that covers the interest accrued during the billing cycle and some of the principal balance.

Making only the minimum payments is a slow and expensive way to pay down credit card debt. To understand how much you’re paying in interest, you can use a credit card interest calculator. Although minimum monthly payments are not a fast way to get rid of credit card debt, making them is important. Otherwise, you risk being dinged with late fees.

Missing or making a payment late can also have a negative impact on your credit score.So, if the minimum payment is all you can swing right now, it’s okay. Just try to avoid additional charges on your card.

Making a Payment of Your Choice

Your last option is to make payments that are larger than the minimum monthly payment but are not equal to the statement balance or the current balance. That’s okay, too. You’ll potentially be charged interest on remaining balances, but you’re likely getting closer to paying them off. Keep working on getting those balances lowered.

Recommended: Credit Card Closing Date vs Due Date

Your Credit Utilization Ratio

The balance you currently carry on your credit card can impact your credit utilization ratio. Credit utilization measures how much of your available credit you’re using at any given time.

This figure is one of a handful of measures that are used to determine your credit score — and it has a big impact. Credit utilization can make up 30% of your overall score, according to FICO® Score.

Not every credit card reports account balances to the consumer credit bureaus in the same way or on the same day. Also, the reported number is not necessarily the statement balance. It could be the current balance on your card, pulled at any time throughout the billing cycle. Again, it may be worth checking with your credit card issuer to find out more. If your issuer reports current balances instead of statement balances, asking them which day of the month they report on could be helpful.

Sometimes, the lower your credit card utilization is, the better your credit score. While you may feel in more control to know which day of the month that your credit balance is reported to the credit bureaus, it may be an even better move for your general financial health to practice maintaining low credit utilization all or most of the time.

If you are worried about your credit utilization rate being too high during any point throughout the month, you can make an additional payment. You don’t have to wait until your billing cycle due date to reduce the current balance on your card.

According to Experian®, one of the credit reporting agencies, keeping your current balance below 30% of your total credit limit is ideal. For example, if you have two credit cards, each with a $5,000 limit, you have a total credit limit of $10,000. To keep your utilization below 30%, you’ll want to maintain a combined balance of less than $3,000.

Some financial experts recommend that keeping one’s credit utilization closer to 10% or less is an even better move.

Recommended: Personal Loan Calculator

3 Tips for Managing Your Credit Card Balance

If you’re struggling to juggle multiple credit cards and make all of your payments, here are some tips that may help.

1. Organizing Your Debt

A great first step to getting a handle on your debt is to organize it. Try listing each source of debt, along with the monthly payments, interest rates, and due dates. It may be helpful to keep this list readily available and updated.

Another option is to use software that aggregates all of your finances, such as your credit card balances and payments, bank balances, and other monthly bills. Your bank may offer financial insights tools as well, which can be a great place to start with this endeavor.

When it comes to managing your credit card debt, keep in mind that staying on top of your due dates and making all of your minimum payments on time is one of the best ways to stay on track.

You can also ask your credit card providers to change your due dates so that they’re all due on the same day. Pick something easy to remember, such as the first or 15th of the month.

2. Making All Minimum Payments, But Picking One Card to Focus On

While you’re making at least the minimum payments on all your cards, pick one to focus on first. There are two versions of this debt repayment plan:

•   ‘With the debt avalanche method, you attack the card with the highest interest rate first.

•   ‘With the debt snowball method, you go after the card with the lowest balance.

The former strategy makes the most sense from a mathematical standpoint, but the latter may give you a better psychological boost.

If and when you can, apply extra payments to the card’s balance that you’re hoping to eliminate. Once you’ve paid off one card, you can move to the next. Ultimately, you’re trying to get to a place where you’re paying off your balance in full each month.

3. Cutting Up Your Cards

Whether you do this literally or not, a moratorium on your credit card spending can be a great strategy. If you are consistently running a balance that you cannot pay off in full, you may want to consider ways to avoid adding on more debt.

A word of warning: Don’t be tempted to cancel all your cards. This can negatively affect your credit score. However, if you feel you really have too many credit cards to manage — say, more than three or four — cancel the newest credit card first. This will ensure your credit history length is unaffected.

In addition to these steps, there are other options for dealing with credit card debt, such as debt consolidation, which can involve taking out a personal loan (typically, at a lower rate than your credit card interest rate), working with a certified credit counselor, and/or negotiating with your creditors to see if you can pay less than your full balance.

The Takeaway

Your credit card statement balance is the sum of all your charges and refunds during a billing cycle (usually a month), plus any previous remaining balance. It changes monthly with each statement. Your current balance is updated almost immediately every time you make a purchase. It is the sum of all charges to date during a billing cycle, any previous remaining balance, and any charges during the grace period. Whenever you can, pay off the full statement balance to avoid interest charges.

Trying to pay off credit card debt? Taking out a personal loan can consolidate all of your credit card balances.

Think twice before turning to high-interest credit cards. Consider a SoFi personal loan instead. SoFi offers competitive fixed rates and same-day funding. Checking your rate takes just a minute.


SoFi’s Personal Loan was named NerdWallet’s 2024 winner for Best Personal Loan overall.

FAQ

Should I pay my statement balance or current balance?</h3>

It can be wise to always aim to pay off your statement balance every month by the due date to avoid pricey interest charges. While not necessary, paying off the current balance can help lower your credit utilization ratio, which can in turn help build your credit score.

Why do I have a statement balance when I already paid?

Your statement balance reflects all the charges you have made, any interest and fees, and credits that occurred during a single billing cycle. Once that statement balance has been captured, it likely won’t be updated until the next billing cycle. Your credit card’s balance may well change, however, during this period as you use your card.

What happens if you don’t pay the full statement balance?

If you don’t pay your total statement balance before the end of what’s known as your grace period (the days between the end of your billing cycle and your payment’s due date), both your current balance and any new purchases that you make will start to accrue interest right away.

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

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

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

SoFi Relay offers users the ability to connect both SoFi accounts and external accounts using Plaid, Inc.’s service. When you use the service to connect an account, you authorize SoFi to obtain account information from any external accounts as set forth in SoFi’s Terms of Use. Based on your consent SoFi will also automatically provide some financial data received from the credit bureau for your visibility, without the need of you connecting additional accounts. SoFi assumes no responsibility for the timeliness, accuracy, deletion, non-delivery or failure to store any user data, loss of user data, communications, or personalization settings. You shall confirm the accuracy of Plaid data through sources independent of SoFi. The credit score is a VantageScore® based on TransUnion® (the “Processing Agent”) data.

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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16
2024
fireplace white

How to Winterize a House

By | Budgeting & Goals, Home Ownership, personal_loan | Comments Off on How to Winterize a House

As winter approaches, it may make sense — practically and financially — to prepare for the season ahead. Seasonal weather can transform minor issues into major ones, and cracks and holes around doors and windows can allow the money you spend on heating to literally fly away.  

Here, some smart moves for protecting your home, from the top of the chimney to the water heater in the basement. Plus, you’ll learn ways to finance improvements that will help get (and keep) your property in top condition.

Ways to Winterize a House

While the steps to winterize a home may differ in Alaska vs. Texas, it still helps to get ahead of any issues that may arise. No one wants to wind up with a leaky roof or an ice-cold home during a cold snap. 

It can be a smart move to start planning to winterize several months before the season arrives. The timing of the first frost varies from state to state, and of course, there are some regions of the U.S. that enjoy mild temperatures year-round. It may help to check the National Weather Service’s data that forecasts the first frost for each state to assist in your winterization preparation timeline. 

The following tips for winterizing a house may help you reduce future repair costs and heating bills. 

Protect Pipes or Pay the Piper

When deciding how to winterize a house, you may first consider how to address plumbing leaks and other issues.

Angi.com reports that the average burst pipe repair costs $500, but charges of up to $3,000 are not uncommon. Pipes in unheated areas of a home, including basements, attics, and garages, are among the most likely to sustain damage. But pipes running through exterior walls (including those in kitchens and bathrooms) in the heated parts of your home can also freeze.

Protecting the plumbing is clearly a situation where being proactive may save you a bundle. Pipe insulation can range from $0.50 to $1.50 or more per foot depending on whether you opt for tubular foam, spray foam, fiberglass, rubber or other kinds of insulation. Compare that to the $3,000 figure above to repair a significant leak, and the rewards of winterization can quickly become clear.

Adding insulation to attics (typically a $1,500 to $6,000 job), crawl spaces, and basements can help to keep those areas warmer, which can also help to keep pipes from freezing. (Yes, many houses have pipes in the attic.) What’s more, the E.P.A. says that homeowners can save up to 15% on heating and cooling costs by pumping up their home’s insulation. The higher an insulation’s R value, the better it may keep your home toasty. It can be a wise move to check the U.S. Department of Energy’s map and guide for more details on this topic.

Address HVAC Maintenance and Repair

Nobody wants the heating system to perform poorly during the winter — much less have it break down.

It’s a good idea to schedule a professional maintenance appointment (about $300 on average), including a filter change, before freezing temperatures arrive. Afterward, it’s best to change the filter at least every 90 days to keep your system operating optimally.

Additionally, maintenance and repairs to the heating, ventilation, and air conditioning (HVAC) system and cleaning out vents can improve airflow in your home.

One good move (if you haven’t already made it) can be to install a smart thermostat. If people in a home are away during reasonably regular times of the day or you want to lower the thermostat at night, it can make sense to install a programmable thermostat to save on energy costs. You could quickly shave $140 off your annual energy bill and plunk that into a high-yield savings account or your emergency fund.

It may be time to consider a new HVAC system for some people. The Department of Energy’s Energy Star program provides tips to homeowners to decide if replacing an HVAC system would be a good move.

Signs that it might be time to replace the unit include:

  •   The heat pump is more than 10 years old.
  •   The furnace or boiler is more than 15 years old.
  •   The system needs frequent repairs, and/or energy bills are increasing.
  •   Rooms in the home can be too hot or too cold.
  •   The HVAC system is noisy.

    And if you are contemplating making a move to, say, a heat pump or other new system, definitely do an online search about rebates and tax deductions that may be available. The Internal Revenue Service (IRS) shares some details on the IRS website.

    Check the Roof, Gutters, and Chimney

    Before winter hits, clearing the roof and gutters of leaves and other debris will help prevent snow and ice from building up and damaging the gutters — or, worse, the roof.

    If ice or snow gets beneath roof shingles, it can lead to leaks and interior water damage. You may want to check if you need to replace your gutters. Do any shingles need to be glued down or replaced? Do any small leaks in these areas need to be repaired before they become big ones?

    Plus, a chimney inspection can make sense before winter arrives. A chimney could have an animal nest lodged within, and there can also be structural problems. If the home has a wood-burning fireplace, creosote buildup can create both a fire and health hazard, so keeping up with regular cleaning is also important. With a gas fireplace, a blocked chimney could lead to carbon monoxide backup, which can be life-threatening.

    Prices for these services can range widely, with a chimney inspection costing an average of $450 and a cleaning costing $254 on average.

    Addressing all these issues before winter comes can help you prevent damage, reduce future repair costs and energy bills, and avoid a potentially hazardous situation.

    Examine the Water Heater

    You may want to check your water heater before temperatures plunge to avoid a chilly shower during winter. The usual lifespan of a heater is eight to 12 years, but various factors can impact that. Rust and corrosion can occur and lead to leaks, so it’s in your best interest to check on it regularly. 

    A professional can examine your water heater, bleed the system to remove trapped air and mineral deposits, clean the pipes, and recommend and do repairs.

    How much could this important aspect of home maintenance cost? The average repair can cost $600, according to Angi.com, and a replacement can run from $882 to $1,800 or higher.

    Think About Outdoor Equipment and Plants

    Preventive winterization isn’t just about your home. It can also be a good time to take care of your outdoor equipment, like a lawn mower or other power tools, to protect them as well. Another smart move: Take care of plants that could benefit from moving indoors. Some pointers:

    •   Draining the oil from the appropriate equipment and taking it to a local recycling or hazardous-waste site can be your first step.

    •   You also want to take care of general maintenance on equipment, including replacing old parts. That way, when spring rolls around and you need to mow your lawn or trim your bushes, you should be ready to go.

    •   Additionally, inspect gas caps to ensure O-rings are intact on this kind of equipment. If not, get replacements from the manufacturer. Also, replace filters and lubricate what needs lubricating.

    •   You may need to bring in the plants you initially placed outside to enjoy the summer sun when temperatures drop. Before doing so, check the plants for mealybugs, aphids, and other insects. Remove them and treat plants as needed so the problem doesn’t spread to other plants. Read up on how to get plants acclimated to the indoors and give them the best shot at survival over the winter. 

    •   You may want to prune and repot some plants too. An online search of reputable sources, specific to the kinds of plants you have, will likely provide good advice. 

    Recommended: How HELOCs Affect Your Taxes

    What’s the Cost of Winterizing a Home?

    The cost of winterizing your home will vary greatly depending on your home’s size, age, needs, location (pricey suburb vs. a more affordable one), and climate. You might spend a couple of hundred dollars or (if you need a major roof repair or HVAC replacement) several thousand dollars or more.

    Pipe insulation, as noted earlier, can be relatively cheap: as little as 50 cents per linear foot. If a homeowner decides to insulate further, perhaps an attic, costs can range between $1,500 to $6,000 or more.

    To hire someone to clean gutters, you may pay an average of $167. An HVAC inspection might cost $300, while the cost to replace an HVAC system averages $7,500 but could tip into a five-figure price tag, depending upon the size of the home and type of system, among other factors.

    Yes, there is a huge variation in prices, but you probably want to protect your home. It’s not only your shelter; it’s also likely to be your biggest financial asset. To that end, there are websites that allow a homeowner to enter a ZIP code and get an estimate of what a winterizing activity may cost. It can make sense to get quotes from local professionals to get an exact price, compare proposals and references, and then budget accordingly once you are ready to take the next steps.

    Financing Winterization Projects

    Some people pay for their home winterization costs out of pocket, while others may decide to get a home improvement loan. 

    If you’re leaning toward a loan, there are options, such as different types of home equity loans. These secured loans — which include a home equity line of credit (HELOC), a home equity loan, and a cash-out refinance — use your home as collateral for the loan. 

    Another option is to get an unsecured loan, such as a personal loan, to finance your costs. 

    Here, take a closer look at two popular options, a HELOC and a personal loan.

    A HELOC, as noted, uses your home as collateral. For this to be an option, there needs to be enough equity in the property to borrow against it. The equity is your property’s current value minus the amount remaining on your mortgage. Some points to consider: 

    •   Usually, you will need at least 15% to 20% equity. If you have that much, and the loan amount required is large, it could make sense to apply for a HELOC. 

    •   You can typically borrow up to 85% of your equity.

    •   The way a HELOC works is you have a draw period (typically 10 years) during which you withdraw funds up to your limit as needed. Then, you enter the repayment period, which is often up to 20 years, during which you pay back the amount you’ve used. 

    •   Typically, HELOCs have variable rates, but fixed-rate options may be available. Also, since these are secured loans, meaning your property acts as collateral, the interest rates may be lower than those for a personal loan. 

    •   Another plus is that in some cases, interest payments may be tax-deductible if the funds are used in the way specified by IRS guidelines.

    •   An important note: A major downside of a HELOC (or any loan with your property as collateral) is that if you default on your loan, the lender could seize your house. 

    •   Also, the process of securing a HELOC can take weeks, as it usually involves a home appraisal and other steps.

    A personal loan can make sense for recent homebuyers who haven’t built enough equity or those who don’t want to use their home as collateral. Details to note:

    •   For people contemplating both small and large projects, a personal loan may make sense; the amounts available typically run from $1,000 or $5,000 to $100,000. 

    •   Unlike with a HELOC, there is typically no tax deduction possible for the interest you pay on these loans. 

    •   A personal loan for home improvements (aka a home improvement loan) typically has a fixed interest rate, but variable-rate loans are often available, too.

    •   The loan usually provides a lump sum, and then principal and interest are paid off (most often with monthly payments) over a term of one to seven years.

    •   Applying for and receiving money from an unsecured personal loan is typically much faster than with a HELOC, partly because no appraisal is required for the loan. Lenders may offer same-day approval, with funds becoming available just a few days after.

    •   Having an excellent credit score can help a borrower get approved or receive favorable loan terms. Those with lower credit scores will likely pay a higher interest rate.

    Deciding which type of funding might be best for your home winterization needs will depend on many factors. It’s worthwhile to shop around and compare offers so you can find the right financial product to suit your situation. It’s also wise to familiarize yourself with how to apply for a loan so you can know what to expect and how long the process will take.

    Recommended: Personal Loan Calculator

    The Takeaway

    Preparing your home for winter weather can be an important step to protect your property, hopefully heading off major repairs and potentially reducing your energy bills. Such steps as cleaning your gutters, having your HVAC system inspected, and adding insulation can be worthwhile. 

    Winterizing your house can involve a wide range of costs. Fortunately, there are usually ways to finance home improvement projects, such as home equity loans (including HELOCs) and personal loans, depending on your needs.

    Think twice before turning to high-interest credit cards. Consider a SoFi personal loan instead. SoFi offers competitive fixed rates and same-day funding. Checking your rate takes just a minute.


    SoFi’s Personal Loan was named NerdWallet’s 2024 winner for Best Personal Loan overall.

    FAQ

    What do I need to do to winterize my house?

    Some important steps to winterize your house can include cleaning the gutters, inspecting the roof and attic, adding insulation (both to prevent heat loss and protect pipes), having your chimneys checked, servicing your HVAC system, and prepping your outdoor equipment and plants for the colder weather.  

    How do you close up a house for the winter?

    If you are closing up a house for the winter, it’s wise to get necessary inspections done (such as the roof and HVAC system); clean out gutters; shut off the water wherever possible to avoid pipes freezing and bursting; set the thermostat to no less than 55 degrees Fahrenheit; unplug appliances; fill exterior holes that could allow critters inside; and move plants and outdoor equipment inside.

    How do you winterize a house so pipes don’t freeze?

    It’s wise to set your home’s thermostat to no lower than 55 degrees Fahrenheit at any time of day. Insulating pipes well, especially ones near the home’s exterior, can also help prevent pipes from freezing.

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

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

    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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