Apr
24
2023
25 Ways to Cut Costs on a Road Trip_780x440

25 Ways to Cut Costs on a Road Trip

By | Budgeting & Goals, Financial Independence, money | Comments Off on 25 Ways to Cut Costs on a Road Trip

Summer is full of simple pleasures: baseball games, barbecues, beach reads, and that great American classic, the road trip. Whether you are heading to a national park or a local lake, on a wine-tasting getaway, an antiquing jaunt, or just to hang with your college roommate, a road trip can be exciting, easily wrangled, and spontaneous.

But if you’re wondering how to save money on a road trip, a little bit of planning can go a long way to keep costs under control.

Learn how to minimize expenses when you head out on a summer road trip, from deciding which vehicle to use, where to get gas, how to eat on the road, and more. Here, 25 easy ideas for road tripping on the cheap.

1. Choose a Fuel-Efficient Car

If you have a choice of cars to take, you may want to go with one that is large enough to be comfortable but also gives you the best gas mileage. This is true whether you are using your own wheels or renting a car.

You can use FuelEconomy.gov’s Trip Calculator to determine which car will cost you the least in gas. This tool helps estimate fuel consumption and how much it will cost for a particular route using a specific car.

2. Drive at or Below the Speed Limit

This cautionary measure can help you save money in two ways. For one, you’ll be less likely to get pulled over and slapped with an expensive speeding ticket.

For another, observing the speed limit can actually reduce your gas consumption. In fact, according to the U.S. Department of Energy, you can save 18 cents a gallon on highways for every five miles per hour you slow down.

3. Pack Your Car Wisely

You can also cut your gas costs by placing items inside the car or trunk rather than piling them on your roof. By reducing drag, this tactic can increase your fuel economy by as much as 25% on highways according to one benchmark study.

If you’re out of room in the car, using a rear-mounted cargo box or tray instead of a roof rack can improve your fuel economy by up to 9%.

4. Set a Road Trip Budget

When you first start talking about the road trip, you may want to roughly map out where you want to go, how long it’ll take to get there, and if you’ll need hotels or motels. From there, you can calculate the approximate cost of gas (FuelEconomy.gov can help) and tolls (try Tollsmart ), as well as food and fun.

Once you’ve established an overall budget for the trip, you start creating a travel fund.

5. Bring Your Own Food and Supplies

Packing a cooler with water bottles, drinks, hand-held snacks, and sandwiches before leaving home is a proven frugal traveler trick. You can end up saving a sizable chunk of cash by not having to buy drinks and snacks at rest stops, vending machines, and drive-throughs.

You’ll also have a quick solution the next time someone in the car wants to pull over because they’re hungry.

6. Sign up for an Electronic Toll Account

Depending on which state(s) you are traveling through, you may be able to save a fair amount of money on tolls by getting the region-appropriate quick pass (or transponder) for your car. In New York, for example, drivers with EZ-Pass can save about 30% on tolls.

7. Avoid Tolls Altogether

When your road trip isn’t on any set schedule, you may want to take the scenic route and completely avoid tolls. You can do this by setting your GPS app to “avoid tolls.”

If you’re in a location with pricey bridges and highways, your savings could really add up. You may want to make sure, however, that avoiding tolls doesn’t take you so far out of your way that you’re spending a lot more on gas.

8. Look for Hotels that Offer Free Breakfasts

If you’re comparing lodging options in a similar price and quality range, one way to save on hotel costs and on road trip expenses in general is to choose the hotel with a free breakfast.

Not only will you probably get a large, filling meal, but you might even be able to take a piece of fruit or cereal box as a snack for later on in the trip.

9. Pack Reusable Water Bottles for Everyone

You’ll no doubt get thirsty while driving and sightseeing, especially in summer, and buying water or drinks can put a major dent in your road trip budget.

Making sure everyone in the car has a large reusable water bottle (or two) to fill up at rest stops and in restaurants can help you avoid spending money on drinks, and also create less plastic waste.

10. Buy a National Park Pass

If you’re going to be road-tripping across the U.S. and visiting a few national parks, you may want to consider getting an America the Beautiful pass.

The pass (which costs $80 per year and $20 for seniors) covers entrance, standard amenity, and day use fees for a driver and all passengers in a personal vehicle (up to 4 adults) at more than 2,000 federal recreation sites.

Just remember that summer is primetime for many parks, from Yosemite in California to Acadia in Maine. If you need lodging, book early.

11. Hit the Grocery Store

Once you’ve run out of your cooler meals and snacks, consider re-stocking at a local grocery store while en route so you don’t have to resort to fast food or a pricey local restaurant for the rest of your trip.

This is also a good strategy if you’re going to be staying at a hotel for a few nights. Making good use of a hotel kitchenette and fridge can help you avoid having to eat out for every single meal.

12. Pre-Book Your Hotels

Spontaneity is great, but if you’re looking to save money on accommodations, it can be wiser to book ahead of time and stick to your plan. You can often secure a better rate by booking in advance (and online), than by showing up without a reservation or booking last minute.

13. Look Beyond Hotels

Your first thought when looking for roadside accommodation may be cheap hotels or motels. But you sometimes find a better deal (or a nicer option for the same price) using a home rental site, such as Airbnb, VRBO, or FlipKey, especially if you’re staying for more than one night.

When booking lodging, it can be smart to use a travel credit card or a cash back rewards credit card, since every swipe can help you earn points, miles, or cash back that you might apply to future trips.

14. Plan to Visit Free Attractions

Part of the fun of a road trip is to enjoy the journey and scenery while en route to your final destination.

As you travel (or before you go), you may want to research free attractions, such as a hike, walk on a beach, or a free museum, on your route for times when you need to stretch and take a driving break.

You can also look for festivals and local events by checking out the online events calendar for the towns you’ll be visiting that day. You might also check out Meetup.com and see what kinds of local groups are gathering for experiences and outings.

15. Plan Gas Stops in Advance

Getting stuck in a big city with the tank close to empty can be costly (and driving in circles looking for a gas station when you’re en route to the beach is no fun either). To avoid overpriced gas, you may want to use a gas app like Gas Guru or GasBuddy, which can help you compare prices and find affordable gas no matter where you are. This hack is an easy way to lower your gas costs.

16. Set a Daily Spending Limit

You can use your overall budget to get a rough idea of how much you can spend on the road trip each day. This can help you avoid blowing the money you’ve saved, wherever you may keep your travel fund, before the end of the trip.

A spending plan can also let you know when you can splurge a bit and when you’ll have to reign it in with a meal, activity, or lodging. You may also want to set aside some of your budget for the unexpected, such as the car getting a flat and needing to be towed, or discovering the cheap hotel you planned to stay in is actually a total dump. Also factor in some summer road-trip treats: You’re likely to be stopping for ice cream here and there and maybe even a lobster roll.

17. Entertain the Kids on the Cheap

Road trips can help you afford a family vacation since you sidestep pricey plane tickets. But remember that kids have a tendency to get bored, tired, and antsy on a road trip. To avoid giving in to impulse toy purchases, you may want to bring along their favorite toys and also pick up a variety of new ones at the dollar store before you leave.

Good choices include coloring books and games they can play in the car that won’t create a mess. You might also consider borrowing audio books or DVDs from the library to give yourself an hour or so of peace and quiet.

18. Search Online for Local Coupons and Passes

It can be worthwhile to research online coupons and discount codes for local attractions and restaurants at some of your scheduled stops.

Consider checking Groupon or LivingSocial for deals and steals. Sometimes booking online ahead of time saves you money, and it’ll give you a reason to try to reach a specific destination by a certain day.

19. Save on Alcohol

Sipping a cold beer or glass of wine at a local bar at the end of your long drive might sound like the perfect way to unwind.

But alcohol costs can quickly add up on a road trip vacation. Consider buying a few local beers or a small bottle of wine that’s native to that area to enjoy in your hotel room. You’ll save money on tipping too.

20. Volunteer at a Festival

Yes, you read that correctly. Some festivals and special events offer discounts or free admission to volunteers. You can look up events taking place in the town you’ll be visiting and reach out to the event organizer to see if they need help. Summer is full of events like these, from concerts to craft fairs to food festivals.

21. Sign up for a AAA Membership

An auto club like AAA can save you time, money, and hassle should you run into car trouble during your trip. What’s more, a membership (often starting at around $5 a month) gives you access to discounts at loads of hotels, restaurants, and many retailers nationwide.

22. Travel During the Off-Season

Yes, summer can be the most welcoming time of the year to hop behind the wheel. But visiting national parks when kids are back in school can often help save money on lodging and activities. Planning a road trip to a destination like Disney World or Disneyland? You’ll likely find better deals if it’s not during a spring break or other school vacation.

You can often also save money by visiting warm weather locations during “shoulder seasons.” This is the period in between a destination’s low and high seasons of tourism, when prices for hotels tend to be lower, and crowds tend to be smaller, at popular attractions.

23. Do Some Camping

Outdoorsy road trippers might enjoy setting up a tent at a free or low-cost public campsite. You can find out more on the Bureau of Land Management site.

This can end up saving you a lot of money on hotel costs, provided you don’t go out and buy a lot of expensive camping equipment.

If you don’t have any camping gear, you may want to consider renting equipment from an outdoor specialty store or asking a friend who regularly goes camping if you can borrow their equipment. As noted above, summer can be prime time for basking in some of America’s natural beauty, so book your campsite early.

24. Eat Out for Lunch Instead of Dinner

If there are special restaurants you want to try without breaking the bank, consider going there for lunch. You might get a slightly smaller portion than you would if you ordered it off the dinner menu, but the price will likely be more affordable.

25. Take Advantage of Loyalty Programs

Booking with the same hotel chain as often as possible and signing up for their member loyalty (or “points”) program may net you a free night after a few stays.

Travel booking services, such as Expedia, Travelocity, or Hotels.com, may also offer discounted rates and free nights for loyal customers.

Recommended: Getting the Most Out of Credit Card Rewards

The Takeaway

Planning a summer vacation? A car trip might sound much more affordable than traveling by plane. However, gas, food, and accommodations can add up.

One of the best ways to cut road trip expenses is to plan out your trip and research deals, coupons, and discounts ahead of time. Packing wisely and loading up on drinks, snacks, toys, and activities can also help cut costs once you’re out on the road.

Ready to start planning and saving for your next road trip? Consider signing up for a SoFi Checking and Savings® account.

SoFi Checking and Savings has a special “vaults” feature that allows you to separate your savings from your spending, while earning competitive annual percentage yield (APY) on all of your money and paying no account fees. You can even set up a separate vault for your travel fund.

SoFi Checking and Savings: The smart, simple way to save for your next trip.

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

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

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20
2023
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Ways to Be a Frugal Traveler

By | Budgeting & Goals, money | No Comments

If you love to travel, chances are, you have your eyes open for good deals. Wouldn’t you like to get a hefty discount off the usual airfare rates? Sure. An upgrade from a standard hotel room to a junior suite with a terrace? But of course! And clever hacks that help your dollars go further whether you’re sipping a cocktail, signing up for a surfing class, or shopping? Yes, yes, and yes.

Being a frugal traveler can deliver those perks and pad your bank account. With a little research and knowledge of some insider tips and tricks, you can have a great experience on vacation and cut costs, too.

Want to be a more frugal traveler? To snag some bargains on your next trip, try these smart tactics.

Time Your Trip Right

One of the first steps in becoming a frugal traveler is picking a place where you want to go and can also afford to go. The good news is that no location is necessarily off-limits, as long as you can be flexible on the timing of your vacation.

While you’re not likely to get a great deal on a hotel on Cape Cod for Fourth of July weekend or a cheap flight to the Caribbean over Christmas, you may be able to score a sweet deal if you decide to go to either of those places during what is referred to as “shoulder season.”

The term “shoulder season” is used by professional travelers and agents around the world to denote the time in between busy seasons in any given destination.

It may be viewed as a less desirable time to visit by some travelers, but to the seasoned voyager, it’s often seen as the ideal time to go. Not only may you find better deals on flights, accommodations, and more, but you can also avoid the intense crowds you may encounter during the high season.

Take Mexico as an example. According to Frommer’s, Mexico’s high season begins around December 20, peaks over New Year’s, then winds down at the end in April.

If you plan a visit during this time, you can expect to pay a premium on just about everything, from your plane ticket to those tacos al pastor, as you’re competing with other travelers for space.

If you opt to visit just prior to this, say in November, or just after, in May or June, you will likely be able to find better deals. Since there will be fewer people around, you might be able to take excursions with smaller groups, get restaurant reservations at highly sought-after spots, and even luck out with a free room upgrade at your hotel.

Recommended: How Families Can Afford to Travel on Vacation

Find Flight Deals

One of the most expensive parts about traveling is the actual act of travel itself. While driving can sometimes be a cheaper mode of transportation, it might not be an option depending on the destination you have in mind.

But there are still ways you can save. Here are a couple of travel hacks that may help you get better deals on airfare.

Use the big travel sites. Sites like Expedia, Booking.com, and Kayak search multiple airlines for the best deals and can often offer you clever ways to lower your costs. For instance, they can tell you whether prices for your itinerary are likely to rise or fall in the near future. They can show you how much you can save if you are flexible with your dates or are willing to fly out of a nearby airport rather than your closest possible hub. For instance, if you’re Paris-bound from the New York City area, you might get a better deal departing from Newark, NJ, vs. JFK airport in the city itself.

What’s more, these sites sometimes offer clever hacks, such as flying outbound on one airline and back on another to save you cash. They can also keep you posted on new deals that become available on your route if you’re not ready to buy right away.

Sign up for email alerts. Some good news for busy travelers: There are other sources for flight pricing alerts beyond the big travel sites. For instance, if you are willing to subscribe to an email newsletter, you might try Next Vacay. It’s a website where users can input their destination, then simply wait for the site to send them daily emails with flight deals. You may also want to check out Skyscanner, which allows users to set alerts for price drops so you can strike when the iron is hot.

Some of these services will send you deals for both your destination and others in case you need a little inspiration. You may also want to download a few travel apps that will send you price alerts as well.

Work that airline credit card. If you have a preferred airline or airline network, you can earn points or miles with an airline credit card that can be applied to the cost of flights or help you snag upgrades.

Book at the right time. There used to be a rule that Tuesdays were the best (cheapest) day to go flight shopping, but a recent Google Flights study found that you won’t really save much that way, maybe just 1.9%.

However, you are likely to get a nice price if you purchase your ticket well in advance of your travel date (around three months for domestic travel and often six to 10 months for international) or else be spontaneous and book your flights last minute. And it is true that you are likely to save if your flights are on a midweek date or a Saturday; that can shave the price versus heading off on vacay on a Friday, along with everyone else.

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Score Deals on Accommodations

Ready to save on hotel costs on your next vacation? Try these smart tactics:

•   Hotels base prices on supply and demand, so when there is less demand (say, in shoulder season), prices tend to fall. Beyond the season, you can also try looking into checking in and out on less popular days.

If you can check in at a vacation destination on a Monday and out on a Friday, for instance, you may be able to save, since mid-week pricing can be cheaper than weekends.

•   Even if you’re booking at a travel site, it’s also a good idea to frequently check the website of any hotel you’re interested in staying at. There, they may announce different deals and sales. At the very least, you may be able to spot a free room upgrade or free breakfast.

•   It can also be wise to sign up for a travel credit card. These can help you earn points to apply to future travel and offer perks at your favorite hotel chain.

Entertain Yourself on a Frugal Vacation

While you’re traveling, you’re likely going to want to participate in activities. And you can likely find ways to save on those also.

In a new place, try googling a few free walking tours, which can give you a wonderful sense of a place without having to spend a dime (though it may be polite to tip your tour guide afterwards).

For cheap or discounted tickets to local attractions, consider checking out sites like Groupon, Airbnb Experiences, Meetup, and local tourism boards.

You may also want to ask your hotel front desk at check-in for tips on things to do and see. Hotels often have partnerships with area attractions and may be able to provide you with a discount.

For restaurants, it can be a bit harder to save, but if there’s one fancy place you’ve simply been dying to try, you can often save a fair amount by going for lunch rather than dinner.

Recommended: How to Balance the Urge to Travel and the Need to Save

Set a Travel Budget

Establishing a budget, and then starting to save for your vacation, can be a key part of the frugal traveler planning process. That’s because your budget can help determine not only where you can go, but what you can do while you are there.

A travel budget can help you to narrow down your choices and also make sure that you are able to enjoy your trip without having to worry that you are spending more than you can afford.

Below are some categories you may want to include in your budget:

Transportation costs: When budgeting for a trip, you’ll want to decide if you’re going to fly, drive, or take the train. For driving (perhaps you’re going to be touring some national parks), consider costs like gas and wear and tear on your car. If you don’t have a vehicle you can use, look for ways to save on renting a car, such as not picking it up at the airport but at a nearby location. You’ll need to account for taxes, insurance, and other related expenses. For flying, you’ll want to be sure to include ticket price, baggage fees, airport parking, and destination car rental or taxi.

Lodging: Accommodation costs can seem clear, but you’ll want to be sure to ask about any resort fees and taxes so you can add it to your budget.

Food: It can be a good idea to come up with a cost for breakfast, lunch, and dinner (including tips) for everyone you’re traveling with. If your hotel offers free breakfasts, you can put that cost towards another meal. Or maybe you’re renting an apartment and can cook while traveling. You’ll still need a grocery budget.

Activities: You’ll want to have a budget for daily activities and entertainment for each participant in your group. Many museums, for instance, can have steep entrance fees, so you may want to search ahead to see what likely costs are. If you’re planning a special outing, like a Jeep tour to see cave paintings in the Southwest, don’t forget to allow for a tip for the driver.

Extras: You never know when an emergency, a fun activity, or an unplanned happy hour will arise. Adding a buffer to your vacation budget can help you prepare for these extra expenses. You might also want to budget for travel insurance or see if your credit card travel insurance offers good coverage.

Once you add up all the costs, you can start saving up for your vacation. You could even create a secondary savings account titled “travel fund” so you’ll be even more excited to save.

The Takeaway

Vacations can be costly, especially if you’re traveling with a family. But with a little bit of research and advance planning, you may be able to significantly reduce the price of your next trip.

Simple frugal traveler tricks, like traveling off-peak, signing up for travel newsletters, booking your flight around two months ahead, and pre-scouting free and discounted local activities, can help you reduce costs without having to skimp on fun.

You can also make traveling more affordable by setting a budget, saving up for your trip in advance, and staying as close as possible to your spending plan while you are away.

SoFi Travel has teamed up with Expedia to bring even more to your one-stop finance app, helping you book reservations — for flights, hotels, car rentals, and more — all in one place. SoFi Members also have exclusive access to premium savings, with 10% or more off on select hotels. Plus, earn unlimited 3%** cash back rewards when you book with your SoFi Unlimited 2% Credit Card through SoFi Travel.

SoFi, your one-stop shop for travel.

**Terms, and conditions apply: The SoFi Travel Portal is operated by Expedia. To learn more about Expedia, click https://www.expediagroup.com/home/default.aspx.

When you use your SoFi Credit Card to make a purchase on the SoFi Travel Portal, you will earn a number of SoFi Member Rewards points equal to 3% of the total amount you spend on the SoFi Travel Portal. Members can save up to 10% or more on eligible bookings.


Eligibility: You must be a SoFi registered user.
You must agree to SoFi’s privacy consent agreement.
You must book the travel on SoFi’s Travel Portal reached directly through a link on the SoFi website or mobile application. Travel booked directly on Expedia's website or app, or any other site operated or powered by Expedia is not eligible.
You must pay using your SoFi Credit Card.

SoFi Member Rewards: All terms applicable to the use of SoFi Member Rewards apply. To learn more please see: https://www.sofi.com/rewards/ and Terms applicable to Member Rewards.


Additional Terms: Changes to your bookings will affect the Rewards balance for the purchase. Any canceled bookings or fraud will cause Rewards to be rescinded. Rewards can be delayed by up to 7 business days after a transaction posts on Members’ SoFi Credit Card ledger. SoFi reserves the right to withhold Rewards points for suspected fraud, misuse, or suspicious activities.
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SoFi® Checking and Savings is offered through SoFi Bank, N.A. ©2024 SoFi Bank, N.A. All rights reserved. Member FDIC. Equal Housing Lender.
The SoFi Bank Debit Mastercard® is issued by SoFi Bank, N.A., pursuant to license by Mastercard International Incorporated and can be used everywhere Mastercard is accepted. Mastercard is a registered trademark, and the circles design is a trademark of Mastercard International Incorporated.

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

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

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

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

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

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

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

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

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Apr
17
2023
Business vs Personal Checking Account: What's the Difference?

Business vs Personal Checking Account: What’s the Difference?

By | Budgeting & Goals, money | Comments Off on Business vs Personal Checking Account: What’s the Difference?

They say you should never mix business with pleasure — and that applies to bank accounts, too. If you’re a freelancer, small business owner, or entrepreneur, chances are opening a business checking account could be a good move for you.

While both business and personal checking accounts allow you to safely store money and utilize those funds to pay bills and expenses, there are some important differences that make a business checking account a good idea for most folks who work for themselves. In fact, depending on the structure of your business, you may be legally obligated to open a business bank account — which is a pretty compelling argument to do so, we’d say.

Let’s take a closer look at how a business checking account differs from a personal checking account. We’ll cover:

•   What is a business checking account and how it works

•   What is a personal checking account and how it works

•   What are the key differences between a business vs. a checking account

•   Which one (or both) is right for you

🛈 While SoFi does not offer business bank accounts at this time, we do offer personal checking and savings accounts.

What Is a Business Checking Account?

A business checking account is a checking account specifically designed for business owners. As such, they often include business-specific features, such as payroll or bookkeeping integrations, the ability to assign debit cards to employees, or simplified credit card payment processing.

In many other ways, however, a business checking account is a lot like the personal checking account you likely already have. It’s a (relatively) safe place to stash cash and use it for regular, day-to-day expenses by way of writing checks, using a debit card or initiating transfers. For example, it can allow you to:

•   Pay suppliers

•   Deposit payments from customers

•   Pay employees

But it’s only to be used for business-related expenses!

How Does a Business Checking Account Work?

When thinking about a business checking account vs. a personal account, you’ll find many similarities. You open the account, fund it with some money, and, hopefully, go on to deposit more cash as profits from your business roll in.

You’ll likely have access to the account via a debit card and/or a checkbook, and will likely also be able to log into the account and manage it online. (Both digital-first and brick-and-mortar banks offer business bank accounts these days, and most feature some kind of virtual account management option.) Business banking products often bundle both a checking and savings account, so you can start creating a cushion for a rainy day.

However, as mentioned above, a business bank account may come with some additional, business-specific features. It may also come with higher fees and minimum account balance requirements than a personal checking account, not to mention requiring documentation to prove you do, in fact, have a business.

What Is a Personal Checking Account?

A personal checking account is, well, a checking account used for personal expenses. Just like a business checking account, it’s a place where you can stash your cash with relatively few worries and use it to pay bills and expenses using a debit card, checkbook, or transfer services. Many banks also make it easy to bundle a personal checking account with a personal savings account, which is a great place to stash your emergency fund.

Unlike business checking accounts, though, a personal account won’t include those fancy features we were talking about. On the bright side, though, it’s very possible to find free personal checking accounts, which can help you save cash on those pesky monthly maintenance fees.

Get up to $300 when you bank with SoFi.

No account or overdraft fees. No minimum balance.

Up to 4.00% APY on savings balances.

Up to 2-day-early paycheck.

Up to $2M of additional
FDIC insurance.


🛈 While SoFi does not offer business bank accounts at this time, we do offer personal checking and savings accounts.

What Are Personal Checking Accounts Used For?

Personal checking accounts are commonly used for:

•   Storing money earned through employment or other income streams

•   Paying bills using transfer services or paper checks

•   Making transfers to friends, family, and businesses

•   Making point-of-sale purchases using a debit card

As their name suggests, personal checking accounts are designed to help you manage personal expenses and attend to your everyday money needs. Typically, a personal checking account is the hub of someone’s daily financial life.

What’s the Difference Between Business and Personal Checking?

Let’s recap what we’ve learned about the difference between business and personal checking accounts.

Business Checking Accounts

 Personal Checking Accounts
A place to safely store money and access it for regular business expenses A place to safely store money and access it for day-to-day personal expenses
May come with additional business-friendly features, such as payroll and bookkeeping integration Designed for personal use; may offer person-to-person transfers and other useful features
May come with a bundled business savings account May come with a bundled personal savings account
Often come with minimum opening deposit or minimum monthly balance requirements and fees; you’ll need to offer documentation proving you have a business Many personal checking accounts are available for free
Helps entrepreneurs separate out their business expenses for ease of accounting and remaining compliant with regulations Makes paying bills and other regular expenses more manageable, regardless of your source of income

Are Business Checking Accounts FDIC Insured?

Any business checking account worth its salt should be FDIC insured — or NCUA insured, if it’s opened and held at a credit union. The FDIC is a government agency that protects deposit accounts, such as checking accounts, and reimburses lost funds up to the $250,000 standard insurance amount in the event your bank fails. (Some banks participate in programs that extend the FDIC insurance to cover millions1.) The NCUA is a similar agency, but specifically geared toward credit unions.

The FDIC and NCUA insure business and personal accounts alike, but it’s always important to double-check and make sure the bank or financial institution you’re hoping to open an account with explicitly states that deposits are insured.

When Does Someone Need a Business Checking Account?

If you’re a small business owner — or even a freelancer — a business checking account might be a good idea, even if it’s not technically required. Keeping your business and personal expenses separate can help make accounting easier, simplify your tax reporting process, and help make your business look more legitimate to the IRS.

In addition, if you’re incorporating (i.e, operating as LLC, S corp, or other type of business entity), separating your business expenses from your personal expenses can help protect your assets in the event you get sued. Even if it’s not legally required, many accountants and law professionals recommend their clients open a business bank account for this reason.

A business bank account can help you:

•   Separate your business and personal expenses, which can both protect your assets and make bookkeeping easier

•   Help make your tax reporting easier, as all of your deductible expenses will be in one place

•   Make it easier to see you business’s cash flow and make adjustments to your business model as needed, or valuate the business for other purposes

•   Make your business look more legitimate to both the IRS and potential customers, vendors, and other parties you interact with professionally

Establish a relationship with a bank that could allow you to more easily take out a business loan or business line of credit in the future.

Can I Use the Same Bank for Personal and Business Banking?

In many cases, you technically can use your personal checking account for business banking… but doing so is generally considered ill-advised by experts for the reasons listed above. Just for starters, it makes separating out your expenses a lot harder — and you’ll definitely want to have a handle on those so you can get any deductions coming your way.

Case in point, the IRS explicitly recommends keeping separate business and personal bank accounts for record-keeping purposes. It’s easy to let it go by the wayside if you’re just starting up as a small business owner or entrepreneur, but consider whatever expenses the account incurs as part of your business start-up costs. It’s worth it in the long run!

What’s more, it’s a wise move to separate your business and personal accounts in the event that you ever get audited. Combined accounts can lead to a very challenging situation if you ever need to prove your business vs. personal cash flow, expenses, and other aspects of your banking life.

Choosing the Right Business Checking Account

When you are shopping for a business checking account, there are a few features that should be considered to help ensure that you find the right match. These include:

•   Fees. Many business accounts have fees associated with them, and if you are able to get them waivered, the financial requirements (say, the amount you have held in the account) tend to be higher than for personal accounts.

•   Cash deposit limits. Your bank may set a limit in terms of the amount of money you can put in the account per billing cycle. If you hit that amount, you may accrue a cash-handling fee.

•   Transaction limits. Your business checking account may have a limit on the number of transactions they will handle for free per billing cycle. Go over that amount, and you may be charged.

•   Interest. There are business accounts that offer interest on your balance. Do the math though to see if this should be a deciding factor in your choice of a bank. If fees are higher at the bank offering interest, you might wind up losing money in the long run.

•   Bundled services. Your bank might offer some free features, like a business credit card or merchant services along with your checking account.

Depending on the nature of your business and how you handle your banking, some of these factors may matter more than others. Find the bank that gives you the most features and perks you are seeking with the lowest fees possible.

The Takeaway

If you own your own business or earn freelance income, keeping your business expenses separate from your personal expenses can help simplify your life in many ways. A business bank account will help keep these finances separate, streamlining accounting and tax preparation, and protect you if you were ever faced business liability.

But let’s not forget that keeping your personal banking in tip-top shape is vital, too. That’s where the SoFi Checking and Savings bank account can help. When you sign up with direct deposit, you’ll get both checking and savings with absolutely zero account fees and earn a competitive APY just for letting us hold onto your funds.

See how much better you can bank with SoFi.

FAQ

What documents are required to open a business checking account?

In order to open a business checking account, you’ll need your regular, basic documents — like your government-issued picture ID — as well as business-specific documents such as your EIN and business license. Check with the bank you’re considering directly for full details on which documents are required

Can I open a business checking account without an LLC?

It depends on the financial institution, but yes, business accounts are available that don’t require the business owner to be incorporated in any way

Can I use a personal checking account for business?

You can — the question is whether or not you should. Separating your business and personal expenses can make your life, or your accountant’s life, a lot easier when it comes time to assess your business finances or pay taxes. In addition, there are special business banking features you might get if you opt for a business-specific account.

Photo credit: iStock/mapodile

1SoFi Bank is a member FDIC and does not provide more than $250,000 of FDIC insurance per depositor per legal category of account ownership, as described in the FDIC’s regulations. Any additional FDIC insurance is provided by banks in the SoFi Insured Deposit Program. Deposits may be insured up to $2M through participation in the program. See full terms at SoFi.com/banking/fdic/terms. See list of participating banks at SoFi.com/banking/fdic/receivingbanks.

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

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

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

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

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

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

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

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

SOBK0423007U

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Apr
17
2023
Maximum Deposit and Balance Limits for Checking Accounts

Maximum Deposit and Balance Limits for Checking Accounts

By | Budgeting & Goals, Financial Independence, money | Comments Off on Maximum Deposit and Balance Limits for Checking Accounts

Having a bank account can simplify money management, but it’s important to know that there may be limits on how much money you can put in and move through your accounts. Limits like these can impact the timing and efficiency of your transactions.

Banking details matter to almost all of us. According to the Federal Reserve , 95% of U.S. households have at least one account with a bank or credit union. If you are wondering how much you should keep in checking and savings and whether bank accounts have limits, do read on. We’ll help you answer these important questions so you know where to keep your money and what to expect when you do your banking.

What are Maximum Deposit Limits?

Generally speaking, banks and credit unions don’t impose maximum deposit limits on checking and savings. This means that there usually is not a maximum deposit amount for your checking account that you need to know. The same applies for savings accounts. So if you were to win the lottery (wouldn’t it be nice?), you could go ahead and deposit that mega check into your checking or savings account without any issues.

There may, however, be maximum deposit limits for other types of deposit accounts. For example, if you’re opening a certificate of deposit (CD) account, the bank may cap those deposits at a certain amount. Depending on the bank, the maximum deposit may be as high as $1 million.

Now, do checking accounts have maximum limits on what you can deposit in a single transaction? Yes, they can, depending on the bank.

Maximum Account Balance Limits

Just as banks usually don’t impose a maximum deposit limit, they also don’t set limits on account balances. There is, however, a limit on how much of your money is protected by the Federal Deposit Insurance Corporation (FDIC).

The FDIC insures bank accounts in the very rare event of a bank failure. The FDIC coverage limit is $250,000 per depositor, per account ownership type, per financial institution. Having two checking accounts with the same bank or multiple savings or CD accounts at the same bank doesn’t affect your coverage limit if the total balance is under $250,000.

If you have multiple accounts at the same bank and the balances exceed $250,000, then it’s possible that part of your deposits might not be covered. The FDIC offers an online estimator tool that you can use to calculate how much of your deposits are covered at an insured bank.

One important note: Some banks participate in programs that extend the FDIC insurance to cover millions. If you want to keep large sums of money on deposit, you may want to consider these programs1.

What Is the Right Amount of Money to Keep In a Checking Account?

How much money can you have in a bank account? The short answer is as much as you want. But a better question might be, “How much money should you have in checking?”

There are different rules of thumb you might follow. Much depends on your personal situation and comfort level, but let’s consider two popular ways to look at this matter. You may choose the “emergency account” route and keep two to three months’ worth of expenses in checking. You could add another 20% to that amount as a just-in-case cushion to cover any small unexpected expenses that might come up so you don’t have to tap into your emergency savings.

If your bank imposes a minimum balance requirement, you could use that as a guide instead when deciding how much to keep in checking. So if your bank has a $1,000 minimum daily balance in order to avoid a monthly service fee, you might aim to keep at least that much in checking.

Get up to $300 when you bank with SoFi.

No account or overdraft fees. No minimum balance.

Up to 4.00% APY on savings balances.

Up to 2-day-early paycheck.

Up to $2M of additional
FDIC insurance.


What to Consider When Withdrawing Money

Maintaining a minimum balance in your checking and savings has some benefits. Specifically, it can help you to avoid fees or situations where you might run the risk of being short on funds. Here are three things to weigh when making withdrawals from bank accounts which can have implications in terms of maintaining your balance and avoiding excess charges.

Overdrafts

Overdraft occurs when you withdraw more money than you have available in your bank account, resulting in a negative balance. This is problematic because not only do you not have money to spend or pay bills, but also because your bank can also charge you a fee. According to the latest research from the Consumer Financial Protection Bureau , banks collected $15.47 billion in 2019 alone. Ouch! Keeping a minimum balance in checking and monitoring your balance regularly can help lower the risk of overdrafting your account.

Pre-Authorizations

Some transactions may require a pre-authorization hold before money is deducted from your account. For example, if you use your debit card to get $50 in gas, there may be an initial hold for that amount against your available funds. This lowers the dollar amount you have available for other spending. Having some extra funds in your accounts means all of your money isn’t tied up by these kinds of holds. Better yet, you might consider setting up a credit card account just for things like gas, hotel, and other travel purchases which often require pre-authorization.

Minimum Balance Requirements

As mentioned, banks and credit unions can impose minimum balance requirements for deposit accounts. This is separate from any initial minimum deposit requirement you might need to make to open the account. If your balance dips below the minimum deposit requirement, that could trigger a fee. How would you enter that “too low” zone? It might happen if you make a larger than usual withdrawal or debit card purchase, or decide to write a check that pays off your credit card bill one month.

Of course, you could avoid this by choosing a checking and savings option that doesn’t charge a monthly fee or set minimum balance requirements. This is an option if you’re banking with SoFi.

What to Consider When Depositing Money

The purpose of checking and savings is to hold your money until you need it. You therefore may not think twice about plunking some funds into your bank and parking it there. But when making deposits, it’s important to consider:

•   How much interest you’re earning with your bank vs. what you might earn elsewhere

•   How accessible your money is once you deposit it

•   What kind of fees you might pay to withdraw funds

Let’s review these points in a little more depth.

Investment Opportunities

Keeping all of your cash in checking and savings may seem like a good idea. After all, your money is relatively safe (thank you, FDIC), and you can dip into it as needed. But if you’re hoping to grow wealth, then investing some of your money in the stock market can deliver better returns over time. Allocating part of your paychecks to an investment account where you can buy stocks, exchange-traded funds (ETFs), cryptocurrency, or IPOs could pay off over the long term more so than simply earning interest with a bank account.

Liquidity

Liquidity is an investing term that describes how easy it is to turn an asset into cash. Bank accounts are highly liquid since you can get money from them fairly quickly. For example, if you need $500 to pay for an emergency vet bill, you could swipe your debit card, write a check, or hit the ATM.

When deciding how much money to deposit to checking and savings, consider an amount you’d feel comfortable having on hand if you needed it in an emergency. Then, if there’s an amount beyond that which you don’t think you’d need to access right away, you could invest that or put it into a high-yield CD account.

Transfer and Withdrawal Fees

There may be times when you need to transfer funds between bank accounts — perhaps on a regular basis. It’s worthwhile to consider the kind of fees this activity may trigger, so you don’t wind up taking too much of a financial hit. For example, if your bank sets a savings withdrawal limit, you may have to pay an excess withdrawal fee if you go over that limit. The Federal Reserve eliminated the “six withdrawal per month limit” for savings and money-market accounts, but banks can still charge a fee for excess withdrawals. Check the policies at your bank. This can guide you when deciding how much to deposit in savings. You’ll want to think about how soon you might need to take that money out again and what it might cost.

The Takeaway

Bank accounts can make life easier when you need to pay bills, make purchases with a debit card, or set aside money for savings goals. That said, you’ll want to be aware of limits on your accounts in terms of minimum balance requirements, deposit limits, and withdrawal limits. This can help you to avoid excessive fees. Because your checking should be a convenient financial tool, not something that is causing you concern or charging you an array of fees!

Bank Better with SoFi

If you’re looking for a checking and savings option that’s accessible and fee-friendly, consider online banking with SoFi today. Not only do eligible accounts earn a competitive APY, you’ll also bank free of account and overdraft fees. Plus SoFi recently announced that deposits may be insured up to $2 million through participation in the SoFi Insured Deposit Program.

Why not see how simple and stress-free banking can be?

3 Great Benefits of Direct Deposit

  1. It’s Faster

    2. As opposed to a physical check that can take time to clear, you don’t have to wait days to access a direct deposit. Usually, you can use the money the day it is sent. What’s more, you don’t have to remember to go to the bank or use your app to deposit your check.

  2. It’s Like Clockwork

    3. Whether your check comes the first Wednesday of the month or every other Friday, if you sign up for direct deposit, you know when the money will hit your account. This is especially helpful for scheduling the payment of regular bills. No more guessing when you’ll have sufficient funds.

  3. It’s Secure

    4. While checks can get lost in the mail — or even stolen, there is no chance of that happening with a direct deposit. Also, if it’s your paycheck, you won’t have to worry about your or your employer’s info ending up in the wrong hands.

FAQ

How much money can you put in a checking account?

Generally, there’s no checking account maximum amount you can have. There is, however, a limit on how much of your checking account balance is covered by the FDIC (typically $250,000 per depositor, per account ownership type, per financial institution), though some banks have programs with higher limits. Banks can also impose daily, weekly or monthly limits on mobile check deposits.

Should I keep all my money in my checking account?

Keeping all of your money in your checking account usually isn’t ideal, as you may be able to earn a higher rate of return by investing some of it. It can, however, be a good idea to keep two to three months’ worth of expenses in checking, plus a small cushion of 20% to 30% extra for any surprise expenses that might pop up.

What is the limit of depositing money in the bank?

Banks may not impose an aggregate limit on how much you can deposit to checking and savings. But there may be limits on how much you can deposit each day via mobile check deposit, with a teller or through the ATM. This limit can vary from bank to bank.

Photo credit: iStock/Prostock-Studio

1SoFi Bank is a member FDIC and does not provide more than $250,000 of FDIC insurance per depositor per legal category of account ownership, as described in the FDIC’s regulations. Any additional FDIC insurance is provided by banks in the SoFi Insured Deposit Program. Deposits may be insured up to $2M through participation in the program. See full terms at SoFi.com/banking/fdic/terms. See list of participating banks at SoFi.com/banking/fdic/receivingbanks.

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

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

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

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

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

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

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

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

External Websites: The information and analysis provided through hyperlinks to third-party websites, while believed to be accurate, cannot be guaranteed by SoFi. Links are provided for informational purposes and should not be viewed as an endorsement.

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Apr
17
2023
What Is a Cash Management Account

Guide to Cash Management Accounts (CMAs)

By | Budgeting & Goals, Family Finances, money | Comments Off on Guide to Cash Management Accounts (CMAs)

A cash management account or CMA provides an alternative solution for storing a large sum of money. Instead of using a checking or savings account from a traditional bank or credit union, you can park your money with non-financial institutions such as robo-advisors, online investment companies, or trading apps. While CMAs provide some of the features you receive from traditional banking, they also make managing your money more convenient since you can keep your banking and investing under one roof.

Here’s your complete guide to cash management accounts to discover if this type of account is right for you. We’ll share details on:

•   What is a cash management account?

•   How do cash management accounts work?

•   What are the benefits and considerations of cash management accounts?

•   Is a cash management account right for you?

What Are Cash Management Accounts?

Let’s explore what a cash management account is exactly. A CMA or cash management account provides a solution for managing your cash flow and your money. The cash inside the account usually earns interest, so your money can grow over time. You also may have checking writing capabilities, debit card access, or a combination of both. These non-banking institutions usually have no fees, another attractive aspect of using a cash management account. However, they typically make their money by charging fees for other services such as investing, retirement planning, or financial planning services.

While traditional banking accounts have similar benefits, the biggest draw to a cash management account is that you can bank and invest with one company. This way, you’re not toggling back and forth between several companies or platforms to manage your money.

How Do Cash Management Accounts Work?

Now that you know what a CMA is in big-picture terms, let’s drill down on how they work. Cash management accounts are interest-earning accounts that offer a safe place for cash. Since investment firms and robo-advisors are not banks, they don’t keep your money at their financial institution. Instead, they partner with several banks and spread your deposit out among them.

Like traditional banking accounts, account holders can deposit funds, withdraw funds, transfer money, set up direct deposits, write checks, and use a debit card. You can manage your personal cash flow statement by checking on your CMA regularly.

In addition, some CMAs earn interest like savings accounts and have checking account capabilities. Therefore, they can act as a way to merge these accounts into one. However, some CMAs may not have features of both accounts, so check with the institution to determine what features are available.

Get up to $300 when you bank with SoFi.

No account or overdraft fees. No minimum balance.

Up to 4.00% APY on savings balances.

Up to 2-day-early paycheck.

Up to $2M of additional
FDIC insurance.


What Are the Pros of Cash Management Accounts?

Understanding the benefits of using a cash management account can help you determine if this is the right banking solution for your needs. With that in mind, here are several advantages of using a cash management account.

Convenience

The most significant pull for consumers to open a cash management account is that they can keep their investments and banking under one umbrella. Keeping everything in one place can simplify your money management efforts.

Traditional Banking Features

When you open a cash management account, you typically have access to tradition banking features like:

•   Direct deposit

•   Complementary ATM networks

•   Electronic bill pay

•   Third-party payment site access

But, before you open an account, make sure you check with the institution about their banking services. This way you can ensure they have everything you need.

FDIC Insured

The Federal Deposit Insurance Corporation (FDIC) protects your banking deposits from losses up to $250,000. Worth noting: Some banks participate in programs that extend the FDIC insurance to cover millions1.

So, if your bank fails for any reason, you can recover your funds. While non-banking firms are prohibited from offering FDIC insurance directly, their partner banks can extend coverage. Since nonbanks spread funds across several partner banks, each can offer $250,000 of FDIC insurance per depositor.

What Are the Cons of a Cash Management Account?

Now that we’ve considered the advantages of a cash management account, it’s only fair to review the potential downsides of these financial vehicles. Here are some points to keep in mind as you decide whether a CMA is right for you.

Lower Interest Rates

While these accounts do offer some earnings, you will often find better rates at online banks. Yes, it may as if low-interest checking accounts are the norm and that CMAs are in their ballpark, but dig a bit deeper. If you are planning on parking a large sum of cash in an account, it can literally pay to explore your options elsewhere and see what APY’s are available in high-interest accounts. You may find that a short-term savings account works better for your needs.

Recommended: APY vs. Interest Rate: What’s the Difference?

Fewer Features

Cash management accounts may not offer the conveniences of checking accounts, like bill pay and other ways of making your financial life simpler.

No Physical Branches

Many cash management accounts are offered by online banks, which means you won’t have bricks and mortar locations to visit. Nor will you have a team of bankers to support you as you do at a traditional bank. If you are the kind of person who prefers personal interaction, this may be a significant issue for you.

Cash Management Accounts vs Checking Accounts

While cash management accounts offer similar services and features to traditional bank accounts, you might wonder what the differences are. If we break down CMAs compared to checking accounts further, these features are worth noting.

•   Maintenance fees. There are usually no maintenance fees for CMAs. However, you may have to meet a minimum balance to keep your account active. On the other hand, depending on the bank, some high-yield checking accounts come with maintenance fees. It may be possible to get these fees waived if you meet specific bank stipulations, but it’s worthwhile to consider this point.

•   Interest earning. Many cash management accounts earn interest, like what you find with high-interest online savings accounts. While it’s possible to earn interest on a savings account, it’s usually less than the interest cash management accounts earn.

•   Account integration. Investment firms and robo-advisors usually offer cash management accounts and investments. You can usually link your CMA with your investments, making it easy to move money and automate contributions. Traditional banks may also offer retirement and investment services. However, that’s not their primary business. Also, if you have investments and banking accounts separate, there may be a time lag for transactions, which usually doesn’t happen with CMAs.

Considerations When Comparing Cash Management Accounts

Before you enroll in a cash management account, it’s wise to compare all of your options. You may also want to assess the pros and cons of each banking solution. So, when comparing your solutions, here are some things worth considering when determining if a CMA is suitable for your needs.

Customer Service

When you need an issue resolved with your money, it’s nice to know customer service is there to help. So, you will want to make sure that the company you’re considering offers a robust customer service solution to assist you with all of your questions or concerns. For online banks, check out the hours that support is available and find out if you’ll be interacting with a human or an automated assistant.

Minimum Balance Requirement

As we noted above, CMAs can have minimum balance requirements to keep the account active. Therefore, you’ll want to determine these requirements in advance to see if you have the appropriate sum of cash to deposit.

Investment Management

Most of the institutions that offer cash management accounts offer investment services. So, if you’re looking to use their investment service, make sure you select a company you trust and feel comfortable with. You’ll also want to ensure the investments offered are suitable for your needs.

Is a Cash Management Account a Good Fit for You?

A CMA is ideal for folks who like to manage their investments and bank accounts under the same umbrella. It may make managing your money somewhat simpler and smoother.

But, for those who feel a bit uncertain about using online banks or mobile apps to complete their daily transactions, a bank account may be a more viable solution. Also, if you would prefer to separate your investments and banking needs, a high-interest checking or savings account may make more sense that stashing your funds in a CMA.

The Takeaway

CMAs are interest-earning alternative solutions to traditional banking accounts like checking and saving accounts. Since investment firms usually offer CMAs, you can keep your investments and banking needs in one place, streamlining your money management efforts. As with most services, there are pros and cons to these accounts. Determining whether one is right for you will depend upon your reviewing all the features and seeing what is the best fit for your money management style and goals.

If you feel more comfortable with traditional banking, SoFi offers a smart, money-savvy solution. Our online bank accounts, when opened with direct deposit, are fee-free and earn a competitive APY. Also, you can access your paycheck up to two days earlier. We think it’s a great combination of convenience and money-growing features that you’ll love.

Ready to bank better? Come see what SoFi offers.

FAQ

What is the purpose of a cash management account?

Cash management accounts give consumers a way to complete everyday banking transactions like bill pay or direct deposit while managing investments, all under one roof.

What type of account is cash management?

A cash management account is like a traditional bank account, except it’s offered by non-banking firms, like online investment firms or robo-advisors. You can complete transactions (direct deposit, withdrawals, check writing, etc.) the same way with a traditional checking or savings account.

Is a cash management account the same as a money market account?

While cash management accounts and money market accounts have similar features (earning interest, withdrawals, deposits, etc.), they are not the same. Banks offer money market accounts, while nonbanks like robo-advisors offer cash management accounts.

Photo credit: iStock/MicroStockHub

1SoFi Bank is a member FDIC and does not provide more than $250,000 of FDIC insurance per depositor per legal category of account ownership, as described in the FDIC’s regulations. Any additional FDIC insurance is provided by banks in the SoFi Insured Deposit Program. Deposits may be insured up to $2M through participation in the program. See full terms at SoFi.com/banking/fdic/terms. See list of participating banks at SoFi.com/banking/fdic/receivingbanks.

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

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

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

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

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

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

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

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

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

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