Feb
27
2024
Bank Account Fraud: What Can a Scammer Do With Your Bank Account and Routing Number?

What Can Someone Do With Your Bank Account and Routing Number?

By | money | Comments Off on What Can Someone Do With Your Bank Account and Routing Number?

If someone has access to both your bank account and routing number, they could make fraudulent ACH transfers and payments out of your account. In other words, you could wind up being scammed.

That’s why it’s so important to understand this aspect of your personal finances and protect your money. Read on to learn what happens if someone has your bank account number and routing number, what the risks are, and how to protect yourself.

Key Points

•   If someone has your bank account and routing number, they can make fraudulent ACH transfers and payments from your account.

•   Your bank account number alone is not enough for someone to withdraw money from your account.

•   Scammers can use your bank account and routing number to commit ACH fraud, make online purchases, deposit money for illegal activities, and create fraudulent checks.

•   If someone has your bank numbers and is using them fraudulently, you should contact your bank, report the fraud to credit reporting bureaus and the police, and monitor your account closely.

•   To protect yourself, be cautious with sharing your banking information, use strong passwords for online banking, and limit the use of paper checks.

What Happens If Someone Has Your Bank Account and Routing Number?

The short answer: Real damage. The combination of a bank account and routing number is a dangerous combo that scammers want. And those two numbers are fairly accessible. Think about how often these numbers get circulated: every time a check is written, cashed, signed over to someone else.

Here’s what can happen if they fall into the wrong hands.

ACH Fraud

With both those precious numbers, crooks could commit fraudulent automated clearing house (or ACH) transfers and payments. You’re probably used to seeing those ACH letters on your banking details when you set up automatic monthly payments and the like. When a scammer has your bank account and routing numbers, they could set up bill payments for services you’re not using or transfer money out of your bank account.

It’s tough to protect these details because your account number and routing number are printed right at the bottom of your checks. But do your best. Some pointers:

•   Don’t leave your checkbook lying around.

•   If you are mailing a check, wrap it in a sheet of blank paper so the numbers don’t show as it’s in transit.

•   Pay attention to bank statements. Review them often to see if there are any fishy transactions happening.

•   Protect yourself when online banking by using strong passwords. That password is a primary defense. If a thief has your bank and routing numbers and somehow manages to get access to your login name and password, big trouble may be on the horizon.

•   Don’t make your password something obvious like your name, pass1234, or numbers that may be circulating in cyberspace, like your birthday which can be seen on Facebook.

Online Shopping

Know that all online retailers aren’t equal in terms of security measures. Some will allow people to make a purchase with bank account information alone, while others will also ask for a driver’s license or other state identification to add an additional layer of protection.

So what can a scammer do with your bank account number and routing number? They can find sites that let them shop with only that information. and could run up a tab.

Depositing Money

While it might seem like a dream come true if a mysterious sum of money appeared in your bank account, you should be more alarmed than overjoyed. Somebody who has your account and routing number may be using your digits to facilitate their illegal shenanigans (such as the kind of bank fraud known as money laundering). Report unusual deposits immediately.

Create Fraudulent Checks

Unfortunately, scammers can create fake checks using your checking numbers, and then those fake checks to pay for purchases (not every payee will verify a check) — or simply cashing them. Know, too, that with technology scammers could digitally scan the check and deposit the amount into their bank account.

Get up to $300 when you bank with SoFi.

No account or overdraft fees. No minimum balance.

Up to 4.00% APY on savings balances.

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What Can Someone Do With Your Bank Account Number Alone?

Many of us wonder, “What can someone do with my bank account number?” The good news is, if someone has only your bank account number, that won’t give them enough intel to do any damage. It’s not the same as a scammer obtaining your credit card digits. No one will be able to withdraw money from your personal bank account if all they have is your account number.

For those who may not know the difference between a bank account vs. a routing number, here’s the scoop:

•   Your bank account number is the unique string of digits that identifies your particular account at a financial institution. Even if you have, say, multiple accounts at a bank, each will have its own distinct account number.

•   Your routing number is the series of numerals that identifies your financial institution, or where the account is held.

Just because your bank account number alone doesn’t make you vulnerable doesn’t mean that you shouldn’t protect it. You should. If a scammer had your account number and other info — perhaps your driver’s license number and/or your home address — they might be able to make illegal purchases online. So it pays to be vigilant.

Routinely monitoring your account activity — say, once a week — is a smart move that allows you to quickly detect if anything is awry.

💡 Quick Tip: Want to save more, spend smarter? Let your bank manage the basics. It’s surprisingly easy, and secure, when you open an online bank account.

What to Do When Someone Has Your Bank Numbers

As careful as you try to be, stuff happens. What if someone has your bank account number and routing number? What if you see signs that they are using it for fraudulent transactions? Knowing how to report identity theft can help mitigate a bad situation. Have a strategy in place, just in case. Here’s some advice.

Contact Relevant Agencies

If you have the misfortune of being victimized, here’s what to do:

•   Contact your bank the minute you realize it. You need to notify your bank within 60 days of your statement to avoid paying for unauthorized ACH transactions. The bank’s fraud department will work to help you get unauthorized charges reversed.

•   Report the fraud to the fraud department of all three credit reporting bureaus, Equifax®, Experian®, and TransUnion®.

•   File a report with your local police department.

•   Also file a report with the Federal Trade Commission’s department that deals with identity theft.

Your to-do list doesn’t end there. You’ll want to be a stickler about monitoring your bank account to look for any signs that someone else is abusing your account. Be proactive and ask your bank about setting up text messages or push notifications every time a transaction is posted. This will help you keep track of what’s going on with your money.

Much as you may not be a paper person, when you’re a victim of bank fraud, documentation matters. You want copies of bank statements, a copy of the police report, your credit report, and any other relevant materials.

Cancel Your Account

As much as it’s a hassle, you need to get a new account number to replace the compromised one. Call your bank’s customer service number, contact a rep by chat, or, if you use a traditional vs. online bank, go to your local branch. Explain your situation, and take steps to get your assets transferred to a new bank account, get new checks printed, and get a new debit card if needed to safeguard your cash.

Tips on Avoiding Bank Fraud

There are no absolutes in life, but there are steps you can take to protect yourself as much as possible.

•   You can get an identity theft protection service to monitor your bank accounts and alert you to any funny business, be it suspicious withdrawals or information changes.

•   When shopping online, use a credit card (it offers more protection than say a debit card), prepaid card, or a money transfer app instead of typing in your account and routing numbers.

•   Be stingy with your banking information to avoid bank scams. Know that less is best when it comes to sharing info.

•   Go for multi-factor authentication when banking online. If you have linked bank accounts and credit or debit cards to online platforms, absolutely sign up for additional verification in order for purchases to go through. It’s like a forcefield around your account.

•   It can be wise to limit your use of paper checks to only those things where an alternate form of payment is a hassle. Remember your checks are a gold mine of personal information, with your address, account and routing numbers.

The Takeaway

In today’s world, it pays to keep close tabs on your bank accounts and related numbers. Having your bank account and routing number can allow scammers to do damage in a variety of ways, from unauthorized ACH payments to fake checks. By protecting these digits and setting up other safeguards, you’ll minimize the odds of your falling victim to these wily thieves.

While on the topic of banking, it’s wise to make sure your financial institution is a good fit and offers the services and perks that suit you best.

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

Which bank details should I keep secret?

Protect your bank account and routing numbers to avoid having scammers siphon money away from you. Setting up two-factor authentication for online transactions can help protect you, too. It goes without saying that no one except you should know your username, password, and security questions. Also shred financial documents that you don’t need.

Is it safe to give out your account details?

Share your banking information sparingly, especially online. At most, share a few key points with a trusted friend or family member, and only punch your details into secure websites (look for the “https” at the beginning of the url and the padlock symbol) — though even those aren’t 100% scam-proof.

Can I give out my routing number?

A bank routing number in and of itself reveals very little. After all, it’s a nine-digit code used by financial institutions to identify other financial institutions. It’s very much public information and only becomes a risk factor when paired with other personal details.

Can someone steal your money with your bank account number?

Typically, a scammer would need more than just a bank account number to steal your money, but routing numbers are easily found. With those two pieces of information, a crook could use those numbers for online purchases or to otherwise defraud you.

Photo credit: iStock/AJ_Watt

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

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

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

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

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

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

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

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

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

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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Feb
27
2024

8 Ways to Make Your Money Work For You

By | Budgeting & Goals, Growing Wealth, money | Comments Off on 8 Ways to Make Your Money Work For You

If you want your money to grow more quickly and to feel confident that you’ll reach your financial goals, you’re in the right place. This guide will show you how to make your money work harder for you. There are smart ways to maximize every single dollar you earn. Yes, it will take some planning and focus, but it can have very real rewards.

A few tactics to make the most of your money involve leaning into your personal finances and recognizing the importance of financial literacy. Once you’re committed to doing that, you can take such steps and budgeting well, maximizing interest and rewards on your cash, spending smarter, and automating your savings.

Key Points

•   Effective budgeting is crucial for understanding your spending habits and making the most of your money.

•   Paying off debt should be a priority to free up funds and make your money work for you.

•   Opening a high-yield savings account can help you save money for short-term goals and earn more through higher interest rates.

•   Considering passive income streams, such as rental properties or investments, can provide additional income and financial stability.

•   Investing as part of your financial plan can help grow your wealth over the long term, but it comes with risks and requires careful consideration.

Making Your Money Work For you

These tips and ideas can help you put your money to work.

1. Learning How to Budget

An effective budget can help you make the most of your money, allowing you to understand where you are spending, so that you can feel empowered to save, and spend, on things that are most important to you. With the right tools on your side, you can learn how to make your money work for you.

These budgeting tips can help you get started:

Layout Your Finances

An effective budget is an accurate budget. If you are starting your budget from scratch, some recommendations suggest reviewing three months’ worth of receipts, bills, etc., before moving forward. This will give you insight into your current spending habits. Then, split those expenditures into needs and wants.

A budgeting tip: The information for making your budget should be accessible. Depending on your preferences that may be a physical copy, a spreadsheet, or using an app that can help you stay on top of your budget and expenses. SoFi, a money-tracking app, lets you see all of your accounts in one central location so that you can easily see where the money is coming, where it’s going, and where you can shift things around.

Figure Out Your Net Income

After you know how much you’ve been spending, you want to compare it to how much you earn. When making a budget, it can help to work with your take-home pay. This is the total income you earn from your job, after taking out all the required taxes, savings, and insurance payments from it. Those who are self-employed may work with different deductions than those who work a regular 9-to-5. In that case, subtract your self-employment tax (the sum of Social Security and Medicare taxes).

Using your after-tax pay can help you determine an accurate total for how much money you actually have available to spend. If you have any other income earners in your household, do factor in their income as well. Also include any investments or additional sources of income.

Plan Your Budget

Now comes the moment of truth. You have to create a step-by-step plan and put it into action. One method you may want to think about is the 50/20/30 budget. This budgeting method breaks your spending and savings into the following amounts: 50% for your needs, 30% for wants, and 20% for savings. If they need adjusting, shift the numbers to suit your plan.

Tracking multiple categories may not work for you, though. If you have trouble logging expenses in hyper-specific categories, simplify them. Overwhelming yourself will only make it harder for you to stay on target.

Review and Adjust

No matter how perfect the plan, things change. You might switch jobs, have a child, move somewhere else, or gain new needs. That’s why your budget can be flexible. When things change, change your budget to reflect those new priorities. If you have trouble fixing the plan, you may need to revisit some of the previous planning stages. Your budget and money should work for you, after all.

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

2. Getting Out of Debt

More than anything, getting out of debt means finding ways to make your money work for you. Whether it’s more robust savings tactics or new repayments strategies, there are options. So if you want to take the burden of debt off of your shoulders, here are some methods to try out.

It’s easy to say you need to pay off a debt. But it’s another thing actually to have the money for it. So before you cut down your expenses, you may need to save up first. A high-yield savings account is an available option that can help you build wealth to meet your financial goals.

Selecting a Debt Repayment Strategy

What do you think of when you hear the words “snowflake,” “snowball,” and “avalanche”? Perhaps you picture snow-capped mountains or blustery winter sports. But they’re the names for some of the most popular debt repayment strategies. While these strategies encourage individuals to make additional payments on some of their debts, making the minimum payments on all debt is important.

•  The snowflake method encourages individuals to put any extra cash earned toward debt repayment. Any time there’s excess to play with, you put it towards your debt. Since that helps you pay over your monthly minimum, you’ll eventually finish off the debt. You can earn additional money in any way that works for you. For example, some people start low-cost side hustles in their free time, or you can try selling items you don’t want anymore.

•  With the snowball strategy, you pay off your debts from smallest to largest, when evaluating the total amount owed. During this, you still make minimum payments on all your other debts. While it’s motivating to see some of your financial troubles disappear, this may not work for you. The snowball method ignores interest rates, which gives a chance for other debts to grow.

•  The avalanche method works on the debts with the highest interest rates first.

Unsecured debts, like credit card balances and personal loans, often come with unfavorable interest terms. Leaving them alone allows your debt to grow exponentially when you’re not looking. Focusing on debts with the highest interest rate first could help you escape debt quickly and potentially spend less in interest overall.

3. Opening a High-Yield Savings Account

A high-yield savings account is an available option that can help you build wealth to meet your financial goals. High-yield savings accounts work similarly to traditional savings accounts. However, they have a greater annual percentage yield (APY), which indicates how much money you can earn in interest. While you still have to pay income taxes on that interest, these accounts are a great way to save money for significant, short-term expenses.

Another critical feature high-yield savings accounts have is their limited accessibility. You can’t make withdrawals as frequently as you do with a checking account. In addition, they come with monthly limits on deposits and withdrawals. So, you won’t be as tempted to touch the funds.

Get up to $300 when you bank with SoFi.

No account or overdraft fees. No minimum balance.

Up to 4.00% APY on savings balances.

Up to 2-day-early paycheck.

Up to $2M of additional
FDIC insurance.


4. Considering Passive Income Streams

America’s workforce is changing with the times. As the cost of living rises, many people want to find ways to increase their income. Many are turning to passive income to combat these financial hurdles, which may be the solution to your debt.

Essentially, passive income is money that you earn without active involvement, outside of what you earn as a regular wage and salary. Instead, you put something you own to work, such as a rental property. Other examples of passive income include dividends from stock investments, royalties, and product sales.

So, you still might put in some effort getting started, but not as much as your full-time job. Side hustles are one of the best ways to pad that income. You can put the extra cash flow directly towards your debt and interest, weekly necessities, or your savings.

5. Considering Investing as a Part of Your Financial Plan

Analyzing your situation and finding an acceptable amount of money to invest can help long-term. Investing can be an important part of a well-rounded financial portfolio for long-term goals such as retirement.

Investing has the potential for a higher return on investment vs. a savings account, but the reward isn’t guaranteed. Unlike cash-based interest accounts, your portfolio balance will fluctuate with the market and isn’t covered by, say, Federal Deposit Insurance Corporation (FDIC) insurance.

Because of the risk associated with putting money into the market, some people may be hesitant to jump in, especially if they don’t fully understand how investing works. Getting a headstart on saving and investing can help you get prepared for retirement.

6. Automating Bill Pay or Automatic Savings

To avoid missing bill payments, consider an automatic payment system. Alternatively known as “autopay,” this technology automatically withdraws funds from your bank account or credit card. Then it transfers to the necessary vendor. Once you set it up, you don’t have to deal with the pressure of juggling repayments. Instead, you just have to make sure there are enough funds in your account for the withdrawal.

Paying bills on time history makes up about 35% of your overall FICO® score, so enrolling in autopay could potentially have the added benefit of building your credit score.

It’s also possible to automate contributions to retirement accounts or savings accounts. This could help keep you on track for your savings goals. It allows you to pay yourself first, and getting money siphoned out of your checking account right around payday can help you steer clear of spending it.

💡 Quick Tip: Bank fees eat away at your hard-earned money. To protect your cash, open a checking account with no fees online — and earn up to 0.50% APY, too.

7. Ditching the Fees

Fees charged by financial institutions can add up. Here are a few to consider avoiding:

Bank Fees

The list can include account maintenance fees, returned deposits, foreign transactions, account minimum fees, replacing a lost or stolen card, ATM fees, making too many savings withdrawals, writing too many checks, closing an account, not using an account enough, speaking with a human, paying late, or even paying off a loan too early.

In fact, American households spent $133 billion in credit card interest and fees in the most recent year studied. That’s your money flying away…Ouch.

ATM Fees

At an average of $4.73 a pop, out–of-network ATM fees can add up quickly. One way to avoid paying ATM fees is to always make sure that you’re using one of your bank’s designated ATMs. However, if you’re on the road or your bank only has a few networked ATMs, that can be a challenge.

Just like bank fees, however, more and more financial institutions are offering fee-free ATM usage as part of their perks. Especially if you use an online checking account, this can add up to hundreds of dollars in savings.

Investment Fees

Paying a traditional financial advisor a percentage of your account balance to manage, monitor, and optimize your portfolio could be worth the expense, but it might not be an option that is available to everyone.

Financial advising is still a confidence-booster for the majority of investors who use it. But when advisors charge a typical fee of 1% a year based on your portfolio balance, your total return can be significantly impacted.

Fortunately, a growing number of competitors are offering the same types of advising service with little or no fees — and no humans. Robo-advisors are becoming more popular because they use algorithms to optimize portfolios, thus eliminating the overhead of live employees.

Still other products offer the best of both worlds, with human advisors willing to help at the cost of an automated system.

8. Getting Rewarded for Spending

You also can find several ways to get rewarded for spending, such as retailer loyalty programs, coupons, or rebate apps. Cashback or reward credit cards can also be an effective way to save at your favorite store, provided you pay your statement balance in full every time it comes due.

The Takeaway

Things like effective budgeting, opening a high-yield bank account, paying off debt, establishing a passive income stream, and investing can help you make the most of your money.

Everyone’s financial situation is different, and what works for one person may not work for another. A bit of experimenting can be helpful, as can finding the right banking partner.

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.

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

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

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

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

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

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

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

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

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

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.

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.

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 .

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Feb
27
2024
What Are the Different Types of Income?

What Are the Different Types of Income?

By | Financial Independence, Life & Career, money | Comments Off on What Are the Different Types of Income?

You may think of your income as being your paycheck or your freelance earnings, but there are actually many different types of income. If you have stocks that are generating dividends, that’s income, as is interest you earn on any savings accounts. Do you own a rental property that has rent payments flowing your way? That’s income, too.

Here, you’ll learn about seven common types of income and how they may affect your financial life.

Key Points

•   Income refers to money earned from labor, investments, or other sources, and can be categorized as earned, business, interest, dividend, rental, capital gains, or royalty income.

•   Earned income includes wages, salaries, tips, and bonuses, while business income is generated from products or services provided by a business.

•   Interest income is earned from interest-bearing financial vehicles like CDs or savings accounts, and dividend income comes from stock dividends.

•   Rental income is earned from property rentals, and capital gains are realized when selling assets for more than their purchase price.

•   Royalty income is earned from allowing others to use your property, such as patents or copyrighted work.

What Is Income?

Simply put, income is money that a person or business earns in return for labor, providing a product or service, or returns on investments. Individuals also often receive income from a pension, a government benefit, or a gift. Most income is taxable, but some is tax-exempt from federal or state taxes.

Another way to think about income types is whether it is active (or earned) or passive (or unearned).

•   Active or earned income is just what it sounds like: money that you work for, whether you are providing goods or a service.

•   Passive or unearned income is money you receive even though you are not actively doing anything to get it. For instance, if you have a certificate of deposit (CD) that earns you interest, that is passive income. Government benefits, capital gains, rental income, royalties, and more are also considered passive income. (We’ll go through these variations in more detail in a minute.)

People who are paid a salary may tend to think that their annual paycheck earnings are their income, but in truth, it’s common for many people to have multiple income streams. Granted, your salary may be by far the largest stream of income, but when considering your overall financial picture, don’t forget to think about the other ways that money comes to you.

💡 Quick Tip: Want to save more, spend smarter? Let your bank manage the basics. It’s surprisingly easy, and secure, when you open an online bank account.

Different Types of Income

Now that you know the answer to “What is income?” question, here’s a look at the various kinds of Income. These are usually categorized as seven different types of income (though these may also be called income streams).

1. Earned Income

Earned income is the money you earn for work you do, either in a job or self-employed. Earned income includes wages, salaries, tips, and bonuses.

Earnings are taxed at varying rates by the federal and state governments. Taxes may be withheld by your employer. Self-employed workers often pay quarterly and annual taxes directly to the government. Low-income workers may be eligible for the earned income tax credit.

2. Business Income

Next up: What is business income? This is a term often used in tax reporting; you may sometimes also hear it referred to as profit income. It basically means income received for any products or services your business provides. It is usually considered ordinary income for tax purposes.

Expenses and losses associated with the business can be used to offset business income. Business income can be taxed under different rules, depending on what type of business structure is used, such as sole proprietorship, partnership, corporation, etc.

3. Interest Income

When you invest in various types of interest-bearing financial vehicles, the return is considered interest income. Retirees often rely on interest income to fund their retirement. You can earn interest from a variety of sources including:

•   Certificates of deposit (CDs)

•   Government bonds

•   Treasury bonds and notes

•   Treasury bills (T-bills)

•   Corporate bonds

•   Interest-bearing checking accounts

•   Savings accounts.

In most cases, interest income is taxed as ordinary income. Some types of interest are fully taxable, while other forms (such as interest from Treasury bonds) are sometimes partially taxable.

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

No account or monthly fees. No minimum balance.

9x the national average savings account rate.

Up to $2M of additional FDIC insurance.

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💡 Quick Tip: Want a simple way to save more each month? Grow your personal savings by opening an online savings account. SoFi offers high-interest savings accounts with no account fees. Open your savings account today!

4. Dividend Income

Some companies pay stockholders dividends as a way of sharing profits. These are usually regular cash payments that investors can take as income or reinvest in the stock. Dividend income is one of the most common ways investors can make money from stocks. (Worth noting: Money-market funds distributions may seem like interest, but they are usually considered dividends.)

Dividends from stocks held in a taxable brokerage account are considered taxable income. These funds will be taxed at your regular income-tax rate or as a long-term capital gain. By contrast, dividends that are paid from a stock held inside a tax-advantaged savings account such as an IRA or 401(k) are not taxed.

5. Rental Income

Just as it sounds, rental income is income earned from rental payments on property you own. This could be as straightforward as renting a room in your house or as complicated as owning a multi-unit building with several tenants.

Rental income can provide a steady stream of passive vs. active income. It may enhance your livelihood or even be your main income. When your rental property increases in value, you may also gain from that appreciation and increase in equity. In addition, rental income qualifies for several tax advantages, including taking depreciation and some expense write-offs.

But there are downsides. Owning a rental property isn’t for the faint of heart. Unreliable tenants, decreasing property values, the cost of maintaining and repairing properties, as well as fees for rental property managers can all take a bite out of your rental income stream.

6. Capital Gains

Another important income stream can come from capital gains. You incur a capital gain when you sell an asset for more than what you originally paid for it. For the purposes of capital gains, an asset usually means an investment security such as a stock or bond. But it can also encompass possessions such as real estate, vehicles, or boats. You calculate a capital gain by subtracting the price you paid from the sale price.

There is another key point to know on this topic: Two types of capital gains are possible — short-term and long-term.

•   Short-term capital gains are realized on assets you’ve held for one year or less.

•   Long-term capital gains are earned on assets held for more than a year.

The tax consequences are different for each type of capital gain. Short-term gains are taxed as ordinary income, while long-term capital gains are taxed at a lower rate depending on income. Taxpayers could typically pay 0%, 15%, or 20% on long-term capital gains, depending on their income.

Keep in mind, however, that capital losses can happen too. That’s when a capital asset is sold for less than the purchase price. While it’s never pleasant to experience losses, there can be a small silver lining in this case. Many times capital losses can be taken as a tax deduction against current and/or future capital gains.

7. Royalty Income

Royalty income comes from an agreement allowing someone to use your property. These payments can come from the use of patents, copyrighted work, franchises, and more. An example or two:

Inventors who sell their creations to a third party may receive royalties on the revenue their inventions generate. Celebrities often allow their name to be used to promote a product for royalty payments. Oil and gas companies pay landowners royalties to extract natural resources from their property. The market for music royalties has been particularly lucrative in recent years with the proliferation of music streaming services.
Royalty payments are often a percentage of the revenues earned from the other party using the property. Many things impact how much royalty is paid, including exclusivity, the competition, and market demand. How royalty payments are taxed can also vary, depending on the type of agreement.

Now that you’ve reviewed the seven different types of income, you may be wondering, “What about residual income?” That’s a term that doesn’t actually describe money that’s heading your way. Instead, think of that as the amount of your income left over after you’ve paid your financial obligations. It’s similar to discretionary income. Unfortunately, it’s not another way to enrich your bank account.

Recommended: 10 Personal Finance Basics

The Takeaway

Understanding the seven general income streams (such as earned, dividend, and rental income) can help you make the most of your financial planning. Earning income from any of these sources can add stability and help achieve long-term goals, such as saving for retirement. Because some types of income have unique tax implications, it can be important to check with your tax advisor about any tax consequences that may exist.

Aside from earned income, it’s likely that interest is the kind of income most people receive. And seeking out the best possible interest rate can be a solid way to enhance your money; looking for a high-yield bank account may be a good place to start.

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.

Photo credit: iStock/Selcuk1

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

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

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

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

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

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

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

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

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

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Feb
27
2024
ATMs on white background

12 Things To Consider When Choosing A Bank

By | Budgeting & Goals, money | No Comments

When it’s time to choose a bank, you’ll have loads of options and offers to consider. But making a smart choice depends upon several factors and, of course, your unique needs.

Finding the right match is an important step in securing your financial future, so read on to learn a dozen critical factors to consider when looking for a bank. Whether you’re more comfortable with a small local financial institution or a major national business, this list will guide you toward a good answer to the “How do I choose a bank?” question.

Key Points

•   When choosing a bank, consider factors like security, bank fees, interest rates, location, ease of deposit, and digital banking capabilities.

•   Other important considerations include minimum requirements, availability of funds, customer service, investment account options, and perks offered by the bank.

•   Security is crucial, so ensure the bank is insured by the FDIC or NCUA.

•   Bank fees can eat into your savings, so be aware of ATM charges, maintenance fees, and overdraft protection fees.

•   Interest rates vary, so compare rates and consider online banks that offer higher rates on savings and checking accounts.

Importance of Finding a Good Bank

It can be valuable (literally and figuratively) to find the right banking partner for a few good reasons:

•   It provides a home base for the money you earn.

•   It can provide security, knowing that your cash is safe and you have a team of professionals to assist you with your money management.

•   It can pay you interest on your funds so your cash grows.

•   It can help you build your financial security and literacy.

•   It may be flexible enough to grow and change with you as you move through the stages and phases of your life. (If not, you can always switch as your needs evolve.)

•   It can offer you additional benefits, like a cash back debit card or a lower mortgage rate.

What to Look for in a Bank

There are thousands of options in terms of banking in the United States. So how do you narrow the choices down to the one bank that’s right for you? There’s no right or wrong answer; it’s all about finding what works best for you.

Consider the following twelve factors that can help you find the right fit for your current needs. You might create a comparison chart (Excel can be your friend here) so you can tick off the most important factors to you as you delve into this topic.

A good first step is to make yourself a comparison chart.

Then use the process of elimination to find your perfect financial institution match.

Sure, it can be smart to take friends’ suggestions into consideration, but the final choice should be the one that is all about you and your needs… not just what has a good marketing gimmick. Here’s what you need to consider when choosing a bank.

1. Security

Whether you choose to put your money in an online bank vs. a traditional bank vs. a credit union, it’s vital to make sure your funds are safe. You will likely want to make sure your account is either at a bank that’s insured by the Federal Deposit Insurance Corporation (FDIC) or a credit union that is insured by the National Credit Union Administration (NCUA).

In the very rare event of a bank or credit union closure, either FDIC or NCUA would be a safety net. You would be covered for $250,000 per depositor, per insured bank, for each account ownership category by FDIC and $250,000 per share owner, per insured credit union, for each account ownership category by NCUA.

2. Bank Fees

This is an important factor. Fees can eat away at the money you have on deposit and the savings you are trying to build up. Some banks charge minimal or no account fees, but in other cases, you may be faced with a deluge. A few of the obvious fees are ATM charges, maintenance fees, and overdraft protection, and they can add up quickly.

What are ATM fees? They can run a few dollars per out-of-network withdrawal and sometimes even more. And how about overdraft? The average overdraft fee is currently around $35, and while they’re a good way to avoid negative balances, they can cost you hundreds of dollars if you fall behind.

Returned deposits, foreign transactions, low balances, lost cards, and sometimes even interacting with a human can also incur fees. If you want to avoid monthly maintenance fees and more, be sure to read through the terms and conditions carefully so you aren’t unpleasantly surprised. You may just want to choose an account that’s fee-free instead.

3. Interest Rates

While some lenders might still offer the traditional — and very low — 0.01% interest rates on savings accounts, it doesn’t mean you’re stuck with that.

Especially with online-only banking where overhead is much less than traditional brick-and-mortar banks, customers are able to enjoy upwards of 3% annual percentage yields (APYs) on not only savings accounts. Many also offer some interest on checking balances, too.

Get up to $300 when you bank with SoFi.

No account or overdraft fees. No minimum balance.

Up to 4.00% APY on savings balances.

Up to 2-day-early paycheck.

Up to $2M of additional
FDIC insurance.


4. Location

Consider whether you’re the kind of person who likes to visit brick-and-mortar branches or use ATMs often. If you do, you may want to bank with a financial institution that has physical locations close to your home, your workplace, or both.

You might also want to check out if your bank has ATMs or a partner network of no-fee machines near you and the neighborhoods where you typically spend time. This can be important for avoiding ATM fees, such as non-network fees and ATM operator fees. These can add a few or several dollars to every transaction.

5. Ease of Deposit

Along the same lines, you may want to consider how easy it is to deposit funds in a particular financial institution. Many banks offer the benefit of mobile deposit, or the ability to add a check to your account by snapping a photo with your cell phone and uploading it. Check to see what’s available.

Also, if you are looking at online banks, suss out how you might deposit cash, if that’s something you frequently do, and make sure it’s a convenient process for you.

6. Digital Banking

Building on the topic of mobile deposits, it’s likely worth your while to check out a potential bank’s app and online services. Are they easy to navigate? Do they offer the features you’re most likely to use? Comparing a couple of financial institutions’ user experiences can reveal important nuances.

See if you can download a demo or find one on YouTube. Ratings and reviews can also be a great way to find out other customers’ experiences — the good, the bad and the ugly — as opposed to trusting a commercial to be honest with you.

Linking to an outside bank account can help you lower overdraft fees.

For instance: Can you activate push alerts for low balances, or can you link your account to another financial institution? (Life hack: Linking to an outside bank account can help you lower overdraft fees — you’ll still get charged if your bank has to pull from the external account, but it’s typically less than if you didn’t have any other account to pull from at all.)

7. Minimum Requirements

Explore whether your potential bank has a minimum deposit and minimum account balance requirement. If so, that means you must initially put in a certain amount of cash to open your account or to start it and earn a certain APY. Then, with minimum balance requirements, if you dip below a given level, you’ll likely pay a monthly account charge. For traditional banks, there is often a $100 or more minimum balance requirement.

With online banks, you may not have a minimum opening deposit or balance requirement; however, you may not earn the top APY unless you maintain a certain level of funds in the account. Read the details when considering a bank.

8. Availability of Funds

Few people like waiting for funds to clear. When evaluating prospective financial institutions, find out how quickly funds clear. Some banks may offer early paycheck access, for instance, for qualifying accounts.

9. Customer Service

Here’s another dimension to consider when choosing a bank: What kind of customer service do they offer and when? If you are the type of person who likes to interact in-person, you may prefer a traditional bank with branches.

But even if that isn’t a big plus for you, also consider the availability of support by phone and chat during non-business hours. What if you have a pressing financial problem at 9 AM on a Sunday? Would help be there for you?

10. Investment Account Options

If you’re looking for more than just checking and savings, consider a bank that also has investment account options. Having everything you need within the same financial system can make deposits, withdrawals, transfers, and automatic saving a breeze.

11. Perks

Some banks may offer perks that appeal to you, so see what’s out there. For instance, some financial institutions may offer a cash bonus when you open an account; others may have cash back options that suit your spending style. Still others may offer educational events to boost financial literacy; others have special passes that allow clients to visit local cultural institutions for free.

12. Your Banking History

One last factor to consider when choosing a bank: If you have some less than perfect aspects of your financial life, see if you will be penalized for that. For instance, some banks may scrutinize your banking history. If you have enough overdrafts in your history or other issues, they may not approve your account application. Or you might need to open what’s known as a second chance checking account until you prove that you’re a reliable client. It’s wise to consider this as you go bank shopping.

Banking with SoFi

If you’re in the market for a banking partner, come take a look at all that SoFi offers. We think you can bank smarter when you open an online bank account with us. Our Checking and Savings account lets you spend and save in one simple spot; you’ll earn a competitive APY, and you won’t pay any account fees. That means managing your money may be simpler and your cash can grow faster. What’s more, qualifying accounts with direct deposit may get paycheck access 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

What should I do if a bank does not have what I am looking for?

If a bank doesn’t have the features you are looking for, it’s wise to shop around. There are thousands of banks and credit unions in America, and one or more are likely to suit your needs.

What are some banking red flags?

Banking red flags will vary depending on what your needs are. For instance, is that enticing APY offered just a promotional rate that will drop considerably lower in a short period of time? Do you notice that your bank’s ATM network is getting smaller? Focus on the most important features you’re looking for and read the fine print to prevent disappointment and dissatisfaction.

What is the most important thing to look for in a bank?

Depending on your particular financial style and goals, the most important things when choosing a bank may be interest rates and fees; convenience; and additional features it may offer (such as budgeting tools, cash back, competitive mortgage rates, and the like).

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

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

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

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

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

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

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

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

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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Feb
27
2024
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APY vs Interest Rate

By | Budgeting & Goals, money, Terminology | Comments Off on APY vs Interest Rate

Interest rates and APY, or annual percentage yield, are likely words that you’ll hear throughout your financial life. If you are opening an interest-earning bank account, you’ll likely want to earn the highest return on your money that you can find. Conversely, if you are borrowing money (say, taking out a home loan), you’ll probably want to snag the lowest rate on your mortgage.

While you may see the terms interest and APY used interchangeably, they are not identical. APY expresses how much you will earn on your cash over the course of a year. Interest rate, however, is the interest percentage that you’ll earn or that a lender will change you.

Ready to learn more about APY vs. interest rate and how each impacts your finances

Key Points

•   APY (Annual Percentage Yield) and interest rate are two different concepts that are often used interchangeably but have distinct meanings.

•   APY represents the amount of money you will earn on your deposits over the course of a year, taking into account compound interest.

•   Interest rate, on the other hand, is the percentage at which your money will accrue interest, without considering compounding.

•   APY is higher than the interest rate because it includes the effect of compounding, which allows your money to grow faster.

•   Understanding the difference between APY and interest rate is important when opening a bank account or taking out a loan.

APY and Interest Rate Defined

If you deposit money into an interest-bearing account, you will earn an annual percentage yield (APY) on that money. The APY is a useful number because it tells you how much you’ll earn on your deposits over the course of a year, expressed as a percentage. The APY calculation takes into account the interest rate being offered, then factors in whether or not the financial institution offers compounded interest.

Compound interest is the interest you earn on the interest you’ve already earned. Depending on the bank or credit union, interest may compound daily, monthly, quarterly, or annually. The more frequently interest compounds, the faster your money grows.

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

What Is APY?

APY expresses how much money your cash will earn over the course of a year when it’s in an interest-bearing account.

APY is often confused with APR, which stands for annual percentage rate and comes into play when you take out a loan. A loan’s APR factors in the loan’s interest rate, as well as any additional fees and costs. It tells you how much you will pay for the loan over one year.

What Is an Interest Rate?

An interest rate is typically either the money you earn for keeping your cash at a financial institution or the cost that lenders charge you when they extend credit.

For example, if you put your money in a high-interest savings account, you might earn 4.50% for keeping your funds there. But if you take out a mortgage, you might be charged 7.00% interest for the privilege of borrowing that money to buy a house and paying it back over time.

Incidentally, the difference between the interest rates that banks pay depositors and charge borrowers is one of the ways these financial institutions earn money.

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

No account or monthly fees. No minimum balance.

9x the national average savings account rate.

Up to $2M of additional FDIC insurance.

Sort savings into Vaults, auto save with Roundups.


APY vs. Interest Rate Explained

So what is the difference between APY and interest rate? And why does interest rate vs. APY matter anyway? When you are opening a bank account, it can make a difference as one can give you a better picture of how your money will grow while on deposit.

The interest rate tells you the basic rate at which your money will accrue interest. The APY, however, gives you great insight to what you will have earned at the end of a year because it factors in the boost that compound interest can deliver.

Recommended: Different Ways to Earn Interest

The APY Formula

For those who want to delve in a bit deeper, the actual formula for APY calculation is as follows: (1 + r/n)ⁿ – 1.

•   The “r” stands for the interest rate being paid.

•   The “n” represents the number of compounding periods within a year.

If, for example, the interest rate is 3.50%, then that’s what you’d use for the “r.” If interest is compounded quarterly, then “n” would equal four.

Compounding frequency can cause two different savings accounts with the same interest rates to have different APYs. For example, if two different banks offer a certificate of deposit (CD) with the same interest rate and one of them compounds annually, that institution would have a lower APY than the institution that compounds quarterly or daily.

Fortunately, if you want to compare savings rates from one bank or credit union to another, you don’t need to perform these in-depth calculations.

Financial institutions are required to provide information on APY as part of the Truth in Savings Act. And, here’s the heart of it all: The higher the APY, then the more quickly the money you deposit can grow.

Recommended: Use the APY calculator below to see how much interest you can earn on your investments.


Calculating APR

The APR vs. interest rate of a loan tells you how much the loan will cost you over one year, including both the loan’s interest rate and fees, and is expressed as a percentage. A loan’s APR gives you a better sense of the true cost of the loan than the loan’s interest rate, since it includes fees. The higher the APR, the more you’ll pay over the life of the loan.

Thanks to the federal Truth in Lending Act, lenders must provide the APR of a loan. This allows you to compare loans apples to apples. A loan with a low interest rate but high fees may not be a good deal. In fact, you may be better off with a loan that charges a higher interest rate but no or lower fees. APR allows you to be a savvy consumer.

APR can be calculated with this formula: APR = ((Interest + Fees / Principal or Loan amount) / N or Number of days in loan term)) x 365 x 100. Lender’s will tell you the APR of a loan and you won’t need to perform any complicated calculations.

How Simple and Compound Interest Differ

Another dimension of interest rate vs. APY is seen when you consider how simple and compound interest differ. With simple interest, no compounding is involved. If you were to deposit $10,000 in an account earning 4.00% simple interest, at the end of three years, your money would earn $1,200 for a total of $11,200.

If, however, the interest were compounded daily, you would earn $408 the first year. The second year, interest would accrue on the principal and the interest ($10,408), and you would earn $425 the next year (for $10,833), and then $442 the year after that, for a total of $11,275.

While the dollar amount may not seem earth-shattering in this example of a few years, when you are talking about your decades-long financial life, it can really add up. Your money will grow faster with compound interest, helping you reach your financial goals.

Types of High-Interest Accounts for Savings

If you’re looking to earn a competitive rate on your savings, you’ll want to compare accounts by looking at APYs, as well as account fees and minimums. Generally, you can find competitive rates by looking at high-yield savings accounts, money market accounts, and CDs.

•   High-yield savings accounts, typically offered by credit unions and online banks, are accounts that typically pay a substantially higher APY than the national average of traditional savings accounts. They generally also have low or no fees.

•   Money market accounts are savings accounts that offer some of the features of a checking account, such as checks or a debit card. They often come with a higher APY than a traditional savings account, but typically require a higher balance, such as $1,000 or more, to avoid monthly fees.

•   Certificates of deposits (CDs) also tend to pay a higher APY than a regular savings account but require you to leave your money untouched for a certain period of time, called a term. If you take money out before then, you’ll likely pay an early withdrawal penalty. CD terms typically range from three months to five years. Generally, the longer the term, the higher the APY.

Recommended: How Does a High-Yield Savings Account Work?

High-Interest Checking Accounts

Checking accounts work well for everyday spending but typically offer no interest or very little. A high-yield checking account is a special type of account offered by some financial institutions (such as traditional and online banks, and credit unions) that offers a higher-than-average APY. These are accounts designed to give you the flexibility of a traditional checking account (with checks and/or a debit card) but with higher-interest returns.

A few points to note:

•   Often, to qualify for the highest rate the checking account has to offer, you need to meet certain criteria. This might be making a certain number of debit card transactions in a month, having at least one direct deposit or automated clearing house (ACH) payment each month, or choosing to receive paperless statements.

•   Some high-interest checking accounts will offer different APY tiers, with higher account balances earning a higher APY than lower account balances.

Creating a SoFi Savings Account

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

Why is APY higher than the interest rate?

There is a difference between APY and interest rate: The APY is higher than the interest rate because it reflects the effect of compounding, in which your money earns interest on its interest.

What does it mean to earn 5.00% APY?

If an account says it earns 5.00% APY, that means at the end of the year, your money on deposit will earn 5.00% (say, $500 on $10,000 on deposit). The interest rate may be lower, because the APY reflects the impact of compounding interest.

Why do banks use APY instead of APR?

When a bank tells you its APY, or annual percentage yield, it’s sharing how much your money can grow when on deposit for a year. On the other hand, APR stands for annual percentage rate, which is the amount charged if you borrow money. If you are interested in taking out a loan from the bank, you would be told the APR.

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

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

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

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

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

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

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

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

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