Jul
05
2024
The Pros and Cons of Unpaid Internships

The Pros and Cons of Unpaid Internships

By | Building Your Career, Life & Career, money | Comments Off on The Pros and Cons of Unpaid Internships

Paid and unpaid internships can provide students with relevant work experience in their field of choice. But while both opportunities offer knowledge and training, only one rewards you with a paycheck.

Although paid internships are more common, it doesn’t mean everyone can land one. So if you want the experience and don’t want to pass up a chance to beef up your resume, you may have to work for free. Spending several months at an unpaid internship can be difficult, especially if you’re already carrying debt, dealing with high living expenses, or need to work a paying job.

Whether interns should be paid or not is an ongoing debate with a lot to consider before committing to one. Find out about the pros and cons of an unpaid internship to see if it’s worth the investment.

What Is an Unpaid Internship?

An unpaid internship is a temporary work arrangement offered to graduate or college students, or as internships for high school students, so they can gain training and knowledge by working in their area of interest. Interns are able to perform duties related to their chosen career, observe professionals in a workplace setting, and receive direct guidance from mentors.

These non-compensated arrangements differ from an apprenticeship, which is designed to provide hands-on training in a specific trade or industry. Apprenticeships are paid and wage increases occur as new skills are acquired.

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Are Unpaid Internships Legal?

Yes, according to the The Fair Labor Standards Act (FLSA), which states that “for-profit” employers must pay employees for their work. However, interns and students may not be “employees,” in which case the law doesn’t require payment for their work. If an internship qualifies as paid, companies must pay their interns at least minimum wage for their services plus any overtime.

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How Do Unpaid Internships Work?

Unpaid internships typically require you to work for a specific period of time during the school year or during the summer. The program may ask you to work on site, but with the increase in some employees working from home, remote internships have become more of a possibility.

Before you start your internship, you’ll likely discuss what you’ll be doing and when you’ll be able to work with your supervisor. Since you’re not being compensated, you’ll probably have more flexibility with scheduling.

It’s important to remember an unpaid internship isn’t volunteer work and should be more beneficial to you than the business or organization. After all, the reason you’re there is to receive training and education you simply can’t get by sitting in a classroom.

Pros of Taking Unpaid Internships

Building your professional resume can be priceless and let’s face it, your calling card once you hit the job market. Besides offering exposure to what it will be like working in your specialty, you’ll build potentially lifelong connections with people who may be able to open doors for you down the road.

There are many ways an unpaid internship can help prepare you for future career success. Here are some significant advantages:

Getting Valuable Experience

As an intern, you’ll get actual hands-on training that attracts future employers. According to the National Association of Colleges and Employers (NACE), applicants with industry internship experience have a leg up when it comes to employers’ hiring decisions.

Working as an intern allows you to develop crucial skills you’ll need in a professional setting, such as how to communicate effectively and collaborate with others. These abilities can make you even more of a stand out to prospective employers.

Valuable experience gained from an internship isn’t exclusive to undergrads. Already have your degree? You can still build upon your knowledge with an unpaid post graduate internship. These secondary education opportunities allow you to keep actively learning while you’re pursuing full-time employment or, if you want some down time after graduation.

Networking Equals Potential Opportunity

Making connections is one of the most important things you can do to grow your career. In fact, an estimated 80% of all positions are filled through networking. Many jobs aren’t publicly advertised so if you’ve left a positive impression, you may be the first person your past internship boss calls when a job opens up. Even if your internship doesn’t culminate in employment, building a solid network and maintaining relationships can pay off if you need a future job reference, letter of recommendation, mentoring, or career advice.

Companies Offering College Credit

Many companies will offer unpaid internships for college credits as compensation for your work. Knowing you’re receiving credits towards your degree, which can be a form of currency in its own right, may help justify the decision to take an unpaid internship.

Working in a Relevant Field

Internships give a preview of what it may be like working in your area of expertise, placing you in an environment where you’re exposed to the latest technology, industry norms, and business culture. With some concrete training spent working in your field, you may be more likely to be hired compared to someone with zero internship experience or those who have interned in an unrelated field.

Helps With Making Future Career Decisions

During an unpaid internship, you may come to the realization your selected career isn’t all you imagined. In this case, you could save yourself from wasting valuable time in the future and start exploring other career options. On the other hand, your internship could crystallize how much you love what you’re doing, validating you’ve made the right choice.

You may also decide to continue on with your education as something to do after college instead of entering the job market right away. This could be an ideal time to fit in an unpaid internship before pursuing a graduate degree.

Recommended: How to Make a Budget in 5 Steps

Cons of Taking Unpaid Internships

The main cons of unpaid internships center around the obvious: no financial compensation for your efforts. Unpaid internships can also create barriers for disadvantaged or low-income students, possibly eliminating some extremely qualified candidates from gaining training and having a shot at making a serious contribution to a company.

Consider these downsides when thinking about applying for unpaid internship:

No Money for Your Hard Work

Strapped with tuition and other college-related costs, many students simply can’t work without pay. Participating in an unpaid internship can require commuting or even relocation during the summer months, increasing your need to have money in a bank account or earning it at another job.

Often Not Receiving Company Benefits

As an unpaid intern and temporary worker, you’re not entitled to the same benefits of a paid employee, such as paid vacation days, medical insurance, or the ability to contribute to a 401(k). Performing duties similar to a permanent employee’s and not gleaning any of the perks may also lead to feeling resentful, unappreciated, or lonely, especially if you’re the only one working while employees get to leave early for a three-day holiday weekend.

Possible Inequalities in the Workplace

Student interns who aren’t paid may find themselves doing more menial tasks and feel looked down upon by other employees. Staffers may be dismissive, impatient, condescending, or exclude them from conversations because they’re the intern.

One major criticism of unpaid internships concerns the perpetuation of socioeconomic and racial inequities. For example, the National Association of Colleges and Employers 2023 study found that white students were more likely to have paid internships than Hispanic or Black students.

Potential Lower Future Income

Showing you’re willing to work for free may give employers the idea you might accept a lesser amount compared to someone who had a paid internship. Making this assumption on their part could lead to a lower salary offer.

Recent research by the Strada Education Network found having a paid internship as an undergraduate is linked with a predicted increase in annual wages of $3,096 just one year after graduation. Unpaid internships, practicums and cooperative learning aren’t associated with higher earnings post-graduation, the study reports.

Are Unpaid Internships Worth It?

Of course, it’s an individual choice based on a student’s particular circumstances, but unpaid internships can be worthwhile. Even if you’re not being compensated, these situations can provide training you can only get by working with professionals and mentors. Taking an unpaid internship could take the pressure off some of the expectations, duties, and necessary time commitment you’re more likely to have as a paid intern.

The Takeaway

An unpaid internship can pay off in significant ways such as offering college credits, meeting and networking with people in your field, and providing solid work experience to bolster your resume. Unpaid internships can also help you decide whether or not you’re on the right career path. But, interning without compensation can pose some major challenges for those who can’t afford to work for free. Before applying, think through the pros and cons to help you determine your best route to working toward your career and financial goals.

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 unpaid internships exploitation?

A criticism of unpaid internship programs is that they take advantage of a student’s free labor without providing any practical experience or educational benefits. While you may be asked to move some boxes or go on a coffee run, an unpaid internship that is not exploitative should mostly involve tasks that expand your skill set and teach you about your future career.

Is there a better workflow if interns are paid?

Interns help boost a company or organization’s workflow regardless, but paid interns may boost workflow more, since being financially compensated is associated with feeling satisfied and valued, which in turn is connected to productivity.

What percentages of companies offer unpaid internships?

Research shows that nearly 41% of interns in the U.S. are unpaid, and 59% are paid.

Photo credit: iStock/PeopleImages

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.

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

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

4.20% APY
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.

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Jul
05
2024
Getting a Second Job: The Pros and Cons

Getting a Second Job: The Pros and Cons

By | Financial Independence, Life & Career, money | Comments Off on Getting a Second Job: The Pros and Cons

Many of us have had that moment where we think, “I need to earn more money.” If you are feeling the pinch of rising expenses plus a static income, you might consider getting a second job to boost your monthly take-home pay.

You’re not alone. According to the Federal Reserve Bank of St. Louis, 8.4 million people in the U.S. have multiple jobs, which is more than 5% of the workforce. That figure, however, may not capture the full impact of the Gig Economy, and all of those who sometimes hop behind the wheel of an Uber or otherwise do freelance work.

Working more than one job can help you save money, but it can also be a challenge. To help better understand the pluses and minuses of moonlighting, read on.

What Is Moonlighting?

Moonlighting is defined as taking on a secondary job in addition to a primary full-time job. (Typically, second jobs were done at night, by moonlight, after one’s day job.) That extra job might require you to be on-premises, or it could be a project that can be done from home.

These days, some people use the term loosely. You might hear someone say, “I moonlight editing college application essays” or “I moonlight now and then at a catering company.” The hours may be variable and flexible, but it’s an additional form of employment that brings in money, potentially helping an individual to create financial freedom.

Generally, as long as moonlighting doesn’t impact an employee’s performance while they’re on the clock, employers will allow moonlighting. However, company rules, such as a non-compete policy, could bar full-time employees from moonlighting jobs in similar industries.

Having a second job can accomplish a variety of goals, from adding money to your bank account, to paying down credit card debt to funding a new car purchase to buying a home.

How Does Moonlighting Work?

Moonlighting jobs can take many different forms. Typically, it’s a part-time job in addition to full-time work. It may or may not be related to your primary job. For instance, it could include any of the following possibilities:

•   Waiting tables on the weekend, outside of a 9 to 5 job

•   Working as a music teacher in a school, but teaching private music lessons after hours

•   Taking on gig work, like food delivery, outside of working hours

In some cases, moonlighting may offer some of the best ways to make money from home. In your spare time, you might tutor, design websites, edit copy, make jewelry, analyze data, or do any number of other tasks.

Having a second job or moonlighting typically involves dedicating some time and energy to the pursuit on a regular basis. In this way, it differs from passive income ideas, which could include buying stocks and receiving dividends or renting out a room in your home.

Reasons Why People Take a Second Job

People may take on moonlighting work for any of the following reasons:

•   Financial. Bringing in more income could help pay off debt faster.

•   Personal. A moonlighting job may allow someone to explore an area of interest more seriously or provide an antidote to a boring but profitable day job.

•   Professional. People who moonlight may learn new skills that benefit them in their full-time work or help them switch industries entirely.

Recommended: How to Earn Residual Income

Pros of Working a Second Job

While working two jobs will take more of your time and energy, there are definitely benefits to doing so. Here’s a closer look at the pros:

More Money

No surprise here: One of the most immediate (and most sought-after) benefits of moonlighting is earning additional income. Having some extra cash can help when you’re budgeting for basic living expenses, especially in times of high inflation.

Beyond that, the additional cash can allow you to do anything from paying off debt faster to opening a high-yield savings account and building an emergency fund to starting a travel fund for vacations.

New Skills or Benefits

Have you been thinking about switching to another line of work, like retail? Working in a store on Sundays could let you see if it’s a good fit. Or is there a project, like web design, that you dream of making your full-time career? Freelancing at that pursuit a few nights a week might lay the foundation. Moonlighting work doesn’t necessarily have to be related to a person’s full-time job, so it can be a great tool to explore a hobby or interest with less risk. You can build your resume and hone your talents.

Moonlighting work may also provide benefits a full-time job doesn’t. If someone is passionate about art, they may take a moonlighting job at an art store to score an employee discount, saving them money on their hobby.

Less Financial Stress

If you’re anxious about money, join the club. One recent survey found that a stunning 65% of Americans say that money is their biggest source of stress. An additional job could be a way to achieve financial security, as you’re not relying solely on one employer for all of your income.

The money you make moonlighting might be a way to pay off debt faster without using savings, whether that means whittling down your student loans or a credit card balance. You could save it and decide where to keep an emergency fund in case an unexpected major bill comes along. Or you could funnel the funds into a retirement account. In any of these situations, the extra money can help increase your financial fitness as well as your peace of mind.

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Up to 4.20% APY on savings balances.

Up to 2-day-early paycheck.

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Cons of Working a Second Job

Taking a second job can be enticing for the extra income alone, but that doesn’t tell the whole story. There are some cons to working two jobs that it’s wise to consider before you begin moonlighting. For some, the following downsides may prove to outweigh the benefits.

Less Time for Self, Friends, or Family

More work will mean less free time. Losing that free time could disrupt your ability to maintain work-life balance while increasing your stress. Not having time to see friends and family or pursue hobbies could have a negative effect on your wellbeing.

Increased Physical and Mental Tiredness

Working two jobs, whether physically demanding or not, can lead to exhaustion. Without the time to recharge and rest, moonlighters may experience burnout.

Reduced Focus at First Job

If moonlighting leaves you exhausted or distracted, it could cause you to be less successful at your primary job. This, in turn, could jeopardize your main income stream.

Violating company guidelines

Moonlighting can put your main job in danger if you go against existing guidelines. Let’s say you are a lawyer for one company, and you signed a non-compete agreement. If another company asks you to review some documents for them as a freelancer, doing so could be problematic.

More paperwork

As you begin earning income for your second job, you will need to keep track of that money, any expenses you incur while working, and what taxes you owe.

Tips to Make Working Two Jobs Work

There are pros and cons of working two jobs. However, if you choose your additional work carefully, moonlighting can be a successful endeavor. Consider these tips when searching for moonlighting work:

•   Pick a passion. When a second job is boring, it might be more exhausting. Instead, consider a gig you are passionate or excited about as your moonlighting gig.

•   Start small. Taking on too many hours of moonlighting work upfront can lead to burnout. Try starting small, with only a few additional hours a week or even a seasonal position. If it goes well, you can ramp up your hours.

•   Double-check employer policy. Before signing up for a moonlighting job, check with policies at your full-time position. There could be non-compete or conflict-of-interest clauses that prohibit employees from working in certain fields. It can be best to follow these guidelines when you’re pursuing additional hours elsewhere.

•   Keep good records. It’s possible that your moonlighting job will be handled as a W-2, meaning your employer takes out taxes, but it’s likely this is freelance or contract work that involves an IRS Form 1099. Keep careful track of earnings, expenses, and when estimated taxes are due and for how much.

The Takeaway

Taking on a second job, or moonlighting, can be a great way to earn some extra cash and bulk up your bank account when money is tight or you want to save towards a specific goal. This kind of additional work can also help you explore a personal interest that might blossom into a new career direction.

However, working a second job, even if it’s a small commitment of hours, can throw your work-life balance out of whack, so proceed with caution to avoid burnout. The goal is to amp up your earning power, not exhaust you.

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

Is it unhealthy to work 2 jobs?

Moonlighting can be challenging for individuals who already struggle with work-life balance. With two jobs, it may be hard to pursue a personal life or relax. It might be wise to start a second job with a small commitment of time, see how it goes, and then gradually add more hours.

How do I survive 2 jobs?

Surviving two jobs may hinge on setting boundaries for both, as well as finding enjoyable work that’s not too physically or mentally taxing. Self-care is obviously important. Another consideration is making sure that you are not violating any non-compete or conflict-of-interest guidelines at your primary job so as not to jeopardize your status.

How does tax work for 2 jobs?

If both jobs are W-2, not contract, the employers will withhold taxes for the employees. However, if for your moonlighting job, you receive a 1099 as a contract worker, you should set aside and pay your own taxes. Also, taking on two jobs could boost you into a higher tax bracket, which could mean being taxed at a higher rate.

Is it illegal to work two jobs?

Unless explicitly stated in a job offer or contract, it is not illegal to work two jobs. Do make sure you are not violating any non-compete or conflict-of-interest stipulations at your primary job. Also know that most contracts are “at will,” meaning an employer has the right to fire an employee if a second job interferes with their performance.

Photo credit: iStock/Phynart Studio

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

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.

This article is not intended to be legal advice. Please consult an attorney for advice.

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.

4.20% APY
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.

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Jul
03
2024

Guide to Standby Letters of Credit (SLOC)

By | Growing Wealth, money, Terminology | Comments Off on Guide to Standby Letters of Credit (SLOC)

A standby letter of credit (also known as an SLOC or SBLC) is a legal document, typically used in international trade, that acts as a safety net for a deal. It communicates that a bank will guarantee payment if, for example, their customer fails to send funds to a seller for goods or services provided.

Generally, SOLCs are important when the buyer and seller haven’t been acquainted and haven’t yet established a sense of trust. These documents can help a seller secure a contract with a new client. This is especially helpful when they are competing with larger, more established sellers.

What Is a Standby Letter of Credit?

An SLOC (or SBLC; the terms are used interchangeably) is an irrevocable commitment by an issuing bank that it will make payment to a designated beneficiary if the bank’s client defaults on a deal. To phrase it a bit differently, these commitments ensure the payment of a specific amount if one party does not make good on a business agreement. For example, a seller might ship goods to a buyer, but the buyer fails to pay within a specified number of days. In such cases, the bank will intervene and compensate the seller if certain conditions are met.

However, the conditions can be very specific, and failure to meet them can result in the seller not being compensated. For example, issues with shipping or with the product itself could result in denial of payment.

These letters of credit are common in international trade when buyers and sellers aren’t familiar with one another. When entities from two different countries do a deal, the laws and regulations involved may differ. This can add a layer of uncertainty to whether the deal will go through smoothly. An SLOC can help the seller feel more confident they will be paid.

An SBLC acts as a safety net or insurance policy for the seller. If all goes well with the transaction, they won’t have to make use of it. Only if there are issues with the sale will the SBLC be needed, but that bank guarantee adds a level of confidence.

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

How a Standby Letter of Credit Works

Now that you know the meaning of SBLC, here’s how it actually functions.

•   When a buyer and seller are entering into a large contract, an SLOC might be created, especially if the buyer and seller don’t know one another. The buyer might create one to help secure a contract or the seller might ask the buyer to obtain a letter.

•   In either case, the buyer goes to a bank and requests an SLOC.

•   The bank will then perform underwriting to verify the buyer’s creditworthiness.

•   The bank might also ask the buyer for collateral if they have bad credit (this is an example of why bad credit is a big deal). The amount of collateral will depend on a variety of factors, including the level of risk, the size of the deal, and the strength of the business.

•   Once the process is complete, the buyer receives the SLOC.

•   The bank will charge a fee, typically between 1% and 10% of value per year while the contract is in effect.

•   Once the transaction project is complete, the SBLC is no longer valid, and the bank will no longer charge a fee.

However, if the buyer defaults on the agreement for any reason, the seller must provide all documentation listed in the SBLC to the buyer’s bank, informing them that the buyer has not held up their end of the arrangement. The bank will then reimburse the seller and later collect payment from the buyer, plus interest.

A deal can fail to be completed for many reasons, such as bankruptcy, lack of cash flow, or dishonesty on the part of the buyer. If the bank determines the buyer has violated the terms of the SLOC, it will then make payment to the seller.

Recommended: Why Are My Credit Scores Different?

Types of Standby Letters of Credit

There are two types of standby letters of credit: financial SBLCs and performance SBLCs.

Financial SBLC

A financial SBLC guarantees payment for goods or services provided. The SBLC guarantees that the buyer’s bank will pay the seller if the buyer doesn’t pay within the timeframe outlined in the letter. If the bank does need to step in and make payment, it will later collect payment from the buyer, plus interest.

Performance SBLC

A performance SBLC is less common but usually guarantees the completion of a project. In this case, a person or company agrees to complete a project within a specified timeframe. Thus, a performance SBLC would reimburse the party paying for the project if it isn’t completed in time or if the client otherwise feels the project was not completed to satisfaction.

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Standby Letter of Credit Example

The most common use of SBLCs is to guarantee payment when a seller ships goods, typically internationally, to a buyer.

•   For instance, a buyer might secure a contract to purchase a large shipment of corn from overseas. The seller, never having done business with the buyer before, might ask the purchaser to obtain an SBLC to ensure they are paid for the shipment. Even if the purchaser has taken steps to build credit, this is a new relationship between the two businesses, and trust hasn’t yet been established.

•   The SBLC indicates that the buyer will remit payment within 30 days of receiving the shipment. Thanks to shipment tracking, the seller can see that the buyer has received the shipment of corn. However, 30 days have passed, and the buyer hasn’t paid.

•   The seller can then go to the buyer’s bank, which issued to SBLC, and provide the necessary documentation about this deal and lack of payment.

•   If the bank agrees that the buyer hasn’t held up their end of the agreement, the bank will then pay the seller for the corn. The bank would then collect payment and additional charges from the buyer.

Recommended: Do Personal Loans Affect Your Credit Score?

Advantages of a Standby Letter of Credit

SLOCs have a few advantages worth noting:

•   Guarantee of payment The main benefit of SLOCs is they guarantee payment for the seller. Even if the buyer can’t pay, the seller can ask the buyer’s bank to reimburse them.

•   Helps buyers land contracts A seller might hesitate to ship goods to a buyer they don’t know and trust, even if credit monitoring reveals they seem like a good bet. There’s still an element of risk. The SLOC can make a seller more confident about doing a deal since they will be more likely to get paid.

Disadvantages of a Standby Letter of Credit

There are disadvantages to SLOCs, too. These include:

•   Increased costs The bank that guarantees the SLOC will charge the buyer a fee for every year the contract is in effect. And if the bank has to pay the seller, they will charge the buyer principal plus interest.

•   Not always a guarantee Although SLOCs guarantee sellers will be paid, there can be many hurdles involved before payment is issued. For example, shipping delays or problems with the product itself can lead to denial of reimbursement.

How to Obtain a Standby Letter of Credit

Obtaining a standby letter of credit is generally the responsibility of the buyer. Their bank will reimburse the seller in the event they don’t pay promptly. The bank will also have to determine how creditworthy the client is and decide if collateral is required. (One of the benefits of good credit can be not having to put up collateral in situations like this one.)

To issue the letter, the buyer might work with either a domestic or international trade division of a bank, depending on the deal’s particulars. At this point, it’s also wise for the buyer to have an attorney on site to review the terms of the agreement.

A seller can ask that the buyer obtain an SLOC as part of the contract. All parties should have legal experts involved to ensure the accuracy and conditions of the agreement.

Recommended: Do Credit Scores Update Often?

The Takeaway

Standby letters of credit (SLOCs) are useful legal documents for both buyers and sellers doing business, especially if they are working on an international deal. These letters can act as a safety net, saying that if a buyer doesn’t complete a deal, their bank will step in and make payment. For sellers, these letters can help increase confidence that they will be paid for goods or services. For buyers, they can be helpful in securing new contracts.

Not all banking involves international business deals, however. If you are looking for a reliable bank for your daily personal finance needs, 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

What does standby mean in letter of credit?

A letter of credit is a legal document that provides a safety net for a financial deal. “Standby” in this context refers to the fact that these letters are only implemented (and funds then issued) by the bank if the buyer fails to pay. If the buyer pays within the expected timeframe, no action is taken. The letter of credit has stayed on standby status.

What is the difference between a letter of credit and a standby letter of credit?

The difference between a letter of credit and a standby letter of credit is what each of them promises. A letter of credit is a guarantee from a bank that the buyer will pay. On the other hand, a standby letter of credit is a guarantee from the bank that they will pay if the buyer fails to do so.

Can SBLC be used as collateral?

The SBLC itself is not usually considered collateral. However, a bank may require the buyer to provide collateral before issuing an SBLC if the bank feels the buyer’s creditworthiness is not up to par.

Photo credit: iStock/BartekSzewczyk

SoFi® Checking and Savings is offered through SoFi Bank, N.A. ©2024 SoFi Bank, N.A. All rights reserved. Member FDIC. Equal Housing Lender.
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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.

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03
2024

Financial Planning Tips for Your 40s

By | Budgeting & Goals, money, Preparing for Retirement | Comments Off on Financial Planning Tips for Your 40s

Your 40s can be a pivotal decade in your life. It’s typically a time of peak earnings, growing family responsibilities, and an increased focus on long-term financial stability. You may have a house, kids, and a busy job. College expenses may be looming. Maybe you’re hatching a plan to start your own business or buy a beach house that’ll one day be your empty-nester home.

To navigate these years successfully, it’s essential to make strategic financial moves that can secure your future and make your plans and dreams a reality. Here are some critical financial planning tips to consider as you move through your 40s.

7 Financial Moves to Make During Your 40s

In your 40s, you’re old enough to know what you want and likely have enough earning years ahead to achieve your goals — if you manage your money right. The following strategies can help you build wealth in your 40s.

1. Maintain or Replenish Emergency Funds

Life is full of unexpected twists and turns. Not all of them are fun, such an expensive car or home repair, a medical emergency, or losing your job. An emergency fund offers financial stability during a stressful time. It also saves you from running up expensive debt that could derail your financial goals.

A general rule of thumb is to have six to 12 months’ worth of living expenses stashed away for the unexpected. If you already have an emergency fund but it has been partly or fully depleted, you’ll want to prioritize replenishing it to maintain financial security.

Consider setting up automatic transfers into savings to build your emergency fund consistently. Keep these funds in a liquid, easily accessible account, such as a high-yield savings account, to ensure you can access the money quickly when needed.

2. Manage Your Debt

Debt management is a crucial aspect of financial planning at any age, but it becomes even more critical in your 40s. Since high-interest debts, like credit card balances, can significantly hinder your ability to save and invest for the future, you’ll want to prioritize paying them off as quickly as possible.

One strategy that can help is the avalanche payoff method. Here, you list your debts in order of interest rate from highest to lowest, then put extra money toward the highest-interest debt, while continuing to pay the minimum on the others. Once that debt is paid off, you put your extra funds toward the debt with the next-highest rate, and so on.

Alternative approaches to paying down high-interest debt include getting a low- or no- interest balance transfer credit card or taking out a personal loan for debt consolidation with a lower rate than you are paying on your cards.

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3. Revisit Retirement Saving

In your 40s, you’re roughly at the midpoint between entering the workforce and traditional retirement age. How you invest and save for retirement at this point in your career can strongly impact your future assets and ability to one day retire comfortably.

If you’re not currently contributing to a retirement plan, such as a 401(k) or individual retirement account (IRA), now’s a good time to start. If you have been, it’s time to assess your progress. Consider how much of a nest egg you will need to retire and, using an online retirement calculator, whether your current plan will get you there.

If you’re behind on your savings, consider stepping up your contributions or, if you’re already contributing the max allowed, making “catch-up” contributions down the road. Starting at age 50, the IRS allows higher maximums designed to help people catch up on their retirement savings goals.

4. Plan for Childrens’ College Expenses

If you have kids, planning for their future education expenses may be top of mind. College costs continue to rise, and early planning can alleviate future financial stress. If you haven’t started saving for college expenses, you may want to explore opening a 529 college savings plan, which offers tax advantages and can be a flexible way to save for educational expenses.

An online college cost estimator can help you determine how much you need to stash away each month or year, based on the year your child will likely attend college and the type of school they might choose.

Just keep in mind that it’s important to balance college savings with other financial goals, like retirement. As kids get closer to leaving the nest, you may also want to encourage them to apply for scholarships and grants, and explore financial aid options.

5. Choose or Reevaluate Insurance Coverage

Insurance is an important component of financial planning in your 40s. You’ll want to evaluate your current insurance coverage and make sure it’s adequate to meet your family’s needs. This includes not only health and home insurance, but also life and disability insurance.

Life insurance provides financial security for your family should you die prematurely. If you don’t currently have a life insurance policy, consider purchasing one. If you do have one, you’ll want to make sure your policy’s coverage amount is sufficient to cover your family’s current living expenses, outstanding debts, and future financial needs, such as college tuition for your children.

It’s also a good idea to review your disability insurance, which protects your income if you’re unable to work due to illness or injury. Many companies provide a policy through work. However, you may want to consider supplementing employer-provided coverage or, if you’re self-employed, getting your own policy. This offers a different, but equally important, safety net for you and your family.

Recommended: Which Insurance Types Do You Really Need? Here Are 6 to Consider

6. Invest Outside of Retirement

While retirement accounts are crucial, investing outside of retirement can diversify your portfolio and help you achieve goals that may be five or 10 or more years away, such as a downpayment on a vacation home or a child’s wedding.

Though investing carries risk and can be volatile in the short term (which is why you generally don’t want to invest funds you’ll need in the next few years), an investment account has the potential to grow more than other types of accounts over the long term. Consider taxable investment accounts that align with your risk tolerance and financial objectives.

7. Meet with a Financial Professional

Getting expert advice on managing your finances can be invaluable at this stage of life. Whether you opt for regular meetings or simply go for a one-time consultation, a financial professional can provide valuable insights and help you navigate complex financial decisions.

An advisor will typically look at your whole financial picture and assist you with creating a comprehensive financial plan. This may include optimizing your investment strategy and ensuring you’re on track to meet your goals, including retirement, investments, and college savings.

The Takeaway

It’s never too late to take control of your finances. In your 40s, you are likely entering your prime earning years, so it’s a good time to focus on paying down debt, preparing for the next chapter of your children’s lives, and saving and investing for your future retirement. With some wise money moves, you’ll be set to make the most of this decade and beyond.

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

What financial goals should a 40-year-old have?

Ideally, a 40-year-old will want to focus on several financial goals. These include:

•   Establish or maintain an emergency fund with three to six months’ worth of essential living expenses.

•   Reduce financial burdens by paying off high-interest debt.

•   Ensure you’re on track with retirement savings by maximizing contributions to retirement accounts.

•   Start or continue saving for children’s college expenses through plans like 529s.

•   Consider investing outside of retirement to diversify your portfolio and build wealth.

How much should a 40-year-old have saved?

By age 40, financial advisors often recommend having three times your annual salary saved for retirement. This benchmark ensures you’re on track to meet long-term financial goals and maintain your desired lifestyle in retirement.

In addition, you’ll want to maintain an emergency fund with three to six months’ worth of living expenses.

Savings outside of emergency and retirement, such as investments in taxable accounts, can further enhance financial security. The exact amount can vary based on individual circumstances, income, lifestyle, and future goals.

How can I build my wealth in my 40s?

To build wealth in your 40s, you’ll want to focus on several strategies:

•   Maximize retirement account contributions, taking full advantage of employer matches.

•   Pay off high-interest debts to free up resources for savings and investments.

•   Establish or maintain an emergency fund to cover unexpected expenses without derailing financial goals.

•   Consider additional income streams, such as side businesses or rental properties.

•   Diversify investments across stocks, bonds, real estate, and other assets to balance risk and growth potential.

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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.

*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.

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2024
Guide to Altered Checks and How to Spot One

Guide to Altered Checks and How to Spot One

By | Financial Independence, money | Comments Off on Guide to Altered Checks and How to Spot One

When a check is altered (typically the payment amount or recipient name), it constitutes a form of check fraud and can be financially damaging to its victims. Learn more about this situation, as well as tips for how to spot an altered check.

What Is an Altered Check?

An altered check is a paper check that was altered by someone other than the check writer, which can be a kind of bank fraud. Essentially, it occurs when someone writes a check and another person changes the amount on the check (usually by adding an extra zero at the end of the check amount or by changing the payee’s name) in order to commit fraud.

The payer or payee who was defrauded needs to report this fraud within a year to help ensure the loss will be covered. If a bank has reason to believe a check has been altered fraudulently, it can legally refuse to cash it.

The Office of the Comptroller of the Currency (OCC) advises not leaving large spaces in the number and amount lines when writing a check to help avoid fraudulent alterations from occurring.

Altered checks are one of the most common types of check fraud. Other types include forgeries and counterfeit checks.
Who is liable when a bank finds an altered check? According to the Uniform Commercial Code (UCC) — which addresses altered checks in Section 3-407 — the liability can affect multiple parties, including:

•   The check writer

•   The check cashier

•   The bank that presents the check

•   The bank that verifies and cashes the check

It’s not always easy to know when a check is good (you’ll learn more about this below). If you do find evidence of an altered check, you should ideally report the loss within 30 days, but you have to do so within one year if you want to be reimbursed for the loss.

To help soften the blow of altered check fraud, consumers can benefit greatly from examining their bank statements after they write a check to ensure the right amount is processed.

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Example of an Altered Check

Not sure what an altered check looks like? Here’s an example of an altered check which may make it easier to spot one.

Say a check is made out to a dollar amount of $1,000. Look closely at that payment amount. Ask yourself these questions:

•   Does the last zero look like the same type of ink was used to write it and was written in the same style of handwriting?

•   Does that final zero appear to cross over a period?

It’s much more common to see an altered dollar amount than a changed name because it’s a lot easier to add a zero at the end of a series of numbers than it is to change a name completely.

However, there is a crime known as check washing in which someone can get a hold of one of your checks and use household chemicals to erase the name and amount. They can then fill in their own name and whatever amount they please.

Recommended: How to Sign Over a Check to Someone Else

Can an Altered Check be Cashed?

It is possible to cash an altered check, but fortunately it’s fairly difficult to pull off these days, thanks to advanced security efforts. Banks use high-tech watermarks and other authentication and fraud detection methods to make it very hard to cash altered checks.

One of the reasons that banks take fraud detection so seriously is because the liability can fall on the bank if they fund an altered check.

Is It Illegal to Alter a Check?

It is illegal to alter a check and if the amount of the check is more than $1,000, altering it is considered a felony. For altered checks of less than $1,000, this crime would be prosecuted as a misdemeanor. All jurisdictions have differing penalties, and these penalties can vary depending on factors such as the check amount.

All forms of check fraud are illegal, including counterfeiting and payroll fraud.

What Types of Checks Are Typically Altered?

Here’s a closer look at the most common types of checks to be altered in addition to basic personal and business checks.

Cashier’s Checks

A cashier’s check functions similarly to personal checks. The main difference between them is that with a cashier’s check the bank or credit union that issued the check guarantees that it will cash. Despite the fact that cashier’s checks have added security features like watermarks and signatures from two bank employees, they can still fall prey to check fraud.

Traveler’s Checks

A traveler’s check is a paper document someone can use to make purchases while traveling in other countries instead of using a normal check or cash. All traveler’s checks have unique serial numbers that make it possible to get refunds if the checks are lost or stolen. It’s important to be careful when traveling as criminals look for tourists to steal from. While traveler’s checks may not be as popular as they once were, they are still used and can be altered if they fall into the wrong hands.

Recommended: Can You Deposit Traveler’s Checks in Your Bank Account?

Money Orders

Money orders can be more secure than personal checks, but they can still be altered, so it’s always a good idea to pay close attention to the details. Similar to a cashier’s check, a money order is guaranteed by the issuer of the check, but instead of a bank this can be the U.S. Postal Service or a retailer.

Tips for Banking Securely

Check out the following tips to protect yourself and your money.

Monitor All Bank Accounts

Keeping an eye on the transaction history of a checking or savings account can help consumers catch fraudulent behavior like altered checks while there’s still time to remedy the situation. It can be wise to monitor your bank account a couple or a few times a week.

Change Passwords Often

It’s a good idea to change your online banking and other passwords frequently and not to use the same password for multiple different accounts to help avoid someone stealing login information and using it to commit financial fraud. It’s also helpful to not include personal information (name, birthday, etc.) in a password and to use a mix of upper- and lower-case letters, special characters, and numbers when creating a new password.

Only Access Online Bank Accounts From Secure Locations

You shouldn’t log onto their online bank account when using shared public wifi at your favorite coffee shop or when traveling. It’s best to only ever log into important accounts when using a secure connection like at home so no one can intercept and steal account login information.

Recommended: Cashing a Check Without a Bank Account

The Takeaway

Check fraud is an unfortunate reality so it’s a good idea for consumers to keep an eye on recent bank transactions to make sure any checks they wrote were cashed for the correct amount. A fraudulent check is a check with altered information on it — such as the amount or payee information.

There are steps consumers can take to protect their financial lives when banking. For example, it’s always best to bank with a financial institution that prioritizes security, like SoFi.

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

How do you tell if a check is altered?

More often than not, the payment amount is the part of a check that is fraudulently altered. Check the payment amount closely to see if it looks like an extra zero was added at the end or another number was changed.

How long does a bank have to return an altered check?

If you notice an altered check, ideally you should report it to the bank within 30 days. That being said, consumers have up to one year to report the loss to their bank in order to get the amount of the check returned to them.

What happens if you deposit a fake check without knowing it?

If you deposit a fake check without realizing you are doing so, there’s a possibility you may be liable. The bank that credited the account could choose to later reverse the funds if the check is found to be fraudulent. All banks have different policies regarding fraudulent checks.

Photo credit: iStock/AntonioGuillem

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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.

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