May
30
2024

Is Investing in Art a Good Idea?

By | Growing Wealth, invest, Investing | Comments Off on Is Investing in Art a Good Idea?

Investing in art can be a good idea, but there are a number of options and factors to take into account, such as: the type of art investment you might choose (i.e. art funds vs. individual works of art), the art market climate, your familiarity with artists and trends in the art world, and more.

Generally speaking, art is considered an alternative investment. The art market does not move in sync with traditional stock and bond markets, and therefore owning art in some capacity can provide portfolio diversification. But like any alternative asset, investing in art also comes with risks.

The art market is highly illiquid, art itself is not well regulated, collectors’ tastes are fickle — and thus what determines the value of certain works of art can be harder to predict than, say, shares of stock. So while investing in art could be a smart move, it requires careful research and a deep understanding of this asset class.

How Big Is the Art Market?

Most people are familiar with the high-priced sales of some pieces of art. Works by well-known and historically revered artists can sell for millions — as can contemporary works by artists who are increasingly popular. But despite a few big headliners, the art market is fairly small.

According to a 2023 industry report, global art sales increased by a modest 3%, to $67.8 billion in 2022. Sales were more robust in the United States in 2022, with 8% growth to $30.2 billion year over year. The U.S. is the world’s largest art market, with the U.K. and China being second and third largest.

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Is Art a Good Investment?

Whether art is a good investment to a large degree depends partly on the work of art. For example, just as there are blue-chip stocks, there are blue-chip artworks that typically command higher prices and offer the potential for steady appreciation (although given the volatility of the art market, there are no guarantees).

But investing wisely in art also depends on the investor, and the vehicles they choose. For example, investing in individual art — similar to investing in individual stocks — requires a deep familiarity with that product and its market, as well as understanding the risks involved.

While you can invest in individual works of art, the value of any piece of art depends on its rarity, whether the artist is in demand, the historical and cultural significance of the work, as well as trends and market conditions.

However, these days investors can also choose to invest in art through art-related funds (similar to mutual funds), and fractional shares of art, which is analogous to investing in fractional shares of stock.

It’s also important for would-be investors to understand the role of collectors.

Art Collectors vs. Art Investors

The difference between art collectors and art investors is important to grasp. Most types of asset classes attract investors alone (with some exceptions, e.g. collectibles). Typically you don’t hear about people collecting stocks or mutual funds, for example.

In the case of the art market, however, collectors can play a role in art market trends as well as valuations. While investors, particularly high net-worth investors, may also influence sales, many collectors are long-time participants in the art market with years of familiarity with the ins and outs of many sectors, artists, dealers, galleries, domestic and international art fairs, and more.

Collectors may be steeped in a certain era or style (e.g. medieval religious statuary or Impressionist paintings), and committed to owning works long-term — for decades, or even generations.

By contrast, art investors may aim to acquire works that will gain value in a relatively short period (i.e. within a few years). This is where different types of art investment vehicles can come into play.

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What Makes a Good Art Investment?

Investing in art requires a certain mindset, and doing your due diligence to size up what constitutes the best opportunities for you, depending on your goals. It’s also important to understand some of the newer investment vehicles.

Individual Works

Investing in individual works requires knowledge of the artist, their current status (e.g. are they in demand or have they fallen out of favor?), the relevance or importance of a given work, and a sense of whether it’s overvalued or undervalued.

The risks of choosing individual works include the possibility of buying a fraudulent piece, the cost of owning and maintaining the work (including storage and insurance), and the uncertainty of knowing whether any given work will hold its value.

Buying individual works can also come with added charges, similar to investment fees (e.g. commissions and other costs). And given the fragility of most art, there is also the risk of physical damage or total loss.

Fractional Shares of Art

Owing to the high cost of purchasing and owning blue-chip works of art, it’s possible to buy fractional shares of art. This option is relatively new, but fractional shares of art are available on a growing number of platforms.

There are various systems for buying fractional art shares. One common way it can work: Investors purchase fractional shares of a work by a specific artist. The platform handles the maintenance and storage of the art, which is held for a period of time and then sold, ideally for a profit. If the sale is profitable, investors get a percentage of the gain, net of fees, commensurate with the percentage of the work they own.

The risk of buying fractional shares of art is that, as with any investment, there are no guarantees of a return. In addition, this is a financial strategy — fractional owners never have the pleasure of actually possessing the work.

Art Funds

Similar to traditional mutual funds and ETFs, an art fund is a type of pooled investment fund. But unlike conventional funds, art funds tend to be a long-term proposition. Art funds are structured typically as closed-end funds, but with a twist: investors typically contribute their capital over a period of three to five years, often with no returns for another specified time period (terms vary).

These funds are highly illiquid, and (in addition to the unpredictability of the art market itself) there are substantial risks to locking up your capital for what could be years, for an unspecified return upon redemption.

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Risk Tolerance

Individual investors interested in exploring this type of alternative investment need to consider many factors, especially their stomach for risk. While all investments come with some degree of risk, the spectrum is wide when it comes to art, and there are many unknowns.

Perhaps the biggest factor is the capriciousness of the art world as a whole. For a couple of years, digital art, especially non-fungible tokens (NFTs), spiked in popularity and many people sold digital art at a profit — only to see demand plunge, taking prices along with it.

It’s a cautionary tale. Yet there is always the potential for a rebound, if digital art regains its appeal, or “antique” NFTs become a thing.

Investing in art also includes risk factors specific to owning fragile physical items, as well as the risk of total loss of capital if the investment you choose falls out of favor, or turns out to be a fake — or if a given fund manager makes a bad call.

Recommended: What Every Investor Should Know About Risk

Pros and Cons of Investing in Art

Taking all of the above into consideration, it’s important to weigh the advantages and disadvantages of investing in art.

Advantages

Art offers the potential for substantial returns.

There are many new opportunities for investing in art; would-be investors can consider art funds, fractional shares of art, and more.

Investing in art may offer portfolio diversification.

Some countries may offer tax breaks on art sales.

If you enjoy art and the art world, this type of investing can offer the potential for fun, travel, and aesthetic gratification.

Disadvantages

The art world is volatile and there is no way to know for sure what a given artist or work may be worth now or in years to come.

It’s difficult to authenticate works of art, and the risk of forgery is high.

Investing in art-related funds, stocks, or fractional shares are still relatively new types of instruments, and terms (fees, redemptions, illiquidity) may not be favorable.

Many types of physical artworks can be damaged or destroyed.

The current tax treatment of art gains in the United States is higher than long-term capital gains rates.

Pros

 Cons
Potential for gains Risk of losing money owing to art market volatility
New ways to invest in art; i.e. art funds, fractional shares Like some alternative investments, art is not heavily regulated by the SEC
May provide portfolio diversification Highly illiquid and opaque
Some countries offer tax breaks on art sales Art gains subject to higher taxes than long-term capital gains
Owning art is aesthetically gratifying Risk of damage and loss

Returns on Art Investments Over Time

Just as the art world is expanding to offer new options to investors, it’s also adopting certain investment world conventions, such as art indices. Now investors can consider the data provided by an index such as the Sotheby Mei Moses Index, which was modeled on the Case-Shiller Index for home prices.

That said, individual artworks are not securities — they are non-fungible and highly illiquid — and as such evaluating the “performance” of specific works or even certain sectors over time is difficult. Even taking into account the evolution of fractional art shares and art funds as investment vehicles, the lack of transparency around pricing (as well as regulation) can make it difficult for investors to make a satisfactory risk-reward assessment.

Unfortunately, this lack of transparency is part of the risk when investing in alternative assets.

The Takeaway

Investing in art offers some advantages, not least of which is the enjoyment of researching and purchasing individual works that fulfill a personal taste or passion. In addition, art is an alternative investment, meaning that it doesn’t move in tandem with traditional markets. As such, it can offer portfolio diversification.

But like many alternative assets, art can be highly volatile and illiquid. As a whole, although art investment opportunities have expanded into art funds and owning fractional shares of artworks, art as an investment is not transparent or well regulated. That said, for the right investor, this asset class may provide unique opportunities.

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FAQ

What is the best art to invest in?

The best art to invest in is art you know well and has a value you feel confident in. That might be an individual piece by a certain artist, or it might be fractional shares in well-known or even famous works. Whatever route you choose, treat it like any other investment: do the necessary research, and understand the potential risks and rewards.

Will the art you choose increase in value?

As with any type of investment there are no guarantees. Some works of art appreciate steadily over time, some enjoy a sudden rise in value if market trends are favorable, while other art you might invest in could rapidly lose value. This is why it’s essential for any investor interested in art to fully understand how these alternative assets might fit into your portfolio, or not.

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

Understanding ACH Fees: Comparing ACH Cost to Other Payment Methods

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

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

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

What Is an ACH Transfer?

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

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

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

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

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Typical ACH Payment Fees

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

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

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

Account Fee

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

ACH Processing Fees

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

Debit Fee

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

Credit Fee

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

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

Discount Fee

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

Other ACH Fees

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

Setup Fee

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

Monthly Fee

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

Monthly Minimum Fee

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

Batch Fee

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

ACH Return Fee

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

ACH Chargeback Fee

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

High Ticket Surcharge

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

Expedited Processing Fee

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

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Comparing ACH Fees to Other Payment Methods

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

ACH vs Wire Transfer

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

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

ACH vs Paper Checks

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

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

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

ACH vs Credit Card and Debit Cards

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

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

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

ACH vs Online Invoice with Pay Link

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

ACH vs PayPal

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

ACH vs Apple Pay Fees

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

The Takeaway

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

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FAQ

Do ACH payments have fees?

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

Why do banks charge ACH fees?

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

How do you avoid ACH fees?

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

Do US banks charge for ACH transfers?

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

What is ACH on my bank statement?

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

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

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

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

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

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

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

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2024
Guide to Yankee Certificates of Deposit

Guide to Yankee Certificates of Deposit

By | Growing Wealth, Investing, money | Comments Off on Guide to Yankee Certificates of Deposit

A Yankee certificate of deposit is a special type of CD that’s issued domestically by a branch of a foreign bank.

Yankee CDs, sometimes referred to as YCDs in finance, have several features that set them apart from other types of CDs, including higher minimum deposit requirements, short terms, and a lack of FDIC protection.

For those reasons, it’s helpful to understand how a Yankee certificate of deposit investment works and the potential risks involved.

What Is a Yankee Certificate of Deposit?

To understand what a Yankee certificate of deposit is, it’s helpful to know how a certificate of deposit works in general.

A regular CD is a deposit account that requires investors to lock up their cash for a fixed period of time (typically a few months to a few years), and in exchange pays a higher interest rate than a traditional savings account and as much or more than a high-yield savings account.

CDs purchased at a bank are generally FDIC insured up to $250,000 (CDs bought at a credit union are insured by the National Credit Union Association up to the same amount).

By contrast, a Yankee certificate of deposit is a CD account that’s issued by a branch of a foreign bank in the U.S., to U.S. customers. In general, the term of a Yankee certificate deposit is less than a year, and the minimum deposit required is more in line with a jumbo CD.

So, for example, a Canadian bank that has branches in the U.S. could offer Yankee CDs to U.S. residents. Even though the CDs would be issued by a foreign bank, they would still be subject to U.S. regulation by the Office of the Comptroller of the Currency (OCC) and the Federal Reserve Board. But a Yankee certificate of deposit would not be federally insured.

Foreign banks that operate in the U.S. can issue Yankee CDs in order to generate capital for making loans or investments. These CDs can be purchased at issuance or on the secondary market.

Recommended: What is Liquid Net Worth

How Yankee CDs Work

As noted above, Yankee CDs work much the same as other types of deposit accounts that are CDs. There are some differences, however, with regard to:

•   Minimum deposits

•   Interest rates

•   Maturity terms

•   Investment risk

Minimum Deposits

Though you might be able to invest in a standard CD with $500 or $1,000, a Yankee certificate of deposit investment might require an initial deposit of $1 million or more. Scotiabank, for instance, issues its Yankee CDs in increments of $250,000 while UBS requires a $1 million minimum deposit for Yankee CDs offered through its Stamford, CT, branch.

A CD of this size issued by a U.S. institution could be categorized as a negotiable CD or NCD. NCDs have a face value of $100,000 or more. But Yankee CDs are not negotiable CDs because they are not FDIC insured.

Fixed and Variable Rates

Interest rates for Yankee CDs may be fixed or variable, which is another difference from other CDs which typically offer a fixed rate, making them more predictable instruments for fixed-income investors.

Shorter Terms

Maturity terms for a Yankee certificate of deposit tend to be shorter (one to three years, depending on the issuer), while regular CDs can have terms ranging from 28 days up to 10 years. The investor cannot access their cash until the CD matures, without triggering an early withdrawal penalty.

Potential Risk

Perhaps the biggest difference between Yankee CDs and other types of CDs is the level of risk involved. Generally speaking, CDs are considered to be safe investments since they offer a practically guaranteed rate of return, and deposits are federally insured up to a certain amount. Yankee CDs, on the other hand, carry certain risks including credit risk and the possibility of lower-than-expected returns if you’re choosing a variable-rate option.

Recommended: Average Savings by Age

Why Does a Yankee CD Matter?

Yankee CDs are not something the everyday investor is likely to be concerned with. After all, most people don’t have $1 million or $50 million to invest into a single CD.

If you’re able to invest in a Yankee CD, however, it’s possible that you could earn a higher rate of return for your money. That could be important to you if you’re working on building wealth and want to diversify your portfolio.

Are CDs smart investments? They can be, if you’re comfortable leaving money in a CD account until it reaches maturity. Again, with a Yankee certificate of deposit you may be looking at a one- to three-year wait until the CD matures. So given the higher deposit requirements involved, it’s important to consider how comfortable you are typing up larger amounts for that long, and what kind of return you can expect.

From a banking perspective, Yankee CDs matter because they’re a source of capital for foreign banks, which may need U.S. dollars to cover domestic obligations.

Yankee CDs: Real World Example

Scotiabank is one example of a Canadian bank that offers Yankee CDs to U.S.-based savers. The bank, headquartered in Toronto, offers both floating-rate and fixed- rate Yankee certificates of deposit. The bank’s floating-rate products have maturity terms ranging from two to three years, with minimum deposits of $250,000 and target principal amounts ranging from $50 million to $90 million.

The fixed-rate Yankee CD earns an impressive yield and requires a minimum deposit of $250,000, with a target principal amount of $100 million. The maturity period for this CD is also two years. Scotiabank offers these CDs exclusively to institutional investors who are accredited.

Special Considerations for Yankee CDs

There are two important things to keep in mind with a Yankee certificate of deposit investment. First, investors assume a certain amount of credit risk with these CDs.

The quality of these CDs is determined by the credit rating of the issuing bank. Banks with lower credit ratings may be more likely to default on financial obligations, including the payment of interest to CD holders. Tying up large amounts of money in Yankee certificates of deposit issued by banks with questionable credit ratings could therefore be risky.

Second, it’s important to keep in mind that FDIC protection does not apply to these CDs. Ordinarily, CDs issued at FDIC-insured banks are protected up to $250,000 per depositor, per financial institution, per account ownership type, in the rare event that the bank fails. With Yankee CDs, you don’t have that reassurance that your money is safe should the worst happen.

How to Open a Yankee CD

Opening a Yankee isn’t that different from opening any other type of CD. Here are the main steps involved:

•   Locate banks that offer Yankee CDs in the U.S.

•   Compare the Yankee certificates of deposit available, including the minimum deposit and interest rate.

•   Complete the application to open an account.

•   Make your initial deposit.

As noted, it’s important to choose a financial institution with good credit ratings. So you may want to take the additional step of checking credit ratings to measure the bank’s financial health and strength.

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Alternatives to Yankee CDs

If you’re looking for CD options that may be more accessible than Yankee CDs, there are some other possibilities. You could use any of the following to reach your savings goals:

•   Standard CDs. A standard CD is a regular CD offered by a bank or credit union that pays interest and has a reasonable minimum deposit.

•   Jumbo CDs. Jumbo CDs are similar to standard CDs but have larger minimum deposit requirements. For example, you may need $10,000 or more to open a jumbo CD.

•   No-penalty CDs. A no-penalty CD allows you to withdraw money from your CD before its maturity date without triggering an early withdrawal penalty.

•   Bump up CDs. Raise your rate or bump up CDs allow you to raise your interest rate once or twice during the CD term. This type of CD might be attractive if you expect rates to rise.

•   Add-on CDs. An add-on CD allows you to make additional deposits to your account after your CD has been opened. Ordinarily, CDs don’t allow additional deposits.

You may also consider CD-secured loans if you’re interested in a CD product that can help you build credit. With a CD-secured loan your CD serves as collateral. Your money stays in the CD until maturity, earning interest. Meanwhile, you make payments to the loan which can be reported to the credit bureaus.

Once the CD matures, you can withdraw the principal and interest or roll it into a new CD. You also get the benefit of on-time payment history, which can help to improve your credit score.

The Takeaway

A Yankee certificate of deposit is issued domestically by a branch of a foreign bank to U.S. investors. Yankee CDs are designed to help investors earn a solid return while allowing foreign banks to raise capital via U.S. investors. Due to their high minimum deposit requirements (as much as $1 million or more), these CDs may be better suited to some investors than others; they’re sometimes restricted to institutional investors.

Yankee CDs may offer competitive rates, but they are not federally insured like most U.S.-issued CDs.
If a Yankee CD doesn’t suit your needs, you might want to consider alternatives, such as a regular CD or a high-yield checking account or checking and savings account instead.

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


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

FAQ

Can you lose money on a certificate of deposit?

Certificates of deposit (CDs) are generally a safe, secure way to save money. It’s possible, however, to lose money with a Yankee CD if the bank that issued it is unable to meet its financial obligations and pay interest to investors as scheduled.

What are the cons of a certificate of deposit?

Certificates of deposit may offer lower rates of return compared to other investments, which means your money might have less potential for growth. With bank CDs, savers may face early withdrawal penalties if they take money from their accounts before the CD matures.

How do I redeem a certificate of deposit?

If your CD is reaching maturity or you need to withdraw money for any other reason, you can visit a branch to redeem your CD or do so online if your bank allows it. You’ll need to specify how much money you want to withdraw and where that money should be sent if you’re redeeming CDs online.

Photo credit: iStock/utah778

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

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

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

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.

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

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

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

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

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

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

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

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How Much Money Should I Spend on Rent?

By | Budgeting & Goals, money | No Comments

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

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

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

How Much You Should Spend Depends on Your Situation

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

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

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

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

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

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

Figuring Out How Much You Should Spend on Rent

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

Use a Budgeting Rule

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

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

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

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

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

Factor in Costs

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

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

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

Look at Other Ways to Save

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

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

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

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

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


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

The Takeaway

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

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

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


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

FAQ

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

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

How much of my salary should I spend on rent?

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

Am I overspending on rent?

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

Photo credit: iStock/Jacob Wackerhausen

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

What Are ACH Return Codes?

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

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

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

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

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

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

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

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

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How ACH Returns Work

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

A few details to note about how ACH returns work:

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

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


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Common ACH Return Codes

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

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

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

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

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

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

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

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

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

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

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

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

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

Recommended: What is Liquid Net Worth

More ACH Return Codes

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Recommended: Average Savings by Age

The Takeaway

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

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FAQ

What causes an ACH return?

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

What is ACH return fee?

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

How long does an ACH refund take?

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

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