Nov
21
2023
Current Balance vs Available Balance: Key Differences

The Difference Between Current Balance and Available Balance

By | Financial Independence, money, Terminology | Comments Off on The Difference Between Current Balance and Available Balance

If you’ve ever wondered about the difference between what shows up on your bank account as an available balance vs. current balance, you are not alone. It can be perplexing to sometimes see two different figures for the amount of cash sitting in your account.

The truth is, both are correct. A current balance reflects the amount of money in a checking or savings account at any given moment. The available balance, on the other hand, shows you the current balance, plus or minus any transactions that are pending but have not yet been processed fully.

Financial institutions share these two balances with their customers to give as detailed a picture of funds on deposit as possible. While it may be confusing at first glance, once you understand the difference, it can actually help you stay in better control of your cash.

Read on to learn more about current vs. available balances on your bank accounts.

Key Points

•   Current balance reflects the amount of money in an account at any given moment.

•   Available balance shows the current balance minus any pending transactions that have not been fully processed.

•   Current balance includes both credits and debits, while available balance represents the amount available for spending.

•   The time it takes for a current balance to become an available balance depends on the processing time of pending transactions.

What is Current Balance?

The current balance of an account is a reflection of the amount of funds that are moving throughout a checking account or savings account at any given time.

This is a compilation of both credits and debits — incoming and outgoing funds — within an account. It includes transactions that have been completely processed on both ends and posted to an account.

Pending transfers or payments that have been authorized but have not been fully processed yet may be listed in your transaction history but are not included in the tally. So any debit card payments, mobile deposits, or automatic bill payments that haven’t been fully processed will not be calculated into the current balance.

For example, let’s say Brian’s checking account balance is $200.

•   On Monday, his employer deposits an $800 payment into his account that clears and posts on the same day, raising Brian’s current balance to $1,000.

•   On Wednesday, Brian uses his debit card to pay $100 for dinner, and the restaurant places a hold on his account for the amount. Because the payment is pending and awaiting processing, Brian’s current balance is still $1,000.

•   However, if on Friday the restaurant charge is fully processed and posted onto his account, his current balance would drop to $900.

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What is Available Balance?

An available balance is the current balance of a checking account or whatever type of savings account you may have, minus any pending payments and deposits. In essence, it takes the total amount of all fully processed and posted credits and debits, and subtracts the total amount of any pending payments that have yet to be fully processed, providing a more accurate reflection of the money in your account that remains available to be spent.

For example, Danielle’s checking account balance is $500. She uses her debit card to pay a $100 internet bill, and her landlord cashes her $300 check for her rent — both payments appear on her account as pending.

Despite her current balance being $500, her available balance is only $100 due to the pending payments. If she were to make other payments totaling more than $100, she will risk an overdraft fee and having a negative bank balance.

Recommended: Different Types of Savings Accounts You Can Have

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What is the Difference Between Current Balance and Available Balance?

If an account goes a week or two without any activity, its available balance and current balance will likely be in sync. However, once purchases and payments are made with a debit card, that is when the available balance is likely to fluctuate.

The key difference between a current balance and an available balance is “promised payments.” A current balance is the total amount of money in an account including money that has been promised to other people or businesses. An available balance, on the other hand, is the specific amount of money available that has not been promised to any person or business. While spending the full amount of a current balance with pending payments could result in overdraft or NSF fees, spending the full amount of an available balance should not.

Generally, when a current balance and available balance differ, here’s the likely situation:

•   The available balance is the lower of the two, and it’s nearly always due to a pending payment.

•   In some less common cases, an available balance may appear larger than the current balance. This could be due to receiving a refund from a purchase or the reflection of a bank overdraft protection buffer on an account. Either way, in this case, it would be wise to contact your bank for a better understanding of your current account standing.

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How Long Does It Take for a Current Balance to Become an Available Balance?

The amount of time it takes for an available balance to sync back up with a current balance depends on the specific amount of processing time needed to complete each pending transaction.

Those times can vary depending on the type of transaction and how quickly the establishment processes it. The account holder’s ability to refrain from spending with their debit card and adding more pending payments to the account is also a major factor.

As a general rule of thumb, individual pending payments can take as little as 24 hours or as long as 3 days to be completely processed and posted to an account. The process requires communication and confirmation between the banks of the account owner and the establishment they purchased from.

If a transaction remains pending for up to a week, it would be wise to contact the merchant or your bank for clarity.

Which Balance Should I Rely On?

The current balance and available balance each serve their own purpose and both can be relied upon as an accurate representation of a checking or saving account. However, there are specific instances when it would be better to reference one over the other.

•   If you’re planning on making a purchase or withdrawal, that is an instance where it would be more beneficial to reference the available balance on your account. It’s the best way to know exactly how much money is available to be spent without disrupting any other pending payments.

Checking the available balance will give the most exact account of what is freely available to be spent and will also help you avoid incurring any overdraft fees.

•   If you’re more interested in your account balance as a whole and how much money you have flowing through your account at any given time, that is when you’ll want to reference your current balance. It accounts for every dollar entering and exiting your account at the very moment you check it.

Do keep in mind, however, that the available balance total may change quickly due to any sudden pending transactions, therefore it would be wise to check it daily for the most up-to-date tally.

Recommended: How Often Should You Monitor Your Checking Account?

The Takeaway

Knowing what your account balances mean and how to interpret them is a basic financial skill that can literally save you money. Even the slightest misinterpretation of the two could result in costly overdraft fees and disrupt your financial goals.

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

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

Check out SoFi Checking and Savings.

Photo credit: iStock/fizkes

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

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

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

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

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

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

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

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

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Nov
21
2023
Should I Buy a New or Used Car in 2021?

Should I Buy a New or Used Car in 2024?

By | Budgeting & Goals, Financial Independence, money | Comments Off on Should I Buy a New or Used Car in 2024?

If you’re wondering whether to get a new or used car in the year ahead, sorry: Neither is bound to be a bargain. Car prices have been high lately, thanks to inflation, semiconductor shortages, and other forces. Unfortunately, prices aren’t likely to drop in 2024, but they may stabilize vs. creeping higher still. That fact may push some shoppers towards more affordable used cars vs. chasing that new car smell.

But each car shopper’s situation is likely to vary, and you need to make the decision that best suits you and only you. To help you decide where to spend your cash if you do plan to buy some wheels, read on. You’ll learn the pros and cons of new and used cars, plus learn about some other options.

Benefits of Buying a New Car

For some people, there’s nothing that can compete with the allure of a bright and shiny new car. Consider the benefits of buying brand new as you answer the question, “Should I buy a new or used car?”:

Pristine Condition

With a new car, you don’t have to kick as many tires. New vehicles arrive on dealer showroom floors (and at online auto sales platforms) in pristine condition with very few miles on the odometer, so you don’t have to spend time checking for vehicle inefficiencies and maintenance or repair issues.

Multiple Auto Financing Choices

It’s often easier to get a good financing deal with a new car vs. a used car. That’s because the vehicle hasn’t been driven, has no structural problems, maintenance, or repair issues, and should hold its value if the new owner takes good care of the vehicle. That’s important to auto loan financers, who place a premium on avoiding risk.

State-of-the-Art Features

Some people may feel “the newer the car, the better.” Here’s why: The auto industry is doing wonders with new vehicle construction, with features like better gas mileage and technological advancements that improve vehicle performance. Those upgrades come most notably in car safety, cleaner emissions, and digital dashboards that improve driving enjoyment.

Warranty and Service Benefits

New car owners are typically offered a manufacturer’s warranty when they buy a new car, which typically grades out better than third-party warranty coverage on a used car. Additionally, extended car warranties may be available, and auto dealers are more likely to offer services like free roadside assistance or free satellite radio to lock down a new car sale. Those services and features are harder to get with used vehicles.

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Drawbacks of Buying a New Car

Some disadvantages of a new car purchase might sway a buyer’s decision.

Immediate Depreciation

The moment you drive a new car off the dealer lot, it loses several thousand dollars and an estimated 20% in the first year of ownership and then 15% annually for the next few years afterward, which is not a fun fact when you are making car payments at the same level month after month.

Price

Saving up for a car is a big undertaking, and you may owe a lot of money on a new vehicle. The average price for a new car is currently $48,000, which is a significant figure.

Higher Insurance Costs

Auto insurers typically deem new cars as being more valuable than used cars and assign auto insurance premiums accordingly. Research recently found that the average cost of minimum auto insurance was $622 per year and full coverage was $2,014. Since new cars cost more, auto insurers prefer to see new auto drivers get full coverage and not minimum coverage.

Recommended: 10 Personal Finance Basics

Benefits of Buying a Used Car

Used cars offer buyers value and savings, which are attractive benefits to drivers who may not have a big budget, but still want to drive a quality vehicle.

Lower Price

No doubt about it, most used cars sell for significantly less than a new car with the same make and model. You learned above that the average new car is retailing for just under $50,000. How about used cars? The average is currently about $30,000, a considerable saving.

Slower Depreciation Rate

New cars tend to lose value quickly, as noted above, especially if they’re not properly cared for. But used cars tend to depreciate more slowly, especially if they’ve had regular maintenance, and their sustained value makes them a good resale candidate if the owner wants another vehicle, but still wants to make a good deal when selling the vehicle.

Your Down Payment May Go Further

Buyers who can manage a robust down payment on a used vehicle can bypass a good chunk of the debt incurred in purchasing the vehicle. It comes down to simple math — if a buyer purchases a $30,000 used vehicle with a down payment of $15,000, there’s only $15,000 left to pay on the vehicle. If a buyer purchases a new vehicle for $48,000, and puts $15,000 down, that buyer still owes $33,000 on the auto loan.

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Drawbacks of Buying a Used Car

When deciding whether to buy a used car or not, these issues may be worth considering.

Reliability Can Be an Issue

With a used car, an owner may be getting a quality vehicle — or maybe not. A used car may have spent years on the roads and highways, incurring a fair share of dings, dents, and general wear and tear that may have aged it prematurely, particularly if it hasn’t been maintained well.

Less Choice

You may not get the exact make and model you want. The options can dwindle when it comes to buying a used car. Whereas auto dealers can offer a wide range of makes, models, and colors for a new vehicle, those choices can be significantly limited with a used car, truck, or SUV. That could mean that a used vehicle buyer may have to compromise on different factors, in contrast to someone who is buying new and can often get their dream car, down to the last detail.

Maintenance Costs

You may pay more for vehicle maintenance. Auto repairs often cost more over time and become more frequent too as a car ages. So you may well pay more for maintenance and repairs with a used car. With a very old car, finding parts to complete repairs may also be a challenge.

Top Considerations When Choosing to Buy a New or Used Car

As you make your decision between buying a new or used car, you likely will have your own set of needs and preferences. However, these are among the key concerns to think over:

•   Budget: How much can you afford?

•   Which model car you truly want: If you really need a vehicle with a third row of seats but can’t afford one brand new, that may lead you to a used car.

•   Financing options: You want to feel certain that you’ll be able to get the car you want with affordable terms, so thinking about how to get a car loan makes sense.

•   Maintenance profile: Factors such as vehicle reputation and repair history matter as well.

By weighing your choices on these fronts, you will likely be able to make the right move, both in terms of the car you buy and how well it fits into your household budget.

Recommended: How to Automate Your Finances

Other Car Purchasing Options

Auto consumers don’t have to be limited to a “buy new or used car” purchase decision. There are other valid options that go beyond the question of “should I buy a new or used car”: buying a pre-owned car or leasing a vehicle.

Certified Pre-Owned Cars

Car buyers who want to know that a vehicle is ship-shape, but who don’t want to spend a great deal of cash on a new set of wheels can compromise with a certified pre-owned vehicle.

A certified pre-owned vehicle means just what it says — it provides buyers with a vehicle that has low mileage, has no significant damage, has passed a battery of auto shop maintenance and performance tests, offers a new warranty, and likely costs thousands of dollars less than a new car. While you won’t be getting a brand-new car, you are likely getting a vetted and trustworthy vehicle at a decent price, which fits the bill for legions of would-be car owners.

Leased Cars

By leasing a car, you’re not buying it, you’re just renting it for a fixed period of time, usually with the option to buy the vehicle at the end of the lease.

Most auto leases average three or four years, and upfront costs are typically less than purchasing a new car (lease owners pay an upfront fee plus regular monthly payments for the duration of the lease period.)

Car leases do come with restrictions on key performance elements like mileage, and also require that the vehicle is returned in top condition when the lease period ends. Ignoring those issues can lead to hefty fees charged by the lease provider and owed by the leasing customer.

About 20% of all new cars are leased in the US, with the average lease being $487 per month vs. the average of $548 for a new car payment.

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No account or overdraft fees. No minimum balance.

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The Takeaway

Are you wondering, “Should I buy a new or used car?” Like any major purchase decision, prospective auto buyers are advised to shop around, check the book value of favored vehicles, and look at the car’s maintenance and repair history to ensure it’s in good condition, and (if it’s a used car) make sure it’s inspected by a trusted mechanic.

By doing these things, the choice between a new and used car can get easier and enhance your chances of driving away in the vehicle that best fits your auto needs and your financial needs. As you think about the latter, you may want to make sure that your banking partner is the right one, too, and is helping your money work harder for you.

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


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

FAQ

Do used cars require more maintenance vs. new cars?

You may pay more for maintenance on a used car vs. a new one. Typically, older cars need more work than their younger counterparts.

Are used cars a better deal than new cars?

Used cars can be more affordable than new ones, from the sticker price to the insurance costs.

What should be expected from new and used car prices in 2024?

Car prices have been high, and currently they are expected to stabilize, but not drop, in 2024.

Photo credit: iStock/Ivanko_Brnjakovic

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

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

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

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

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

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

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

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

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

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Nov
21
2023
woman looking at papers in kitchen

Do I Need a Personal Accountant?

By | Budgeting & Goals, Financial Independence, money | Comments Off on Do I Need a Personal Accountant?

You’ve landed your dream job — and your dream salary. Or maybe you’ve started your own business or taken up a side hustle. Along with the happiness of earning more comes the responsibility of making sure your money is working as hard as you are.

You may be wondering, is it worth hiring a personal accountant to help with things like self-employment taxes and investing for the future? Or should you try to handle them on your own?

The answer may depend on a number of factors, including your financial acumen, money-management needs, and whether you’re the hands-on type or not.

The types of accountants out there are as varied as the kinds of services they offer. Here’s how to determine if you need a personal accountant, and if so, how to find the best one for your specific situation.

Key Points

•   Hiring a personal accountant can be beneficial for managing finances, especially for entrepreneurs and individuals with complex tax situations.

•   Different types of accountants, such as CPAs, accountants, and bookkeepers, offer varying services and expertise.

•   Depending on their training and experience, accountants can assist with tax filing, deductions, payroll, business finances, and personal financial management.

•   The decision to hire a personal accountant depends on individual financial needs, comfort with DIY accounting, and willingness to invest in professional assistance.

•   Alternatives to hiring a personal accountant include self-education, online research, and using money-management apps.

What Type of Accountant Do I Need?

The term “accountant” is sometimes used as a catch-all phrase to refer to any professional who deals with financial transactions or taxes, but there are different types of accountants. For instance, there are bookkeepers, accountants, and Certified Public Accountants (CPAs), to name a few, and they all have different skill sets and varying limits on what they can and can’t do. Choosing the right professional could help you achieve financial security, whether you’re running a business or investing money for your future.

A CPA is certified to do everything a general accountant or bookkeeper can do, along with one important addition — government permission to file taxes on a client’s behalf and represent them in case of a tax audit.

Becoming a licensed CPA requires passing the Uniform CPA Exam and completing continuing education hours each year in order to maintain their certification. CPA fees can range anywhere from approximately $33 to $500 an hour.

An accountant without CPA certification cannot sign tax returns on behalf of a client, but they can prepare them. An accountant also can record and report detailed financial transactions and provide analysis.

Most accountants hold an undergrad degree — although it doesn’t necessarily have to be in accounting — and many pursue additional certifications such as Certified Management Accountant (CMA) and Chartered Accountant (CA) . Like CPAs, their hourly rates can vary widely depending on location and expertise.

Finally, a bookkeeper is someone who can help keep your books if you’re running a business. Their responsibilities can include paying bills, keeping track of account balances, recording transactions and providing reports throughout the year.

Bookkeepers aren’t required to hold an accounting degree, but some organizations and businesses do offer certification, including a Certified Public Bookkeeper (CPB) certification, which means the bookkeeper has passed an advanced skills exam and is required to take continuing education.

Bookkeepers might also handle payroll and other business taxes, although they aren’t allowed to sign tax returns or provide audit representation. Bookkeeper fees can vary widely.

💡 Quick Tip: Help your money earn more money! Opening a high-yield bank account online often gets you higher-than-average rates.

Get up to $300 when you bank with SoFi.

No account or overdraft fees. No minimum balance.

Up to 4.00% APY on savings balances.

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What Financial Issues Can a Personal Accountant Handle?

Accountants can be experts in money-management topics across the board, including taxes and helping navigate complicated financial situations.

Beyond that, how an accountant can help depends on your individual financial needs. Here are some details on which type of accountant is best for specific needs.

For Independent Contractors and Solo entrepreneurs

There are many benefits to being an entrepreneur. But finances can get complicated for independent contractors and solo entrepreneurs, from managing invoices to tracking inventory to keeping one eye on the big business picture. In short, an accountant can assist with most things money-related so that the business owner can focus on the business.

Although a non-certified accountant can’t file your taxes on your behalf, they can help you with business issues like tracking your deductions, including payroll deductions; calculating estimated tax payments; and ensuring that you reap the most benefit from your tax deductions (which include hiring an accountant). An accountant is also more likely to be on top of the latest changes in the tax law.

Another way an accountant could help independent contractors is by handling all the organizational factors that come with running a business. Tasks such as invoicing, tracking sales, and tracking receipts, can feel overwhelming to someone who’s never taken business classes.

For Small Businesses

For businesses with more than one employee, an accountant with small business expertise can help with everything from determining the right business structure to filing taxes.

If you’re just starting out as a small business owner, an accountant could help with the financial segments of your business plan. During day-to-day operations, a good accountant can help with everything from opening a business bank account to payroll to providing guidance regarding government regulations or any changes in tax law.

And if you hire a CPA, they can even file business taxes on your behalf.

💡 Quick Tip: If you’re faced with debt and wondering which kind to pay off first, it can be smart to prioritize high-interest debt first. For many people, this means their credit card debt; rates have recently been climbing into the double-digit range, so try to eliminate that ASAP.

For Individuals

If you have a lot of financial issues to handle, a personal accountant can help you manage them.

Perhaps the biggest reason an individual might hire an accountant is to help with taxes, especially if they’re facing complicated tax situations like receiving an inheritance, filing taxes for rental property, or navigating capital gains taxes.

But even for everyday life, a personal accountant can help turn your personal finance knowledge into action. It’s one thing to understand that you need to cut spending, but it’s another thing to actually put that knowledge into practice.

The same goes for paying down debt. An accountant can help keep you on track to repay what you owe.

Recommended: How Many Bank Accounts Should I Have?

The Takeaway

A personal accountant may be helpful if you’re an entrepreneur or you have a lot of personal financial issues to deal with. However, if going the DIY accounting route is more your style, you could enroll in a course to learn more about money management, do research online, or use a money-management app. Whichever method you choose, make sure you feel comfortable with the decisions you’re making for your money — and your future.

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

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

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

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

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

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

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

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

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

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How Much Retirement Money Should I Have at 40?

By | Budgeting & Goals, Growing Wealth, invest, Investing, Preparing for Retirement | No Comments

At some point or another, you’ve probably wondered if you have enough money for the future and asked yourself, “how much retirement should I have at 40?”

It’s an important question. Hopefully, you’re already saving some money for retirement. However, you might not be saving enough to retire when you want.

There are different ways to save money for retirement. The sooner, the better—so that it can start adding up. Here’s how to maximize your retirement savings at age 40 and beyond.

Understanding Your Retirement Savings at 40

Now, to answer the question: How much money should I have saved by 40? A general rule of thumb recommended by many financial advisors is to have about three times your annual salary saved in retirement money by the time you’re 40.

Knowing this general benchmark is helpful for your retirement planning.

What Does the Average 40-Year-Old Have Saved?

According to a recent study from Northwestern Mutual, people in their forties say they currently have $77,400 saved for retirement. However, that’s a long way from the amount they expect to need for retirement, which is $1.28 million.

How Your Retirement Savings Compare to National Averages

Compared to the guideline of having three times your annual salary saved by the time you’re 40, if you only have the amount reported by the respondents in the Northwestern study — $77,400 — you’ve got some work to do. The good news is, you’ve probably got around 20 years or more to help get where you need to be by the time you’re ready to retire.

Factors Influencing Your Retirement Savings So Far

As you reach your 40s, it’s likely that your income is increasing, but so are the obligations that are tied to your money.

You might be saving money for your kids’ college; you probably have mortgage payments and existing debt, including your own student loans; you may even be taking care of aging parents. It’s a lot of financial multitasking and you have to prioritize.

In addition to all that, inflation over the past couple of years has made many prices higher, which could increase your cost of living. Overall, prices are 13% higher than they were two years ago, according to Consumer Price Index data. You might also be dealing with unemployment or a job layoff. All these factors can make saving for retirement more challenging.

The Right Retirement Savings Path for You

To map out a savings plan that makes sense, you can start by estimating how much money you’ll need for retirement. It’s also a good idea to look at your goals. That includes figuring out when you might want to retire, what kind of lifestyle you want in retirement, and how much money you might have coming in during your golden years. That will help you determine how much you need to save.

Projecting Your Retirement Needs

Start by thinking about the kind of lifestyle you’d like to have in retirement. Will you move to a smaller home? If so, you may save money on housing costs. On the other hand, if you’d like to travel frequently, your expenses may increase.

Also, estimate what your budget as a retiree might be. Include housing, utilities, insurance, food, transportation, clothes, and so on. And don’t forget entertainment expenses like movies, concerts, and meals out.

Next, factor in healthcare expenses. Health-related costs can be significant in retirement, depending on your medical situation.

Retirement Savings Rate: How Much of Your Income to Save

While each person’s situation and needs are unique, there are some general guidelines that can help project your financial needs during retirement.

For instance, according to Fidelity, you should try to save 15% of your pre-tax income each year if you plan to retire at age 67.

Another rule, known as the 80% rule, says you should have enough money by the time you retire to cover 80% of your pre-retirement income.

Milestones for Retirement Savings By Decade

As discussed, when you plan to retire and what kind of lifestyle you’d like to have in retirement are two of the main factors that affect how much money you’ll need to save. The milestones below are general, but they will give you an idea about how much to save at various ages.

Retirement Savings By:

•  Age 30: 1x your annual income

•  Age 40: 3x your annual income

•  Age 50: 6x your annual income

•  Age 60: 8x your annual income

•  Age 67: 10x your annual income

Maximizing Your Retirement Savings in Your 40s

If you haven’t saved 3 times your annual income by your 40s, or even if you have, here are some ways to make the most of your retirement funds in this decade.

Benefits of a Roth 401(k) and When to Consider It

Some 401(k) plans give you the opportunity of choosing a Roth 401(k) to save for retirement. If your employer offers such a plan you may want to consider it.

The difference between a Roth 401(k) and a traditional 401(k) is that with a Roth 401(k), contributions are made using after-tax funds. That means they aren’t tax deductible, but the withdrawals you make in retirement are tax-free. In addition, you don’t pay taxes on your annual investment earnings in a Roth 401(k). With a traditional 401(k), the contributions you make are tax deductible, however, you will pay taxes on your retirement withdrawals. So a Roth 401(k) can be beneficial if you expect to be in a higher tax bracket by the time you retire.

The good news is, you can contribute to both a Roth 401(k) and a traditional 401(k) as long as your plan allows it. Just know that there are yearly limits on your contributions. Across both plans, individuals under age 50 can contribute $22,500 annually in 2023.

If you have a traditional 401(k), there are a number of strategies to max out your 401(k) that are worth looking into. For example, it makes sense to contribute at least enough to qualify for any employer matching that your company offers. Why lose out on the “free” money your employer is willing to contribute to your retirement savings?

Catch-Up Contributions: Leveraging Them When the Time Comes

Once you reach age 50, you can make catch-up contributions to your 401(k) plan, as long as your plan allows them, which could help you save even more for retirement. In 2023, the catch-up contribution is an additional $7,500. That means, in total, individuals 50 and older could contribute up to $30,000 to their 401(k) in 2023.

Knowing about catch-up contributions when you’re in your forties could help you plan and prepare for them when you reach 50. Catch-up contributions can help you make the most of your retirement plan.

Investment Strategies for Mid-Career Savers

There are many other ways to save for retirement, even beyond the employer-sponsored 401(k) and Roth 401(k).

Some people choose to put their retirement savings in more than one type of account. This is useful if you want to set aside more than the yearly contribution limits on 401(k) plans. In that case, it might make sense to open an IRA savings account to save beyond the 401(k) limits, as long as you meet the necessary criteria.

Recommended: A Look at Traditional IRAs vs Roth IRAs

The Role of Expenses in Retirement Planning

Figuring out how much your retirement living expenses will be is important for calculating how money you’ll need to save. These are some of the things you may want to consider and budget for.

Emergency Savings vs. Retirement Savings

Your retirement savings are extremely important. However, if you don’t have an emergency fund that can cover three to six months’ worth of living expenses, consider putting that at the top of your priority list.

Why? While retirement is still likely to be years away if you’re 40 now, an emergency could happen at any time. For instance, you may be faced with an unexpected medical procedure that you’ll need to pay for if insurance doesn’t cover it all. Or your heater might break in the middle of winter and need to be replaced. If you don’t have the emergency funds to cover these things, you risk taking on debt. And that could in turn limit your retirement savings as you work to pay off that debt.

Of course, if you can afford to contribute to both an emergency fund and your retirement savings, by all means, do so.

Planning for Healthcare Expenses in Retirement

As people grow older, their healthcare needs and costs typically increase. For many, healthcare can be one of the biggest retirement expenses.

Fidelity estimates that the average person may need $157,500 to cover healthcare costs in retirement. If you have a high-deductible health insurance plan, you might want to look into a Health Savings Account (HSA), which could potentially help you save money to cover some healthcare costs.

Incorporating Home Costs Into Retirement Savings

Housing costs are another major retirement expense. You may have mortgage payments, homeowner’s insurance, and home maintenance and repairs to pay for. If you rent, you’ll have to cover your monthly rental fee plus renters’ insurance.

Additionally, where you live — the city and state — can impact how much you pay for housing. In general, living on the coasts can be more expensive. You may want to take the cost of living into consideration when you’re thinking about where you want to live in retirement.

Family and Retirement: Balancing the Present and Future

Of course, along with saving for retirement, you have present-day expenses and events to pay for as well. This includes important family milestones, such as college and a child’s wedding. Fortunately, with proper budgeting and planning, it is possible to help cover these expenses and save for retirement at the same time.

Budgeting for College Savings While Prioritizing Retirement

To keep building a retirement nest egg while saving for college for your kids, consider some college-savings plans. One good option to consider: a 529 plan that you fund with after-tax dollars. You can contribute to the plan on a regular basis, or whenever you have extra money, and family members and friends can contribute as well. For instance, instead of birthday gifts, ask loved ones to contribute to your child’s 529 instead.

Virtually every state offers a 529 plan and you can shop around to find one that has the best tax benefits and lowest costs. Open the plan as early as you can when your child is young so that the money invested has more time to grow.

Weddings and Other Major Family Expenses

If you’d like to help pay for your child’s wedding, you could put some money in a savings or investment account so that it can grow over time. If the wedding is coming up relatively soon, you could put your money into a high-yield savings account, for instance, to get a higher interest rate than you’d get from a regular savings account. If the wedding is farther in the future, you might want to invest in mutual funds or a stock index fund, which could deliver more growth.

Expert Strategies to Increase Retirement Savings

There are a number of smart ways to maximize your savings and be on track for retirement. Here are a few strategies experts advise.

Salary Negotiations and Their Long-Term Impact on Savings

If it’s been a while since you’ve received a raise, this may be a good time to ask for one. By age 40, you’ve probably developed skills that make you valuable to your employer.

If you need some incentive for negotiating for a higher salary, consider this: Even an extra $100 a week invested for the next 20 years with a 10% annual return could give you approximately $300,000 more in retirement savings.

Building a Solid Financial Foundation with a Six-Month Emergency Fund

As we discussed earlier, having an emergency fund is critical for any unexpected expenses that arise. Ideally, it’s wise to have six months’ worth of expenses saved up. That can help tide you over in case of job loss or some other significant event that affects your income.

You can open a high-yield savings account for your emergency fund to help it grow. Consider automating your savings to make sure you’re contributing to your emergency fund regularly.

Then, once you’ve reached six month’s worth, you can allocate the money you had been contributing to the emergency fund to your retirement savings.

Why Prioritizing Roth Retirement Accounts Can Pay Off

Investing in a Roth IRA can be helpful if you want to withdraw money in retirement without paying taxes on it. After-tax accounts can be appealing to individuals who plan to achieve financial independence at a younger age and retire early. Unlike qualified plans, which place penalties on withdrawing funds before a certain age, an after-tax account is a pool of money that you can withdraw from without having to worry about penalties if you access the account before age 59 ½.

Even if you wait until age 67 to retire, if you expect to be in a higher tax bracket at retirement, a Roth IRA can make sense since you won’t have to pay taxes on retirement withdrawals.

For 2023, you can contribute up to $6,500 annually in a Roth IRA. Individuals 50 and older can contribute $7,500. That said, there are income limits on Roth IRAs. The amount you can contribute starts to phase out if you earn more than $138,000 as a single tax filer, or $218,000 for married couples who file jointly.

The Takeaway

While there are conventional rules of thumb as to how much money you should have saved by 40, the truth is everyone’s path to a comfortable retirement looks different. One piece of advice is universal, however: The sooner you start saving for retirement, the better your chances of being in a financially desirable position later in life.

Ready to invest in your goals? It’s easy to get started when you open an investment account with SoFi Invest. You can invest in stocks, exchange-traded funds (ETFs), mutual funds, alternative funds, and more. SoFi doesn’t charge commissions, but other fees apply (full fee disclosure here).


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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.

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.

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SoFi Invest encompasses two distinct companies, with various products and services offered to investors as described below: Individual customer accounts may be subject to the terms applicable to one or more of these platforms.
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2) Active Investing and brokerage services are provided by SoFi Securities LLC, Member FINRA (www.finra.org)/SIPC(www.sipc.org). Clearing and custody of all securities are provided by APEX Clearing Corporation.
For additional disclosures related to the SoFi Invest platforms described above please visit SoFi.com/legal.
Neither the Investment Advisor Representatives of SoFi Wealth, nor the Registered Representatives of SoFi Securities are compensated for the sale of any product or service sold through any SoFi Invest platform.

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What Are the Differences Between FDIC and NCUA Insurance?

What Are the Differences Between FDIC and NCUA Insurance?

By | Financial Independence, money, Terminology | Comments Off on What Are the Differences Between FDIC and NCUA Insurance?

The Federal Deposit Insurance Corporation (FDIC) and National Credit Union Administration (NCUA) are independent federal agencies that insure their customers’ deposits. The FDIC insures deposits at banks typically up to $250,000 (though there are exceptions1); the NCUA offers the same insurance and consumer protection but at credit unions.

Account holders don’t have to apply or qualify for this coverage; it comes with different deposit accounts, assuming the institution is a FDIC or NCUA member. The coverage is meant to cover deposits if the institution were to fail; it doesn’t cover investment products or losses.

While these two entities serve similar purposes for consumers, they operate a little differently, with slightly different benefits for account holders. Before setting up a bank or credit union account, it may help to know how they each operate, and how to maximize your coverage.

Key Points

•   The FDIC and NCUA are government agencies that insure deposits at banks and credit unions, respectively.

•   FDIC stands for the Federal Deposit Insurance Corporation, and NCUA stands for National Credit Union Administration.

•   Both agencies provide insurance coverage of up to $250,000 per insured bank, per depositor or share owner, per account ownership category.

•   FDIC and NCUA insurance covers various types of accounts, such as checking, savings, money market, and certificates of deposit. Insurance coverage does not extend to investment products, stocks, bonds, mutual funds, annuities, life insurance policies, or safe deposit boxes.

•   It is important to verify if a financial institution is insured by the FDIC or NCUA before opening an account to ensure deposit protection.

What Is the FDIC?

FDIC stands for Federal Deposit Insurance Corporation. President Franklin D. Roosevelt established the Federal Deposit Insurance Corporation when he signed the Banking Act of 1933 amid the Great Depression.

The main purpose of the FDIC is to “maintain stability and public confidence in the nation’s financial system.” As part of that remit, the FDIC insures consumer deposits and is “backed by the full faith and credit of the United States government.”

The FDIC insures $250,000 per depositor, per insured bank, for every account ownership category. “Account ownership category” refers to single account holders, joint accounts, and other accounts like revocable and irrevocable trusts. (See table below.)

If you are a person who keeps a considerable amount of money in a bank, you’ll likely want to know that some banks participate in programs that extend the FDIC insurance to cover millions.

According to the FDIC, a depositor has not lost a single penny of FDIC-insured deposits because of a bank failure.

What Is the NCUA?

NCUA stands for National Credit Union Administration. Though the first credit union opened in the United States in 1909, and there were nearly 10,000 credit unions in the U.S. by 1960, Congress did not create the National Credit Union Administration until 1970.

Like the FDIC, the purpose of the NCUA is to insure deposits made by credit union members and protect those members who own credit unions. (Credit unions are not-for-profit and are owned by the members.)

Also like the FDIC, the NCUA is “backed by the full faith and credit of the United States government,” and insures deposits up to $250,000 per share owner, per insured credit union, for each account ownership category, share accounts, and some IRAs and trusts.

Rivaling the FDIC’s track record, the NCUA states that no member has ever lost a cent from accounts insured through the NCUA.

All federally chartered credit unions are a part of the NCUA while state-chartered credit unions adhere to state-specific regulations. That said, many state-chartered credit unions are also insured by the NCUA.

Recommended: Understanding the Marginal Propensity to Save Theory

FDIC vs NCUA Insurance: Similarities and Differences

So what’s the difference between the FDIC and NCUA? The biggest difference regarding FDIC vs. NCUA is the customers they protect. The FDIC insures deposits for bank customers while the NCUA insures deposits for credit union members. As a customer of a financial institution, you will not likely notice a difference in your day-to-day banking.

In fact, it’s easier to talk about all the ways the FDIC and NCUA are similar. The table below explores these similarities (and minor differences).

FDICNCUA
Year Created19331970
Applicable Financial InstitutionBanksCredit Unions
Insurance Amount$250,000 per depositor, per insured bank, for each account ownership category$250,000 per share member, per insured credit union, for each account ownership category
What Is InsuredChecking accounts
Savings accounts
Money market accounts
Time deposits (like CDs)
Other deposit accounts		Share draft (checking) accounts
Share savings accounts
Money market accounts
Certificate accounts (like CDs)
Other deposit accounts
What Is Not InsuredStocks
Bonds
Mutual funds
Annuities
Treasury securities
Life insurance policies
Safe deposit boxes (or contents)		Stocks
Bonds
Mutual funds
Annuities
Life insurance policies
Safe deposit boxes (or contents)
Ownership TypesSingle ownership
Joint ownership
Revocable trust account
Irrevocable trust account
Certain retirement accounts (like IRAs)
Employee benefit plan accounts
Corporation/Partnership/Unincorporated Association Accounts
Government Accounts		Single ownership
Joint ownership
Revocable trust account
Irrevocable trust account
Certain retirement accounts (like IRAs, KEOGHs)
Employee benefit plan accounts

What Does NCUA Coverage Protect?

NCUA coverage comes from the National Credit Union Share Insurance Fund (NCUSIF). The following account types are insured via the NCUSIF:

•   Share draft accounts (checking accounts)

•   Share savings accounts

•   Money market deposit accounts

•   Share certificates (like certificates of deposit)

Recommended: The Benefits of a High-Interest Savings Account

What Isn’t Covered by NCUA?

If your credit union carries insurance through the NCUA, you can depend on coverage up to $250,000 for common accounts like a checking or savings account. However, NCUA insurance does not cover:

•   Stocks

•   Bonds

•   Mutual funds

•   Annuities

•   Life insurance

•   Safe deposit boxes (or their contents)

What Does FDIC Coverage Protect?

Insurance through the FDIC covers account types that are comparable to those covered by the NCUA:

•   Checking accounts

•   Savings accounts

•   Money market deposit accounts

•   Time deposits (like certificates of deposit)

The FDIC also notes that its insurance covers Negotiable Order of Withdrawal (NOW) accounts, cashier’s checks, money orders, and other local items issued by a bank.

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What Isn’t Covered by FDIC?

The FDIC has coverage exclusions similar to those of the NCUA. Insurance through the FDIC does not extend to:

•   Stocks

•   Bonds

•   Mutual funds

•   Annuities

•   Treasury securities

•   Life insurance

•   Safe deposit boxes (or their contents)

Treasury securities like bills, bonds, and notes are, however, “backed by the full faith and credit of the U.S. government.”

How to Know if Your Institution Is Insured by the FDIC or NCUA

Because the FDIC and NCUA insure deposits up to $250,000 for checking and savings accounts (some external programs allow for higher insurance limits with the FDIC), it’s important to know when selecting a new financial institution that it is insured by one of the two organizations.

So how do you know if a bank is insured by the FDIC? The FDIC provides a few easy options:

•   Call and ask. Calling the FDIC is toll-free. You can reach them at 1-877-275-3342.

•   Search online. The FDIC has a database called “Bank Find” that allows you to search for insured banks.

•   Look for the sign. When you enter a brick-and-mortar (aka physical) bank location, look for official FDIC signage.

•   Search the bank’s website. If you fall on the digital side of the traditional vs. online banking debate, you can scour a bank’s website instead. Usually you can find language like “Member FDIC” in the footer if the bank is insured. In fact, you can try it on this page; you’ll see that SoFi’s Checking and Savings account is FDIC-insured.

Determining whether a credit union is insured by the NCUA is just as easy:

•   Check online. Visit the NCUA’s agency website to search a complete directory of federally insured credit unions.

•   Look for the sign. Similar to the FDIC, the NCUA requires federally insured credit unions to place NCUSIF signage in their advertisements, offices, and branches to indicate insurance coverage.

•   Search the credit union’s website. Credit unions that are federally insured will include NCUA verbiage in the footer of their websites, just like banks do for the FDIC.

Remember, some state credit unions may not be federally insured. A credit union that includes “federal” in its name should automatically be insured by the NCUA. If you aren’t sure about a state credit union’s insurance, you can ask a credit union representative on site or over the phone for more information.

Recommended: Where to Store Short-Term Savings

Are All Banks FDIC Insured?

Nearly all banks are FDIC insured — but not all of them. Any bank that is not insured federally through the FDIC likely carries insurance through its state, so your deposits are typically still safe. However, it is a good idea to thoroughly research a bank and its insurance policies before storing any money in an account at the institution.

Are All Credit Unions NCUA Insured?

Not all credit unions are NCUA insured. All federal credit unions are automatically insured by the NCUA, but state credit unions must opt into NCUA share insurance. Those that don’t are typically insured through the state. As with banks, it is a good practice to understand a credit union’s insurance status and how it can affect your money before opening any account.

How to Maximize FDIC and NCUA Insurance

Both the FDIC and NCUA are typically very clear on how much they insure — $250,000 — careful to use specific terminology like “per depositor” or “per share owner”; “per insured bank” and “per insured credit union”; and “for each account ownership category.”

Knowing that, there are a few ways you can maximize your insurance coverage:

Open an Account That Insures for More Than $250,000

As briefly noted above, some banks offer programs that allow depositors to insure their account for more than the usual $250,000 amount. Check with financial institutions to see what may be available that can extend your account insurance to cover millions.

Open Accounts at Multiple Financial Institutions

You receive $250,000 of insurance coverage at each institution with applicable accounts. That means you could open up accounts at multiple banks and credit unions, spread your wealth across those accounts, and wind up with coverage on much more than $250,000.

Use Account Ownership Categories to Your Advantage

Another way to maximize FDIC and NCUA insurance is to utilize multiple account ownership categories. For example, at one bank, you could have a single ownership certificate of deposit with $200,000 and share a joint savings account holding another $200,000 with a partner. Even though you’d be above the $250,000 threshold, these separate account ownership categories each qualify for the max insurance coverage.

Open Accounts for Various Family Members

You, your spouse, and your children could each open a single ownership savings account at the same bank and each deposit $250,000 in your own account. Because each account has a different depositor, each is protected fully for $250,000.

Consider a Revocable Trust

If you and a partner want to put money together and save it as a potential nest egg for a family member, you can create a revocable trust (a type of trust fund). Then you can name beneficiaries for that money should you and the other account owner die. For each beneficiary, the account is insured for $250,000. If you name three beneficiaries, you can deposit $750,000, and it will all be insured.

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The Takeaway

The FDIC (Federal Deposit Insurance Corporation) and NCUA (National Credit Union Administration) are government agencies that protect consumers’ deposits at banks and credit unions. The two agencies operate similarly and protect the same kinds of accounts, typically up to $250,000. The key difference? The FDIC only insures money at banks while the NCUA only insures credit unions.

As a customer of a financial institution, it’s important to know which, if any, of your accounts are insured. A final caveat: While it is rare, not every bank is insured by the FDIC, and not every credit union is insured by the NCUA.

Looking for a checking or savings account that is insured by the FDIC? Check out the all-in-one SoFi Checking and Savings account, where your deposits earn a very competitive rate of up to 4.00% APY with direct deposit. Plus, SoFi recently announced that deposits may be insured up to $2 million through participation in the SoFi Insured Deposit Program. Need more incentives? When you open an online bank account with SoFi, qualifying accounts can paycheck access up to two days early — all for no monthly fees.

Open an FDIC-insured bank account with SoFi today.

FAQ

What does the NCUA not cover?

The National Credit Union Share Insurance Fund, which operates under the NCUA, does not cover stocks, bonds, mutual funds, annuities, life insurance policies, or safe deposit boxes and their contents.

How are the FDIC and NCUA similar?

Both the FDIC and NCUA are government agencies created by Congress to insure consumers’ deposits, including savings accounts, checking accounts, and CDs, up to $250,000 per person, per financial institution, and for each account ownership category. The main difference between FDIC and NCUA is that the FDIC insures banks and the NCUA insures credit unions.

Why are credit unions not FDIC insured?

Credit unions are not FDIC-insured because the FDIC insures banks. Federal credit unions (and many state credit unions) are instead insured by the NCUA.

How much of your money is protected by FDIC or NCUA?

The FDIC insures $250,000 per depositor, per insured bank, for each category of ownership. In theory, you could have more than $250,000 across different account types at different banks, and it would all be insured by the FDIC.

The same is true of the NCUA. The NCUA insures $250,000 per share owner, per insured credit union, for each category of ownership.

Photo credit: iStock/Talaj

SoFi® Checking and Savings is offered through SoFi Bank, N.A. ©2024 SoFi Bank, N.A. All rights reserved. Member FDIC. Equal Housing Lender.
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SoFi members with direct deposit activity can earn 4.00% annual percentage yield (APY) on savings balances (including Vaults) and 0.50% APY on checking balances. Direct Deposit means a recurring deposit of regular income to an account holder’s SoFi Checking or Savings account, including payroll, pension, or government benefit payments (e.g., Social Security), made by the account holder’s employer, payroll or benefits provider or government agency (“Direct Deposit”) via the Automated Clearing House (“ACH”) Network during a 30-day Evaluation Period (as defined below). Deposits that are not from an employer or government agency, including but not limited to check deposits, peer-to-peer transfers (e.g., transfers from PayPal, Venmo, etc.), merchant transactions (e.g., transactions from PayPal, Stripe, Square, etc.), and bank ACH funds transfers and wire transfers from external accounts, or are non-recurring in nature (e.g., IRS tax refunds), do not constitute Direct Deposit activity. There is no minimum Direct Deposit amount required to qualify for the stated interest rate. SoFi members with direct deposit are eligible for other SoFi Plus benefits.

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

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

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

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

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

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

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