Nov
08
2024

What Is a Microdeposit?

By | Family Finances, money, Terminology | Comments Off on What Is a Microdeposit?

Microdeposits are small amounts of money, usually less than $1, temporarily added to your account. They are generally used to confirm that a bank account is valid and able to accept funds. Another reason a microdeposit might be used is as a security feature when you are linking your bank account to another bank account or to a third-party service, such as a budgeting app.

You are typically asked to verify the amount of a microdeposit to ensure that you are the account holder. This can help reduce the risk of fraudulent activity on a bank account. Learn more about microdeposits and how they can impact your banking activity.

Key Points

•   Microdeposits are small, temporary deposits, usually under $1, that are used to verify bank account ownership.

•   Microdeposits can help verify someone is the legal owner of a bank account they’re trying to link to or otherwise access.

•   To verify ownership of an account, users must report the exact amounts of (typically) two small deposits received during account linking.

•   Verifying accounts through microdeposits can help reduce the risk of someone trying to fraudulently access account funds. Unexpected microdeposits can, however, indicate a scam.

•   Microdeposits deposits are usually temporary and withdrawn by the issuing bank within a few days.

Defining a Microdeposit

Microdeposits are a type of deposit, or funds added to your bank account, but in this case in very small amounts. Here are more details about how they work.

Small Temporary Deposits

The term microdeposit describes one or more small transfers of funds, each typically less than $1. They are usually sent by one bank to another bank when an account holder tries to link two bank accounts, such as for transferring money between them or perhaps for overdraft protection. They may also be sent when you are validating that you want your bank account linked to a particular service.

These deposits are usually temporary; you aren’t actually being paid for anything. After the microdeposits are sent, the account holder typically verifies their amounts. The funds are usually withdrawn by the issuing bank within a few days.

Purpose and Use Cases

One of the biggest reasons banks use microdeposits is to verify that a particular person is the owner of a specific bank account. Microdeposit verification is often used when someone tries to link a bank account to a type of account at a different bank. Using microdeposits allows the bank to authenticate that the person requesting the linkage actually is the owner of the account. This helps to reduce fraud and ensure the safety and security of accounts.

Recommended: Savings Account Calculator

Get up to $300 when you bank with SoFi.

No account or overdraft fees. No minimum balance.

Up to 4.20% APY on savings balances.

Up to 2-day-early paycheck.

Up to $2M of additional
FDIC insurance.


How Microdeposits Work

The way microdeposits work is typically straightforward. If you enter your bank’s routing and account number to link your account to another bank or third-party service, you may receive microdeposits. Generally two microdeposits are sent, each for an amount under $1.

Once you receive the microdeposits in the bank account that you are trying to link, you will go back to the other site and verify the microdeposits by typing in their amount. Shortly after the microdeposits are sent (generally within a couple of days), the bank will then withdraw the money that was deposited. This ensures that there is no net change in your account’s value after the microdeposit process is complete.

Why Microdeposits Are Used

One of the primary reasons that banks use microdeposits is to prevent bank account fraud. These deposits help to verify that you are the legal owner of a bank account you are trying to link to or otherwise use. Without this step, it might be possible for an unauthorized person to link your account to another account and then possibly withdraw money from your account or commit other fraudulent activity.

Identifying and Confirming Microdeposits

A crucial step to the microdeposit process is identifying and confirming the microdeposits. It usually takes a few days for the microdeposits to show up in your account. Once you see them, you can return to the app or bank account where you initiated the linking process. By entering the amount of the microdeposits, you usually complete the microdeposit confirmation process.

One thing to watch out for is if you receive microdeposits you are not expecting. If you see microdeposits in your account when you have not tried to link it to another account, contact your bank’s customer service or fraud department. You may be targeted by a fraud or phishing attack, meaning that someone may be attempting unauthorized access to your account.

Recommended: How to Transfer Money From One Bank to Another

Potential Drawbacks and Limitations

While they are quite common, there are a few potential drawbacks and limitations of the microdeposit process:

Delayed Transactions and Clearance Times

The microdeposit process typically takes a couple of days for the deposits to arrive and be verified. This means that linking your bank account to another account or service is unlikely to happen instantaneously or even in a single day.

Account Restrictions and Holds

If you see microdeposits hit your account and you haven’t tried to link your account to any other bank or third-party app, you’ll want to contact your bank’s fraud or customer service department right away. This is because it may mean that someone else has tried to link your bank account to another account or service. This is one of the common bank scams, and your account may need to have some restrictions put in place.

Confusion and Misunderstandings

Seeing microdeposits in your checking account may cause confusion, even if they are part of a process you initiated. You might well see one of these little deposits and spend time asking yourself who would be sending you 17 cents or whatever the amount may be. Understanding what microdeposits are and perhaps noting in your calendar when they are likely to hit can help clear up any confusion or misunderstandings.

Recommended: 10 Personal Finance Basics

Scams Using Microdeposits

If you see microdeposits in your account when you have not tried to link your account, you may be the victim of a mobile deposit scam or other type of fraud. Here’s how these typically work:

•   Scammers may try to link your account to another account, generating microdeposits in your account.

•   They then try to get you to authenticate the deposits via a verification message.

•   If you do confirm the amounts (thinking the request is legitimate), they may be able to link your account to one they control, with the goal of withdrawing money from your account.

If you ever see microdeposits in your account that you didn’t initiate, follow these steps:

•   Do not verify the microdeposit.

•   Do not click on any links or downloads connected with the microdeposit and verification request.

•   Contact your bank’s security or fraud department immediately.

•   You might also let the Federal Trade Commission at ftc.gov know of this scam so they can take appropriate steps.

Protecting yourself from this kind of scam is important as fraud rises, with 2.6 million Americans enduring some form of fraud in 2023, according to the FTC.

Recommended: How to Write a Check

The Takeaway

Microdeposits (sometimes referred to as micro deposits or micro-deposits) are small deposits to your account, generally used to verify that your account is valid and owned by you. Microdeposits are often two small, temporary deposits (usually under $1) that, when confirmed, allow two accounts or your account and a service to be linked. Though microdeposit verification is usually a security measure, unexpected microdeposits can be a signal of a scam in progress, so be wary.

If you’re looking for a banking partner that makes accessing and growing your money easy, see what SoFi offers.

Interested in opening an online bank account? When you sign up for a SoFi Checking and Savings account with direct deposit, you’ll get a competitive annual percentage yield (APY), pay zero account fees, and enjoy an array of rewards, such as access to the Allpoint Network of 55,000+ fee-free ATMs globally. Qualifying accounts can even access their paycheck up to two days early.


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

FAQ

Are microdeposits refunded or removed from the account?

Yes, microdeposits are generally refunded from your account, usually a few days after they are deposited. One example might be if you receive two microdeposits, for $0.11 and $0.34. A few days after the deposits, the bank will generally withdraw the money, usually with one withdrawal transaction. In this case, it would be a withdrawal for $0.45. This means that the microdeposit process has no long-lasting effect on your overall balance.

Do microdeposits affect my available balance or account status?

Microdeposits don’t have a huge impact on your available balance, because of how small they are. You will see a very small increase in your available balance due to the microdeposits, but that will go away after a few days. That is because the bank that put the microdeposits into your account will also withdraw that money after a few days, leaving your account balance as if there had been no deposits.

What if I can’t locate or identify the microdeposit amounts?

If you can’t locate or identify the microdeposit amounts, it may mean that there was a problem with the linking process. It’s possible that you had a typo or other error when inputting your routing and account numbers. Keep in mind also that it can take a couple days for these microdeposits to show up in your account. If it’s been a few days, you might try to restart the linking process or contact your bank’s or the third-party service’s customer service department.

Photo credit: iStock/SrdjanPav

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.

*Awards or rankings from NerdWallet are not indicative of future success or results. This award and its ratings are independently determined and awarded by their respective publications.

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

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

SOBNK-Q324-078

Read more
Nov
01
2024
Smart Short Term Financial Goals You Can Set for Yourself

Smart Short-Term Financial Goals to Set for Yourself

By | Budgeting & Goals, Growing Wealth, Investing, money | No Comments
Table of Contents

Short-term financial goals are generally things you want to achieve within one to three years. They can be “one and done” in nature (say, “Save enough money for a Caribbean vacation”), or they might be incremental steps to much larger financial goals, such as beginning to save for a child’s college tuition).

Setting financial goals can be an important step toward achieving them. After all, it’s probably not enough to simply hope your dreams become reality. Making a plan can significantly increase the likelihood that you’ll meet the goal. It will focus you on what you want to attain and help guide you toward getting there.

Here are some common short-term financial goals you may want to adopt plus intel on how to achieve them.

Key Points

•   Short-term financial goals are things you want to achieve within the next couple of years, such as paying off credit card debt or saving for a vacation or wedding.

•   Building an emergency fund is an important short-term financial goal to cover unexpected expenses and avoid relying on high-interest credit cards.

•   Budgeting can help you track your spending, prioritize your expenses, and work towards short-term financial goals.

•   Paying down credit card debt is crucial as high-interest rates can hinder progress towards other financial goals.

•   Contributing to your retirement fund, even in the short term, can have long-term benefits due to the power of compounding interest or dividends.

What Are Short-Term Financial Goals?

Short-term financial goals are typically objectives you want to attain within the next couple of years, unlike long-term financial goals (retirement, paying off a mortgage). Some examples of short-term financial goals include:

•   Paying off credit card debt

•   Saving for a vacation

•   Saving for a wedding

•   Stashing away money in an emergency fund.

Of course, goals will vary with your unique situation and . You might be totally focused on getting together enough money for the down payment on a new car, while your best friend might want to pay off their $10K in credit card debt.

Get up to $300 when you bank with SoFi.

No account or overdraft fees. No minimum balance.

Up to 4.20% APY on savings balances.

Up to 2-day-early paycheck.

Up to $2M of additional
FDIC insurance.


6 Short-Term Financial Goals

Take a closer look at some of the most common short-term financial goals.

1. Build an Emergency Fund

Often, a short-term financial goal involves saving for an emergency fund. This kind of fund usually contains enough cash to cover three to six months’ (or more in some cases) worth of living expenses. The idea is that, just in case something unexpected comes up — such as job loss or a major car repair — you can afford your bills without resorting to high-interest forms of funding, such as credit cards.

Not only can an emergency fund keep you out of debt, it can provide peace of mind. Knowing that it’s in place and that it’s growing can be an important form of financial security. Some tips:

•   You can build an emergency fund by putting some money towards it every month. Consider setting up a recurring automatic transfer to send whatever you can spare (even $20 per paycheck) to the fund.

•   It can be wise to set up a separate savings account for your emergency fund so you won’t be tempted to spend it. Look for a high-yield savings account to help your money grow faster.

•   To build your emergency fund more quickly, funnel a large payment, such as tax refund or bonus, right into this account. A money windfall can really help plump up your savings.

💡 Learn how much you should save for emergencies by using our Emergency Fund Calculator.

2. Make a Budget

Getting a sense of how much you are actually earning, spending, and saving each month is a critical step in working towards both short-term and long-term financial goals.

You can do this by tracking your income and expenses for a couple of months, to see what is flowing into and out of your checking account.

This will help you make a budget that helps keep your finances on track to meet your daily expenses and short-term savings goals. A few ways to accomplish this:

•   Review and test-drive a couple of budgeting techniques. One popular method is the 50/30/20 budget rule, which can guide you to put 50% of your take-home pay towards needs, 30% toward wants, and 20% toward saving. See if one type of budget clicks for you.

•   You might use a budgeting app to help you connect your accounts, categorize where your money is going, and see at a glance how you are progressing toward your short-term financial goals. A good place to start: See what kinds of financial insights tools your bank provides. You may find just what you are looking for.

•   Consider third-party budgeting apps. You might search online or ask trusted friends if they are using one that they would recommend.

Once you see where your money is actually going, you may discover some surprises (such as $200 a month on lunches out) and also find places where you can easily cut back. You might decide to bring lunch from home a few more days per week, for example. Or you might want to cut back on streaming services or ditch the gym membership and work out at home.

This money you free up can then be redirected towards your savings goals, like creating an emergency fund, buying a house, or funding your retirement.

3. Pay Down Credit Card Debt

Another important financial goal example is paying down credit card debt. If you carry a balance, you may want to make paying it off one of your top short-term financial goals. The reason: Credit card debt is typically high-interest debt. The average annual percentage rate, or APR, charged by credit cards was above 20% in mid-2024, according to the Federal Reserve Bank of St. Louis. That means that items you buy with a credit card could potentially cost you a hefty amount more than if you pay with cash.

What’s more, because the interest on credit card debt can be so costly, it can make achieving any other financial goals much more difficult. Here’s how you might work toward paying off your credit card debt:

•   You could try the debt avalanche method, which involves paying the minimum on all but your highest-rate debt. You then put all available extra funds toward the card with the highest interest debt. When that one is paid off, you would roll the extra payment to the card with the next-highest interest rate, and so on. By knocking out your highest-interest debt first, you may be able to save a chunk of money.

•   Another option for paying off debt is the debt snowball method. With this technique, you pay the minimum on all cards, but use extra money to pay off the debt with the smallest balance. When that’s paid off, you move to the next smallest debt and so on. This can give you a sense of accomplishment as you get rid of debt which in turn can help keep you motivated.

•   You might consider consolidating your debt by taking out a personal loan to pay off all of your cards. These usually offer a lump sum of cash to be paid off in two to seven years at a lower interest rate than credit cards. Having only one payment each month can help simplify the payoff process.

If you feel your debt burden is too great to be resolved with these options, you might want to speak to a certified credit counselor for advice.

4. Pay Off Student Loans

Student loans can be a drag on your monthly budget. Paying down student loans, and eventually getting rid of these loans, can free up cash that will make it easier to save for retirement and other goals.

One strategy that might help is refinancing your student loans into a new loan with a lower interest rate. You can check your balances and interest rates across your federal and private loans, and then plug them into a student loan refinancing calculator to see if refinancing offers an advantage.

Keep in mind, however, that if you refinance federal student loans with a private loan, you will lose access to such benefits as deferment and forgiveness. Also, if you refinance your loans into one with a longer term, you could wind up paying more in interest over the life of the loan.

Also note that not all refinancing options are created equal. There are bad actors out there who might promise to get rid of all your debt but will only damage your credit score. If you do refinance your student loans, you’ll want to make sure you’re working with a reputable lender.

5. Focus on Your Retirement Fund

Yes, saving for retirement is typically a long-term goal, but if you’re not yet saving for retirement, a great short-term financial goal may be to start doing so. Or, if you’re putting in very little each month, you may want to work on upping the amount. Here are a couple of specific ideas:

•   If your employer offers a 401(k) and gives matching funds, for example, it’s normally wise to contribute at least up to your employer’s match. You can then start increasing your contributions bit by bit each year.

•   If you don’t have access to a 401(k), consider an individual retirement account, or IRA. You may be able to set up an IRA online and start funding your retirement there. (Keep in mind that there are limits to how much you can contribute to a retirement plan per year that will depend on your age and other factors.)

While retirement is a long-term vs. short-term financial goal, taking advantage of this savings vehicle can reduce your taxes starting this year. Here’s why: Money you put into a retirement fund likely offers tax advantages, such as lowering your taxable income.

Even more importantly, starting early can pay off dramatically down the line. Thanks to the power of compounding returns (when the money you invest earns returns, and that then gets reinvested and earns returns as well), monthly contributions to a retirement fund can net significant gains over time.

6. Begin to Build Wealth

If you already have an emergency fund, you may want to start thinking about what you are hoping to buy or achieve within the next several years, and also building your wealth in general. As you save money, think about where to keep it to help it grow. The power of compounding returns, as mentioned above, or compounding interest in the case of a bank account, can really help in this pursuit.

•   For financial goals you want to reach in the next few months or years, consider putting this money in an online bank account that offers a high interest rate vs. a traditional savings account, but allows access when you need it. Options may include a HYSA (high-yield savings account, often found at online banks) or a money market account.

•   For longer-term savings, you may want to look into opening a brokerage account. This is an investment account that allows you to buy and sell investments like stocks, bonds, and mutual funds. A taxable brokerage account does not offer the same tax incentives as a 401(k) or an IRA, but it is probably much more flexible in terms of when the money can be accessed.

Just keep in mind that there’s risk here: These funds will not be insured as accounts at a bank or credit union usually are. Bank or credit union accounts are typically insured by the Federal Deposit Insurance Corporation (FDIC) or the National Credit Union Administration (NCUA) up to $250,000 per depositor, per account ownership category, per insured institution.

How Do You Create a Short-Term Financial Goal?

To create a short-term financial goal, identify what you want and how much money you need. Then, looking at your budget and seeing what cash you have available, see how long it will take to save up enough money. For instance, if you want to have $2,400 in a travel fund a year from now, you will need to put $200 a month aside. Check your cash flow and see where you can free up funds (maybe reduce takeout food and fancy coffees, for starters) to meet this goal.

How to Set SMART Financial Goals

In addition to the short-term financial goals examples and guidance above, there’s another way to think about this topic: using the acronym S.M.A.R.T. This system can help you both with identifying and achieving your goals. Here’s what this stands for and how considering your financial aspirations through this lens can be helpful:

•   Specific: A goal should identify exactly what you are saving for, whether that’s paying off credit-card debt or buying a used car.

•   Measurable: How much is your goal? How much do you need to save? Perhaps your credit card balance is $5,673. That would be your measurable goal.

•   Attainable: Make sure your goal is realistic (you may not be able to pay off your entire credit card debt in a month or even a few months) and develop strategies to achieve it, such as working on alternate Saturdays to bring in more money (a benefit of a side hustle).

•   Relevant: Check that your goal really matters to you and isn’t just something you’re doing to, say, keep up with your friend group. Do you really need to save towards a potentially budget-busting vacation?

•   Time-bound: Set “by when” dates for your goals. This helps to keep you accountable. If you want to save $3,600 for an emergency fund within a year, figure out how you will come up with the $300 per month to put aside.

Using the SMART method can help you crystallize and achieve your short-term financial goals.

Difference Between Short-Term and Long-Term Financial Goals

In discussing short-term financial goals, it’s likely that you might wonder how these differ from long-term goals. Here are a few examples that can help clarify the aspirations above from those that require a longer timeline.

Examples of Long-Term Goals

•   Save for retirement

•   Pay off a mortgage

•   Buy a second home or investment property

•   Save for a child’s (or grandchild’s) college education

•   Fund a business idea

•   Take out life insurance and/or long-term care policies

Of course, long-term goals will vary from person to person. One individual might be focused on being able to retire at age 50 while another might aspire to make a significant charitable contribution.

The Takeaway

Short-term financial goals are the things you want to do with your money within the next few years. Some typical (and important) short-term goals include setting a budget, starting an emergency fund, and paying off debt. In addition, opening a retirement account and otherwise building wealth can be valuable goals, too.

Having the right banking partner can help you reach your near-term money goals. See what SoFi offers.

Interested in opening an online bank account? When you sign up for a SoFi Checking and Savings account with direct deposit, you’ll get a competitive annual percentage yield (APY), pay zero account fees, and enjoy an array of rewards, such as access to the Allpoint Network of 55,000+ fee-free ATMs globally. Qualifying accounts can even access their paycheck up to two days early.


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

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

SoFi members with direct deposit activity can earn 4.20% 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.

*Awards or rankings from NerdWallet are not indicative of future success or results. This award and its ratings are independently determined and awarded by their respective publications.

SoFi Relay offers users the ability to connect both SoFi accounts and external accounts using Plaid, Inc.’s service. When you use the service to connect an account, you authorize SoFi to obtain account information from any external accounts as set forth in SoFi’s Terms of Use. Based on your consent SoFi will also automatically provide some financial data received from the credit bureau for your visibility, without the need of you connecting additional accounts. SoFi assumes no responsibility for the timeliness, accuracy, deletion, non-delivery or failure to store any user data, loss of user data, communications, or personalization settings. You shall confirm the accuracy of Plaid data through sources independent of SoFi. The credit score is a VantageScore® based on TransUnion® (the “Processing Agent”) data.

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

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

SOBNK-Q324-093

Read more
Nov
01
2024
How Much Money Is Needed to Start a Bank Account?

How Much Money Do You Need to Open a Bank Account?

By | Budgeting & Goals, Financial Independence, money | Comments Off on How Much Money Do You Need to Open a Bank Account?

Opening a checking and savings account, whether at an online bank, a brick-and-mortar one, or a credit union, can be a major step towards good money management. With an account set up, you’ll likely be able to receive your paycheck as a direct deposit, swipe a debit card to pay for purchases, and access tools to help you save towards some short-term goals.

But you may worry that you need a chunk of change to open an account. The truth is, though, that you may be able to start an account with zero cash deposited.

While each bank can set its own minimum deposits, some will let you open an account with a single dollar or even no money at all. Or you might encounter certain financial institutions or account types that require $100, $500, or more. You might even find that the account with the higher deposit minimum is the better fit for you.

To better understand minimum deposit and minimum balance requirements, read on.

Key Points

•   Opening a bank account can be a significant step towards effective money management.

•   Some banks allow opening an account with as little as $1 or even no money at all.

•   Online banks often have lower or no minimum deposit requirements due to the absence of physical branches.

•   Traditional brick-and-mortar banks might require a minimum deposit of $25 or more to open an account.

•   Credit unions typically offer minimum opening deposits ranging from zero to $25.

How Much Do You Need to Open a Bank Account?

Let’s get down to the dollars and cents of this topic: How much money do you need to open a bank account?

Minimum Opening Deposit for Online Banks

When opening an online bank account, it’s typical to have low or $0 minimum initial deposits for a checking account. Because online banks don’t have to pay for physical locations, they typically are able to pass the savings along to their clients with lower or no minimum deposit requirements.

They may also offer other perks like an annual percentage yield (or APY) on a checking account or a higher APY than elsewhere on savings accounts.

Minimum Opening Deposit for Brick-and-Mortar Banks

If you were to open a bank account at a traditional bank (also known as a brick-and-mortar bank), on the other hand, you might need $25 or more for the initial deposit. And if you have two checking accounts at the same bank, it’s possible you might have to meet different initial deposits for each one.

Jumbo or premium accounts, which may be interest-bearing checking accounts and offer rewards, can also set the bar higher for how much money is required to get started. For example, a jumbo checking account might pay interest on balances of $1,000, $10,000, or more so you would need at least that much to open one.

Minimum Opening Deposit for Credit Unions

How much money do you need to open a checking account at a credit union? If you prefer to open a checking account at a credit union vs. a bank, you will likely find minimum opening deposits that range from zero to $25.

Get up to $300 when you bank with SoFi.

No account or overdraft fees. No minimum balance.

Up to 4.20% APY on savings balances.

Up to 2-day-early paycheck.

Up to $2M of additional
FDIC insurance.


Can You Open a Bank Account With No Money?

You can probably open a bank account with no money. As mentioned above, you are most likely to find this kind of checking account offered at an online bank vs. a traditional bank.

Before you open this kind of account, though, it can be wise to make sure you understand the terms of the account, including the fine print. Factors to consider include what, if any, fees will be assessed, what balance you may need to maintain, and how and when you need to fund the account.

Recommended: What to Know If You’ve Been Denied a Checking Account

What Is a Minimum Initial Deposit?

A minimum initial deposit is the amount of money that a financial institution requires you to deposit in order to open an account. In some cases, this can be as little as $1 or even nothing at all; in other cases, it could be $100 or considerably higher.

What’s the Difference Between Minimum Initial Deposit vs. Minimum Balance Requirement?

When thinking about how much money you need to start a bank account, it’s important to understand the difference between your initial deposit and your ongoing balance requirement. If a deposit requirement is in place, that is separate from the minimum balance requirement that you may also need to meet to avoid a monthly service fee.

For example, you might need to deposit $100 to open your account. However, in order to avoid a $10 monthly maintenance fee, you may need to keep an average daily balance of $500 there.

A free checking account that doesn’t charge a monthly fee may not have a minimum balance requirement. Check with the bank up front so you are familiar with the terms and aren’t surprised by any fees being deducted.

The Takeaway

Checking and savings accounts can make your financial life easier, and you may be able to open an account with very little in terms of an initial deposit, even no money at all. When choosing a banking option, it’s important to consider the fees you might pay, the interest you could earn, and any minimum deposit or minimum balance requirements. Whenever possible, you want your bank to pay for the privilege of holding your money, not vice versa.

SoFi: Making Banking Better

If you’re interested in hassle-free online banking, consider opening a SoFi Checking and Savings account. You’ll earn a competitive APY, pay no account fees, receive a debit card with cashback rewards, and have access to a suite of financial tools that can help your savings grow.

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

FAQ

How much is needed to open a checking account?

The amount of money needed to open a checking account can vary by bank. At some banks, it may be as low as $1 or even $0; at others, you might need to deposit $25, $50, or more to get started.

Can I open a checking account with no money?

It’s possible to open a checking account with no money if your bank allows you to fund your account later. For example, you may be able to open a bank account online with no money, connect an external bank account, then fund your new account with an initial deposit later.

Photo credit: iStock/michellegibson

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.

SOBK0123033

Read more
Oct
30
2024

How Do High Yield Savings Accounts Work?

By | money | Comments Off on How Do High Yield Savings Accounts Work?
Table of Contents

High-yield savings accounts (HYSAs) typically offer significantly higher returns than traditional savings accounts. As of August 2024, the national average interest rate for savings accounts was 0.45% APY as of October 21, 2024 according to the FDIC1, while some HYSAs provided annual percentage yields (APYs) of 3.00% or more.

Whether held at a traditional bank, online bank, or credit union, these accounts can keep your money liquid (meaning it’s nice and accessible), plus they don’t expose you to the risk that may accompany investing. However, you may have to meet a high initial deposit requirement or maintain a significant balance to reap that enticingly high interest rate.

Key Points

•   High-yield savings accounts (HYSA) offer significantly higher interest rates compared to traditional savings accounts, enhancing the growth of deposited funds.

•   These accounts are available at various financial institutions, including online banks which often provide the highest rates.

•   Funds in high-yield savings accounts are typically insured up to $250,000, providing security for depositors.

•   Accessibility to funds is easy, though withdrawals may be limited to six per month, with potential fees for exceeding this number.

•   High initial deposits and maintaining minimum balances might be required to obtain the higher interest rates offered.

What Is a High-Yield Savings Account (HYSA)?

A high-yield savings account (HYSA) is a savings vehicle similar to a traditional savings account but pays considerably higher interest rates. These accounts almost always offer better returns than traditional checking accounts.

Depending on the financial institution, a high-yield savings account will likely be insured by the Federal Deposit Insurance Corporation (FDIC) or the National Credit Union Administration (NCUA) up to $250,000 per depositor2.

Earn up to 4.20% APY with a high-yield savings account from SoFi.

No account or monthly fees. No minimum balance.

9x the national average savings account rate.

Up to $2M of additional FDIC insurance.

Sort savings into Vaults, auto save with Roundups.


How Are High-Yield Savings Different Than Regular Savings Accounts?

As briefly mentioned above, the average savings account interest rate is currently 0.45% APY as of October 21, 2024. What’s more, many of the nation’s biggest banks pay significantly less than that – only around 0.01%. Yes, it’s better than nothing, but not by much!

Here’s how the math works out: If you had $5,000 in a savings account earning 0.01% per year, you would only earn 50 cents for the entire year it sat in your savings account, assuming no compounding occurred.

How Do High-Yield Savings Accounts Work?

How a high-yield savings account works is very similar to how other savings accounts operate.

•   You make an initial deposit to open the high-interest account, while also sharing identification and other personal information with the bank or credit union.

•   You can then add to your account as you see fit.

•   You can also take money out of the account (there may be a cap on how many times a month you can do this, however), either withdrawing it or transferring it to another account.

Your account may also have minimum balances and monthly fees. This will vary with the institution. While traditional banks and credit unions may offer these accounts, it is common to find them at online banks, which have a lower overhead and can pass the savings on to you. You may find accounts that have no fees, like a SoFi Savings Account.

In many cases, your funds will be protected by either FDIC or NCUA; check with your financial institution to know the coverage limits in place.

Example of Interest Earned in a High-Yield Savings Account

To see how a high-yield savings account works, consider an example of a $5,000 deposit earning 4.00% APY over 5 years, compounded monthly.

Year Account Balance Interest Earned (5%) New Balance
1 $5,000.00 $200.00 $5,200.00
2 $5,200.00 $208.00 $5,408.00
3 $5,408.00 $216.32 $5,624.32
4 $5,624.32 $224.97 $5,849.29
5 $5,849.29 $233.97 $6,083.26

At the end of 5 years, a $5,000 deposit earning 4.00% APY, compounded monthly, would earn you $1,083.26 in interest. In comparison, a traditional savings account with a 0.45% APY would only earn you $113.52 over the same period. That’s a difference of $969.74.

Recommended: To see personalized scenarios, use our High-Yield Savings Account Calculator.

Benefits of a High-Yield Savings Account

There are definitely some big pluses to opening a high-yield savings account. Here are some of the main ones:

•   The interest rate, of course! It is typically many times that of a traditional savings account or a CD.

•   It’s a secure place to deposit funds when you are savings towards a relatively short- or medium-term goal (say, building an emergency fund, or saving for a down payment, a wedding, or another purpose)

•   These accounts often come with no fees, zero! Typically, this is the case with online banks rather than bricks-and-mortar ones or credit unions.

Recommended: How Much Money Should You Have Left After Paying Bills?

Disadvantages of a High-Yield Savings Account

You know the saying, “Nobody’s perfect”? It holds true for high-yield savings accounts, too. These accounts may not suit your needs for a couple of key reasons.

•   While the interest is higher than your standard savings account, it may not be able to compete with other financial products (such as stocks) for long-term savings, like retirement. In fact, it may not even keep pace with inflation. So if you are able to take some time and take on a degree of risk, you may be better off with stocks or mutual funds to reach some financial goals.

•   More restrictions and/or requirements may be part of the package. For instance, you may need to deposit or keep a certain amount of money in the account, especially for those high-yield accounts offered by traditional banks. Or might need to set up direct deposit or automate bill payment.

•   Less access may be an issue. It may take more steps and/or more time (perhaps a couple of days) to transfer funds when you have a high-yield savings account.

Practical Uses for a High-Yield Savings Account

A high-yield savings account can be used for a variety of purposes, just as other types of savings accounts can be.

Building an Emergency Fund

It may be a good place to build an emergency fund that is your safety net in case you have an unexpected car or household repair needed. You typically want to have a three to six months’ worth of living expenses available, but you can certainly start one of these accounts with less and add to it.

Saving for a High Value Purchase

Perhaps you are saving for a car, a cruise, or other big-ticket item. Or maybe you are getting close to having enough money for a down payment on a house. A high-yield savings account can be a secure, interest-bearing place to park those funds until you are ready to use them.

Saving Surplus Money

A high-yield account can also be a great place for any extra cash for which you may be figuring out next steps. Perhaps you received a tax refund or a spot bonus, or you are selling your stuff that’s no longer needed on eBay. That extra cash can go into a high-yield savings account rather than sit in your checking account, potentially earning zero interest.

Separating Your Money

Sometimes, setting up an additional savings account (or two) can help you organize your money. Perhaps you want to have multiple savings accounts to help you achieve different goals, such as an account for future educational expenses and one for paying estimated taxes on your side hustle. As you save money towards each of those aims, you might as well accrue some interest. A high-yield savings account will help you do that, and let you check on how your cash is growing towards each goal.

What to Look For in a High-Yield Savings Account

Ready to explore high-yield savings accounts a bit further? Here are a few things to look for (and to look out for) when considering a high-yield account.

Annual Percentage Yield (APY)

One of the most important factors to look for in a savings account, the APY is how much you’ll earn in returns in one year. Some accounts will specify that the currently advertised rate is only available for an initial period of time, so that can be something to keep in mind.

Required Initial Deposit

Many high-yield savings accounts require a minimum opening deposit. If that’s the case, you’ll want to make sure you are comfortable depositing that much at the outset.

Minimum Balance

Some banks require you to maintain a minimum balance to keep your high-yield savings account open. You’ll want to feel comfortable with always meeting the minimum threshold because falling below it can trigger fees or mean you won’t get the interest rate you’re expecting.

Ways to Withdraw or Deposit Funds

Banks all have their own options and rules for withdrawing and transferring funds. Options might include ATM access with an ATM card, online transfers, wire transfers, or mobile check deposits. Withdrawals may be limited to six per month.

Balance Caps

A balance cap puts a limit on the amount of money you can earn interest at the high-yield account rate. So, for example, if an institution offers 3% interest on your savings account, but sets a balance cap at $2,000, you would only grow that interest on the first $2,000 and not on any additional funds you may deposit.

Bank Account Fees

It’s a good idea to understand what, if any, bank fees may be charged — and how you can avoid them, such as by keeping your balance above the minimum threshold or minimizing withdrawals per month.

Links to Other Banks and/or Brokerage Accounts

Make sure you know whether you can link your high-yield savings account and other accounts you may hold. There could be restrictions on connecting your account with other financial institutions or there might be a waiting period.

Withdrawing Your Money

You’ve just read that it may be a bit more complicated or time-consuming to get your funds transferred. You should also check to see how withdrawals can be made. For instance, would it be possible to pull some funds out of your high-yield savings at an ATM? Your financial institution can answer that question.

Compounding Method

It’s up to the bank whether they compound interest daily, monthly, quarterly, or annually — or at some other cadence. Compounding interest more frequently can boost your yield if you look at the APY versus the annual interest rate (the latter takes into account the compounding factor btw).

Recommended: 52 Week Savings Challenge

How to Open a High-Yield Savings Account

Now that you’ve learned about high-yield savings accounts, you may be ready to say, “Sign me up!” If so, a good first step is to take a look at your current bank and see if they have a high-yield savings account available — that could be the quickest, easiest path forward.

If not, look for an account and interest rate that speaks to you, and move ahead. Most high-yield savings accounts can be easily opened online with such basic information on hand, such as your driver’s license, your Social Security number, and other bank account details.

How Do High-Yield Savings Accounts Compare to CDs?

Another option you can use to grow your savings is a certificate of deposit or CD.

A CD is a type of deposit account that can pay a higher interest rate than a standard savings account in exchange for restricting access to your funds during the CD term — often between three months and five years.

Interest rates offered by CDs are typically tied to the length of time you agree to keep your money in the account. Generally, the longer the term, the better interest rate.

When you put your cash in a CD, it isn’t liquid in the way it would be in a savings account. If you want to withdraw money from a CD before it comes due, you will typically have to pay a penalty (ouch). This could mean giving up a portion of the interest you earned, depending on the policy of the bank.

Another key difference between CDs and high-interest savings accounts is that with CDs, the interest rate is guaranteed. With savings accounts, interest rates are not guaranteed and can fluctuate at any point.

A CD can be a good savings option if you’re certain you won’t need to access your cash for several months or years and you can find a CD with a higher rate than what high-yield savings accounts offer.

Make the Most of Your Money With SoFi

If you’re ready to amp up your money, a SoFi Checking and Savings account can help. We make it easy to open an online bank account and — if you sign up for direct deposit — you’ll earn a competitive APY on a qualifying account. Need more incentive? How about this: SoFi has zero account fees and offers Vaults and Roundups to further grow your cash. Plus, you’ll spend and save 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

Can you lose money in a high-yield savings account?

In most cases, you likely won’t lose money with a high-yield savings account. If your account is held at a financial institution insured by FDIC or NCUA, you are covered in the rare event of a bank failure for up to $250,000 per account category, per depositor, per insured institution. That said, you might lose money vs. inflation if the rate of inflation exceeds that of the APY on your high-yield savings account.

Is a high-yield savings account a good idea?

A high-yield savings account can be a good idea. It provides significantly higher interest than a standard savings account, but offers the same security and easy access/liquidity.

Can I withdraw all my money from a high-yield savings account?

You can withdraw all your money from a high-yield savings account. One of the benefits of this kind of account is its liquidity. If you are ready to close the account, check with your financial institution about their exact process for doing so.

Are there any downsides to a high-yield savings account?

There are some potential downsides of a high-yield savings account. While these accounts earn more interest than a standard savings account, they may not keep pace with inflation nor how much you might earn from investments. There may be restrictions at some financial institutions, such as a minimum balance requirement and withdrawal limits. While the funds are liquid, access may require some maneuvering. Transfers may take longer, and if you keep your funds at an online bank, you cannot walk into a branch to take out cash.

Article Sources

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

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

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

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

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

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

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

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

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

SOBK0223049

Read more
Oct
29
2024
What Are Wire Transfer Fees & How Much Are They?

All You Need to Know About Wire Transfer Fees

By | Budgeting & Goals, Family Finances, money | Comments Off on All You Need to Know About Wire Transfer Fees

Wire transfers are a way to quickly and conveniently send and receive money, both domestically and internationally. Maybe you want to securely send some cash as a security deposit to a landlord across town ASAP. Or perhaps you need to pay for a painting you bought at an auction overseas. Either way, a wire transfer may be a good option.

However, there are often wire transfer fees in exchange for their speed and convenience. The cost to send and receive money via wire transfer varies, but international wires are usually costlier than domestic wires.

However, with the right steps, you can reduce or even eliminate the fees you’ll pay using wire transfers.

Key Points

•   Wire transfers provide a fast and secure method for sending money both domestically and internationally, with same-day processing available for many domestic transactions.

•   Fees for wire transfers vary significantly; domestic transfers typically cost between $0 to $35, while international transfers can range from $35 to $50 or more.

•   International wire transfers are generally more expensive than domestic ones due to additional processing steps, currency conversion fees, and the involvement of third-party institutions.

•   To avoid wire transfer fees, consider sending money in the recipient’s local currency, using digital platforms that offer lower fees, or seeking banks that waive such fees.

•   Alternative methods for sending money without high fees include using payment apps, bank transfers (ACH), or cashier’s checks, each with its own processing times and conditions.

What Are Wire Transfer Fees?

A wire transfer is an electronic funds transfer between financial institutions. Wire transfers can be faster than bank transfers, with same-day processing possible for most domestic wires. Wire transfers can occur domestically or internationally, but most banks charge fees both for sending and receiving funds in this way.

In addition to speed, another reason to use wire transfers is when sending money internationally, as a regular bank transfer isn’t possible in this situation. But international wire transfers can have higher wire transfer fees than domestic wires, and there might be more steps involved. For instance, the transaction might have been processed by the foreign country’s system and also possibly involve a currency conversion.

Recommended: ACH vs. Check: What Are the Differences?

Get up to $300 when you bank with SoFi.

No account or overdraft fees. No minimum balance.

Up to 4.20% APY on savings balances.

Up to 2-day-early paycheck.

Up to $2M of additional
FDIC insurance.


How Much Do Wire Transfer Fees Cost?

As mentioned earlier, how much wire transfer fees cost can vary. Some financial firms waive wire transfer fees in certain situations, and others waive them entirely. When sending and receiving international wires, there can be a fee of $50 or more for each transaction

Typically, you might expect the following fees:

•   For domestic wire transfers, outgoing fees usually range from $0 to $35; incoming fees can range from $0 to $15.

•   For international wire transfers, outgoing fees can often range from $35 to $50; incoming fees are likely to be between $0 and $16.

Wire Fees by Financial Institution

Below is a list of wire transfer fees for large banks in the United States. However, third parties may be involved that charge additional fees, especially for international wires.

Bank Incoming domestic Outgoing Domestic Incoming international Outgoing international
Bank of America $15 $30 $16 $45 or $0 when sent in foreign currency
Capital One Up to $15 Up to $30 Up to $15 $40-$50
Chase $0-$15 $25-$35 $0-$15 $0-$50
Citi Up to $15 Up to $25 Up to $15 Up to $35
Fidelity $0 $0 $0 $0
PNC $15 $25-$30 $15 $40-$45
TD Bank $15 $30 $15 $50/td>
USAA $0 $20 $0 $45
U.S. Bank $20 $30 $25 $50
Wells Fargo $15 $30 $16 $45

Do International Fees Cost More Than Domestic?

On average, international wire transfer fees are higher than domestic ones. But as is often the case, averages don’t tell the whole story. Some financial institutions don’t impose wire transfer fees, even for international transactions.

Still, it’s important to remember that there may be extra fees when dealing with international wire transfers. For instance, there may be a currency conversion fee when sending money between two countries that use different currencies. When sending or receiving money internationally, you’ll need information like an international bank account number (IBAN) or a SWIFT code to move the funds to the right account. Overall, it’s a somewhat more complex transaction than a domestic one.

Why Do Banks Charge Wire Transfer Fees?

Banks charge wire transfer fees because of the work that goes into processing wire transfers. For instance, wire transfers are processed individually as they are received. This differs from automated clearinghouse (ACH) transfers, which are processed in batches.

You also pay a premium for the faster processing speed. Domestic wire transfers can sometimes be completed within a few hours and are usually processed the same day. International wire transfers can be completed within one to two business days.

Another reason banks charge wire transfer fees is their higher transaction limits. Wire transfer limits are usually much higher than bank transfer limits, so they can be worth using if you must send a large amount in a single transaction.

Lastly, the international reach of wire transfers can lead to higher fees. For instance, when large amounts of foreign currency are exchanged, banks charge what is known as a midmarket, or interbank, exchange rate. The bank will often charge a higher markup if that currency must be converted. This results in higher wire transfer fees.

Recommended: How to Earn More Interest on Your Money

Tips to Avoid Wire Transaction Fees

While wire transfer fees are common, they aren’t always a given. Here are some ideas about how to avoid wire transfer fees in some situations:

•   Send money in foreign currency. For outbound international wires, it can be smart to send money in the currency used by the foreign company, if possible. In this scenario, some banks waive wire transaction fees since no currency conversion is necessary.

•   Do it yourself digitally. Some financial institutions allow you to initiate a wire transfer using their website or app, and doing so may reduce the fees or even eliminate them.

•   Look for firms that don’t charge wire transfer fees. Some banks and nonbank providers waive wire transfer fees in some cases, or they don’t charge them at all.

•   Open an account with no wire transaction fees. Shop around: Some of the most popular banks offer accounts that let you wire money with no transaction fees.

Alternative Ways to Send and Receive Money

Some methods of sending money may allow you to reduce or eliminate transaction fees. You can do so by using one of the following methods to conduct the transfer:

•   Use a payment app. Payment apps like Venmo, Zelle, and PayPal generally let you send money electronically to friends and relatives without paying a fee. However, sending money to those who are not “friends and family” may incur fees.

•   Send money with a bank transfer. A bank transfer, or ACH transfer, might be preferable if you send money domestically. In 2022, the same-day transfer limit was increased to $1 million, enabling large funds transfers in a single day.

However, note that limits on single transactions might be lower, and there might be ACH fees.

•   Use a cashier’s check. A cashier’s check is an alternative to wire transfers because it can be suitable for large transactions. This type of check draws the funds from the bank’s reserves rather than your account. However, the check must be delivered to you, so this method can take longer than a wire transfer. In addition, there might still be fees involved.

The Takeaway

Wire transfers can be a quick, secure way to send money domestically or internationally. These transfers have several benefits, such as shorter processing times and larger transaction limits than ACH transfers. But wire transfers can also have significant transaction fees, especially when dealing with international transfers.

If you prefer to avoid costly wire transfer fees, look for firms that don’t charge them or offer accounts that don’t charge for wire transfers. You can also consider alternative methods of sending money, like using a payment app or sending a cashier’s check.

If you’re looking for other ways to save on your banking costs, consider opening an online bank account. With SoFi Checking and Savings, for instance, you won’t pay any account fees, and your money will earn a competitive annual percentage yield (APY), both of which can help your cash grow faster. You’ll also spend and save in one convenient place, have a suite of tools (like Vaults and Roundups) that can amp up your savings, and, for qualifying accounts with direct deposit, you can get paycheck access up to two days early.

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

FAQ

Do you pay a fee to receive a wire transfer?

It depends, but most banks do charge a fee for income wire transfers. However, the fee for incoming wires is usually considerably less (maybe 50% lower) than the fee for outgoing wires.

Why are wire transfers so expensive?

Wiring money can be expensive for several reasons, such as their shorter processing times and higher transaction limits than bank transfers. Also, international wire transfers have more processing steps, which can increase their cost.

Do all banks charge wire transfer fees?

The majority of banks charge wire transfer fees in at least some situations. Some waive them in certain situations, while nonbank providers are more likely to waive them entirely.

Photo credit: iStock/Ridofranz

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.

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.

SOBK1222027

Read more

CATEGORIES

  • All
  • No categories
Close modal

See what SoFi can do for you and your finances.

Select a product below and get your rate in just minutes.

Student Loan
Refinancing

Personal
Loans

Online
Investments

Other

Terms and conditions apply. SOFI RESERVES THE RIGHT TO MODIFY OR DISCONTINUE PRODUCTS AND BENEFITS AT ANY TIME WITHOUT NOTICE. To qualify, a borrower must be a U.S. citizen or other eligible status, be residing in the U.S., and meet SoFi's underwriting requirements. Not all borrowers receive the lowest rate. Lowest rates reserved for the most creditworthy borrowers. If approved, your actual rate will be within the range of rates at the time of application and will depend on a variety of factors, including term of loan, evaluation of your creditworthiness, income, and other factors. If SoFi is unable to offer you a loan but matches you for a loan with a participating bank, then your rate may be outside the range of rates listed above. Rates and Terms are subject to change at any time without notice. SoFi Personal Loans can be used for any lawful personal, family, or household purposes and may not be used for post-secondary education expenses. Minimum loan amount is $5,000. The average of SoFi Personal Loans funded in 2023 was around $33K. Information current as of 2/26/24. SoFi Personal Loans originated by SoFi Bank, N.A. Member FDIC. NMLS #696891 (www.nmlsconsumeraccess.org). See SoFi.com/legal for state-specific license details. See SoFi.com/eligibility for details and state restrictions.

✝ To check the rates and terms you may qualify for, SoFi conducts a soft credit pull that will not affect your credit score. However, if you choose a product and continue your application, we will request your full credit report from one or more consumer reporting agencies, which is considered a hard credit pull and may affect your credit.

©2024 Social Finance, LLC All rights reserved.
TLS 1.2 Encrypted
Equal Housing Lender