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Q: What is the average checking account balance?

The average checking account balance is over $9,000, but that skews high due to those who are wealthier. The median figure is $2,900.

Oct

2024

How Much Money Should You Keep in a Checking Account?

By Janet Siroto | Budgeting & Goals, Family Finances, money, Money & Life | Comments Off

It can be a good move to keep one to two months’ worth of living expenses in your checking account, plus a buffer of about 30% of that amount.

For some people, that will be a stretch. For others, the preference may be to stash more there. While you may like to see a robust balance in your checking account, you want to have “just enough” on deposit (or enough to meet a minimum balance requirement).

Here’s why: A checking account likely pays very low or no interest, so additional funds are better stowed elsewhere, so your money can grow. Read on to learn more about this topic and how to determine the right amount to keep in your checking account.

Key Points

• Maintaining one to two months’ worth of living expenses in a checking account, along with a 30% buffer, is generally advisable for financial stability.

• Monthly income and expenses should be assessed to determine the appropriate balance for a checking account, ensuring enough funds to avoid overdrafts.

• Major upcoming expenses and savings goals should influence the decision on how much money to keep in a checking account, encouraging transfers to higher-interest savings.

• Checking accounts typically offer low or no interest, making it beneficial to keep only necessary funds there while saving excess money in accounts that yield higher returns.

• Tracking spending closely and automating savings transfers can help maintain an optimal checking account balance, allowing funds to grow in savings accounts instead.

What Is a Checking Account?

First things first: A checking account is a type of deposit account that is held at a traditional bank, online bank, or a credit union. It provides a secure spot for your funds (thanks to FDIC or NCUA insurance) and can be the foundation of your daily financial life.

For instance, your paycheck can land there by direct deposit; you can withdraw funds from your account by using an ATM, making a transfer, and more. And you will likely have a debit card that’s linked to the account which allows you to easily spend as you stock up at the supermarket or grab a cold brew.

A few other details to note:

• Checking accounts typically allow you unlimited transactions, but they probably earn no or very low interest. The average checking account currently earns 0.08% in interest, according to the Fed. It can be wise to consider high-yield checking accounts or premium accounts to see if you can snag a higher return.

• Some checking accounts are available fee-free, but they may have minimum deposit requirements and some surcharges. It’s wise to read the fine print on an account you currently have or are contemplating opening to know the full story.

If you’re curious how much others keep in their checking accounts, the Federal Reserve’s recent Survey of Consumer Finances (based on 2022 data) found that Americans keep a median balance of $8,000 in their transaction accounts, which include checking and savings accounts, among others. The average amount in checking and other transaction accounts is $62,410, but that number’s pulled up by those with higher net worth.

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

Factors to Consider

When deciding how much money you should have in a checking account, there’s no one-size-fits-all number. Instead, consider these factors:

Monthly Expenses and Income

To determine how much cash to keep in your checking account, you’ll first want to tally your monthly income and expenses — those two numbers are vital. For example, if you net $8,000 a month in pay and your usual expenses (housing, utilities, food, healthcare, “fun” spending, etc.) are $7,000 a month, you might want to aim for a balance of $10,000 to $15,000 in the account at any time.

This would give you one to two times your monthly expenses, plus a little overage. That overage is important, as it’s your buffer in case your spending were to increase one month (say, a mega dental bill). You don’t want to wind up in overdraft.

If you need help tallying or tweaking your monthly expenses vs. income, there are a variety of budgeting methods that can help you out.

Upcoming Large Expenses

When deciding how much to keep in your checking account, you may want to account for any major expenses coming your way. Perhaps you pay your homeowners insurance annually or your partner’s big birthday is coming right up. You’ll want enough money accessible to cover those.

Savings Goals

On the other hand, you don’t want to let too much cash just sit in your account when it could be working harder for you. You can transfer any excess funds into a savings account where you will likely find much higher interest rates.

For instance, the average savings account has 0.57% interest as of May 2024, which is an improvement over checking’s 0.08%. Also, online-only banks may offer rates in the range of 4.5% for their savings accounts. Higher interest (and more frequent compounding) can help plump up your savings for a summer vacation, new car, or down payment on a house.

In addition, you may want to prioritize stockpiling some money in an emergency fund, which financial experts say should have at least six months’ worth of living expenses in it.

Account Fees and Requirements

As you compare checking accounts, be sure to drill down on account fees and requirements. Fees can nibble away at your money, and there are quite a number that can be assessed. There are account maintenance fees, overdraft fees (at about $35 a pop), out-of-network ATM fees, and more. Read the fine print (or look at your statement if you already have an account) to see where you stand. Then you can make a choice that helps you avoid bank fees.

Also note that there may be requirements for your account, such as keeping a certain amount on deposit or using your debit card a certain amount per month. If you don’t meet the guidelines, you could wind up paying more fees as well.

The Basic Living Expenses Approach

As mentioned above, one popular approach for how much money you should keep in a checking account is to have one to two months’ worth of living expenses on deposit.

Need help calculating that number? Tracking your expenses can be done fairly simply by reviewing a couple of months of your current checking account statements and totaling how much flowed out. Some accounts have a dashboard that make it extra easy to see your spending.

Or you could add up your typical expenses the old-school way, using an online spreadsheet or pencil and paper. You will want to include such costs as housing, transportation, food, utilities, clothing, healthcare, loan payments, credit card payments, dining out, entertainment, streaming services, insurance, and the like.

If your usual expenses were, say, $6,000 a month, you might want to keep somewhere between $8,000 and $14,000 in your checking account.

Earning Interest vs. Liquidity

Another way to look at how much money you should keep in your checking account is to balance two financial forces: earning interest and liquidity.

Typically, in order to pay out higher interest, a financial institution needs to feel confident that money will be accessible for them to use for other business purposes. That is why savings accounts, which used to allow only a limited number of transactions per month (incidentally, some banks still enforce this guideline), will pay a higher interest rate.

Similarly, a certificate of deposit (CD) will likely pay more than a checking account, because the customer agrees to keep their funds in the account for a specific period of time.

The other side of the coin is liquidity, meaning that you can access money on demand, without fees or penalties. This is what a checking account excels at. You may not earn much (or any) interest, but you know you can withdraw funds and pay bills from it as often as you like.

For this reason, you probably want to keep just enough cash in checking to pay bills without overdrafting, while moving any additional funds into savings (perhaps earmarked as an emergency fund) to reap a higher interest rate.

Recommended: Checking Account Pros and Cons

Tips for Right-Sizing Your Balance

As you fine-tune the amount of money you keep in your checking account, try these tactics:

Track Spending Closely

You may think you know how much your monthly expenses are, but tracking the exact amount can be a very helpful exercise as you think about your bank account balances. For instance, you may not be accounting for such spending as gifts for friends and family, subscriptions, prescription medications that refill every three months, contact lenses, and charitable donations.

Some banks provide tools to help you track your spending, or there are apps and websites that can give you a fuller picture. As you comb through your spending, you may also find places where you can easily trim some money.

Automate Savings Transfers

One way to make sure you are building your savings is to set up automatic transfers from your checking account to savings. This can be a seamless, no-effort way to make sure money doesn’t just sit in checking.

You might automate your money by having recurring transfers from checking to savings right after you are paid. That can help you avoid spending when you see money piling up in checking, and it moves money to where it can earn interest.

Take Advantage of Personal Finance Apps

As noted above, there are personal finance apps that can help you manage your money. First check your current bank; they may offer helpful tools. There are also paid apps (like YNAB and PocketGuard) available for budgeting, typically for $8 to $15 a month.

Or you might want to take advantage of round-up apps that can help build your savings as you spend. These round up the price of purchases to the next dollar and send the difference into your savings account (or investments) so it can help build your wealth, bit by bit.

The Takeaway

Keeping slightly more than one to two months’ worth of living expenses in your checking account can be a good rule of thumb. Any additional funds can work harder for you when transferred to a savings account, where they can earn interest and help your money grow.

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

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

FAQ

Is too much in checking a bad idea?

While not exactly a bad idea, keeping too much money in your checking account can mean you are missing out on the opportunity to earn interest and help your money grow.

What is the average checking account balance?

The average transaction account balance (which includes checking and savings accounts) is over $62,000, but that skews high due to those who are wealthier. The median figure is $8,000.

What does it mean for money to be liquid?

When money is liquid, that means it can be accessed on demand. For example, cash in the bank is liquid; the equity you have in real estate is not, since it would require effort to secure funds related to that investment.

Photo credit: iStock/JLco – Julia Amaral

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

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

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

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

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

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

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

We do not charge any account, service or maintenance fees for SoFi Checking and Savings. We do charge a transaction fee to process each outgoing wire transfer. SoFi does not charge a fee for incoming wire transfers, however the sending bank may charge a fee. Our fee policy is subject to change at any time. See the SoFi Checking & Savings Fee Sheet for details at sofi.com/legal/banking-fees/.
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Oct

2024

How Long Is a Check Good For?

By Lauren Ward | Budgeting & Goals, money | Comments Off

Maybe you think paper checks are a relic from the recent past, but don’t write them off so quickly. Did you know that there are still 14.5 million checks issued in the U.S. every day?

That means there may be many instances when you need to cash a check, such as receiving a tax refund or getting paid for a side-hustle gig. All too often, people set aside that paper rectangle and plan to deal with it later, only to realize weeks or even months have passed before they come across it again.

But is a check still good if it’s not cashed right away? Learn the answers here.

Key Points

• Paper checks typically expire six months after the issue date, although some may have shorter void dates set by the issuer.

• Treasury checks have a longer validity period, expiring one year after issuance, making them more flexible than personal or corporate checks.

• Certified and cashier’s checks do not have a strict expiration date but can become unclaimed property if not cashed, depending on state laws.

• Money orders do not expire but may incur fees if not cashed in a timely manner, and they can usually be replaced if lost.

• It is advisable to cash checks promptly to avoid complications; contacting the issuer for a reissue is necessary if a check is stale.

How Long Do Checks Usually Last?

Both corporate checks and personal checks technically expire after six months from the issue date. There may be alternate void dates written on the check, such as 90 days, but that’s more of the issuer’s preference rather than a rule that’s etched in stone. After six months, a bank considers the check “stale” and isn’t legally required to cash it.

Here’s one reason why checks have expiration dates. If you wait too long to cash a personal check, there’s a decent chance that the issuer won’t have enough money in their account to cover the outstanding check.

If this happens, the check bounces and you’ll likely be charged a fee by the bank.

Fees for Bounced Checks

• The maximum amount varies, but typically it costs about $27 dollars when a check bounces as of 2022.

• You may also be hit with overdraft fees, which average almost $30.

When you wait a long time to cash some type of corporate check, you usually run less risk of having it bounce. It could, however, happen.

When a Check Is More Than Six Months Old

So what should you do if you discover an uncashed check that was issued more than six months ago? It can obviously happen, especially in this era when many transactions are done by payment apps and e-checks. Some of us aren’t used to dealing with paper checks.

Here’s the scoop:

• Even if the check doesn’t bounce, the bank can refuse to cash it after the six-month mark. When that happens, you’ll generally need to reach out to the issuer and ask for another check. In that case, the issuer may ask you to return the first copy so they can properly void it.

• In a best-case scenario, the bank could still honor the check. They’re not required to do so by federal law, meaning you could still access the cash despite exceeding six months.

When a Treasury Check Is More Than a Year Old

How long are checks good for when they are issued by the U.S. Treasury? They usually don’t expire until one year after the date it’s issued. Common types of Treasury checks include federal tax refunds, Social Security benefits, and Veterans Affairs benefits. If these checks expire, follow these steps:

• In order to get an expired check reissued, you must contact the paying agency directly and go through the check claims process and appropriate paperwork.

• You can avoid expired U.S. Treasury checks completely by signing up for electronic direct deposit or opting for a direct express card (designed for those without bank accounts). For those who receive federal benefits, like Social Security, receiving payments electronically is required by law.

Note that state and local governments all have their own expiration dates when it comes to checks. Consider looking into those specific guidelines for things like state tax refund checks.

Expiration Dates for Different Types of Checks

You’ve just learned about how six months is the usual expiration date after a check is issued or one year for Treasury checks.

However, there are some exceptions to these guidelines. These likely occur when the funds attached to a check were secured by the issuing bank in some way.

Certified Checks

With a certified check, the issuer’s bank guarantees the funds, but they remain in the individual’s account until you cash the check. However, the bank puts a hold on the correct amount of cash so there’s no risk of the account being overdrawn before you deposit that check.

Still, there’s no hard and fast expiration date for a certified check. The main concern is that eventually, the bank may hand over the funds to the state in your name as unclaimed property if you fail to cash the check. Each state has its own process for reclaiming those abandoned funds, which you may learn more about from the state’s unclaimed property office.

Alternatively, you can visit MissingMoney.com , a multi-state database which may help you find your unclaimed cash from certified checks and other sources.

Cashier’s Checks

When you receive a cashier’s check from someone, the funds have already been withdrawn from their personal bank account and transferred into an escrow account with the issuing bank. The money sits there waiting until you cash the check. The bank may still place a void date on the check and no longer guarantee the funds after that point.

If you miss your window of opportunity, the bank may transfer the money to the state as unclaimed property, just as they would with uncashed certified checks.

Cashier’s checks are usually reserved for large amounts of money. When someone pays you with this method, it’s generally smart to cash it as quickly as possible. Plus, it can be very difficult to replace a hard copy of a cashier’s check if you lose it.

Money Orders

A money order is another secure form of payment. It never expires, but, depending on the terms of the money order, there may be fees incurred if it is not cashed in a certain amount of time.

A money order works differently than most checks. The issuer doesn’t transfer funds from their bank account. Instead, they can use cash, a debit card, or traveler’s check to pay for it. The money order then gets assigned a cash value and can be cashed or deposited.

It’s relatively easy to replace a money order if it’s been lost, especially compared to certified and cashier’s checks. If this happens, the original issuer will generally need to go to the place where the money order was purchased to complete the replacement process.

There may also be a fee for replacing the money order (for example, $13.90 at the U.S. Post Office). However, the process isn’t immediate. It can take between 30 and 60 days to investigate a lost or stolen money order. So, if there are any issues with a lost money order, it’s typically best to try and resolve the issue as soon as possible to help expedite the process.

Recommended: What Is a Counter Check?

Traveler’s Checks

Traveler’s checks are a sort of check that assumes cash value without ever expiring. You may choose to use them while traveling abroad to avoid carrying around large amounts of cash. When you arrive in your destination country, traveler’s checks can be exchanged for local currency.

How long is a traveler’s check good for if not cashed during your trip? You can bring any unused checks home, and then consider these options:

• Since they’re marked in U.S. dollars rather than foreign currency, you can simply save them to exchange during a future overseas trip, regardless of the type of currency used there.

• You can usually redeem unused travelers checks with the issuing bank. Just check in advance what kind of fees may be involved.

• Traveler’s checks are also accepted domestically, meaning you may be able to use them instead of cash, plastic, or personal checks at some stores.

Quick Money Tip: Want a new checking account that offers more access to your money? With 55,000+ ATMs in the Allpoint network, you can get cash when and where you choose.

Why Do Checks Have Expiration Dates?

As mentioned briefly above, checks typically have an expiration date as a way to nudge the recipient to cash it sooner rather than later. When people hold onto uncashed checks, it makes it challenging for the issuer to know how much money they actually have in their account and keep their personal finances up to date.

An expiration date, whether it’s six months or a year, can help them balance their books and not worry about someone cashing a check years later.

Recommended: How to Write a Check to Yourself

What to Do With an Uncashed Check

It’s not uncommon to dig through a pile of unopened mail or a stack of papers and discover a check that you never cashed. What’s next in this situation? Consider these tips:

• If it’s been less than six months for a conventional check, you can likely cash it as usual. Treasury checks are good for up to a year. Mobile deposit can make getting the funds into your bank account quick and easy.

• If it’s past the expiration date, you may check with your bank and see if they will honor it. If they believe the funds are available, they just might cash it.

• If the check cannot be cashed, you will likely have to contact the issuer and request a new check. You may need to return the expired check as part of this process.

If you are the issuer of the check and see that six months have gone by and your check hasn’t been cashed, you may try reaching out to the payee to see if the check has been lost or stolen. If that is the case, or they just let it sit uncashed, you may reissue the check as your next step.

The Takeaway

It’s wise to deposit checks quickly once you receive them. As a general rule of thumb, the six-month mark represents the strictest timeline. Cashing or depositing any check before then can help avoid problems with a check getting stale. Checks issued by the federal government via the U.S. Treasury Department have a little more leeway — a full year from the issue date.

SoFi can help you avoid the hassle of going to a bank branch or ATM to cash your check. With SoFi Checking and Savings, you’ll be able to snap a photo and deposit your check. There are plenty of other great benefits too: We offer a competitive Annual Percentage Yield (APY) and no account fees, which can help your money grow faster (as can savings features like Vaults and Roundups). Plus, you’ll spend and save in one convenient place.

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

FAQ

Can I cash an expired check?

It depends. Your bank may still cash a cash that’s past the expiration date if they believe the funds are available. But they do have the right to refuse it if six months have passed since the date it was issued or one year in the case of checks from the U.S. Treasury.

How can banks tell if a check is expired?

The date on the check tells you and your bank when the check was issued. A check typically expires six months after that date or, in the case of U.S. Treasury checks, a year later. Some companies print on their checks “void after 90 days,” but most banks will honor a check up to 180 days.

Can an expired check be reissued?

Yes, an expired check can likely be reissued. Contact the payor to request this.

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

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

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

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

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

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

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

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.

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.

SOBK1222033

Oct

2024

Can I Open a Bank Account While Living in Another Country?

Can I Open a Bank Account in Another Country?

By Jamie Cattanach | Budgeting & Goals, Financial Independence, money | Comments Off

If you’re wondering, “Can I open a bank account in another country?” the answer is typically yes. Whether you are pursuing life as a digital nomad, studying abroad for a semester or two, or traveling with friends or your significant other for a few months, you’re going to need access to funds.

If you keep your American bank account, you’re likely to face a slew of foreign transaction fees, which can really take their toll on your finances.

Fortunately, opening a bank account in a foreign country is totally possible — and totally legal, as long as you’re not doing so for tax evasion purposes. However, it may take a few more steps than opening a domestic account would. Read on to learn the details.

Key Points

• Opening a bank account abroad is generally legal and can provide benefits such as avoiding foreign transaction fees while living or working in another country.

• The process of opening a foreign bank account typically requires extensive documentation, including personal identification, proof of residence, and possibly financial statements.

• Different countries have varying regulations regarding foreign bank accounts, and some may require additional verification for non-residents or foreign nationals.

• While offshore banking can offer tax incentives, it may also lead to complex tax implications, including the necessity to report foreign accounts to the U.S. government.

• The pros of banking abroad include easier access to funds while traveling, whereas cons involve potential complications and additional paperwork in compliance with both local and U.S. regulations.

What is Banking Abroad?

Banking abroad is pretty much exactly what it sounds like: It involves opening a bank account in a country that is not your primary or official country of residence or citizenship.

If you’re an American, this means opening a bank account in any other country, whether it’s Canada or Cambodia. Of course, some countries — such as, famously, Switzerland or the Cayman Islands — are specifically known for what are called offshore bank accounts, thanks to incentives such as high levels of financial privacy and serious deposit protections. These features can and have attracted the attention of high-net-worth individuals over the years.

But opening a foreign bank account isn’t reserved only for the ultra-rich. Regular, everyday individuals may benefit from banking abroad in certain circumstances. If you are wondering if you can open a bank account overseas because you’ll be spending the bulk of your time there, you probably can.

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

Is Banking Abroad Legal?

Banking abroad is legal if you’re doing so for the right reasons.

Most of us associate banking abroad with nefarious activities like money laundering or tax evasion, which are, of course, illegal — and could result in large fines or even imprisonment.

But if you’re living in or earning legitimate wages in a foreign country, opening an account there is totally legitimate. It’s also likely your best bet for avoiding excessive foreign transaction fees. It will also reduce or eliminate the hassle of having to deal with a customer service team based in a very different time zone.

Some people also open offshore bank accounts for investment purposes. If this interests you, it’s worth enlisting the help of a financial professional to ensure you’re staying above-board. Foreign investments or offshore banking for tax purposes can be quite complex.

How to Legally Bank Abroad

In order to legally open a checking account in a foreign country, you’ll usually need to verify quite a lot of personal information for the bank. This is so all the parties involved can confirm you’re banking in a foreign country for legal reasons and not engaging in illicit activities, such as tax evasion or money laundering. You will probably have to share some details with US officials, too.

So what does all that mean for you as someone interested in opening a foreign bank account?

Paperwork — potentially lots of paperwork, though it may not be that complex.

Requirements to Open a Bank Account Abroad

The specific documentation you’ll need to provide to open a foreign bank account will depend on a lot of factors. Among the variables that may impact exactly what you’ll need to provide: The specific bank you choose, the regulations of the target country, how much money you’re planning to deposit or hold in the account, and more.

Generally speaking, though, you can plan to provide the following:

• Proof of identification, such as a passport or driver’s license

• Proof of residence, such as a utility bill

• Up to a year of bank statements from your current bank account in the US

• Paystubs or a statement from your employer

• Documentation relevant to investments or business transactions, such as sales contracts

Keep in mind that these documents may need to be notarized by a third party or sent through the local consulate for the target country in order to be deemed official. The bank will give you explicit instructions on all required documentation and may also ask for a written statement of purpose for opening the account.

Don’t overlook the home team either. The US government is likely to have its own questions about your activities. If the value of your account abroad will be more than $10,000, you’ll need to file a Report of Foreign Bank and Financial Accounts (FBAR).

Note: Interest earned on monies held in foreign savings accounts are usually still taxable here at home. Always consult with a professional if you have questions about your tax liability.

Pros and Cons of Offshore Banking

So, what are the benefits and drawbacks of offshore banking? When does opening a foreign bank account make sense? Take a closer look.

Pros

First, the upsides of opening a bank account in another country.

• An offshore bank account can help you avoid foreign transaction fees if you’re living or doing business in a foreign country.

• Having a bank account in a foreign country you’re living in can also make it easier to perform basic daily banking tasks without having to navigate overseas phone calls.

• Offshore banking can have some legitimate tax incentives — though in order to take advantage of these legally, you’ll probably need to consult a tax professional.

Cons

Now, the disadvantages:

• Opening a foreign bank account can be a relatively arduous process, with a lot of paperwork and verification involved.

• Foreign banking can have unforeseen taxation consequences — for example, interest earned overseas may still be taxable at home.

• You may need to file additional paperwork with the IRS if your foreign account will be valued at over $10,000.

Here’s how these pros and cons stack up side by side.

Pros of Opening a Foreign Bank Account	Cons of Opening a Foreign Bank Account
Helps you avoid foreign transaction fees if you’re living or doing business abroad	Complicated process involving a lot of paperwork
Easier to conduct day-to-day banking while abroad	Tax considerations; for instance, interest earned may be taxable in the U.S.
There may be tax benefits to having a foreign account	If your account is worth over $10,000, you likely need to file extra paperwork with the IRS

The Takeaway

The answer to the question, “Can I open a bank account in a foreign country?” is likely to be a big yes. Gathering and submitting the right documentation may take a while, but it can ease your time abroad tremendously. It can help you spend more time reveling in the local culture than wrangling your personal finances.

If you’re looking for an easy-to-use banking alternative here in the US, consider your options to find the right fit.

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

FAQ

What countries allow foreigners to open bank accounts?

Most countries will allow foreign nationals to open a bank account on their shores as long as they can provide proof of legal residence in that country (and other necessary documentation). Some countries make it easier than others to open a foreign bank account, however.

Can I open a bank account in another country without being a citizen?

Yes, but you will likely need to provide extra documentation to verify your identity, place of residence, and the legal purpose of the account.

Photo credit: iStock/MicroStockHub

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

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

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

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

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

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

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

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

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.

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.

SOBK0124021

Oct

2024

Guide To Understanding Layaway Plans

By Jamie Cattanach | Budgeting & Goals, Financial Independence, money | Comments Off

If you’ve heard of layaway, you may think it’s an old-fashioned concept, but it’s still available and can help people afford an item without breaking out their credit card.

Here’s how layaway works in a nutshell: You buy an item over time via installment payments. When you’ve paid the full price, you get to take your purchase home. There may be fees involved as well as the possibility of forfeiting your payments if you can’t keep up with them, but this technique can be a helpful tool in some situations.

Key Points

• Layaway allows customers to make installment payments for items held by retailers, enabling them to afford purchases without using credit cards.

• The process involves a down payment, followed by regular payments until the item is fully paid off, at which point it can be collected.

• Advantages of layaway include avoiding debt and interest, while drawbacks may include fees and the risk of forfeiting payments if unable to complete the plan.

• Many retailers, like Amazon and Walmart, continue to offer layaway options, particularly for higher-priced items like appliances and jewelry.

• Alternatives to layaway include buy-now-pay-later plans, credit cards, budgeting adjustments, or saving in advance for purchases without incurring additional fees.

What Is Layaway?

Layaway’s meaning is quite simple: You make a deposit, and a retailer holds your item (or lays it away) and collects the rest of the money over time. When paid in full, you collect your purchase.

Here’s a bit more detail on how layaway works.

• The customer chooses an item that’s eligible for layaway and makes whatever down payment the store requires to implement a layaway plan. (This amount varies based on the retailer, and may or may not include a service fee.)

• The customer then makes regular payments over time based on the retailer’s schedule. These payments may be made weekly, biweekly, or monthly. Online layaway plans let customers buy items according to scheduled deductions from their checking account.

• At the end of the layaway plan period, when the item has been paid for in full, the customer takes their purchase home or receives it in the mail.

One additional point about how layaway works: If the customer makes late payments or cancels the layaway plan entirely, they may be charged a restocking or cancellation fee — and may also forfeit some or all of the money they’ve put toward the purchase already.

💡 Quick Tip: Tired of paying pointless bank fees? When you open a bank account online you often avoid excess charges.

Why Use a Layaway Plan?

From the store’s perspective, layaway offers a low-risk way to make sales to those who might not otherwise be able to afford the purchase all at once.

Although the retailer might choose to charge a small fee to cover the item’s being tied up for the length of the layaway, if worse comes to worse and the buyer defaults, they can simply put the item back up on the shelf for sale.

From a buyer’s perspective, the attractiveness of layaway is even more obvious: It allows those who might not otherwise have the financial leverage to make large purchases affordably, over time.

Layaway is unique among financing options in that it often doesn’t involve interest, which means it can often be a more affordable choice than other types of credit or loans.

Pros and Cons of Layaway

Like any financial approach or product, there are both benefits and drawbacks to layaway plans.

Pros of Layaway

• The consumer doesn’t have to go into debt to make a purchase they would otherwise not be able to afford. Using layaway can help you avoid charging an item on your credit card, which typically incurs high interest rates (which makes it bad vs. good debt).

• Layaway plans don’t require a credit check — which also means that the consumer’s credit won’t be affected if they can’t pay the plan on time or in full.

• Fees associated with layaway plans are generally low and often don’t include interest.

Cons of Layaway

• Although they’re generally low, layaway plans do come with associated fees, such as service, restocking, and cancellation fees — and some of these may be non-refundable.

On the topic of fees, it’s worth noting that buying relatively inexpensive items on layaway can make the associated service fees proportionately costlier than they would be on higher-priced purchases.

• If the customer makes late payments or fails to pay in full, they might forfeit some or all of the money they’ve already put toward the purchase (though this varies by vendor, so check with the individual retailer you’re considering for full details).

• Repayment terms can be inflexible and it’s up to the vendor to set the repayment schedule.

• Layaway takes time and patience; it’s an example of delayed gratification. It may be less attractive to those who want or need to take home the purchase immediately rather than waiting until it’s been paid in full.

Get up to $300 when you bank with SoFi.

Open a SoFi Checking and Savings Account with direct deposit and get up to a $300 cash bonus. Plus, get up to 4.00% APY on your cash!

Stores That Offer Layaway Plans

Layaway was originally offered back in the 1930s as a result of the Great Depression, then began fading away when the history of credit cards reveals that using “plastic,” as it’s sometimes known, became more common later in the 20th century.

The history of recessions tells us they do happen over the years, and the popularity of layaway surged again during the Great Recession of 2007-2009.

These days, many retailers still offer both in-store and online layaway, either for the holidays or year-round.

In some cases, you may only be able to implement layaway on certain products — generally more expensive ones, like appliances and jewelry.

Layaway programs come and go, but retailers that currently offer layaway include the following. Note that a couple of these retailers offer layaway purchases via a service called Affirm; more on that below:

• Amazon

• Best Buy

• Big Lots

• Burlington Coat Factory

• Sears

• Target

• Walmart

If you’re unsure whether or not a retailer offers layaway, you can always ask!

4 Alternatives to Layaway

Here are some other ways customers can get their hands on items they might not be able to buy in a single purchase.

1. Similar Pay-over-time Plans

Some retailers, especially for online purchases, offer buy-now-pay-later or pay-over-time programs that are similar to layaway — rather than paying the full price today, you pay small installments over time.

On the plus side, customers can often receive their purchases before the payment plan has been completed.

However, some of these programs, like Affirm (a payment option available at checkout at many online retailers), can involve interest charges, particularly if borrowers are late on their payments or don’t complete the repayment plan in full.

2. Credit Cards

Credit cards are an obvious alternative to layaway plans — and using them, of course, means that the purchase can be taken home right away.

In fact, credit cards are sort of like the opposite of layaway: With layaway, you pay for an item and then receive it, whereas with credit cards, you receive it now and pay for it later.

(A quick vocabulary lesson: You may hear the term “buy now, pay later” vs. credit cards. If offered “buy now, pay later,” do your research to learn the details. These arrangements may be a kind of layaway. They often charge no interest, making them potentially a better move than using plastic.)

Of course, using credit cards almost always involves compounding interest charges, often close to or more than 20%, which is nothing to sneeze at.

Since it’s easy to carry a revolving balance while making minimum monthly payments, credit cards can quickly lead to a credit card debt spiral that can be difficult to climb out of.

💡 Quick Tip: When you feel the urge to buy something that isn’t in your budget, try the 30-day rule. Make a note of the item in your calendar for 30 days into the future. When the date rolls around, there’s a good chance the “gotta have it” feeling will have subsided.

3. Reconfiguring Your Budget

If being unable to make large purchases is more of a systemic problem than a one-time issue, some budget management may be in order.

Looking at how much money is coming in versus going out and then figuring out where cuts can be made and changing buying habits can be an important step. This can help you save up for the purchases you really need — and want — to make.

Shopping around to find the best deals can also help ensure that a purchase price is as low as possible, regardless of how you decide to finance it.

Recommended: Different Types of Budgets

4. Saving Up for a Purchase

Another option to layaway is to save up in advance until you have enough cash to go ahead and buy the item outright. Let’s say you want to buy a new laptop. You might automate your savings and have $25 transferred from checking on payday to your savings account (ideally, a high-interest one). Over time, the savings will build up and interest will accrue.

When you reach the amount needed, ta-da! You can go purchase your new laptop, without paying any interest or other fees related to buying it over time.

Recommended: Book Now, Pay Later Travel

Opening a Savings Account

If you’d like to start saving for a purchase, it can be wise to find a bank account that offers low or no fees and a solid interest rate to help your money grow faster.

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

FAQ

How does a layaway plan work?

A layaway plan works by a customer paying installments over time until they have given the retailer the full price of the desired item. At that time, the buyer receives their item. A fee may be involved, but typically there are no interest charges.

Is it a good idea to buy things on layaway?

Layaway can be a good idea in some situations. It can help some customers purchase an otherwise out-of-reach item and avoid using high-interest credit cards and incurring debt. However, one must be able to wait to get the item, and the buyer could be charged fees. They might also forfeit payments if they can’t keep up with the installments that are due.

What is the difference between an installment plan and a layaway plan?

The terms layaway plan and installment plan are typically used interchangeably to refer to buying an item over time. You make regular payments that are a fraction of the full price until the item is paid up. Then, the purchase is yours.

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

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

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

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

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

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

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

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

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

SOBK0723016

Oct

2024

Gross vs Net Income: What’s the Difference?

What Are the Differences Between Gross and Net Income?

By Dan Miller | Family Finances, Life & Career, money | Comments Off

If you’re a salaried employee, the amount of money that you bring home with each paycheck plays an important role in your overall financial picture. While there are several dollar amounts that likely appear on your paycheck, two of the most important are your gross income and your net income.

Your gross income represents the total amount of money that your employer has paid you. If you are an hourly employee, it will be your hourly wages multiplied by the number of hours that you worked. If you are salaried, then it is a proportional amount of your total annual salary.

But in terms of net income vs. gross income, the net amount is the sum that is on your paycheck or directly deposited to your bank account. This is the figure that results when you subtract withholding taxes, benefits, and other deductions from your gross salary.

Key Points

• Gross income reflects the total earnings before any deductions, while net income is the amount received after taxes and other deductions are subtracted.

• Different factors, such as marital status and retirement contributions, can affect the amount withheld from gross income, leading to variations in net income.

• Gross income serves as a standard reference for comparing salaries, as it does not account for individual tax situations or deductions that can vary greatly.

• Understanding the relationship between gross and net income is crucial for effective budgeting, as net income directly impacts available funds for expenses and savings.

• Focusing on net income provides a clearer picture of financial health and aids in setting realistic budgets for living expenses and future goals.

What Is Gross Income?

Your gross income is your total salary or wages that you earn before any deductions or taxes are taken out of your paycheck. If you are a salaried employee, your gross income will be the portion of your salary that corresponds to the time period represented on your paycheck. For example, if you have a salary of $52,000 and are paid every two weeks, you will earn a gross income of $2,000 with each bi-weekly paycheck. If you were paid only once a month, however, your gross monthly income would be $4,333.33.

In some cases, an employee might be eligible for overtime pay, which could be reflected in their paycheck as well.

If you are an hourly employee, then your gross income will depend on the total number of hours you work and your hourly wage. If you work 80 hours during a pay period and have an hourly wage of $15/hour, your gross income will be $1,200 (80 times 15). In either case, any tips, bonuses, or one-time additions may also be added to your total gross income.

What Is Net Income?

Here’s the difference between gross income vs. net income: While your gross income represents the total amount of money that you earn in a given pay period, your net income is the amount of money that you’ll actually receive. From your gross income, taxes and common payroll deductions like health insurance and any 401(k) contributions will be subtracted. Other deductions could include wage garnishments or charitable giving via your workplace.

The result is your net income, which may then be sent to your bank account via direct deposit or given to you as a paper check.

Gross vs Net Income: What’s the Difference?

When comparing net and gross income, know this: Your gross income should always be equal to or more than your net income. If you don’t have any of what are known as withholding taxes or other deductions, it is possible that your gross income and net income will be the same. But if you do have any money withheld for taxes, insurance, retirement savings, or other common deductions, they will be subtracted from your gross income. The result is your net income and is also often referred to as “take-home pay.”

Why Do We Go by Gross Income?

When people compare earnings and salary, they often do so by comparing the gross income, and net income isn’t considered. One reason for this is that your gross income is the best indicator to compare the amount of money paid for a particular job or position. The amount of deductions or taxes withheld can vary greatly depending on a person’s situation.

Consider two people that make the same salary — one who is married with children will usually have less taxes withheld than a single person. Also, one person might contribute, say, 10% of their salary to a company-sponsored retirement plan while another chooses not to. Another example could be one person who has deductions that reflect their carrying their family’s health insurance costs while another individual could be married and on their spouse’s plan and therefore have no such deduction.

Another reason that gross income is often a better comparison than net income is because the money that is withheld from your paycheck usually represents actual value that you receive. Money deducted for retirement savings is transferred to your 401(k) account; insurance premiums are used to pay for medical or dental insurance and taxes are paid to the government. Those deductions are serving an important and valuable purpose.

How Do Gross and Net Income Relate to Taxes?

It’s important to understand your taxes and how they relate to your gross and net income. Taxes (along with deductions) are one of the things that is subtracted from your gross income to make up your net income. The more money that you have withheld for taxes from your paycheck, the lower your net income will be. However, this may help minimize the possibility of your owing additional money to the federal or local government come tax season.

How Gross and Net Income Affect Your Finances

While your gross income can be a useful point of comparison in terms of how much you make, it’s your net income that most impacts your budget and finances. When managing your money and wondering whether to focus on your gross or net income, it’s likely that the latter is where you may want to focus.

After all, it’s your net income that represents the money that you actually receive each pay period. This money that you receive each month can be a good starting point as you learn to spend wisely by budgeting.

You can work to best allocate funds to pay your living expenses, make discretionary purchases, pay off debt, and save towards future goals. A line item budget can help you balance your finances and meet your near-term and longer-term goals.

The Takeaway

Gross income and net income are two different points of reference for how much money that you make. Your gross income represents the total wage or salary that you earned during a particular pay period. After any taxes or deductions are taken out, the result is your net income. Your net income is how much money that you actually take home and can be a starting point as you set up your budget.

Understanding how your gross income and net income affect your overall finances is a good first step on the path to a solid financial future. SoFi Checking and Savings can also help you manage your finances. It’s a single, convenient place to spend and save, pays a competitive Annual Percentage Yield (APY), and charges you zero account fees. What’s more, our tools like Vaults and Roundups can help you enhance your savings, and if you open a qualifying account with direct deposit, you can access your paycheck up to two days early.

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

FAQ

How can I increase my net income?

Because net income and gross income are correlated, one way to increase your net income is to increase your gross income. You might do this by finding a new, higher-paying job or by starting a side hustle. The other option to raise your net income would be to lower the amount of taxes and deductions that are taken out each pay period. This could involve, say, increasing your tax allowances to lower the amount that is withheld for taxes or decreasing your other deductions, such as how much you contribute to retirement savings.

What are some budgeting tips to help you with your income?

One budgeting tip is to make sure you start with your net income and list out all of your expenses. Make sure that your total expenses are less than your total income (this may involve making some cuts) and create a plan to save at least some of the difference. You might want to research such budget guidelines at the 50/30/20 rule for inspiration.

Is gross income more important than net income?

Gross income and net income are both important and useful in different circumstances. For example, if you are wondering whether 40K a year is a good salary, it will depend on your situation. If you are single and/or live in an area with a low cost of living, it might be. But if you are the sole source of income for a family of four, live in a location with a high cost of living, and/or have considerable debt, that same gross income could be a challenge in terms of making ends meet.

Photo credit: iStock/Vasyl Faievych

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

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

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

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

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

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

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

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