Nov
21
2023
Living Below Your Means: Tips and Benefits

Living Below Your Means: Tips and Benefits

By | Budgeting & Goals, Financial Independence, money | Comments Off on Living Below Your Means: Tips and Benefits

Three out of five U.S. consumers report living paycheck to paycheck, with no money left at the end of the month to save or invest, according to a June 2022 PYMNTS survey. (And that figure applies to people in all income brackets, even high earners.)

With so many of us just barely paying our bills, you may wonder if living below your means — or spending less money than you make — is even possible. The answer is yes, with a sound budget, determination, and some smart strategies.

Financial experts say the chances of living on less than you make increase if you haven’t yet bought a house or started a family, but don’t stop reading if you’re already in the thick of those responsibilities. Even with those commitments, you can still live below your means, gaining financial freedom with the right mindset and goals.

Key Points

•   Living below your means you spend less money than you earn every month.

•   You can live below your means with a sound budget, determination, and smart money-management strategies.

•   Financial freedom can be achieved by living below your means, even with commitments like a house or family.

•   Living below your means can allow you to save for emergencies and larger purchases, as well as have more financial freedom and confidence.

•   Living below your means can also lead to less stress about money and the ability to build wealth.

What Does ‘Living Below Your Means’ Mean?

If you live below your means, you get by on less money than you earn every month. For example: If your household income is, say, $40,000, but you make ends meet by spending $5,000 less than that amount, you’re left with money to save or invest for important goals.

How Much Money Qualifies as Living Below Your Means?

No set amount of money qualifies as living below your means vs. living beyond your means. No matter what your income, living below means is defined as spending less than you earn. If you earn $4,000 every month, but only spend $3,500, then you are living $500 below your means. This makes it possible to build wealth. If you spend $3,900 per month, then you are living $100 below your means.

Benefits of Living Below Your Means

Living beneath your means can be a wise financial move — one that pays off in an array of ways. Here are a dozen good reasons to start living on less than you make so you can enjoy the benefits of financial independence.

1. Being Prepared for Emergencies

If you have wiggle room in your finances, you can put a set amount of money in an emergency fund every month and build a safety cushion. This gives you peace of mind when unexpected expenses arise, such as a flat tire, broken washing machine, or a major dental bill.

Recommended: How Much Money Should be in Your Emergency Fund?

2. Saving for Larger Purchases

Planning a family beach vacation or girls’ weekend away? Will you need a new laptop soon? If you live below your means (for example, driving your trusty old car rather than financing a new model), you will have more breathing room in your budget to save for key expenses. Ordering takeout for your family’s dinner every two weeks vs. every week could add up to $100 or more in monthly savings, which could be better used elsewhere.

3. More Financial Freedom and Confidence

A major benefit of living below your means is gaining financial freedom. When you aren’t living paycheck to paycheck, you won’t feel that money stress. You won’t watch your credit card debt continue to climb upwards. You may, however, see your savings grow.

Living beneath your means can help you be a responsible spender and saver. Achieving this financial discipline will give you a feeling of control and confidence, and it can also open the door to more possibilities.

4. Having a Healthier Lifestyle

Living below your means typically gives you the room to be more mindful about both your spending and your lifestyle. When you watch your pennies, you’re more likely to make meals at home, which can be healthier and have more reasonable portion sizes than, say, a stuffed pizza or bucket of fried chicken delivered to your door.

You may also avoid high-priced gas or Ubers and walk or bike more, which is better for you and the planet.

5. Less Stress and Worry About Money

A recent survey found that 73% of Americans said their number-one worry was, not too surprisingly, money. When you are living below your means, you may well eliminate some of this stress. Having some room in your budget means you don’t have to break out your plastic to buy groceries or see your checking account balance head towards negative territory. Phew!

Get up to $300 when you bank with SoFi.

No account or overdraft fees. No minimum balance.

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6. Spending Less Money on Consumerism and Materialism

When you are focused on living beneath your means, you may recognize that constant consumerism is bad for the planet and your pocketbook. More and more of us are embracing the minimalist way of life, bypassing new jeans in favor of thrift-shop pairs. Same goes for cookware, furniture, and books.

Reduce, reuse, recycle is a mantra that’s gaining ground. Too often, our need for new goods is short and they end up in a landfill, where they never die. Buying used can help prevent this while padding out your savings.

7. Having Funds for a Rainy Day…or a Sunny One

Maybe your favorite armchair’s upholstery rips. Wouldn’t it be nice to have funds available to fix it without feeling money anxiety? Or perhaps the kids would love an overnight stay at a lodge with a water park. If you have been living below your means and setting aside some cash, this may be your moment to forge ahead.

That’s where your rainy day fund or splurge savings come in. Neither of these situations are good uses of an emergency fund, but they can be worthwhile expenses drawn upon other cash cushions.

Recommended: Ways to Be a Frugal Traveler

8. Having the Ability to Build Wealth

When you live below your means, you have a surplus of cash that you can invest to build wealth. One smart move: If your employer has a 401(k) program, sign up. Money will be swept from your paycheck (before you even see it) into a retirement investment account. This is an example of paying yourself first and is also one of the best ways to build future wealth.

Another idea: If you get a raise (nice work!), invest it rather than amping up your spending to account for the extra money, which is called lifestyle creep. Also, if you are not living paycheck to paycheck, when you get a windfall (say, a tax refund), you can also invest that, rather than using it to buy necessities.

10. Developing a Stronger Money Mindset

Quick, how do you think about money? With shame, because of debt burdens? Or with pride and contentment, knowing you have cleared the deck and are even socking away some money by living below your means? The more you take control of your finances and improve your money mindset, the better your outlook on life is likely to be.

11. Having Financial Security

When you live below your means, you know you can handle bills without worry and dread over late notices, collection agency phone calls, fees, and service interruptions. Living on a leaner budget also means you can save extra dough for unexpected expenses that pop up. These might include, for example, new clothes for your college roommate’s wedding or fees for a professional class you really want to take.

By living below your means, you are likely taking a giant step or two toward achieving financial security and not feeling on the brink of money trouble.

12. Being Able to Invest Your Money

This is empowering. When you have some extra cash, contact a financial advisor (ask friends and relatives for a referral or see if your bank has one on the team) and consider investing in the stock market, which can be both fun and financially wise.

Historically, the market returns approximately 10% per year, which can boost your long-term savings, such as your retirement fund.

Tips for Living Below Your Means

If you’re convinced of the value of living beneath your means, the next step can be to take action to do so. Here are some strategies to make that happen.

Tracking All of Your Spending

Recording where your money goes is the first step to living below your means. For one month, track every dollar that leaves your wallet, from a tip at the coffee place to a gift for your sister. Not just rent and gas, but also pharmacy co-pays, the juice you got on your way to work, and parking meter charges. Look into a free budgeting app to help you stay on task; many banks provide these for their clients, or there are plenty available online.

Budgeting

Once you know what you spend in a given month (including debt payments), compare this to your take-home income. Re-evaluate what you truly need and what can be eliminated in your quest to live below your means.

Some expenses are fixed, like a monthly mortgage or commuter fare. But others are more variable. Take a close look at grocery bills, streaming services, dining out, and shopping. Consider a town library card vs. buying books; making your own iced tea vs. spending $4 to have the barista pour one; and perhaps give up your gym membership in exchange for free online-taught workouts or jogging in a local park.

Recommended: The 50/30/20 Budget Rule

Creating a Financial Plan

Take time to consider your lifestyle and goals; you can do this solo or with a financial planner. Things to consider are your short-, medium-, and long-term aspirations (from funding a wedding to building a robust retirement fund), boosting an emergency savings fund, having an investment portfolio, and possibly an estate plan.

When you trim expenses and live below your means, you can sock money away to achieve all this and more.

Downsizing

Could you consider downsizing? Moving to a smaller space or more affordable city, trading in your gas guzzler for a greener car? These moves can reduce the cost of your monthly needs and deliver the wiggle room in your budget you seek.

You might also consider selling things you no longer want or need, whether that’s gently worn clothing, furniture sitting in your basement, or an iPad you haven’t touched in months. Depending on the item, you might be able to sell it on eBay, Etsy, Facebook Marketplace, Poshmark, or thredUP, among others.

Eliminating Unnecessary Expenses

Get serious about axing unnecessary expenses. In addition to ditching a cappuccino-a-day habit, scroll through your monthly credit card statement and cancel any excess services. You may have forgotten how many streaming services you signed up for during the early days of the pandemic, or perhaps you are paying for a fax or postage service you almost never use, or a meal-kit plan that keeps raising its prices. Keep what you cannot part with, and trim the extras to bring your spending in line. It’s a key aspect of living within your means.

Having Multiple Streams of Income

While cutting costs is one way to help live beneath your means, another tactic is to increase your income. More money coming in, minus your current spending, should yield some spare cash. Perhaps you could take in a roommate for a while, or start a part-time gig (whether dog-walking or website design) in your free time. One of the benefits of a side hustle in bringing in extra funds.

Organizing Bills and Monthly Expenses

Above all, when learning to live below your means, stay organized at tracking money in and money out. Use an online finance tool (easy to find from your bank, in the app store, or online). This can help you always know where you stand financially as unexpected expenses and bills pop up.

Improving Your Money Mindset

Take stock of, and pride in, what you do day by day to live below your means. Recognize your progress, no matter how minor. Every dollar you don’t spend is helping you live below your means.

Hopefully, you can bid farewell to money shame (which can lead to overspending and still more money shame), FOMO, and spending regrets. You will be more aware of where your money goes and hopefully on a path to building wealth.

The Takeaway

Living below your means, or spending less than you earn, is possible with the right budgeting steps and a healthy money mindset. Following a trimmer budget on your existing income can help you put away funds for important milestones, from a 401k investment plan to a nest egg account for your first house. It can also help you get past living paycheck to paycheck and accumulating credit card debt.

To help you budget better and save more, it can be wise to have the right banking partner. When you open a bank account online with SoFi with direct deposit, you’ll have access to terrific tracking tools, a competitive APY, and no account fees, which can help your money grow faster. What’s more, our Checking and Savings account makes it easy to spend and save in one convenient place.

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

FAQ

What is considered living above your means?

Living above your means is defined as spending more money than you earn. Three signs of this pattern: Running out of money and having to use credit cards to get through the month; not having an emergency fund; and not having money in savings.

Why is it important to live below your means?

Living below your means is important for your mind and your finances. Instead of overspending, you’ll be able to set money aside for tangible goals, from a savings cushion to a college fund. When you conserve money rather than blowing it, you can reap the reward of watching it grow, building your wealth, and reducing your financial stress.

Does living below your means deprive you of fun?

Living below your means does not deprive you of fun. You can save for and budget for splurges like vacations and dining out; the important part is making that intentional and not going into debt. You’ll also find plenty to see and do for free or at a low cost, from bike rides to free town concerts.

Photo credit: iStock/fotostorm

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.

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.

SoFi members with direct deposit activity can earn 4.20% annual percentage yield (APY) on savings balances (including Vaults) and 0.50% APY on checking balances. Direct Deposit means a recurring deposit of regular income to an account holder’s SoFi Checking or Savings account, including payroll, pension, or government benefit payments (e.g., Social Security), made by the account holder’s employer, payroll or benefits provider or government agency (“Direct Deposit”) via the Automated Clearing House (“ACH”) Network during a 30-day Evaluation Period (as defined below). Deposits that are not from an employer or government agency, including but not limited to check deposits, peer-to-peer transfers (e.g., transfers from PayPal, Venmo, etc.), merchant transactions (e.g., transactions from PayPal, Stripe, Square, etc.), and bank ACH funds transfers and wire transfers from external accounts, or are non-recurring in nature (e.g., IRS tax refunds), do not constitute Direct Deposit activity. There is no minimum Direct Deposit amount required to qualify for the stated interest rate. SoFi members with direct deposit are eligible for other SoFi Plus benefits.

As an alternative to direct deposit, SoFi members with Qualifying Deposits can earn 4.20% APY on savings balances (including Vaults) and 0.50% APY on checking balances. Qualifying Deposits means one or more deposits that, in the aggregate, are equal to or greater than $5,000 to an account holder’s SoFi Checking and Savings account (“Qualifying Deposits”) during a 30-day Evaluation Period (as defined below). Qualifying Deposits only include those deposits from the following eligible sources: (i) ACH transfers, (ii) inbound wire transfers, (iii) peer-to-peer transfers (i.e., external transfers from PayPal, Venmo, etc. and internal peer-to-peer transfers from a SoFi account belonging to another account holder), (iv) check deposits, (v) instant funding to your SoFi Bank Debit Card, (vi) push payments to your SoFi Bank Debit Card, and (vii) cash deposits. Qualifying Deposits do not include: (i) transfers between an account holder’s Checking account, Savings account, and/or Vaults; (ii) interest payments; (iii) bonuses issued by SoFi Bank or its affiliates; or (iv) credits, reversals, and refunds from SoFi Bank, N.A. (“SoFi Bank”) or from a merchant. SoFi members with Qualifying Deposits are not eligible for other SoFi Plus benefits.

SoFi Bank shall, in its sole discretion, assess each account holder’s Direct Deposit activity and Qualifying Deposits throughout each 30-Day Evaluation Period to determine the applicability of rates and may request additional documentation for verification of eligibility. The 30-Day Evaluation Period refers to the “Start Date” and “End Date” set forth on the APY Details page of your account, which comprises a period of 30 calendar days (the “30-Day Evaluation Period”). You can access the APY Details page at any time by logging into your SoFi account on the SoFi mobile app or SoFi website and selecting either (i) Banking > Savings > Current APY or (ii) Banking > Checking > Current APY. Upon receiving a Direct Deposit or $5,000 in Qualifying Deposits to your account, you will begin earning 4.20% APY on savings balances (including Vaults) and 0.50% on checking balances on or before the following calendar day. You will continue to earn these APYs for (i) the remainder of the current 30-Day Evaluation Period and through the end of the subsequent 30-Day Evaluation Period and (ii) any following 30-day Evaluation Periods during which SoFi Bank determines you to have Direct Deposit activity or $5,000 in Qualifying Deposits without interruption.

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

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

Interest rates are variable and subject to change at any time. These rates are current as of 10/31/2024. There is no minimum balance requirement. Additional information can be found at https://www.sofi.com/legal/banking-rate-sheet.

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Nov
21
2023
origami dollar houses

7 Tips for Buying a Home in the Off-Season

By | Budgeting & Goals, Home Ownership, mortgage | Comments Off on 7 Tips for Buying a Home in the Off-Season

Spring has been a traditional house-hunting season. That’s when parents of school-age kids often look for a place to call home — one they can settle into before classes begin in September.

And summer certainly has its merits for looking at houses, from the comfort of walk-throughs in warm weather to seeing gardens in full bloom.

But buying a house in winter can be a wise move. The so-called “off season” bestows some very real benefits for those who are looking for a new place. These may include everything from less competition (and fewer bidding wars) to faster closing schedules.

While increasing mortgage rates and low inventory have led to high home prices in recent years, industry watchers are expecting prices to decline in some “hot” markets (like Texas and Florida) in late 2023, early 2024. That suggests that the winter ahead might be a good time to bundle up and rev up a home search.

Read on to learn seven smart benefits of shopping for a house in winter. You just might snag a great deal on your dream house.

Why You Should Buy a Home in Winter

Wondering why you should consider buying a house in winter, when the days may be short, the trees bare, and the weather nasty? Here are some very good reasons.

1. Having Less Competition for Homes

Not everyone wants to or is able to shop for houses during the winter months. Freezing temperatures and inclement weather can keep would-be homebuyers away.

During the winter season, many parents are busy managing school schedules and events, and many people are also busy traveling and hosting guests over the holidays.

But there’s an upside: Fewer people shopping for homes could mean less competition for those in the market for a house. And diminished competition might mean winter homebuyers can be more discerning in their choices. There’s less pressure to snap up a house for fear another buyer will get to it first. In addition, you may be less likely to end up in a bidding war with a slew of other interested buyers, which can drive up costs.

While there are often fewer houses for sale during the winter, buyers may be more likely to land their desired home closer to the asking price (or even below).


💡 Quick Tip: When house hunting, don’t forget to lock in your home mortgage loan rate so there are no surprises if your offer is accepted.

2. Profiting from a Buyer’s Market in Winter

With some buyers distracted by the jam-packed holidays, it can be trickier to sell a home in the wintertime. Some sellers only put their homes on the market in the winter because they really have to.

The seller’s snag, though, can be a boon for buyers, as winter homesellers may be more motivated to get the sale completed faster than their summertime counterparts.

Motivated winter sellers might be willing to negotiate on things like price, closing costs, and the closing date. Perhaps they need to relocate for work or another time-sensitive reason and are eager to get the deal done.

In some cases,houses that are on the market in the winter have been there since the summer selling season. Homes like these are sometimes referred to as “stale listings.” The seller may be ready to take what would previously be deemed a too-low offer, just to move ahead with a deal.

Recommended: A Guide to Counter Offers

3. Closing on Your Purchase Faster in Winter

Closing is when the title of a property legally changes hands from the seller to the buyer. When buyers and sellers are negotiating the sale of a home, they work together to set a closing date when the house title will officially transfer between the parties.

Real estate agents often work with mortgage brokers to find a suitable day that will allow enough time for the deal to be executed properly.

In warmer months, banks, inspectors, and appraisers are usually handling a lot of new buyers. In practice, this glut of interested buyers could mean mortgage brokers are backed up for weeks or even months.

In the winter, when fewer interested buyers are typically calling, things can slow down for lenders. As a result, cold-weather buyers might be able to close on their homes faster and get settled in more quickly.

Recommended: What Are the Different Types of Mortgage Loans?

4. Understanding a Home’s Condition More Clearly

Visiting a property in person can tell a buyer a lot about a home. But, in the summertime, some of a house’s less attractive qualities can be masked by warm weather, blossoming gardens, and the brilliant summer sun.

Seeing a house in the winter can give buyers a chance to understand how it holds up under tougher conditions. Is the house too gloomy in low light? Does cold air creep in from the windows? Does ice jam up the gutters causing the roof to leak? Does a long driveway that needs to be shoveled seem less appealing in the winter than in June? You could be destined for some home maintenance costs. Getting a chance to suss out potential problems like these can provide a fuller picture of what actually living in a property might be like year-round.

Keep in mind, though, that some aspects of a home can be harder to grasp in the winter months. For example, it’s tough to test out an air conditioning unit in the wintertime. And snow could cover up foundation issues.


💡 Quick Tip: To see a house in person, particularly in a tight or expensive market, you may need to show the real estate agent proof that you’re preapproved for a mortgage. SoFi’s online application makes the process simple.

5. Hiring Movers Can Be Easier in Winter

Let’s say you do find a new home and move forward with buying a house in winter. Moving costs in the winter can be cheaper than in the summer. Fewer people buying homes means less demand for movers, which in turn could mean more competitive pricing.

With lighter schedules, moving companies may also be more flexible and able to accommodate your desired moving dates. (It can be helpful to stay flexible with move dates in the winter, since a big snowstorm might mean sudden delays.)

Still, if you move when snow is falling, that will obviously slow down your move and make it pricier. Try to reschedule if inclement weather is in the forecast.

6. Getting More Time and Attention from Realtors

Movers aren’t the only people who are less busy in the winter months. Fewer people shopping for houses could mean there’s less work for real estate agents.

Agents may have more time in the winter to spend helping individual buyers find the house that meets their exact needs. Also, when it comes time to negotiate, agents may have more hours to go to bat for their clients to secure a better deal.

7. Taking Advantage of Last-Minute Tax Savings

Buying a house by late December (rather than waiting until the following spring) may allow buyers to take advantage of last-minute savings on that year’s taxes.

The mortgage interest deduction allows homeowners to subtract mortgage interest from their taxable income, lowering the amount of taxes they owe. Married couples filing jointly and single filers can deduct the interest on mortgages up to $750,000. Married taxpayers filing separately can deduct up to $375,000 each.

However, you cannot deduct mortgage interest in addition to taking the standard deduction. To take the mortgage interest deduction, you’ll need to itemize. Itemizing only makes sense if your itemized deductions total more than the standard deduction. For the 2023 tax year, the standard deduction is $13,850 for single filers and $27,700 for those married, filing jointly.

Recommended: How to Qualify for a Mortgage: 9 Requirements for a Mortgage Loan

Financing Your Home Purchase

No matter what season you may be house-hunting, it’s important to figure out how to finance a potential purchase before you find the home that’s “The One.”

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


SoFi Mortgages: simple, smart, and so affordable.

https://www.sofi.com/signup/mort“>

SoFi Loan Products
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.

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Terms, conditions, and state restrictions apply. Not all products are available in all states. See SoFi.com/eligibility for more information.

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

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

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

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

SoFi members with direct deposit activity can earn 4.20% annual percentage yield (APY) on savings balances (including Vaults) and 0.50% APY on checking balances. Direct Deposit means a recurring deposit of regular income to an account holder’s SoFi Checking or Savings account, including payroll, pension, or government benefit payments (e.g., Social Security), made by the account holder’s employer, payroll or benefits provider or government agency (“Direct Deposit”) via the Automated Clearing House (“ACH”) Network during a 30-day Evaluation Period (as defined below). Deposits that are not from an employer or government agency, including but not limited to check deposits, peer-to-peer transfers (e.g., transfers from PayPal, Venmo, etc.), merchant transactions (e.g., transactions from PayPal, Stripe, Square, etc.), and bank ACH funds transfers and wire transfers from external accounts, or are non-recurring in nature (e.g., IRS tax refunds), do not constitute Direct Deposit activity. There is no minimum Direct Deposit amount required to qualify for the stated interest rate. SoFi members with direct deposit are eligible for other SoFi Plus benefits.

As an alternative to direct deposit, SoFi members with Qualifying Deposits can earn 4.20% APY on savings balances (including Vaults) and 0.50% APY on checking balances. Qualifying Deposits means one or more deposits that, in the aggregate, are equal to or greater than $5,000 to an account holder’s SoFi Checking and Savings account (“Qualifying Deposits”) during a 30-day Evaluation Period (as defined below). Qualifying Deposits only include those deposits from the following eligible sources: (i) ACH transfers, (ii) inbound wire transfers, (iii) peer-to-peer transfers (i.e., external transfers from PayPal, Venmo, etc. and internal peer-to-peer transfers from a SoFi account belonging to another account holder), (iv) check deposits, (v) instant funding to your SoFi Bank Debit Card, (vi) push payments to your SoFi Bank Debit Card, and (vii) cash deposits. Qualifying Deposits do not include: (i) transfers between an account holder’s Checking account, Savings account, and/or Vaults; (ii) interest payments; (iii) bonuses issued by SoFi Bank or its affiliates; or (iv) credits, reversals, and refunds from SoFi Bank, N.A. (“SoFi Bank”) or from a merchant. SoFi members with Qualifying Deposits are not eligible for other SoFi Plus benefits.

SoFi Bank shall, in its sole discretion, assess each account holder’s Direct Deposit activity and Qualifying Deposits throughout each 30-Day Evaluation Period to determine the applicability of rates and may request additional documentation for verification of eligibility. The 30-Day Evaluation Period refers to the “Start Date” and “End Date” set forth on the APY Details page of your account, which comprises a period of 30 calendar days (the “30-Day Evaluation Period”). You can access the APY Details page at any time by logging into your SoFi account on the SoFi mobile app or SoFi website and selecting either (i) Banking > Savings > Current APY or (ii) Banking > Checking > Current APY. Upon receiving a Direct Deposit or $5,000 in Qualifying Deposits to your account, you will begin earning 4.20% APY on savings balances (including Vaults) and 0.50% on checking balances on or before the following calendar day. You will continue to earn these APYs for (i) the remainder of the current 30-Day Evaluation Period and through the end of the subsequent 30-Day Evaluation Period and (ii) any following 30-day Evaluation Periods during which SoFi Bank determines you to have Direct Deposit activity or $5,000 in Qualifying Deposits without interruption.

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

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

Interest rates are variable and subject to change at any time. These rates are current as of 10/31/2024. There is no minimum balance requirement. Additional information can be found at https://www.sofi.com/legal/banking-rate-sheet.

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2023
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Guide to Monthly Maintenance Fees

By | Budgeting & Goals, money | No Comments

If you have a bank account, you may be familiar with the monthly fees that many financial institutions charge their clients simply for having an account. These may be known as “maintenance” or “service” fees and tend to be assessed on checking accounts. However, some banks will charge them on savings accounts too.

If you don’t scrutinize your monthly bank statements, you may not be completely aware of what your charges are on this front or how they can add up over time. And you may not be aware that not every financial institution charges these fees. Some banks will lower them in certain situations, and others don’t collect them at all.

Since maintenance fees can eat away at your hard-earned cash, take a closer look here at how they work and how you might avoid them.

Key Points

•   Monthly maintenance fees may be charged by banks for maintaining personal and business checking accounts, and sometimes savings accounts.

•   The fees can vary from one bank to another, with average monthly maintenance fees for checking accounts being around $13.95.

•   Banks may waive the fees if customers maintain a minimum balance, have multiple accounts, sign up for direct deposit, or use their debit card frequently.

•   Other ways to avoid fees include considering online banks or credit unions and signing up for electronic statements.

•   It’s important to read bank notifications and understand the terms and conditions to avoid unexpected fees.

What Is a Monthly Maintenance Fee?

Banks often charge fees on personal and business checking accounts and sometimes even some types of savings accounts to help them offset operational costs or help to “maintain” your account.

Institutions may also charge these fees as a way to incentivise customers to make larger deposits. Many banks will waive fees if customers keep their balances high or use their account more frequently, all moves that benefit the bank. (Banks may also encourage activity by assessing inactivity fees if you let your account just sit.)

Monthly maintenance fees are usually automatically withdrawn from a customer’s account each month.

How Much Are Monthly Maintenance Fees?

While not all banks charge a monthly maintenance fee, many of the large traditional financial institutions in the U.S. do charge monthly fees.

For Savings Accounts

Monthly maintenance fees on savings accounts can vary greatly. Typically, though, they range from $1 to $8 per month. Some banks may not charge any fee at all.

For Checking Accounts

How much varies from one bank to another, but the average monthly maintenance fee for a checking account is currently around $13.95 per month, according to a recent MoneyRates.com survey.

While that may not seem like a lot of money when viewed as a one-time charge, it adds up to a whopping $167 per year.
Add in other deductions, like for using an out-of-network ATM or triggering overdraft or NSF fees, and these surcharges can start to chip away at your hard-earned money.

10 Tips on Avoiding Account Maintenance Fees

Fortunately, there is often some wiggle room when it comes to maintenance fees. Here are some simple ways you may be able to minimize, or even completely avoid this type of account fee.

1. Choosing the Right Institution

Fees can vary quite a bit from one major U.S. bank to another. Some charge $4.95 a month just for maintaining a checking account, while others charge $12 or more for the same exact service. Others may not charge any maintenance fee at all. For that reason, it can pay to do a little digging before you open a new account.

When comparing banks, it can be helpful to understand exactly what the monthly maintenance fee (if any) will be, and if there are any ways to avoid the fee.

Many banks will waive the monthly fee If you meet certain requirements. If you won’t be able to meet those conditions, however, you may want to keep shopping around.

2. Maintaining a Minimum Balance

Many institutions will waive the monthly account fee if you keep a certain amount of money in your account, known as a minimum balance.

That means If your average monthly balance dips below this amount, the maintenance fee would be triggered for that month and deducted from your account.

If your average monthly balance is above this threshold, the bank would waive the fee for that month.

3. Opening More than One Account

Many institutions will reward you for loyalty and waive monthly fees if you have multiple accounts with them, such as a savings account, money market account, or certificate of deposit (CD), in addition to a personal checking account.

In some cases, linking your accounts (such as a checking and a savings account) can help you meet the balance requirement to avoid the monthly maintenance fee.

4. Signing up for Direct Deposit

Many checking accounts are free when you elect to have your paycheck or benefits check automatically deposited into your account.

Each bank may have slightly different qualifying criteria. Some banks waive the maintenance fee if you make a certain number of direct deposits to your account each month, while others might require you to deposit a minimum dollar amount.

Recommended: How Long Does a Direct Deposit Take to Go Through?

5. Using Your Debit Card Frequently

You may want to find out if your financial institution waives checking account fees if you use the bank-issued debit card linked to the account to make purchases or bill payments a certain number of times per month.

This number will vary from one bank to another, but 10 is often the number required to make fees disappear.

Banks are able to ease up on customer fees because they get paid transaction fees from the merchants.

6. Reading Your Bank Notifications

Your free checking account is sometimes only free until…it isn’t.

While it’s important to read your account agreement when you first open up an account (and make sure you understand the bank’s requirements to avoid fees), you may also want to keep in mind that your bank can change its rules at any time as long as it notifies you about the change in writing.

For that reason, it’s a good idea to read the notifications the bank sends (via email or snail mail) about changes to its terms and conditions.

This will allow you to keep up to date on what you need to do to avoid monthly service fees before you start seeing these debts show up on your account.

7. Giving up an Interest-Bearing Checking Account

If you have an interest-bearing checking account with your bank, it may be worth checking to see whether you can avoid a monthly maintenance fee by switching bank accounts to an interest-free one. This could actually help you come out ahead.

Today’s interest rates are so low that the interest you are earning on your checking account may not even cover the monthly service fee you are paying in order to have an interest or “rewards” checking account.

8. Considering an Online Bank or Credit Union

Because online-only banks typically have lower overhead expenses than brick-and-mortar institutions, they can be less likely to charge their customers monthly fees. (They often pay considerably higher interest rates as well.)

Credit unions can be worth checking out as well. As nonprofit, member-owned institutions, credit unions typically aren’t as focused on the bottom line as for-profit banks. This enables them to charge lower rates on credit products and levy fewer (and lower) account fees compared to banks.

9. Asking About Student and Senior Discounts

Many banks will offer a break on monthly fees to students. So, if you are currently in school it can be worthwhile to ask if a discount is offered, what age group is covered, what proof you’ll need to show that you’re a student, and what types of schools are included.

Similarly banks may offer a lower fee or no monthly fee if you’re over a certain age, and qualify as what they consider a “senior.”

10. Signing up for Electronic Statements

You may be used to getting that statement in the mail and there is something to be said for having it handy, but is it worth paying a fee for?

Since financial institutions save money by not printing and mailing you a paper statement each month, they often pass that savings along by offering discounts to customers who agree to go paperless.

The discount is often a reduced or eliminated monthly maintenance fee.

The Takeaway

You don’t necessarily have to settle for high monthly checking account fees.

Many financial institutions will waive monthly fees if you maintain a certain balance, make a minimum number of purchases with your debit card each month, or sign up for direct deposit.

Another way to avoid paying monthly fees is to consider a SoFi Checking and Savings Account. With SoFi, you can earn a competitive annual percentage yield (APY) and save and spend, all in one account. And SoFi Checking and Savings doesn’t have any account fees which could eat away at your savings.

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

FAQ

How can you avoid monthly maintenance fees?

There are several ways to avoid monthly maintenance fees on your bank account, including switching banks, meeting minimum balance requirements, opening additional accounts, and skipping paper statements, among other moves.

Why are you getting charged a monthly maintenance fee?

Banks typically charge maintenance fees as a way to recoup some of their operating costs. You may be able to take steps, however, to avoid these fees in part or totally.

Are maintenance fees yearly?

Bank maintenance fees are typically deducted automatically from your account on a monthly basis.

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

SoFi members with direct deposit activity can earn 4.20% annual percentage yield (APY) on savings balances (including Vaults) and 0.50% APY on checking balances. Direct Deposit means a recurring deposit of regular income to an account holder’s SoFi Checking or Savings account, including payroll, pension, or government benefit payments (e.g., Social Security), made by the account holder’s employer, payroll or benefits provider or government agency (“Direct Deposit”) via the Automated Clearing House (“ACH”) Network during a 30-day Evaluation Period (as defined below). Deposits that are not from an employer or government agency, including but not limited to check deposits, peer-to-peer transfers (e.g., transfers from PayPal, Venmo, etc.), merchant transactions (e.g., transactions from PayPal, Stripe, Square, etc.), and bank ACH funds transfers and wire transfers from external accounts, or are non-recurring in nature (e.g., IRS tax refunds), do not constitute Direct Deposit activity. There is no minimum Direct Deposit amount required to qualify for the stated interest rate. SoFi members with direct deposit are eligible for other SoFi Plus benefits.

As an alternative to direct deposit, SoFi members with Qualifying Deposits can earn 4.20% APY on savings balances (including Vaults) and 0.50% APY on checking balances. Qualifying Deposits means one or more deposits that, in the aggregate, are equal to or greater than $5,000 to an account holder’s SoFi Checking and Savings account (“Qualifying Deposits”) during a 30-day Evaluation Period (as defined below). Qualifying Deposits only include those deposits from the following eligible sources: (i) ACH transfers, (ii) inbound wire transfers, (iii) peer-to-peer transfers (i.e., external transfers from PayPal, Venmo, etc. and internal peer-to-peer transfers from a SoFi account belonging to another account holder), (iv) check deposits, (v) instant funding to your SoFi Bank Debit Card, (vi) push payments to your SoFi Bank Debit Card, and (vii) cash deposits. Qualifying Deposits do not include: (i) transfers between an account holder’s Checking account, Savings account, and/or Vaults; (ii) interest payments; (iii) bonuses issued by SoFi Bank or its affiliates; or (iv) credits, reversals, and refunds from SoFi Bank, N.A. (“SoFi Bank”) or from a merchant. SoFi members with Qualifying Deposits are not eligible for other SoFi Plus benefits.

SoFi Bank shall, in its sole discretion, assess each account holder’s Direct Deposit activity and Qualifying Deposits throughout each 30-Day Evaluation Period to determine the applicability of rates and may request additional documentation for verification of eligibility. The 30-Day Evaluation Period refers to the “Start Date” and “End Date” set forth on the APY Details page of your account, which comprises a period of 30 calendar days (the “30-Day Evaluation Period”). You can access the APY Details page at any time by logging into your SoFi account on the SoFi mobile app or SoFi website and selecting either (i) Banking > Savings > Current APY or (ii) Banking > Checking > Current APY. Upon receiving a Direct Deposit or $5,000 in Qualifying Deposits to your account, you will begin earning 4.20% APY on savings balances (including Vaults) and 0.50% on checking balances on or before the following calendar day. You will continue to earn these APYs for (i) the remainder of the current 30-Day Evaluation Period and through the end of the subsequent 30-Day Evaluation Period and (ii) any following 30-day Evaluation Periods during which SoFi Bank determines you to have Direct Deposit activity or $5,000 in Qualifying Deposits without interruption.

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

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

Interest rates are variable and subject to change at any time. These rates are current as of 10/31/2024. There is no minimum balance requirement. Additional information can be found at https://www.sofi.com/legal/banking-rate-sheet.

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

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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21
2023

What Is an ABA Number & How Do You Use It?

By | Budgeting & Goals, money | Comments Off on What Is an ABA Number & How Do You Use It?

Have you ever noticed the nine-digit code at the bottom left of most checks? No, it’s not your account number. Called the ABA routing number (also known as a bank routing number), it identifies which financial institution is responsible for paying the check.

You might also think of it as your bank’s numerical address or ID number.

It’s no big deal if you don’t know your bank’s ABA number by heart, but nevertheless, those nine digits are an important facet of many daily financial transactions, such as online bill-pay and signing up for direct deposit.
Here, you’ll learn what this number is, how it’s used, how to find it, and more information to keep your financial life running smoothly.

Key Points

•   The ABA routing number, also known as a bank routing number, identifies the financial institution responsible for paying a check.

•   ABA numbers help ensure accurate and efficient processing of payments and transfers between banks.

•   ABA numbers provide trust and security for both sellers and buyers in financial transactions.

•   ABA numbers consist of nine digits, with the first four indicating the Federal Reserve Bank, the next four identifying the financial institution, and the last is a verifier.

•   ABA numbers are used for various transactions, including direct deposits, wire transfers, paying bills, and making deposits or transfers between banks.

What Is an ABA Number?

Developed by the American Bankers Association (that’s where the ABA comes from), the main purpose of an ABA routing number is to make sure money gets where it needs to go.

In other words, routing numbers help identify which bank is responsible for paying money or giving credit to another bank. The routing number can also be used to identify which bank will receive payment or credit for a check or electronic transaction.

Rather than reading the name of a bank off a check (and potentially making a mistake), these numbers help enable bank employees and the machines that process checks do that job quickly and accurately.

Both the receiving and paying banks can use the routing number to improve the efficiency of their payment process operations.

ABA numbers also give consumers and businesses a reason to trust the banking system.

Sellers can feel confident they will in fact get paid with funds from a legitimate bank and the buyers can rest easy knowing that they can prove their money is accessible and they can make a purchase or pay a bill.

What Do ABA Digits Stand for?

Here’s a closer look at what those routing number digits actually stand for (which you can also see reflected in the image here):

routing number

The first four digits at the left indicate the Federal Reserve Bank that oversees the financial institutions in a particular location.

The next four digits identify your financial institution, or its ABA identification number.

The last digit is what’s known as a check digit number. It verifies the authenticity of the routing number.

ABA Number vs. Bank Account Number

Two crucial pieces of banking information are an account’s ABA number and the account number.

•  The ABA number identifies the financial institution where the account is held.

•  The bank account number reflects a particular, specific bank account, whether it’s checking, savings, or another kind of account.

What Is an ABA Number Used for?

The ABA number, as mentioned above, reflects the bank where an account is held. This is a critical piece of information when financial transactions take place. It allows these to be processed correctly and swiftly.

The History of the ABA Number

These routing numbers were first developed in 1910 by the American Bankers Association (ABA). At that time, it was just helpful in check processing, but it has continued to keep pace with banking innovation, including automated clearinghouses as ACH vs. checks become more popular, online banking protocols, and electronic funds transfer. It continues to play a vital role in so many basic banking matters.

Who Can Use ABA Numbers?

For a bank to be issued an ABA number, they must be a federal or state chartered financial institution and they must be eligible to have an account at a Federal Reserve Bank.

To obtain a routing number, the financial institution will work with Accuity, which is the official registrar of ABA Routing Numbers. Any newly formed financial institutions will have to submit an application to Accuity if they want to be assigned an ABA routing number.

Recommended: How to Write a Check to Yourself

Where Is the ABA Number on a Check?

When looking for the ABA routing number, look at the row of numbers at the bottom of a check.

There are a lot of numbers there, but the ABA number is the nine-digit, leftmost number. It will be the first set of nine numbers that you’ll see and begins with a 0, 1, 2, or 3.

Typically, to the right of that is the consumer’s account number, then, to the right of the account number, is the number of the check.

It’s important not to get these numbers confused, since it could lead to a delay or an error in the processing of a check, as well as any online payments you authorize.

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How to Find Your ABA Numbers Without a Check

Every check in a consumer’s checkbook should include their ABA number, but if a check isn’t available, there are other ways for consumers to find out the routing number they’ll need to transfer money.

Bank Statements

Recent bank statements should list the bank’s ABA routing number alongside account information. Some bank statements come by mail or as paperless electronic statements.

Bank Website

A lot of banks prominently feature their ABA numbers on their website since so many customers want to know this information. You may want to keep in mind that some larger, national banks may have different routing numbers for different states, as well as different routing numbers for wire transfers or ACH (Automated Clearing House).

Asking Your Local Bank

Customers can always call their bank to ask what the correct ABA routing number to use is. Or if you have your account at a traditional vs. online bank, you could stop by a local branch.

ABA Online Lookup Tool

The ABA actually offers a free ABA Routing Number Lookup tool that can make it simple to find routing numbers for banks. Please note that users can only utilize this tool to look up two ABA numbers per day, and can’t look up more than ten numbers in the course of a month. Also keep in mind that some banks have different numbers for different states, as well as for different transactions.

When to Use an ABA Number

While you probably won’t need to use your ABA routing number every single day, you will likely need to enter this number for a number of common transactions, such as:

•  Direct (or ACH) deposits. When someone starts a new job and wants to set up direct deposits via ACH, they will most likely have to provide their ABA number and their bank account number.

•  Wire transfers. This involves sending or receiving money via a wire transfer, which is especially common for international transactions.

•  IRS direct deposits. To receive a tax refund, the IRS gives an option to have that money refunded via direct deposit. Allowing a direct deposit can speed up the refund process.

•  Paying bills or friends. You will likely need your routing number to sign up to pay bills online or to use mobile payment apps.

•  Making a deposit to your retirement account or transferring money to another bank. When you invest money for retirement or move money between banks, you might need to set up the transactions via ACH transfer, and that requires your bank routing number.

Recommended: What Is an Outstanding Check?

What’s the Difference Between ABA and ACH Numbers?

The terms ABA and ACH (Automated Clearing House) are easy to mix up. ABA numbers are sometimes referred to as ACH numbers, although this is not technically correct.

ACH refers to an electronic fund transfer made between banks that is processed through the Automated Clearing House network.

The ACH is the main system that financial institutions utilize for electronic fund transfers. When using ACH, the funds are electronically deposited in the designated financial institutions, allowing payments to be made online.
Unlike wire transfers, ACH transfers are typically used for relatively small, and often regular, payments.

Consumers can utilize ACH for many types of transactions that put money in someone’s account and often do so without realizing it.

For example, through ACH someone could have their paychecks directly deposited into their checking and savings account or can make monthly debits for any routine bill payments, such as a student loan payment.

Many merchants allow their customers to pay their bills via ACH. The payer typically has to provide an account number and bank routing number to do so.

Online services transactions can also be conducted with ACH and most banks and credit unions use ACH for online bill payment services.

The Takeaway

The ABA routing number is a sequence of nine digits used by banks to identify specific financial institutions within the U.S. Found on the lower left of a check (as well as online and on your bank statements), you need to know your routing number for many basic financial transactions, such as paying bills online, signing up for direct deposits at work, using a mobile payment app, as well as transferring money from one financial institution to another.

The ABA routing number helps ensure that your deposits and payments go exactly where they need to go.

One way to make money transfers (and all your other everyday money transactions) fast, simple and safe, is to sign up for a SoFi Checking and Savings online bank account. With SoFi Checking and Savings, you spend, save, and transfer funds from one convenient place, plus have features like Vaults to help you organize your savings goals and your financial life.

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

FAQ

Are ABA numbers and routing numbers the same thing?

Yes, an ABA number and a bank routing number are the same thing. Those nine digits at the bottom of a check and to the left can be referred to by either term.

Is an ABA number always 9 digits?

Yes, the ABA or bank routing number is always nine digits long.

Does a debit card have an ABA number?

Debit cards do not have routing numbers; those nine digits are only found on checks to identify the financial institution that issued the check. Instead, debit cards have an account number as well as a PIN.

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

SoFi members with direct deposit activity can earn 4.20% annual percentage yield (APY) on savings balances (including Vaults) and 0.50% APY on checking balances. Direct Deposit means a recurring deposit of regular income to an account holder’s SoFi Checking or Savings account, including payroll, pension, or government benefit payments (e.g., Social Security), made by the account holder’s employer, payroll or benefits provider or government agency (“Direct Deposit”) via the Automated Clearing House (“ACH”) Network during a 30-day Evaluation Period (as defined below). Deposits that are not from an employer or government agency, including but not limited to check deposits, peer-to-peer transfers (e.g., transfers from PayPal, Venmo, etc.), merchant transactions (e.g., transactions from PayPal, Stripe, Square, etc.), and bank ACH funds transfers and wire transfers from external accounts, or are non-recurring in nature (e.g., IRS tax refunds), do not constitute Direct Deposit activity. There is no minimum Direct Deposit amount required to qualify for the stated interest rate. SoFi members with direct deposit are eligible for other SoFi Plus benefits.

As an alternative to direct deposit, SoFi members with Qualifying Deposits can earn 4.20% APY on savings balances (including Vaults) and 0.50% APY on checking balances. Qualifying Deposits means one or more deposits that, in the aggregate, are equal to or greater than $5,000 to an account holder’s SoFi Checking and Savings account (“Qualifying Deposits”) during a 30-day Evaluation Period (as defined below). Qualifying Deposits only include those deposits from the following eligible sources: (i) ACH transfers, (ii) inbound wire transfers, (iii) peer-to-peer transfers (i.e., external transfers from PayPal, Venmo, etc. and internal peer-to-peer transfers from a SoFi account belonging to another account holder), (iv) check deposits, (v) instant funding to your SoFi Bank Debit Card, (vi) push payments to your SoFi Bank Debit Card, and (vii) cash deposits. Qualifying Deposits do not include: (i) transfers between an account holder’s Checking account, Savings account, and/or Vaults; (ii) interest payments; (iii) bonuses issued by SoFi Bank or its affiliates; or (iv) credits, reversals, and refunds from SoFi Bank, N.A. (“SoFi Bank”) or from a merchant. SoFi members with Qualifying Deposits are not eligible for other SoFi Plus benefits.

SoFi Bank shall, in its sole discretion, assess each account holder’s Direct Deposit activity and Qualifying Deposits throughout each 30-Day Evaluation Period to determine the applicability of rates and may request additional documentation for verification of eligibility. The 30-Day Evaluation Period refers to the “Start Date” and “End Date” set forth on the APY Details page of your account, which comprises a period of 30 calendar days (the “30-Day Evaluation Period”). You can access the APY Details page at any time by logging into your SoFi account on the SoFi mobile app or SoFi website and selecting either (i) Banking > Savings > Current APY or (ii) Banking > Checking > Current APY. Upon receiving a Direct Deposit or $5,000 in Qualifying Deposits to your account, you will begin earning 4.20% APY on savings balances (including Vaults) and 0.50% on checking balances on or before the following calendar day. You will continue to earn these APYs for (i) the remainder of the current 30-Day Evaluation Period and through the end of the subsequent 30-Day Evaluation Period and (ii) any following 30-day Evaluation Periods during which SoFi Bank determines you to have Direct Deposit activity or $5,000 in Qualifying Deposits without interruption.

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

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

Interest rates are variable and subject to change at any time. These rates are current as of 10/31/2024. There is no minimum balance requirement. Additional information can be found at https://www.sofi.com/legal/banking-rate-sheet.

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

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Nov
20
2023
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Understanding Fringe Benefits

By | Building Your Career, Life & Career | No Comments

Who doesn’t like a little something extra? While there are some benefits your employer is required to provide you, they may also give you additional perks in the form of what are known as “fringe benefits.”

Here’s a look at some examples of fringe benefits, how they work, and whether they’re taxable.

What Are Fringe Benefits?

Typically, employers compensate their employees with a traditional paycheck and some additional benefits that they must provide, such as workers’ compensation coverage or unemployment.

But in an effort to keep workers happy, loyal, and motivated — attract new talent — many organizations also offer fringe benefits such as health insurance, childcare assistance, and employee stock options. These extras are above and beyond a regular paycheck and are often included in a hiring package.


💡 Quick Tip: We love a good spreadsheet, but not everyone feels the same. An online budget planner can give you the same insight into your budgeting and spending at a glance, without the extra effort.

Common Fringe Benefits

Here’s a look at some common fringe benefits:

•  Accident and health benefits: Provides help with health-related costs not covered by your traditional insurance plan.

•  Athletic facilities: Provides access to on- and off-site athletic and gym facilities.

•  Dependent care assistance: Helps you pay for some care-related expenses for qualifying dependents, including children, a disabled spouse or legally dependent parents.

•  Adoption assistance: Provides payment and reimbursement for expenses related to adopting a child.

•  Employee stock options: Gives employees the chance to buy a certain amount of company stock at a specified price and by a certain time.

•  Group-term life insurance coverage: Allows employers to provide their employees with up to $50,000 in tax-free insurance. Coverage is traditionally 1-2x salary, where the first $50,000 is received tax-free, then any additional coverage is taxed.

•  Health savings accounts (HSAs): Provides tax-advantaged savings accounts for employees enrolled in high-deductible health plans. These accounts may receive contributions by the employer or simply be funded on a pre-tax basis by the employee to help them pay for dental and health care costs.

•  Transportation and commuting benefits: Helps employees get to and from work, such as through the use of a company vehicle. Employees may also be able to have qualified transportation costs taken from their pre-tax pay, which reduces their taxable income.

•  Tuition reduction: Allows employers to chip in for the cost of tuition to educate an employee and sometimes their spouse or children.

•  Meals: Provides employees with free on-site food and snacks.

For a more complete list of fringe benefits, check out IRS Publication 15-B .

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Are Fringe Benefits Taxable?

Generally speaking, most fringe benefits are subject to employment taxes. The taxes are taken out of your paycheck and reported on your annual tax return. (If you’re a contractor, you’ll typically report fringe benefits on a Form 1099-MISC. If you’re a non-employee, fringe benefits are not subject to employment tax.)

That said, the IRS does consider some fringe benefits nontaxable. This means they’re not subject to federal income tax withholding, Social Security, Medicare, or federal unemployment tax, nor must they be reported on your tax return. Often, in order for a fringe benefit to avoid being taxed, certain qualifications must be met.

Here are some extra perks that are considered nontaxable (the full list is available on the IRS’ site:

•   Retirement planning services

•   Adoption assistance

•   Meals and snacks (If certain conditions are met)

•   Health insurance (up to a certain dollar amount)

•   Group-term life insurance (up to a certain amount of coverage)

•   Commuting or transportation benefits

•   Dependent care assistance (up to a certain amount)

•   Awards given for achievements

Tax-Advantaged Fringe Benefits

Some fringe benefits allow employees to direct a certain amount of funds pretax toward qualified accounts and expenses, which can lower their taxable income.

These tax-advantaged benefits are (somewhat oddly) known as “cafeteria plans,” because they allow employees to select the benefits they want. You must be permitted to choose from at least one taxable benefit, like cash, and one qualified benefit. Examples of qualified benefits include:

•  401(k) plans

•  Accident and health benefits, excluding Archer medical savings accounts and long-term care insurance.

•  Adoption assistance

•  Dependent care assistance

•  Group-term life insurance coverage

•  HSAs (distributions from HSAs can be used to purchase long-term care coverage.)

There are, predictably, a few more nuanced rules about cafeteria plans and employee tax treatment. While most regular employees receive normal tax treatment, other employees or contractors may not be treated as such for cafeteria plans.

If you have tax-related questions about fringe benefits, it might be a good idea to consult your attorney or preferred tax specialist.


💡 Quick Tip: Income, expenses, and life circumstances can change. Consider reviewing your budget a few times a year and making any adjustments if needed.

Planning Around Fringe Benefits

Employers typically offer fringe benefits to make the work environment better for the people who currently work there and more desirable for prospective employees.

Some benefits may hold a lot of appeal. For example, 401(k)s are a powerful tool for saving for your retirement. But others may be less appealing. For instance, you may decide you don’t want to use FSAs, which often restrict how much you can contribute and when you have to spend the funds.

It’s common to choose which fringe benefits you want when you’re starting a new job and filling out your initial paperwork. However, many companies will allow you to go back and make changes if you decide later that some choices aren’t right for you.

The Takeaway

Fringe benefits can run the gamut from use of the company car to adoption assistance to employee stock options (to name just a few examples). These extra perks are in addition to your paycheck and can be a powerful way to keep workers happy and loyal while also attracting new talent.

Generally speaking, most fringe benefits are taxable, though some — like retirement planning assistance, athletic facilities, and on-site meals and snacks — are not. Some fringe benefits will even allow you to direct a portion of funds pretax toward qualified accounts and expenses, which can help lower your taxable income.

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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.

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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