Apr
17
2023
How Safe Is a Checking Account?

How Safe Is a Checking Account?

By | Budgeting & Goals, Financial Independence, money | Comments Off on How Safe Is a Checking Account?

In light of recent events, some bank customers may wonder how safe a checking account is in terms of stashing their cash.

Banks are far better for protecting your hard-earned cash than you keeping a wad of bills hidden somewhere in your home — mainly because the money you deposit in a bank is insured up to $250,000 or possibly more1.

But there’s more to the story. So read on, and we’ll tell you in detail how banks make sure your money is well defended — and what you can do to help keep those dollars safe.

Is My Money Safer at a Bank?

It’s only natural to wonder where your money is safest, and keeping your cash on deposit at a bank is one of the safest things you can do. For one thing, carrying cash with you — or, worse, hiding it in your house — leaves you vulnerable to theft or loss (or some other unforeseen event).

In addition, banks are highly regulated and, as mentioned, deposits are insured. And as many people now know, the government is fully invested in protecting the cash of its citizens.

Why Your Money Is Safer in the Bank

Here are some of the protections your checking account may have:

•   FDIC insurance

•   NCUA insurance

•   Capital requirements

•   Protection from fires, floods, and thefts

Read on for a brief description of these protections.

FDIC Insurance

The Federal Deposit Insurance Corporation (FDIC) protects people who deposit money into FDIC-insured financial institutions against loss. This kind of insurance is backed by the federal government and depositors are automatically insured, generally up to $250,000 per depositor, per FDIC-insured institution, per ownership category. (Some banks participate in programs that extend the FDIC insurance to cover millions.) If your bank were to go out of business, you’re covered up to the cap.

NCUA Insurance

Maybe you’re the kind of person who prefers to keep your cash at a credit union. Don’t worry; it’s still safe. Congress created the National Credit Union Administration (NCUA) in 1970 to insure deposits of up to $250,000 at federally insured credit unions. The $250,000 is for each member, per insured credit union, per ownership category. Basically, NCUA is an agency that provides coverage for credit union members that’s comparable to what FDIC does for bank customers.

Capital Requirements

Banks and other financial institutions that accept deposits must have enough liquid assets to cover their expenses while still being able to provide cash when depositors request withdrawals. Formulas to calculate capital requirements can be complicated, but know that they are in place and are protecting you.

A financial institution is required to have a risk-to-asset ratio of at least 4% to safeguard people who deposit funds into their institution.

Protections From Fires, Floods, and Thefts

Banks purchase banker blanket bonds, which protect the institution in case of fire, flood, robbery, embezzlement, earthquakes, and other causes of lost funds. As a result, even if the bank loses money, customers won’t lose their funds.

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No account or overdraft fees. No minimum balance.

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Up to $2M of additional
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Advantages of Keeping Money in a Checking Account

Now, let’s pull back and take a big-picture look at why a checking account is such a sweet spot for protecting your money. Some of the pluses:

•   Your money is covered from loss when deposited in an FDIC-insured bank or an NCUA-insured credit union.

•   If your funds exceed the amount of these significant coverages ($250,000), then you can simply open accounts at an institution that offers an insurance program with a higher amount. Or you might open additional accounts at other insured banks and be covered through those institutions.

•   Interest-bearing checking accounts (though not all checking accounts do pay interest) allow you to earn money simply by keeping it in the account.

•   You can easily use your deposited funds by writing a check, withdrawing money from the bank or by an ATM, or transferring it.

•   Checking accounts that come with debit cards make it simple to make purchases through a card reader in person or by entering data online. (Note: There are cons of using a debit card online, like less fraud and purchase protection.)

•   Mobile banking makes it easy to conduct financial transactions wherever you go. You may be wondering, Is mobile banking safe? The answer is yes, most of the time, but you do need to take some precautions to avoid potential hacking activity (more on that below).

•   You can have your paycheck automatically/directly deposited into your checking account. This eliminates a paper check that could get lost or stolen; plus, you don’t have to physically deposit it yourself on payday.

•   A checking account can provide a record of what you spent — and when and where — which is helpful with budgeting, at tax time, and more.

•   Some banks allow you to get paid up to two days early — meaning that your direct deposit is available 48 hours before it’s actually deposited.

Your Role in Protecting Your Money in the Bank

You’ve learned about how banks safeguard your deposits…but what about your role in protecting your money? Yes, even when your dinero is locked up tight at a bank, your actions can impact its security. Consider the following points:

•   If you have any reason to believe that fraudulent activity is occurring or has occurred with your checking account, contact your bank immediately as well as local law enforcement.

•   Create a unique password for your checking account; consider storing it in a secure password management system. Then regularly change your password.

•   Regularly check your balance and balance your statements. This way, you can spot suspicious-looking activity early and address any discrepancies. Identity theft is not unusual and a proactive approach is the best way to protect yourself.

•   Be especially careful when using public Wi-Fi at libraries, coffee shops, and the like. While they’re convenient for information gathering, when you’re conducting financial transactions on them, the open connection makes it easier for hackers to do bad things.

•   Keep your own computer up to date, installing appropriate software updates, malware blockers, and so forth.

•   Sign up for fraud alerts with your bank. Receiving real-time transaction info through texts, emails, or mobile apps allows you to quickly respond to any attempts at fraud.

•   Also, don’t share your banking information with anyone by phone or email. For example, if someone claims to be a representative from your financial institute, hang up. Then use the contact information you have for your bank and share what happened.

The Takeaway

So, how safe are checking accounts? At insured institutions, depositors enjoy deep levels of protection. Besides being safe, there are numerous advantages to having a checking account. Definitely a win-win versus hiding your bucks somewhere at home. But depositing your funds is just part of the bargain: Then you have to do your share and keep vigilant and make sure that fraudsters don’t get their fingers on your dough.

If you’re looking for a bank that protects your money with 24/7 account monitoring, apply for an online bank account with SoFi. SoFi recently announced that deposits may be insured up to $2 million through participation in the SoFi Insured Deposit Program. But here’s what else: If you sign up for direct deposit with us, you’ll earn a competitive APY. Plus, you’ll pay no account fees, and you’ll be able to access your paycheck up to two days early.

Better banking is here with  up to 4.20% APY on SoFi Checking and Savings.

FAQ

Is your money safe in a checking account?

Yes, your money is safe in a checking account. Federally insured banks and credit unions automatically protect depositors like you for up to $250,000 per person, per insured institution, per ownership category (or possibly more). These financial institutions are even covered in case of fire, flood, and earthquakes, as well as when crimes, such as robbery and embezzlement, occur.

What are the risks of a checking account?

Checking accounts come with plenty of benefits and, at federally insured financial institutions, with solid protection against risk. That said, there are a couple of potential disadvantages to checking accounts. For example, not all of them pay interest (although some do). Some come with monthly fees (which can get pricey). And some financial institutions will require a minimum balance in your account.

There’s also some risk of criminal activity: If you ever suspect that someone has hacked into or otherwise fraudulently used your checking account, contact your bank and local law enforcement.

Can someone steal your checking account?

Physical checks and debit cards can be stolen, and your account could be hacked. So keep all personal data in a secure place and, if any items are lost, contact your financial institution immediately. If you believe your checks or debit card to be stolen, also inform your local law enforcement.

Photo credit: iStock/akinbostanci

1SoFi Bank is a member FDIC and does not provide more than $250,000 of FDIC insurance per legal category of account ownership, as described in the FDIC’s regulations. Any additional FDIC insurance is provided by banks in the SoFi Insured Deposit Program. Deposits may be insured up to $2M through participation in the program. See full terms at SoFi.com/banking/fdic/terms. See list of participating banks at SoFi.com/banking/fdic/receivingbanks.

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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Apr
14
2023
Beginners Guide to Good and Bad Debt

Beginners Guide to Good and Bad Debt

By | Growing Wealth, Investing, relay | Comments Off on Beginners Guide to Good and Bad Debt

As anyone who has ever watched their bank account balance decline after paying bills knows, owing money is no fun. But debt often serves an important function in people’s lives, putting things that can cost tens of thousands of dollars or more — like a college degree or a starter home — within reach.

Such cases aren’t quite the same as racking up a high credit card balance on restaurant meals and shopping trips, underscoring that when it comes to owing money, there can be good debt and bad debt.

What Is Debt Exactly?

It’s a simple four-letter word, yet debt is often not as straightforward as it may appear. Carrying a credit card balance? That’s debt. Have a student loan or car lease? Also debt.

When individuals owe money, they generally have to pay back more than the amount they borrowed. Most debt is subject to interest, the borrowing cost that is applied based on a percentage of money owed.

Interest accrues over time, so the longer consumers take to pay off debt, the more it may cost them.

Across people and households, debts add up. According to the Federal Reserve Bank of New York, by the end of 2022, total household debt climbed to $16.90 trillion.

Housing debt — specifically mortgages and mortgage refinancing — accounted for the majority of money owed, more than $12 trillion. Non-housing debt, such as credit card balances and school and car loans, accounted for the rest.

For individuals, average debt amounted to $101,915 in the fall of 2022, according to the credit reporting company Experian. While student loan debt was down slightly, shrinking by 1.2% from the year before — many other debts, including amounts owed on credit cards, personal loans, car loans, home equity lines of credit (HELOCs), and mortgages, all increased from the year before, according to Experian.

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Recommended: Free Credit Score Monitoring

Good Debt vs Bad Debt

When you have debt, not only do you have to repay the money borrowed, but you also usually incur ongoing costs — specifically interest — which increase the amount you have to pay back.

While incurring more debt probably isn’t the most attractive proposition, there are occasions when taking on debt can be necessary or even beneficial in the long term. This is where good debt vs. bad debt comes in.

Though the idea of good vs. bad debt might seem complicated (and is often subject to some misconceptions), as a rule of thumb, the difference between good debt and bad debt usually has to do with the long-term results of borrowing.

Good debt is seen as money owed on expenditures that can build an individual’s finances over time, such as taking out student loans in order to increase one’s earning potential, or a mortgage on a house that is expected to appreciate in value.

Bad debt is money owed for expenses that pose no long-term value to a person’s financial standing, or that may even decrease in value by the time the loan is paid off. This can include credit card debt and car loans.

While owing money may not feel great, debt can serve some helpful functions. For starters, your credit score is used by lenders to determine eligibility and risk level when it comes to borrowing money.

Your credit score is based on your history of taking on and paying off debt, and helps to inform a lender about how risky a loan may be to issue. Your credit score can play an important role in determining not only whether a credit card or loan application will be approved but also how much interest you will be charged.

With no credit history at all, it may be harder for a lender to assess a loan application. Meanwhile, a solid track record of paying off good debt on time can help inspire confidence.

While there are no guarantees, good debt can also mean short-term pain for long-term gain. That’s because if paid back responsibly, good debt can be an investment in one’s future financial well-being, with the results ultimately outweighing the cost of borrowing.

Conversely, with bad debt, the costs of borrowing add up and may surpass the value of a loan.

Recommended: What is The Difference Between Transunion and Equifax?

What Is Considered Good Debt?

Mortgages

Like other lending products, mortgages are subject to annual interest on the principal amount owed.

In the United States, the average rate of a 30-year fixed-rate mortgage was averaging 6.28% nationally in April 2023, according to the Federal Reserve Bank of St. Louis. That’s up from 2022, when the average rate for a 30-year fixed-rate mortgage was 4.72%.

Meanwhile, data from the Federal Housing Finance Agency showed that home prices grew 8.4% from the end of 2021 to the fourth quarter of 2022.

This illustrates how the potential appreciation of a home might outweigh the cost of financing. But it’s best to not assume that taking on a mortgage to buy a house will increase wealth. Things like neighborhood decline, periods of financial uncertainty, and the individual condition of a home could reduce the value of a given property.

Personal loans or home equity loans used to improve the condition of a home may also increase its value, and in such instances may also be considered “good” debt.

Recommended: Should I Sell My House Now or Wait?

Student Loans

Forty-three percent of Americans who attended college incurred some kind of education debt, with most outstanding loans in a recent year coming in between $20,000 and $25,000, according to the Federal Reserve.

Cumulative income gains may eclipse the cost of a student loan over time.

But higher education may be linked with greater earnings, and cumulative income gains might eclipse the cost of a student loan over time.

According to the U.S. Bureau of Labor Statistics, the median weekly earnings for a bachelor’s degree holder are $1,547, which is more than $650 greater than the median weekly pay of someone with a high school diploma.

But just as taking out a mortgage is not a sure-fire way to boost net worth, student debt is not always guaranteed to result in greater earnings. The type of degree earned and area of focus, unemployment rates, and other factors will also influence an individual’s earnings.

Recommended: Staying Motivated When Paying Off Debt

What Is Considered Bad Debt?

Credit Card Debt

Credit cards can be useful financial tools if used responsibly. They may even provide cash back or other rewards. And because interest is generally not charged on purchases until the statement becomes due, using a credit card to pay for everyday purchases need not be costly if the balance on the card is paid before the billing cycle ends.

However, credit cards are often subject to high interest rates. According to the Federal Reserve Bank of St. Louis, the average annual interest rate for credit cards is 20.09% — but some charge rates even higher.

Credit card interest adds up, making that takeout dinner or pair of jeans far more costly than the amount shown on its price tag if a balance is carried over. For example, if you were to charge $500 in takeout food to a credit card with a 20% APR but only pay the $10 minimum each month, it would take nine years to pay off the full balance. The total amount paid — including interest — would be $1,084. That’s more than double the cost of those takeout meals!

Recommended: Does Net Worth Include Home Equity?

Car Loans

The dollar value of your car may not be what you think it is. Cars famously start to lose value the second you drive them off the lot. A new vehicle loses 20% or more of its value in the first year of ownership, according to Kelley Blue Book. After five years, a car purchased for $40,000 will be worth $16,000, a decrease in value of 60%.

But a car may also be necessary for getting around. For some individuals, owning a car can also help them earn or boost income, reducing or negating depreciation.

The Takeaway

Both good debt and bad debt can be stressful — and both types of debt can be more costly than they need to be if you don’t keep tabs on what you owe and pay back loans efficiently. A digital tracker could be the remedy.

SoFi gives you the information you need to manage debt, providing real-time financial insights and tracking so you can stay on top of what you owe.

Get spending breakdowns, credit score monitoring, and more — at no cost.

Track all your money in one place with SoFi.

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.

*Terms and conditions apply. This offer is only available to new SoFi users without existing SoFi accounts. It is non-transferable. One offer per person. To receive the rewards points offer, you must successfully complete setting up Credit Score Monitoring. Rewards points may only be redeemed towards active SoFi accounts, such as your SoFi Checking or Savings account, subject to program terms that may be found here: SoFi Member Rewards Terms and Conditions. SoFi reserves the right to modify or discontinue this offer at any time without notice.

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.

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.

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Apr
14
2023

Typical Retirement Expenses to Prepare For

By | Budgeting & Goals, Growing Wealth, Preparing for Retirement | Comments Off on Typical Retirement Expenses to Prepare For

Many people dream about how their retirement years will play out. Some want to spend their golden years spoiling the grandkids, while others envision traveling the world. As long as retirees have saved enough during their working years to fund the expenses, these goals are attainable.

Unfortunately, not all Americans know what to expect regarding living expenses during their retirement years. They may not know how to budget for ordinary costs in retirement, like housing and transportation, or make the most out of retirement income. Here’s a look at typical retirement expenses so individuals can get a handle on how much they’re likely to spend and how much they need to budget for retirement.

This article is part of SoFi’s Retirement Planning Guide, our coverage of all the steps you need to create a successful retirement plan.

money management guide for beginners

Average Monthly Cost of Retirement Expenses

According to the Bureau of Labor Statistics, an American household headed by someone aged 65 and older spent an average of $48,791 per year, or $4,065.95 per month, between 2016 and 2020. More specifically, households headed by someone between the ages of 65 and 74 spent $53,916 annually during these five years, while spending dropped to $41,637 annually for people aged 75 and older.

Retirees usually spent less than the American average, which was $60,593 per year, or $5,049.42 per month. Retirees also less than people nearing retirement, those aged 55 to 64, who spent $65,392 annually between 2016 and 2020.

💡 Recommended: Average Retirement Savings by Age

5 Common Retirement Expenses by Category

The typical budget for retirees needs to cover expenses for a retirement that could stretch over two or three decades. Drilling down to specific categories can help retirement savers determine benchmarks for their own budget.

1. Housing

Housing expenses, such as mortgage payments, insurance, and maintenance costs, are among the highest costs retirees face.

average housing expenses during retirement

From 2016 through 2020, Americans aged 65 and older spent an average of $16,880 annually, or $1,406.68 per month, on housing-related costs.

These expenses can vary dramatically by location and housing type. For example, housing costs are typically much higher in a coastal California community than in a real estate market in a state with relatively low property taxes, such as Wyoming, South Carolina, or Colorado. This might be a factor to consider when weighing the best states to retire in.

2. Transportation

Many retirees want an action-packed retirement full of entertainment, socializing, visiting family, and traveling the country. That means that transportation costs can be a significant factor in retirement expenses, especially early in retirement.

average transportation expenses during retirement

Americans spent an average of $11,910 per year getting from point A to point B between 2016 and 2020, but retirees spent a little less. Those over age 65 spent an average of $7,062 annually on transportation, or $588.50 per month. People aged 65 to 74 spent $8,497 per year, and people 75 and older spent $5,073 per year. These numbers cover everything from buying a car to filling up the gas tank and could be significantly higher for those who spend a lot of time traveling.

Retirees who don’t own a car may still need to factor the cost of public transportation into their annual retirement costs. Buses, subways, and other public transportation sources cost older generations $526.80 per year.

3. Healthcare

Americans’ healthcare costs — including health insurance, medical services, medical supplies, and prescription drugs — increase as they grow older. With age comes aching joints, injuries from falling, and sometimes chronic diseases like arthritis, diabetes, or Alzheimer’s. Americans spent an average of $4,976 on healthcare annually between 2016 and 2020, but this is one area where retirees spend more than their younger peers.

average healthcare expenses during retirement

People over age 65 spent an average of $6,583 per year, or $548.62 per month, on healthcare from 2016 through 2020. Costs vary from person to person depending on their genetics, injuries, and lifestyle choices. For example, if heart disease runs in the family or you are a smoker, you may want to save extra for retirement healthcare costs.

If you have a high deductible health insurance plan, consider saving with a health savings account (HSA), which offers tax-advantaged savings to cover healthcare costs.

4. Food

Households run by someone age 65 or older spent $6,207 annually, or $517.23 monthly, buying food from 2016 through 2020. Those aged 65 to 74 spent $6,864 per year, and those over 75 spent $5,274. These food expenses include groceries, alcohol expenditures, and meals eaten at restaurants.

average food expenses during retirement

An individual’s food costs will vary depending on their diet and habits. For example, people who buy organic vegetables will likely spend more on produce than people who don’t. There’s also a good chance that eating at home more frequently will cost less than eating out five times per week.

5. Entertainment

Having fun isn’t just for the young. From 2016 through 2020, people over 65 spent an average of $2,527 annually on entertainment, or $210.55 monthly, on fees and admissions to places like museums, theater performances, and movies. Entertainment expenses also include hobbies and pet costs.

average entertainment expenses during retirement

People aged 65 to 74 spent $3,080 per year on entertainment during the past five years. However, once they hit age 75, spending on entertainment dropped to $1,749 annually, perhaps as mobility decreased.

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1Terms and conditions apply. Roll over a minimum of $20K to receive the 1% match offer. Matches on contributions are made up to the annual limits.

What Is the Most Costly Retirement Expense?

Of all of the expenses in retirement, the most expensive is generally housing. While of course exact retirement costs will vary from individual to individual depending on their situation, the average cost of housing even far exceeds costs like health care. As mentioned previously, Americans who are 65 and up spend an average of $16,880 per year on housing-related costs.

There are steps retirees can take to potentially reduce this expense though. For instance, they may aim to pay off their mortgage before they retire. Or, they could consider moving to a less costly state with lower taxes.

What Are Some Unexpected Retirement Expenses?

Even a well-laid retirement plan can leave someone open to surprise. Some unexpected retirement expenses that retirees might want to factor into their retirement planning include:

•   Uncovered health care costs: Health care might not cover anything, and to get total coverage, it might be necessary to get multiple plans under Medicare. However, it’s important to weigh the cost of that over any out-of-pocket costs. Of course, it’s hard to predict the future and because of that, it can be challenging to get the math just right.

•   Long-term care: This retirement expense can be steep, and the costs involved continue to rise. Especially for retirees who don’t have family to turn to for assistance, this can constitute a significant portion of a retirement budget. It’s estimated in Genworth’s Cost of Care Survey that the average cost for an in-home health aid is $61,776, while a private room in a nursing home facility runs $108,405 on average.

•   Unanticipated housing costs: Retirees’ budgets might also get thrown off by housing costs they didn’t factor into their calculations. For instance, while a retiree may have noted the cost of their monthly mortgage payments, they may not have taken into account potential home repairs and maintenance, or needed additions, like a wheelchair-accessible ramp.

What Will You Spend Less on in Retirement?

We’ve talked a lot about the costs of retirement, but there are some areas where you’ll spend less in this stage of life. One place you’ll shell out less is on insurance — Kiplinger estimates that the average retiree spends almost 65% less on insurance, at an average of $2,840 a year, compared to $8,100 a year on average for those under the age of 65. You’ll also likely spend less on taxes, thanks to tax breaks for those over the age of 65.

Other areas where costs might be lower in retirement include on pets and pet supplies; alcohol and tobacco; clothing; and, if you’re giving up your rush-hour commute, transportation.

5 Steps to Set Up a Retirement Budget

Once you have an idea of potential retirement expenses, you can start to save and comprehensively budget for them. Since every retirement looks different, there’s no average retirement budget — a good monthly retirement income for a couple will be different than for a single person. Nonetheless, these are the steps to create a budget that may work for you.

5 steps to retire

Step 1. Contribute to a Retirement Account

You may already have retirement savings in your company-sponsored 401(k) or a similar retirement plan. But those who don’t have access to a 401(k) or want to increase their savings can also save in an individual retirement account like a Traditional IRA or Roth IRA. These accounts can provide tax-advantaged ways to start retirement with adequate savings to build a budget.

💡 Recommended: 5 Steps to Investing in Your 401(k) Savings Account

Step 2: Make a List of Expected Monthly Expenses

Most expenses can fit into one of three categories: fixed, variable, and one-time. Fixed expenses are payments that occur regularly and stay the same from month to month, like mortgage/rent payments, property taxes, and car payments.

Variable expenses change from month to month, depending on personal usage and price fluctuations. Standard variable costs include utility bills and groceries. Likewise, any entertainment expenses, medical expenses, pet care, and personal care expenses may be variable.

One-time or non-recurring expenses are costs that don’t occur regularly. These might include a new roof, a vacation, or a wedding. You may want to set aside money in an emergency fund for unexpected expenses (like that new roof) and have other funds earmarked for non-essential, one-time expenses (like a wedding or vacation).

To get an idea of your various expenses, gather payment information from bank statements, credit card statements, receipts, and bills. Take a look at what you spend now, then deduct expenses you won’t have at retirement (perhaps you’ll eliminate a car payment or pay off your mortgage). Then you can tally what’s left to get an estimate of your projected expenses and build a line-item budget.

Step 3: Estimate Retirement Income

To get a sense of your potential retirement income, look at projected monthly withdrawals from Social Security, retirement accounts, pensions, real estate investments (like a rental property), and any savings or part-time income. Total them up to figure out what your monthly income will be.

Step 4: Compare Expected Expenses to Expected Income

Ideally, your expected income will be larger than your projected expenses. If this is not the case, you can remedy this issue by reducing costs or increasing income.

To reduce expenses, you may consider downsizing your home or going from owning two cars to one. You may also consider streamlining entertainment expenses as a better way to cut costs.

To increase income, you may consider taking on a part-time job when you retire or look to passive income sources to boost the money that you have to spend during retirement.

Step 5: Figure Out When You Can Retire

Once you know how much money you may need in retirement and how long you’ll need to save to get there, you can plan a realistic timeline for when you can retire.

Keep in mind that the plan will likely change over time as you get closer to retirement, depending on how much you’re able to save and how your retirement goals change. Along the way, it could be necessary to boost your retirement savings if you decide you want to retire sooner than later, or you find you’re not quite on-track for your planned age.

The Takeaway

Budgeting for retirement can feel overwhelming, but taking it step by step allows you to create a plan for a retirement you’ll enjoy. It’s helpful to know the average monthly costs and to know in which major categories retirees regularly spend. You might be surprised by where you need to budget more, or where costs might be lower than expected.

Ready to start saving to cover your retirement expenses? Consider an investment account with SoFi Invest®. Investors can trade stocks, exchange-traded funds, and even fractional shares. SoFi members also have access to SoFi Financial Planners, who can provide personalized insights and financial advice so members can make the most of their retirement savings.

Learn more about how SoFi Invest can help you save for retirement.

FAQ

What are common expenses in retirement?

Common expenses in retirement include housing, health care, transportation, food, and entertainment. Of course, where you spend — and how much you spend in each category — will vary from retiree to retiree.

What is a reasonable retirement budget?

This depends on a person’s anticipated expenses and the lifestyle they’d like to lead in retirement. That said, the average retiree in America spends $60,593 per year, or $5,049.42 per month.

Which is the biggest expense for most retirees?

The largest cost in retirement is generally housing. Americans who are age 65 and up spend an average of $16,880 per year on housing-related costs.

SoFi Invest®

INVESTMENTS ARE NOT FDIC INSURED • ARE NOT BANK GUARANTEED • MAY LOSE VALUE

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

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.

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.

Advisory services are offered through SoFi Wealth LLC, an SEC-registered investment adviser. Information about SoFi Wealth’s advisory operations, services, and fees is set forth in SoFi Wealth’s current Form ADV Part 2 (Brochure), a copy of which is available upon request and at adviserinfo.sec.gov .

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14
2023
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Guide to Share Lending

By | Growing Wealth, invest, Investing | Comments Off on Guide to Share Lending

Share lending is when investment firms loan shares to borrowers as a way to collect additional revenue on stocks they already hold. This produces another revenue stream on equities that would otherwise sit untraded in their portfolios.

The borrowers of the shares are often short sellers, who give collateral in the form of cash or other securities to the lenders.

What Is Share Lending?

Share lending is very much as it sounds: Institutions lend out shares of stock to other investors in order to generate more revenue.

The lenders tend to be pension funds, mutual funds, sovereign wealth funds, and exchange-traded fund (ETF) providers, since these types of firms tend to be long-term holders of equities.

Brokerages can also practice securities lending with shares in retail investors’ brokerage accounts. Share lending can help such firms keep management fees down for their clients.

Share lending is also known as securities lending, as the practice can extend beyond equities to bonds and commodities. Securities lending has become more popular in recent years as increased competition in the brokerage space drove down management fees to near-zero, and investment firms sought other sources of revenue. Worldwide revenue from securities lending totaled $9.89 billion during 2022.

Share lending is also useful to investors who are shorting stock, because those investors need to borrow shares in order to open their positions.

Critics argue that the practice comes at the expense of fund investors, since investment firms forgo their voting rights when they loan out shares. They might also try to own stocks that are easier to rent out.

Other concerns about share lending include a lack of transparency, and an increase in counterparty risk. That said, because short-sellers often use margin trading as a way to increase their potential returns, they’re likely used to assuming risk.

How Securities Lending Works

Here’s a deeper breakdown of how share lending works:

1.    Institutional investors use in-house or third-party agents to match their shares with borrowers. Such agents receive a cut of the fee generated by the loan.

2.    The fee is agreed upon in advance and typically tied to how much demand there is for the lent-out security on the market.

3.    The institutional investor or lender often reinvests the collateral in order to collect additional interest or income while their shares are out on loan.

4.    Borrowers tend to be other banks, hedge funds, or broker-dealers, and sometimes include other lending agents. When the borrower is done using the shares, they return them back to the lender.

5.    If the collateral posted was in the form of cash, a percentage of the revenue earned from reinvesting is sometimes given back to the borrower.

Retail investors should learn whether their brokerage offers securities lending or share-lending programs. If you have a margin account at a brokerage or with a specific investing platform, there’s a good chance that you may be eligible or given access to a share-lending program. But you’ll need to ask your specific brokerage for details.

For some dividend stocks, investors could get some form of payment from the borrower, rather than the dividend itself. This payment may be taxed at a higher rate than a dividend payout.

Share Lending and Short Selling

In order to short a stock, investors usually first borrow shares. They then sell these shares to another investor or trader, with the hope that when or if the stock’s price falls, the short seller can buy them back and pocket the difference, before returning the loaned shares.

In share lending, a share can only be loaned out once — but when the borrower is a short seller, they can sell it, and the new buyer can lend it again. This is why the short stock float — the percentage of the share float that is shorted — can rise above 100% in a stock.

The fee generated by lending out shares depends on their availability. A small number of stocks tend to account for a large proportion of revenue in securities lending.

Criticism of Securities Lending

The lack of transparency in securities lending is a concern for many investors — both retail, and institutional.

The Dark Side of Share Lending

In December 2019, Japan’s Government Pension Investment Fund, among the world’s largest, announced that it would halt stock lending, saying the practice is not in line with its goals as a long-term investor. They further cited a lack of transparency regarding the identity of the individuals or entities borrowing the loaned securities, as well as their motivations for borrowing.

This became a bigger concern for investors after the “cum-ex” scandal in Germany, where borrowed shares were allegedly used in a tax evasion scheme.

Voting Rights Transferred

Another one of the biggest criticisms of share lending is that shareholder voting rights attached to the actual stock are transferred to the borrower.

This practice challenges the traditional model, in which institutional investors vote and push for change in companies in order to maximize shareholder value for their investors. Money managers can recall shares in order to cast a vote in an upcoming shareholder meeting. But there are concerns that they don’t, and it’s unclear how often they do.

A Hidden Problem

Another concern is that share lending programs incentivize money managers to own stocks that are popular to borrow, but may underperform. A 2017 paper entitled “Distortions Caused By Lending Fee Retention,” updated in July 2022, found that mutual funds that practice securities lending tend to overweight high-fee stocks which then underperform versus funds that do not rent out shares.

Pros and Cons of Share Lending

There are numerous pros and cons to share lending.

Pros

The most obvious upside for investors is that they may be able to open up an additional revenue stream to increase their returns by lending their shares. Along the same lines, share lending can also help investors turn otherwise dormant investments into return-boosters, under the right circumstances.

Also, lending shares allows for investors to lend their shares to short-sellers — thereby greasing the wheels of the market and allowing short-sellers to do their work. It adds liquidity to the market, in other words.

Cons

One downside to share lending is that retail investors should take note that securities that have been loaned are not protected by the Securities Investor Protection Corporation (SIPC). The SIPC, however, does protect the cash collateral received for the loaned securities for up to $250,000.

There can also be negative tax consequences when lending out shares of stock. You don’t receive dividends for the stocks you’ve loaned out, but you do get Payment in Lieu that’s equal to the value of the dividends paid on loan shares. Unfortunately, though, these payments are taxed at your marginal tax rate, not the more favorable dividend rate.

Another concern is the increase in counterparty risk (similar to credit risk). Let’s say a short seller’s wager goes sour. If the shorted stock rallies enough, the short seller could default and there’s a risk that the collateral posted to the lender isn’t enough to cover the cost of the shares on loan.

Finally, there may be additional and special criteria that investors need to meet in order to qualify for share-lending programs. This will depend on individual brokerages or platforms, however. And a final note: If you use a platform that allows you to buy or trade fractional shares, those fractional shares may not be eligible for share lending, either.

Pros and Cons of Share Lending
Pros

 Cons
Potential to earn more revenue Lack of SIPC protection
Allows investors to boost returns from dormant investments Increased counterparty risk (the borrower may default)
Adds liquidity to short-seller market You’re taxed at the marginal rate on payments in lieu of dividends
Investors may need to qualify

The Takeaway

Share lending or securities lending is a potential source of revenue for institutional investors and brokerage firms, who rent out shares that otherwise would have sat idly in portfolios. The practice has ramped up in recent years as management and brokerage fees have shrunk dramatically due to competition and the popularity of index investing.

There are pros and cons, however, as there’s always a risk that a borrower could default. That’s offset, naturally, by the chance to earn additional revenue and boost your ultimate returns. But there are no guarantees.

If you’re interested in investing in stocks, you can start building your portfolio with SoFi Invest. When you open an Active Invest account, you can start trading stocks online with SoFi Invest’s secure, streamlined platform today. And you may qualify for share lending, which could bring in some income.

For a limited time, opening and funding an Active Invest account gives you the opportunity to get up to $1,000 in the stock of your choice.

FAQ

What are the risks of share lending?

Some of the biggest risks of share lending are counterparty risk (or, the risk that a borrower will default and not be able to return your shares); the fact that you may lose SIPC protection on your shares; and that you may need to qualify in order to actually lend shares.

What exactly happens when you lend shares?

When you lend shares, ownership is temporarily transferred to a borrower, who transfers other shares or investments to the lender as collateral. The borrower also pays the lender a fee for the privilege of borrowing their shares.

Does share lending save money?

It doesn’t necessarily save money, but it can be a way to earn more money or drive more revenue from your owned investments. By lending out shares, you can garner fees from borrowers, amounting to a boost to your overall return.

For members enrolled in the Apex Fully Paid Securities Lending Program, securities are lent based on the Master Securities Lending Agreement. Members are eligible to receive a monthly payment if Apex lends out any securities. The payment is a percentage of the total net proceeds earned, which is subject to change. There are risks with share lending, for a detailed review of those risks please review the Important Disclosure. Members may opt out of the Securities Lending Program at any time by sending us a message via chat.
SoFi Invest®

INVESTMENTS ARE NOT FDIC INSURED • ARE NOT BANK GUARANTEED • MAY LOSE VALUE

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

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.

Probability of Member receiving $1,000 is a probability of 0.028%.

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14
2023
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Alternatives to Banks and Traditional Savings Accounts

By | Budgeting & Goals, Financial Independence | Comments Off on Alternatives to Banks and Traditional Savings Accounts

Increasingly, there are more and more alternatives to traditional banks and savings accounts. From fintech to mobile banking and money market funds to cash management accounts, you’ll have plenty of options to consider in the changing world of personal finance. Here’s a look at:

•  Alternative banking options, including money market accounts, cash management accounts, and more

•  The pros and cons of mobile banking

•  Credit unions vs. P2P lending vs. traditional banks.

Alternative Banking Options

Aside from the old-school savings and checking options offered at traditional banks, there are other options that allow you to save and withdraw cash.

Money Market Accounts

Money market accounts (MMAs), also known as money market deposit accounts (MMDAs), are a type of interest-bearing savings vehicle that was developed several decades ago. In general, these accounts offer relatively lower risk for investors than other types of investments because they are insured by the Federal Deposit Insurance Corporation. These accounts would typically offer higher interest rates than traditional savings accounts because the funds can be invested into government securities, certificates of deposit (CDs), and other vehicles. However, in today’s market, the gap is often not so great.

These accounts often combine features of a savings account and a checking account. For instance, if you are an account holder, you may or may not be limited to the number of monthly withdrawals you can make, which is standard with some savings accounts. However, you may also have a debit card, as you would with a checking account, to make transactions more seamless.

It’s worth noting that, even though they may sound alike, money market accounts and money market funds (a type of investment) are very different financial products.

Cash Management Accounts

A cash management account (or CMA) combines traits of a savings account with a checking account, allowing account holders to both save and spend. These accounts are typically offered by non-bank fintechs, such as online investment firms or robo-advisors. Rates can be competitive while allowing the account holder to make withdrawals as needed. This is in contrast to the types of accounts that limit transactions allowed per statement cycle.

Sometimes, checks are provided with cash management accounts. They may also come with debit cards and access to ATMs.

The funds are typically dispersed into accounts at banks where FDIC insurance keeps the money safe.

Alternative Options vs Traditional Savings Accounts

Here’s a quick look at how money market accounts and cash management accounts differ from traditional savings accounts.

Note: As you review these options, if you are interested in higher insurance limits, it’s worthwhile to note that some banks participate in programs that extend the FDIC insurance to cover millions.1

Money Market AccountCash Management AccountTraditional Savings Account
May offer higher interest rates than traditional savings accounts. Often offered by non-bank financial service providers. They combine the attributes of traditional checking and savings accounts, offering competitive interest rates.Typically offered by traditional banks, traditional savings accounts may offer lower interest rates than money market accounts and cash management accounts.
May allow limited withdrawals each month using check or debit card. Users can make withdrawals as needed. Checks may be provided. Federal rules once limited withdrawals and transfers out of the account to six per month. That regulation has been suspended in response to the COVID-19 pandemic, though banks may still adhere to it.
Can be invested by the bank in government securities, certificates of deposit, and commercial paper, all of which are considered relatively low risk investments.Does not allow investing.Does not allow investing.
Money market accounts are FDIC insured up to $250,000.FDIC insured up to $250,000.FDIC insured up to $250,000.

Fintech

Fintech is short for “financial technology,” a term used to describe financial services with essential, integrated technology. Some forms have become so commonplace that users don’t necessarily even consider them as fintech. An example would be using a mobile payment app. When considering fintech vs traditional banking there may be other products that are more clearly alternative banking solutions. An example of this could be buying and selling cryptocurrency.

Besides mobile apps and cryptocurrency, other fintech examples may include:

•  Digital-only banks, meaning ones without brick-and-mortar branches

•  Artificial intelligence (AI), such as those used in chatbots to answer customer questions and with robo-advisors to help with investing

•  Biometric technologies that make it easier to log into apps while also providing additional security.

Get up to $300 when you bank with SoFi.

No account or overdraft fees. No minimum balance.

Up to 4.20% APY on savings balances.

Up to 2-day-early paycheck.

Up to $2M of additional
FDIC insurance.


Pros and Cons of Mobile Banking

Most traditional banks and credit unions offer mobile banking today as part of their services. Basically, mobile banking allows customers to check their balances and transactions online, deposit checks on their phones, and transfer funds digitally.

Because online-only banks typically don’t have physical branches, overhead costs can be lower for them. They may then pass those savings onto their customers, as well as often provide perks beyond those provided in a traditional bank. Here’s a look at some of the pros and cons of online banking:

ProsCons
Higher interest rates: Reduced overhead can help online-only banks to provide more attractive interest rates.Lack of live assistance: Online-only banks commonly have a customer service line without offering personal banking services. This means that a customer will need to set up accounts and apply for loans without the ability to talk through any challenges with a banker.
No minimum balance: Traditional banks often require minimum balances in accounts, while many online-only institutions do not.Limited services: To help keep costs low and be able to provide higher interest rates, an online-only bank will often offer fewer services than traditional banks.
Convenience: Mobile banking institutions are open 24/7/365. All a customer needs is internet access. Limited ATM access: It may be more difficult to find ATMs within the network
ATM availability: Online-only banks often participate in ATM networks so that customers can use them at no cost. Or, online-only banks may instead refund ATM fees for a certain number of withdrawals.

Consumers who bank online should take appropriate precautions to avoid fraudulent activity. Online banking is very safe, but nothing is completely without issues in this era of hackers and scammers. Wise moves include not accessing private information on public Wi-Fi, not checking banking information on public computers, and using debit cards on protected sites only. These steps may help to reduce the odds of security-related problems with online banking.

Recommended: Is Mobile Banking Safe?

Credit Unions vs. Traditional Banks

When you’re looking for a place to open a checking or savings account or find loan products like a mortgage, credit unions can be an alternative to traditional banks. Here’s a look at how the two options compare:

Traditional BankCredit Union
Banks are for-profit institutions that are owned privately or are publicly traded companies. Credit unions are nonprofits typically owned by its members.
Banking services are typically available to anyone with a good financial track record. Services may only be available to members or family members of the community that the credit union serves.
Banks may have more branches and ATMs available. Credit unions often partner with other institutions to make more bricks-and-mortar branches available and to increase the size of their ATM network.
Banks may offer a wider array of options for banking products. Other products, such as credit cards, may offer more perks. Credit unions often offer enhanced customer services and may be cheaper to use than traditional banks.

Peer-to-Peer Lending vs Traditional Banking

In recent years, peer-to-peer (P2P) lending has sprung up as an alternative to traditional bank loans. It’s a form of direct money lending that bypasses official financial institutions in which investors provide funds to would-be borrowers. Here’s a side-by-side look at the two forms of lending:

Peer-to-peer LendingTraditional Bank Loans
P2P lending matches borrowers and investors directly—typically through an online platform—without the use of an official financial intermediary, such as a bank. Borrowers apply for a loan from a bank.
Borrowers fill out an application with the platform which assesses risk and credit rating before providing loan options and interest rates. The bank assesses borrowers’ creditworthiness and determines whether or not to provide a loan and appropriate interest rates.
Loans may be more accessible to those with low credit scores or looking for atypical loans Banks may offer a limited number of loan products and may have few options available to individuals with poor credit.
Loans may offer lower interest rates or lower fees due to higher competition between investors.

Switching Bank Accounts

If you’re happy with your current traditional bank and bank accounts, you may be content to stay put. However if you’re unsatisfied or looking for tools that aren’t available at your bricks-and-mortar bank, then there may be reasons to switch bank accounts. Here are some questions to ask yourself and reasons you might want to make a change.

•  Fees: Review what’s being charged, from minimum balance and maintenance fees to significant overdraft fees and more. If they’re adding up at a current bank, it may be worth researching alternative banking solutions to see if fees are similar or perhaps even less than what’s currently being charged.

•  Customer service: How long does it take for an issue to be resolved, such as a fraudulent withdrawal? During what hours is the customer service line available? Are you currently being treated as a valued customer?

•  Life event: Is a wedding or other kind of partnership in the near future? This may be a time to open a joint account. See if your current financial institution offers the right features for you and your partner.

•  Convenience: Is the brick-and-mortar bank branch location inconvenient, perhaps after a move? Do ATMs come with hefty fees? Can you conduct all the transactions you want to with your mobile device?

•  FDIC insurance: Is your current bank FDIC-insured or is your current credit union NCUA-insured? Are there any other safety and security concerns with that financial institution? Insurance can provide peace of mind.

•  Mobile features: Are more features available at an alternative banking choice that are of interest? This could mean mobile check deposits, reimbursement of ATM fees, overdraft forgiveness, or a more user-friendly online portal.

How Many Bank Accounts Should You Have?

If a person decides to open an alternative bank account, does it still make sense to hang on to whatever traditional accounts they may already have? The short answer is that the number of bank accounts a person maintains is an individual decision. There may be benefits to having multiple accounts, but it’s also more to juggle.

Reasons it makes sense to have multiple accounts can include:

•  Having separate accounts for different purposes; for example, one savings account could be earmarked for emergencies, while another might contain funds being saved for a down payment on a house or for college expenses.

•  Couples may decide they like the idea of having separate accounts as well as one for joint expenses.

•  Freelancers and small business owners may want to separate personal banking from business banking.

Challenges associated with maintaining multiple accounts can include:

•  The risk of overdraft

•  More banking fees

•  More logistics involved to manage them all.

If more than one bank account is open, it can be important to find out how to transfer funds from one account to the other, as needed. If all of the accounts are held at the same institution, most banks have simple procedures to set up transfers, such as ones from a checking account to a savings account. This can often be done by filling out a form. Or, this can often be done through an ATM.

If bank accounts are held in different financial institutions, the information needed to complete a transfer will typically include routing numbers and account numbers. Banks may have slightly different procedures.

Recommended: How Many Bank Accounts Should I Have?

The Takeaway

There are many different ways to manage your money today, including whether you keep it with a traditional bank, a credit union, or an online bank or other kind of fintech. You’ll also have options like a standard savings account vs. a cash management account vs. money market account. Understanding the options available and the pros and cons of each will help you make the best decision for you. There usually isn’t a right or wrong choice, but an option that checks more of the boxes on your wishlist. It’s up to you!

If you’re in the market for a bank that offers competitive interest rates and no fees, take a look at what SoFi offers for online bank accounts. When you open our Checking and Savings with direct deposit, you’ll enjoy a competitive APY and pay no account fees. Plus, we offer a network of 55,000+ fee-free ATMs to make banking that much better.

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


1SoFi Bank is a member FDIC and does not provide more than $250,000 of FDIC insurance per legal category of account ownership, as described in the FDIC’s regulations. Any additional FDIC insurance is provided by banks in the SoFi Insured Deposit Program. Deposits may be insured up to $2M through participation in the program. See full terms at SoFi.com/banking/fdic/terms. See list of participating banks at SoFi.com/banking/fdic/receivingbanks.

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.

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.

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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Terms and conditions apply. SOFI RESERVES THE RIGHT TO MODIFY OR DISCONTINUE PRODUCTS AND BENEFITS AT ANY TIME WITHOUT NOTICE. To qualify, a borrower must be a U.S. citizen or other eligible status, be residing in the U.S., and meet SoFi's underwriting requirements. Not all borrowers receive the lowest rate. Lowest rates reserved for the most creditworthy borrowers. If approved, your actual rate will be within the range of rates at the time of application and will depend on a variety of factors, including term of loan, evaluation of your creditworthiness, income, and other factors. If SoFi is unable to offer you a loan but matches you for a loan with a participating bank, then your rate may be outside the range of rates listed above. Rates and Terms are subject to change at any time without notice. SoFi Personal Loans can be used for any lawful personal, family, or household purposes and may not be used for post-secondary education expenses. Minimum loan amount is $5,000. The average of SoFi Personal Loans funded in 2023 was around $33K. Information current as of 2/26/24. SoFi Personal Loans originated by SoFi Bank, N.A. Member FDIC. NMLS #696891 (www.nmlsconsumeraccess.org). See SoFi.com/legal for state-specific license details. See SoFi.com/eligibility for details and state restrictions.

✝ To check the rates and terms you may qualify for, SoFi conducts a soft credit pull that will not affect your credit score. However, if you choose a product and continue your application, we will request your full credit report from one or more consumer reporting agencies, which is considered a hard credit pull and may affect your credit.

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