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Apr

2023

What Is a Debit Card?

By Kim Franke-Folstad | Budgeting & Goals, money | Comments Off

A debit combines some of the features of an ATM card and a credit card to give you an easy way to access cash and pay for purchases. For many people, tapping, swiping, or entering their digits online has become a favorite way to conduct everyday financial transactions.

Debit cards resemble credit cards, but they don’t involve a line of credit or accruing interest charges; the money spent is deducted directly from your checking account. This (and other features) can be a benefit or a downside, depending on your particular situation.

Here, learn more about the ins and outs of debit cards and how to use them most efficiently, including:

• What is a debit card?

• How do debit cards work?

• Where can you use a debit card?

• What are the differences between a debit card vs. an ATM card?

• What are the differences between a debit card vs. a credit card?

Debit Cards Defined

A debit card is a payment card that allows you to spend money without carrying cash.

When you use a debit card, the funds are your own, so there’s nothing to pay back later.

Most debit cards look just like credit cards. They typically feature an account number on the front, along with the cardholder’s name and the expiration date.

There will likely also be a smart chip on the front, along with a logo in the lower right-hand corner that tells you which payment network the card is connected to (such as Visa, Mastercard, or Discover). On the back you’ll likely see a place to sign, as well as a three-digit security code (CCV).

But there are some major differences between debit cards and credit cards.

When someone uses a credit card the money is borrowed. Credit card holders receive a bill every month for what they owe, and the balance must be paid in full or they can be charged interest.

When you use a debit card to get cash or make a purchase, the money comes directly from an account you have with a bank or some other type of financial institution. The funds are your own, so there’s nothing to pay back later.

How a Debit Card Works

Now that you know what a debit card is, here’s how a debit card typically works:

• You tap, swipe, or insert the card at a terminal and enter your PIN (personal identification number) in many cases. The PIN adds a level of security to the transaction.

• The information is communication (the amount of your purchase) and your bank verifies that the funds are available in your checking account. The transaction is approved in that case, or it will be denied if you don’t have enough funds available.

• In a similar way, a debit card can allow you to deduct funds from an ATM.

Worth noting: Debit cards may have spending limits capping the amount you can use in a single day, even if you have more than that amount on deposit. Check with your financial institution to learn what may apply.

Features of a Debit Card

Debit cards have many features that make them an asset to managing your financial life:

• Safer than carrying cash

• More convenient that using checks, plus no fee for ordering checks

• Quick and easy way to make purchases or access cash

• Accepted for purchases by many vendors

• Does not charge interest since it draws directly from your checking account

• Typically don’t charge fees

• May offer cash back rewards

• May have daily spending limits

How Do You Get a Debit Card?

If you don’t already have one, you may wonder how people get debit cards. These are the steps to getting a debit card:

1. Open a checking account: Checking accounts (whether at a bank, credit union, or online financial institution) typically come with a free debit card that can be used to get cash at ATMs or to make purchases.

A brick and mortar bank may be able to issue customers a new debit card right away. With an online institution, it might take a few days for the card to come by mail. Card holders also receive a personal identification number (PIN), which is a security code they’ll use with their account.

2. Activate the card: Typically, you can activate a new debit card at the financial institution’s website, at one of its ATMs, or by calling a designated phone number and answering or keying in some basic identifying information.

3. Start using your card. You should be ready to start tapping, swiping and entering your card’s digits online to make purchases.

Where Can You Use a Debit Card?

A debit card can be used to make withdrawals at an ATM, to make in-person or online purchases, and to make automatic payments for recurring bills.

Each type of transaction works a bit differently. Here are tips for using your debit card.

At the ATM

One of the great conveniences a debit card has to offer is that it can be used to get cash (or make a deposit, transfer funds, or just view your account balance) just about anywhere there’s an ATM.

You just push your debit card into the slot, and enter your PIN to get access to your account. Once you finish and retrieve your receipt and debit card, it’s a good idea to double check that the machine has returned to its welcome screen before turning it over to the next user.

If you use an ATM that’s not in your bank’s network, you could end up paying a non-network fee to your bank and an ATM surcharge to the ATM’s owner. If you’re overseas, you might also be charged a foreign transaction fee.

If you’re a big-time ATM user, you might be able to avoid those fees by scouting out in-network ATM locations in your area or where you are going to be traveling ahead of time. Or you might open an account at a financial institution that doesn’t charge fees and/or reimburses certain fees.

Quick Money Tip: Fees can be a real drag when you’re trying to save money. SoFi’s high-yield checking account has no account fees, including overdraft coverage up to $50.

In-Person Purchases

The process for using a debit card to purchase goods or services can be a little different from one merchant to the next.

Typically a customer will be asked to swipe, insert, or tap their debit card themselves at a card reader on the counter, then may be prompted to authorize the purchase, either by entering their PIN or by signing as they would with a credit card.

Either way, the money to pay for the purchase comes out of the card holder’s account, though the transactions are processed somewhat differently.

The transaction method also may affect any points or other rewards a card holder is hoping to earn on a purchase. Some programs reward PIN purchases only, some reward signature purchases only, and some reward both.

A retailer also may allow customers making a PIN transaction to ask for cash back on top of the total amount of their purchase, so they don’t have to make a separate trip to an ATM. However, you may be charged a small fee for this convenience.

Online Purchases

Can you use a debit card online? Usually, yes, even if you do not see “debit card” listed as a payment method when you want to buy something online. But if there’s a credit network logo on the front of your debit card, you should be able to use your card for the transaction.

When a merchant’s website asks for a payment method, debit card users can choose “credit card,” then enter their debit card account number, expiration date, and three-digit security code (CCV) to have the purchase processed as a signature transaction. (A PIN transaction won’t be a payment option online.)

Automatic Payments

A debit card also can be used to make automatic payments on monthly bills, such as student loans, car loans, subscriptions and memberships, and utility bills.

To set up automatic debit payments, the card holder provides the company with a debit card account number, expiration date, and CCV, and authorizes future electronic withdrawals. The payment can be the same amount every month, or, if the amount is likely to vary a bit from month to month (as utility bills generally do), the card holder can specify a range.

With automatic debit payments, card holders give businesses permission to take payments from their account, which is different from arranging with the bank to make authorized recurring payments. In both cases, however, it can be important to track those payments and be sure the transactions are accurate.

Is There a Difference Between a Debit Card and an ATM Card?

There are differences between a debit card and an ATM card to note:

• A debit card can be used to make withdrawals at an ATM, but it also can be used to make purchases and to pay bills.

• An ATM card can be used only to get funds from a checking or savings account at an ATM machine.

Is it Better to Use a Credit Card or Debit Card?

As with most financial tools, it’s up to each individual to decide what works best for them. Here are some ways to evaluate the pros and cons of using a debit card vs. a credit card.

Budgeting

Using a debit card for a majority of transactions may make it easier to stick to your budget, because you can spend only what you have in your account. You aren’t borrowing money as you would with a credit card, so you may find yourself paying more attention to every purchase and whether you can really afford it.

With a credit card, it can be tempting to pay now and worry about the bill later. If you’re super disciplined about paying off your entire credit card balance every month, that might work for you.

But if, like many Americans, you’re likely to carry forward a balance on your credit card (or cards) every month, the debt could eventually grow out of control with interest.

Convenience

Both debit and credit cards are easy to use, but there are a few ways in which debit cards may have an edge when it comes to convenience.

• It’s easier and cheaper to get quick cash with a debit card. You can get a cash advance with a credit card, but you may have to pay a hefty fee and a higher interest rate on the advance. And with a cash advance you could be charged interest starting on the day you receive the money — there’s no grace period as there is when you make a purchase with a credit card.

• You may be able to get a physical cash advance when making a purchase. That benefit usually isn’t available with a credit card.

• It’s generally easier to get a debit card than a credit card. Most financial institutions will automatically give customers a debit card when they open an account. Getting a credit card can be harder, especially if you’re under 18, don’t have any verifiable income, have a poor (or no) history with credit, or lack the typically required identification documents. The requirements are tougher for credit cards because lenders want to be sure their borrowers are capable of repaying their debts.

Penalty Fees

No matter what kind of card you use — debit or credit — you could face a penalty fee if you spend more money than you currently have available.

With a debit card, you may incur an overdraft fee if you spend more than you have in your account (when making a signature purchase, for example, or when using autopay).

With a credit card, you could face an over-limit fee (if you push your balance over your credit limit), a late-payment fee if you fail to make your minimum monthly payment, or a returned payment fee if for some reason your payment isn’t accepted.)

Rewards

Credit cards can be more likely to offer extra perks than debit cards, such as cash-back rewards or points that can be used for travel, though some debits do offer points and rewards.

Spending Limits

One of the things that can make a debit card really useful is that it’s difficult to spend more than you have. But that also can be a drawback if you need to make an expensive purchase. Even if you have a hefty amount of money in your account, you may encounter a daily spending limit when using a debit card.

Those daily limits are meant to protect account holders by limiting the amount fraudsters could spend with a stolen debit card. But if you aren’t aware you have a limit or don’t know what the limit is, you could get an unpleasant surprise when making a major purchase. Don’t know what a debit card’s limit is? Ask your bank.

If you find out you have a debit limit and feel it’s too low, you may be able to request an increase.

Of course, credit cards have spending limits, too, in the form of available credit. Those who go over their credit limit could have their card declined or they might have to pay a fee. Credit card users can check their monthly statement online or in person, or call customer service to see where they stand.

Building Credit

This may seem like a bit of irony, but even though consumers may be trying to be financially responsible by using a debit card whenever they can, they won’t be directly helping their credit score.

Lenders often use credit scores to determine if a person qualifies for a loan or credit card, or a better interest rate when borrowing money. It reflects an individual’s past credit history and shows how well they’ve handled credit in the past.

When someone uses a debit card to pay for goods and services, the money is coming from their own account, so it doesn’t impact their borrowing record. If you use a debit card to stay out of debt and to make car or student loan payments on time, though, it might indirectly help your credit standing.

Safety

A debit card is linked to your bank account, so if a thief gets hold of your physical card or just your card number, any money they take is yours — not the bank’s, as would be the case with a stolen credit card.

And that could cause a lot of problems if you don’t notice and report the problem swiftly, according to the Federal Trade Commission (FTC) .

Debit card use is protected by the Electronic Fund Transfer Act (EFTA), which gives consumers the right to challenge fraudulent charges. But card holders have to act with some speed to get full federal protection.

And those protections aren’t quite as substantial as the federal law that covers credit card theft, the Fair Credit Billing Act (FCBA).

If your debit card is lost or stolen, you could have zero liability if you report it before any unauthorized charges occurred. If you report a lost or stolen card within two business days, your loss may be limited to $50. But if you wait more than 60 calendar days after you receive your statement to make a report, you could lose all the money a thief drains from any account linked to your debit card.

That may sound scary, but if your debit card is backed by a credit card network (like Visa or Mastercard), you likely have the same “zero liability” protections credit card users have.

Debit Card Alternatives

If you don’t have a debit card or prefer not a use one, here are some options:

• Cash. It’s still a form of payment that’s accepted at many retail locations.

• A check. For paying bills or making purchases (typically from smaller vendors), you may be able to write a check.

• Prepaid cards (also called prepaid debit cards in some cases). Available at various retail stores, these cards hold the amount of cash you put on them. Some are meant for one-time use; others can be reloaded with additional funds through an app, direct deposit, money transfer, or with cash at a store that offers this service.

Prepaid cards usually work at any ATM or retail location that accepts the card’s payment network. However, there are pros and cons of prepaid debit cards. They tend to come with more fees and fewer protections than traditional debit cards.

Banking With SoFi

Debit cards are typically offered along with a checking account. You can use a debit card to quickly get cash, either from an ATM or by using the cash back function offered by many merchants. You can also use your debit card to purchase goods and services, and even use it for autopay. Because you are using the cash you have on deposit, you don’t accrue any interest fees, but you are likely not establishing your credit either. These cards can be a convenient aspect of your daily financial life.

Looking for a debit card that provides perks and protections but frowns on account fees? SoFi Checking and Savings may be the right choice for you. Open an account and receive a World Debit Mastercard®, which offers contactless payment, purchase protection, and a cash back rewards program. And, withdrawing cash is fee-free at 55,000+ Allpoint Network ATMs worldwide.

SoFi: Helping you spend smarter.

FAQ

Are there debit card fees?

Typically, debit card use does not incur fees. However, if you use it at a non-network ATM to withdraw cash, you could be hit with a fee. Also, if you overdraft your account when swiping, that could incur charges. Lastly, the checking account that it’s connected to may or may not be fee-free.

What do the numbers on a debit card mean?

The numbers on a debit card are similar to the numbers on a credit card: They identify the industry issuers involved and uniquely capture your account number.

Are debit cards safe?

Debit cards are typically safe, but they can be stolen or lost, which could allow someone to make unauthorized transactions. Plus, the hackers of the world are usually at work, trying to steal people’s information. That said, using a PIN helps protect transactions, and if you report the loss or theft of your debit card within two business days, your liability should be capped at $50. Some cards offer zero-liability protection.

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.

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Apr

2023

How to Save for a Vacation: Creating a Travel Fund

By Stacey Leasca | Budgeting & Goals, Life & Career, money | No Comments

Who needs a vacation? You do! The average American has almost 10 unused vacation days sitting around, according to a recent Qualtrics survey.

Why don’t we take those days off that we earned? There are a variety of reasons, such as work deadlines, childcare issues, and, of course, money…or lack thereof. Travel can get expensive, especially if you are craving a trip that involves a pricey plane ticket.

But whether your travel dreams have you strolling through Paris, eating dozens of flaky croissants, or cozied up in a cabin at a stunning state park, there’s a method to making it possible. Smart budgeting and saving tactics can help you gather the funds you need to use the PTO that’s coming to you.

Read on to learn:

• How much to save for vacation

• How to start a vacation fund

• How to grow your travel fund.

The Importance of Emergency Savings

Sure, it can be tempting to pick up on a whim and travel somewhere, without even glancing at your checking account. But that can be somewhat risky business, financially speaking. And so can prioritizing a vacation fund when you don’t have much money in the bank.

Before you think about funding a vacation, you should consider saving for life’s emergencies first. And a prime way to do that is by establishing a healthy amount of money in your emergency fund.

To build an emergency fund, a general rule of thumb is to have enough money to cover at least three to six months’ worth of expenses socked away. It’s totally okay to start off with a small fund and build your way up over time. Even depositing $20 per paycheck into the fund can be a wise start. This account may be for a true emergency, such as a car breaking down, an unexpected move, paying rent after being laid off, or a visit to the emergency room. What isn’t a good use for your emergency fund? A sale on plane tickets to Hawaii doesn’t count, sorry to say.

Beyond emergency funds, it may be a good idea to ensure you’ve paid off any high-interest debt before allocating your money toward a vacation.

How Much to Save for Vacation

Once your emergency reserves are on good footing, you can take the first step in saving for a vacation by opening a separate account earmarked for travel. Keeping it in the same bank as the rest of your money could allow you to easily keep track of how much you’ve saved. It can also make it a bit simpler to transfer extra cash into your vacation account.

• Pro tip: Many financial institutions will let you name the account, which is seriously worth doing. It might be harder to be motivated to contribute to account XXX924 than your “Valentine’s Day in Paris” Fund. Go ahead, and give it a good name so you know what you’re working towards.

• Another smart move is to automate savings. You can set up automatic deposits into this account each week or month, depending on your pay cycle and what you’re comfortable with. You could even allocate a specific amount to be auto deposited right from your paycheck. That way, it’s like you never even hit your checking account, where it can tempt you to go shopping and have a fancy dinner. You won’t see the money until you’re ready to go on vacation.

Now, about how much to save. Here are a couple of approaches to try:

• Some people like to establish an amount of their paycheck to siphon off into travel savings. Perhaps it’s 5% of your take-home pay, or an amount like $50. Once it hits a certain figure ($500 or $1,000), you can then dig in and start your specific planning.

• For many, though, building a budget makes the dream real. You can scout out transportation and lodging costs, among other items by doing online research. You can add food, entertainment, excursions, and other potential expenses and come up with the figure you’ll need. Then divide that by how long you have to save, and you’ve determined your monthly savings goal.

So if you need $2,400 for your trip and have eight months till the date you want to travel, you’ll need to set aside $300 per month.

Doing Some Research on Your Dream Vacation

As briefly mentioned, research can be the foundation of your trip planning. And it’s often a really fun enterprise, whether you are a moodboard or a Pinterest sort of person. Decide what kind of vacation you want to have — be it a surf, snow, hiking, adventure, leisure, city, or country escape — then start looking into destinations that suit your desires. Maybe a friend took a cool 30th birthday trip to Iceland that you want to emulate, or you are in search of a few budget-friendly spring break destinations. Start searching! Some guidelines:

• Once you pick a spot, you can look at things like average hotel pricing, average food cost, transportation costs (including the flight, drive, boat, or train there as well as a car rental, taxi, or ridesharing service for when you’re there), average excursion cost, and add in a bit extra for entertainment expenses.

• Don’t forget to budget for hidden fees, such as resort fees, rental fees, and taxes. You may want to call the hotel’s concierge to get those numbers if they aren’t displayed, as they can add up rather quickly. Also, you may want to ensure your number crunching includes an “extra” slush fund for those “just in case” moments.

• If hotels look to be a bit too pricey in your intended destination, you could always look for cost-cutting accommodations. There are always hostels, and some are adding amenities these days that make them less barebones.

• You might consider places that will let you stay for free in exchange for services. You could try signing up on websites like Rover to swap dog sitting services in exchange for a free place to stay. Websites like Mind My House also bring together people looking for house sitters and those looking for accommodations. Check out the listings and see if any fit your vacation needs.

Recommended: Tips for Finding Travel Deals

Saving Consistently into Your Travel Fund

If you have an estimate of how much it will cost, now you just have to figure out how to save for a vacation. Consider these ideas:

• Dividing your projected vacation cost by the months you have to save and stashing cash away is a tried-and-true method. By doing so, you can watch your trip fund grow and get you closer to your trip.

• Some people like to use round-up apps or the “change jar” method to also boost their savings.

How to start a vacation fund is simple: You make that first deposit, But next, learn some other ways to keep building towards your travel goal.

Using Windfalls to Your Advantage

While working toward your vacation, you could use any financial windfalls to your advantage. Consider these sources:

• A tax refund

• A bonus at work

• A raise at your job

• Proceeds from selling your stuff, like electronics, kitchenware, or clothes you no longer need or use.

Putting this money into where you keep a travel fund is a great way to boost your savings.

Adding a Side Hustle to Your Routine

You could always create a windfall for yourself by taking on a low-cost side hustle as you save for your vacation.

Working a side job or taking on freelance work you have the skillset for could help you save money faster to get the vacation show on the road. And the best part is, if you save using your side gig money, you won’t even need to touch your savings or primary paycheck.

Some pointers:

• Think about what you’re after: Something that will help your career in the long-term, or perhaps something that will simply earn you a bit of quick cash?

• If you’re hoping it could help your career growth, you could try tackling a side job that’s connected to your goals. For example, if you’re hoping to be a writer, scout article writing or copywriting gigs. Want to be a photographer? Build a website and offer your services.

• If it’s just quick cash you need, think local and urgent. Could you sub in at a busy cafe on weekends or do odd-jobs through various apps like TaskRabbit or Fiverr?

• Decide how much you’re willing to put into a side hustle. Often, side gigs require you to work before or after your regular nine-to-five, which could mean giving up your nights and weekends. But, again, all that extra work could pay off for either your career or your short-term goals.

Making a Little Extra Cash While on Vacation

You could always try putting your assets to work for you while you’re away to help pay for your vacation. If you own your home or apartment or your landlord allows it, you might rent your space on websites like Airbnb or VRBO. You may be able to earn a hefty sum.

Have a car? That can be rented out on websites like Turo, too.

The Takeaway

If you’re planning a vacation, dreaming about it and planning where you’ll go and what you’ll see can be a fun pursuit. But you’ll also need to save for it. That can be accomplished by saving from your paycheck, stashing away any windfalls, and putting energy towards earning additional money.

As you save, you need a good place to keep your cash securely and help it grow. The SoFi Checking and Savings Account can be a smart option. You’ll be able to easily keep track of progress on each of your vaults (including one that’s your vacation fund), you’ll enjoy a competitive annual percentage yield (APY), and other benefits. And when it’s time to travel, you can use ATMs within the Allpoint® Network without any fees.

SoFi Checking and Savings: The smart, simple way to save.

FAQ

How does a vacation fund work?

A travel fund is an account that helps you save the amount needed to take a trip. Typically, you add to it regularly (manually or by automatically depositing some of your paycheck) until you reach your goal amount. Having the money in an interest-bearing account can help you grow your money more quickly.

Where should I put vacation money?

If you want to grow your trip fund money, it’s wise to put it in a savings account where it’s liquid but earning interest. Look for a secure bank that offers a healthy annual percentage yield (APY). These high-interest or high-yield accounts are often found with no fees and low or no minimum balance requirements at online banks. Because these banks don’t have bricks-and-mortar locations, they can pass the savings onto customers.

What is a reasonable vacation budget?

A reasonable vacation budget will depend on your particular plans. Are you going to a lavish resort in the Mediterranean for two weeks or to a cabin at a local park for the weekend? Whatever your travel style may be, making a budget is critical. By researching transportation, lodging, food, entertainment, and excursion costs in advance, you can likely figure out your savings goal.

Mar

2023

15 Common Tax Forms in the United States

By Marcy Lovitch | money | Comments Off

For most people, filing a tax return means making sure you have the right forms. But with hundreds of Internal Revenue Service (IRS) tax forms out there, how do you know which ones you need to file?

The key is pinpointing which ones pertain to your individual circumstances. For example, if you’re employed, working as a freelancer, receiving Social Security, or earning income from investments, you’ll find a different form for each situation.

Weeding through the various types of tax forms isn’t always easy, but this guide can help clear up any confusion. Here, read on to learn:

• What are 15 of the more common tax forms out there?

• What do the different tax forms do?

• Who needs to file which tax forms?

The Importance of Knowing Different Tax Forms

IRS income tax forms are the official documents used to report income, expenses, and other financial transactions. In order to figure out whether or not you owe the federal government taxes or if you’ve overpaid in the past year, you’ll need to file a tax return.

A tax return consists of this documentation. While residents of all states use the same federal forms, you may also have to fill out specific state tax forms as well, unless you live in one of the nine states that do not collect state taxes on earned wages. You may also have to fill out certain forms if you live or work in a certain city as well. Check with your particular state and local tax departments or divisions to see if any additional paperwork is necessary to file at tax time.

As mentioned earlier, since there are hundreds of different tax documents, the whole process of understanding your taxes can be dizzying. That’s why knowing the exact forms you’ll need can help you feel less overwhelmed and may prevent you from making any mistakes when filing.

That’s an important point. Submitting a tax return that doesn’t report all your income can trigger an IRS tax audit. You can also incur penalties and interest if you’ve submitted a return with errors and don’t file an amended one. And, yes, there’s a form for that, too.

15 Different Types of Tax Forms

Typically, the more complicated your finances, the more tax forms you’ll probably need. For instance, if you are a freelance worker with multiple clients who also rents out your second home, you’ll have a more complex tax return than a salaried employee with no side-hustle earnings or rental income.

To help make things easier, here’s a list of common tax forms you may need as you prepare for tax season. Knowing what they are can help boost your financial literacy and your tax-filing confidence:

1. Form 1040

The 1040 form is the first step for most taxpayers when filing their annual tax return. It’s the document you use to declare your filing status, report your income, claim deductions and tax credits if you have any, and determine the amount of tax you owe or whether you’re due a tax refund.

Depending on the type of income you need to report, it may be necessary to attach additional forms, also known as schedules. These various schedule forms are used to itemize deductions, report interest and ordinary dividend income, or profit or loss through business, among others.

2. Form 1040-SR

Nearly identical to Form 1040, this document is specifically for people age 65 and older. It’s printed using a larger font so it’s easier to read. Form 1040-SR uses the same schedules and instructions as the main 1040 form and is designed to feature fewer complications than the standard 1040.

3. Form 1040-X

If you find you’ve made a mistake after you’ve filed your return, you’ll want to get Form 1040-X. This form is for taxpayers who need to fix or make amendments after previously filing their 1040 form.

4. Form W-2

Also known as the Wage and Tax Statement, the W-2 form tells you how much money you earned in the previous year and the amount of tax your employer withheld from your paycheck. The statement also supplies other very important information you’ll need when you fill out your 1040. This intel includes how much your employer paid for other benefits including health insurance, dependent care assistance, health savings account (HSA) contributions, and more.

Employers who have withheld income and Social Security should issue a W-2 to their employees and the IRS by January 31. If you haven’t received yours by then, follow up with your employer and let them know.

5. Form 1099-NEC

There are several types of Form 1099, which is a record from an entity or person other than your employer (if you’re a salaried worker) who paid you income during the year that’s subject to a self-employment tax. According to the IRS, a self-employment tax is one consisting of Social Security and Medicare taxes primarily for individuals who work for themselves.

The 1099-NEC, which the IRS rolled out in 2020, is what companies or individuals now use to report money paid to any non-employees who did work for them. If the business or employer paid the freelancer, independent contractor, or gig worker more than $600 a year in non-employee compensation, they should send you a Form 1099-NEC. The employer that paid you will also send a copy to the IRS.

6. Form 1099-MISC

Form 1099-MISC is used by businesses when reporting other miscellaneous paid income such as rents, attorney fees, royalties, commissions, prizes, or awards paid to third parties. In general, an individual will get a 1099-MISC form to report payments such as these that are not subject to self-employment taxes.

7. Form 1099-G

Form 1099-G is issued by a government agency if you’ve received certain government taxable income, such as unemployment benefits. The form also provides information on other government payments such as state and local tax refunds, credits or offsets, taxable grants, and money received from the Department of Agriculture. You’ll need to report information from Form 1099-G on your federal return.

Most states mail it out and may send more than one to you. However, some states don’t. If you need to access your state form, try obtaining it online from your state’s department of revenue or contact the department directly.

8. SSA-1099

People who receive Social Security benefits during the tax year will receive a SSA-1099 form from the Social Security Administration. The SSA-1099 form tells you how much Social Security income to report to the IRS on your tax return and is mailed out each January to people who receive benefits. The IRS will also receive a copy of this form.

If Social Security was your only type of income last year, your benefits may not be taxable and therefore, you may not need to file a tax return. However, if you have income from other sources, you may have to pay taxes on some of your benefits.

9. Form 1099-R

Individuals who have received $10 or more from their retirement plan should receive a 1099-R. Besides reporting distributions from retirement plans, the 1099-R also covers annuities, profit-sharing plans, IRAs, insurance contracts, or pensions. Additionally, any rollover transfers from one retirement account to another will also be reported on Form 1099-R. The plan issuer is responsible for sending out the form to the taxpayer, but, as with most forms, it’s on the individual to include it when filing.

10. Form 1099-INT

The 1099-INT form is used by taxpayers to report any income received from interest. This statement comes from the entity who issues the interest payments. Interest income can come from a mutual fund, brokerage, bank, or a U.S. Savings Bond.

Payers must issue a Form 1099-INT to any party to whom they paid at least $10 of interest during the year. The document includes a roundup and categorization of all types of interest income and associated expenses. People should receive Form 1099-INT from their particular financial institution, which also makes sure the IRS gets a copy. The information should be reported on your tax return.

11. Form 1099-DIV

Individuals who have received $10 or more in dividends or distributions from any type of investment, should get a 1099-DIV form from the financial institution with whom they invest. Since dividends are an extra income stream for investors, the money has to be reported to the IRS.

Investors can receive more than one 1099-DIV if their portfolio spans multiple investment funds. Any 1099-DIV form figures should be reported when filing.

12. Form 1098 Mortgage Interest Statement

If you’re a homeowner with a mortgage and paid any interest over $600, you’ll get Form 1098 from the lender. Form 1098 reports the amount of mortgage interest you paid during the year. Your lender, though, isn’t required to send you this form if your mortgage interest was less than $600. Mortgage interest can be taken as an itemized deduction.

13. Form 1098-T

The 1098-T form is sent by eligible universities, colleges, and vocational schools to students who paid qualified educational expenses in the prior year. Qualified educational expenses include tuition, books, any required enrollment fees, and course materials for those who have attended an eligible educational institution. These specific expenses may entitle you to a tax credit or an adjustment to income, according to the U.S. Department of Education.

14. Form 1098-E

Form 1098-E is a student loan tax form that reports the amount of interest paid on a student loan. Loan lenders submit a copy of this form to the IRS and send one to the borrower who paid $600 or more in interest during the tax year. On the flip side, if you didn’t pay at least $600 in student loan interest, you won’t receive any 1098-E forms. Students with more than one loan servicer will receive a separate 1098-E form from each lender.

Use your 1098-E Form to figure out your student loan tax deduction. Borrowers can deduct up to $2,500 in interest from their taxable income if they meet certain requirements, such as not being claimed as a dependent on anyone else’s tax return or not filing your taxes as married filing separately, among other circumstances.

15. Form 4868

Need more time to file your taxes? If so, you’ll want to fill out IRS Form 4868 , also called Application for Automatic Extension of Time to File U.S. Individual Income Tax Return. Form 4868 gives taxpayers an additional 6 months to file their federal income tax returns.

If you decide that you do need a tax extension, be sure to file Form 4868 by the normal April filing deadline. By obtaining the extension, you avoid any late-filing penalties as long as you file by the extended due date. However, it’s important to note that any taxes due must still be paid on time.

5 Tips for Filling Out Your Tax Forms

Now that you know a bit more about common tax forms in the United States, here’s some advice on filling out your tax return in time for the mid-April deadline.

• Start gathering your paperwork early. Give yourself time to make sure you’re not missing any tax documents. It’s better to have ample time to track them down if you don’t receive them from your employer, brokerage firm, or bank, for example.

• Enter your information on your return correctly. Avoid any headaches down the road by ensuring you’re entering the right information. Even one incorrect Social Security or tax ID number, name spelling, or not signing and dating all the relevant pages can cause problems in processing your return. If you’re filing your taxes for the first time, double-checking the details is a great habit to start.

• Have last year’s tax information handy. It might be helpful to have your federal and, if applicable, your state return accessible as a guide and good refresher of what you filed last year and the forms you used.

• Get help from the IRS. The IRS provides online instructions on how to fill out the various tax forms. You can plug in the particular form number you need help with into the search field here .

• Consider using a professional tax preparer or tax software. This is especially true if your taxes tend to be more complex, you’re strapped for time, or the thought of filling out forms yourself sends you into panic mode. Although it costs more than filing yourself, having someone else who knows exactly how to file a tax return on your side can help alleviate unnecessary anxiety and stress. The same holds true for tax software. By getting professional support in this way, you may also uncover deductions, which can lower your taxable income, that you didn’t know you were eligible for.

The Takeaway

Tax time can be stressful and confusing, especially if your tax situation is more complex. Being familiar with the types of tax returns and the specific IRS tax forms can help make things easier, especially if you’re doing the filing yourself. Keeping track of the statements you receive from employers, financial and educational institutions, loan lenders, and more can help ensure your taxes are done accurately by Tax Day.

3 Money Tips

Direct deposit is the fastest way to get an IRS tax refund. More than 9 out of 10 refunds are issued in less than 21 days using this free service, plus you can track the payment and even split the funds into different bank accounts.

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 overdraft your checking account, you’ll likely pay a non-sufficient fund fee of, say, $35. Look into linking a savings account to your checking account as a backup to avoid that, or shop around for a bank that doesn’t charge you for overdrafting.

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 tax forms are the most important?

The key tax forms most people need to know about are Form 1040 (the U.S. Individual Income Tax Return that gets filed by Tax Day); a W-2 if you’re a regular employee or contractor who has had your taxes withheld by the employer; the 1099s which reflect other forms of income than a salary; and the 1098s (mortgage interest statement, tuition payments, and the life).

How many tax forms do people file a year on average?

The number of tax forms people file will vary. Some people may only be required to pay federal taxes. Others may pay federal, state, and local taxes and therefore file different types of tax returns to reflect that. Perhaps they run a business and need to file other forms related to that. Each tax filer has a unique set of circumstances and requirements.

How many types of tax forms are there?

There are over 800 different tax forms, according to the IRS. Those are for both individuals and businesses. However, just because there is such an array of forms doesn’t mean you will wind up encountering that many. It’s perfectly possible for an individual to just receive, say, a W-2 outlining their wages, and a 1099-INT showing the interest earned on their savings account.

Photo credit: iStock/eclipse_images

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.

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.

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.

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.

SOBK1222056

Mar

2023

Opening a Foreign Currency Bank Account Online

What You Need to Know About Foreign Currency Bank Accounts

By Rebecca Lake | Financial Independence, Life & Career, money | Comments Off

A foreign currency bank account, also known as a multicurrency account, can facilitate transactions made in foreign currencies; that is, not in U.S. dollars. This can be a significant benefit for businesses. They may use multicurrency (or foreign currency) bank accounts for international transactions as well as to support operations overseas. This can offer a major convenience because of the flexibility with different currencies.

But these multicurrency accounts aren’t just for businesses. Some Individuals may also want to fund a bank account with foreign currency in certain situations. Read on to learn more about this topic, including:

• What a foreign currency account is

• How to open a multicurrency account

• The pros and cons of a foreign currency account

• The fees associated with this kind of bank account

What Is a Multicurrency Account?

A foreign currency bank account, or multicurrency account, is an account that’s designed to hold money denominated in foreign currencies. It may also be referred to as a borderless account. It is a simpler way to deal with regular deposits of foreign currencies.

The types of currencies accepted for deposit or used for withdrawals can be determined by the bank. Some of the currencies your bank may process include:

• Australian dollars (AUD)

• Canadian dollars (CAD)

• Euros (EUR)

• Great Britain pound sterling (GBP)

• Japanese yen (JPY).

As mentioned, foreign currency accounts can be opened for business or personal reasons. Businesses that operate globally may require these accounts in order to send payments to vendors or receive payments from international clients.

You might open a foreign currency account for yourself, as an individual, in a few different circumstances. Perhaps you live or are working abroad, Or maybe you regularly make payments overseas or need to send money to friends and family internationally.

How Does a Multicurrency Account Work?

With a multicurrency account, you are able to deposit, hold, and send money in different currencies, just as the name implies. Depending on the financial institution, you may be able to earn interest on deposits, as well.

You may be able to convert funds back and forth into foreign currencies as needed without paying the usual fees associated with these operations.

A multicurrency bank account that’s set up as a savings account might follow typical savings account rules. For example, the bank may limit you to six withdrawals from the account per month (though these regulations have been loosened since the COVID-19 pandemic; check with your financial institution). If that limit applies and you exceed it, the bank may impose an excess withdrawal fee. Keep in mind that any fees assessed for a foreign currency account may be processed in U.S. dollars.

Multicurrency accounts at Federal Deposit Insurance Corporation (FDIC) member banks enjoy FDIC protection, up to the established limit. The FDIC insures banking customers up to $250,000 per depositor, per financial institution, per ownership category. This may well reassure you about the safety of your funds.

One thing to note is that foreign currency bank accounts aren’t used for forex trading. If you’re interested in trading foreign currency as an investment, you’d need to open a separate brokerage account for that. There are a number of online brokerages that offer the option to trade forex alongside other investments, such as stocks and exchange-traded funds (ETFs).

Typical Requirements to Apply for a Foreign Currency Bank Account

If you’re interested in opening a foreign currency account, it’s important to know what documents you’ll need. That way, you can gather the necessary materials and speed through the application process. The specifics can vary from bank to bank but generally, you must:

• Be of minimum age to open an account, typically 18 or 19

• Have a valid, government-issued form of identification

• Provide identifying information, including your name, address, date of birth and Social Security number

• Meet minimum-deposit requirements

• Provide proof of income and employment

The requirements to open a foreign currency account aren’t that different from those for a foreigner opening an account in the U.S. Whether you can apply for a foreign currency bank account online or not will depend on the bank. Some banks do allow you to start the application online, while others require you to open an account over the phone or in-person at a branch. Check with yours to learn the exact protocol.

You may also need to already have at least one other account open with the bank before you can apply for a multicurrency account. If the bank imposes this requirement, you may also need to maintain a specific minimum balance in that account to qualify.

Pros of Foreign Currency Account

If you’re curious about multicurrency accounts, it may well be because you are tangled in some red tape as you try to bank in, say, both U.S. dollars and euros. A foreign currency bank account can help meet certain money management needs, like toggling back and forth between two kinds of currency.

Here, the pros of multicurrency accounts.

• When you deposit funds into your account, you can hold it as multiple currencies, including leftover foreign currency from travel, in one place. You don’t have to exchange foreign currency before you can use it.

• You typically avoid foreign transaction fees you might otherwise incur.

• Being able to switch among different currencies could allow you to leverage the most favorable exchange rates.

• You may be able to earn interest on your balances.

• If the institution where your account is has FDIC insurance, you are covered for $250,000 per depositor, per ownership category, in the rare event of a bank failure.

• Multicurrency bank accounts can be used for personal or business purposes.

• Sending payments or money in foreign currencies can be more convenient.

A foreign currency account could also come in handy if you travel. You can use a linked debit card to make purchases or withdraw cash in each country you visit, without having to get traveler’s checks from your bank.

So how do traveler’s checks work? If you’ve never used them, you might not know that these are paper financial instruments that can be used the same way you would a paper check or cash. Thanks to the convenience of credit cards and debit cards, however, travelers don’t need to rely on them as much to make payments when visiting destinations outside the U.S.

Cons of Foreign Currency Account

While a multicurrency bank account might be appropriate in some situations, there are a few drawbacks to consider. Specifically:

• Your financial institution might charge you account and minimum balance fees the same as you might pay for any other bank account.

• Interest rates and APYs may be low.

• Initial deposit requirements or minimum balance requirements may be on the higher end.

• Changing currency rates can affect the value of the money in your account.

Another drawback of foreign currency accounts is that not all banks offer them. And some banks may only offer these accounts for businesses, not individuals.

Multicurrency Account Fees

Foreign currency accounts can have fees, just as any other type of bank account may. Depending on the bank, some of the fees you might pay include:

• Monthly maintenance fees

• Excess withdrawal fees (for savings accounts)

• Overdraft or non-sufficient funds (NSF) fees

• Foreign transaction fees

• Currency conversion fees

When comparing multicurrency bank accounts, take time to review the details thoroughly. It’s important to understand which currencies you can hold, which fees you might pay, and whether you’re required to maintain a minimum balance in the account.

Once you’ve scoped those details out, see if the benefits of this kind of account will outweigh the fees. It could wind up being a good way to simplify your banking life if your financial life requires frequent foreign transactions.

The Takeaway

Foreign currency accounts can simplify money management if you regularly send or receive money in currencies other than U.S. dollars. Opening one of these multicurrency bank accounts is not that different from opening any other type of account. It can be a major convenience if your daily life involves receiving and/or sending funds overseas — and a good way to take control of your international financial life.

If you’re looking for checking and savings accounts for your everyday finances, try banking with SoFi. Our Checking and Savings Accounts, when opened with direct deposit, offer you all kinds of terrific perks, like a competitive APY, zero account fees, and, for qualifying accounts, access to your paycheck up to two days early. Plus you’ll enjoy 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

What is the purpose of a multicurrency account?

A multicurrency or foreign-currency bank account allows you to receive, hold, and send funds in more than one currency. This can be convenient for businesses and individuals who frequently make international transactions and would like to have an account that recognizes multiple currencies.

What types of banks offer multicurrency accounts?

Many but not all banks offer multicurrency accounts. Some of the U.S. banks that offer foreign currency accounts at press time include Citi, HSBC, and TIAA Bank. For businesses, Wells Fargo and PNC offer foreign currency accounts. You can contact your current bank to find out if multicurrency accounts are available.

How does a multicurrency account work?

A multicurrency bank account allows you to deposit, keep, and send funds in more than one currency. You can decide if you keep the funds in different currencies or convert them. This kind of account can help you conduct international transactions without necessarily paying all the usual fees involved.

Photo credit: iStock/RgStudio

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.

SOBK0123030

Mar

2023

FDIC Insurance: What It Is And How It Works

By Kim Franke-Folstad | Budgeting & Goals, money, Terminology | Comments Off

With the Federal Deposit Insurance Corporation (FDIC) recently in the news, many people are wondering what the FDIC is, exactly, and what it does.

The Federal Deposit Insurance Corporation, or FDIC, is an independent agency of the U.S. government. In the unlikely event of a bank failure, it protects you and reimburses your deposits, typically up to $250,000 per depositor, per insured bank, per account ownership category.

People often take the FDIC guarantee for granted now, but it was created from a very real need and has kept many people and their money safe.

Here, you’ll learn more about this important aspect of banking, including:

• What the FDIC is

• What the FDIC does

• How does the FDIC work

• Which accounts are and are not eligible for FDIC protection

What Is the FDIC?

The FDIC is the shorthand way of referring to the Federal Deposit Insurance Corporation. It is an independent agency created by Congress in 1933, after the Great Depression, when thousands of banks failed. The goal was to shore up confidence in the U.S. financial system and protect Americans from losing their cash if their bank failed.

In January 1934, the FDIC began insuring deposits, covering them up to $2,500. That number has increased through the years, of course, most recently with the Emergency Economic Stabilization Act of 2008. President George W. Bush signed the act to temporarily raise FDIC insurance coverage from $100,000 to $250,000 per depositor during the financial crisis. President Barack Obama made the coverage hike permanent in 2010 with the signing of the Dodd-Frank Wall Street Reform and Consumer Protection Act.

It’s important to note how this insurance works: The standard coverage is $250,000 per depositor, per insured bank, for each account ownership category. Joint accounts may be covered up to $500,000.

What Does the FDIC Do?

Since its creation, no depositor has lost any money from an FDIC-insured deposit. This means that, unlike your great-grandparents, you can put your money into an eligible financial institution, whether a savings vs. checking account or other qualifying account, and know it’s more secure than stuffing it under your mattress. (Yes, that used to be a thing for many savers.)

Also of note: Though it’s the customers’ money that’s covered by the FDIC, the agency is funded by premiums paid by the banks and from earnings on investments in U.S. Treasury securities. Customers do not pay for this insurance; they are automatically covered when they open an FDIC-insured account.

There are rules and limits you should know about, however, if you want to make the most of the FDIC’s coverage.

Types of Accounts Insured by the FDIC

The FDIC insures all deposit accounts at insured banks and savings associations up to the FDIC’s limits, including:

• Checking accounts

• Savings accounts

• Money market accounts

• Certificates of deposit (CDs)

• Prepaid cards when the underlying funds are deposited in an insured bank (these funds are only insured in the instance of bank failure, not loss or theft)

• Certain retirement savings accounts, but only when placed in certain types of investments and in accordance with all FDIC requirements.

Deposit accounts, such as checking and savings accounts, money market deposit accounts, and certificates of deposit, can all be held in traditional IRAs and Roth IRAs and are eligible for FDIC insurance.

How to Tell if Your Money Is FDIC-Insured

How can you tell for sure if your account is covered? While the FDIC insures deposits in most banks and savings associations, not all of them are protected. Every FDIC-insured depository institution must display an official sign at each teller window or teller station, so that’s an easy way to check if you bank at a brick-and-mortar location.

If you’re using an online bank or a mobile-first financial product, the company’s website should contain information about its coverage.

Or you can find out if your deposits are insured by using the FDIC BankFind tool .

Types of Accounts Not Insured by the FDIC

Now, here are the kinds of funds not covered by FDIC insurance. Money held in these ways, even if purchased from an insured financial institution, is not protected:

• Stocks

• Bonds

• Annuities

• Mutual funds

• Municipal securities

• Life insurance policies

• The contents of a safety deposit box

This is an important point to note as you think about your financial security.

Also, you may wonder about the FDIC vs. NCUA in terms of protecting your finances. The National Credit Union Administration (NCUA), created by Congress in 1970, covers federally insured credit unions in much the same way as the FDIC covers banks, including deposits up to $250,000. If your funds are held at a credit union, you may want to make sure it has NCUA coverage. The FDIC will not be protecting you, but it’s likely the NCUA is.

How FDIC Insurance Works

Here’s more important intel if you’re wondering, How does the FDIC work?

The FDIC covers your holdings in certain accounts, as listed above. What amount of money is insured in a bank account? Usually, the limit is $250,000. It is calculated to cover both principal and interest earned by the depositor. If you have an account that has $200,000 in it and has accrued $20,000 in interest, you will be covered in the amount of $220,000.

As mentioned above, there is a standard $250,000 cap on FDIC insurance. If you have high net worth, this coverage may not be enough. As a result, you may want to keep in mind that by having money in excess of that amount in one bank or one account, you may be putting yourself at risk.

Because the $250,000 applies to each bank where you have an account, one way you may be able to increase the FDIC insurance coverage available to you is by using multiple banks.

Another option is to structure your accounts properly within a single bank. If you have any concerns about your coverage, it can be a good idea to discuss them with a representative at your bank.

Quick Money Tip: Most savings accounts only earn a fraction of a percentage in interest. Not at SoFi. Our high-yield savings account can help you make meaningful progress towards your financial goals.

What Happens if a Bank Fails?

If a bank were to fail, the FDIC would intervene in two ways:

• The FDIC would pay depositors up to the insurance limit to cover their losses. So, if you had $10,500 in an insured account and the bank failed, you would be reimbursed for that amount. Typically, this happens within a few days after a bank closes.

• The FDIC also takes responsibility for collecting the assets of the failed bank and settling its debts. As assets are sold, depositors who had more than the $250,000 limit in an insured account may receive payments on their claim.

How to Recover Your Money if a Bank Fails

Because of the FDIC safety net, you won’t likely see fearful customers lining up to get their money the way they did before deposit insurance was established.

Still, when a bank closes, it can cause depositors to worry and wonder how to get their money. Typically, there are one of two scenarios when a bank fails:

• Most commonly, you would become a depositor at a healthy, FDIC-insured bank. You would have access to your insured funds at this new bank and could likely choose to keep your accounts there if you like.

• If there is not a healthy, FDIC-insured bank that can step in quickly, the FDIC will likely pay the insured depositor by check within as little as a few days after the bank closes.

As for immediate next steps if you learn your bank is closing, the FDIC aims to post information as promptly as possible, or you can contact the agency at 877-ASK-FDIC or visit the FDIC Support Center website .

The Takeaway

Though it’s quite a rare occurrence, a bank can fail when it takes on too much risk or, as was the case recently, was exposed to interest rate risk. If your bank is covered by FDIC insurance you can receive reimbursement up to $250,000, meaning your funds aren’t lost for good. FDIC insurance covers checking, savings, money market accounts, CDs, and other deposit accounts.

The FDIC does not cover some of the other financial products or services offered by banks, including stocks, bonds, mutual funds, annuities, and securities.

Putting your money in a brick-and-mortar financial institution isn’t the only way to make sure it’s protected. SoFi Checking and Savings is a mobile-first online bank account that keeps your hard-earned dollars safe; all accounts receive FDIC insurance of up to $250,000 per member.

What’s more, we offer an array of great features that can make managing your money easier, such as spending and saving in one convenient place and using savings tools such as Vaults and Roundups. Plus, you’ll earn a competitive annual percentage yield (APY) and pay no account fees, both of which can help your money grow faster.

Want security, convenience, and no account fees? Bank smarter with SoFi.

FAQ

How often does a bank fail?

Currently, banks fail very rarely. In the past two years, no banks failed in the United States. However, the FDIC was created in response to thousands of bank failures around the time of the Great Depression.

How does the FDIC differ from the NCUA?

FDIC insurance applies to qualifying accounts at banks. NCUA insurance covers qualifying accounts at credit unions.

How many banks are FDIC insured?

As of September 2022, the FDIC insured a total of 4,746 institutions. Of these, 4,157 were commercial banks, and 589 were savings institutions.

Are credit unions FDIC-insured?

Credit unions don’t qualify for FDIC insurance. Instead, they may be covered by the National Credit Union Administration, or NCUA, insurance.

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.

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.

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.

SOBK1222032

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Debit Cards Defined

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How Do You Get a Debit Card?

Get up to $300 when you bank with SoFi.

Where Can You Use a Debit Card?

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Is There a Difference Between a Debit Card and an ATM Card?

Is it Better to Use a Credit Card or Debit Card?

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Get up to $300 when you bank with SoFi.

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How does a vacation fund work?

Where should I put vacation money?

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15 Common Tax Forms in the United States

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1. Form 1040

2. Form 1040-SR

3. Form 1040-X

4. Form W-2

5. Form 1099-NEC

6. Form 1099-MISC

7. Form 1099-G

8. SSA-1099

9. Form 1099-R

10. Form 1099-INT

11. Form 1099-DIV

12. Form 1098 Mortgage Interest Statement

13. Form 1098-T

14. Form 1098-E

15. Form 4868

5 Tips for Filling Out Your Tax Forms

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FAQ

What tax forms are the most important?

How many tax forms do people file a year on average?

How many types of tax forms are there?

What You Need to Know About Foreign Currency Bank Accounts

What Is a Multicurrency Account?

How Does a Multicurrency Account Work?

Get up to $300 when you bank with SoFi.

Typical Requirements to Apply for a Foreign Currency Bank Account

Pros of Foreign Currency Account

Cons of Foreign Currency Account

Multicurrency Account Fees

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What is the purpose of a multicurrency account?

What types of banks offer multicurrency accounts?

How does a multicurrency account work?

FDIC Insurance: What It Is And How It Works

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