Oct
29
2024

Comparing Cashier’s Checks vs. Money Orders

By | Family Finances, money, Terminology | Comments Off on Comparing Cashier’s Checks vs. Money Orders

Cashier’s checks and money orders are two forms of currency used to make payments. While there are similarities between the two, there are also significant differences. Cashier’s checks are drawn on a bank account and guaranteed by the financial institution. A money order, on the other hand, is a prepaid financial tool that can be obtained at banks, the post office, or retail businesses.

Depending on your needs, one payment method may be a better choice than the other. Here, learn what distinguishes a money order from a cashier’s check, the way they work, plus the pros and cons of each.

Key Points

•   Cashier’s checks are issued by banks and are backed by the institution, making them a secure option for larger payments.

•   Money orders are prepaid financial instruments that can be purchased at various locations, offering more accessibility than cashier’s checks.

•   Both payment methods provide guaranteed funds, ensuring that transactions do not bounce due to insufficient funds.

•   Cashier’s checks typically have higher fees and no maximum limit, while money orders often have lower fees and a cap of around $1,000.

•   The choice between a money order and a cashier’s check depends on factors like payment size, accessibility, and associated fees.

What is a Cashier’s Check?

A cashier’s check, also known as a bank check, is issued by a bank or credit union. You can obtain a cashier’s check by either paying cash upfront or, if you’re a customer of that bank, have the funds drawn from your account.

Because the check is backed by the bank, it’s guaranteed so you don’t have to worry about a bounced check. This is why it’s considered a safe and secure method of payment. Cashier’s checks also clear rather quickly, with some of the funds usually available in one business day.

Cashier’s checks are typically available in smaller and larger amounts, and generally there’s no upper monetary limit. Many people use a cashier’s check for a large purchase or deposit, such as a car, boat, down payment on a home, or a security deposit to a landlord.

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Recommended: Where to Cash a Check Without Paying a Fee

How Do Cashier’s Checks Work?

In most cases, you’ll visit your bank in person to do the cashier’s check transaction. Your bank may offer the opportunity to get one through their website, but doing so will take longer since the check will be mailed to you, instead of handed to you.

When you go to the bank, you’ll likely give the bank employee the recipient’s name and the amount of the check. You’ll either purchase the check with cash or have the money debited from a checking or savings account that you have with that particular bank. Cashier’s checks often come with a fee, which usually run about $10 to $20.

Don’t have a bank account? You may be able to get a cashier’s check from a bank where you’re not a customer, but you’ll have to check with the financial institution first. And, if you are able to get a cashier’s check from a bank where you don’t have an account, you’ll have to purchase the cashier’s check with cash.

A credit union may offer you more flexibility if you’re not a customer. Often, credit unions will issue cashier’s checks to members of other credit unions along as their own.

Recommended: Issuing a Stop Payment on a Check

What is a Money Order?

Like a cashier’s check, a money order is a form of paper payment and an acceptable alternative to paying a bill or debt with cash or a check. You can purchase a money order with cash, traveler’s checks, and a credit or debit card. Since a money order is prepaid, unlike a regular check, a money order can’t bounce.

A money order has empty spaces where you’ll need to fill out certain information, similar to writing out a check. Besides the amount being paid and the date the money order is issued, you’ll need to fill out your name and address as well as who is the payee, and then sign your name. In the memo line, you can fill in the reason for payment.

There may be limits on the amount of the money order that’s possible. For example, at a United States post office, a single money order can be no more than $1,000.

You’ll also get a receipt when you purchase a money order which is important to keep safe. With a receipt, you can track your money order and, if the payment is lost or stolen, use it to attempt to recover the funds.

Money orders can be obtained at a number of different places, including post offices, Western Union and similar retail businesses, check-cashing outlets, financial institutions, supermarkets, and convenience stores. Along with paying the face value of the money order, you’ll also have to pay a fee. The amount depends on such specifics as where you obtain the money order, but typically fees don’t exceed $10.

People who want to cash a money order can generally do so at the same places you purchase one. Unless you deposit it into a bank account, be aware that you may be charged a small fee for cashing the money order.

Money Order vs. Cashier’s Check

While both money orders and cashier’s checks are similar in some ways, there are also distinctions between the two. Here’s how the two compare.

Similarities

Both money orders and cashier’s checks are forms of payment that can be used instead of cash or a personal check. Because these are both completely prepaid, a person can cash or deposit a money order and a cashier’s check without worry that either will be declined or returned for insufficient funds.

Money orders and cashier’s checks share the following features:

•   Can both be purchased at a bank or credit union.

•   Prepaid so funds are guaranteed.

•   Provide more privacy for the payer because neither contain a checking account number.

•   Each typically comes with fees.

•   Allow you to trace or track payments.

Differences

Now, consider the ways in which they differ:

•   Cashier’s checks may be available in large sums, while money orders often have limits.

•   Money orders can typically be obtained at more locations than cashier’s checks.

•   Cashier’s checks are guaranteed by the financial institution that issued them; money orders are paid for with cash. Or you could use a debit card, a credit card, or similar payment method.

•   Money orders must usually be purchased in person.

•   The fees on money orders may be lower.

Differences Between a Money Order and a Cashier’s Check

Here, how money orders and cashier’s checks compare in chart form.

Money Order Cashier’s Check
Minimal fees, as low as $1 Higher fees that can equal $10 or more
Generally have a maximum limit amount of $1,000 No limit on amount
Backed by the outlet where you purchased the money order Backed by the bank
Can be purchased more widely Can only be purchased at a bank or credit union
Must be bought in person May be purchased through a bank’s online portal
The ‘pay to’ line is blank so payer must fill in this information or else anyone can cash it Recipient’s name is filled out by the bank or credit union cashier so the check can only be cashed by the payee
No expiration date May have an expiration date depending on the bank or local laws

Pros and Cons of Cashier’s Checks

Next, take a closer look at the pluses and minuses of cashier’s checks. First, the pros:

•   Available in higher dollar amounts

•   Higher security because it’s guaranteed by a bank

•   May be purchased through a bank’s website.

Next, the cons:

•   Not as widely accessible because you can only obtain at banks or credit unions

•   Harder to get at a bank if you’re not a customer

•   Higher fees than money orders.

Pros and Cons of Money Orders

Here’s a closer look at money orders and their benefits and downsides. First, the pros:

•   Useful for people who don’t have a bank account

•   Can be purchased with cash or another type of payment such as a credit or debit card

•   Lower fees make it less expensive than a cashier’s check

•   More widely and readily available.

And, on the other hand, the cons:

•   Typically can only be purchased up to $1,000

•   Must get them in person

•   May not be able to deposit through mobile banking

•   Can be cashed by anyone if you don’t fill out the ‘payment to’ line.

The Takeaway

Both cashier’s checks and money orders are a form of prepaid payment, which makes the funds guaranteed so you don’t have to worry about a bounced check. Whether you use a money order or a cashier’s check as a payment depends on many factors, including the size of the payment you’re making, if you have a bank account, and the outlet you choose to make the purchase. Taking into the account of the pros and cons of each can help you make the decision of which method is right for you.

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 4.20% APY on SoFi Checking and Savings.

FAQ

Are a cashier’s check and a money order the same?

No. While both are prepaid forms of payment and therefore guaranteed not to bounce, a cashier’s check can only be obtained at a bank or credit union, while money orders are more widely available at other venues including post offices, check cashing places, and various retailers. Cashier’s checks are better for large purchases or deposits since there’s no monetary limit, while money orders often have a maximum limit of $1,000.

Why would someone use a money order instead of a cashier’s check?

People who choose to use a money order may not have a bank account, could be paying a bill or a debt less than $1,000, or might want to avoid the higher fees associated with a cashier’s check.

How quickly do money orders and cashier’s checks clear?

In most cases, funds from deposited money orders and cashier’s checks can be available the next business day. If the bank suspects there might be fraud involved, however, it could be several weeks.

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

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

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

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

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

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

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

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

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Oct
22
2024
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What Is a Mortgage? Understanding the Basics

By | Home Ownership, mortgage, Terminology | No Comments

If you’re dreaming of owning your own home, whether that means a cute Colonial or a loft-style condo, you are likely contemplating financing, and that can mean a mortgage. A home loan can give you the funds required to purchase a property, but there can be a learning curve involved, especially if you are a first-time homebuyer. For instance, what term should you select? How do mortgage interest rates work, and is a fixed rate typically best?

In this guide, you’ll get the scoop on how home loans work, what kind of options you have, and how to assess which loan could be right for you.

What is a Mortgage?

A mortgage loan, also known simply as a mortgage, is issued to a borrower who is either buying or refinancing real estate.

The borrower signs a legal agreement that gives the lender the ability to take ownership of the property if the loan holder doesn’t make payments according to the agreed-upon terms.

Once issued a mortgage, the homebuyer will pay monthly principal (that’s the lump sum of the loan) and interest payments for a specific term. The most common term for a fixed-rate mortgage is 30 years, but terms of 20, 15, and even 10 years are available.

A shorter-term translates to a higher monthly payment but lower total interest costs. Put another way, you pay more every month, but the amount of interest over the life of the loan is lower.


💡 Quick Tip: You deserve a more zen mortgage loan. When you buy a home, SoFi offers a guarantee that your loan will close on time. Backed by a $5,000 credit.‡

A Buffet of Mortgage Choices

When homebuyers apply for a loan, they’ll need to choose whether they want a fixed interest rate or an adjustable rate and the length of the loan.

Fixed-Rate Mortgage

The interest rate on the home loan doesn’t change, so the monthly principal and interest payment remains the same for the life of the loan. Whether mortgage rates increase or decrease, the loan holder is locked in for their monthly payment.

Adjustable-Rate Mortgage (ARM)

With an ARM, the interest rate is generally fixed for an initial period of time, such as five, seven, or 10 years, and then switches to a variable rate of interest. The rate fluctuates with the rate index that it’s tied to.

As the rate changes, monthly payments may increase or decrease. These loans generally have yearly and lifetime interest rate caps (or maximums) that limit how high the variable rate can adjust to.

Next, borrowers will need to decide what type of mortgage loan works best for them.

Conventional Loans

Conventional loans are loans that are not backed by a government agency and must adhere to the requirements of Fannie Mae, Freddie Mac, or other investors. Typically, conventional loans are issued with at least 3% down. However, it’s worth noting that private mortgage insurance (commonly known as PMI) is generally required on loans with a down payment of less than 20%.

The coverage protects the lender against the risk of default. Your mortgage servicer must cancel your PMI when the mortgage balance reaches 78% of the home’s value or when the mortgage hits the halfway point of the loan term, if you’re in good standing.

PMI typically costs 0.2% to 2% of the loan amount per year.

Down payment: Generally between 3% and 20% of the purchase price or appraised value of the home, depending on the lender’s requirements.

FHA Loans

Loans insured by the Federal Housing Authority, or FHA loans, can be attractive to first-time homebuyers or those who struggle to meet the minimum requirements for a conventional loan. In a SoFi survey of 500 would-be homeowners conducted in April 2024, 28% of people who had filled out a loan application had applied for this type of loan, and fully 63% of those who filled out an application had applied for some type of government-backed financing.

These loans usually require a one-time upfront mortgage insurance premium (or MIP vs. PMI), which typically can be added to the mortgage, and an annual insurance premium, which is collected in monthly installments for the life of the loan in most cases.

Down payment: Starts at 3.5%

Recommended: First-Time Homebuyer Guide

VA Loans

Loans guaranteed by the U.S Department of Veterans Affairs are available to veterans, active-duty service members, and eligible surviving spouses. SoFi’s survey showed that 12% of potential homebuyers who applied for a loan had filled out a VA loan application.

VA-backed loans require a one-time “VA funding fee,” which can be rolled into the loan. The fee is based on a percentage of the loan amount and may be waived for certain disabled vets. The current range is from 1.5% to 3.3% of the loan amount.

Down payment: None for approximately 80% of VA-backed home loans.


💡 Quick Tip: A VA loan can make home buying simple for qualified borrowers. Because the VA guarantees a portion of the loan, you could skip a down payment. Plus, you could qualify for lower interest rates, enjoy lower closing costs, and even bypass mortgage insurance.†

How Does a Mortgage Work?

There are several components to a monthly mortgage payment.

Principal: The principal is the value of the loan. The portion of the payment made toward the principal reduces how much a borrower owes on the loan.

Interest: Each month, interest will be factored into payments according to an amortization schedule. Even though a borrower’s fixed payment may stay the same over the course of the loan, the amount allocated toward interest generally decreases over time while the portion allocated to principal increases.

Taxes: To ensure that a borrower makes annual property tax payments, a lender may collect monthly property taxes with the monthly mortgage payment. This money can be kept in an escrow account until the property tax bill is due, and the lender can make the property tax payment at that time.

Homeowners insurance: Mortgage lenders usually require evidence of homeowners insurance, which can cover damage from catastrophes such as fire and storms. As with property taxes, many lenders collect the insurance premiums as part of the monthly payment and pay for the annual insurance premium out of an escrow account. Depending on your property location, you may have to add flood, wind, or other additional insurance.

Mortgage insurance: When a borrower presents a down payment of less than 20% of the value of the home, mortgage lenders typically require private mortgage insurance. When developing a budget for owning a home, it’s important to know the difference between mortgage insurance and homeowners insurance and whether both are required.

Reverse Mortgage Loans: What Are They?

A reverse mortgage is available to homeowners 62 and older to supplement their income or pay for healthcare expenses by tapping into their home equity.

The loan can come in the form of a lump-sum payment, monthly payments, a line of credit, or a combination, usually tax-free. Interest accrues on the loan balance, but no payments are required. When a borrower dies, sells the property, or moves out permanently, the loan must be repaid entirely.

The fees for an FHA-insured home equity conversion mortgage, typically the most common type of reverse mortgage, can add up:

•  An initial mortgage insurance premium of 2% and an annual MIP that equals 0.5% of the outstanding mortgage balance

•  Third-party charges for closing costs

•  Loan origination fee

•  Loan servicing fees

You can pay for most of the costs of the loan from the proceeds, which will reduce the net loan amount available to you.

You remain responsible for property taxes, homeowners insurance, utilities, maintenance, and other expenses.

A HUD site details all the criteria for borrowers, financial requirements, eligible property types, and how to find an HECM counselor, a mandatory step.

If you’re considering a reverse mortgage, learn as much as you can about this often complicated kind of mortgage before talking to a counselor or lender, the Federal Trade Commission advises.

How to Get A Mortgage

For many people, it can be a good idea to shop around to get an idea of what is out there.

Not only will you need to choose the lender, but you’ll need to decide on the length of the loan, whether to go with a fixed or variable interest rate, and weigh the applicable loan fees.

The first step is to have an idea of what you want and then seek out quotes from a few lenders. That way, you can do a side-by-side comparison of the loans.

Once you’ve selected a few lenders to get started with, the next step is to get prequalified or preapproved for a loan. Based on a limited amount of information, a lender will estimate how much it is willing to lend you.

When you’re serious about taking out a mortgage loan and putting an offer on a house, the next step is to get preapproved with a lender.

During the preapproval process, the lender will take a closer look at your finances, including your credit, employment, income, and assets to determine exactly what you qualify for. Once you’re preapproved, you’re likely to be considered a more serious buyer by home sellers.

When shopping around for a mortgage, it can be a good idea to consider the overall cost of the mortgage and any fees.

For example, some lenders may charge an origination fee for creating the loan, or a prepayment penalty if you want to pay back the loan ahead of schedule. There may also be fees to third parties that provide information or services required to process, approve, and close your loan.

To compare the true cost of two or more mortgage loans, it’s best to look at the annual percentage rate, or APR, not just the interest rate. The interest rate is the rate used to calculate your monthly payment, but the APR is an approximation of all of the costs associated with a loan, including the interest rate and other fees, expressed as a percentage. The APR makes it easier to compare the total cost of a loan across different offerings so you can assess what is a good mortgage rate for your budget.

The Takeaway

If the world of mortgages feels like a mystery to you, you are not alone. Before taking on this colossal commitment, it can be best to soak up as much as you can about how mortgage loans work, what kinds of mortgages are available, potential challenges, and steps to qualify. You’ll be better prepared to take on what can be a major step in your personal financial journey.

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


SoFi Mortgages: simple, smart, and so affordable.

†Veterans, Service members, and members of the National Guard or Reserve may be eligible for a loan guaranteed by the U.S. Department of Veterans Affairs. VA loans are subject to unique terms and conditions established by VA and SoFi. Ask your SoFi loan officer for details about eligibility, documentation, and other requirements. VA loans typically require a one-time funding fee except as may be exempted by VA guidelines. The fee may be financed or paid at closing. The amount of the fee depends on the type of loan, the total amount of the loan, and, depending on loan type, prior use of VA eligibility and down payment amount. The VA funding fee is typically non-refundable. SoFi is not affiliated with any government agency.
‡SoFi On-Time Close Guarantee: If all conditions of the Guarantee are met, and your loan does not close on or before the closing date on your purchase contract accepted by SoFi, and the delay is due to SoFi, SoFi will give you a credit toward closing costs or additional expenses caused by the delay in closing of up to $10,000.^ The following terms and conditions apply. This Guarantee is available only for loan applications submitted after 04/01/2024. Please discuss terms of this Guarantee with your loan officer. The mortgage must be a purchase transaction that is approved and funded by SoFi. This Guarantee does not apply to loans to purchase bank-owned properties or short-sale transactions. To qualify for the Guarantee, you must: (1) Sign up for access to SoFi’s online portal and upload all requested documents, (2) Submit documents requested by SoFi within 5 business days of the initial request and all additional doc requests within 2 business days (3) Submit an executed purchase contract on an eligible property with the closing date at least 25 calendar days from the receipt of executed Intent to Proceed and receipt of credit card deposit for an appraisal (30 days for VA loans; 40 days for Jumbo loans), (4) Lock your loan rate and satisfy all loan requirements and conditions at least 5 business days prior to your closing date as confirmed with your loan officer, and (5) Pay for and schedule an appraisal within 48 hours of the appraiser first contacting you by phone or email. This Guarantee will not be paid if any delays to closing are attributable to: a) the borrower(s), a third party, the seller or any other factors outside of SoFi control; b) if the information provided by the borrower(s) on the loan application could not be verified or was inaccurate or insufficient; c) attempting to fulfill federal/state regulatory requirements and/or agency guidelines; d) or the closing date is missed due to acts of God outside the control of SoFi. SoFi may change or terminate this offer at any time without notice to you. *To redeem the Guarantee if conditions met, see documentation provided by loan officer.
*SoFi requires Private Mortgage Insurance (PMI) for conforming home loans with a loan-to-value (LTV) ratio greater than 80%. As little as 3% down payments are for qualifying first-time homebuyers only. 5% minimum applies to other borrowers. Other loan types may require different fees or insurance (e.g., VA funding fee, FHA Mortgage Insurance Premiums, etc.). Loan requirements may vary depending on your down payment amount, and minimum down payment varies by loan type.

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

SoFi Mortgages
Terms, conditions, and state restrictions apply. Not all products are available in all states. See SoFi.com/eligibility for more information.

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.


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Oct
16
2024

IBAN vs SWIFT Code: Differences Explained

By | money, Terminology | Comments Off on IBAN vs SWIFT Code: Differences Explained

In international banking, transactions can involve IBAN codes, which indicate a specific foreign bank account number, and SWIFT codes, which identify a particular financial institution. Depending on the countries and banks involved, sometimes only one of these codes is needed to make an international transfer, and sometimes both. Knowing the difference between these codes — and how and when each is used — can be valuable when transferring funds globally.

Key Points

•   IBAN codes identify specific bank accounts in international transactions, while SWIFT codes identify specific financial institutions.

•   IBANs are up to 34 characters long and include a country code, check digits, a bank identifier, and a basic account number.

•   SWIFT codes are 8 to 11 characters long and include a bank code, country code, location code, and sometimes a branch code.

•   IBANs are used mainly in Europe and other regions, while SWIFT codes have a broader global reach.

•   Both codes may be required for international transfers, depending on the countries and banks involved.

What Is an IBAN?

An IBAN is an International Bank Account Number. This number, up to 34 digits, pinpoints a person’s individual bank account in participating countries.

Because countries operate with different currencies, regulations, and financial institutions, IBANs help standardize cross-border transactions. IBANs can play an important role in getting funds transferred into the correct checking account or savings account.

Each unique alphanumeric IBAN code contains:

•   A two-letter country code

•   Two “check digits” for error detection

•   Up to 30 alphanumeric characters that signify an individual’s bank account (a bank identifier and a basic bank account number)

Roughly 80 countries currently use IBAN numbers when conducting money transfers. The largest collection of these countries is in Europe, but many North African, South American, Caribbean, and Middle Eastern countries participate as well.

IBANs are not used in America. Instead an ABA routing number and a bank account number identify checking and savings accounts. But if you’re wiring money internationally to a country that uses IBANs, you’ll need to know that number.

(Worth noting: Canada, Australia, and New Zealand also don’t use IBANs but instead use their own systems for identifying accounts.)

Recommended: What Is an Intermediary Bank?

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No account or overdraft fees. No minimum balance.

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Understanding SWIFT Codes

SWIFT stands for Society of Worldwide Interbank Financial Telecommunication, a messaging network through which financial institutions can communicate securely across borders. This is a popular payment network for international wire transfers, but it’s not the only network.

A SWIFT code is a globally accepted standard BIC (Bank Identifier Number) for SWIFT transfers. Essentially, a SWIFT code refers to a specific bank or financial institution during international transfers. In that way, SWIFT codes serve a similar purpose internationally as routing numbers do domestically in the United States.

SWIFT codes are much shorter than IBANs, with between eight and 11 characters. Each contains:

•   The first four digits are a bank code

•   The next two are a country code

•   The next two signify the bank’s main office location

•   If applicable, the final three digits refer to a specific branch code (these are used by large banks with multiple branches in various countries and regions)

Unlike the case with IBANs, U.S. bank customers do typically have SWIFT codes affiliated with their accounts. (Some smaller banks and credit unions may not use SWIFT codes, however.) Your bank’s code will play a role if you are sending money overseas or if you are receiving funds from abroad.

It’s also important to know that there are several countries that are currently not permitted to participate in the SWIFT payment system, such as North Korea, Belarus, and Russia.

Recommended: All You Need to Know About Wire Transfer Fees

Key Differences Between IBAN and SWIFT

The major differences between IBAN vs. SWIFT codes come down to where each is used, what information each contains, and what kinds of transactions each is used in. Here are important points to know:

Geographic Coverage

IBANs are most popular for identifying bank account numbers in the European Union and nearby countries (such as Israel and Turkey), but other countries in South America and the Caribbean have adopted these codes as well. The United States, again, does not use IBANs; instead, bank account numbers and routing numbers are used domestically.

The SWIFT system has a greater global reach. It is the most popular network for identifying banks when managing international transfers in many countries in North America, the European Union, Africa, Central and South America, as well as China and India, and more. That said, not every nation uses SWIFT codes, either because they choose not to participate or are prohibited (as noted above) from doing so.

Information Contained

SWIFT vs. IBAN codes indicate two separate pieces of banking information, as mentioned above:

•   SWIFT codes, eight to 11 characters in length, can identify a specific bank or financial institution during international money transfers.

•   IBAN codes, up to 34 characters, can identify specific bank accounts during cross-border money transfers.

Usage in Transactions

Which codes you’ll need to make an international transfer will be determined by the code systems used by the countries and financial institutions sending and receiving the money. Sometimes, you’ll only need one of these codes, but often you’ll need a SWIFT and an IBAN code for an international bank wire. (They are separate identifiers, so it’s not a matter of, say, converting IBAN to SWIFT. Each conveys important financial information.)

That said, here are some scenarios you might encounter:

•   If you’re sending money to someone in a country that doesn’t use IBAN, you’ll have to use another way to identify the bank and their checking account.

•   If someone in a foreign country wants to transfer funds to you, they will not have an IBAN code associated with your account and will need to use your bank account and routing number and your bank’s SWIFT code, if available.

•   If you are trying to move money internationally to a country where you can’t use a SWIFT code, you’ll need to use another network to send money electronically. You might explore whether fintech options are available.

Recommended: How to Send Money to Someone Without a Bank Account

Combining IBAN and SWIFT

As mentioned, for many international transfers, you’ll need to know both the IBAN and SWIFT code involved. It really depends on which country you’re wiring money to. In some instances, you may only need one of the numbers. However, in this case, you may need to satisfy other requirements a country has established for transferring funds, as they might use other identifiers.

The Takeaway

SWIFT vs. IBAN codes are used to standardize international transfers and help ensure secure payments. SWIFT information identifies a particular bank in a country, such as in the U.S. or elsewhere, while IBAN characters point to a specific bank account in countries using the IBAN system. When sending funds from the U.S. to someone in a foreign country, you will likely need both of these codes to complete the transfer. U.S. banks typically have SWIFT codes that are used when they are receiving cross-border funds to be directed to a client’s account.

While SoFi doesn’t currently do international transfers, we do provide competitive interest rates and a host of tools to help you manage your money better.

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 4.20% APY on SoFi Checking and Savings.

FAQ

Can a bank have multiple SWIFT codes?

It’s possible for a bank to have multiple SWIFT codes. Bigger banks with multiple branches across the globe may use three extra digits at the end of their code to identify a specific branch.

Is IBAN used in the United States?

The United States does not use IBAN codes. Instead, the U.S. uses a bank account number and routing number to identify financial institutions and the specific accounts within them. However, if you live in the U.S. and are wiring money internationally, you may need to know the recipient’s IBAN code, depending on what country they live in.

How do I find my IBAN or SWIFT code?

If you have a bank account in the U.S., you will not have an IBAN code affiliated with it. If you have a bank account outside the U.S. in a country that uses IBANs, you can typically find an IBAN code on your bank statement or on the bank’s website. If you are wiring money to someone who lives in a country using the IBAN system, you can ask for their IBAN code when discussing the details of the wire transfer.

You should also be able to find a bank’s SWIFT code on its website or on a bank statement (if you are a client). If you’re unable to locate it, you might do a quick online search or call the bank’s customer service number.

What happens if I use the wrong code for a transfer?

If you use the wrong code for a wire transfer and it cannot be completed, the money may be returned to your account. In some cases, you may be charged a fee for this. However, there is the slight possibility that the transfer could be completed and the money sent to the wrong account. That is why, if you know you used the wrong code, it’s important to contact your financial ASAP and see if you can request a cancellation or reversal of the transfer.

Photo credit: iStock/Lyndon Stratford

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

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

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

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

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

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

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

*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.

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.

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.

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16
2024

What Is a Wire Transfer? A Complete Guide to Fast Money Transfers

By | Family Finances, money, Terminology | Comments Off on What Is a Wire Transfer? A Complete Guide to Fast Money Transfers

Wire transfers can be a convenient and safe way to send and receive money electronically, both domestically and internationally. While wire transfers serve a number of purposes, they can be especially good if you need a secure way to send cash to someone overseas or if you need to transfer a large sum, such as the down payment on a house.

Key Points

•   Wire transfers are electronic money transfers between bank accounts, particularly useful for large sums and international transactions.

•   Domestic wire transfers are typically completed within one business day, while international wire transfers may take up to five days.

•   Wire transfers generally differ from ACH transfers, P2P payments, and checks in terms of speed, fees, and convenience.

•   Wire transfers are considered secure but can be more costly, with fees ranging from $0 to $50.

•   To send a wire transfer, you’ll need the recipient’s bank details and sender’s identification, and once initiated, these transfers cannot be canceled once initiated.

Wire Transfers Explained

A wire transfer, as the name suggests, is a method of transferring money from one bank account to another electronically. Wire transfers allow you to move large sums of money both within the United States and internationally. Wire transfers are convenient, but they are not instantaneous:

•   Domestic wire transfers are typically completed within one business day.

•   International wire transfers usually take a few business days; in some cases, up to five days.

Wire transfers allow funds to flow between individuals and/or businesses, and they may be facilitated by banks or a nonbank money transfer service, such as Western Union or Wise.

It’s worth noting, however, that wire transfers can be a more expensive way to move money out of or into a bank account. Depending on whether they are domestic or international and the bank or service you use, the charge could be anywhere from $0 to $50. Another point to know: Wire transfers typically can’t be canceled, so it’s vital to double-check all details carefully when making one.

How Wire Transfers Differ From Other Payment Methods

Wire transfers aren’t the only way to send money. Other options include:

•   ACH transfers, which electronically move funds from one bank to another

•   Peer-to-peer (P2P) payment services, such as PayPal, Venmo, and Cash App

•   Traditional cash or check payments

•   Money orders and cashier’s checks

Here are some considerations regarding how wire transfers compare to the alternatives above:

•   Speed: Wire transfers are generally faster than writing a check, but P2P payments may be speedier, particularly if you pay a fee for instant transfers.

•   Convenience: While many wire transfers can be done online, you may be required to visit a bank branch or retail location in person in some cases. ACH transfers and P2P payments, however, can be done from a smartphone or computer, wherever you may be.

•   Fees: Senders often pay fees for wire transfers, while recipients may or may not need to pay a fee. Money orders and cashier’s checks also typically come with fees for the sender, and P2P payment apps usually charge for instant transfers.

•   Amounts: Wire transfers typically allow you to send the largest sum of money (upwards of $100,000), which makes them popular in real estate transactions. P2P payment apps usually have daily and weekly limits, and money orders tend to max out around $5,000.

Recommended: How to Send Money to Someone Without a Bank Account

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How Do Wire Transfers Work?

The process for completing a wire transfer is usually pretty straightforward:

•   The sender visits a financial institution or a wire transfer service location or initiates the transaction online.

•   They provide information about themself and the recipient.

•   To initiate or complete the transfer, the sender may also need to pay a fee.

•   The bank or service provider will communicate with the recipient’s institution to verify the transaction. The funds will then be deposited into the recipient’s account, where the recipient can access the money.

•   In some cases, the recipient may need to pay a fee as well.

Domestic vs. International Wire Transfers

Domestic wire transfers refer to electronic funds transfers between two financial institutions in the United States. These generally take a single business day to complete and are more affordable, with the sender often paying between $15 and $30 and the recipient paying between $0 and $15.

International wire transfers are more complex, given different countries’ regulations and currencies. Expect the fees to be higher for international wire transfers, often between $35 and $50 for the sender and $0 and $30 for the recipient. In addition, prepare for these to take a few days (even up to five) to process.

Information Needed for a Wire Transfer

To complete an outgoing wire transfer (that is, to send money to someone else via wire), you’ll need to supply some information, including:

•   The recipient’s full name and contact information (such as their address and phone number)

•   The recipient’s bank account and routing numbers (or, for international transfers, SWIFT/BIC and IBAN numbers).

As the sender, you’ll also need to provide:

•   Your name and contact information (often along with a government-issued ID or driver’s license)

•   The funds for the transfer (either physical money or your bank account information)

•   Your name and phone number

•   Any fees to cover the wire transfer service.

Recommended: ACH vs. Wire Transfers: Which Should You Use?

Advantages and Disadvantages of Wire Transfers

Wire transfers have both pros and cons to consider vs. other payment methods. The table below breaks down some of the benefits and drawbacks of using a wire transfer:

Pros

 Cons
You can wire large sums of money. Wire transfers come with fees for the sender and sometimes the recipient.
Domestic wire transfers are fast, usually within one day. International wire transfers take more time, typically taking a few days.
Wire transfers allow you to send money internationally. You can’t reverse a wire transfer once it’s initiated.
Wire transfers are generally considered safe. Fraudsters have developed a number of bank scams that utilize wire transfers.

Recommended: Pros & Cons of Online and Mobile Banking

Types of Wire Transfer Services

There are two main types of wire transfer services: bank and nonbank.

Bank Wire Transfers

A traditional bank wire transfer requires that both the sender and the recipient have a bank account. The sender will need to know the recipient’s bank account information to transfer money from their own bank account to the recipient. You typically either visit a local bank branch to initiate the wire transfer or use your bank’s online platform. Some banks and credit unions may even waive fees (or offer lower fees) to members.

After initiating the wire transfer, the sender’s and the recipient’s financial institutions will communicate through an electronic system, such as SWIFT, to securely complete the transfer.

Nonbank Wire Transfer Services

You don’t have to work directly with a bank to wire money. You can also use a nonbank transfer service, such as Western Union. To complete the transfer, you may visit a service location in person, fill out a form, and physically provide the money to the wire transfer service provider. Another option that’s often available is to complete the process online, drawing funds from your bank account. The funds can then be made available for pickup in person or be sent to the recipient’s checking account or to a mobile wallet on their phone.

SWIFT and IBAN in International Transfers

International wire transfers require a little more information than domestic transfers. In addition to providing your and the recipient’s basic information (such as name and account details), you’ll typically need to know the recipient’s SWIFT and IBAN codes:

•   The SWIFT (Society for Worldwide Interbank Financial Telecommunication) code identifies the recipient’s bank. In this way, it acts like a routing number, but they are not the same. You may also see this referred to as a BIC (Bank Identifier Number).

•   The IBAN (International Bank Account Number) code identifies the recipient’s account at their bank.

The U.S. and Canada do not use IBANs. For instance, someone wiring money from another country to the U.S. would instead need to know the recipient’s bank account number and routing number. Australia and New Zealand also use different codes.

Wire Transfer Fees and Costs

Wire transfer fees vary depending on the financial institution or nonbank wire transfer service you use, but they typically range anywhere between $0 and $50. Senders almost always must pay a wire transfer fee, though some banks and credit unions don’t charge fees to send, at least domestically. Recipients sometimes have to pay a fee as well, particularly for international wire transfers.

Typical wire transfer fees are as follows:

•   Outgoing domestic wire transfers: $0 to $30

•   Incoming domestic wire transfers: $0 to $15

•   Outgoing international wire transfers: $35 to $50

•   Incoming international wire transfers: $0 to $30

The Takeaway

Wire transfers can be an effective way to electronically transfer money between individuals and/or businesses, both domestically and internationally. While you’ll often pay a fee to initiate a wire transfer (and sometimes to receive one), this payment method has several advantages, such as its speed and the ability to send large sums of money.

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


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

FAQ

How long does a wire transfer take?

Domestic wire transfers typically process within 24 hours; if you time it right, the transfer may even complete in the same day. International wire transfers take a little longer, usually between one and five business days, depending on the country to which you’re wiring money.

Are wire transfers safe?

Wire transfers are typically considered to be a safe way to send money, as long as you know the recipient and have their correct information. However, many fraudsters use wire transfers in a number of common bank scams. To avoid this risk, never wire money to a person you don’t know, and educate yourself on common fraud tactics.

Can I cancel a wire transfer?

You cannot cancel a wire transfer once you have initiated it. Thus, you should always make sure all the information is correct before initiating a wire transfer.

Photo credit: iStock/izusek

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

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

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

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

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

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

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

*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.

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.

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.

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Oct
16
2024

Credit Card Statement Balance vs Current Balance

By | Credit, Debt Payoff, personal_loan, Terminology | Comments Off on Credit Card Statement Balance vs Current Balance

A credit card statement balance reflects your transactions (and the amount owed) during a billing cycle, while your current balance reveals your real-time activity and how much you may owe at a given moment.

When you buy with credit, it’s like taking out a short-term loan to make a purchase. If you’re putting charges on your credit card throughout the month, the value of that loan — your “current balance” — fluctuates. When your billing cycle ends and the amount due is tallied, that equals your statement balance.

Learn more about how these two numbers can differ, along with a few tips for paying down your credit cards.

Statement Balance vs Current Balance

Each credit card issuer may have a slightly different method of presenting and even calculating the numbers on your monthly statement, whether you get a hard copy or check it online or in your card’s app. Still, you will likely see one number called the statement balance and another called the current balance.

•   The statement balance means all transactions during a designated period, called a billing cycle. If a billing cycle covers one month and starts on the 15th of each month, this statement balance will include all of the activity on an account between, say, January 15 and February 15, in addition to any previously unpaid balances. Until the close of the next billing cycle, the statement balance will remain unchanged.

•   ‘Your current balance means the running total of all transactions on your account. It changes every time you swipe your card to pick up Chinese takeout or return a T-shirt that didn’t fit right.

To understand the interplay between the statement balance vs. the current balance, consider this example:

•   ‘On February 15, the statement balance is $1,000, meaning that the total charges between January 15 and February 15 add up to $1,000.

•   ‘Two days later, you make a $50 charge to the card. Your current balance will reflect $1,050 while the statement balance remains the same.

In this case, the current balance is higher than the statement balance. The reverse can also be true, and the current balance can potentially reflect a smaller number than the statement balance.

Recommended: Personal Loan vs Credit Cards

What to Know About Paying Off Your Credit Card

As each billing cycle closes, you will be provided with a statement balance. You will also likely be provided with a due date. At the time you make a payment, you may decide to pay off the statement balance, the current balance, the minimum payment, or some other amount of your choosing.

Paying the Statement Balance

If you regularly pay your statement balance in full, by its due date, you likely won’t be subject to any interest charges. Most credit card companies charge interest only on any amount of the statement balance that is not paid off in full.

The period between your statement date and the due date is called the grace period. During this period, you may not accumulate interest on any balances. It’s worth mentioning that not every credit card has a grace period. It’s also possible to lose a grace period by missing payments or making them late. If you have any questions about whether your card has a grace period, contact your credit card company.

Paying the Current Balance

If you’re using your credit card regularly, it is possible that you will use your card during the grace period. This will increase your current balance. At the time you make your payment, you will likely have the option to pay the full current balance.

If you have a grace period, paying the current balance is not necessary in order to avoid interest payments. But paying your current balance in full by the due date can have other benefits. For example, this move could improve your credit utilization ratio, which is factored into credit scores.

Paying the Minimum Monthly Payment

Next, you can pay just the minimum monthly payment. Generally, this is the lowest possible amount that you can pay each month while remaining in good standing with your credit card company — it is also the most expensive. Typically, the minimum payment will be an amount that covers the interest accrued during the billing cycle and some of the principal balance.

Making only the minimum payments is a slow and expensive way to pay down credit card debt. To understand how much you’re paying in interest, you can use a credit card interest calculator. Although minimum monthly payments are not a fast way to get rid of credit card debt, making them is important. Otherwise, you risk being dinged with late fees.

Missing or making a payment late can also have a negative impact on your credit score.So, if the minimum payment is all you can swing right now, it’s okay. Just try to avoid additional charges on your card.

Making a Payment of Your Choice

Your last option is to make payments that are larger than the minimum monthly payment but are not equal to the statement balance or the current balance. That’s okay, too. You’ll potentially be charged interest on remaining balances, but you’re likely getting closer to paying them off. Keep working on getting those balances lowered.

Recommended: Credit Card Closing Date vs Due Date

Your Credit Utilization Ratio

The balance you currently carry on your credit card can impact your credit utilization ratio. Credit utilization measures how much of your available credit you’re using at any given time.

This figure is one of a handful of measures that are used to determine your credit score — and it has a big impact. Credit utilization can make up 30% of your overall score, according to FICO® Score.

Not every credit card reports account balances to the consumer credit bureaus in the same way or on the same day. Also, the reported number is not necessarily the statement balance. It could be the current balance on your card, pulled at any time throughout the billing cycle. Again, it may be worth checking with your credit card issuer to find out more. If your issuer reports current balances instead of statement balances, asking them which day of the month they report on could be helpful.

Sometimes, the lower your credit card utilization is, the better your credit score. While you may feel in more control to know which day of the month that your credit balance is reported to the credit bureaus, it may be an even better move for your general financial health to practice maintaining low credit utilization all or most of the time.

If you are worried about your credit utilization rate being too high during any point throughout the month, you can make an additional payment. You don’t have to wait until your billing cycle due date to reduce the current balance on your card.

According to Experian®, one of the credit reporting agencies, keeping your current balance below 30% of your total credit limit is ideal. For example, if you have two credit cards, each with a $5,000 limit, you have a total credit limit of $10,000. To keep your utilization below 30%, you’ll want to maintain a combined balance of less than $3,000.

Some financial experts recommend that keeping one’s credit utilization closer to 10% or less is an even better move.

Recommended: Personal Loan Calculator

3 Tips for Managing Your Credit Card Balance

If you’re struggling to juggle multiple credit cards and make all of your payments, here are some tips that may help.

1. Organizing Your Debt

A great first step to getting a handle on your debt is to organize it. Try listing each source of debt, along with the monthly payments, interest rates, and due dates. It may be helpful to keep this list readily available and updated.

Another option is to use software that aggregates all of your finances, such as your credit card balances and payments, bank balances, and other monthly bills. Your bank may offer financial insights tools as well, which can be a great place to start with this endeavor.

When it comes to managing your credit card debt, keep in mind that staying on top of your due dates and making all of your minimum payments on time is one of the best ways to stay on track.

You can also ask your credit card providers to change your due dates so that they’re all due on the same day. Pick something easy to remember, such as the first or 15th of the month.

2. Making All Minimum Payments, But Picking One Card to Focus On

While you’re making at least the minimum payments on all your cards, pick one to focus on first. There are two versions of this debt repayment plan:

•   ‘With the debt avalanche method, you attack the card with the highest interest rate first.

•   ‘With the debt snowball method, you go after the card with the lowest balance.

The former strategy makes the most sense from a mathematical standpoint, but the latter may give you a better psychological boost.

If and when you can, apply extra payments to the card’s balance that you’re hoping to eliminate. Once you’ve paid off one card, you can move to the next. Ultimately, you’re trying to get to a place where you’re paying off your balance in full each month.

3. Cutting Up Your Cards

Whether you do this literally or not, a moratorium on your credit card spending can be a great strategy. If you are consistently running a balance that you cannot pay off in full, you may want to consider ways to avoid adding on more debt.

A word of warning: Don’t be tempted to cancel all your cards. This can negatively affect your credit score. However, if you feel you really have too many credit cards to manage — say, more than three or four — cancel the newest credit card first. This will ensure your credit history length is unaffected.

In addition to these steps, there are other options for dealing with credit card debt, such as debt consolidation, which can involve taking out a personal loan (typically, at a lower rate than your credit card interest rate), working with a certified credit counselor, and/or negotiating with your creditors to see if you can pay less than your full balance.

The Takeaway

Your credit card statement balance is the sum of all your charges and refunds during a billing cycle (usually a month), plus any previous remaining balance. It changes monthly with each statement. Your current balance is updated almost immediately every time you make a purchase. It is the sum of all charges to date during a billing cycle, any previous remaining balance, and any charges during the grace period. Whenever you can, pay off the full statement balance to avoid interest charges.

Trying to pay off credit card debt? Taking out a personal loan can consolidate all of your credit card balances.

Think twice before turning to high-interest credit cards. Consider a SoFi personal loan instead. SoFi offers competitive fixed rates and same-day funding. Checking your rate takes just a minute.


SoFi’s Personal Loan was named NerdWallet’s 2024 winner for Best Personal Loan overall.

FAQ

Should I pay my statement balance or current balance?</h3>

It can be wise to always aim to pay off your statement balance every month by the due date to avoid pricey interest charges. While not necessary, paying off the current balance can help lower your credit utilization ratio, which can in turn help build your credit score.

Why do I have a statement balance when I already paid?

Your statement balance reflects all the charges you have made, any interest and fees, and credits that occurred during a single billing cycle. Once that statement balance has been captured, it likely won’t be updated until the next billing cycle. Your credit card’s balance may well change, however, during this period as you use your card.

What happens if you don’t pay the full statement balance?

If you don’t pay your total statement balance before the end of what’s known as your grace period (the days between the end of your billing cycle and your payment’s due date), both your current balance and any new purchases that you make will start to accrue interest right away.

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

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

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

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.

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

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

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