Guide to Passbook Accounts
Today, it’s common to check your savings account balance on your smartphone, send money to a friend after they covered the cost of lunch, or snap a picture of a paper check to make a mobile deposit. But before the advent of the internet and smartphones, banking was done in person, and people used pen and paper to keep track of everything.
One of the relics of that time period is the passbook savings account. While most consumers now have a traditional or online savings account, passbook savings accounts are still in use today. And, depending on your financial and personal style, it might be an option that you find useful.
But what is a passbook savings account, how do they work, and why would anyone want to open one? We’ll dive in below.
Get up to $300 when you bank with SoFi.
No account or overdraft fees. No minimum balance.
Up to 4.30% APY on savings balances.
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What Is a Passbook Savings Account?
A passbook savings account is a type of savings account that comes with a notebook or ledger (called a passbook) to track your deposits and withdrawals.
Unlike other bank accounts, which may allow you to take out funds at an ATM, transfer money electronically, and check your balance online, a passbook account requires in-person transactions at the bank or credit union, with a physical log of the activity.
Recommended: How Many Bank Accounts Should I Have?
How Do Passbook Savings Accounts Work?
Before computers, consumers had to visit their local bank branch to deposit or withdraw cash from their savings account. Period. They’d bring their physical passbook with them, and the bank teller would update the passbook with information about the transaction and their new balance.
Nowadays, most consumers choose traditional savings accounts or online savings accounts. While they may still be able to visit banks in person, they can also monitor their accounts online, move money electronically, and swing by the ATM to make deposits and withdrawals.
But passbook accounts are still around. While the bank tellers now handle things electronically, consumers are still issued a physical passbook and must visit the branch in person to withdraw and deposit cash.
Why would someone want this kind of account today?
• People might choose passbook accounts because of the added requirement of visiting in person. If they consider themselves bad with money, this process could make it harder to irresponsibly withdraw and spend their money.
• Others might like having more control over — and insight into — their finances.
• Some consumers may appreciate the added layer of security since it would be harder for a criminal to drain the account.
Pros and Cons of Passbook Savings Accounts
Passbook accounts are hard to come by these days, but it’s not impossible to open one. Just as there are pros and cons to online banking, so too are there benefits and downsides to a passbook savings account, such as:
| Pros of Passbook Accounts | Cons of Passbook Accounts |
|---|---|
| Less temptation to spend your savings | Inconvenient to access money |
| Enhanced feeling of control over your account | Potentially low annual percentage yield (APY) compared to online savings accounts, depending on the institution |
| Added layer of security by requiring in-person transactions | Requires safekeeping of physical ledger |
| Ideal for people who aren’t good with computers | Challenges if you relocate to a place without branch access |
Passbook Accounts vs. Savings Accounts
In many ways, passbook accounts and savings accounts are similar, but they also have several notable differences. Let’s break down how they’re alike — and how they’re not.
Similarities
Consider these points:
• Both savings and passbook savings accounts are deposit accounts that are meant for saving, not spending. Over time, you should expect your money to grow unless you withdraw funds for major purchases, like a house down payment.
• That means both types of savings accounts earn interest, though the amount they earn can vary. Some traditional savings accounts may earn as little as 0.01% interest while high-yield online accounts may earn significantly more, such as over 4% as of mid-2023.
Passbook savings accounts generally can’t compete with high-yield online accounts, but you’d need to check with specific banks to know what interest you’d earn.
• Like traditional savings accounts, passbook accounts are insured by the Federal Deposit Insurance Corporation (FDIC) up to $250,000 per depositor, per ownership category, per insured institution.
If the account is at a credit union, it would have the same level of insurance, but from the National Credit Union Association or NCUA vs. FDIC.
Differences
While savings accounts and passbook savings accounts have the same purpose — saving money and earning interest — how these accounts work is quite different:
• Access to funds: With a traditional savings account, you can generally access your funds in person or at an ATM. Most accounts now let you manage your money online as well, meaning you can transfer money between accounts with the click of a button. With a passbook savings account, you must visit a branch in person.
• Monitoring your account: Similarly, traditional bank accounts send monthly statements, on paper or online. With most banks nowadays, you can access your account details at any time online via a computer or smartphone.
With a passbook account, however, all the information lives in the physical passbook, and you’ll only update it at the bank when making transactions. Note: Some banks, like First Republic, may now let account holders check information online.
Are Passbook Savings Accounts Still in Use?
Though passbook accounts are uncommon, they’re still in use today. You can open a passbook account at certain local and regional banks. Some examples of financial institutions still offering passbook accounts include:
• Middlesex Savings Bank (Massachusetts)
• Union Bank (Vermont and New Hampshire)
• Cathay Bank (largely California, but other locations in Washington, Texas, Illinois, and New England)
• Naveo Credit Union (Massachusetts)
• Dollar Bank (Northeast Ohio, Western Pennsylvania, and parts of Virginia and Maryland).
Recommended: How to Switch Banks
The Takeaway
Passbook savings accounts are less common today with the advent of computers and online banking. While most consumers would prefer electronic access to their account, passbook accounts offer unique perks for people who prefer to bank exclusively in person. It may be a good way for them to manage their money.
Interested in opening an online bank account? When you sign up for a SoFi Checking and Savings account with direct deposit, you’ll get a competitive annual percentage yield (APY), pay zero account fees, and enjoy an array of rewards, such as access to the Allpoint Network of 55,000+ fee-free ATMs globally. Qualifying accounts can even access their paycheck up to two days early.
FAQ
Do any banks still have passbook accounts?
Some banks still offer passbook accounts. Passbook savings accounts are less common today, as most consumers prefer to manage their money online. That said, some local and regional banks and credit unions in your area may offer passbook savings account options.
What is a disadvantage of a passbook savings account?
A major disadvantage of passbook savings accounts is that you can’t access your money electronically. You have to go to a branch in person to withdraw or deposit funds. You usually can’t even get an account summary online; instead, your physical passbook is the only source of information you have about the account.
What is the interest rate on a passbook savings account?
Interest rates on passbook savings accounts will vary by financial institution, but they’re sometimes competitive with traditional savings accounts. That said, they are often less than high-yield online savings accounts. Remember that you’ll want to choose a bank that is geographically convenient, as you’ll have to visit in person to access your money.
Photo credit: iStock/LaylaBird
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 4.30% annual percentage yield (APY) on savings balances (including Vaults) and 0.50% APY on checking balances. Direct Deposit means a recurring deposit of regular income to an account holder’s SoFi Checking or Savings account, including payroll, pension, or government benefit payments (e.g., Social Security), made by the account holder’s employer, payroll or benefits provider or government agency (“Direct Deposit”) via the Automated Clearing House (“ACH”) Network during a 30-day Evaluation Period (as defined below). Deposits that are not from an employer or government agency, including but not limited to check deposits, peer-to-peer transfers (e.g., transfers from PayPal, Venmo, etc.), merchant transactions (e.g., transactions from PayPal, Stripe, Square, etc.), and bank ACH funds transfers and wire transfers from external accounts, or are non-recurring in nature (e.g., IRS tax refunds), do not constitute Direct Deposit activity. There is no minimum Direct Deposit amount required to qualify for the stated interest rate. SoFi members with direct deposit are eligible for other SoFi Plus benefits.
As an alternative to direct deposit, SoFi members with Qualifying Deposits can earn 4.30% APY on savings balances (including Vaults) and 0.50% APY on checking balances. Qualifying Deposits means one or more deposits that, in the aggregate, are equal to or greater than $5,000 to an account holder’s SoFi Checking and Savings account (“Qualifying Deposits”) during a 30-day Evaluation Period (as defined below). Qualifying Deposits only include those deposits from the following eligible sources: (i) ACH transfers, (ii) inbound wire transfers, (iii) peer-to-peer transfers (i.e., external transfers from PayPal, Venmo, etc. and internal peer-to-peer transfers from a SoFi account belonging to another account holder), (iv) check deposits, (v) instant funding to your SoFi Bank Debit Card, (vi) push payments to your SoFi Bank Debit Card, and (vii) cash deposits. Qualifying Deposits do not include: (i) transfers between an account holder’s Checking account, Savings account, and/or Vaults; (ii) interest payments; (iii) bonuses issued by SoFi Bank or its affiliates; or (iv) credits, reversals, and refunds from SoFi Bank, N.A. (“SoFi Bank”) or from a merchant. SoFi members with Qualifying Deposits are not eligible for other SoFi Plus benefits.
SoFi Bank shall, in its sole discretion, assess each account holder’s Direct Deposit activity and Qualifying Deposits throughout each 30-Day Evaluation Period to determine the applicability of rates and may request additional documentation for verification of eligibility. The 30-Day Evaluation Period refers to the “Start Date” and “End Date” set forth on the APY Details page of your account, which comprises a period of 30 calendar days (the “30-Day Evaluation Period”). You can access the APY Details page at any time by logging into your SoFi account on the SoFi mobile app or SoFi website and selecting either (i) Banking > Savings > Current APY or (ii) Banking > Checking > Current APY. Upon receiving a Direct Deposit or $5,000 in Qualifying Deposits to your account, you will begin earning 4.30% APY on savings balances (including Vaults) and 0.50% on checking balances on or before the following calendar day. You will continue to earn these APYs for (i) the remainder of the current 30-Day Evaluation Period and through the end of the subsequent 30-Day Evaluation Period and (ii) any following 30-day Evaluation Periods during which SoFi Bank determines you to have Direct Deposit activity or $5,000 in Qualifying Deposits without interruption.
SoFi Bank reserves the right to grant a grace period to account holders following a change in Direct Deposit activity or Qualifying Deposits activity before adjusting rates. If SoFi Bank grants you a grace period, the dates for such grace period will be reflected on the APY Details page of your account. If SoFi Bank determines that you did not have Direct Deposit activity or $5,000 in Qualifying Deposits during the current 30-day Evaluation Period and, if applicable, the grace period, then you will begin earning the rates earned by account holders without either Direct Deposit or Qualifying Deposits until you have Direct Deposit activity or $5,000 in Qualifying Deposits in a subsequent 30-Day Evaluation Period. For the avoidance of doubt, an account holder with both Direct Deposit activity and Qualifying Deposits will earn the rates earned by account holders with Direct Deposit.
Members without either Direct Deposit activity or Qualifying Deposits, as determined by SoFi Bank, during a 30-Day Evaluation Period and, if applicable, the grace period, will earn 1.20% APY on savings balances (including Vaults) and 0.50% APY on checking balances.
Interest rates are variable and subject to change at any time. These rates are current as of 10/8/2024. There is no minimum balance requirement. Additional information can be found at https://www.sofi.com/legal/banking-rate-sheet.
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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What Are Excessive Transaction Fees?
Excessive transaction fees are penalties incurred by consumers when they make too many withdrawals from a savings account or money market account in a single month.
These fees were once mandated by federal law (Regulation D), but they became optional for banks to leverage at the start of the pandemic, as its economic impact became apparent. These charges are still optional today; some financial institutions collect them; others don’t.
Since most people want to avoid fees as often as possible, read on to learn how excessive transaction fees work and how much they cost.
What Is an Excessive Withdrawal Fee?
Excessive transaction fees, also called excess transfer fees, withdrawal limit fees, or excessive withdrawal fees, refer to penalties for excessive withdrawals from a savings or money market account. Historically, Regulation D restricted consumers to six “convenient transfers and withdrawals” each month.
Banks and credit unions could start leveraging these fees after as few as three transactions per month, though the regulation specified a savings withdrawal limit of six. If consumers regularly exceeded the regulatory six, financial institutions legally had to take action, like converting from a savings account to a checking account or closing it altogether.
Though Regulation D has changed since the COVID-19 crisis and looks to stay that way indefinitely — meaning convenient withdrawals aren’t capped at six a month — some banks have chosen to maintain the excessive transaction fee.
Get up to $300 when you bank with SoFi.
No account or overdraft fees. No minimum balance.
Up to 4.30% APY on savings balances.
Up to 2-day-early paycheck.
Up to $2M of additional FDIC insurance.
Recommended: What Is the Difference Between a Deposit vs. Withdrawal
Types of Transactions Considered
Not every withdrawal from a savings account counts toward the transaction limit. Below are the types of transactions that could get you to the six-a-month max:
• Electronic funds transfers (EFTs), like when you transfer money from your savings account to checking account (or transfer money from one bank to another)
• Automated Clearing House (ACH) payments, including online bill pay
• Pre-authorized transfers, like overdraft transfers to avoid overdraft fees
• Wire transfers
• Online and phone transfers
• Debit card and check transactions drawing from the savings account.
Notably absent from this list are in-person withdrawals at banks and ATMs. Such withdrawals do not count toward the transaction limit. You can also move funds from savings to checking at an ATM or with a teller in person without it counting toward your limit.
Worth knowing: Some banks may also impose ATM withdrawal limits.
How Much Do Excessive Transaction Fees Cost?
Though Regulation D previously specified a maximum of six convenient withdrawals, it did not specify the amount of the resulting excess transfer fee. Financial institutions were free to set that amount — and still are today, if they continue to charge excessive transaction fees.
Typically, excessive transaction fees cost between $3 and $25 per transaction. Under the current form of Regulation D, financial institutions must disclose the fee amount (if applicable) at account opening; if the bank changes the amount afterward, it must legally notify you at least 30 days before the change.
If you’re not sure what your bank charges, you can typically find this information on the bank’s website or in the fine print of your account documents.
Recommended: What Are Bank Transaction Deposits?
Why Do Banks Charge Excessive Transaction Fees?
Before the Federal Reserve suspended the portion of Regulation D requiring that banks charge excessive transaction fees, the answer was easy: Banks charged excessive transaction fees because they legally had to.
The federal government created Regulation D to ensure that financial institutions had enough cash reserves available. Though this meant consumer funds were a little less liquid in a savings account or money market account, banks made such accounts appealing to consumers by offering interest on those funds. Consumers who wanted easier access to their money could use a checking account.
Now that the Federal Reserve has eradicated that mandate, some banks choose to continue to charge fees. The reasoning for this decision may vary at each financial institution, though banks generally leverage fees to make a profit (they are a business, after all!).
And remember: The federally imposed transfer limit previously served to ensure banks maintained proper cash reserves; banks still charging this fee may be doing so to discourage excessive withdrawals and thus protect their reserves.
Recommended: Smart Short-Term Financial Goals
Tips to Avoid Excessive Transaction Fees
How can you avoid excessive transaction penalties? Consider these tips to cut out this common bank fee.
• Finding a bank that doesn’t charge excess transfer fees: Some banks do not charge excessive transaction fees.
• Using your checking account: Banks may leverage fees when you make too many savings withdrawals by swiping a debit card, writing a check, or paying bills online. Rather than using your savings account for such transactions, you may benefit from using a checking account, where such fees don’t apply, and making withdrawals from the cleared funds in that account.
• Banking in person or at ATMs: Withdrawals at physical bank branches and ATMs typically don’t count toward your limit. By using these options to take funds out of your savings account (or money market account), you should be able to avoid excessive withdrawal fees. Just keep in mind that there may be ATM withdrawal limits in terms of how much you can take out in a certain time period.
• Making fewer (but bigger) withdrawals: If you’re able to anticipate your needs throughout the month, you may be able to make one or two big electronic funds transfers from savings to checking each month, rather than several smaller ones. Doing so may mean you can avoid excess transfer fees.
• Opting out of overdraft coverage: If your savings account is tied to your overdraft program and you overdraw too many times in one month, you could wind up paying an excessive transfer fee. You can avoid this by opting out of overdraft protection (though it’s crucial that you understand what that means for your checking account if you overdraw). Or you might tap a line of credit (say, by using a credit card) as the source for your overdraft protection instead of your savings account.
• Getting bank alerts: Checking your bank account activity is good for several reasons, including fraud monitoring and low balance alerts (to avoid overdrafts). Opting into banking notifications can also help you keep track of when you’re approaching the monthly withdrawal limit.
The Takeaway
Though federal regulations have changed since the onset of COVID-19, many banks and credit unions still charge excessive transaction fees. To avoid such fees, it’s important to monitor your monthly transactions and find other ways to access your savings. For example, you may be able to avoid excessive transaction fees by using ATMs or making fewer, larger transfers and/or withdrawals. Finding a bank whose policies are flexible and suit your needs is a wise move too.
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.
FAQ
How much are excessive transaction fees?
Excessive transaction fees can typically range from $3 to $25 each, depending on the institution’s policies.
Do all banks charge excessive transaction fees?
Not all banks charge excessive transaction fees. Before signing up for any account, it’s a good idea to read the fine print, including the fee structure. Federal law requires that banks disclose these fees to consumers.
Why do banks charge excessive transaction fees?
Regulation D was initially created to ensure banks could maintain enough cash reserves. Though Regulation D no longer limits convenient withdrawals to six, many banks still charge these fees, potentially to protect their reserves and/or to make a profit.
Photo credit: iStock/MTStock Studio
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 4.30% annual percentage yield (APY) on savings balances (including Vaults) and 0.50% APY on checking balances. Direct Deposit means a recurring deposit of regular income to an account holder’s SoFi Checking or Savings account, including payroll, pension, or government benefit payments (e.g., Social Security), made by the account holder’s employer, payroll or benefits provider or government agency (“Direct Deposit”) via the Automated Clearing House (“ACH”) Network during a 30-day Evaluation Period (as defined below). Deposits that are not from an employer or government agency, including but not limited to check deposits, peer-to-peer transfers (e.g., transfers from PayPal, Venmo, etc.), merchant transactions (e.g., transactions from PayPal, Stripe, Square, etc.), and bank ACH funds transfers and wire transfers from external accounts, or are non-recurring in nature (e.g., IRS tax refunds), do not constitute Direct Deposit activity. There is no minimum Direct Deposit amount required to qualify for the stated interest rate. SoFi members with direct deposit are eligible for other SoFi Plus benefits.
As an alternative to direct deposit, SoFi members with Qualifying Deposits can earn 4.30% APY on savings balances (including Vaults) and 0.50% APY on checking balances. Qualifying Deposits means one or more deposits that, in the aggregate, are equal to or greater than $5,000 to an account holder’s SoFi Checking and Savings account (“Qualifying Deposits”) during a 30-day Evaluation Period (as defined below). Qualifying Deposits only include those deposits from the following eligible sources: (i) ACH transfers, (ii) inbound wire transfers, (iii) peer-to-peer transfers (i.e., external transfers from PayPal, Venmo, etc. and internal peer-to-peer transfers from a SoFi account belonging to another account holder), (iv) check deposits, (v) instant funding to your SoFi Bank Debit Card, (vi) push payments to your SoFi Bank Debit Card, and (vii) cash deposits. Qualifying Deposits do not include: (i) transfers between an account holder’s Checking account, Savings account, and/or Vaults; (ii) interest payments; (iii) bonuses issued by SoFi Bank or its affiliates; or (iv) credits, reversals, and refunds from SoFi Bank, N.A. (“SoFi Bank”) or from a merchant. SoFi members with Qualifying Deposits are not eligible for other SoFi Plus benefits.
SoFi Bank shall, in its sole discretion, assess each account holder’s Direct Deposit activity and Qualifying Deposits throughout each 30-Day Evaluation Period to determine the applicability of rates and may request additional documentation for verification of eligibility. The 30-Day Evaluation Period refers to the “Start Date” and “End Date” set forth on the APY Details page of your account, which comprises a period of 30 calendar days (the “30-Day Evaluation Period”). You can access the APY Details page at any time by logging into your SoFi account on the SoFi mobile app or SoFi website and selecting either (i) Banking > Savings > Current APY or (ii) Banking > Checking > Current APY. Upon receiving a Direct Deposit or $5,000 in Qualifying Deposits to your account, you will begin earning 4.30% APY on savings balances (including Vaults) and 0.50% on checking balances on or before the following calendar day. You will continue to earn these APYs for (i) the remainder of the current 30-Day Evaluation Period and through the end of the subsequent 30-Day Evaluation Period and (ii) any following 30-day Evaluation Periods during which SoFi Bank determines you to have Direct Deposit activity or $5,000 in Qualifying Deposits without interruption.
SoFi Bank reserves the right to grant a grace period to account holders following a change in Direct Deposit activity or Qualifying Deposits activity before adjusting rates. If SoFi Bank grants you a grace period, the dates for such grace period will be reflected on the APY Details page of your account. If SoFi Bank determines that you did not have Direct Deposit activity or $5,000 in Qualifying Deposits during the current 30-day Evaluation Period and, if applicable, the grace period, then you will begin earning the rates earned by account holders without either Direct Deposit or Qualifying Deposits until you have Direct Deposit activity or $5,000 in Qualifying Deposits in a subsequent 30-Day Evaluation Period. For the avoidance of doubt, an account holder with both Direct Deposit activity and Qualifying Deposits will earn the rates earned by account holders with Direct Deposit.
Members without either Direct Deposit activity or Qualifying Deposits, as determined by SoFi Bank, during a 30-Day Evaluation Period and, if applicable, the grace period, will earn 1.20% APY on savings balances (including Vaults) and 0.50% APY on checking balances.
Interest rates are variable and subject to change at any time. These rates are current as of 10/8/2024. There is no minimum balance requirement. Additional information can be found at https://www.sofi.com/legal/banking-rate-sheet.
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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How to Stop Automatic Payments on Your Debit Card
Automatic payments from your bank account can be a convenient way to pay your bills and subscription charges on time. But the day may come when you need to know how to stop automatic payments on a debit card. This could involve changing your account settings, revoking authorization, or contacting your bank.
Canceling your automatic payments with certain vendors and financial institutions can occasionally be a hassle. And sometimes, if you’re not paying attention, months can go by without you realizing that recurring fees are still being deducted from your account.
Here, you’ll learn four effective ways to stop automatic payments when the time comes to do so.
4 Ways to Stop Automatic Payments
If you’re someone who tends to forget to pay bills in a timely manner, automatic payments attached to your debit card can be a financial lifesaver.
Automatic transfers or ACHs (automatic clearing house) can transfer money from your checking account on a specific date to a business, without any checks being written or credit card interest charges being incurred. This method can be used to cover a myriad of life’s expenses, including the cost of a gym membership, cell phone bills, and your favorite streaming services.
But there are some downsides to automatic payments being applied via your debit card. Maybe you accidentally signed up for recurring payments? Perhaps that monthly shipment of protein shakes was initially exciting, but now you’re sick of drinking strawberry-flavored liquids for lunch. Nobody wants to get stuck paying for something they don’t want.
If you want to keep autopay withdrawals from happening, you’ll need to know how to stop recurring debit card payments. Failure to do so can result in a drain on your bank account, and your sanity.
Federal law grants you the right to cancel an automatic debit card payment, or stop ACH payments, even if you previously permitted them. There are generally no fees or penalties for canceling an automatic payment preference.
Here are 4 tips on how to cancel an automatic payment.
1. Turning Off Automatic Payments in Your Account
These days, most utility companies and vendors invite you to automate your finances. When you create an online account, they will encourage you to sign up for automatic payments. This makes it more likely that they will receive your money in a timely fashion and it may allow them to cut down on monthly billing efforts. It also can make it easier for you to stop an automatic payment.
Your automatic payments can usually be set up and terminated simply by switching an option in your settings. Sign in with your username and password and select “opt out of automatic payments” in your personal account. This action is typically performed in the “billing and payment” section in the site menu. If you need help, a customer service representative can often guide you via online chat or over the phone.
Once you’ve turned off your automatic payment feature, it might be wise to document the event. Take a picture of a confirmation message and note the date.
Get up to $300 when you bank with SoFi.
No account or overdraft fees. No minimum balance.
Up to 4.30% APY on savings balances.
Up to 2-day-early paycheck.
Up to $2M of additional FDIC insurance.
2. Revoking Authorization from Companies
If you can’t turn off your autopay option through an online account, you may have to contact the company directly and revoke the automatic payment authorization. Some vendors will email or mail you what’s known as a “Revoke Authorization” form.
Once you’ve received the Revocation of Authorization form, fill it out, and keep a copy for yourself before emailing or mailing it back. That way, if the automatic payment charges continue, you’ll have evidence of cancellation to show to your banking institution.
3. Calling Your Bank or Credit Union
Another way to stop automatic payments from your debit card is to contact your bank directly. They may ask you to pen a letter to formally revoke authorization, stating that the company and dollar amount is no longer allowed to be electronically debited from your checking account.
Your bank may also have a Revoking Authorization form you can fill out online or in person. Once the form has been processed, any further attempt by the company to withdraw funds can be dealt with by your bank.
4. Issuing a Stop Payment Order
Instead of filing a form to revoke authorization, you could issue a stop payment order. A stop payment order gives your bank or credit union permission to block a company or vendor from taking money from your account. This process could be done over the phone, in an email, or in person. Some banks may charge a fee for this service.
Keeping an Eye On Your Bank Account
It is possible, even after taking actions to cancel your automatic payments, that you may still see funds being withdrawn from your bank account. While this is frustrating, you may have to contact the vendor or your bank a second time. It’s a good idea to frequently check your bank account to be sure the automatic payments have stopped. Regular check-ins can be part of managing your checking account in a big-picture way too.
Dealing with Unauthorized Automatic Payments
Paying attention to your bank account can also help keep your online accounts safe. Your bank may even alert you to fraudulent charges — automatic payments being made without your consent for things you never signed up for.
Should You Consider Closing a Bank Account?
It’s good to know how to cancel all automatic payments that seem suspicious. One surefire way to avoid recurring fraudulent charges is to close your bank account completely. But this is a drastic measure that could cost you more time and fees.
Instead, contact your bank or credit union. In many cases, they will credit you for the false debit, block the vendor from making future attempts, and suggest further security measures.
Recommended: How to Switch Banks
Should You Cancel Your Debit Card?
If a company keeps making erroneous or unauthorized automatic payments, one way to put a stop to it is to cancel your debit card and receive a new one. In the cases of fraudulent charges by an unknown vendor, your bank will strongly suggest this in order to protect you.
Knowing When to Give Bank Authorization
In order to effectively stop an automatic payment before it happens, be sure and issue the Revoke Authorization form or stop payment order at least three business days before the automatic payment is due, to give your bank time to process the request.
Remember, stopping an automatic payment doesn’t mean you don’t owe money for products received or services rendered. You’ll have to cancel the service agreement completely, or be on top of paying what you owe by the due date through online payments, mailing a check, or other arrangements.]
The Takeaway
Automatic payments from your checking account are a simple and popular way to pay what you owe on time. They can help you avoid late fees and a trip to the mailbox. If you have an online account, you can discontinue an auto payment with only a few clicks. In most cases contacting the company or vendor directly can also get the job done, or you can ask your bank for help. No one can force you to continue automatic payments against your will, and the control of your bank account is in your hands.
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.
FAQ
How much does it cost to stop an automatic payment?
There are typically no fees when you stop an automatic payment option in your online account or if you do so by contacting a vendor directly. However, a bank might charge a processing fee for issuing a stop payment request.
What happens if you close a bank account with automatic payments?
If you close a bank account, companies and vendors will no longer be able to automatically deduct monthly payments tied to that account. You will have to make other arrangements to pay what you owe or discontinue any service agreements.
Will getting a new debit card stop recurring payments?
Yes. A new debit card comes with a new number. You will have to contact companies with your new card information to continue automatic payments.
Photo credit: iStock/vorDa
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 4.30% annual percentage yield (APY) on savings balances (including Vaults) and 0.50% APY on checking balances. Direct Deposit means a recurring deposit of regular income to an account holder’s SoFi Checking or Savings account, including payroll, pension, or government benefit payments (e.g., Social Security), made by the account holder’s employer, payroll or benefits provider or government agency (“Direct Deposit”) via the Automated Clearing House (“ACH”) Network during a 30-day Evaluation Period (as defined below). Deposits that are not from an employer or government agency, including but not limited to check deposits, peer-to-peer transfers (e.g., transfers from PayPal, Venmo, etc.), merchant transactions (e.g., transactions from PayPal, Stripe, Square, etc.), and bank ACH funds transfers and wire transfers from external accounts, or are non-recurring in nature (e.g., IRS tax refunds), do not constitute Direct Deposit activity. There is no minimum Direct Deposit amount required to qualify for the stated interest rate. SoFi members with direct deposit are eligible for other SoFi Plus benefits.
As an alternative to direct deposit, SoFi members with Qualifying Deposits can earn 4.30% APY on savings balances (including Vaults) and 0.50% APY on checking balances. Qualifying Deposits means one or more deposits that, in the aggregate, are equal to or greater than $5,000 to an account holder’s SoFi Checking and Savings account (“Qualifying Deposits”) during a 30-day Evaluation Period (as defined below). Qualifying Deposits only include those deposits from the following eligible sources: (i) ACH transfers, (ii) inbound wire transfers, (iii) peer-to-peer transfers (i.e., external transfers from PayPal, Venmo, etc. and internal peer-to-peer transfers from a SoFi account belonging to another account holder), (iv) check deposits, (v) instant funding to your SoFi Bank Debit Card, (vi) push payments to your SoFi Bank Debit Card, and (vii) cash deposits. Qualifying Deposits do not include: (i) transfers between an account holder’s Checking account, Savings account, and/or Vaults; (ii) interest payments; (iii) bonuses issued by SoFi Bank or its affiliates; or (iv) credits, reversals, and refunds from SoFi Bank, N.A. (“SoFi Bank”) or from a merchant. SoFi members with Qualifying Deposits are not eligible for other SoFi Plus benefits.
SoFi Bank shall, in its sole discretion, assess each account holder’s Direct Deposit activity and Qualifying Deposits throughout each 30-Day Evaluation Period to determine the applicability of rates and may request additional documentation for verification of eligibility. The 30-Day Evaluation Period refers to the “Start Date” and “End Date” set forth on the APY Details page of your account, which comprises a period of 30 calendar days (the “30-Day Evaluation Period”). You can access the APY Details page at any time by logging into your SoFi account on the SoFi mobile app or SoFi website and selecting either (i) Banking > Savings > Current APY or (ii) Banking > Checking > Current APY. Upon receiving a Direct Deposit or $5,000 in Qualifying Deposits to your account, you will begin earning 4.30% APY on savings balances (including Vaults) and 0.50% on checking balances on or before the following calendar day. You will continue to earn these APYs for (i) the remainder of the current 30-Day Evaluation Period and through the end of the subsequent 30-Day Evaluation Period and (ii) any following 30-day Evaluation Periods during which SoFi Bank determines you to have Direct Deposit activity or $5,000 in Qualifying Deposits without interruption.
SoFi Bank reserves the right to grant a grace period to account holders following a change in Direct Deposit activity or Qualifying Deposits activity before adjusting rates. If SoFi Bank grants you a grace period, the dates for such grace period will be reflected on the APY Details page of your account. If SoFi Bank determines that you did not have Direct Deposit activity or $5,000 in Qualifying Deposits during the current 30-day Evaluation Period and, if applicable, the grace period, then you will begin earning the rates earned by account holders without either Direct Deposit or Qualifying Deposits until you have Direct Deposit activity or $5,000 in Qualifying Deposits in a subsequent 30-Day Evaluation Period. For the avoidance of doubt, an account holder with both Direct Deposit activity and Qualifying Deposits will earn the rates earned by account holders with Direct Deposit.
Members without either Direct Deposit activity or Qualifying Deposits, as determined by SoFi Bank, during a 30-Day Evaluation Period and, if applicable, the grace period, will earn 1.20% APY on savings balances (including Vaults) and 0.50% APY on checking balances.
Interest rates are variable and subject to change at any time. These rates are current as of 10/8/2024. There is no minimum balance requirement. Additional information can be found at https://www.sofi.com/legal/banking-rate-sheet.
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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Guide to Consumption Tax
A consumption tax is a tax on a specific good or service. When you pay sales taxes on retail purchases, gasoline, and alcohol, you’re paying a consumption tax. Businesses also pay consumption taxes, like when exporting goods to another country (i.e., paying that country’s import taxes).
But that’s just an overview. Here, you can learn more about these taxes and how they impact you, including:
• What is consumption tax?
• How do consumption taxes work?
• What are the different kinds of consumption taxes?
• What are the pros and cons of consumption taxes?
• What’s the difference between consumption taxes vs. income taxes?
What Are Consumption Taxes?
Consumption taxes are a broad range of taxes that are imposed when you spend money on a good or a service. A common example is a sales tax since consumers are used to paying this with most transactions. However, there are other consumption taxes that affect businesses, as well as ones that are in place in other countries.
The key tenet of a consumption tax is that taxpayers are charged based on what they spend, not what they earn, which makes them different from income taxes. In some countries, including the U.S., consumption taxes and income taxes coexist — along with other types of taxes.
Get up to $300 when you bank with SoFi.
No account or overdraft fees. No minimum balance.
Up to 4.30% APY on savings balances.
Up to 2-day-early paycheck.
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Types of Consumption Taxes
Here are some of the most common types of consumption taxes you might encounter:
• Sales tax: When you pay for goods or services at stores, restaurants, and other businesses, you typically pay a sales tax. All but five states have a state-wide sales tax, and individual localities can impose their own sales taxes.
Of those five tax-free states — Alaska, Delaware, Montana, New Hampshire, and Oregon — only one has localities that charge a sales tax: Alaska. States without income taxes often (but not always) have high sales tax rates.
• Excise tax: An excise tax is seemingly similar to a sales tax, except it’s levied on specific purchases. Colloquially called “sin taxes,” excise taxes are often imposed to discourage certain behaviors that society may see as detrimental in some way. For example, there are excise taxes on alcohol, cigarettes, betting, and even tanning salon services.
Excise taxes also refer to specific taxes that support our infrastructure, like taxes on gasoline and air transportation. Depending on the excise tax, it might be levied on the manufacturer, retailer, or consumer. Often the taxes are rolled into the price a consumer pays: For instance, the excise tax on gas could be passed along to you without your even knowing it.
• Value-added tax: Commonly referred to as VAT, value-added taxes are not implemented in place in the United States. Instead, you may encounter these when traveling to Canada or Europe. This flat consumption tax is levied on a product at each stage of production where value is added to it, but the cost of the tax is ultimately passed on to the person who purchases the final product.
The consumption taxes above impact individual taxpayers. Businesses may contend with another type of consumption tax: import duties.
Recommended: How to Reduce Taxable Income
How Do Consumption Taxes Work?
Now that you know what consumption taxes are, take a closer look at how they function. Consumption taxes work a little differently from one another depending on their type. Sales tax, for example, doesn’t appear until the final point of sale, while VAT is applied throughout the production process.
Regardless of the type of consumption tax, however, the fundamental principle remains the same: You pay taxes when you spend money on goods and services, rather than when you earn the money.
Pros and Cons Consumption Taxes
So what are the pros and cons of consumption taxes? Let’s break it down:
• Pro: Consumption taxes can be easier to calculate. A flat sales tax that everybody pays when they make a purchase is quite straightforward. It’s easy to calculate. You are probably accustomed to that sales tax, for instance, that gets added on as you check out in a store.
This is in stark contrast to taxes that can be complex to figure out. For instance, income can be difficult to measure when filing taxes, especially when you consider wages, tips, self-employment income, capital gains, interest, dividends, and so on. (No wonder so many people seek help during tax season.)
• Con: A consumption tax puts a heavier tax burden on low-income earners. The United States has a progressive income tax system. What that means: The more money you earn, the larger the percentage of your income you must pay in taxes. Some believe this is the right thing to do; they argue that high-income earners can afford to pay more in taxes while low-income taxpayers may be living paycheck to paycheck.
However, with consumption taxes, everyone can be taxed at the same rate, which could be problematic for low-wage earners. In other words, the person who earns $20,000 a year pays the same sales tax rate as the person who earns ten times as much.
• Pro: Consumption taxes may encourage saving. For individuals who are struggling to reign in their spending habits, a larger consumption tax — levied every time they swipe their credit card — may encourage them to spend less and save more money.
• Con: Consumption taxes could discourage spending. But if fewer people are encouraged to spend because of higher consumption taxes, the economy could suffer.
Recommended: Tax Benefits of Marriage
Consumption vs Income Tax: What’s the Difference?
So what’s the main difference between consumption taxes and income taxes? Much depends on when the tax is levied.
• A consumption tax is levied when you spend the money (i.e., when you consume a good or service).
• An income tax is levied when you earn the money (usually through tax withholdings from a paycheck and quarterly estimated payments) or when you receive interest, dividends, or capital gains.
The Takeaway
A consumption tax refers to a broad range of taxes, including sales taxes, excise taxes, and value-added taxes. These are charged on goods and services and can be a key sources of revenue for states. Unlike income taxes which are charged on income, consumption taxes are levied when a consumer or business spends money.
Spending money and paying taxes are part of life. But if you want a banking partner that helps you make most of your cash and simplifies financial management, see what SoFi offers. When you open our online Checking and Savings account, you’ll spend and save in one convenient place. You’ll have access to the global Allpoint Network of no-fee ATMs. Ready for more perks? You’ll also enjoy a competitive annual percentage yield (APY) and pay no account fees, which can help your money grow.
FAQ
Can you deduct consumption tax?
If you itemize your deductions, you can take the SALT (state and local taxes) deduction on your state and local income taxes or your state and local sales taxes, a form of consumption tax. Doing so would require receipts from every purchase or an estimate using the IRS’s optional sales tax tables.
Do you have to put consumption taxes on your yearly taxes?
If you choose to apply the state and local sales tax (SALT) deduction when itemizing deductions on your taxes, you would include your consumption taxes on your tax return. Businesses should also list their consumption taxes as a business expense to reduce their taxable income.
How much do people spend on consumption taxes on average?
How much people spend on what is known as consumption taxes will depend entirely on where they live and how much they spend on purchases each year. Sales tax, for example, varies widely across the United States; in some states, it’s 0% while in others, it’s 7% or more.
Because consumption taxes are levied when consumers make purchases, their total consumption taxes in a given year also depend on the number of purchases they make. Certain items like gas and alcohol have specific excise tax rates, different from regular sales taxes, that can make it even more complicated to estimate.
Photo credit: iStock/sturti
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 4.30% annual percentage yield (APY) on savings balances (including Vaults) and 0.50% APY on checking balances. Direct Deposit means a recurring deposit of regular income to an account holder’s SoFi Checking or Savings account, including payroll, pension, or government benefit payments (e.g., Social Security), made by the account holder’s employer, payroll or benefits provider or government agency (“Direct Deposit”) via the Automated Clearing House (“ACH”) Network during a 30-day Evaluation Period (as defined below). Deposits that are not from an employer or government agency, including but not limited to check deposits, peer-to-peer transfers (e.g., transfers from PayPal, Venmo, etc.), merchant transactions (e.g., transactions from PayPal, Stripe, Square, etc.), and bank ACH funds transfers and wire transfers from external accounts, or are non-recurring in nature (e.g., IRS tax refunds), do not constitute Direct Deposit activity. There is no minimum Direct Deposit amount required to qualify for the stated interest rate. SoFi members with direct deposit are eligible for other SoFi Plus benefits.
As an alternative to direct deposit, SoFi members with Qualifying Deposits can earn 4.30% APY on savings balances (including Vaults) and 0.50% APY on checking balances. Qualifying Deposits means one or more deposits that, in the aggregate, are equal to or greater than $5,000 to an account holder’s SoFi Checking and Savings account (“Qualifying Deposits”) during a 30-day Evaluation Period (as defined below). Qualifying Deposits only include those deposits from the following eligible sources: (i) ACH transfers, (ii) inbound wire transfers, (iii) peer-to-peer transfers (i.e., external transfers from PayPal, Venmo, etc. and internal peer-to-peer transfers from a SoFi account belonging to another account holder), (iv) check deposits, (v) instant funding to your SoFi Bank Debit Card, (vi) push payments to your SoFi Bank Debit Card, and (vii) cash deposits. Qualifying Deposits do not include: (i) transfers between an account holder’s Checking account, Savings account, and/or Vaults; (ii) interest payments; (iii) bonuses issued by SoFi Bank or its affiliates; or (iv) credits, reversals, and refunds from SoFi Bank, N.A. (“SoFi Bank”) or from a merchant. SoFi members with Qualifying Deposits are not eligible for other SoFi Plus benefits.
SoFi Bank shall, in its sole discretion, assess each account holder’s Direct Deposit activity and Qualifying Deposits throughout each 30-Day Evaluation Period to determine the applicability of rates and may request additional documentation for verification of eligibility. The 30-Day Evaluation Period refers to the “Start Date” and “End Date” set forth on the APY Details page of your account, which comprises a period of 30 calendar days (the “30-Day Evaluation Period”). You can access the APY Details page at any time by logging into your SoFi account on the SoFi mobile app or SoFi website and selecting either (i) Banking > Savings > Current APY or (ii) Banking > Checking > Current APY. Upon receiving a Direct Deposit or $5,000 in Qualifying Deposits to your account, you will begin earning 4.30% APY on savings balances (including Vaults) and 0.50% on checking balances on or before the following calendar day. You will continue to earn these APYs for (i) the remainder of the current 30-Day Evaluation Period and through the end of the subsequent 30-Day Evaluation Period and (ii) any following 30-day Evaluation Periods during which SoFi Bank determines you to have Direct Deposit activity or $5,000 in Qualifying Deposits without interruption.
SoFi Bank reserves the right to grant a grace period to account holders following a change in Direct Deposit activity or Qualifying Deposits activity before adjusting rates. If SoFi Bank grants you a grace period, the dates for such grace period will be reflected on the APY Details page of your account. If SoFi Bank determines that you did not have Direct Deposit activity or $5,000 in Qualifying Deposits during the current 30-day Evaluation Period and, if applicable, the grace period, then you will begin earning the rates earned by account holders without either Direct Deposit or Qualifying Deposits until you have Direct Deposit activity or $5,000 in Qualifying Deposits in a subsequent 30-Day Evaluation Period. For the avoidance of doubt, an account holder with both Direct Deposit activity and Qualifying Deposits will earn the rates earned by account holders with Direct Deposit.
Members without either Direct Deposit activity or Qualifying Deposits, as determined by SoFi Bank, during a 30-Day Evaluation Period and, if applicable, the grace period, will earn 1.20% APY on savings balances (including Vaults) and 0.50% APY on checking balances.
Interest rates are variable and subject to change at any time. These rates are current as of 10/8/2024. There is no minimum balance requirement. Additional information can be found at https://www.sofi.com/legal/banking-rate-sheet.
Tax Information: This article provides general background information only and is not intended to serve as legal or tax advice or as a substitute for legal counsel. You should consult your own attorney and/or tax advisor if you have a question requiring legal or tax advice.
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Guide to Excise Taxes
Governments levy excise taxes on specific goods and services to generate revenue. In the United States, some of the most common excise taxes are on alcohol, tobacco, and fuel, but even some personal property taxes and penalties on retirement accounts can qualify as excise taxes.
So what is an excise tax precisely? And when do you pay it? Learn more here, including:
• What is excise tax?
• How do excise taxes work?
• What’s the difference between excise and sales taxes?
• What are the different kinds of excise taxes?
What Is an Excise Tax?
An excise is a tax levied on specific goods and services. Unlike sales taxes, which are more broadly applied to everyday purchases, excise taxes are limited in scope to very specific products and services, like gasoline, airfare, tobacco, and alcohol. And unlike income taxes you may pay every tax season, they don’t vary with your earning power.
Get up to $300 when you bank with SoFi.
No account or overdraft fees. No minimum balance.
Up to 4.30% APY on savings balances.
Up to 2-day-early paycheck.
Up to $2M of additional FDIC insurance.
What Is the Purpose of Excise Taxes?
Excise taxes serve multiple purposes, including discouraging consumption of particular products and services, funding projects related to the item being taxed, and — like all taxes — generating revenue. Here’s a closer look at each one of these goals.
Discouraging Consumption
Many excise taxes are colloquially called “sin taxes” because they are meant to discourage consumption of goods and services that are deemed detrimental in some way. That’s why you’ll find excise taxes on tobacco, alcohol, and even indoor tanning salons.
Similarly, the excise tax on gas and airfare discourages overuse of fuel because it’s bad for the environment, but these specific taxes also fall into the next category (funding projects).
Penalties on retirement accounts — like for early withdrawals or not taking required minimum distributions — are technically considered excise taxes. In a way, the penalties discourage the “wrong actions” related to those retirement accounts.
Funding Projects
Federal, state, and local governments sometimes impose excise taxes to fund projects related to the things being taxed. Infrastructure — including roads, bridges, and airports — is a great example. You pay excise taxes on fuel and airfare tickets, and that revenue is poured back into the infrastructure that enables travel.
Generating Revenue
At the end of the day, governments levy taxes to generate revenue so that they can provide services to citizens. Property taxes, meaning those levied on personal property like motor vehicles or boats vs. real estate taxes, can be quite lucrative for state and local governments.
Recommended: How to Reduce Taxable Income
Types of Excise Taxes
Now that you know what excise taxes are in a general way, here’s more intel on the two main types — ad valorem taxes and fixed-amount taxes. The difference boils down to how they’re calculated.
The difference between these types of taxes is as follows:
• Ad valorem taxes are percentage-based, similar to sales taxes. In Latin, “ad valorem” means “according to value.” In this case, the tax is set according to the value of the item being taxed. Indoor tanning services, for example, carry a 10% excise tax while airfare tickets have a 7.5% excise tax.
• Fixed-rate taxes are a per-unit tax. That means no matter what the cost of the item may be, there is a tax per individual unit. Every gallon of gasoline carries a federal excise tax $0.184, for example, though states can levy their own additional excise taxes. (Diesel fuel has its own excise tax rate as well.)
Cigarettes are another common example. The federal excise tax is $1.01 on a single pack, no matter the brand or cost of the pack, though states can levy additional taxes.
Recommended: IRS Tax Refund Dates and Deadlines
How Do Excise Taxes Work?
Excise taxes work a little differently depending on the specific tax in question. Some excise taxes are levied on the manufacturer or retailer while others are levied on the consumers themselves.
Excise taxes on gasoline, cigarettes, and alcohol, for example, are levied on the merchants, not the consumer. But that doesn’t mean consumers don’t pay them. Most retailers simply add the cost of the excise tax to the price. When you look at the receipt, you wouldn’t even be able to see the excise tax — you’d just see the sale price.
In some cases, consumers do pay excise taxes directly, like penalties on retirement account activity.
Excise Tax vs Sales Tax: What’s the Difference?
Excise taxes and sales taxes share some similarities, but they are two different types of consumption taxes. Here are some ways they’re different:
• Eligibility: With a few exclusions (like prescriptions and food, in many cases), sales taxes are applicable to every transaction. Excise taxes, however, are reserved for specific goods and services, including buying alcohol, gassing up your car, and purchasing tobacco.
• Payment: We pay sales taxes at the point of sale, like when checking out at a register. With excise taxes, manufacturers and retailers often pay the additional amount before consumers ever make the purchase — though consumers typically still foot the bill via higher prices.
• Level of government: Sales taxes are levied at the state and local level. When it comes to excise taxes, the federal government is also involved.
The Takeaway
Excise taxes touch multiple parts of our lives — from gassing up your car to enjoying a glass of wine. While excise taxes operate differently depending on the specific goods or services involved, their main aim is simple: to generate revenue for the government, which needs taxes to provide basic services to citizens.
Whether it’s excise, sales, or income taxes, chances are good that you hand over some of your hard-earned cash to the government — it’s just a part of life. Make the most of the money you keep by opening an online bank account that can help your deposits grow.
When you open a SoFi Checking and Savings account, you’ll enjoy an array of benefits. You’ll spend and save in one convenient place, and you’ll earn a competitive annual percentage yield (APY) while paying no account fees. That can help your money make you more money! Plus, qualifying accounts with direct deposit can get paycheck access up to two days early, which can be a helpful headstart on managing your cash.
FAQ
How much do people spend on excise taxes on average?
The amount that people spend on excise taxes can vary significantly, depending on what goods and services they buy. People who smoke regularly, for example, pay high excise taxes on cigarettes, while frequent travelers are paying for airline tickets that have excise taxes built in.
Can you deduct excise taxes?
In some cases, businesses can deduct excise taxes as a business expense. However, individuals cannot deduct excise taxes for a personal expense like alcohol or fuel. That said, there are instances where excise taxes on personal property (such as a boat) may be tax-deductible. It’s a good idea to work with a tax professional if you’re not sure.
What happens if excise taxes are removed?
Governments often use excise taxes to fund specific projects related to the goods or services being taxed. Fuel taxes, for example, go toward infrastructure expansion and maintenance. Without the excise tax, the government might not have the money necessary to invest in our roads. In this and other instances, the removal of excise taxes would reduce the government’s revenue and thus limit government spending.
Photo credit: iStock/kate_sept2004
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 4.30% annual percentage yield (APY) on savings balances (including Vaults) and 0.50% APY on checking balances. Direct Deposit means a recurring deposit of regular income to an account holder’s SoFi Checking or Savings account, including payroll, pension, or government benefit payments (e.g., Social Security), made by the account holder’s employer, payroll or benefits provider or government agency (“Direct Deposit”) via the Automated Clearing House (“ACH”) Network during a 30-day Evaluation Period (as defined below). Deposits that are not from an employer or government agency, including but not limited to check deposits, peer-to-peer transfers (e.g., transfers from PayPal, Venmo, etc.), merchant transactions (e.g., transactions from PayPal, Stripe, Square, etc.), and bank ACH funds transfers and wire transfers from external accounts, or are non-recurring in nature (e.g., IRS tax refunds), do not constitute Direct Deposit activity. There is no minimum Direct Deposit amount required to qualify for the stated interest rate. SoFi members with direct deposit are eligible for other SoFi Plus benefits.
As an alternative to direct deposit, SoFi members with Qualifying Deposits can earn 4.30% APY on savings balances (including Vaults) and 0.50% APY on checking balances. Qualifying Deposits means one or more deposits that, in the aggregate, are equal to or greater than $5,000 to an account holder’s SoFi Checking and Savings account (“Qualifying Deposits”) during a 30-day Evaluation Period (as defined below). Qualifying Deposits only include those deposits from the following eligible sources: (i) ACH transfers, (ii) inbound wire transfers, (iii) peer-to-peer transfers (i.e., external transfers from PayPal, Venmo, etc. and internal peer-to-peer transfers from a SoFi account belonging to another account holder), (iv) check deposits, (v) instant funding to your SoFi Bank Debit Card, (vi) push payments to your SoFi Bank Debit Card, and (vii) cash deposits. Qualifying Deposits do not include: (i) transfers between an account holder’s Checking account, Savings account, and/or Vaults; (ii) interest payments; (iii) bonuses issued by SoFi Bank or its affiliates; or (iv) credits, reversals, and refunds from SoFi Bank, N.A. (“SoFi Bank”) or from a merchant. SoFi members with Qualifying Deposits are not eligible for other SoFi Plus benefits.
SoFi Bank shall, in its sole discretion, assess each account holder’s Direct Deposit activity and Qualifying Deposits throughout each 30-Day Evaluation Period to determine the applicability of rates and may request additional documentation for verification of eligibility. The 30-Day Evaluation Period refers to the “Start Date” and “End Date” set forth on the APY Details page of your account, which comprises a period of 30 calendar days (the “30-Day Evaluation Period”). You can access the APY Details page at any time by logging into your SoFi account on the SoFi mobile app or SoFi website and selecting either (i) Banking > Savings > Current APY or (ii) Banking > Checking > Current APY. Upon receiving a Direct Deposit or $5,000 in Qualifying Deposits to your account, you will begin earning 4.30% APY on savings balances (including Vaults) and 0.50% on checking balances on or before the following calendar day. You will continue to earn these APYs for (i) the remainder of the current 30-Day Evaluation Period and through the end of the subsequent 30-Day Evaluation Period and (ii) any following 30-day Evaluation Periods during which SoFi Bank determines you to have Direct Deposit activity or $5,000 in Qualifying Deposits without interruption.
SoFi Bank reserves the right to grant a grace period to account holders following a change in Direct Deposit activity or Qualifying Deposits activity before adjusting rates. If SoFi Bank grants you a grace period, the dates for such grace period will be reflected on the APY Details page of your account. If SoFi Bank determines that you did not have Direct Deposit activity or $5,000 in Qualifying Deposits during the current 30-day Evaluation Period and, if applicable, the grace period, then you will begin earning the rates earned by account holders without either Direct Deposit or Qualifying Deposits until you have Direct Deposit activity or $5,000 in Qualifying Deposits in a subsequent 30-Day Evaluation Period. For the avoidance of doubt, an account holder with both Direct Deposit activity and Qualifying Deposits will earn the rates earned by account holders with Direct Deposit.
Members without either Direct Deposit activity or Qualifying Deposits, as determined by SoFi Bank, during a 30-Day Evaluation Period and, if applicable, the grace period, will earn 1.20% APY on savings balances (including Vaults) and 0.50% APY on checking balances.
Interest rates are variable and subject to change at any time. These rates are current as of 10/8/2024. There is no minimum balance requirement. Additional information can be found at https://www.sofi.com/legal/banking-rate-sheet.
Tax Information: This article provides general background information only and is not intended to serve as legal or tax advice or as a substitute for legal counsel. You should consult your own attorney and/or tax advisor if you have a question requiring legal or tax advice.
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