Terminology Archives | Page 7 of 76

Nov

2024

What Are Real Assets? Understanding Tangible Investments

By MP Dunleavey | Growing Wealth, invest, Investing, Terminology | Comments Off

Real assets are tangible, physical assets that can be exchanged for cash, owing to their use in manufacturing and consumer goods, and other purposes. Real assets, as a category, may include precious metals, commodities, real estate, infrastructure, and more.

Typically, real assets are considered a type of alternative investment, owing to their low correlation with traditional asset classes such as stocks and bonds. As such, real assets may provide some portfolio diversification. But real assets are also susceptible to specific risks pertaining to each sector.

Key Points

• Real assets take their name from the fact that they are tangible, physical assets, as opposed to financial assets (like stocks and bonds) or intangible assets (like a brand).

• Real assets have a cash value, and can generally be traded for cash. They typically include real estate, land, commodities, infrastructure, precious metals, and more.

• It’s possible to invest in real assets directly (by owning the physical goods, resources, or structures) or indirectly (via mutual or exchange-traded funds).

• They are considered a type of alternative asset, because most real assets are not correlated with conventional asset classes, and thus may provide some portfolio diversification, and potential returns.

• Real assets come with specific risk factors that pertain to each type of tangible asset, in addition to the risks that come with most alts: e.g., illiquidity, lack of transparency, less regulation.

Defining Real Assets

What is an asset? On the whole, assets can be considered tangible (e.g., land), intangible (e.g. a brand or trademark), or financial (e.g. shares of stock). While real assets have a cash value and can be exchanged for cash, they are not considered a type of financial asset because they are not securities.

Also, real assets are considered a type of alternative investment. Alts tend not to move in sync with, i.e., they’re not typically correlated with conventional assets like stocks and bonds. But like all types of alternative investments, real assets come with specific risks, including lack of liquidity, transparency, and less regulation in some cases.

Characteristics of Real Assets

The primary characteristic of real assets is that they are physical. They can be objects, goods, resources, or structures that have a specific cash value and can be traded for cash in certain markets.

However, real assets are considered non-securities, because they do not derive their value from a contractual ownership arrangement like stocks, bonds, exchange-traded funds (ETFs), options, and more.

Real Assets vs. Financial Assets

Financial assets fall into the category of securities; generally speaking there are debt securities (like bonds) and equity securities (stocks), as well as derivatives (options and futures). Real assets are non-securities.

• Securities are financial instruments that can be traded on an exchange, with an expectation of making a profit. More important, securities are fungible, meaning the value of one unit is interchangeable with another of the same type of unit: e.g., a share of stock in Company A is the same as another share of that stock.

• Real assets are physical goods, and in many cases they are not fungible: one type of property or infrastructure is not interchangeable with another. That said, commodities are a type of real asset, and are generally fungible: one barrel of crude oil is the same as the next.

💡 Quick Tip: Before opening any investment account, consider what level of risk you are comfortable with. If you’re not sure, start with more conservative investments, and then adjust your portfolio as you learn more.

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Types of Real Assets

As noted, real assets consist of physical, tangible goods and resources. But while one stock generally behaves the same as another stock, each type of real asset has to be considered individually to understand its benefits and risks.

Real Estate

Real estate includes a wide range of property types and investment choices: e.g., commercial real estate, industrial real estate, healthcare facilities, rental properties, and more. While it’s possible to invest directly in real estate, it’s also possible to buy into a type of pooled investment like real estate investment trusts, or REITs.

Real estate may offer passive income (i.e., from rent), or gains from the sale of properties, but real estate investments come with potential risks: local laws and regulations can change; property can be damaged by extreme weather; interest rate risk can impact property values.

Commodities

Commodities include numerous raw materials, including agricultural products like corn and coffee; precious metals such as copper or nickel; energy sources (including renewables), and more. Commodity trading typically involves futures contracts, but it’s possible to invest in commodities via index funds and mutual funds, or ETFs.

These assets, owing to steady demand, may offer the potential for profits. They may help hedge against inflation. That said, the value of commodities can be impacted by weather, supply chain breakdowns, market fluctuations, and other factors, which makes them risky. Commodities can lose value for a number of reasons, and direct investments in commodities lack certain investor protections offered to other securities.

Infrastructure

Infrastructure assets are durable structures that provide public services, utilities, and the like to enable the smooth functioning of society. Infrastructure includes durable structures like bridges, roads, tunnels, and schools, as well as energy infrastructure like power plants. Infrastructure is typically stationary, has a long period of use, and generates predictable cash flow (via utility payments, tolls, and so on).

While it can be difficult for individual investors to invest directly in infrastructure, it’s possible to invest in municipal bonds, or funds that offer exposure to companies involved in infrastructure.

Investing in infrastructure comes with specific risks investors should consider, including interest-rate risk (which can affect access to loans, and interest on bonds), regulatory issues, climate and weather challenges, and more.

Precious Metals

Generally speaking, precious metals consist of a group of natural assets, including gold, silver, platinum, iridium, and others. Investing in precious metals may be appealing as many metals tend to retain value owing to their scarcity, their critical role in manufacturing and technology, and because some (like gold and silver) are themselves used as a store of value.

For many individual investors, it may not be obvious how to invest in gold, silver, or other metals. Though it’s possible to buy bullion or bars directly, it’s also possible to invest in ETFs that are invested in gold or precious metals, or in stocks of mining companies, and the like.

The risks of investing in precious metals include potential changes in demand, technological innovations that may require more or less of a given metal, supply chain issues, worker safety, and more.

Recommended: Why Invest in Alternative Investments?

Benefits and Risks of Investing in Real Assets

In addition to the advantages and disadvantages of different types of real assets noted above, there are a few other factors investors should consider.

Inflation Hedge

Inflation essentially decreases a dollar’s purchasing power, and a hedge against inflation can offer a potential upside.

In some cases real assets can provide a hedge against inflation. For example, assets that benefit from steady demand, like commodities, may help offset inflation’s bite. Also, land or real estate may rise in value even when the purchasing power of the dollar is declining, which may offer a potential inflation hedge.

That said, it’s impossible to predict for certain which asset classes will help to mitigate inflation, and there are no guarantees.

Portfolio Diversification

Another factor investors should consider is the potential benefit from diversification, which is the practice of investing in different asset classes to help mitigate risk. Diversifying your assets may help offset some investment risk.

Diversification is complex, however, and involves more than just including alternative investments along with equities and fixed income. Investors need to consider how certain investments, like tangible assets, might provide some sense of equilibrium in their portfolio if conventional strategies are down.

Potential for Steady Income

As discussed, some types of real assets, like infrastructure investments, can become a source of steady income. For example, roads and bridges and public transportation require a high initial investment, but then they may provide a predictable revenue stream from tolls and fares and so forth.

The same is true for some types of municipal power plants and other energy sources that supply utilities, and derive steady payments over time.

Liquidity Concerns

Taken as a whole, however, real assets are quite similar to other types of alternative investments in that they lack the liquidity and easy access to cash that most conventional investments provide.

Liquidity risk is something all investors must take into account when choosing investments, as the inability to enter and exit positions with ease, and as needed, can impact one’s goals.

Market Volatility

All markets fluctuate to some degree, but some markets are more volatile than others. When it comes to deciding whether to invest in real assets, investors must do their due diligence because the market for each type of tangible asset is vastly different from another.

Just as understanding volatility in the stock market is key to making smart choices about equities, it’s essential for investors to consider the real estate market for a property they might invest in, or the futures market for investing in commodities, and so forth.

Incorporating Real Assets into Your Investment Strategy

Would investing in real assets make sense in your portfolio? There are a few factors to consider.

Asset Allocation

Asset allocation is basically the mix of stocks, bonds, and other investments in your portfolio. While a standard allocation usually includes these conventional asset classes, some investors also include other choices such as commodities, real estate, private equity, and more.

Deciding on the right allocation for your portfolio means thinking about your goals, time horizon, and how much risk you’re willing to take on. Given that real assets are often higher-risk investments, but aren’t correlated with traditional assets, investors may want to consider the advantages and disadvantages before deciding on an asset allocation that makes sense.

Direct vs. Indirect Investment Methods

Owing to the physical nature of real assets, it’s possible to invest in many real assets directly (e.g., owning rental property or gold bullion) as well as investing indirectly in real assets.

For example, commodities are typically traded via futures contracts. A commodity futures contract is an agreement to either buy or sell a specified quantity of that commodity for a specific price at some point in the future. While it’s possible to end up with actual physical commodities this way (e.g., bushels of corn or barrels of oil), for the most part futures are an indirect way to gain access to the commodities markets.

REITs and ETFs

Real estate investment trusts (REITs) and ETFs are two other common instruments for investing indirectly in real assets.

• A REIT is a trust that owns income-generating properties, so that investors are spared the hassle of direct ownership. A REIT may own warehouses, retail stores, storage units, hotels, and more. REITs can focus on a geographic area or specific market (like healthcare). A REIT is required to distribute 90% of its income to shareholders, so owning shares of a REIT may provide passive income, as well.

• ETFs are another way to invest indirectly in certain types of real assets, because these funds invest in companies that either produce, process, or in some way support a given type of real assets.

For example, there are ETFs that invest in mining, equipment, or technology companies in the precious metals and commodities sectors. Likewise, there are ETFs that invest in companies that support infrastructure projects.

Investors who are interested in exploring real assets are not limited to direct investment strategies; there are other options to consider.

The Takeaway

Real assets are tangible assets like real estate, infrastructure, or commodities, and are considered a type of alternative investment. Alts are not typically correlated with traditional assets like stocks and bonds, and thus may provide portfolio diversification that can help mitigate some risk factors. But like all types of alts, real assets come with specific risks, including lack of liquidity and lack of transparency.

Ready to expand your portfolio's growth potential? Alternative investments, traditionally available to high-net-worth individuals, are accessible to everyday investors on SoFi's easy-to-use platform. Investments in commodities, real estate, venture capital, and more are now within reach. Alternative investments can be high risk, so it's important to consider your portfolio goals and risk tolerance to determine if they're right for you.

Invest in alts to take your portfolio beyond stocks and bonds.

FAQ

How do real assets perform during economic downturns?

Although some alternative investments may not be affected by a downturn, the markets for specific assets can react differently, depending on the economic conditions. For example, if stocks are down, real estate may not be impacted at all. When interest rates fluctuate, the cost of loans can impact real estate values and infrastructure projects, but not necessarily commodities. It’s incumbent on each investor to consider the pros and cons of any investment before putting money into it.

What percentage of a portfolio should be in real assets?

Deciding on the percentage any asset class should have in your portfolio is a personal calculation, taking into account your goals, time horizon, and stomach for risk. It’s especially important to consider that real assets are illiquid, a risk consideration that can impact whether you want to invest in real assets at all.

Are real assets suitable for all types of investors?

No. Real assets are better suited to experienced investors, who may have the skills to navigate the complexities of real asset markets, pricing, risks, and so forth.

Photo credit: iStock/Edwin Tan

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SOIN-Q324-057

Nov

2024

What Is a Financial Plan? Definition & Examples

By Rebecca Lake | money, Money & Life, Terminology | Comments Off

A financial plan is a document used for managing your money and investments to help you achieve your goals. Having this kind of document allows you to map out the actions you need to take as you work toward important milestones, like paying down debt or saving for retirement.

You can create a financial plan yourself or with the help of a financial planner or advisor. Anyone can benefit from creating a financial plan, regardless of their age, net worth, or goals.

Key Points

• Key components of a financial plan include specific goals, income and spending breakdown, assets and liabilities, risk tolerance, and time horizon.

• A financial plan helps individuals manage money and investments, achieve goals, and prepare for life changes.

• Benefits of a financial plan include identifying priorities, setting goals, staying motivated, and reducing financial stress.

• Steps to create a financial plan can include assessing the current situation, listing assets and liabilities, setting goals, developing an action plan, tracking progress, and considering whether to hire professional help.

• Setting financial goals can be vital for preparedness, confidence, and stress reduction.

Understanding Financial Plans

While the exact meaning will vary among individuals, typically, the definition of financial plan might go something like this:

• A financial plan is a roadmap or blueprint for your financial life. It includes your most important financial goals and priorities, the action steps you’ll take to meet them, and guidelines for how to track your progress.

With that in mind, here’s a closer look at financial plans and how they work.

Purpose and Importance

Simply put, financial planning is designed to help you make the most of your income and assets so you can achieve specific objectives with your money.

It can be harder to do that if you’re not in touch with your money. If you don’t know how much you’re bringing in vs. what you’re spending, for instance, you might find it difficult to save anything. Worse, you may be incurring debt on credit cards to cover the gap between income and expenses.

A financial plan means you don’t have to guess about where your money goes. Instead, you can use your plan as a guide to save and invest strategically to make your money work harder for you.

Components of a Financial Plan

Financial plans, regardless of who is creating them or why, usually have some common elements:

• Specific, measurable goals or objectives

• A breakdown of income and spending

• Detailed information about your assets and liabilities (debts)

• Information about your personal risk tolerance and time horizon

Some financial plans are more complex than others. For example, if you’re 30 years old and only a few years into your career, your goals, income, debt, and net worth are likely to look very different from someone who’s in their early 60s heading into retirement.

Types of Financial Plans

Financial planning can be divided into different categories, based on your purpose for creating the plan. Examples of financial plan uses include:

• Cash flow planning and budgeting

• Insurance planning

• Investment planning

• Tax planning

• Retirement planning

• Estate planning

• College planning, if you have children (this could also apply to those going back to school for a degree or certificate)

You may also create a succession financial plan if you run a family-owned business that you’d like to eventually pass on to someone else. Financial advisors may offer planning in all of these areas or specialize in just one or two. For example, you might work with an advisor who only assists with estate and tax planning.

Creating a Financial Plan

Approximately 53% of Americans say they work with a financial planner, according to the CFP® Board. You don’t need to have a financial planner or advisor to make your plan, though it can help to have that added expertise and a second set of eyes.

That being said, here’s how to put together a financial plan yourself.

Assessing Your Current Situation

To make a financial plan you’ll need to know where you’re starting from. Here are some of the most important things that will shape your plan.

Income and Expenses

The first step in making a financial plan is knowing how much you make and how much you spend. If you don’t have a budget yet, this is a great time to make one.

• Determine how much you make each month from a full-time job, part-time job, self-employment,

side gigs, and/or passive income

• Add up all of your necessary expenses, meaning bills you have to pay each month to survive (e.g., housing, groceries, utilities, insurance, minimum payments on loans and lines of credit, etc.)

• Add up what you spend on your wants (or discretionary expenses), such as dining out, entertainment, travel, etc.

• Add up amounts that you send to savings or additional debt payments

Once you know what you spend, subtract it from what you make. This will tell you if you’re starting your financial plan in the red (meaning you are in debt, or living beyond your means) or the black (defined as accumulating wealth).

If you’re not sure how to track income or expenses, there’s a simple fix. First, see what your banking app or website offers in terms of tracking. You may be able to categorize and review your transaction history, including deposits of income and withdrawals for purchases or bills. Or you might use a third-party app to do this.

Assets and Liabilities

Now it’s time to look at what you own and what you owe. Make a list of your assets and their value, including:

• Your home

• Vehicles

• Checking accounts

• Savings accounts and CDs

• Items of value, such as artwork or jewelry

Now, list out your debts. This can include:

• Credit card balances

• Student loans

• Mortgage

• Medical bills

• Personal loans

• Any other debts, such as money borrowed from a relative or a home equity loan

You’ll need this information to shape your goals and calculate your net worth.

Recommended: What Is a High-Yield Checking Account?

Investments and Retirement Accounts

If you have money in investment or retirement accounts, you’re already a step ahead. Make a list of all your investment and retirement accounts and their value. Include your:

• 401(k) (or 403(b), 457 plan, etc.

• Individual Retirement Accounts (IRAs)

• Brokerage accounts

Here’s a tip: Look for “lost” or “forgotten” retirement accounts. If you’ve changed jobs a few times, you may have some old 401(k)s floating around that you could add to the pile.

If you’re thinking of working with a financial planner, check their credentials. Some financial planners are certified by the CFP Board, meaning they’re held to the highest ethical standards. Others are registered with the Securities and Exchange Commission (SEC) as investment advisors. They’re fiduciaries, meaning they’re obligated to act in your best interest at all times.3

Working with a credentialed financial planner can ensure that the advice you’re getting is backed by expertise, knowledge, and a strong code of ethics.

Key Elements of a Financial Plan

Your financial plan should be tailored to your situation. That being said, the most important elements in a financial plan include:

• A personal budget

• Debt management strategies (if you have credit cards, student loans, or other debt)

• Emergency fund savings

• Insurance planning, including life insurance and property insurance

• Tax planning

• Estate planning

Your plan should reflect your goals in each of these areas. For example, when you’re talking about budgeting, your goal may simply be to stick to a budget month after month. If you’re planning for emergency fund savings, then you might set a specific target of saving $15,000 in 12 months. (Experts usually say to aim for three to six months’ worth of living expenses.)

Financial plans are not set-it-and-forget-it. It’s important to adjust your plan as you go through life changes. For example, changing jobs, getting married or divorced, or having a child can impact your financial goals and the steps you need to take to reach them. Also, if you are investing, your risk tolerance may change as you approach retirement. You might want to play it safer to protect your nest egg from, say, market fluctuations.

Benefits of Having a Financial Plan

Can you manage money without a structured financial plan? Certainly, but there are some benefits to creating one. Financial planning can help you to:

• Identify what’s most important to you financially

• Set realistic goals to help you create the life that you want

• Stay motivated as you work toward the goals you most want to achieve

• Be better prepared for life changes or unexpected events that might affect you financially

• Feel more confident in your financial decision-making

• Experience less stress over money or the future

According to one recent survey, 87% of Americans say they feel stress at least once a week surrounding their finances. Rather than hiding out from your checking account balance, you could implement a financial plan to help you feel more in control over your money and getting where you want to go.

Financial Plan Examples

Financial plans can help you manage a variety of goals from starting a business to retirement planning to saving for education. You could also use your plan to account for windfalls, either expected or unexpected.

For example, say your parents plan to leave you the entirety of their estate when they pass away, which is valued at $1.5 million. Your financial plan should reflect how you go about managing an inheritance of that size, including:

• Where your parents’ assets are held (e.g., 401(k) plans, IRAs, savings accounts, etc.)

• Whether any special restrictions or requirements limit what you can do with the inheritance

• What your tax obligations will be and what strategies, if any, you can employ to minimize taxes owed on an inheritance

• How you plan to put the assets you’re inheriting to work and what your goals are for their performance

• Who you would like to inherit your assets when the time comes

By mapping out different scenarios in a plan and tracking how this inheritance could best be utilized, you can be prepared for the future. As noted above, you might want to work with a financial professional to guide your thinking.

Another scenario might be planning how you will achieve saving for both your child’s college education and your own retirement. If you are feeling as if hitting those two goals is both necessary and extremely challenging on your current income, planning can help you explore and utilize different techniques to attain your aspirations.

The Takeaway

Financial planning can give you clarity on your money situation and help you decide what you need to do to realize your goals. There are different kinds of financial planning for different needs, but at its most basic, it involves assessing your current financial status, your money goals, and how you could reach them. If you don’t have a financial plan yet, it’s never too late to create one, whether on your own or with a financial professional.

One part of smart financial planning can be to find a banking partner that helps you grow your money. See how SoFi can work with 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 4.00% APY on SoFi Checking and Savings.

FAQ

When should I create a financial plan?

There’s no set time at which you need to create a plan, though sooner is usually better than later. If you’re making money and spending it, then you can benefit from having a financial plan even if you don’t have a lot of assets yet. Also, many people find pivotal life moments, such as getting married or divorced, or changing careers, to be a good moment to reflect on their financial status and goals.

How often should I review and update my financial plan?

Reviewing your financial plan at least once a year is a good way to track the progress you’ve made over the last 12 months. You could also institute biannual or quarterly reviews if you have some big goals you’re working on, like paying down $40,000 in student loans or saving $50,000 toward a down payment on a home. Also, life events like the birth of a child or buying a home may be a good time to reassess your financial plan.

Can I create a financial plan on my own?

You can create a financial plan on your own; an advisor is not required. You’ll need to know how much you’re making and how much you’re spending, what you owe to debt, what assets you have, and how much you have invested. Then you can identify your current outlook and your goals and develop an action plan. That said, working with a financial planner can allow you to access deep professional knowledge as well as provide support as you work toward your goals.

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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.

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

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.

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

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.

SOBNK-Q324-117

Nov

2024

What Is a Check Hold?

By Jamie Cattanach | money, Money & Life, Terminology | Comments Off

A check hold is the period of time that your bank or credit union hangs on to your check before the funds are released and available in your account. Check holds allow both the sending and receiving financial institutions time to validate a check.

It might seem annoying to have to wait for your money, but the process can help avoid check fraud and bounced checks, which can sometimes result in fees to the account holder. Fortunately, check holds are governed by laws that limit most such holds to two business days (though there are some exceptions, explained below).

Here’s what you need to know.

How Does a Check Hold Work?

When your bank receives a check — be it through the mobile deposit feature on its app or at the physical bank branch — it doesn’t necessarily receive the full credit for the dollar amount on the check. Instead, many checks must first go through the Federal Reserve’s central clearinghouse. This can contribute to a situation in which a check is on hold.

Only after this process is complete does the recipient bank have full access to the funds.

Although some checks may clear immediately, others may not, which means the account holder cannot yet dip into those funds. In some cases, you may have access to a portion of the money you deposited to your checking account, but not the entire check amount, until the hold ends.

In terms of timing, most “local” checks (i.e., those deposited into a United States financial institution, from a United States financial institution) must clear within two business days. There are, however, some exceptions.

Reasons for Check Holds

Banking processes may require holding a check for a variety of reasons, including mitigating the risk of check fraud. Here’s the scoop.

Risk Mitigation

While check fraud is no longer as common as credit card fraud (likely because checks themselves are used less often), it can happen. Forged signatures, “paper hanging” or “kiting a check” (purposefully writing a check without sufficient funds), and plain old counterfeiting are all ways checks can be risky for both banks and their customers. Having a check on hold means there’s more time to review and verify it. This, in turn, mitigates the risk of attempts at bank fraud.

Regulatory Compliance

As mentioned above, some check holds are actually related to the Federal Reserve’s clearing process, as opposed to a policy written by the bank itself. In those cases, the check clearing process may be, quite literally, out of the bank’s hands.

Bank Policies

Individual banks may have their own policies on the books as far as how long to hold different types of checks internally. Of course, such policies are subject to the laws that limit check holds, described below.

Check Hold Time Frames

Thanks to the Expedited Funds Availability Act of 1987 (also known as the EFAA), most checks written in the United States must be cleared within two business days. However, in some cases, the time frame may be extended to six business days, including instances where the check is “non-local” (i.e. is being deposited from a foreign financial institution).

The same law requires banks to disclose their funds availability policies to account holders, so if you ever have a question about when your check should clear, you should be able to contact your bank and get an answer. This can help you understand why a bank might hold checks for a few days.

Recommended: What Is a High-Yield Checking Account?

Typical Hold Periods

The longest you should have to wait for a check hold to clear is about a week.

As mentioned, most “local” checks must clear within two business days, and some may clear more quickly than that. For instance, direct deposit checks often clear by the next business day, as do cashier’s checks and checks that were written from a different account at the same financial institution.

On the other end of the spectrum, if your account is newer, the check is in a large amount, or is being issued from a non-local bank, the hold may extend up to six business days.

Recommended: 50/30/20 Budget Calculator

Factors Affecting Check Hold Duration

While most check holds clear within a business day or two, there are certain factors that may extend the time it takes for your funds to hit your account. These include:

• Account history. Those with newer accounts may be subject to longer hold times during the first 30 days of account ownership as the bank works to verify both your identity and the validity and availability of incoming funds.

• The check amount. Larger checks (defined as totaling more than $5,525 in a day) may be subject to longer holds on the amount over the $5,525 mark, though federal regulations require banks to make at least part of the funds available to you within the normal hold time.

Generally speaking, the first $225 of most checks must be available the next business day, even if the remainder is still subject to a hold.

• The source of the check. Checks from foreign banks may be subject to holds of up to six business days.

• Your bank’s policies. As noted, your financial institution — whether a traditional vs. an online bank — is typically required by federal law to list their funds availability protocols in a prominent place — and a bank representative should be able to answer any questions you have about when a check might clear.

These factors can play a key role in how long a check is on hold for.

The Takeaway

While check holds may feel like an inconvenience, they’re a safety measure that can benefit both you and your bank. They allow banks to verify deposits. In most cases, the funds will be available in just one or two business days. In some cases, a hold of up to six business days is possible.

Looking for a bank account that makes managing your money easy? See what SoFi offers.

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 maximum hold period for a check?

In compliance with federal regulations, holding a check usually cannot last longer than six business days. However, if the bank has reason to suspect fraud or your checking account is brand new, longer check hold times may be deemed “reasonable.”

Can a bank hold a check indefinitely?

No. Banks are subject to federal regulations that limit most check holds to two business days, though in some cases the hold period may extend to six business days. While longer holds are possible under certain circumstances (such as a new account or suspected fraud), the bank still must clear your funds once verification is complete.

How can I avoid check holds?

Directly deposited funds generally clear on the next business day, so signing up for direct deposit with your employer is a good way to avoid check holds on your regular paycheck. For other checks, if the amount is larger, you might ask for a certified or cashier’s check, each of which tends to clear more quickly.

Photo credit: iStock/FG Trade

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

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

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

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

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

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

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

*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.

SOBNK-Q324-116

Nov

2024

What Is a Drawee in Banking?

By Dan Miller | Money & Life, Terminology | Comments Off

A drawee in banking is the entity that has been asked to pay a sum of money to a person who presents a check or a similar financial instrument. If your employer (the drawer) were to write a check to you (the payee), the bank would be the drawee.

Knowing the definition of drawee can help you understand banking and legal terminology, which can help build your financial literacy. Read on to learn more about what a drawee in banking is.

Key Points

• A drawee is the entity, often a bank, that provides a sum of money to a payee presenting a check or similar financial instrument.

• The drawee relationship involves three parties: the drawer (payor), the drawee, and the payee.

• The drawee plays a crucial role in facilitating financial transactions, especially check cashing or depositing.

• The drawee helps manage risk by holding funds before releasing them, ensuring the check clears.

• Drawees often assume primary liability for errors or mistakes on checks they accept for payment.

Understanding Drawees

While the term drawee is not one that is often used by people, it plays a crucial role in the finance industry. Understanding what a drawee is can help you if you ever receive or write checks.

Definition of a Drawee

The definition of a drawee is a person or company (often a bank or other financial institution) that has been directed to pay someone presenting a financial instrument — often a check. The person presenting the check is usually referred to as the payee, and the payor (or drawer on a check) is the person who issued the check.

Role in Banking Transactions

While the term drawee may be relatively obscure, it plays a key role in banking transactions. Without a drawee as an intermediary, it would be much more difficult, or perhaps even impossible in some cases, to cash or deposit a check. When you deposit or cash a check, the drawee is the one that contacts the payor (or their bank) to withdraw the funds to give to you.

Without a drawee, you would have to contact the payor’s bank directly to receive your funds. This might or might not be successful.

Drawee in the Context of Checks

While the concept of a drawee does exist in other areas besides checks (most notably in coupons presented to a retail store), it is most commonly used in banking when someone writes a check.

If you receive a check and try to cash it or deposit the check into an account such as a high-yield checking account, the bank or check-cashing service where you present the check will serve as the drawee. They will manage the transaction, contacting the individual or company that wrote the check (or their bank) to help facilitate the transfer of funds.

Importance of the Drawee

A drawee can be very important in helping to ensure the easy and quick transfer of funds between people or companies with accounts at different banks.

Facilitating Financial Transactions

One of the most important roles of a drawee is in helping to facilitate financial transactions, such as sending money between accounts. Whether using online or traditional banking, one of the most common bank transactions is moving money to someone else at a different account (such as by writing checks). A drawee plays a crucial role as an intermediary in this process.

Risk Management

A drawee can also help with risk management. Since it usually serves as an intermediary, it can help to lower the overall risk of the check writing process. It’s common for a drawee to be a bank, and these financial institutions usually will hold onto funds for a couple days before releasing them. This process (you may know it as waiting for a check to clear) helps to lower the overall default risk of the transaction.

Legal Implications

With a drawee as an intermediary in the process of writing and depositing a check, you as the payee are generally not liable for errors or mistakes on the check. When a drawee accepts a check for payment, they are often considered primarily liable for any errors, omissions, or mistakes on the check.

Rights and Obligations of the Drawee

When a drawee accepts a check for payment, they take upon themselves the obligation to honor any valid checks that are presented. They also do have the right to return what are known as dishonored items (such as if the payor’s account has non-sufficient funds). The drawee also assumes primary liability for any errors, omissions or mistakes on the check when it is presented. This is why banks or other financial institutions will generally make sure to review a check before they accept it and pay out any funds.

Recommended: APY Calculator

The Drawee Relationship

There are three main actors in the drawee relationship — the drawee and the drawer of a check (sometimes referred to as the payor), along with the payee.

Relationship With the Drawer

The person who writes a check or other financial instrument for payment is commonly referred to as the drawer (sometimes also called the payor). The drawer includes their routing and account number on the check before giving it to their customer as payment for an item or service. These routing and account numbers help the drawee to facilitate the transfer of money from one account to another.

Relationship With the Payee

The person who presents a check to a drawee for payment is usually referred to as the payee. It is common (though not required) that the payee have a checking account or other relationship with the bank that is serving as the drawee. This can help to mitigate the risk for the drawee, since they have a contact they can reach out to in case there are any errors with the check as it was presented.

It’s also worth noting that you can often cash a check at the bank it was drawn on, without having an account there but by providing appropriate ID (and the bank verifying that the funds are available).

Intermediaries Involved

If the drawer of a check has an account at a different bank than the one that is serving as the drawee, there may be other intermediaries involved in the process. One of the most common networks of financial institutions is the Automated Clearing House (ACH), but there are other similar networks as well. These intermediaries help the drawee to facilitate the process of cashing or depositing a check.

Recommended: 23 Ways to Make Quick Cash

The Takeaway

A drawee is one of three important actors in certain types of financial transactions, most commonly when a check is written and deposited or cashed. The drawee is usually a bank that accepts a check or other financial instrument and pays out the money. The payee is the person who presents the check for payment, and the payor or drawer is the person or entity that wrote the check. While the term drawee is fairly uncommon in everyday speech, drawees play a crucial role in the process of transferring money between people with accounts at different banks.

Looking for a bank account that helps you transfer money, quickly and easily? See what SoFi offers.

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 difference between a drawer and drawee in banking?

In a financial transaction, the drawer is the party (such as an employer) that directs the drawee to transfer funds to a payee. The drawee is the entity (such as a financial institution) that actually distributes a specified sum to the recipient. So if you did a freelance gig and were paid by the Acme Company, that business is the drawer, and the bank that cashes the check they gave you is the drawee.

What is the role of the drawee?

Usually, the drawee is the entity that facilitates a transfer between a drawer (or payor) and payee. In many situations, the drawee is the bank or check-cashing service involved in cashing or depositing a check that a drawer provides to a payee.

Photo credit: iStock/AndreyPopov

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

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

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

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

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

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

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

*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.

SOBNK-Q324-114

Nov

2024

What Do the Abbreviations on My Bank Statement Mean?

By Dan Miller | money, Money & Life, Terminology | Comments Off

Abbreviations on bank statements typically help identify different types of transactions and share information about your balance. While much of the information on your bank statement is straightforward, occasionally your bank statement may contain abbreviations that you don’t understand.

There are a few common bank statement abbreviations that are good to know, since understanding all of the information on your bank statement may help you to make better financial decisions. The good news is that most of the most common bank statement abbreviations are fairly easy to understand. Once you know what each one stands for, it can help you get a better picture of the overall health of your bank account.

Key Points

• Bank statement abbreviations help identify transaction types and balance information, aiding financial management.

• Regularly reviewing bank statements may help you detect errors and fraudulent charges.

• Common abbreviations include ACH, ATM, CHK, TLR, CR, DR, EFT, FEE, INT, OD, POS, and TFR.

• Abbreviations on bank statements save space, enhance security, and standardize banking terms, making statements concise.

• Contacting customer service to decode unfamiliar abbreviations is recommended to help verify information in your statement.

Understanding Common Bank Statement Abbreviations

If you have a checking or savings account, your bank almost certainly sends you a bank statement on a regular basis. This usually happens monthly, and you may receive your bank statement electronically or via a printed statement in the mail. Whether you keep your bank statements or not, it can be wise to review them carefully. Doing so can help you spot any errors or fraudulent charges and scan for bank fees.

As you review your bank statements, you may encounter abbreviations. Some of these may be familiar, but others may require clarification.

Why Banks Use an Abbreviation

There are a few reasons why banks might use an abbreviation for some items:

• Technological requirement: Many banks rely on underlying financial systems that code certain types of information with abbreviations. These systems require shortened information for proper processing.

• Saving space: Banks may need to display a lot of information in a relatively small space, and abbreviations can help with this.

• Security and privacy: Sometimes, using an abbreviation can help conceal sensitive information that banks don’t want to state explicitly on a bank statement.

• Standardization: Abbreviations can allow banks to use the commonly recognized terms for certain products and services in their records and communications. This uniformity can make organization and recognition easier for all parties involved in banking.

For these reasons, you may see shorter forms of banking terms as you conduct your personal finance business.

Recommended: Savings Calculator

List of Common Abbreviations in Bank Statements

Here are a few of the most common abbreviations you might find in bank statements relating to your checking account or other holdings:

ACH

An ACH payment is one that is processed through the Automated Clearing House. ACH transactions are usually transactions where money is sent to or received from another bank account via electronic networks.

ATM

ATM stands for automated teller machine, and it might signify a withdrawal of cash from or a deposit to your account at one of these devices.

CHK

CHK signifies a check transaction. When you write a check, you may see this abbreviation on your bank statement when the check is deposited and/or clears. Occasionally, this may be abbreviated as CHQ for financial institutions that prefer the spelling of “cheque” to “check.”

CR

CR — or sometimes CRE or CRED — is an abbreviation for a credit, which is usually an amount of money that is credited to your account at a traditional or online bank. This could reflect a direct deposit from a salary, a merchant refund, or any other form of account credit.

DR

DR indicates a debit to your account, such as when money is withdrawn, either from an electronic transfer, a debit card transaction, or a bill payment.

EFT

Similar to ACH transactions, EFT transactions are electronic fund transfers that usually come from another bank account.

However, take note not to confuse it with an ETF, which stands for exchange-traded fund, a type of pooled investment.

FEE

FEE is not actually an abbreviation at all, as this bank statement code just means a fee assessed to your account. This could be any number of bank fees, including maintenance fees, account fees, or non-sufficient funds fees.

INT

This bank statement abbreviation stands for interest that is credited to your account. Many checking or savings accounts pay interest to the account holder based on the total amount on deposit. When that interest is paid, it could be referenced on the bank statement with this abbreviation.

OD

OD typically stands for overdraft and means that your balance has dipped into negative territory. You might also see your balance expressed with a minus sign when you have overdrawn your account. In most cases, this means your account is accruing overdraft fees, so it’s wise to get your account back to positive as soon as you can.

POS

POS stands for point of sale, and usually represents a purchase made with a debit card or credit card at a physical retailer. Confused by the phrase “point of sale terminal”? Think of it as the common term “cash register” in daily conversation.

TFR

TFR stands for transfer. When money moves between your bank accounts, you may see these three letters indicating that money has been transferred.

TLR

TLR indicates that a transaction was conducted with a bank teller at a branch. Those who have accounts at traditional vs. online banks are more likely to see this code.

Importance of Knowing Bank Statement Abbreviations

While some bank statement abbreviations may seem obvious and others obscure, it can be important to understand these terms. They help you keep tabs on the money in your bank account and your financial progress.

It can be a good idea to regularly review your bank statements as they are received. That way, you can check for unexpected or possibly fraudulent transactions. Ideally, you should be able to recognize the transactions on your statement as ones that you initiated and/or authorized. If you see a transaction on your statement that you don’t recognize, you should contact your bank’s customer service department; you may be referred to their fraud protection team if necessary. This may help protect against having your account compromised by bank fraud and from risking identity theft.

Recommended: How to Write a Check

The Takeaway

Financial institutions regularly send bank account statements to their customers, usually on a monthly basis. These statements typically communicate a large amount of information, and they may include abbreviations that shorten and standardize details. By understanding these abbreviations (such as ACH, ETF, and OD), you can enjoy deeper knowledge of your account information and keep tabs on your money.

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FAQ

How can you identify an unknown retailer abbreviation on your statement?

While many transactions on your bank statement include the name or other identifying information of the merchant in question, some transactions may not be identifiable. One way to identify an unknown retailer is by doing an Internet search for the information that appears on your statement. Another may be to look for the same transaction on past statements of yours. Or contact your bank’s customer service department to see if they can help you with more information about the merchant.

What is included in a bank statement entry?

A bank statement usually includes a list of transactions made during the statement period. Each of these transactions is sometimes called a bank statement entry. A bank statement entry can contain the date of the transaction, the type of transaction, the amount involved, and a brief description of the retailer, merchant, or other party to the transaction, among other details.

Can your bank help decode bank statement transaction abbreviations?

Many bank statement abbreviations are straightforward, but there are some that may not be easy to decipher. If you’re unable to understand what a bank statement abbreviation means by reviewing your statement or doing an Internet search, you may want to talk to your bank’s customer service department. They can likely help you decode the information on your statement.

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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.

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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