Buying a Home With Cash vs. a Mortgage

Most people probably expect to use a mortgage to purchase a home, but what if you have enough to pay in cash?

In a hot housing market, an all-cash offer can give homebuyers a significant competitive edge over those whose bids are contingent on getting a mortgage. And who wouldn’t want to avoid monthly house payments if they could?

Does it really make sense, though, to forgo getting a home loan — especially when you could invest the money and potentially earn a higher return?

Cash vs. Mortgage: A Quick Overview

According to the National Association of Realtors®, 28% of home sales in December 2022 were cash deals.

Those buyers undoubtedly had a mix of motivations when they decided to pay with cash. Some people don’t like the idea of carrying a big debt — or paying the interest on that debt. Others might want to skip some of the lending costs and nerve-wracking processes (approvals, appraisals, inspections, etc.) that are required when taking out a home loan.

And, yes, a cash offer can be an attention-getter when there are multiple offers on a house.

But it’s also important to look at the advantages of having a mortgage.

Before you move forward with a home purchase, here are some of the pros and cons of buying a house with cash vs. a mortgage.

Pros of Buying a House With Cash

There are some clear benefits to paying cash for a house, including:

Beating Out Other Buyers

A cash offer can help you compete more effectively with real estate investors who are able to pay cash for properties of interest.

Or you may be able to negotiate a better price with a seller who’s looking for a quick closing. If your seller already had an offer or two fall through because of contingency issues, it’s possible you’ll be perceived even more favorably.

Speeding Up the Buying Process

When you use a mortgage to buy a home, you can expect to spend a few anxious days working on your loan application, pulling together your paperwork, and waiting for the lender’s approval.

Then you’ll have to wait for a property appraisal, a title search, and other steps that let the lender know the collateral being used for the loan is solid.

With cash, you might be able to avoid some of those steps — and the costs that go with them. (You still may want to follow through, though, with procedures meant to ensure that your purchase is sound, even if they aren’t required. Otherwise, undiscovered issues could come back to bite you if you refinance or sell the home in the future.)


💡 Quick Tip: Mortgage loans are available with flexible term options and down payments as low as 3%.*

Buying When the Appraised Value Isn’t Market Value

Paying cash for a house can allow you to purchase a home that won’t appraise for the seller’s asking price (or the price the average buyer may be willing to pay). If you understand the problems and plan to make necessary improvements, you may still decide it’s the house you want.

No Monthly Payment and Fewer Long-Term Costs

With a cash purchase, you won’t have a monthly mortgage payment in your budget, which can feel quite freeing. And you can avoid some of the long-term costs associated with a mortgage, including interest and private mortgage insurance.

Cons of Buying a Home With Cash

Drawbacks also exist when paying cash for a house. Here are a few:

Losing Out on Investing Potential

Yes, if you pay cash, you’ll save by not paying interest, but could you make more money year to year by investing your money elsewhere? If you can lock in a low interest rate on a mortgage, it could free up cash for other purposes, including saving for retirement. (Plus, diversifying your portfolio is recommended in most cases. If you put most of your cash into your house, that’s just one asset — the opposite of diversification.)

Remember, diversification can help reduce some investment risk. However, it cannot guarantee nor fully protect in a down market.

Keep in mind also that if you liquidate assets to help pay for the home, you won’t just lose out on the earnings potential. If those assets have gone up in value since you purchased them, you also may trigger capital gains taxes.

Using Up All Your Cash

If purchasing your home with cash takes a big chunk out of your savings, you might not have the money you’ll need later for unexpected expenses or home improvements.

And if you end up using a credit card for those costs, the interest rate will likely be higher than it would be for a mortgage. The average rate in 2023 is 22.38% for new offers.

Cash Isn’t Always Better

An all-cash offer is a power move, but it won’t necessarily win the day. Though the thought of a quicker and easier closing will probably get the attention of the seller, they may still go with the highest offer, even if it includes a mortgage contingency.

Missing Out on the Mortgage Tax Deduction

If you itemize on your federal taxes, you won’t be able to deduct your mortgage interest if you pay cash for your home. Depending on what you’d pay in interest each year and what your tax bracket is, this could be a significant consideration.

The deduction can also be taken on loan interest for second homes, as long as it stays within the limits.

First-time homebuyers can
prequalify for a SoFi mortgage loan,
with as little as 3% down.


How to Buy a House With Cash

If you like the idea of being an all-cash buyer and you’re wondering what that process involves, here are some next steps to consider.

Consolidate Your Cash

Getting your cash together in one place could take a while, so give yourself some time. If you’re ready to buy, you may want to move your money from savings accounts, and any investments and other assets you’ve liquidated, to one easy-to-access account.

If you already own a home and plan to sell it, you’ll have to factor that into this process, as well, especially if you need the cash from the sale of your current home to put toward the purchase of your new home.

Negotiate the Price and Sign the Contract

Once you know how much cash you have to work with, you can make an offer on a home. Be prepared to provide proof that you have enough money to make the purchase. If the offer is accepted, you’ll sign a contract.

Consider the Worth of an Inspection

If you’re paying cash, a home inspection won’t be required. However, it’s a good way to protect yourself in case there are hidden issues. The same goes for getting an appraisal, owner’s title insurance, a termite inspection, and homeowners insurance.

Prepare for the Closing

The closing is when you’ll seal the deal and pay the seller. You may be asked to provide a cashier’s check for the amount you owe, or you might be able to pay with an electronic transfer.

How to Obtain a Mortgage

If you’ve decided that buying a house — or a second home — with cash isn’t doable or practical, then you’ll need to know how much you can afford to borrow.

Getting prequalified and preapproved are basics in securing a mortgage. The first provides a ballpark estimate of how much you may be able to borrow and at what rates, and the other will tell you exactly how much you can probably borrow and at what terms.

When getting preapproved, lenders will review things like your credit scores, employment history, earnings, assets, and debt to make sure you can meet your mortgage payment obligations.

You’ll need to consider if your savings are enough for your down payment, closing costs, moving costs, and home repairs. Even if a 20% down payment is ideal, that’s not always realistic or required.

Recommended: What is the Average Down Payment on a Home?


💡 Quick Tip: If you refinance your mortgage and shorten your loan term, you could save a substantial amount in interest over the lifetime of the loan. ”

Delayed Financing: An Option for Cash Buyers

Delayed financing is a way to combine the benefits of cash and mortgage home buying. In short, it’s a way for you to buy a house with cash but then refinance the property within the first six months to get some of your cash investment back.

This route gives you the advantages of being a cash buyer but the ability to regain some of your sacrificed liquidity.

The cash-out amount can vary by loan program and there are specific eligibility requirements. For example, lenders generally require that the purchase was an arm’s-length transaction. This means the buyer and seller do not have any relationship outside of this transaction.

The stipulation is included to help ensure that each party is acting without pressure from the other and that both have access to the same information about the deal.

You may also need to show the lender a copy of your settlement statement showing the home was purchased with cash, a title report showing that you are the owner and that there are no liens on the property, and proof that your own money was used to make the purchase (no borrowed, gifted, or business funds).

The Takeaway

Paying cash for a house can be a good way to get attention in a hot seller’s market. And the idea of avoiding a monthly mortgage payment — and interest — can be appealing. But there are potential downsides to an all-cash deal.

Looking for an affordable option for a home mortgage loan? SoFi can help: We offer low down payments (as little as 3% - 5%*) with our competitive and flexible home mortgage loans. Plus, applying is extra convenient: It's online, with access to one-on-one help.


SoFi Mortgages: simple, smart, and so affordable.


*SoFi requires Private Mortgage Insurance (PMI) for conforming home loans with a loan-to-value (LTV) ratio greater than 80%. As little as 3% down payments are for qualifying first-time homebuyers only. 5% minimum applies to other borrowers. Other loan types may require different fees or insurance (e.g., VA funding fee, FHA Mortgage Insurance Premiums, etc.). Loan requirements may vary depending on your down payment amount, and minimum down payment varies by loan type.

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Non affiliation: SoFi isn’t affiliated with any of the companies highlighted in this article.

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.

Checking Your Rates: 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.

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

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Can You Get A Student Loan with Bad Credit?

Getting most types of loans requires borrowers to prove their creditworthiness. To do this, many lenders review an applicant’s credit history and credit score.

Students who may have little or no credit, or even bad credit may be wondering, can you get a student loan with bad credit? It is possible to borrow a student loan with bad credit. Federal student loans, with the exception of Direct PLUS loans, do not require a credit check.

Private loans, on the other hand, generally do review a borrower’s credit history to inform their lending decisions.

Read on for some more information on the different types of student loans, information on how credit scores are used in a lender’s decision making process, and how to get a student loan with bad credit.

Getting a Federal Student Loan

As mentioned, when applying for most federal student loans, the status of your credit is not usually a factor. One exception is if you are in default on an existing federal loan, that may hinder your ability to qualify for more federal funding.

In order to take out federal student loans, you first need to fill out the Free Application for Federal Student Aid (FAFSA®). If you are a dependent student, you will also need your parents to fill out their portion of the FAFSA.

Are you a Dependent Student?

Not sure if you’re a dependent student or not? You very likely are if you are under the age of 24, even if you are financially independent and even if your parents don’t claim you as a dependent on their tax forms any more.

If you’re under the age of 24, there are a few ways you wouldn’t be considered a dependent student including if you were legally emancipated, are an orphan, are married, are an armed services veteran, or currently serving active duty, or if you have legal dependents other than a spouse.

Subsidized and Unsubsidized Student Loans

The FAFSA is used to determine your financial aid award, including both Direct Unsubsidized or Subsidized Loans.

Subsidized Federal Loans take financial need into account and the federal government will pay the interest that accrues on these types of loans while the borrower is attending college. So, the principal amount that is initially borrowed will remain the same until after graduation.

Unsubsidized Federal Loans don’t take credit history or your financial need into account, and you are responsible for paying any interest that accrues — including while you’re in school and during times of deferment or forbearance.

Another type of federal loan is called the PLUS Loan, and it’s available to parents of students if they want to help fund their children’s college education. It’s also available for graduate/professional students. According to the Department of Education, all Direct PLUS Loan applicants go through a credit check, because a qualification of the loan is that the borrower can’t have an “adverse credit history.”

Recommended: Comparing Subsidized vs. Unsubsidized Student Loans

Getting Private Student Loans

If you find that sources of funding like federal student loans, scholarships, grants, or earnings from work-study will not be enough to fund your education, then private student loans may be another option to consider. Note that private student loans do not come with the same borrower protections afforded to federal loans (such as federal forgiveness programs or income-driven repayments or deferment options) and are usually only considered after all other options have been reviewed.

When it comes to private student loans, you may be asking yourself, can I get a student loan with bad credit? Private lenders are more likely to rely on credit scores and credit history when determining their lending decisions.

So if, for example, you currently have a lower credit score, or not enough credit history, you may want to consider applying with a cosigner who has solid credit history, which can help strengthen the loan application. And, if you haven’t really established your own credit history yet, a private lender will also likely want a cosigner for at least two reasons:

•   There is scant record to demonstrate how responsibly you would pay back a loan

•   About 15% of your FICO® Score is based on the length of your credit history (and 90% of lenders use FICO Score when making lending decisions)

Development of Credit Scores

Credit scores were first developed by the three major credit bureaus and the Fair Isaac Corporation (FICO) in the late 1980s and have now been widely adopted by the financial industry. Before the development of such scores, lenders needed to slog through credit reports that were sometimes pages long, and then make lending decisions that, at least in part, were based on these reports. Under that system, it was easier for the biases of lenders to play a role in lending decisions.

With credit scores, information is quickly summarized, and lenders can establish objective requirements about what type of credit is needed before a cosigner is required and/or a loan can be approved.

How Credit Scores Are Used

When applying for a loan, as mentioned previously, about 90% of lenders refer to your FICO Scores as a sort of risk “litmus test.”

Now, let’s say you apply for a private student loan. The lenders will review your application, including your credit score, and they can approve it, deny it, or offer you something different from what you requested.

Lenders will likely look at your credit score, as well as factors like how many loans you currently have, your payment history, and the amount of time in which you’ve responsibly used credit.

Recommended: Can You Get a Student Loan With No Credit History?

Building Credit Scores

Thirty percent of your FICO Score is based upon how much money you owe. This means that reducing your debt may help build creditworthiness. These tips may also help those who are interested in paying off debt on the way to potentially strengthening their credit scores:

•   Make monthly payments on-time.

•   Prioritize paying off credit card balance monthly.

•   Consider reducing the interest rate on debt by consolidating credit card debt into a personal loan.

•   Snowball down the debt. With this method, if you have debt spread across multiple credit cards, you’d start by paying off the account with the smallest balance while making minimum payments on the rest. Then move to the next smallest bill, paying as much as you can on that one until it’s paid off, and so forth.

•   Limit the amount of spending done with a credit card.

Once your credit gets stronger, you may want to consider refinancing any existing student loans you have. With student loan refinancing, you take out a new loan to replace the old loan, ideally with a lower interest rate and better terms.

If you currently have student loans, and you’re wondering if refinancing might be a good option for you, using a student loan refinance calculator can help you determine how much you might save.

Should you refinance your student loans? If you can get better rates and terms with a stronger credit score, it may be worth it. However, it’s important to note that refinancing federal student loans makes them ineligible for federal programs and protections. If you don’t need to use those programs, you may want to explore refinancing.

Recommended: Student Loan Refinancing Guide

The Takeaway

Credit scores and credit history can play a big role in a lender’s decisions. They are used to determine a borrower’s creditworthiness and can influence if an applicant is approved for a loan and the types of terms and rates they qualify for.

Can you get a student loan with bad credit? Aside from Direct PLUS Loans, federal student loans do not require a credit check. However, private student loans usually do require a credit check. As mentioned above, because private student loans lack the borrower protections afforded to federal student loans (like income-driven repayment plans), they are generally borrowed only after the student has exhausted all other options.

If you have student loans and you’re thinking about refinancing them to get a more competitive interest rate, consider SoFi. There are no fees and you can check your rates in just minutes.

Prequalify for student loan refinancing today with SoFi.


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.

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 .

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

SoFi Student Loan Refinance
Terms and conditions apply. SoFi Refinance Student Loans are private loans. When you refinance federal loans with a SoFi loan, YOU FOREFEIT YOUR EILIGIBILITY FOR ALL FEDERAL LOAN BENEFITS, including all flexible federal repayment and forgiveness options that are or may become available to federal student loan borrowers including, but not limited to: Public Service Loan Forgiveness (PSLF), Income-Based Repayment, Income-Contingent Repayment, extended repayment plans, PAYE or SAVE. Lowest rates reserved for the most creditworthy borrowers.
Learn more at SoFi.com/eligibility. SoFi Refinance Student Loans are originated by SoFi Bank, N.A. Member FDIC. NMLS #696891 (www.nmlsconsumeraccess.org).

SoFi Loan Products
SoFi loans are originated by SoFi Bank, N.A., NMLS #696891 (Member FDIC). For additional product-specific legal and licensing information, see SoFi.com/legal. Equal Housing Lender.


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How to Determine Budget Percentages

When you create a budget, you are doing more than just tracking each dollar that comes in and goes out. You are also usually calculating what percent of your income should go to each spending category, as well as how much you think should go towards that bucket. That’s how you can see where you may be paying out too much of your hard-earned cash in one area.

Understanding what percentage of your income should go towards each purpose can be a valuable tool for managing your financial life. You might want to cut down on how much of your hard-earned cash is going toward food and entertainment and boost the percentage that goes to paying off, say, a student or car loan.

That’s why knowing how to determine budget percentages is a valuable tool in getting your budget and personal finances on track. Learn how to do the math here.

What Are Budget Percentages?

Even if you’ve already created a budget, you may have been thinking of it more in terms of specific dollar amounts than percentages of your income as a whole.

That’s where budget percentages come in: Rather than assigning a set dollar amount to spend in a given category, budget percentages require us to think instead about the proportional amount of our income that the dollar figure represents.

Take groceries. The USDA lists the average cost of a nutritious food plan every month, and those costs can range considerably. A couple 50 and younger might spend as little as about $595 a month on food at home or as much as $908. (That’s right: the cost of the “liberal plan” is about 50% higher that of the “low-cost plan,” according to the USDA.)

Whether either of those figures sounds reasonable may depend on what you earn, but by parsing each expense as a proportion of the whole, it’s easy to figure out how much you have to spend in each budget category. You can also look into reallocating if you were to get a raise or if your cost of living were to change (say, if you were to move).

Think of it as a pie chart: No matter the amount of cash you spend on a given category, that money represents a certain slice of the pie. Making sure that slice is the right size is important to ensure that everyone at the table — which is to say, each of your line items — will get some.

Recommended: Local Housing Market Trends

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Basics of Budgeting Percentages

As mentioned, there are no hard and set rules on what percentage of income to assign to each specific budget category. After all, even the categories themselves will depend on your personal needs and wants. (Maybe you’re a frequent flyer with a budget line item for international travel, for instance, or a music aficionado who has to stash some cash for your growing vinyl collection.)

That said, there are some basic rules of thumb that can be used as a starting place and then customized for individual needs.

Example Budget Percentages

If you ask five financial experts what percentage of your money to allot to a given category, you’ll probably get five at least slightly different answers.

But here are some basic example budget percentages that many experts can, more or less, agree on:

•   Housing (rent or mortgage, including property tax and other expenses): 25%
•   Insurance (such as health insurance, auto insurance, and life insurance): 10%
•   Groceries: 10%-15%
•   Transportation (including gas, parking, and maintenance): 10%
•   Utilities (such as electricity, internet, and water): 10%
•   Savings (including retirement): 10%
•   Entertainment (movie nights, dinners out, etc): 10%
•   Clothing: 5%
•   Miscellaneous: 10%

That “miscellaneous” category gives you the opportunity to devote more cash to categories that you consider worth splurging on, get busy repaying debt, or make charitable donations.

But again, this breakdown is just a starting point. You’re in charge of which expenses matter most to you!


💡 Quick Tip: Make money easy. Enjoy the convenience of managing bills, deposits, transfers from one online bank account with SoFi.

The 50/30/20 Rule

One popular form of proportional budgeting is the 50/30/20 budget rule, originally popularized in All Your Worth: The Ultimate Lifetime Money Plan, written by Sen. Elizabeth Warren and her daughter, Amelia Warren Tyagi.

Per this rule, you’d divide up your income and spend 50% on needs, or essential items; and 30% on wants, or nonessential items; and commit 20% to savings.

Of course, you’d then have to further extrapolate how much of that 50% would go to housing vs. food, for example, and how much of that 30% would go to dining out vs. streaming services.

In Warren’s estimation, that 20% would also cover the money being put toward debt repayment, but of course, this isn’t the most aggressive debt-repayment strategy available—and a fifth of your income might not be enough to meet both retirement savings goals and debt repayment goals.

Which is to say, once again, that budget percentages are all about personalization. Which line items do you need to prioritize? Which can you minimize and cut?

How to Make Budget Percentages Work for You

Starting with the guidelines above, you can put budget percentages to work for you to help make your money map more effective … and also to ensure your money is going where you want it to go, rather than allowing it to end up where it will. Odds are, this exercise will be helpful, regardless of which of the different budgeting methods you use.

To start, determine all the categories that need to be accounted for — a list of everything you spend money on each and every month. This will include both necessary costs, like housing and food, as well as wants like entertainment costs, and important financial goals, like retirement savings and debt repayment.

Each and every expense must be represented for your budget percentages to truly add up to 100%.

Then you can start with fixed expenses (like your rent or mortgage payment, insurance payments, etc.) and determine what percentage of your overall monthly income they represent. That way, you’ll know how much you can allot for more flexible expenses, like groceries and gas.

This exercise will also reveal if you’re regularly overspending on a fixed expense. For instance, if you determine that your housing cost is closer to 50% of your budget than 30%, it might be time to consider getting a roommate or taking up a side hustle.

You may want to start by determining your budget percentages with your spending as is, and then create an aspirational pie chart to set your goals.

Maybe you want to spend less on streaming services and save more for travel or devote more of your income to repaying your student loans. It’s all possible with percentages.

Recommended: How to Make a Monthly Budget

The Takeaway

Slicing the pie into budget percentages makes it easier to meet financial goals and can be a major stress reducer. When you know where your money is going, you don’t have to worry about where it all went. Allocating percentages to your spending and saving categories can help you better manage your money.

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


Better banking is here with SoFi, NerdWallet’s 2024 winner for Best Checking Account Overall.* Enjoy up to 3.80% APY on SoFi Checking and Savings.


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As an alternative to direct deposit, SoFi members with Qualifying Deposits can earn 3.80% 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 3.80% 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.

Separately, SoFi members who enroll in SoFi Plus by paying the SoFi Plus Subscription Fee every 30 days can also earn 3.80% APY on savings balances (including Vaults) and 0.50% APY on checking balances. For additional details, see the SoFi Plus Terms and Conditions at https://www.sofi.com/terms-of-use/#plus.

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

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

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Pros & Cons of Using a Debit Card Online

You are probably used to tapping and swiping your debit card as you go through your day, whether to grab a salad for lunch or pay for a new bottle of shampoo. Debit cards are welcome at most of the places where you can use a credit card, and that includes online retailers as well. This can be a welcome way for some people to spend when shopping online as it can help with budgeting (you only spend what’s in your bank account) and allow you to avoid those credit card interest charges.

However, paying online by debit card isn’t exactly the same as using a credit card, and it’s important to understand the impact, both positive (avoiding a hefty credit card interest rate) and negative (you may not earn rewards nor have fraud protection).

Here, you’ll learn how to use your debit card safely and wisely when purchasing online.

Can You Use A Debit Card Online?

Generally, if a website accepts a credit card for online purchases, it also will accept a debit card.

You may not see debit cards listed specifically as a payment option on a merchant’s website. But if the front of your debit card has a credit network logo (such as Visa or Mastercard) and the business accepts credit cards from that network, you should be able to use it.

To use a debit card for an online purchase, you’ll want to check “credit card” as the payment method and then enter your debit card’s account number, expiration date, and three-digit security code (CCV) to make the purchase.

Unlike debit purchases you make in-person, you won’t need to provide your PIN when purchasing something online. The reason is that the transaction will be treated as a “credit” transaction, which means that the transaction is pending (meaning waiting to be authorized, cleared, and settled).

The money will be deducted from your checking account around two to four days later.

Before an online debit transaction clears, you may see a difference between your checking account’s “current” balance, which includes only deposits and deductions that have actually cleared, and your “available” balance, which includes authorized transactions that haven’t yet cleared.

💡 Quick Tip: Don’t think too hard about your money. Automate your budgeting, saving, and spending with SoFi’s seamless and secure mobile banking app.

What Are Some Pros to Using a Debit Card Online?

There are a few advantages to using a debit card as opposed to a credit card for online purchases that consumers may want to consider. These include:

Reducing Credit Card Debt

Using a debit card to make online purchases may help reduce credit card use (and debt).

When you shop with a credit card vs. a debit card, you’re borrowing money you’ll have to pay back later. If you don’t pay the debt back within a designated period of time, the lender is going to charge interest.

And, if you only pay only the minimum required to carry your balance each month, that debt could grow into a hard-to-get-rid-of burden.

Sign-up bonuses, discounts, unlimited cash-back offers, and travel points can make it tempting to use a credit card for every purchase. But shoppers need to be careful about paying off those purchases on time, or they could end up spending more on interest payments than they receive in rewards.

When you use a debit card, you can’t spend more than you have at the moment. And because there’s no debt, there’s no interest to worry about.

Some Debit Cards Come with Rewards

While rewards and perks for spending are mostly associated with credit cards, many debit cards are now offering rewards programs as well, including cash back, points, or miles every time you swipe your card.

Lower Fees

Debit cards typically don’t have any associated fees unless users spend more than they have in their account and incur an overdraft charge.

By contrast, how credit cards work typically involves fees. Credit cards may come with an annual fee, over-limit fees (if a purchase pushes their account balance over their credit limit), and late-payment fees, in addition to monthly interest on the card’s outstanding balance.

There is also typically no fee for withdrawing cash using your debit card at your bank’s ATM. If you use a credit card to get cash, on the other hand, you may incur a significant cash advance fee. You may also have to pay interest on the advance amount, which often starts accruing the day of the advance, not at the end of the statement period as with regular charges.

Recommended: ATM Withdrawal Limits – What You Need To Know

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Is There a Downside to Using a Debit Card Online?

There are some advantages to using a credit card over a debit card. Here are a couple of things to consider when making the choice to use a debit card online.

Using a Debit Card Online Won’t Build Your Credit History

Have you ever heard someone complain that they couldn’t get a loan or credit card because they’ve never borrowed money? They thought they were being financially responsible, but the bank didn’t want to risk lending money to someone who didn’t have a history of making payments on a loan or line of credit.

That catch-22 extends to purchases made with a debit card. Even though your goal may be to stay fiscally responsible by making only debit (i.e., cash) purchases to avoid debt, you’re not helping your FICO® score, which represents how responsible you are with borrowed money.

And even though you may have marked the “credit” payment option when paying online, the money is still coming directly from your account, so it won’t directly impact your score.

Less Fraud Protection

You may have heard that it isn’t as safe to use a debit card online because federal laws don’t offer the same consumer protections that credit cards get.

It’s true that there is a difference.

Credit card use is covered by the Fair Credit Billing Act which provides a set procedure for settling “billing errors,” including unauthorized charges. If someone uses your stolen credit card account number to make online purchases, you generally aren’t responsible for those charges and can dispute those charges.

Debit card use is protected by the Electronic Fund Transfer Act , which also gives consumers the right to challenge fraudulent debit card charges. Your liability depends on how quickly you report the problem, though, so you need to act relatively fast to get that federal protection.

If someone makes unauthorized charges with your debit card number and you didn’t lose your card, you aren’t liable for those transactions as long as you report the charges within 60 days of receiving your statement.

You also could have zero liability if your card was lost or stolen and you report it before any unauthorized charges occur. If you report the lost or stolen card after it’s been used, the amount you owe will be determined by how quickly you report the loss. Within two days, your liability will be $50; within 60 days, $500.

However, if you wait more than 60 calendar days after you receive your statement to make a report, and the thief goes on a shopping spree, you could lose all the money in any account linked to your debit card.

Some debit card issuers now offer “zero liability” protections that go beyond what federal laws provide. If your debit card is backed by Visa or Mastercard, for example, you may find you have the same protections they offer their credit card users. (You may want to check with your financial institution to verify this coverage.)

Less Purchase Protection

Many credit cards offer purchase or damage protection, which means that if the item you buy is damaged or stolen within a specified period of time, you can get your money refunded. Credit cards may also offer extended warranties on electronic purchases, as well as travel perks, such as rental car insurance.

Debit cards are less likely to offer these perks.

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How to Use Your Debit Card Safely Online

To protect your identity while shopping online with your debit card, you may want to follow these simple precautions.

•   Looking for the lock. When making purchases with your debit card online, it’s a good idea to make sure you’re shopping with a reputable company and on a secure website, especially when it’s time to enter your card number. A good safeguard is to look for the locked padlock icon in your browser. It can also be a good habit to log out of a site as soon as you finish shopping.

•   Monitoring your statements. It can be wise to regularly check your checking account and scan for any debit charges you don’t recognize. That’s because the faster you report a problem, the less trouble you should have recovering from any fraudulent activity.

•   Using a secured network at home. You may want to avoid shopping or paying bills when you’re using public WiFi. Even secured public networks have some risk. And you never know who might be watching over your shoulder when you enter a password or other personal information.

•   Keeping your card, and your account number, to yourself. Giving your card or account number to a friend or family member could lead to trouble down the road, including charges you didn’t expect. And, it may be difficult to recover any lost funds because the usage may not be considered unauthorized. If you want to allow someone you trust to use your account on a regular basis, consider adding them officially as an authorized user.

The Takeaway

Debit cards can be used online for most purchases and can be a great way to manage your spending.

Debit cards generally don’t come with the annual fee and other fees found with some credit cards. Plus, they don’t allow you to rack up debt because you aren’t offered a credit limit that’s higher than your checking account balance.

However, credit cards often come with more perks and purchase protections than debit cards. And, responsible use of a credit card can be a good way to build your credit score.

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


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SoFi members with direct deposit activity can earn 3.80% 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 3.80% 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 3.80% 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.

Separately, SoFi members who enroll in SoFi Plus by paying the SoFi Plus Subscription Fee every 30 days can also earn 3.80% APY on savings balances (including Vaults) and 0.50% APY on checking balances. For additional details, see the SoFi Plus Terms and Conditions at https://www.sofi.com/terms-of-use/#plus.

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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Money Managers Explained

Money managers can help individuals set financial goals, plot and implement investment strategies, and more. You may not think you need one, either, but an experienced, trustworthy, and savvy guide can be a tremendous help when trying to wrangle your finances. Amid the sea of financial professionals are money managers, who can take a hands-on approach with an investment portfolio.

Before hiring a money manager, however, it’s important to understand what they do, how they get paid, and how they may differ from other financial professionals.

What Is a Money Manager?

Money managers are also known as portfolio, asset, or investment managers. They are people or companies that provide individualized advice about building a portfolio. They buy and sell securities on behalf of their clients, provide updates, and make suggestions for changes as market conditions shift. Clients include individuals and institutional investors like universities and nonprofit organizations.

Money managers have a fiduciary duty to their clients: They are obligated by law to put their clients’ best interests first. This may seem like a no-brainer, but it is not necessarily true of all financial professionals.

Investment advice must advance a client’s goals, not because it is more profitable for the advisor. For example, a money manager could not suggest a particular investment to a client just because the manager would receive higher compensation.

Fiduciary rules mean that advice must be as accurate as possible based on the information that is available. A fiduciary (from the Latin “fidere,” meaning “to trust”) is to take into account cost and efficiency when making investments on behalf of clients, and alert clients to any potential conflicts of interest.

💡 Quick Tip: Investment fees are assessed in different ways, including trading costs, account management fees, and possibly broker commissions. When you set up an investment account, be sure to get the exact breakdown of your “all-in costs” so you know what you’re paying.

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What Makes Money Managers Different?

As you search for someone who can help you invest, you may encounter any number of titles, from asset manager to financial advisor, wealth manager to registered investment advisor. To make matters more confusing, “financial planner” covers a broad range of possible professions. They could be investment advisors, brokers, insurance agents, or accountants.

A potential client can check the registration status and background of a professional or firm on Investor.gov, the SEC’s Investment Adviser Public Disclosure website, FINRA’s BrokerCheck, and/or individual state securities regulators.

Here’s a look at some of the most common financial professionals you may encounter and what may make money managers different.

Registered Investment Advisors

Registered investment advisors, as the name suggests, provide investment advice to clients. They must register with the Securities and Exchange Commission or a state authority, and they have a fiduciary duty to hold a client’s interests above their own. They can manage client portfolios, making trades and offering advice on investment strategies.

Registering as an investment advisor means disclosing investment styles and strategies, total assets under management, and fee structure. RIAs must also disclose past disciplinary action and conflicts of interest.

Broker-dealer

A broker-dealer is an individual or company licensed to buy and sell securities. Brokers act as middlemen, buying and selling stocks and other securities for other people. When they are buying for their own accounts they are functioning as dealers.

Stockbrokers usually work at brokerage firms and earn their money by charging a fee for transactions they make.

Brokers register with the Financial Industry Regulatory Authority, an industry group. FINRA has enforced a “suitability” rule for them, meaning they needed to have reasonable grounds to believe that a recommended transaction or investment strategy involving a security or securities was suitable for the customer.

Now the SEC is enforcing a new rule, Regulation Best Interest, that establishes a “best interest” standard for broker-dealers. It requires them to stop referring to themselves as advisors if they aren’t working under a fiduciary standard.

Certified Financial Planners

Financial professionals who carry the CFP® credential have gone through the rigorous training and experience requirements required by the CFP® board. They must also pass a six-hour exam.

They have a fiduciary duty to their clients but can offer services that don’t require regulation. They can help with general financial planning, such as putting together a retirement plan or a debt reduction plan. They may make recommendations about asset allocation, investment accounts, and tax planning.

Money Managers

Money managers may offer a combination of the services mentioned above. They chiefly manage people’s investment portfolios, but they may also offer other forms of financial planning. They likely give investment advice, which means they must be registered as an RIA.

Fiduciary?

Offer advice?

Area of focus

Money Managers Yes Yes Portfolio management
Certified Financial Planners Yes Yes Financial planning (retirement, etc.)
Broker-dealers Sometimes Sometimes Facilitating transactions
Registered Investment Advisors Yes Yes Investment advice

Pros and Cons of Hiring a Money Manager

HIring a money manager, like any other financial professional, can have its pros and cons.

Pros of Having a Money Manager

The advantages of having a money manager are rather obvious: You get expertise and experience in helping you make financial decisions. This can save you a ton of resources–such as time–when trying to decide your next moves. It could, potentially, save you money, too, in saving missteps that need to be rectified (rebalancing your portfolio, for instance). In short, though, the pros of hiring a professional are that you have a professional guiding hand helping you out.

At the end of the day, a money manager is theoretically better at managing money than the average person.

💡 Looking for a DIY approach? Check out our Money Management Guide for Beginners.

Cons of Having a Money Manager

Likely the biggest drawback, in most people’s minds, to hiring a money manager is that you need to pay for their service. Some people may also like to make their own decisions as it relates to their money, and have trouble handing over the reins, so to speak. There’s also the chance that a money manager has a conflict of interest or is not acting in your best interests — something to be aware of when looking to make the right hire.

How Do Money Managers Get Paid?

Money managers typically charge a management fee equal to a percentage of a client’s portfolio each year. On average, advisors charge between 1% and 2% of clients’ assets under management. But there are a lot of variables to consider.

A manager’s fees may be assessed quarterly, which could mean the amount you pay at the end of the year may be a bit more or less than if you were to pay annually.

An asset manager’s fees may also decrease depending on the size of an account. For example, fees on very large accounts may be smaller so that single clients don’t end up paying exorbitant amounts.

Asset managers and other financial advisors may also charge an hourly rate, especially if they are doing any consulting or working on a special project. They may also charge fixed fees for certain services. Some advisors and managers may earn a commission when purchases or trades are made. And there may be performance-based fees if a portfolio performs beyond an established benchmark.

Fee-only advisors earn their money only from the fees they charge clients. They do not earn commissions. This fact makes them distinct from fee-based advisors, who may earn money from fees and commissions.

💡 Quick Tip: When you’re actively investing in stocks, it’s important to ask what types of fees you might have to pay. For example, brokers may charge a flat fee for trading stocks, or require some commission for every trade. Taking the time to manage investment costs can be beneficial over the long term.

Should You Hire a Money Manager?

Managing your money can take a lot of time and effort, especially if you have multiple investment accounts or you’re juggling a lot of assets.

Money managers typically have many advantages when it comes to choosing investments. Not only are they trained to make investment decisions but they typically have access to a lot of information — including analytical data, research reports, financial statements, and sophisticated modeling software—that the average person doesn’t have. So they may be better equipped to make informed decisions.

For investors who have struggled to understand how to best put their money to work in order to meet financial goals, a money manager may be able to help. A large portfolio isn’t necessary. Even those who are just starting out may be able to benefit from working with one.

Even if you’re just starting to invest, it may be worth it to look into hiring one.

3 Tips on Choosing a Money Manager

You can review some money management tips, but additionally, here are a few things to keep in mind when choosing a money manager.

1. Know What You’re Looking For

Before hiring a money manager, figure out what type of financial help you need. If you’re just starting out, you may want to hire someone who can help you put together a long-term financial plan, for example.

2. Check Credentials

An online check with one or more of the aforementioned official websites will show how long an advisor has been registered, where they have worked, and what licenses they hold.

3. Interview

After narrowing the search, it’s a good idea to speak to a few candidates to get an idea of how they communicate, how they typically work with clients, and how they are compensated. If an advisor is cagey about answering the latter question, that’s a red flag.

The Takeaway

With so many titles and options, from financial planner to broker and money manager, it might be hard to choose a guide to handle your finances. A money manager is a strategist who specializes in managing investment portfolios and has a fiduciary duty to clients.

There are a slew of different types of advisors, planners, and managers in the financial world, so it’s important to know the differences. It’s also important to keep in mind that hiring a money manager can have pros and cons. Bringing in professional help may not be the best route for everyone.

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

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 is the difference between a money manager and a financial advisor?

A money manager is a sort of subset of financial advisors, often with more specialized services offered to clients. The differences likely lie in the specific services and expertise offered.

Is it worth it to use a money manager?

If you value expertise and a guiding hand in the market, hiring a money manager may be worth it to you. Be aware, though, that there are costs to hiring a money manager, and the costs may not always outweigh the benefits for everyone.

Is it better to have a financial advisor or a financial planner?

Depending on your individual circumstances, goals, and needs, whether a financial advisor or planner is better will vary. Each may offer different services, so know what you’re looking for before hiring either.


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

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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