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Jun

2023

Comparing the Different Types of Deposit Accounts

By Janet Siroto | Budgeting & Goals, Financial Independence, money | No Comments

There are many reasons why you might want to sock away some cash and perhaps earn interest while you’re at it. Perhaps you’re saving up for a down payment on a house or gathering funds for an epic cross-country road trip. Or maybe you are trying to build up a healthy emergency fund or save for grad school. Or you might just need a safe place with good rewards to store your paycheck as you pay bills.

Whatever the scenario may be, a deposit account can be the answer. There are several different kinds of these accounts that can help your money stay secure but accessible and perhaps earn an annual percentage yield (APY) to help it grow.

Here, you’ll learn about the different account options that are available, including the pros and cons of each.

Basic Checking and Savings Accounts

There are several different kinds of basic checking and savings accounts. You may find standard accounts, premium accounts, and other variations offered by financial institutions. Here are the pros and cons of these deposit accounts.

Checking Account Pros and Cons

First, the pros:

• A checking account usually has very low monthly account fees or no monthly account fees.

• A checking account typically allows access in multiple ways. You can write checks and get an ATM card or debit card. You might get access to online and mobile banking apps so that you can mobile deposit money and pay your bills.

• These accounts provide a hub for your financial life: You have a home for your paycheck to be direct-deposited, you’ll have records of your transactions, and more ways to anchor and track your money.

• You’ll usually enjoy FDIC (Federal Deposit Insurance Corporation) or NCUA (National Credit Union Administration) insurance of $250,000 per account holder, per account ownership category, per insured institution. Some institutions offer enhanced coverage, too.

• You may find an interest-bearing checking account, though the rate is usually not as much as a savings account.

Next, the cons:

• Many checking accounts pay no interest or very low interest, so you’re not helping your money grow.

• There can be minimum balance requirements on checking accounts, especially ones with enhanced levels of service.

• You may be charged accounts fees as well, which can cut into your cash.

Savings Account Pros and Cons

Savings accounts come with slightly different pros and cons. First, the upsides:

• Most of the different kinds of savings accounts don’t charge account fees.

• Savings accounts are interest-bearing, meaning your money can grow, especially through compound interest. However, not all savings accounts are created equal: Some standard accounts pay quite low interest. Look to online vs. traditional banks for higher rates (more on this below).

• These accounts are also typically insured by FDIC or NCUA.

As for the downsides:

• You probably can’t access your account via checks or a debit card. You will likely be limited to transfers and ATM withdrawals.

• In addition, while the Federal Reserve has lifted the six-transaction limitation on savings accounts due to the pandemic, many banks still impose some transfer and withdrawal limitations on savings accounts.

• You may encounter minimum balance requirements and fees if you go below that amount.

5 Other Deposit Account Options

Here are some other deposit account types you might consider beyond checking and savings:

1. High-Interest Savings Accounts

Some banks offer special, high-interest savings accounts that can offer much higher rates than traditional savings accounts. Some institutions don’t charge monthly fees for these accounts while others do but will waive them if you meet a balance minimum.

As with all savings accounts, you may be limited in terms of the number of withdrawals or transfers you can make each month.

One good place to look for this type of account is at an online bank. Because these institutions typically have lower operating expenses than brick-and-mortar banks, they can often offer rates that can be considerably higher than traditional banks, and may also be less likely to charge monthly fees.

💡 Learn more about how high-yield savings accounts work

2. Money Market Accounts

A money market account is a type of deposit account that pays interest on deposits and allows withdrawals.
Money market accounts are similar to standard savings and checking accounts, except that they typically pay higher interest rates, require higher initial deposits, and may also require minimum balances, which can run anywhere from $100 to $10,000.

Unlike standard savings accounts, some money market accounts also come with a debit card and checks, although institutions may require that they not be used more than six times per month.

You may want to keep in mind the difference between a money market account vs. a money market fund. A money market account is a federally insured banking instrument, whereas a money market fund is an investment account.

Typically, money market funds invest in cash and cash-equivalent securities. It is considered low risk but doesn’t have a guaranteed return.

3. Certificates of Deposits (CDs)

A certificate of deposit (CD) is a product offered by consumer financial institutions, including banks and credit unions, that provides a premium interest rate in exchange for leaving a lump-sum deposit untouched for a certain period of time.

The bank determines the terms of a CD, including the duration (or term) of the CD, how much higher the rate will be compared to the bank’s savings and money market products, and what penalties will be applied for early withdrawal.

CDs offer different term lengths that usually range from a few months to several years. Interest rates tend to be higher for longer terms. Some CDs have a minimum deposit amount that can be over $1,000 or more, though there are banks that offer CDs in any amount.

Sounds good? Well, it is if you know you won’t be touching that money for the entire term length. If you suddenly need the money, then you will likely have to pay a penalty to withdraw money early from your CD.

While you can get no-penalty CDs or early withdrawal CDs, it’s a good idea to make sure to read the fine print, as many of these accounts only have no penalties or withdrawal fees if you take money out during the first few weeks after you invest. In return for that withdrawal window, you often give up a significant amount in APY.

If ease of access is a concern, it might make sense to invest in CDs that feature fewer restrictions around withdrawals. Or, you could set up a CD ladder strategy where you buy CDs that have different maturity dates, ensuring access to funds as your CDs mature at staggered intervals.

4. High-Yield Checking Accounts

Though interest is normally associated with savings, and not checking, accounts, many financial institutions offer high-yield checking accounts.

These interest-bearing accounts, sometimes called rewards checking, work like regular checking accounts and come with checks and an ATM or debit card.

In return for getting a higher interest rate, these accounts often come with rules and restrictions. You may, for example, only earn the higher rate on money up to a certain limit. Any money over that amount would then earn a significantly lower rate.

You may also be required to make a certain number of debit card purchases per month and sign up for direct deposit in order to earn the higher (or rewards) rate and to avoid a monthly fee.

The benefit of an interest-bearing checking account is that you’ll always have access to your money and you may have fewer limitations on how you can use your account than you might with a savings account, all while still earning a bit of interest.

5. Cash Management Accounts

A cash management account is a cash account offered by a financial institution other than a bank or credit union, such as a brokerage firm. These accounts are designed for managing cash, making payments, and earning interest all in one place.

Cash management accounts often allow you to get checks, an ATM card, and online or mobile banking access in order to pay your bills. They also typically pay interest that is higher than standard savings accounts.

Cash management accounts also generally don’t have as many fees or restrictions as traditional savings accounts, but it’s important to read the fine print.

Before opening a cash management account, you may want to ask about monthly account fees and minimum balance requirements.

Some brokerage firms require a sizable opening deposit and/or charge monthly fees if your account falls below a certain minimum. Others will have no monthly fees and no minimums.

Time vs Demand Deposit Accounts

When you consider different kinds of deposit accounts, you may hear the terms time vs. demand accounts. Here’s how they differ:

• A time deposit, such as a CD, requires you to keep your money with a financial institution for a particular period of time.

• With a time deposit, if you withdraw funds before the end of the term, you may face penalties.

• With a demand deposit account (such as a checking account), you may access your cash whenever you like.

• While you won’t pay a penalty for withdrawing money, you may earn a lower interest rate than with a time deposit account.

Here’s the difference between these two kinds of accounts in chart form:

Type of Account	Access	Fees	Interest
Time Deposit	At the end of a predetermined time period	Penalties for early withdrawal	May be higher than demand accounts
Demand deposit	At the account owner’s discretion	Typically no penalties for withdrawals	May be lower than time deposit accounts

Opening a Bank Account With SoFi

If you’re looking for a safe, convenient place to keep your money and also earn some interest while you’re at it, there are a number of great options to pick from.

When you open a Checking and Savings account with SoFi, you’ll spend and save in one convenient place, while earning a competitive APY and paying no account fees. Plus you’ll have fee-free access to 55,000+ ATMs worldwide within the Allpoint Network.

SoFi Checking and Savings: The better way to bank.

FAQ

What are the different types of deposit accounts?

There are several different kinds of deposit accounts, including checking, savings, certificate of deposit (CD), cash management, and money market accounts.

What is the most common type of deposit account?

Among the most common types of deposit accounts are a standard checking account or other kind of checking account.

Is a CD considered a deposit account?

A CD is considered a deposit account, but a time deposit vs. a demand deposit. That means that you are supposed to let the money stay in the CD until it reaches the maturity date or else you will likely be charged a fee. A demand deposit account, on the other hand, can be accessed when you please.

3 Great Benefits of Direct Deposit

It’s Faster

As opposed to a physical check that can take time to clear, you don’t have to wait days to access a direct deposit. Usually, you can use the money the day it is sent. What’s more, you don’t have to remember to go to the bank or use your app to deposit your check.

It’s Like Clockwork

Whether your check comes the first Wednesday of the month or every other Friday, if you sign up for direct deposit, you know when the money will hit your account. This is especially helpful for scheduling the payment of regular bills. No more guessing when you’ll have sufficient funds.

It’s Secure

While checks can get lost in the mail — or even stolen, there is no chance of that happening with a direct deposit. Also, if it’s your paycheck, you won’t have to worry about your or your employer’s info ending up in the wrong hands.

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

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

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

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

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

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

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

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

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Jun

2023

Using the 30 Day Rule to Control Spending

By Janet Siroto | Budgeting & Goals | No Comments

Shopping can be necessary (how else are you going to get what you need?), and a lot of the time, it can be fun. But it also leads to impulse purchases, which can mean overspending and winding up with high-interest credit card debt.

That’s where the 30 day rule can help. It’s a technique that can help you slow down shopping and save money. It gives you a way to pump the brakes on a purchase and wait before buying.

This, in turn, can help you determine if you really need or want an item vs. getting caught up in the moment. If you’re able to take time and decide not to make a purchase, it can help your overall financial outlook (that credit card bill, for instance, may be more manageable).

Here, you’ll learn more about the 30 day rule and how it can help you save money.

What Is the 30 Day Rule?

The 30 day rule is a simple strategy that has the power to help you control your spending and make solid financial choices. Here’s how it works:

• If you feel the urge to make a significant purchase of something that’s non-essential, whether it’s in a store or online, the rule says: Stop. Leave the store, or click away from the site.

• Write down what you wanted to buy, along with where it can be found, and its price. Date the document and then mark on your calendar when 30 days will have passed.

• Some people find this additional step helpful: Rather than just write down the amount of the discretionary purchase, you could put that amount of money into your savings account. Seeing your pumped-up savings account balance can potentially help you decide not to purchase something that’s an impulse buy.

• During the 30 days, you can think about whether you really need the item or, if it’s a “want” rather than a “need,” whether you want to spend discretionary funds on it.

• After 30 days have passed, if you still wish to purchase the item, then you can potentially do so, knowing that it’s no longer an impulse buy. Rather, it’s likely to be a well thought-out and planned financial choice. It can also help your budget to compare prices with different vendors after you’ve made your decision to buy.

Pros and Cons of the 30 Day Savings Rule

Now that you understand the principle behind the 30 days savings rule, consider the upside:

• It helps you avoid impulse buys.

• It gives you time to assess a major purchase, comparison-shop, and budget.

• It helps you avoid shopping due to boredom.

However, the 30 day savings rule can also have downsides:

• It can lead to feelings of frustration or deprivation not to be able to buy in the moment.

• If you wait 30 days and then decide to buy, the item you want could be more expensive or sold out.

Needs vs Wants

The 30 day rule can be an excellent way to manage the causes of overspending and help you differentiate needs from wants.

Examples of Needs

Needs are your basic living expenses; the items that are vital for daily life. For example, if you’re out of toilet paper, that clearly goes into the needs category, and doesn’t fit the rule. You could shop for a better price, sure, but it’s a pretty necessary purchase.

If your car is almost out of gas and you’ve got to drive to work in the morning, the same concept applies. Yes, if you need to eat dinner and the cupboards are bare and the fridge is empty, you’ll need food (but not necessarily steak and lobster).

Examples of Wants

On the other hand, wants are things that are not part of daily survival. Groceries to cook dinner are an example of needs, but a pricey sushi dinner or even that vanilla latte to go in the morning are clearly wants.

When it comes to shopping, you may find yourself giving into wants when you pick up some new shoes just because they’re on sale or decide to upgrade your phone even though your current one works fine.

There’s a middle ground, of course, where it may be tougher to decide if something is a need or want, and whether the rule applies. For example, you may have a big work conference coming up, and there’s a really sweet suit on sale.

On the one hand, you may have an outfit that will work just fine, but on the other, this one may be more appropriate, giving you the confidence to shine at the conference. In that case, it may make sense to think about the purchase for a day or two, rather than for a full 30.

The Role of FOMO Spending

FOMO (which stands for Fear of Missing Out) spending is the kind in which you feel that if you don’t buy a particular item, you might miss out on something important. This could happen if you see social media posts where friends (and perhaps even people you don’t know!) are buying something you don’t have.

This anxiety can significantly influence how people spend their money, serving as motivation to spend funds that they can’t really afford. Some points to consider:

• The reality is that not everyone’s financial situation is the same. Your friends may earn a higher income, have a different debt situation, and manage lesser expenses than you do.

• If you find yourself feeling peer pressure to spend in ways that aren’t healthy for your budget, it may make sense to come up with alternative, less expensive activities to do together.

For instance, instead of going out to an expensive new restaurant with a friend, you could cook together. And just because everyone else may seem to be spending their summer vacation at a far-flung destination doesn’t mean you can’t have a great getaway at a nearby cabin on a lake or travel somewhere exotic during the off-season.

• If you’re more tempted to buy when you use your credit or debit card, it may be wise to bring a set amount of cash instead when going to spending-trigger locations. If you love to shop, shop, “window-shop” online to your heart’s content, and then maybe consider visiting a brick-and-mortar store when it’s time to make a purchase. This can help ensure that the item lives up to your expectations.

Each of these strategies is a way of practicing delayed gratification — and there are plenty of benefits to engaging in this healthy behavior (besides from possibly fattening your wallet).

Recommended: Why Do We Feel Guilty Spending Money?

Benefits of Delayed Gratification

Delayed gratification, according to studies, is often a trait found in successful people. When someone can delay satisfaction until the appropriate time, they are more likely to thrive financially, as well as in their relationships, careers, and health than those who haven’t yet mastered the skill.

It isn’t always easy to wait when doing something might make you feel good right now, but waiting can lead to bigger rewards in the future. As this becomes a practice, it can help to boost your overall self-control and achieve long-term goals.

One of the more well-known studies on delayed gratification involves, of all things, marshmallows. This study was conducted at Stanford University in the 1960s, and went like this:

• Participating children were taken into a room where they each found one marshmallow on their plates.

• The children could choose to eat their marshmallow now, or wait 15 minutes and then get a second one.

The children who chose to wait, the researchers discovered, had higher standardized test scores. They also were found to have fewer behavioral issues and health problems.

You might use this study to think about your own ability to wait for greater rewards. Focusing on finances, you might consider times when a quick impulse purchase didn’t turn out to be the best move, as well as times when saving for something better was ultimately more rewarding. These moves can help you cut back on spending.

Recommended: How to Achieve Financial Discipline

Tracking Your Spending and Saving

The above strategies all have one thing in common. They involve tracking your spending and saving so that you can make choices that fit your budget, lifestyle, goals, and dreams.

As part of that process, it may make sense to identify where you’re overspending. The reality is that it’s gotten super easy to spend — and, therefore, overspend — in today’s frictionless financial world.

You may find that you’re spending literally hundreds of dollars a month in ways you didn’t realize, whether that’s by picking up a quick coffee at the drive-thru window, a subscription you rarely use, or something else entirely.

When you know where your money is going, down to the last penny, it can help you adjust your budget in a way that prioritizes your financial needs and money goals. That could involve paying down debt, saving up for a vacation next summer, or banking some cash for the down payment on a house in the future.

4 Other Tips and Strategies to Save Money

Here are some additional savings strategies to consider:

Pay Yourself First

Want to pay yourself first? You can do this by having money automatically deducted from your paycheck and transferred into your savings account. By automating your savings, you can make sure that you don’t spend money that can be helping to fund your future dreams.

Try Out Different Budget Methods

It can take a little trial and error to find a budget that works for you and your unique situation. Some people like the 50/30/20 rule, others use the envelope system, and there are many other options. Do a little online searching and experimenting to find one that works for you.

Use an App

Technology can help you track your spending and save more. Your financial institution may have tools that make this a snap. Or you might decide to take advantage of a roundup app that puts a little money into savings with every purchase you make. Again, an online search can reveal alternatives, or see what your bank offers.

Start a Side Hustle

Another way to save more is to earn more. Starting a low-cost side hustle can be one way to do just that. Whether that means walking dogs, selling your nature photos, or providing social media services for local businesses, there could be a simple and satisfying way to tap your talents and bring in more cash.

Opening a Savings Account with SoFi

With a SoFi Checking and Savings Account, you can spend and save in one convenient place while earning a competitive annual percentage yield (APY) and paying no account fees. You can track your weekly spending within the dashboard in the SoFi app. Tracking your spending can help you stay on target with your financial goals. If you’ve got multiple goals, then you can use our Vaults feature to save towards each of them.

Check out SoFi Checking and Savings to track your spending and saving.

FAQ

What is the 30 day rule for saving money?

With the 30 day rule, you wait 30 days before making a major purchase to be sure you really want or need it. This technique of waiting can help you delay gratification, feel more in control of your finances, and potentially avoid overspending on impulse buys.

Does the 30 days rule work?

The 30 day rule can work if you stick with it. By waiting 30 days before making a major purchase, you have time to consider whether you really need it, shop around for the best price, or decide that it was an impulse buy and you don’t really want it anymore.

What is the golden rule of saving money?

The golden rule of saving money is to save money before you spend. Some people refer to this as “paying yourself first.” By prioritizing saving, you can potentially minimize debt and reach your financial goals.

Jun

2023

How Do Credit Card Payments Work?

By Susan Guillory | Credit | Comments Off

If you’re not a seasoned credit card user, you might have questions about credit card payments and their impact on your credit.

Used smartly, a credit card can be a great financial tool, but the key is not charging more than you can afford to pay back and making payments on time each month.

The Benefits of Using a Credit Card

A credit card is convenient if you don’t have cash on hand to make a purchase. As long as you know you can pay back what you charge, either in full or over a few months, a credit card can be a useful tool.

There may also be situations like renting a car or booking a hotel room when you are required to have a credit card to avoid a deposit. The hotel or rental company will place a hold on your card so that in the event of damage or other expenses you need to cover, the company knows you can pay them. With a debit card, you may have that same hold of several hundred dollars tying up your funds for several days.

Another benefit of credit cards is the ability to earn rewards. Many cards give you points for purchases that you can redeem for travel, cash back, or other perks, and if you pay your balance before accruing interest, it can be like the card is paying you to use it.

Potential Downsides of Using a Credit Card

On the other hand, credit cards can cause issues if you don’t exercise good behavior in terms of your credit card payments. Each month, you are charged interest on your purchases. The interest is calculated by dividing your card’s annual percentage rate by 365 to get the daily rate, and then multiplying your current balance by the daily rate.

That may only amount to a few extra dollars a month, but if you don’t pay your balance in full for several months, that amount can snowball, and what you initially charged can easily cost you a lot more.

Another thing to be aware of is the fact that credit card companies charge fees in addition to interest. Some charge an annual fee (usually for cards with rewards programs).

Cash advances come with a fee and a higher interest rate than for purchases.

There are also late credit card payment fees to watch out for. Not only will you be charged a fee if you don’t pay the minimum due by the payment due date, but it may appear on your credit report as a negative mark. This may hurt your credit scores and your ability to take out other financing later.

How Credit Cards Impact Your Credit Scores

While a late payment can negatively affect your credit scores, credit card payments made on time can actually help your credit scores.

Each time you make a payment on time, it is reported to credit bureaus like Experian, Equifax, and TransUnion. Over time, on-time payments may factor into the algorithms the credit bureaus use to determine your credit scores, and may raise your number a few points.

Each bureau has its own formula for how scores are determined, and not every credit card company reports to each bureau, so there’s no easy way to know how your payments directly affect your score. But in general, paying on time is behavior that will benefit you over time.

Understanding Credit Utilization

Another factor that goes into your credit scores is credit utilization. This is a calculation of how much credit you have available to access compared with how much you are actually using.

Let’s say you have three credit cards and a total available credit of $15,000. You have a balance of $2,000 across all of them. By dividing the balance by the total credit available, you get 0.133, or 13% credit utilization.

When applying for new credit cards or loans, lenders will look at your credit utilization. If it’s too high—most look for a rate of under 30%—you may not be approved for the card or loan. That’s why it’s important to stay on top of how much of your total credit you’re using and pay down your debt so you don’t have a high credit utilization rate.

How to Build Your Credit With a Credit Card

Once you understand how credit card payments work, you may use credit cards to build your credit, even if you have low scores to begin with. These habits may help you build your credit and improve your credit scores over time.

1. Pay Your Bill on Time Each Month

We’ve covered the importance of making your credit card payments on time. For some people, it can be helpful to put the credit card due date on a calendar (leaving a few days for the payment to get to the company and be processed) to ensure they don’t have late payments.

Many people find autopay, used wisely, a great tool.

If you’ve just received your first credit card, find out how to make credit card payments long before your first one is due, as you might need to set up your bank account information to send an electronic payment, and you want to allow time for that process to be finalized before the due date.

2. Pay More Than the Minimum

If you only charge what you can afford, you should be able to pay off your balance each month, but there may come a time when you have an emergency that requires a larger charge you can’t pay off all at once.

In that case, you may be tempted to pay the minimum amount due, but realize that in doing so, you will pay more in the long run, as those interest charges will snowball. Even if you pay just $5 a month more than the minimum due, you can cut down on interest and pay off your balance faster.

This will also reduce your credit utilization rate and may improve your credit scores.

3. Review Your Credit Report Regularly

Working on your credit involves more than just making credit card payments on time. Access your credit report from Equifax, Experian, and TransUnion (it’s free to do so once a year) and review it for accuracy. Make sure the payments you’ve made are reported as on-time, and look at your list of trade accounts to make sure there are no errors.

For example, maybe you closed a credit card six months ago, but it still appears on your credit report. This is a discrepancy that you can report to the bureau (each bureau’s website has information on how to report a discrepancy). Check again after you report it (allowing for time to process your request) to ensure it has been removed.

Regularly reviewing your credit report will also alert you to any fraudulent activity that might occur. It’s rare, but identity theft does happen, and you’ll want to know if someone is using your identity to open credit cards or take out loans.

4. Only Charge What You Can Afford

Credit cards can be tempting. Without discipline, you might feel like taking a shopping spree, ignoring the financial consequences.

As mentioned as a credit card tip, only charge what you can afford to pay back in a reasonable time frame. A credit card isn’t meant to be free money, and overspending with one can cost you much more than you initially spent.

The Takeaway

Using credit cards responsibly and making credit card payments on time (and in full, when you can) can set you on the path to financial success. The key is to be aware of your spending and your credit utilization so you can help your credit scores grow over time.

*See Pricing, Terms & Conditions at SoFi.com/card/terms

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

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

Disclaimer: Many factors affect your credit scores and the interest rates you may receive. SoFi is not a Credit Repair Organization as defined under federal or state law, including the Credit Repair Organizations Act. SoFi does not provide “credit repair” services or advice or assistance regarding “rebuilding” or “improving” your credit record, credit history, or credit rating. For details, see the FTC’s website .

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Jun

2023

How to Combine Bank Accounts

By Janet Siroto | Budgeting & Goals, Financial Independence | No Comments

There are times in life when you might wonder if you should merge bank accounts. One obvious trigger is marriage: You and your spouse may decide to combine all or some of your accounts into joint reserves. Or perhaps you simply have a number of bank accounts, and they are becoming unwieldy. Perhaps you opened one in college, then another when you moved to start your first job, and then yet another to get a special promotional bonus.

Whatever your goals, if you’re craving financial simplicity or otherwise need a fresh approach to your accounts, here’s what you need to know about:

• How to combine bank accounts

• The pros and cons of combining bank accounts

• When to combine bank accounts.

How to Combine Bank Accounts in 4 Steps

If you decide that merging bank accounts is the right step for you, here’s how to make it happen:

1. Decide Where to Keep Your New Account

The first step — whether you are downsizing for yourself or joining two individuals’ finances together — might be to decide where you want to open your new account.

If you or your spouse have multiple accounts across different financial institutions, you could evaluate which institution offers the best benefits and lowest fees. You might stick with the one existing account you like best or start a joint account somewhere new.

If you are doing the latter, you could compare traditional vs. online banks or which institutions are offering a perk that appeals to you.

2. Start Shifting Accounts

Here’s the next step in how to combine bank accounts: If you’ve decided you want to combine accounts, you could start moving your direct deposits, automatic credit card payments, and other similar transactions over from your old accounts to the new one. You might also want to make sure any subscriptions or other deductions are switched over as well.

3. Check That Your Account Is Up and Running

After about a month, you might want to double-check and make sure that everything has transferred properly. You don’t want to end up paying a late fee or have a check bounce because you weren’t monitoring your accounts.

You also want to be sure that your direct deposits are on time.

4. Close the Unnecessary Accounts

Once you see the correct payments and deposits coming in and out of the new combined account, then you could take the last step in how to merge bank accounts, which is to start closing your old accounts.

This might involve a trip to a branch in person, and if there is anything left in your old account, the bank will issue you a check or cash payment for the remainder.

Benefits of Combining Bank Accounts

If you’re wondering whether to merge bank accounts, it can be helpful to consider the pros and cons of combining accounts. Here, the upsides:

• A shared account gives each person in the relationship access to money when they need it. Joint accounts usually offer each person a debit card, a checkbook, and the ability to make deposits and withdraw money.

This also includes online access to account information, which might help when it comes to paying bills together or other when making shared financial decisions.

• Even those who are not looking to combine finances with someone else could benefit from merging their own money into fewer accounts. How many bank accounts should you have? For most single adults, just one checking and one savings account at the same bank should cover your financial needs.

This could help cut down on confusion and simplify your spending, so that you’re not trying to balance your budget across multiple accounts. Minimizing the number of accounts you hold could mean fewer fees, since many banks charge monthly fees or require a minimum balance.

• Another advantage to a joint bank account is that you are less likely to run into financial surprises with your partner. With money going into (and out of) one account that you both have access to, it might be easier to keep tabs on your monthly budget and spending.

Drawbacks of Merging Your Accounts

Now, consider the downsides of merging accounts:

• Some couples may prefer to keep their financial independence. In fact, rather than combining all your finances, you might decide to create a new joint account but also keep some accounts separate. Or you might decide to keep your finances totally independent of each other, and instead come up with a budget to figure out which expenses each person will pay.

• Combined accounts may not suit your big-picture financial needs and money goals. Before you decide that a combined bank account is your goal, you might want to have a big-picture conversation about what each partner brings to the table.

For instance, what if one partner is entering the marriage with student loan debt, past loans, or other financial burdens? Will the new shared account be used for those payments? Or is it up to the individual to pay off their own debts?

• A joint account could also become a problem in some states if the relationship ends, because without any other agreement in place, that shared money might get split up evenly in a divorce. Or, even worse, one spouse might clear out the account, leaving the other without money.

If you’re concerned about only having a joint account, you could open a joint account specifically for shared bill management with each person depositing a specific amount every month.

You could even have three separate checking accounts — yours, mine, and ours — maybe if one person is a spender and one is a saver. That way, both people manage their checking accounts on their own.

Opening a Bank Account With SoFi

Whether you decide to combine bank accounts, keep them separate, or something in between, it’s important to choose an account that meets your needs. SoFi offers a checking and savings account with a competitive annual percentage yield (APY) and no account fees, which can help your money grow faster.

Plus, with a SoFi Checking and Savings Account, you can save, spend, and earn all in one place. Plus, joint accounts are available with SoFi.

Bank smarter and simpler with SoFi.

FAQ

Can you merge two bank accounts together?

Yes, you can combine bank accounts. You might be able to transfer an account into another existing one or open a new account to accomplish this.

When should you combine bank accounts?

You can combine bank accounts when you marry, if that suits your and your spouse’s financial needs and style. You might also merge accounts if you find you have multiple accounts and want a simplified financial life.

How do you link two bank accounts from different banks?

You can link accounts between two different banks without merging them. Typically, you can do this on your financial institution’s website or app. You’ll look for the option that says “link external accounts,” and you’ll need the bank routing and account numbers handy.

Jun

2023

Why Does Creditworthiness Matter?

By Jamie Cattanach | Credit, Financial Independence | Comments Off

When you take out a loan or line of credit, the lender extending you that credit is taking a risk. As you know if you’ve ever loaned a friend or family member a quick $5 (or $500), once money has been lent, it might not ever be seen again.

Creditworthiness is the measure a lender uses to determine how big of a risk a certain borrower might be, depending on their past behavior with credit. You’re probably familiar with your credit score, which is one part of your creditworthiness, but it’s not the whole picture.

Let’s dive into the nitty-gritty of how creditworthiness is determined and why it’s important.

What Is Creditworthiness and Why Does It Matter?

In short, a consumer’s creditworthiness is what lenders assess to hedge their bets that the borrower won’t default on—fail to repay—a loan.

You can think of creditworthiness a bit like a report card for borrowers. Like a report card, your overall creditworthiness is composed of a variety of factors, each of which is weighted differently. The factors are calculated into an overall credit score, which is a bit like a grade point average (GPA).

Like a report card, your creditworthiness gives lenders a snapshot of your historical behavior—and although your past doesn’t always predict the future, it’s the main information creditors have to go on about how much of a risk you might be.

Creditworthiness is possible to improve, but doing so takes dedicated effort.

Why Does Creditworthiness Matter?

Creditworthiness is important because these days, you simply need credit to get by. It’s not just about credit cards. Your creditworthiness will be assessed if you ever take out an auto loan or mortgage, or if you’re just signing a lease on a rental property. Your credit report might even be pulled as part of the job application process as an indication of your level of personal responsibility.

What’s more, higher creditworthiness tends to correlate with better loan terms, including higher limits and lower interest rates. Lower creditworthiness can mean you’re stuck with higher interest rates or extra fees, which, of course, make it more difficult to make on-time payments, get out of debt, and otherwise improve your creditworthiness for the future. A low enough level of creditworthiness may preclude you from qualifying for the loan (or lease, or job) altogether.

In short: Creditworthiness is really important for just about everyone, and it’s worth improving and maintaining.

How Is Creditworthiness Calculated?

So what specifically goes into the definition of creditworthiness?

That depends on whom you ask. Which factors will be most heavily weighted to determine your creditworthiness change based on what kind of credit or loan you’re applying for.

A credit card issuer, for example, may look specifically into your experience with revolving debt, while a mortgage lender may be more concerned with how you’ve handled fixed payments like installment loans.

While each lender will have its own specific criteria and look into different things, one of the most common measures of creditworthiness is a FICO® Score—the three-digit credit score based on information reported by the three main America credit bureaus, Experian, Equifax, and TransUnion.

It’s important to understand that lenders will see more than just a three-digit FICO Score. The credit report they pull may also include specific information about your open and closed accounts, revolving credit balances, and repayment history, as well as red flags such as past-due amounts, defaults, bankruptcies, and collections.

Lenders may also take your income and the length of time you’ve worked at your current job into consideration, as well as assets (like investments and properties) you own.

You may already know that credit scores range from poor (579 and below) to exceptional (800 to 850). But those scores are underpinned by a specific algorithm that takes a variety of different historical credit behavior into account.

Specifically, your FICO Score is calculated using the following data points, each of which is weighted differently:

•   Payment history, 35%: The single most important factor determining your credit score is whether or not you’ve consistently paid on your loans and credit lines on time.
•   Amounts owed, 30%: This factor refers to how much of your available credit you’re currently using. Having higher balances can indicate more risk to a lender, since it may be more difficult for someone with a lot of debt to keep up with paying a new account.
•   Length of credit history, 15%: Having a longer credit history gives lenders more context for your past behavior, so this factor is given some weight in determining your credit score.
•   Credit mix: 10%: This factor refers to how many different kinds of credit you have, such as installment loans, credit cards, and mortgages. It’s not necessary to have each, but having a healthy mix can boost your score.
•   New credit, 10%: Applying for a lot of new credit recently can look like a red flag to lenders, so having too many hard inquiries can ding your score.

Building Creditworthiness

If you have a low credit score or a number of negative factors on your report, you may feel overwhelmed at the prospect of changing your creditworthiness for the better. But the good news is, it is possible to positively impact your credit score and build your overall credit profile. It just takes time, dedication, and persistence.

Given the importance of payment history, making on-time payments is usually the most important thing you can do to improve your credit score.

Because the amount of revolving debt you have is an important metric, reducing your overall debt can help, too—and will free up more money in your budget to put toward other financial goals.

If you’re working to pay off certain credit cards, it may not be best to close them once you’ve stopped using them. Keeping them open will help increase the overall length of your credit history—though you may need to charge (and then pay off) a nominal amount each month to keep the card issuer from closing the account due to inactivity.

You may want to use that credit card for one low monthly bill, such as your Netflix subscription, and pay it off in full each statement cycle.

It’s also a good idea to check your credit report at least once a year. The Fair Credit Reporting Act requires that the three big credit bureaus provide you with a free copy of your credit report once every 12 months. Although other websites might have catchy jingles, the only free credit report source authorized by federal law is annualcreditreport.com .

These reports don’t include your credit scores, but you’ll still get the opportunity to assess your report for fraudulent items and dispute them.

You may also be able to get your credit score for no charge as a perk for opening a certain bank account, credit card, or money-tracking app like SoFi, as well as any time a lender makes a hard inquiry into your credit.

The Takeaway

Creditworthiness is the measure by which a potential lender assesses how much of a risk it’s taking by offering you a loan or line of credit. Building your creditworthiness and maintaining it is important for ensuring you have access to loans, credit cards, and even employment opportunities.

*See Pricing, Terms & Conditions at SoFi.com/card/terms.
Disclaimer: Many factors affect your credit scores and the interest rates you may receive. SoFi is not a Credit Repair Organization as defined under federal or state law, including the Credit Repair Organizations Act. SoFi does not provide “credit repair” services or advice or assistance regarding “rebuilding” or “improving” your credit record, credit history, or credit rating. For details, see the FTC’s website .

SoFi Relay offers users the ability to connect both SoFi accounts and external accounts using Plaid, Inc.’s service. When you use the service to connect an account, you authorize SoFi to obtain account information from any external accounts as set forth in SoFi’s Terms of Use. Based on your consent SoFi will also automatically provide some financial data received from the credit bureau for your visibility, without the need of you connecting additional accounts. SoFi assumes no responsibility for the timeliness, accuracy, deletion, non-delivery or failure to store any user data, loss of user data, communications, or personalization settings. You shall confirm the accuracy of Plaid data through sources independent of SoFi. The credit score is a VantageScore® based on TransUnion® (the “Processing Agent”) data.

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

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

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.

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.

SOCC0523015

Comparing the Different Types of Deposit Accounts

Basic Checking and Savings Accounts

Checking Account Pros and Cons

Savings Account Pros and Cons

Get up to $300 when you bank with SoFi.

5 Other Deposit Account Options

1. High-Interest Savings Accounts

2. Money Market Accounts

3. Certificates of Deposits (CDs)

4. High-Yield Checking Accounts

5. Cash Management Accounts

Time vs Demand Deposit Accounts

Opening a Bank Account With SoFi

FAQ

What are the different types of deposit accounts?

What is the most common type of deposit account?

Is a CD considered a deposit account?

3 Great Benefits of Direct Deposit

It’s Faster

It’s Like Clockwork

It’s Secure

Using the 30 Day Rule to Control Spending

What Is the 30 Day Rule?

Pros and Cons of the 30 Day Savings Rule

Needs vs Wants

Examples of Needs

Examples of Wants

Get up to $300 when you bank with SoFi.

The Role of FOMO Spending

Benefits of Delayed Gratification

Tracking Your Spending and Saving

4 Other Tips and Strategies to Save Money

Pay Yourself First

Try Out Different Budget Methods

Use an App

Start a Side Hustle

Opening a Savings Account with SoFi

FAQ

What is the 30 day rule for saving money?

Does the 30 days rule work?

What is the golden rule of saving money?

How Do Credit Card Payments Work?

The Benefits of Using a Credit Card

Potential Downsides of Using a Credit Card

How Credit Cards Impact Your Credit Scores

Understanding Credit Utilization

How to Build Your Credit With a Credit Card

1. Pay Your Bill on Time Each Month

2. Pay More Than the Minimum

3. Review Your Credit Report Regularly

4. Only Charge What You Can Afford

The Takeaway

How to Combine Bank Accounts

How to Combine Bank Accounts in 4 Steps

1. Decide Where to Keep Your New Account

2. Start Shifting Accounts

3. Check That Your Account Is Up and Running

4. Close the Unnecessary Accounts

Benefits of Combining Bank Accounts

Get up to $300 when you bank with SoFi.

Drawbacks of Merging Your Accounts

Opening a Bank Account With SoFi

FAQ

Can you merge two bank accounts together?

When should you combine bank accounts?

How do you link two bank accounts from different banks?

Why Does Creditworthiness Matter?

What Is Creditworthiness and Why Does It Matter?

Why Does Creditworthiness Matter?

How Is Creditworthiness Calculated?

Building Creditworthiness

The Takeaway

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