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Oct

2023

What Are Excessive Transaction Fees?

By Timothy Moore | Budgeting & Goals, Family Finances, money | Comments Off

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.

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.

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

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 4.00% 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.

SOBK1222026

Oct

2023

Guide to Consumption Tax

By Timothy Moore | Financial Independence, money, Terminology | Comments Off

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.

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.

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

FAQ

Can you 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 4.00% 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.

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

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Oct

2023

Guide to Excise Taxes

By Timothy Moore | money, Terminology | Comments Off

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.

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.

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

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

Oct

2023

How Are Bonuses Taxed? Understanding the Bonus Tax Rate

By Timothy Moore | Financial Independence, Life & Career, money | Comments Off

Earning a bonus at work can be a reason to celebrate, but keep in mind that the money gets taxed, just like regular income. While you may be told the gross amount that’s coming your way, the amount you actually deposit can be significantly less once the withholding comes out.

So how does your employer calculate how much to withhold from your bonus? Learn the details here, including:

• Why are bonuses taxed?

• How are bonuses taxed?

• Are taxes on bonuses higher than standard income taxes?

• What can you do to lower the taxes on a bonus?

Why Are Bonuses Taxed?

The answer to “Why are bonuses taxed?” is simple, albeit a bit circular: The IRS considers bonuses to be taxable income.

The IRS doesn’t categorize bonuses as regular wages, however; instead, it labels bonuses as “supplemental wages,” meaning there are specific guidelines for employers when withholding taxes.

That said, there are two different ways that a bonus can be taxed, which may or may not impact which tax bracket you’re in.

How Are Bonuses Taxed?

All bonuses — whether performance-based, sign-on, or holiday — are subject to income taxes, just like regular income. But how are bonuses taxed, numerically speaking?

Because bonuses are folded into Box 1 (“Wages, tips, other compensation”) on your W-2 tax form, you’ll likely wind up paying the same amount of taxes on the bonus as the rest of your income.

However, your employer may have withheld money from your bonus check differently from how it withholds taxes from regular earnings. That means when you receive the bonus payment, there could be a larger or smaller percentage of tax withheld than you’re used to.

Employers have two methods for withholding taxes on bonus payments:

1. The percentage method

2. The aggregate method

The Percentage Method

Many employers use the percentage method to withhold taxes from bonus payments. Why? Because it’s much easier for the employer.

For this method, the IRS allows companies to withhold a flat 22% rate of bonus payouts. It’s straightforward math for employers, nice and easy! They don’t have to check the recipient’s details, such as the salary and tax bracket.

A couple of points to consider:

• If you earn $89,075 or more as an individual, a 22% rate might be lower than your usual tax withholdings.

• If you earn $41,775 or less as an individual, however, it might be higher than your usual tax withholdings.

• The flat 22% applies to all bonuses equal to $1 million or less.

• If your bonus is larger than $1 million, your employer is required to use this method — and taxes on a bonuses above $1 million are computed at a flat 37% rate.

And remember: Just because your employer withholds 22% of your bonus, that doesn’t necessarily mean that’s what you actually owe. When you file your tax return, you may find that you overpaid (and are due a refund) or underpaid (and owe additional money). This will typically depend on your tax bracket and how much you’ve already paid through other withholdings and/or estimated quarterly payments.

The Aggregate Method

If your employer tacks your bonus payment onto your regular paycheck, the company can instead use the aggregate method to withhold a portion of the bonus.

In this bonus taxation scenario, your employer would treat this combination payment as a regular (but larger) paycheck and withhold funds based on the withholding specifications on your W-4. That is, it would withhold the percentage of your paycheck for tax purposes that reflects your exemptions and filing status.

Can You Lower the Taxable Amount on a Bonus?

If your regular wages are your primary (or only) source of income, it’s easy to estimate which tax bracket you’ll be in when you go to file — and you can set up tax withholdings based on that estimate.

But if you receive a large, unexpected bonus that increases your income enough, you might graduate to a higher tax bracket for that excessive income. This means you would owe more in taxes and may have underpaid throughout the year.

For that reason, you may want to lower your taxes on your bonus. While you can’t ask the IRS to tax your bonus less, you can look for ways to lower your taxable income for the year so that you stay within a lower tax bracket.

Recommended: What Are the Tax Benefits of Marriage

Tips for Lowering the Amount You Are Taxed on a Bonus

So you’ve just received a hefty bonus check but are concerned about paying taxes on it, especially if it’s large enough to bump you up to a higher tax rate. What can you do? Here are some ways to handle the tax burden:

• Anticipating the bonus: If your total compensation includes an anticipated bonus, you can submit a W-4 with your employer at any point to increase withholdings throughout the year to account for the bonus you’ll eventually earn. It won’t lower your taxable income, but by withholding slightly more money from each paycheck, you may be able to avoid owing a large amount when you go to file your taxes. Making sure your W-4 is up to date is an important part of preparing for tax season.

• Investing your bonus in a tax-advantaged account: An easy way to avoid paying taxes on your bonus is to invest it in a tax-advantaged account, like a 401(k) or traditional IRA. Money invested in these is pre-tax, and it’s usually a good idea to save money for retirement anyway.

Depending on your health insurance plan, you may also be able to contribute to a health savings account (HSA) for medical costs. An HSA is also a tax-advantaged account.

• Donating your bonus: You could use your bonus to make an end-of-year donation to a charity. That can be a tax deduction that would lower your taxable income. Of course, that means you don’t get to keep the money, but if you’re passionate about a nonprofit, it may be worth it to hand over your bonus.

Keep in mind, however, you can only deduct charitable contributions if you’re itemizing deductions. This strategy won’t work if you plan to take the standard deduction.

• Working with an accountant: Paying for an accountant can get expensive, but they may have additional strategies to help you reduce your taxable income. On top of that, they can help you analyze your bonus to make sure you actually have to pay taxes on it. All monetary bonuses are indeed taxable, but the IRS doesn’t tax certain fringe benefits from employers, such as tickets for entertainment events.

• Deferring your bonus: This might sound odd, but you could ask your employer to defer your bonus until next year. This would allow you to update tax withholdings in the new year so you’re prepared for the additional income. In addition, it would enable you to focus on tax deductions and tax-advantaged investments during the next tax year to reduce your taxable income.

Also, if you expect to make less in the following year, it could be beneficial to receive your bonus then — there’s less risk of getting bumped up to a higher tax bracket.

The Takeaway

Earning a bonus can be great: It’s money that you weren’t guaranteed or perhaps even expecting, and now you can use it to fund emergency savings, pay down debt, invest for retirement, or even treat yourself to something nice. But just remember: Bonuses are subject to income taxes, so Uncle Sam will take a chunk out of the check.

Planning to jump-start your emergency savings by depositing a bonus payment? Consider opening an online bank account to help your money grow faster. With a SoFi Checking and Savings account, you’ll earn a competitive annual percentage yield (APY), pay no account fees, and get to spend and save in one convenient place. That’s what we call better banking!

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

How much is the typical yearly bonus?

The typical yearly bonus depends entirely on your employer, industry, job level, job performance, and salary. Often, employers pay bonuses as a portion of your job salary.

If you want to see what other employees in your industry typically make for bonuses, you can look at employee-reported salary data on job sites such as Glassdoor and Salary.com.

How can bonuses impact your finances?

If you aren’t expecting a bonus and receive one, this could be a major boost to your finances. You could stash the unanticipated bonus in your emergency fund, contribute to a retirement account or HSA, or even spend it on yourself or your family, purchasing something you couldn’t otherwise afford.

However, remember that bonuses are taxable income. Your employer likely took out 22% already to cover the taxes. However, if the bonus is large enough to put your income over a certain threshold, you might move up in tax brackets and owe more than expected when you go to file.

Are there bonuses that are not taxable?

The IRS considers bonuses to be taxable income. Any cash bonus will be subject to income taxes. However, the IRS has exceptions for what it calls “de minimis fringe benefits,” which include things like:

• Occasional food, such as doughnuts in the morning or a meal for a lunch and learn

• Tickets to a sporting event or concert

• Group-term life insurance for your spouse or dependent (as long as the face value is $2,000 or less)

Photo credit: iStock/AJ_Watt

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 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.

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.

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.

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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Oct

2023

The Great Resignation, Explained

By Rebecca Lake | Life & Career, money | Comments Off

The Great Resignation is a term used to describe an increase in the quit rate among U.S. employees that began in 2021. Millions of people began leaving their jobs citing various reasons, including low pay, poor working conditions, and negative lifestyle impacts associated with the COVID-19 pandemic.

While the Great Resignation created challenges for many employers, it also presented an opportunity for companies to fine-tune their hiring and retention policies.

Here, take a closer look, including:

• What is the Great Resignation?

• What are the reasons for the Great Resignation?

• How can companies prevent employees from resigning?

What Is the Great Resignation?

The Great Resignation refers to the fact that millions of people opted to quit their jobs during the height of the COVID-19 pandemic. Anthony Klotz, associate professor of management at Texas A&M University, is credited with coining the term.

Data suggests that the Great Resignation began in early 2021, reaching a peak of 4.5 million quits in November of that year, according to the Bureau of Labor Statistics (BLS). Altogether, the BLS estimates that nearly 48 million people quit their jobs in 2021.

The wave of quitting hasn’t entirely subsided, however. The Great Resignation trend persisted well into 2022, as more employees elected to leave their employers. For example, the quit rate was 4.1 million for September 2022, according to a recent Job Openings and Labor Turnover report.

Who’s Quitting Their Jobs?

The Great Resignation affected numerous industries but not always equally. According to an analysis by Zippia, for example, the industries affected most by the Great Resignation in 2021 include accommodation and food service, leisure and hospitality, and retail. Here are some other statistics on the Great Resignation and who’s quitting their jobs:

• Employees aged 18 to 29 quit more than any other demographic, with a 37% quit rate in 2021.

• Women were 11% more likely to quit their jobs than men, while Hispanics and Asians quit more often than Black or White Americans.

• Those with less education, e.g., a high school diploma, were more likely to quit than employees with some college or a college degree.

• Employees with lower incomes had a quit rate that was double that of those earning higher pay.

The range of people quitting is diverse, as are their reasons for doing so, as you’re about to learn.

Recommended: 5 Ways to Achieve Financial Security

Reasons for the Great Resignation

Now that you know what the Great Resignation is, you are likely wondering why so many people walked away from their work. There’s no single cause for the Great Resignation. Instead, employees began leaving their jobs in response to a combination of factors. Here are some of the top reasons employees chose to quit, according to Pew Research.

• Low pay. Thirty-seven percent of employees said low wages were a major reason behind their decision to quit.

• No room for advancement. Thirty-three percent of people who quit their jobs in 2021 said they did so due to a lack of opportunities to get ahead.

• Felt disrespected. Interestingly, 35% of those who quit during the first wave of the Great Resignation said they felt disrespected by their employer.

• Child care. The COVID-19 pandemic made child care a struggle for many parents as schools closed for months on end. According to Pew, 24% of quitters cited child care as a major reason for doing so.

• Lack of flexibility. Being able to work flexible job hours or put in for time off as needed is important for many employees. Pew found that 24% of those who quit in 2021 cited lack of flexibility as a major motivator.

Other reasons for quitting included lack of benefits, working too many hours, wanting to relocate, or working too few hours. A small number of employees said they chose to quit over employer requirements to get a COVID-19 vaccine.

Here’s how the top 10 reasons for resigning look in chart form:

Reason for quitting	% who said it was a major reason
Low pay	37%
Feel disrespected	35%
Lack of advancement opportunities	33%
Lack of child care	24%
Lack of flexible schedule	24%
Lack of benefits	23%
Wanted to relocate	22%
Too many hours of work	20%
Roof few hours of work	16%
COVID-19 vaccine requirement	8%

Ways Companies Can Prevent Employees From Leaving

Building a resilient workforce is important, but employee retention can be tricky, especially if workers don’t feel motivated to stick around. The Great Resignation has turned up the pressure on companies to provide employees with a more favorable working environment. Some of the ways companies may be able to prevent workers from leaving include:

• Offering flexible work schedules, including the chance to work remotely

• Focusing on building connections with employees and creating a welcoming company culture

• Getting input from employees on what’s working and what could be improved

• Showing appreciation for employees and respecting them at all times

• Offering opportunities for growth and advancement

• Enhancing benefits packages to include things like wellness perks or student loan repayment. The Great Resignation may have a significant effect on employee benefits in this way.

Offering higher salaries may be a starting point, but it could take more than just a bigger paycheck to convince employees to stay put. Thinking creatively and putting oneself in the mindset of the employee can be helpful ways for employers to figure out what’s needed most.

The Takeaway

The Great Resignation involved almost 48 million workers leaving their jobs in the wake of the COVID-19 crisis. This has taken a toll on many employers as they scramble to hire new workers to replace those who have quit. If you’re thinking of quitting, it’s important to get your financial ducks in a row first so you can maintain your standard of living during a job transition.

3 Money Tips

If you’re saving for a short-term goal — whether it’s a vacation, a wedding, or the down payment on a house — consider opening a high-yield savings account. The higher APY that you’ll earn will help your money grow faster, but the funds stay liquid, so they are easy to access when you reach your goal.

If you’re creating a budget, try the 50/30/20 budget rule. Allocate 50% of your after-tax income to the “needs” of life, like living expenses and debt. Spend 30% on wants, and then save the remaining 20% towards saving for your long-term goals.

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.

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

What’s the Great Resignation?

The Great Resignation refers to the millions of Americans who have quit their jobs since early 2021. Almost 48 million people left their employment in 2021. Some of the most common causes for the Great Resignation include low wages, employee burnout, inflexible work schedules, and poor work-life balance.

Should you quit for a better paying job?

Not being able to make your budget work is one of the clearest signs that you’re not making enough money. If you believe a better paying job could help you reach your financial goals or, at the very least, make budgeting less stressful, then it could be worth moving on to a new employer. However, consider what you might be giving up in the way of benefits or other job perks to snag a higher salary.

Is it better to quit or be fired?

Quitting a job may look better on a resume than being fired. Additionally, if you’re putting in proper notice in advance, it may be easier to plan your budget as you countdown to your final paychecks. Your employer may also appreciate your giving notice that you plan to make a job transition so they have time to hire someone to replace you.

Photo credit: iStock/Prostock-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 4.00% 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.

SOBK1122002

What Are Excessive Transaction Fees?

What Is an Excessive Withdrawal Fee?

Get up to $300 when you bank with SoFi.

Types of Transactions Considered

How Much Do Excessive Transaction Fees Cost?

Why Do Banks Charge Excessive Transaction Fees?

Tips to Avoid Excessive Transaction Fees

The Takeaway

FAQ

How much are excessive transaction fees?

Do all banks charge excessive transaction fees?

Why do banks charge excessive transaction fees?

Guide to Consumption Tax

What Are Consumption Taxes?

Get up to $300 when you bank with SoFi.

Types of Consumption Taxes

How Do Consumption Taxes Work?

Pros and Cons Consumption Taxes

Consumption vs Income Tax: What’s the Difference?

The Takeaway

FAQ

Can you deduct consumption tax?

Do you have to put consumption taxes on your yearly taxes?

How much do people spend on consumption taxes on average?

Guide to Excise Taxes

What Is an Excise Tax?

Get up to $300 when you bank with SoFi.

What Is the Purpose of Excise Taxes?

Discouraging Consumption

Funding Projects

Generating Revenue

Types of Excise Taxes

How Do Excise Taxes Work?

Excise Tax vs Sales Tax: What’s the Difference?

The Takeaway

FAQ

How much do people spend on excise taxes on average?

Can you deduct excise taxes?

What happens if excise taxes are removed?

How Are Bonuses Taxed? Understanding the Bonus Tax Rate

Why Are Bonuses Taxed?

Get up to $300 when you bank with SoFi.

How Are Bonuses Taxed?

The Percentage Method

The Aggregate Method

Can You Lower the Taxable Amount on a Bonus?

Tips for Lowering the Amount You Are Taxed on a Bonus

The Takeaway

FAQ

How much is the typical yearly bonus?

How can bonuses impact your finances?

Are there bonuses that are not taxable?

The Great Resignation, Explained

Get up to $300 when you bank with SoFi.

What Is the Great Resignation?

Who’s Quitting Their Jobs?

Reasons for the Great Resignation

Ways Companies Can Prevent Employees From Leaving

The Takeaway

3 Money Tips

FAQ

What’s the Great Resignation?

Should you quit for a better paying job?

Is it better to quit or be fired?

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