Oct
03
2024
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Emergency Fund: What It Is, Why It’s Important, and How to Build One

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

Life can be unpredictable, and financial setbacks can crop up at any time — whether that’s a job loss, medical or dental bills, a fender bender, or a major appliance that suddenly stops working.

That’s why it’s important to have an emergency fund. An emergency savings fund is a lump sum of cash set aside to cover any unanticipated expenses or financial emergencies that may come your way.

Besides offering peace of mind, an emergency fund can help save you from having to rely on high-interest debt options. These include credit cards or unsecured loans which can snowball. Not having rainy-day savings can also threaten to undermine your future security if you wind up tapping into retirement funds to get by.

Key Points

•   An emergency fund is a financial safety net that can be used for unexpected expenses, for financial emergencies, or in the event of income loss.

•   Financial professionals generally advise having three to six months’ worth of living expenses in your savings account.

•   An emergency fund may prevent you from going into debt, provide funds during unemployment, give you the space needed to make better financial decisions, and provide peace of mind.

•   To begin building an emergency fund, it can help to start with a smaller goal, such as $1,000.

•   Using a high-yield savings account and automating contributions to the account can help you gradually build up your emergency fund to the amount that’s best for your circumstances.

What Is an Emergency Fund?

An emergency fund is essentially a savings fund earmarked for emergency expenses—aka unplanned expenses or financial emergencies. A major home repair, like a leaking roof, is an example of an unplanned expense that needs to be dealt with right away. Losing a job is an example of a financial emergency that can cause a lot of stress if you don’t have an emergency fund to dip into to pay for necessities and bills.

If someone doesn’t have an emergency fund and experiences financial difficulties, they may turn to high-interest debt. For instance, they may use credit cards or personal loans to cover expenses, which can lead to struggling to pay down the debt that’s left in its wake.

You may be wondering just how much to keep in an emergency fund. Financial experts often recommend having at least three to six months’ worth of basic living expenses set aside in an emergency fund. That can be a lofty goal considering that one recent study showed that about half of all Americans would struggle to come up with $400 in an emergency scenario. And in SoFi’s April 2024 Banking Survey of 500 U.S. adults, 45% of respondents said they have less than $500 set aside in an emergency fund. It’s wise not to be caught short and to prioritize saving an emergency fund.

Recommended: Take the guesswork out of saving for emergencies with our user-friendly emergency fund calculator.

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Why Do You Need an Emergency Fund?

With all of the bills that a person typically has to pay, you may wonder, “Why should creating an emergency fund be a top priority?” Here’s why: An emergency fund can be a kind of self-funded insurance policy. Instead of paying an insurance company to back you up if something goes wrong, you’re paying yourself by setting aside these funds for the future. Building this cushion into your budget can be a vital step in better money management.

How you invest emergency funds is of course up to you, but keeping the money in a high-yield savings account typically gives you the liquidity you need while earning some interest.

Having this kind of financial safety net comes with a range of benefits. Below are some of the key perks of having an ample emergency fund.

Preventing You From Going into Debt

Yes, there may be other ways to quickly access cash to cover the cost of an emergency, such as credit cards, unsecured loans, home equity lines of credit, or pulling from other sayings, like retirement funds.

Preventing debt is one of the most important reasons to have an emergency fund.

But these options typically come with high interest fees or penalties. Though there are many reasons for having an emergency fund, preventing debt is among the most important and enticing.

Providing Peace of Mind

Here’s another reason why it is important to have an emergency fund: Living without a safety net and simply hoping to get by can cause you to stress. Thoughts about what would happen if you got hit with a large, unanticipated expense could keep you up at night.

Being prepared with an emergency fund, on the other hand, can give you a sense of confidence that you can tackle any of life’s unexpected events without experiencing financial hardship.

Providing Finances During Unemployment

Applying for unemployment benefits, if you are entitled to them, can help you afford some of your daily expenses. Unfortunately, these payments are generally not enough to cover your entire cost of living.

If you have an emergency fund, you can tap into it to cover the cost of everyday expenses — like utility bills, groceries, and insurance payments — while you’re unemployed.

Starting an emergency fund also gives you the freedom to leave a job you dislike, without having to secure a new job first. Sometimes this can be the best move if you are stuck in a toxic situation.

Making Better Financial Decisions

Having extra cash set aside in an emergency fund helps keep that money out of sight and out of mind. Having money out of your immediate reach can make you less likely to spend it on a whim, no matter how much you’d like to.

Also by having a separate emergency account, you’ll know exactly how much you have — and how much you may still need to save. This can be preferable to keeping a cash cushion in your checking account and hoping it will be enough. In fact, 77% of the SoFi survey respondents who have a savings account said they use it specifically to save for emergencies.

Recommended: Guide to Practicing Financial Self-Care

Emergency Fund Statistics

Curious about how much other people have in their emergency funds? Or what percentage of Americans actually have a rainy-day account? Here are some recent research numbers to know:

•   About 50% of people report having emergency savings.

•   23% have enough money to cover six months’ worth of expenses.

•   56% of Americans say they couldn’t cover a $1,000 emergency expense. And just 19% of people in SoFi’s report said they have between $1,000 and $5,000 in emergency savings.

•   26% of people overall have no emergency savings at all.

•   37% of those who earn less than $50,000 per year have no emergency savings at all.

•   Less than half of people earning between $50,000 and $99,999 per year are comfortable with how much they have saved for a rainy day.

•   More than half of Americans are concerned about the amount of their emergency savings.

How Do You Build an Emergency Fund?

One of the basic steps of how to start a financial plan is saving for emergencies. Stashing money aside for a rainy day is a vital part of financial health.

The good news is that starting an emergency fund doesn’t have to be complicated. These tips can help you get your emergency fund off to a good start.

•   Set your savings target. The first step in building an emergency fund is deciding how much to save. The easiest way to do that is to add up your monthly expenses, then multiply that by the number of months you’d like to save (typically, at least three to six months). If the amount seems overwhelming, you can start smaller and aim to save $1,000 first, then build up your emergency fund from there.

Recommended: Use this emergency fund calculator to help you determine how much you should save.

•   Decide where to keep it. The next step is deciding where to hold your emergency savings. Opening a bank account online could be a good fit, since you can earn a competitive APY (annual percentage yield) on balances while maintaining convenient access to your money. You could also choose to open a traditional bank account and use its online banking features. Forty-eight percent of people say they use online banking daily, according to SoFi’s data.

•   Automate contributions. Once you set up an online bank account for your emergency fund, you can schedule automatic transfers from checking. This way, you can easily grow your emergency fund without having to worry about accidentally spending down that money.

One of the most frequently asked emergency fund questions is whether a savings account is really the best place to keep your savings. After all, you could put the money into a certificate of deposit (CD) account instead or invest it in the market. But there are issues with those options.

A CD is a time deposit, meaning you agree to leave your savings in the account for a set maturity period. If you need to withdraw money from a CD in an emergency before maturity, your bank may charge you an early withdrawal penalty.

So, should emergency funds be invested instead? Not so fast. Investing your emergency fund money in the stock market could help you to earn a higher rate of return compared to a savings account. But you’re also taking more risk with that money, since a downturn could reduce your investment’s value. Proceed with caution before taking this step.

How Long Does It Take to Grow an Emergency Fund?

Emergency funds don’t necessarily come together overnight. Saving after-tax dollars to equal six months’ worth of typical living expenses can take some work and time. Here’s an example to consider: If your monthly costs are $3,000, you would want to have between $9,000 and $18,000 set aside for an emergency, such as being laid-off.

•   If your goal is $9,000 and you can set aside $200 per month, that would take you 45 months, or almost four years, to accumulate the funds.

•   If you can put aside $300 a month, you’d hit your goal in 30 months, or two and a half years.

•   If you can stash $500 a month, you’d have $9,000 saved in one and a half years.

A terrific way to grow your emergency fund is to set up automatic transfers from your checking account into your rainy-day savings. That way, you won’t see the money sitting in your checking and feel as if it’s available to be spent.

Next, we’ll take a look at how to accelerate saving for an emergency fund.

How Can You Grow It Faster?

You’ve just seen how gradually saving can build a cash cushion should an emergency hit. Here are some ways to save even faster:

•   Put a windfall into your emergency fund. This could be a tax refund, a bonus at work, or gift money from a relative perhaps.

•   Sell items you don’t need or use. If you have gently used clothing, electronics, jewelry, or furniture, you might sell it on a local site, such a Facebook group or Craigslist, or, if small in size, on eBay or Etsy.

•   Start a side hustle. One of the benefits of a side hustle is bringing in extra cash; it can also be a fun way to explore new directions, build your skills, and fill free time.

These techniques can help you ramp up your savings even faster and be prepared for an emergency that much sooner.

Prioritizing Your Emergency Fund When You Have Other Financial Obligations

Most of us have competing financial goals: paying down student debt or a credit card balance; accumulating enough money for a down payment on a house; saving for college for kids; and socking away money for retirement. In many cases, you’ll see variability in financial goals by age, but there are often several needs vying for your dollars at any given time.

Here’s advice on how to allocate funds:

•   Definitely start or continue saving towards your emergency fund. Even if you can only spare $25 per month right now, do it! It will get you on the road to hitting your goal and earning you compound interest. Otherwise, if an emergency were to strike, you’ll likely have to resort to credit cards or tapping any retirement savings, which probably involves a penalty.

•   Continue to pay down high-interest debt, like credit card debt. You want to get this kind of debt out of your life, given the interest rates that currently sit between 15% and 19%. You might explore balance transfer offers that let you pay no or very low interest for a period of time (say, 18 months) which can help you pay down your debt.

•   Steadily stick to your schedule for low-interest debt, which typically includes student loans and mortgages.

•   Fund your retirement savings as much as you can. As with an emergency fund, even a small amount will be worthwhile, especially with the benefit of compound interest. Make sure to contribute enough to take advantage of the company match if your employer offers that as part of a 401(k) plan; that is akin to free money.

Banking with SoFi

If you’re looking for ways to save for an emergency and want your money to grow fast, why not open an online banking account with SoFi? When you start a Checking and Savings account with direct deposit, you’ll have automatic savings features at your fingertips, earn a super competitive APY, and pay zero fees. That’s what we call banking smarter.

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 is the purpose of an emergency fund?

An emergency fund is a financial safety net. It’s money set aside that you can use if you are hit with a big, urgent, unexpected bill (like a medical expense or car repair) or endure a loss of income. In these situations, an emergency fund can help you avoid using your credit cards and taking on high-interest debt or hurting your credit score by paying bills late. How to invest an emergency fund is up to you, but a high-interest savings account is one good, liquid option.

Can I use an emergency fund for a non-emergency expense?

Technically, you can use an emergency fund for a non-emergency expense. After all, it’s your money. But it’s not wise to do so and defeats the whole purpose of saving this cash. If you use your emergency funds to pay for a vacation or new clothes, then if a true emergency arises, you won’t be prepared.

How difficult is it to rebuild an emergency fund?

It can be difficult to rebuild an emergency fund, just as it was to accumulate the money in the first place. But even if it takes years to achieve your goal, it is worth it. Putting away money gradually for an emergency is an important step towards being financially fit.

More from the emergency fund series:

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Oct
03
2024

What Are Stocks? Types, Benefits, Risks, Explained

By | Growing Wealth, Investing, Terminology | No Comments

A stock represents a fraction of ownership in a company. Stockowners, also called shareholders, are entitled to a proportional cut of the company’s earnings and assets (and sometimes dividends).

That means that if you own stock in a company, as the company grows and expands you stand to earn a return on your investment as your shares gain value. But you also risk losing all or part of your investment if the company doesn’t prosper.

Key Points

•   Stocks represent fractional ownership in a company, offering potential returns through appreciation and dividends.

•   Stocks may be either common or preferred, with common stocks being the most common.

•   Stock prices are typically determined by supply and demand, influenced by factors such as market conditions and company performance.

•   Investing in stocks may help build wealth over time but also carries risks, including potential loss of investment.

•   Diversifying a portfolio with various stocks and other assets can help mitigate investment risks.

What Are Stocks?

Stocks are shares of ownership in a company, and they are primarily bought and sold on publicly traded stock exchanges. That means you can open an online brokerage account and become a partial owner of whatever company you choose when you buy shares in that company.

How Do Stocks Work?

Stocks are a type of financial security, or asset, and they are traded on public exchanges. A stock is created when a company goes public, typically through an initial public offering (IPO), and issues shares that investors can buy and sell. Stocks are usually traded on exchanges, like the NYSE or Nasdaq.

Individual investors can open a brokerage account so they can buy and sell the stocks of their choosing on a given exchange. Exchanges list the purchase or bid price, as well as the selling or offer price.

The price of a stock is generally determined by supply and demand via an auction process, where buyers and sellers negotiate a price to make a trade. The buyer makes a bid price, while the seller has an ask price; when these two prices meet, a trade occurs.

The stock market consists of thousands or millions of trades daily, usually through online platforms and between investors and market makers. So, the auction process is not usually completed between investors directly. Rather, prices are determined through electronic trades, often conducted in fractions of a second.

When a stock’s prospects are high and it’s in high demand, the company’s share price could increase. In contrast, when investors sour on a company and want to sell en masse, the price of a stock will likely decline.

Types of Stocks

Stocks generally fit into two categories: common stock and preferred stock.

•   Common stocks are the most common type of stock. Along with proportional ownership of the company, common stocks also give stockholders voting rights, allowing them to have voice when it comes to things like management elections or structural business changes. Most individual investors own common stock.

•   Preferred stocks don’t come with voting rights, but they are given “preferred” status in that earnings are paid to preferred stockholders first. That makes this kind of stock a slightly less risky asset. If the company goes under and its assets are liquidated to repay investors, the preferred stockholders are less likely to lose everything, since they’ll be paid their share before common stockholders.
Most individual investors own common stock.

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Benefits of Stocks

For investors, the primary benefit of owning stocks is that they present the opportunity to generate a return. While stocks do have risks, by and large, the stock market tends to rise over time, meaning that an investor owning a diversified stock portfolio could benefit from the market’s gains over time, too. Though there are no guarantees.

Further, stocks allow investors to diversify their portfolios to a good degree. Diversifying your portfolio — buying a variety of different stocks as well as other assets like bonds and cash equivalents — is one way to help mitigate the risks of investing.

Again, it’s important to understand that it is possible (and even likely) that you may lose money you have invested when a company’s stock or the market takes a downturn. It’s also important to remember that a certain amount of market fluctuation is absolutely normal — and, in fact, an indicator that the market is healthy and functioning.

Risks of Stocks

As discussed, owning or investing in stocks has its risks, too. Though buying stocks can sometimes result in a positive return, it’s also possible to see significant losses — or even to lose everything you’ve invested.

Stocks might lose value under the following circumstances (though there could be many others):

•   The market as a whole experiences losses, due to wide-reaching occurrences like economic recessions, war, or political changes.

•   The issuing company falters or goes under, in which case individual shares can drop in price and the company may forgo paying dividends. This is also known as “specific” or “unsystematic risk,” and may be slightly mitigated by having a diversified portfolio.

•   A lackluster financial report, such as a quarterly earnings report showing declining sales, could lead to a stock’s value declining.

How to Buy Stocks

If you decide that investing in the stock market is the right move to help you reach your financial goals, you’ve got a variety of ways to get started. For most investors, there are two main account types through which they might buy stocks: tax-deferred retirement accounts and taxable brokerage accounts. There are also accounts that allow for automated investing.

Before you even sit down to choose your first stock (or learn to evaluate stocks in general), you’ll need to decide what kind of investment account you’ll use.

Tax-Deferred Accounts

These accounts are typically used for retirement-saving or planning purposes because they offer certain tax advantages to investors (along with some restrictions). Generally, investors contribute pre-tax money to these accounts — meaning contributions are tax deductible — and pay taxes when they withdraw funds in retirement.

•   A 401(k): The 401(k) plan is commonly offered to W-2 employees as part of their benefits package. Contributions are taken directly from your paycheck, pre-tax, for this retirement account. In most cases, taxation is deferred until you take the funds out at retirement.

•   IRAs: Individual retirement accounts, or IRAs, may be useful investment vehicles for the self-employed and others who don’t have access to an employer-sponsored retirement account. There are a number of different types of IRAs – two of the most common are the traditional and the Roth IRA, though typically only the traditional IRA is tax-deferred. Roth IRA account holders contribute after tax-dollars, which grow tax-free. Each type of IRA offers unique benefits and limitations.

Taxable Accounts

You can also open a brokerage account, which allows you to buy and sell assets pretty much at will. However, there are no tax deductions for investing through a brokerage account.

Also, the dividends you earn are subject to taxes in the year you earn them, and you may incur taxes when you sell an investment. Tax rates are usually lower for “long-term” assets, or those held for a year or longer; taxes on “short-term” capital gains (on securities held for less than a year) tend to be higher.

Different brokers assess different maintenance and trading fees, so it’s important to shop around for the most cost-effective option.

Automated Investment Options

If all that footwork sounds exhausting, that doesn’t necessarily mean investment isn’t right for you. You might consider an automated investing option (also known as a “robo-advisor”), which offer pre-built investment portfolios based on your goals and timelines. It’s similar to a pre-built house: there are some adjustments you can make, and different models to choose from, but your choices are limited.

That said, many investors choose automated options because the algorithm on the back-end takes care of most of the basic maintenance for your portfolio. Also, robo advisors can help you get started with a minimal amount of research and effort.

The programs may charge a small fee in exchange for creating, maintaining, and rebalancing a portfolio. Some may also allow you to choose specific stocks or themed ETFs, which can help you support companies or industries that share your values and vision.

Stock Terms to Get Familiar With

The stock market is chock full of unique jargon and terminology. As such, it can be helpful to learn some of the lingo so you better understand what’s going on, and what you’re doing.

Stocks and Shares

What is the difference between a stock vs. a share? A share of stock is the unit you purchase. “Stock” is a shorthand way of referring to the company that is selling its shares.

So: You might buy 100 shares of a company. If you owned 100 stocks, however, that means you own shares of 100 different companies.

Further, trading equities is the same as trading stocks. Equities or equity shares, is another way of talking about stocks as an asset class. You’re not likely to say you bought equity in a company. But your portfolio may have different asset classes that include equities, fixed income, commodities, and so on.

It’s also possible to own a fraction of a share of stock (called fractional shares), for those who can’t afford to buy a single share (which can happen with very large or popular companies).

Dividends

A dividend payment is a portion of a company’s earnings paid out to shareholders. For every share of stock an investor owns, they get paid an amount of the company’s profits. Companies can pay out dividends in cash, called a cash dividend, or additional stock, known as a stock dividend.

Growth stocks

Growth stocks are shares of companies that demonstrate a strong potential to increase revenue or earnings thereby ramping up their stock price

Market capitalization

To figure out a company’s market cap, multiply the number of outstanding shares by the current price per share. A company with 10 million outstanding shares of stock selling at $30 per share, has a market cap of $300 million.

Spread

Spread is the difference between two financial measurements; in finance there are a variety of different spreads. When talking specifically about a stock spread, it is the difference between the bid price and the ask price — or the bid-ask spread.

The bid price is the highest price a buyer will pay to purchase one or more shares of a specific stock. The ask price is the lowest price at which a seller will agree to sell shares of that stock. The spread represents the difference between the bid price and the ask price.

Stock split

A company usually initiates a stock split when its stock price gets too high. A stock split lowers the price per share, but maintains the company’s market cap.

A 10-for-1 stock split of a stock selling for $1,000 per share, for instance, would exchange 1 share worth $1,000 into 10 shares, each worth $100.

Value stock

Value stocks are shares of companies that have fallen out of favor and are valued less than their actual worth.

Volatility

Volatility in the stock market occurs when there are big swings in share prices, which is why volatility is often synonymous with risk for investors. While volatility usually describes significant declines in share prices, it can also describe price surges.

Thus, volatility in the equity market can also represent significant opportunities for investors. For instance, investors might take advantage of volatility to buy the dip, purchasing shares when prices are momentarily lower.

Should You Invest in Stocks?

When you consider the average return of the stock market over time, including boom and bust cycles, the stock market can offer investors the prospect of generating returns — but not a guarantee of such returns.

The difficulty with stocks is that they also come with a degree of risk; some are riskier than others. There are different ways to invest in stocks that can help mitigate some of that risk.

Ultimately, the choice to invest in stocks — and which specific stocks — will come down to the individual investor, their risk tolerance, and goals. It may be helpful to speak with a financial professional for guidance, too.

The Takeaway

Stocks, also known as “shares” or “equity investments,” are small pieces of ownership of a larger company. Stocks come in both common and preferred varieties, which offer stockholders different benefits and risks. Although relatively risky, stocks tend to offer better return-generating potential than other asset classes like bonds or long-term savings accounts.

Even taking major financial crises into consideration, the market’s overall trend over the last 100 years has been toward growth. But again, there are no guarantees, and you should always do your research before investing in a stock or other asset.

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

How do stocks make money?

Stocks can earn investors returns primarily through appreciation — meaning that they gain value, and investors sell them for more than they purchased them for — or by paying out dividends.

How are stock prices determined?

Stock prices are mostly determined by supply and demand among traders and investors. When a specific stock is in demand, values might rise — conversely, when many investors are selling a stock, its value might fall.

What is shareholder ownership?

Shareholder ownership is specifically based on your ownership of shares in the company. If you own 20% of a company’s shares, you don’t own 20% of the company — you own 20% of the shares.

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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.
1) Automated Investing and advisory services are provided by SoFi Wealth LLC, an SEC-registered investment adviser (“SoFi Wealth“). Brokerage services are provided to SoFi Wealth LLC by SoFi Securities LLC.
2) Active Investing and brokerage services are provided by SoFi Securities LLC, Member FINRA (www.finra.org)/SIPC(www.sipc.org). Clearing and custody of all securities are provided by APEX Clearing Corporation.
For additional disclosures related to the SoFi Invest platforms described above please visit SoFi.com/legal.
Neither the Investment Advisor Representatives of SoFi Wealth, nor the Registered Representatives of SoFi Securities are compensated for the sale of any product or service sold through any SoFi Invest platform.

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

Claw Promotion: Customer must fund their Active Invest account with at least $25 within 30 days of opening the account. Probability of customer receiving $1,000 is 0.028%. See full terms and conditions.

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03
2024
How Much is My Truck Worth on Trade In Within the Next 5 Years?

How Much Is My Truck Worth on Trade-In Within the Next 5 Years?

By | Budgeting & Goals, relay | Comments Off on How Much Is My Truck Worth on Trade-In Within the Next 5 Years?

The trade-in value of a truck is the amount a dealer is willing to give you to put toward the purchase of a new vehicle. Cars depreciate in value the moment you drive them off the lot, so over time, trade-in values tend to decrease as well. They are also impacted by a variety of factors, such as make and model, age, condition, and mileage.

Here’s a look at what your truck might be worth over the first five years of ownership, and the factors that impact that value.

Average Trade-In Value of a Truck After 5 Years of Ownership

The trade-in value of a truck is based on its market value, which is the amount a person is willing to pay based on the truck’s make, model, age, condition, etc. However, when saving up for a new car, it’s important to realize that what a dealer might offer for a trade-in is likely less than the market value. That’s because when the dealer eventually sells your vehicle, they will need to turn a profit. And their profit will be the difference between market value and trade-in value.

Cars, trucks, and other vehicles depreciate, meaning their market value decreases each year. Luckily for truck owners, trucks tend to depreciate more slowly than cars and SUVs.

For example, the average five-year depreciation of Toyota Tacoma, a midsize pick-up truck, is 20.4%, according to a 2024 study by iSeeCars. Average five-year depreciation for Ford F-150, a full-size pick-up truck, is 36.0%. Compare that to an average five-year depreciation rate of 38.8% for cars, 42.9% for midsize SUVs, and 49.1% for electric vehicles.

Depreciation is also an important factor to understand when leasing a vehicle, as your lease payment will cover the cost of depreciation to the lessor.

Supply chain issues, component shortgages, and increased demand for vehicles has driven up the price of new and used cars and trucks in recent years. This has had an impact on how fast vehicles depreciate. In 2024, the average five-year depreciation was 38.8%, compared to 49.1% in 2020.

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Factors That Impact Truck Value Over Time

As we mentioned above, the moment your car leaves the lot, it starts to lose value. (For that reason, savvy consumers often believe it’s better to buy a used car over a new one.) What happens to the car will have a big impact on value as well, from wear and tear to how much it’s driven and its accident history. As a result, depreciation and trade-in values will vary from vehicle to vehicle.

Age and Condition

Age and condition are two of the biggest factors that will affect your truck’s trade-in value. The older a vehicle is, the less value it tends to maintain (unless it’s a desirable vintage vehicle). The reason: It’s assumed that the older a car is, the more it will have been driven and the more wear and tear it will have experienced.

All sorts of factors big and small can go into determining condition, from dents and scratches to major repairs made after an accident. Only cars in pristine condition will fetch top market values and trade-in prices.

Mileage

How much a truck has been driven will also have an impact on trade-in value. The more you drive your truck, the more wear and tear you may be putting on the engine and other parts. As a result, trucks with lower numbers on their odometers tend to command.

Make and Model

A truck’s make and model refer to the company that makes the vehicle and the specific product, respectively. For example, Ford is a make while the F-150 is a model of truck. Some makes and models are more popular than others, which can increase trade-in value. This may be for a variety of reasons. For example, some may get better gas mileage or have roomier interiors that make them more appealing to used truck buyers.

Recommended: What Should Your Average Car Payment Be?

Trim Level

The trim level of a vehicle refers to the optional features it has. For example, higher trim levels may offer more equipment or luxury materials, such as leather seats. Automotive technology, such as back-up cameras and navigation systems, are in high demand. Higher trim levels can translate into higher trade-in values.

Accident History

Even if a car shows no outward signs of damage after an accident, vehicles that have been involved in a major accident or a natural disaster, such as a flood, will usually fetch lower trade-in values.

According to Carfax, any accident will remove $500 from the value of a car, on average, while a major accident can cost as much as $2,100 in lost value.

Local Market Demand

Where you resell your truck can have an affect on its market value. For example, if you live in an urban area, there may be less local demand for trucks than if you live in a suburban or rural location.

Geography can have other impacts on the value of your truck. For example, a truck that’s been through a number of harsh Northeast winters might be in worse condition than one from a warmer, dryer climate.

Increase Your Truck’s Trade-In Value

Bring your truck up to the best condition to increase its trade-in value. Fix whatever damage you can, such as scratches, chips in the windshield, or minor engine repairs. Have your truck cleaned and detailed before an appraisal by a dealer. A money tracker app can help you carve out room in your budget for any repairs.

It’s worth noting that your credit score will also impact the deal you get on your new car. That’s because a higher credit score gets buyers a lower interest rate on car loans.

Recommended: Does Net Worth Include Home Equity?

The Takeaway

How much a truck is worth is calculated based on many factors, including make, model, age, mileage, and condition. The trade-in value will be less than the market value. Understanding your vehicle’s potential trade-in value is an important consideration when budgeting and saving for the purchase of a new or used truck. If you think you may trade it in for a newer model in the future, research vehicles that are likely to hold their value better.

Take control of your finances with SoFi. With our financial insights and credit score monitoring tools, you can view all of your accounts in one convenient dashboard. From there, you can see your various balances, spending breakdowns, and credit score. Plus you can easily set up budgets and discover valuable financial insights — all at no cost.

See exactly how your money comes and goes at a glance.

FAQ

What is the trade-in value of a truck?

The trade-in value of a truck is how much money a dealer is willing to give you toward the purchase of a new vehicle in exchange for your old one. Because dealers want to turn a profit when they resell your vehicle, trade-in values tend to be lower than fair market values.

How is trade-in value calculated?

Your truck’s trade-in value is based on a variety of factors, including make, model, age, mileage, and condition of the vehicle. Your truck’s value will depreciate every year, until it no longer has a resale value.

How do I find the fair trade value of my car?

A number of online tools can help you find the fair trade-in value of your car. For example, Kelley Blue Book and Edmunds offer very good online tools. Enter your vehicle identification number, license plate number, or the year, make, model, and mileage of your truck to get an idea of what it may be worth.

Photo credit: iStock/freemixer

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

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.

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

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Oct
03
2024
blue and purple financial chart mobile

Call vs Put Option: The Differences

By | Growing Wealth, invest, Investing | Comments Off on Call vs Put Option: The Differences

Editor's Note: Options are not suitable for all investors. Options involve risks, including substantial risk of loss and the possibility an investor may lose the entire amount invested in a short period of time. Please see the Characteristics and Risks of Standardized Options.

Key Points

•   Buying a call option gives an investor the right, but not the obligation, to buy shares of an underlying asset at a specific price and by a specific date, to potentially profit from a price increase.

•   Buying a put option gives an investor the right, but not the obligation, to sell shares of an underlying asset at a specific price and by a specific date, to potentially profit from a price decrease.

•   The buyer of a call or put option must pay the seller a premium for the options contract, assessed per share.

•   The price at which an option can be exercised, as specified in the option contract, is called the strike price.

•   Options trading involves risks, including potentially substantial losses.

While most investors are familiar with buying and selling shares of stock directly, investing in options is another way to put money behind stock price movements.

Options are a type of derivative contract that allows the investor to buy (or sell) a stock, or some other asset, at a certain price within a specific time period. The two basic types of options are known as “puts” and “calls.”

Options trading is a popular strategy for day traders, because it offers the potential to make profits within a shorter time frame, as opposed to owning shares of stock outright, and waiting for the price to move in the desired direction. Options trading can potentially generate returns, but it can also amplify losses, making it a risky strategy.

Overview: What Are Options?

In options trading, an option contract is a derivative instrument that’s based on an underlying asset: e.g., stocks, bonds, commodities, or other securities. Thus, the buyer of an options contract doesn’t purchase the asset directly, but a contract with an option to buy or sell that security. For example, with stocks, also called equity options, one contract represents 100 shares.

Options come in two flavors, as noted above: calls and puts. For the sake of simplicity, this article will refer primarily to stock or equity options.

Options Buyers vs. Options Sellers

An options buyer, also called the holder, has the right, but not the obligation, to buy or sell the underlying asset at the agreed-upon price (the strike price) by a specific date (the expiration). Buyers pay a premium for each option contract, which is assessed per share. If there is a $1 premium per share, at 100 shares, the total cost of the option is $100.

The potential upside for an options buyer could be unlimited, depending on their strategy. And since an options buyer is not obligated to exercise their option — meaning to actually buy or sell the underlying stock at the price agreed to in the option contract — the most they stand to lose is the premium paid for the option.

An options seller, also called the options writer, is on the other side of the trade. In this case, if the options holder exercises the contract, the option seller has an obligation to buy or sell the underlying asset at the strike price.

The potential upside for an options seller is the option’s premium. Their potential downside depends on whether they’re selling a put option or a call option. More on this below.

Trading options requires familiarity with options terminology, since these strategies can be complex and come with the potential risk of steep losses, depending on the strategy.

💡 Quick Tip: How do you decide if a certain trading platform or app is right for you? Ideally, the investment platform you choose offers the features that you need for your investment goals or strategy, e.g., an easy-to-use interface, data analysis, educational tools.

Finally, user-friendly options trading is here.*

Trade options with SoFi Invest on an easy-to-use, intuitively designed online platform.

*Check out the
OCC Options Disclosure Document.

What Is a Call Option?

When purchased, a call option gives the options buyer the right, but not the obligation, to buy 100 shares of the underlying asset at the strike price, by the expiration of the contract.

Buying a call option can be appealing because it gives a buyer a way of profiting from a stock’s increase in price without having to pay what could be the current market price for 100 shares.

If the price of the underlying asset rises above the strike price, then the buyer may choose to exercise their option, paying less than what it’s worth on the market and potentially selling shares for a profit.

For a call option buyer, the profit is determined by the premium they pay and if, and by how much, the price of the security rises above the option’s strike price before it expires. The maximum potential upside is unlimited since, theoretically, the price of the underlying asset could continue to rise. The maximum potential downside is limited to the premium paid for the option.

Conversely, the seller, or writer, of the call option has the obligation to sell the underlying shares to the buyer, if the buyer exercises the option. The seller’s maximum potential gain is limited to the option’s premium. Their potential downside is unlimited, since they must sell shares at the option’s lower strike price, no matter how high the market price has risen.

Example of Buying a Call Option

If an investor buys an option with a strike price of $50 for a stock that’s currently worth $40, the option will be “out-of-the-money” until the stock rises to $50. If the premium is $1/share — meaning they only pay $1 up front — then the investor will only be risking $100, not $4,000.

If the stock is trading at $55 on or before the expiration date, it would make sense to “exercise” the option and buy the stock for $50, thus giving the investor shares with built-in profit thanks to the difference between the strike price of $50 and the value of $55. In this case the profit would be $4/ per share (or $400), minus the premium paid: a strike price of $50 gives the investor the right to buy 100 shares of a stock worth $55, with a premium of $1 per share.

On the other hand, if the stock has not risen enough in price, the investor can just let the option expire, having only lost the price of the premium, rather than being saddled with shares they can’t profit from.

Recommended: A Beginner’s Guide to Options Trading

What Is a Put Option?

A put option gives the investor buying the contract the right, but not the obligation, to sell the underlying security at the agreed-upon strike price, by the expiration date of the option.

If buying call options are a way to profit when the price of a stock or other underlying asset moves in the right direction, buying put options can be a way to profit from the fall of a stock’s price, without having to short the stock (i.e. borrow the shares and then buy them back at a lower price).

Purchasing a put option contract gives its buyer the right, but not the obligation, to sell shares at a certain price, at or by a specified time in the future. The key difference between buying a put vs. a call option is that the put option becomes increasingly valuable as the price of the underlying asset decreases. A put option buyer is hoping they can sell the underlying asset at a strike price that’s higher than the market price.

For the put option buyer, the maximum potential upside is the difference between the option’s higher strike price and the price at which the option is exercised (minus the premium), while the maximum potential downside is limited to the premium paid.

Again, the put option seller is on the other side of the trade, and is obligated to buy the shares from the put buyer, if the buyer decides to exercise the put option. The put option seller’s maximum upside is the option’s premium. Their potential downside extends to the difference between the option’s higher strike price and the lower market price at the time the option is exercised.

Example of Buying a Put Option

As an example, let’s say a stock is worth $50 today. If an investor thought the stock’s value could go down, they might buy a put option with a strike price of $40. Let’s say the premium for the option is $1, and they buy a contract that gives them the right to sell 100 shares at $40. The premium, then, is $100.

At the time the investor buys the put option, it’s out-of-the-money. If the price remains above $40 until it expires, the investor will not be able to exercise the option and they will lose the premium.

But if the stock has dropped from, say, $50 to $35, the option is in-the-money and if they were to exercise the option, they’d profit from being able to sell shares for $40 that are worth $35, pocketing $5 per share or $500, minus the $100 premium, leaving them with $400, minus any brokerage fees.

Risks of Options Trading

Option trading can be a useful way to manage risks in a volatile market and potentially profit from movements in stocks one doesn’t own. Again, an investor buying options only stands to lose the premium they pay for an options contract, though the cost of premiums can accrue if purchasing multiple options contracts over time.

However, an investor selling call options or put options, who is obligated to either buy or sell an option’s underlying assets per the terms of the options contract, could potentially see substantial losses. This is especially true if they don’t understand the potential downside to the trades they’re executing.

The Takeaway

Option trades may appeal to individual investors because they offer a way to potentially see a gain from movements in a stock price, without having to own the underlying shares. If an investor isn’t able to exercise the call or put option they purchased, they’ll lose the premium they paid for that contract. However, selling a call or put option can be high risk, potentially leading to significant losses.

Investors who are ready to try their hand at options trading despite the risks involved, might consider checking out SoFi’s options trading platform. The platform’s user-friendly design allows investors to buy put and call options through the mobile app or web platform, and get important metrics like breakeven percentage, maximum profit/loss, and more with the click of a button. Currently, investors can not sell options on SoFi Invest®.

Plus, SoFi offers educational resources — including a step-by-step in-app guide — to help you learn more about options trading. Trading options involves high-risk strategies, and should be undertaken by experienced investors.

Explore user-friendly options trading with SoFi.


SoFi Invest®

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

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

Options involve risks, including substantial risk of loss and the possibility an investor may lose the entire amount invested in a short period of time. Before an investor begins trading options they should familiarize themselves with the Characteristics and Risks of Standardized Options . Tax considerations with options transactions are unique, investors should consult with their tax advisor to understand the impact to their taxes.
Disclaimer: The projections or other information regarding the likelihood of various investment outcomes are hypothetical in nature, do not reflect actual investment results, and are not guarantees of future results.
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.

SOIN-Q324-061

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Oct
03
2024
What Is an Online Savings Account and How Does It Work?

What Is an Online Savings Account and How Does It Work?

By | Budgeting & Goals, Financial Independence, money | Comments Off on What Is an Online Savings Account and How Does It Work?

Savings accounts at online-only banks — often referred to simply as online savings accounts — function similarly to traditional savings accounts, except you will manage your account entirely online or by app. Not only can these savings accounts be one-click convenient, they may offer you a healthier interest rate than accounts held at a brick-and-mortar bank.

If you’re trying to decide whether an online savings account or traditional savings account would suit you best, here are the details you need.

Key Points

•   Online savings accounts are managed digitally, and often provide higher interest rates and lower fees than traditional banks with brick-and-mortar locations.

•   Online savings accounts typically provide 24/7 access and a broad range of online banking tools; however, they lack in-person interactions and may not offer as many banking services or products.

•   To deposit money into or withdraw it from an online savings account, a customer may use an ATM in the bank’s ATM network, sign up for direct deposit, transfer funds between accounts, use a check, or complete a wire transfer.

•   While cash deposits are not possible at every online bank, some banks enable customers to make deposits at ATMs in their ATM network or at certain retailers.

•   Opening an online savings account typically involves filling out an online application, choosing an account type, designating beneficiaries, making an initial deposit, and creating an account login.

What Is an Online Savings Account?

An online savings account functions similarly to one offered by a traditional bank, except you manage your banking needs digitally. With an online savings account, you won’t have the option of walking into a bank when you need support, but you will be able to quickly click your way ahead and complete most transactions.

Many traditional banks also typically offer online banking, and this feature tends to be widely used by members across different types of banks. According to SoFi’s April 2024 Banking Survey of the bank usage of 500 U.S. adults, 48% of people reported they use online banking daily.

Since the principle is that your money will sit and grow in these accounts, rather than flow in and out constantly, banks pay you interest on these funds. They get to use your money, and they give you interest in return for that privilege. As your cash grows in the account, you can achieve different goals, such as building up an emergency fund, saving for a vacation, or getting a down payment together for a house. SoFi’s survey found that 77% of respondents with a savings account use it to save for emergencies, and 52% use it to save for a goal like a vacation or a house.

Of the percentage using a savings account to save for a goal, the survey showed that they are saving for different things:

•   40% are saving equally for long-term and short-term goals

•   35% are saving primarily for short-term goals like a vacation or for holiday spending

•   26% are saving primarily for long-term goals like a house or a child’s education

Earn up to 4.00% APY with a high-yield savings account from SoFi.

No account or monthly fees. No minimum balance.

9x the national average savings account rate.

Up to $2M of additional FDIC insurance.

Sort savings into Vaults, auto save with Roundups.


How Does an Online Savings Account Work?

You start an online savings account with an opening deposit, and then you’re ready to start saving. With an online savings account, you can manage your savings from anywhere in the world at any time of day. While there are plenty of banks and credit unions that have online account management services, purely online savings accounts often come with unique perks. For example, online banks usually don’t have a minimum balance requirement like traditional banks do. They often pay a higher interest rate, too.

You can transfer funds in and out as needed, as with any savings account. Typically, savings accounts had only allowed six or fewer transfers per month. Initiate more than that, and you might have to pay a fee. However, many banks have stopped following this guideline in recent years. Check with your bank to know the details.

It’s also worth mentioning that with an online account, you won’t be able to deposit or withdraw cash from your account by strolling into a branch. There aren’t physical banking locations to visit. You’ll need to transfer funds in and out electronically, or you may be able to use ATMs. There’s a silver lining, though. In exchange for not having to pay for the overhead that comes with running an in-person bank, online banks often offer lower fees and higher interest rates.

Depositing Funds Into an Online Savings Account

As mentioned above, it’s not possible to deposit cash into an online savings account by visiting a branch. Instead, you can deposit money in the following ways:

•   Transfer money from a linked account into your online savings account. (If you’re really committed to saving, you may want to automate recurring transfers). SoFi’s survey found that 63% of people said they frequently transfer funds between accounts using online banking.

•   Use a check; this deposit can be done by mobile deposit, which 43% of respondents in SoFi’s survey said they do frequently, or by mail.

•   Complete a wire transfer into your online savings account.

•   Set up direct deposit of funds (say, your paycheck or other benefits) to go into the account.

Withdrawing Money From an Online Savings Account

Next, consider withdrawing and spending money from a savings account. When you have an online savings account, here are your options:

•   Transfer funds into another account (say, one held at a traditional bank), and then take out cash in person.

•   Use an ATM. Some online banks allow you to link your savings to a debit card, which makes this possible.

•   Initiate a wire transfer.

•   Put in a check request.

•   Digitally send money to other people (say, by a P2P transfer) so you don’t need to take out cash.

Cash Deposits

Not all online banks enable you to deposit cash, as they have no physical banking locations of their own. However, many online banks allow you to deposit cash at participating retail locations, typically for a fee. Some may also have options for depositing cash at select in-network ATMs. See above for some of the other ways you can move your funds around so your cash gets where you want it to go.

Benefits of Using an Online Savings Account

Here are some of the key benefits you may enjoy with an online savings account.

•   Higher interest rates and lower fees. This means your savings can likely grow faster. These higher interest rates are possible because the financial institution doesn’t have to pay for expensive brick-and-mortar banking locations.

•   Manage accounts anywhere, anytime. It’s possible to do all of your basic savings account management whenever and wherever you like. The only requirement: a good, secure wifi connection.

•   Helpful mobile banking apps. Plenty of traditional banks have mobile apps, but online banks tend to have high-tech apps with more features.

•   More accessible customer service. You are likely to be able to get all of the banking support you need from the comfort of your own home or on the go. Online banks were built to be responsive in this way.

Disadvantages of Using an Online Savings Account

On the flip side, there are some disadvantages when you only bank online. Here are some of the cons of using an online savings account.

•   No face-to-face interaction. With online savings accounts, you can’t go into a physical banking location, ask questions, or sit down with a bank representative. For those who like face-to-face interaction, this can be a disadvantage.

•   Can lose account access. When a savings account is entirely online, you may lose account access temporarily in the rare event of the bank’s system going down.

•   ATM access can be limited. Some online banks don’t have their own ATMs. They may try to provide greater access with some independent ATM networks or by reimbursing customers for ATM fees incurred when using out-of-network ATMs.

•   Fewer financial services. Some online banks offer more limited product selections than larger traditional banks. If you’re looking to manage your savings account, loans, and other financial products in one place, you may find that an online savings account doesn’t meet your needs.

Pros of Online Savings Accounts

 Cons of Online Savings Accounts

•   Higher interest rates and lower fees

•   Ability to manage accounts anywhere, anytime

•   Helpful mobile banking apps

•   Accessible customer service options

•   No face-to-face interaction

•   May lose account access temporarily

•   ATM access may be limited

•   Fewer financial services

Opening an Online Savings Account

If you decide you want to open an online savings account, here are the steps you will likely take.

1.    Fill out the application. This process typically happens entirely online. Generally, you will be expected to provide such information as your name, proof of address, Social Security number, and government-issued photo ID (say, a driver’s license or a passport).

2.    Choose an account type. There may be an option to choose between different savings account types, such as an individual account or a joint account that you can share with a family member.

3.    Designate beneficiaries. Next, you will need to choose a beneficiary to whom the savings account would go if you were to die.

4.    Deposit funds. Some online banks won’t require a minimum initial deposit or will only request $1. Whatever the amount may be, you will need to make that minimum deposit. (There’s no typical online savings account minimum balance to maintain, by the way. Check with banks to understand their particular guidelines.)

5.    Create login information. All online savings accounts will need a username and password. It’s important to make the password a secure one that includes one or more capital letters, numerals, and symbols. Also, it bears repeating: Don’t reuse passwords. Unique passwords will help keep you secure from hackers. This is a big issue if you are wondering whether or not online savings accounts are safe.

💡 Quick Tip: An online bank account with SoFi can help your money earn more — up to 4.00% APY, with no minimum balance required.

Online Savings vs Traditional Savings: Which Is Best for You?

There are both advantages and disadvantages to consider when choosing between an online savings account and a traditional savings account. Being aware of the unique advantages and disadvantages of each can make it easier to find the right fit.

Online Savings

 Traditional Savings

•   May offer better rates and low or no fees

•   Tend to have more robust digital tools and features

•   Offers the convenience of banking from just about anywhere, at any time

•   Potentially minimal ATM access in certain areas

•   May have fewer options for depositing and withdrawing cash

•   No face-to-face customer support

•   Provide in-person banking locations

•   May provide broader ATM access

•   May offer a broad range of products

•   May have fewer online resources

•   May have lower interest rates and higher fees

•   May not provide perks that many online banks offer, such as sign-up bonuses

The Takeaway

Online savings accounts vs. traditional ones can be more convenient, have more digital features, and offer lower fees and better interest rates. Traditional banks, however, may have more options for withdrawing and depositing funds, and they can be the right choice for people who like face-to-face interaction when it comes to their finances. Figuring out the right fit can depend on your money style and goals.

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


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

FAQ

How do I use an online savings account?

With access to a computer or a smartphone, you can access your online savings accounts from anywhere at any time simply by logging in.

What is the typical minimum balance for an online savings account?

That depends: Some online savings accounts have minimum balance requirements while others don’t. Check at the banks you are considering.

Is my money insured in an online savings account?

Your money should be safe in an online savings account, as long as the online savings account is insured by the FDIC. If so, your account is automatically insured for up to $250,000 per depositor, per account category, per insured institution.

What is the typical interest rate for an online savings account?

Interest rates vary over time and from bank to bank. Generally, online savings accounts offer higher interest rates than traditional savings accounts. High yield savings accounts at online banks may be 8x or more the national average rate for savings accounts.

How can online banks offer such good interest rates?

Because online banks don’t have the expensive overhead that comes with managing in-person banking locations, they can afford to pass their savings to their customers in the form of higher interest rates.

Photo credit: iStock/m-imagephotography

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.

*Awards or rankings from NerdWallet are not indicative of future success or results. This award and its ratings are independently determined and awarded by their respective publications.

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

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

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