money Archives | Page 106 of 166

Oct

2023

Direct Deposits vs Paper Checks: What’s the Difference?

By Ashley Kilroy | Budgeting & Goals, Financial Independence, money | Comments Off

Direct deposits and paper checks are both ways to move money from one bank account to another, typically for payroll purposes, but there’s a difference: A direct deposit automatically transfers wages from an employer to an employee’s bank account. While a paycheck is also a money transfer, it involves the employer cutting a check from their bank account. The payee or recipient can then deposit the funds into their bank account or cash the check at a local business.

Although both payment methods help employers pay their employees and conduct other fund transfers, each has its own advantages and disadvantages. It can be helpful to understand the pros and cons so you can decide the best way to receive your salary or move money around.

Read on to learn the details, including:

• What is direct deposit?

• What are the benefits and downsides of direct deposit?

• What are the pros and cons of paper checks?

• When should you use direct deposit vs. a paper check?

What Is Direct Deposit?

Direct deposit is an electronic transfer of funds to a bank account. By using direct deposit, a payee can automatically send money to another party’s bank account without handling paper checks or cash. It’s quick and convenient for both an employer and employee, whisking funds from one account to another. This method can also help employers cut costs since they don’t have to print and mail checks every pay period.

For these reasons, direct deposit has become very popular. In fact, according to the 2022 “Getting Paid In America” survey, almost 94% of workers receive their paycheck via direct deposit.

That said, receiving a direct deposit from your employer isn’t the only way to use the technique for transferring funds. You can use it for other transactions including:

• Getting a tax refund

• Receiving child support

• Getting Social Security benefits

• Paying bills like garbage, electric, and water bills (this may be set up through your bank’s “bill pay” option).

Pros and Cons of Direct Deposit

Using direct deposit has its upsides and downsides. First, here are some of this the significant advantages of this financial process:

• Convenient. Technological advancements have made direct deposits a fast and easy way to receive and send money. The payee and payer don’t need to travel to the bank to write or deposit checks since the funds transfer electronically from one account to the other.

• Safe. When you exchange cash or a check, there is a possibility that funds can be lost or stolen. Since all direct deposits happen electronically, you don’t have to worry about a thief swiping your money.

• Efficient. Many employers offer direct deposit because it helps expedite the payroll process. Funds are automatically transferred from their bank account to those of the recipients. There’s no need for an employee to pick up a check, deposit it, and wait for it to clear. The time it takes for direct deposit to go through can be hard to beat.

• Avoid maintenance fees. Some banks will do away with maintenance fees if you set up direct deposit, which can be a nice financial perk.

• Boost savings. Sometimes, you can identify a percentage of your paycheck and direct it to be deposited into your savings when you get paid. This way, you can automate your savings and pad that account without thinking about it.

While direct deposit is convenient, safe, and efficient, there are also some downsides you should consider.

• Risk of cyber crimes. Yes, there are hackers and other sorts of criminals out there. Direct deposits are vulnerable to cyber crimes since all transactions occur electronically. While banks and financial institutions take precautions to keep bank accounts safe online, direct deposits may still be somewhat susceptible to cyber theft.

• Requires a bank account. Direct deposits usually require the payee and payer to have a bank account. That’s not possible for folks who lack traditional bank accounts. They may need to find an alternative solution to send or receive payments.

• Fees. Depending on your bank, you may have to pay a set-up fee to initiate direct deposits. Check with your bank to verify any potential costs before you get started.

• Errors are easily missed. Because payments are 100% electronic, you may not have the opportunity or inclination to review the pay stub as you would with, say, a paper check. Not looking over your paystub regularly can make it easier to miss errors such as an incorrect paycheck amount.

Now, here’s how the pros and cons of direct deposit stack up in chart form:

Pros	Cons
No risk of losing cash or a check	Risk of cyber crimes
Convenient	Requires a bank account
May avoid account fees	May have to pay a fee to set up direct deposit
Can set up auto-transfers to savings	Errors can be easily missed

Recommended: What Is an Electronic Check?

Pros and Cons of Paper Checks

Now, let’s consider the benefits and disadvantages of using time-honored paper checks. First, the upsides:

• Protects privacy. When you decide to use paper checks, you can keep your banking information private from your employer. For some people, it may provide peace of mind to know that your employer doesn’t have access to your bank account.

• Save money on banking fees. Some banks charge fees for setting up direct deposit. If you prefer not to pay these fees, you can likely cash your paper checks for free.

• May include an informative paystub. For some people, looking at their paystub is more convenient with a paper check. They can assess the deductions and other aspects of their wages without going hunting for the information online.

Drawbacks to using paper checks include:

• Risk of theft. When you carry a physical check, it’s easier to misplace it or have it stolen. If this happens, your employer will likely be able to replace it. However, you may have to wait for the new check to process and pay a fee.

• Time-consuming. When you receive a paper check, you must deposit it at the bank via a bank branch or online. Either way, it can eat up time that you could spend doing other things.

• Waiting period. Even if you deposit a paper check right away, it could take several days to clear and hit your bank account, especially if it’s the weekend or a holiday.

Here’s how these advantages and disadvantages compare in chart format:

Pros	Cons
Protects bank information from employer	Risk of theft or losing the check
Saves money on banking fees	Time-consuming to get and deposit check
Makes payroll details easily accessible	Must wait for funds to clear

When to Use Paper Checks Over Direct Deposit

When deciding to use checks vs. direct deposit, here are a few situations where it makes sense to opt for paper checks:

• You don’t want to share your banking information with your employer. Using checks may make sense for folks who are worried about sharing banking information or who prefer not to put money into a bank account.

• You distrust banks or don’t want to pay their fees. One of the top reasons millions of Americans choose not to have bank accounts is that they don’t trust banks and don’t want to pay banking fees. If you fall into this category, you may feel more comfortable opting for paper checks you can cash.

• Don’t qualify for a bank account. Maybe you don’t have enough money or don’t meet the requirements to open an account. Whatever the situation, if you don’t have a bank account, it’s going to be hard to accept a direct deposit. Paper checks might be the only solution to receiving your paycheck.

Recommended: How Do You Write a Check to Yourself?

When to Use Direct Deposit Over Paper Checks

Now consider the flip side: situations in which direct deposit may make more sense than paper checks.

• You want a quick, easy way to get paid. If direct deposit is a payment option, it could help you receive your wages or salary more quickly than with a paper check. Since funds are transferred electronically, your paycheck will be in your bank account on payday, ready to be used.

• You struggle to save money. If you have difficulty setting aside savings, a direct deposit may help. Some direct deposit programs let you distribute a portion of your paycheck into your savings, allowing you to boost your emergency fund or another account without lifting a finger.

• Your bank waives maintenance fees. Some banks waive maintenance fees when you meet specific requirements like setting up direct deposit.

The Takeaway

Paper checks and direct deposits are two payment options that allow your employer to transfer money so you can get paid. When comparing paper checks vs. direct deposit, know that direct deposit is usually the most convenient way for employees to receive their pay. However, employees who don’t have bank accounts or don’t like sharing their banking information may prefer paper checks instead. It’s all about what best suits your banking needs.

If you’re ready to open an online bank account, take a look at what SoFi has to offer. Our Checking and Savings account lets you avoid account fees (like those for direct deposit) and earn a competitive APY Qualifying accounts can get their paycheck up to two days early with direct deposit, too.

Are you ready to bank better? See how SoFi Checking and Savings puts you in control of your money.

FAQ

Do more people use direct deposit or paper checks?

Direct deposit is usually the deposit method of choice. In fact, about 94% of employees prefer to receive wage or salary payments via direct deposit.

Can you change from paper checks to direct deposit?

In many cases, yes. Whether you want to set up direct deposit with the IRS, your employer, or your utility company, you can follow a process to switch from checks to direct deposit.

Can you change from direct deposit to paper checks?

Yes, you can usually ask your employer to switch back to checks. Verify with your employer what the process is so you know what to expect.

Photo credit: iStock/RyanJLane

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.

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

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

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

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

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

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

SOBK1222016

Oct

2023

Are Bank Bonuses Worth It?

By Timothy Moore | Budgeting & Goals, money | Comments Off

When researching new bank accounts, you may find some that offer sign-up bonuses — free cash for opening an account and depositing some money — and wonder if it’s worthwhile. The answer is: It depends. This can make a bank account seem more attractive because of the quick payout, but it’s important to think about the long-term value of a bank account before opening it.

Are bank bonuses worth it for you? They can be if the bank also offers other features that align with your needs, like a high interest rate, no monthly fees, a large ATM network, and cash back rewards.

But in other cases, they may wind up just being an incentive that leads you into an arrangement that involves, say, high fees and low interest rates.

Here, you’ll learn more, including:

• What is a bank account bonus?

• Are bank account bonuses worth it?

• What are the pros and cons of bank bonuses?

What Is a Bank Account Bonus?

A bank account bonus is a reward that customers earn for opening a new checking or savings account and meeting specific criteria during a set period. That might include setting up direct deposit, funding the account with a set amount of cash, using your new debit card a certain number of times, or meeting a specific spend threshold.

Bank account bonuses can vary in size, with some banks offering $50 and others offering up to $2,000 (expect some very strict criteria on very large deposit amounts to nab that kind of a gift).

Banks may offer other types of bonuses, but sign-up bonuses are the most common and are meant to entice you to open a new bank account.

Note: Banks generally offer bonuses during promotional periods that last a set number of months. At the end of that period, they may choose to extend the bonus, end it, or offer a new bonus that could be more (or less) valuable than the preceding one.

How Do Bank Account Bonuses Work?

A traditional sign-up checking account bonus generally requires that you are a new client of the bank — or haven’t had an account with the bank for a set number of years. Each bank will have varying criteria to earn the bonus. Depending on the bank, you might:

• Simply need to set up and receive qualifying direct deposits

• Deposit a certain amount of money into the account (say, through an external bank transfer) and keep the account funded for a set number of days

• Use your debit card a set number of times or for a minimum spend amount in a given timeframe

• Pay a minimum amount of bills using the account

Evaluation periods for such bonuses may range from a few weeks to several months to an entire year. That means it could take a while to receive the sign-up bonus.

Some banks may also take back the bonus if you close the account too soon after receiving the bonus. That’s why it’s a good idea to read all the fine print for a bank bonus before opening a new account.

What Are Some Common Bank Account Bonuses?

You may often see the phrase “bank account bonus” used interchangeably with “sign-up bonus.” However, banks may offer other types of bonuses that have nothing to do with opening a new account. Here are some common bank account bonuses to watch for:

• New account bonus: A sign-up bonus, or new account bonus, is what we generally think of when we hear “bank bonus.” Consumers can earn these bonuses for opening a new account and meeting specific criteria.

• Referral bonus: Some banks may offer referral bonuses. Get friends and family to sign up for a new account, and you — and maybe your referral — can earn a cash bonus.

• Cash back bonuses: Though we often think of cash back with rewards credit cards, some banks may pay out cash back with debit card. You might get a percentage back when you make qualifying purchases.

• Waived fees: Some bank accounts charge monthly service fees for keeping the account open. Often, these banks offer a way for you to have the fees waived — usually by maintaining a minimum balance, earning direct deposits, or meeting certain spending criteria. While you won’t earn cash, you’ll avoid paying fees; in that way, it’s like a bonus.

And don’t forget: Many banks offer sign-up bonuses on their credit cards as well. These also have their own criteria for earning the bonus that you may want to review before applying.

Pros of Bank Account Bonuses

Bank bonuses can be advantageous for consumers who are looking for a new account. Here are some of the pros:

Many Are Offered for Opening a New Account

Sign-up bonuses are a common form of bank bonus. Because the criteria are built around things you’d commonly do with a new account — setting up direct deposit, funding it with cash, using the debit card on everyday purchases — it can be easy to earn the bonus for activities you would’ve done anyway.

Recommended: Checking vs. Savings Account

Bonuses Can Be Enough to Pay Off Potential Fees

While it’s wise to prioritize a bank account without any monthly fees, big bonuses can offset such fees for several months. And even if you find a bank account with no monthly fees, you may still end up paying:

• ATM fees

• Minimum balance fees

• Overdraft and NSF fees

• Foreign transaction fees

Such occasional fees might be easier to swallow if you’ve already earned a bonus worth several hundreds of dollars.

Recommended: What Are ATM Fees?

Bonuses Can Help You Build Your Savings

If you earn a bonus for opening a new savings account, you can keep that money in your account where it will continue to earn interest. This makes bank account bonuses an easy way to jump-start your savings, whether you’re building an emergency fund or saving for a wedding, house down payment, or vacation.

Recommended: Different Types of Savings Accounts

Cons of Bank Account Bonuses

While it’s hard to imagine how free money could be a bad thing, bank account bonuses may have drawbacks for certain consumers. Here are some considerations as you decide if bank bonuses are worth it.

Bonuses Are Considered Taxable Income

First and foremost, a bank account bonus is never as big as it sounds. Here’s why: because Uncle Sam takes his cut. The IRS considers bank account bonuses earned income, just like any interest you earn on the account.

You Might Pay More in Fees

Sign-up bonuses are meant to entice you to open a new account, but it’s a good idea to consider the account as a whole before moving forward. While a shiny sign-up bonus may offer you money up front, consider how much you’ll spend on fees (or how much you’ll miss out on in interest if it’s a low-interest account).

Once you factor in fees and missed earning opportunities, a bank account offering even a large bonus may not be the best long-term option for you.

There Are Often Many Requirements to Receive the Bonus

Some sign-up bonuses are easier than others to earn. If you’ll struggle to meet all the criteria — for example, the account may have too high of a deposit threshold for you to meet — it probably doesn’t make sense to open the account for the bonus alone.

Is It Worth It to Switch Banks for a Bonus?

So are bank account bonuses worth it? That depends on your needs. If you’re happy with your current bank and like all the features it offers, it may not be worth the hassle to switch.

But if you have other reasons to switch banks right now — like you want a higher interest rate, better mobile app, or fee-free overdraft — it could be worth your time to compare bank bonuses and make the switch.

That said, sign-up bonuses are a one-time benefit. It’s a good idea to weigh other features, like annual percentage yield (APY), monthly fees, mobile banking features, and ATM access, along with new account bonuses when making your decision.

Recommended: How to Switch Banks

Banking With SoFi

Bank bonuses can be easy to earn and may offer a great jump-start to your savings. For most consumers, however, it makes sense to consider sign-up bonuses alongside other important banking features, like interest rates and fees, to make a sound financial decision.

Are you looking for an online bank that offers a competitive APY, no monthly fees, which may help your money grow faster, month after month? Open a new SoFi bank account and you’ll enjoy those benefits, plus the ease of spending and saving in one convenient place.

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

FAQ

How can I qualify for a bank account bonus?

Banks offering sign-up bonuses for new accounts have specific terms and conditions to achieve the bonus. Read the fine print of any bank account bonus program to ensure you understand all the steps you need to take to qualify for the bonus.

What are the different types of bank bonuses?

The most common type of bank bonus is a sign-up bonus, which some banks offer when you open a new account and meet certain criteria during an evaluation period. Some banks may also offer:

• Referral bonuses for getting friends and family members to open an account.

• Cash back bonuses when you swipe your debit card.

• Waived accounts fees for meeting criteria every month.

Banks might also have unique credit card rewards, like sign-up bonuses and cash back, travel points, or miles with every swipe.

Does SoFi offer a bank account bonus?

SoFi may offer a bank account bonus to new members when they sign up for the SoFi Checking and Savings Account; it may require setting up direct deposit. Check here to see what may be available right now.

Photo credit: iStock/Prostock-Studio

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

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

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

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

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

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

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

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

SOBK1122008

Oct

2023

11 Common Checking Account Mistakes

By Rebecca Lake | Budgeting & Goals, Financial Independence, money | Comments Off

A checking account is one of the most useful items you can have in your financial toolbox. You can use a checking account to pay bills, get paid early with direct deposit, or build your savings through automatic transfers.

However, it’s possible you’re not getting the most out of your account. Recognizing some of the most common mistakes you’re making with your checking account could help you to save money and time.

Ready to optimize this aspect of your financial life? Read on to learn:

• Common mistakes you’re making with your checking account

• Tips for improving your banking habits

Why Banking Mistakes Can Be Costly

Making mistakes with your bank account could cost you in more ways than one. It’s possible that you’re overpaying bank fees unnecessarily, missing out on valuable interest earnings, and possibly leaving yourself vulnerable to fraud. You may also be short-changing yourself and missing out on benefits and features if you’re using the wrong type of bank account for your needs.

Here’s why these issues can cost you:

• High fees are generally not a good thing, as they can nibble away at your balances over time.

• Losing out on the best interest rates means your money has less room to grow.

• Fraud can potentially be the biggest drain on your accounts, if your debit card or bank account is used to make unauthorized withdrawals or purchases.

The good news is that it’s relatively easy to get back on track. That starts with knowing which checking account mistakes to avoid. You’ll learn about them next.

11 Checking Account Mistakes to Avoid

Managing a checking account shouldn’t be complicated. Here are 11 of the biggest checking account mistakes that you’ll likely want to sidestep.

1. Not Shopping Around

Sticking with the same bank for years may be comfortable, but it doesn’t necessarily mean you’re getting the best deal. It’s a mistake not to shop around for better banking options, as banks regularly introduce new benefits and features to attract customers.

It’s also incorrect to assume that switching banks is time-consuming or difficult. Many banks offer switch kits that help to simplify the process of transitioning your accounts over. These kits include a checklist of steps to complete to get your new accounts open and shut down your old ones if you choose to do so.

2. Overlooking the Benefits of Online Banks

How you use your checking account matters but it’s also important to consider where you keep it. Online banks can offer benefits you don’t always get at traditional banks or credit unions, such as lower fees or higher interest rates for deposit accounts. These two features could help you build wealth.

Opening an online checking and savings account is usually something you can do in just a few minutes. The trade-off of choosing an online bank is that you don’t have branch banking access. Comparing online banking pros and cons can help you to decide if it’s right for you.

3. Paying a Monthly Maintenance Fee

Banks can charge monthly maintenance fees for having a checking account. In some cases, you might pay these fees for savings and money market accounts as well. Paying these fees is a mistake if there are ways to get around them.

Your options for avoiding monthly maintenance fees might include:

• Meeting a daily or monthly minimum balance requirement

• Scheduling a qualifying recurring direct deposit

• Maintaining a minimum balance across multiple linked accounts at the same bank

• Making a certain number of purchases with your debit card each month

You could also avoid monthly maintenance fees by moving to an online bank. Online banks tend to be more fee-friendly than traditional banks, and you could earn a higher rate on interest-bearing accounts as well.

4. Triggering ATM Fees

Here’s another common mistake you may be making with your checking account: When you need quick cash, you hit the first ATM you come across. Convenient, yes, but that’s a problem if your bank charges ATM fees.

What are ATM fees? They’re fees you pay to use another bank’s machine. Typically, your bank won’t charge if you use their ATMs. But they might tack on a foreign ATM surcharge if you use a machine that’s out of the bank’s network. The ATM owner can also charge a fee of their own. Typically, out-of-network ATM fees will cost you between $2.50 and $5 per transaction and possibly even more.

Knowing where you can withdraw cash fee-free is a simple way to avoid that mistake. You might also consider looking for a bank that reimburses foreign ATM fees each month. Some banks offer reimbursement, either as a flat dollar amount or up to a certain number of foreign ATM fees per month.

5. Not Keeping Enough in Your Account

Maintaining a lower balance in your checking account isn’t necessarily a bad thing, but it could put you at risk of incurring overdraft of non-sufficient funds (NSF) fees.

Banks can charge overdraft fees to complete transactions when you don’t have enough money in your account. Non-sufficient funds fees may apply when you don’t have enough money in your account and the bank cancels or rejects the transaction.

In terms of how much you’ll pay for NSF vs. overdraft fees, that depends on the bank. However, it’s not uncommon for banks to charge anywhere up to $40 for these fees.

You could avoid overdraft fees by enrolling in overdraft protection. What is overdraft protection? It’s a service that allows banks to transfer money automatically from your savings account to checking if you’re in danger of overdrafting your account. You can avoid high overdraft fees by opting in, though banks may charge a smaller transfer fee.

6. Keeping Too Much Money in Checking

Keeping too much money in checking could also be a mistake if you’re missing out on interest earnings. Siphoning off some of the money in checking into a high-yield savings account or money market account, for example, could allow you to earn a competitive interest rate and APY on your balances.

It’s also important to consider how FDIC coverage limits apply to checking accounts. The Federal Deposit Insurance Corporation insures deposits up to $250,000 per depositor, per account ownership type, per financial institution. If you keep more than that in checking, you could be at risk of losing money in the rare event that your bank fails.

7. Choosing a No Frills Checking Account

A basic checking account should have all the features you need to pay bills, deposit money, or make purchases with a linked debit card. But a specialty account could offer a wider range of benefits.

For example, a high-yield checking account earns interest on balances. That’s like getting free money just for keeping a balance in checking. You will, however, have to pay tax on the interest you earn at the end of the year.

8. Missing Out on Potential Rewards

Another checking account mistake to avoid is losing out on potential rewards and bonuses. What are reward checking accounts? These are bank accounts that reward you with points or cash back for completing certain activities. For example, you might earn rewards when you make a specific number of debit card purchases each month or link a savings account.

These accounts are similar to rewards credit cards but the difference is you’re spending your own money to earn them, rather than borrowing from the credit card company. They can offer you some nice perks as you conduct your usual banking business.

9. Not Protecting Your Account When You Shop Online

Shopping online is convenient and you might be able to save money versus shopping in store if you’re using promo codes or coupons at checkout. However, you could be putting your checking account at risk if you’re shopping over unsecured WiFi networks or making purchases on untrusted websites.

A simple way to verify a site’s authenticity is to look for “https” in the site’s address. That indicates the site uses a Secure Sockets Layer certificate to encrypt and protect user data.

You can also protect yourself by not storing your debit card information at the checkout. If you’d like to be able to automatically enter your debit card details to pay, you can add them to a secure mobile wallet like Google Pay, Apple Pay, or Samsung Pay.

10. Not Enrolling in Email and Text Alerts

There are different ways to keep track of your bank accounts, including online and mobile banking. If you don’t always have time to log in, you could use email and text alerts to monitor your accounts instead.

Banks can allow you to set up different types of alerts, including notifications for:

• Low balances

• New credit transactions

• New debit transactions

• Updates to your personal information or login information

• New linked accounts

• New wire transfer transactions

• Failed login attempts

Not using alerts can be a mistake as it can save you time as you manage your financial life.

Enrolling in alerts can also help you to spot potentially fraudulent activity before someone is able to do any major damage with your account.

Recommended: The Biggest Money Scams in the U.S.

11. Using Weak Passwords

Your password is your entry key to your online and mobile banking accounts and it’s important to choose a strong one. The stronger your password, the more difficult it might be for hackers to steal your information, and your money.

If you’re using weak passwords that are easy to guess, you could be leaving yourself open to fraud. It’s also a mistake to reuse the same passwords to log in to multiple accounts. If a hacker gets their hands on the password, they could have instant access to bank accounts, credit cards, investment accounts, email accounts, and any other accounts you manage online.

Choosing strong passwords and updating them regularly can help you avoid that scenario. If you have trouble remembering passwords, you might consider storing them online in a secure password keeper.

Ways to Improve Your Banking Habits

Building better habits can take time, but it may be well worth the effort if you’re able to avoid making common checking account mistakes. Here are a few ways to improve your banking habits:

• Check your accounts regularly. Logging in to your bank accounts once a day or every few days is a simple way to check your transaction history and balances so you know what you have to spend.

• Sign up for alerts. Banking alerts can help you to spot potential fraud, track your balances, and know what’s being debited or credited to your account. It’s typically free to enroll, and you can personalize which alerts you want to receive.

• Maintain a buffer. Getting in the habit of maintaining a cash cushion in your checking account can help you to minimize your risk of overdraft. For example, you might want to keep an extra $500 to $1,000 in your account at all times and not let your balance fall below that amount.

• Review your accounts. Reviewing your checking account once a year can be a good way to see what you’ve paid in fees and what benefits you’ve enjoyed. You can then use that as a guide for deciding whether to stick with your current bank or shop around for a new one.

Recommended: Guide to Practicing Financial Self-Care

The Takeaway

Having a checking account can make managing your financial life easier, but it’s important to make sure you’re using it the right way. Avoiding common checking account mistakes and developing good banking habits can help you use your account to its full potential. Doing so can also help you earn more interest and pay fewer or lower fees.

If you’re ready to try a new banking experience, you might consider opening an online checking and savings account with SoFi. You can enjoy the convenience of saving and spending in one place, plus you’ll get benefits like paying no account fees and enjoying a great APY on deposits, which can help your money grow faster.

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

FAQ

What is the worst checking account mistake that I need to avoid?

The worst checking account mistake may simply be choosing the wrong account or the wrong bank. When you fully understand what you need a checking account for and what kind of features you’d like to have, that can make it easier to find the right banking option that’s convenient and low-cost.

What to do if the bank makes a mistake?

If your bank makes a mistake with a deposit, bill payment, or any other transaction, it’s important to contact the bank right away. You can explain what you believe the mistake to be so the bank has an opportunity to correct it.

What are the disadvantages of these banking mistakes?

Making banking mistakes can cost you both time and money. You may end up spending more time than you’d like to managing your accounts. Or you might overpay banking fees if you’re not paying attention. Correcting any banking mistakes can help you avoid those scenarios.

Photo credit: iStock/MStudioImages

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

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

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

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

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

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

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

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.

SOBK1122006

Oct

2023

12 Top Mobile and Online Banking Features

By Timothy Moore | money | Comments Off

Banking with an online-only financial institution can offer a lot of perks, like higher interest rates on deposit accounts, lower (or no) monthly fees, and even features like fee-free overdraft protection. But not every online bank is equal.

When you’re evaluating an online bank for a checking and savings account, it’s important to consider the features of the bank’s online platform and mobile app. Depending on your preferences, you may prioritize some features of mobile banking — like peer-to-peer transfers and mobile check deposit — over others.

Here, you’ll learn about some of the most important attributes to look for when investigating the features of online and mobile banking. This list can help you make the best choice for your own particular financial services needs.

The Benefits of Having a Good Banking Website and Mobile App

There are many pros of online and mobile banking, typically including a higher annual percentage yield (APY) on your savings, low or no monthly fees, easy ATM access, and sometimes no minimum balance requirement.

But a good online-only bank should also include features on its website platform and mobile app that offer security and convenience. Finding an online bank account with a safe, easy-to-use platform and app can add so much convenience into your everyday life. You’ve just got to know which features to look for.

Recommended: Online Banking vs. Traditional Banking

12 Must-Have Features of Online and Mobile Banking

So what are the top features of online banking to consider when looking for a new bank account? We’ve rounded up 12 must-have online bank features that you may want to prioritize:

1. Highly Rated Mobile App

Unless you spend a lot of time at a desk, you may be doing more of your banking on the go with your smartphone. That means you’ll likely want to find a bank that is renowned for its mobile app.

When shopping for a new bank account, it’s a good idea to compare interest rates and fees, but you can also head to the Apple App Store and Google Play to see how other consumers have rated the bank’s mobile app.

If a bank’s mobile app has consistently negative reviews, that could be a red flag.

2. Safety and Security Features

You may wonder, Is mobile banking safe? It’s worth making sure certain security features are in place. Just like traditional brick-and-mortar banks, online-only banks should offer FDIC insurance on your funds.

Whether you’re visiting an online or traditional bank’s website, you can always verify that it’s legitimate using the FDIC’s database, BankFind .

But beyond insuring the money in your account, a bank should also offer online and mobile banking safety features, like:

• Two-factor authentication, multi-factor authentication, or biometric authentication (like thumbprint or face ID)

• Fraud alerts via text, email, and mobile app

• Debit card freezes

• Credit score monitoring

• Automatic logout

Tip: Not sure what security features a bank has? You may be able to find a breakdown of all the security features a bank offers on its website.

3. Account Alerts

Fraud alerts aren’t the only valuable alerts you may want to prioritize when selecting an online bank. Such financial institutions typically offer a wide array of online banking alerts — sent via email, text, or even push notification — about different kinds of bank activity.

Banks may send alerts for:

• Low balances

• Direct deposits

• Unusual activity on your account

• New log-ins

• Large purchases

• Overdrafts

• Username and password changes

• Withdrawals

These and other alerts can make managing your finances easy — and get your attention if something goes wrong.

4. Account Activity, Balances, and Statements

Before the advent of online banking, many people tracked their bank activity using a physical register in their checkbook. They could then compare this against a paper statement they’d receive in the mail each month.

But now, you can eliminate all this manual work. Online banking typically features tools that allow consumers to log in to their account online or via the mobile app at any time to check recent activity, access e-statements, and review balances.

Recommended: Current Balance vs. Available Balance

5. Self-Service Options

If you’re interested in managing your account without having to talk to a live bank teller, you may want to find a bank that offers self-service options.

For example, with many online accounts, you can do a lot of things on your own online or in the app, including:

• Setting up direct deposit

• Setting up bill pay

• Resetting your debit card PIN

Being able to do these things without calling customer service or visiting a physical branch can add convenience and flexibility to everyday life.

6. Early Direct Deposit

Speaking of direct deposit, some online banks offer early access to your paycheck when you set up qualifying direct deposits. If you want to access your paycheck up to two days early, consider prioritizing a bank account with this unique online banking feature.

7. Mobile Check Deposit

Direct deposit isn’t the only deposit feature to consider. If you occasionally receive paper checks from friends, family, or even customers for your small business, you’ll need a way to deposit the checks without going to a physical branch.

Many online banks allow you to deposit a check wherever you may be, by using your mobile phone. Among the benefits of mobile check deposit: the ability to snap a photo of your endorsed check to deposit via the smartphone app. You can even do it from the couch.

8. Easy Transfers

Transferring money is an important part of the banking experience. When you open a new account, for instance, you may want to transfer money from one bank to another. You might also need to transfer funds between two accounts at the same bank.

If you anticipate regular transfers, it may be smart to prioritize a bank account that lets you initiate transfers easily online or in the mobile app. This can save you the hassle of visiting a physical branch or calling a bank teller to initiate a transfer.

Sometimes, you may want to transfer money to friends and family using your mobile device. This is called a peer-to-peer transfer (or person-to-person transfer, or P2P). Some mobile banking apps have their own P2P platforms, others may offer Zelle transfers in app, and others may simply allow you to connect your bank account, debit card, or credit card to popular P2P transfer apps like Venmo and Cash App.

Recommended: How to Pay Someone Instantly

9. ATM Finder

Because online-only banks don’t have any physical branches for consumers to visit, they generally offer an extensive network of ATMs that make it easy to withdraw cash on the go. If you regularly take out or deposit cash at an ATM, it’s a good idea to prioritize a bank with a large ATM network.

But you should also consider how easy it is to find nearby ATMs. Some mobile bank apps, for example, have ATM finders that can help you navigate to the closest fee-free ATM near you. This can be a real plus when you want to quickly get a check deposited.

10. Automatic Savings Tools

An online banking feature to consider is one that can help you build your savings account faster. You can usually opt into these automated savings features online or in the mobile app. Check for rounding-up functions and other ways to grow your wealth, little by little.

11. Online Bill Pay

One of the best features of online banking is how online bill pay works, though not every financial institution may offer this. If you occasionally forget to pay a bill, you may benefit from a bank that lets you set up this feature and want to make sure it’s available.

Paying your bills on time is a significant contributing factor to a solid credit score, so it’s worth your attention.

Recommended: Pros and Cons of Automatic Bill Payment

12. Great Customer Support

When you choose an online-only bank, you won’t be able to walk into a local branch and chat with a bank teller when you need help. Instead, you’ll connect with virtual assistants and live agents via chat (in-app or online), email, and phone.

If you think you may need help from time to time, it’s a good idea to review a bank’s customer service hours and read reviews of customer service interactions. An online bank with a stellar reputation for customer service could enhance your overall banking experience.

The Takeaway

For many, the appeal of online bank accounts continues to be the high APYs, low fees, and extensive ATM networks. But the unique features of online banking — like mobile check deposit, account alerts, peer-to-peer transfers, and online bill pay — make an even more compelling case for switching to online banking.

When you open an online bank account with SoFi, you’ll enjoy a hyper competitive APY and no account fees, which can help your money grow that much faster. Plus you’ll be able to spend and save in one convenient place with our Checking and Savings account.

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

FAQ

What are the features and benefits of online banking?

Online banks are known for offering high APYs on savings accounts, no monthly fees or minimum balance on checking accounts, and even cutting-edge features like fee-free overdraft, early paycheck access, mobile check deposit, and automatic savings tools. Each online bank account will vary, but it’s a good idea to prioritize one that offers these and other key features — and has a highly rated mobile app.

Is mobile banking safe?

For the most part, mobile banking is safe. Like a traditional bank account, an online bank account should be insured by the FDIC. Furthermore, a good online bank should offer a wide range of safety and security features, like multi-factor authentication, instant transaction alerts, and Secure Socket Layer (SSL) encryption to protect accounts and your personal information.

What are the pros and cons of online banks?

Because they have lower overhead costs, online-only banks can typically offer consumers higher interest rates, lower fees, and a superior mobile banking experience. They may have compelling features like automatic savings tools, fee-free overdraft, extensive ATM networks, and mobile check deposit.

However, these banks do not have in-person banking, may not always offer live assistance, and might have a more limited roster of banking services. Depending on the online bank, some consumers may find it more challenging to deposit cash.

Photo credit: iStock/Ridofranz

Oct

2023

Guide to Money Pools

By Ashley Kilroy | Budgeting & Goals, Family Finances, money | Comments Off

Money pools provide a platform for friends, relatives, or colleagues to combine their savings. The purpose of this arrangement is to leverage each member’s financial resources to save money, reach short-term money goals, or create financial security.

While money pools gained popularity centuries ago in developing countries, such as India and Southern Africa, they have continued to provide a banking solution for migrant communities in the U.S. Here’s a look at how money pools work and how they benefit folks that don’t have access to traditional banking products like savings accounts.

Read on to learn:

• What is a money pool?

• How do money pools work?

• What are the pros and cons of money pools?

What Is a Money Pool?

So, what are money pools exactly?

A money pool is when a group of individuals (friends, family members, neighbors, or coworkers) combine their savings into one pot. The group decides on a monthly contribution amount they will each put into the pool.

Then, every month, one person from the group will receive the total sum of the money pool to do as they wish. The group can either draw names to decide who gets the money or make an arrangement based on a mutual understanding. Funds are distributed monthly until the entire pool is depleted. In this way, it’s somewhat akin to peer-to-peer lending.

However, money pools don’t just happen; they must have a responsible party that organizes the group. The money pool organizer tackles tasks such as collecting the money, tracking contributions, and planning distributions. The organizer keeps order, so each member understands and adheres to the group’s guidelines.

Money pools mainly exist in developing countries, with minimal access to credit or banking solutions like savings accounts. However, many U.S. immigrant communities nationwide use money pools as a solution for helping people within the community pay bills or save for financial goals. It can also serve as an example of pay-it-forward finance and helping those close to you.

How Do Money Pools Work?

A money pool works like this: Let’s say a group of three friends decide to create a money pool. They decide that they will contribute $400 per month creating a $1,200 money pool. Each month, one friend from the group will receive $1,200. No matter who receives the funds for the month, every person in the group continues to contribute so the money pool amount always has $1,200 in it.

A money pool provides an immediate source of funds for someone needing to pay for unexpected expenses. In other words, the money pool can act as an interest-free loan to pay off medical expenses you can’t afford, car repairs, or tuition costs. A money pool can also provide a forced savings method for the last person who receives the funds.

The organizer usually determines who should receive the funds first. They may consider financial needs to assess the arrangement of the distribution of funds.

Reasons Why People Use Money Pools

For centuries, people have been using money pools around the world as an alternative to traditional savings solutions. However, folks are more likely to use money pools if they have:

• Limited or no access to traditional banking institutions.

• A bad credit score that making it challenging to qualify for financing.

• Minimal financial resources; the money pool can be a way to save money with a low income.

• The need to borrow or save money.

Examples of Money Pools

Money pools exist around the world and often go by various names. In U.S., Americans usually refer to this type of arrangement as a money pool or rotating savings and credit association (ROSCA).

Different communities call money pools by different names. Some examples of other names for money pools are:

• Tandas in south and central Mexican communities

• Cundinas between northern Mexico and Washington state

• Susus in the Caribbean

• Pandeiros in Brazil

• Hui in Asia

• Arisan in Indonesia

• Ayuuto in Somalia

Recommended: Creative Ways to Save Money

How to Determine if You Should Join a Money Pool

If a money pool piques your interest, consider a few key points before moving forward with this financial decision.

• Affordability of recurring payments. Make sure you can afford and have the money discipline to contribute the recurring payment amounts. A money pool isn’t like a traditional savings account where you can pull money out whenever you want. Think carefully to be sure that contributing won’t put you in a financial bind.

• Trustworthiness of key members. You may feel uncomfortable contributing to a money pool with a group of members you don’t know well. Instead, consider creating a money pool with people you know and trust.

• Organization of the money pool. Someone must be the organizer if you establish your own money pool. Money pool apps are available to help you organize your group and streamline contributions and distributions.

If you’re still on the fence, you may want to explore Community Development Financial Institutions or CDFIs as an alternative solution. What is a CDFI? These financial institutions cater to underserved communities. In addition, CDFIs offer banking products such as checking accounts to those who may have been turned away by traditional banking institutions. So, if you have a low credit score or are struggling to find a suitable savings vehicle, CDFIs could be worth considering.

Pros of Money Pools

Money pools can be advantageous to consumers for the following reasons:

• Provide access to cash. A money pool offers an alternative solution for accessing funds if individuals don’t have access to lending institutions.

• Members instill accountability. The social pressure of accountability encourages the group members to adhere to the money pool commitment.

• Interest-free loans. Money pools provide an interest-free way to pay for unexpected expenses like medical bills or car repairs.

Recommended: What Is a Lifeline Checking Account?

Cons of Money Pools

While money pools have benefits, they can also have some drawbacks, including:

• Funds in the account are not interest-bearing. Members can grow their money in other interest-bearing accounts, like a high-yield saving account.

• Members who don’t make payments put the group at financial risk. Members of the money pool could suffer a financial loss if someone doesn’t contribute when they are supposed to. This is especially true for the last member to receive the lump sum.

• Risk of social disapproval. You must make an agreed-upon payment or you could be kicked out of the money pool and face social consequences such as being shunned from your community.

Recommended: Different Types of Savings Accounts

The Takeaway

Money pools allow a group of people to combine their savings while helping each other financially. Each member contributes to a fund of money, which is then disbursed to members sequentially, allowing every person involved to receive a lump sum of cash. While this type of savings vehicle is used in the U.S., it’s more prevalent in developing countries since financial resources are often limited.

3 Money Tips

Typically, checking accounts don’t earn interest. However, some accounts do, and online banks are more likely than brick-and-mortar banks to offer you the best rates.

If you’re faced with debt and wondering which kind to pay off first, it can be smart to prioritize high-interest debt first. For many people, this means their credit card debt; rates have recently been climbing into the double-digit range, so try to eliminate that ASAP.

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

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

FAQ

Is there a reason for developed countries to use money pools?

Yes, for communities with limited access to traditional banking and credit, money pools can offer a platform to help individuals achieve their financial goals.

Are money pools safe?

While there is a risk of members failing to contribute to a money pool, the peer pressure of the group usually ensures they will go to great lengths to make timely payments. So even though it’s possible, loss typically occurs only rarely.

Do money pools still exist?

Yes, money pools exist. You may find them in developing countries as well as the U.S.

Photo credit: iStock/bob_bosewell

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

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

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

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

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

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

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

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.

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Direct Deposits vs Paper Checks: What’s the Difference?

Get up to $300 when you bank with SoFi.

What Is Direct Deposit?

Pros and Cons of Direct Deposit

Pros and Cons of Paper Checks

When to Use Paper Checks Over Direct Deposit

When to Use Direct Deposit Over Paper Checks

The Takeaway

FAQ

Do more people use direct deposit or paper checks?

Can you change from paper checks to direct deposit?

Can you change from direct deposit to paper checks?

Are Bank Bonuses Worth It?

Get up to $300 when you bank with SoFi.

What Is a Bank Account Bonus?

How Do Bank Account Bonuses Work?

What Are Some Common Bank Account Bonuses?

Pros of Bank Account Bonuses

Many Are Offered for Opening a New Account

Bonuses Can Be Enough to Pay Off Potential Fees

Bonuses Can Help You Build Your Savings

Cons of Bank Account Bonuses

Bonuses Are Considered Taxable Income

You Might Pay More in Fees

There Are Often Many Requirements to Receive the Bonus

Is It Worth It to Switch Banks for a Bonus?

Banking With SoFi

FAQ

How can I qualify for a bank account bonus?

What are the different types of bank bonuses?

Does SoFi offer a bank account bonus?

11 Common Checking Account Mistakes

Why Banking Mistakes Can Be Costly

Get up to $300 when you bank with SoFi.

11 Checking Account Mistakes to Avoid

1. Not Shopping Around

2. Overlooking the Benefits of Online Banks

3. Paying a Monthly Maintenance Fee

4. Triggering ATM Fees

5. Not Keeping Enough in Your Account

6. Keeping Too Much Money in Checking

7. Choosing a No Frills Checking Account

8. Missing Out on Potential Rewards

9. Not Protecting Your Account When You Shop Online

10. Not Enrolling in Email and Text Alerts

11. Using Weak Passwords

Ways to Improve Your Banking Habits

The Takeaway

FAQ

What is the worst checking account mistake that I need to avoid?

What to do if the bank makes a mistake?

What are the disadvantages of these banking mistakes?

12 Top Mobile and Online Banking Features

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The Benefits of Having a Good Banking Website and Mobile App

12 Must-Have Features of Online and Mobile Banking

1. Highly Rated Mobile App

2. Safety and Security Features

3. Account Alerts

4. Account Activity, Balances, and Statements

5. Self-Service Options

6. Early Direct Deposit

7. Mobile Check Deposit

8. Easy Transfers

9. ATM Finder

10. Automatic Savings Tools

11. Online Bill Pay

12. Great Customer Support

The Takeaway

FAQ

What are the features and benefits of online banking?

Is mobile banking safe?

What are the pros and cons of online banks?

Guide to Money Pools

Get up to $300 when you bank with SoFi.

What Is a Money Pool?

How Do Money Pools Work?

Reasons Why People Use Money Pools

Examples of Money Pools

How to Determine if You Should Join a Money Pool

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