Aug
01
2024

Guide to Bank Account Balances

By | money, Terminology | Comments Off on Guide to Bank Account Balances

When you open your banking app or log into your account online, one of the first things you’ll see is your account balance. This reflects the amount of money in your savings or checking account that is available to spend. However, the balance shown may not factor in transactions you’ve authorized but have not yet been processed for payment, such as any outstanding checks or upcoming recurring payments.

Knowing how to read and interpret your bank account balance can help you avoid overdrafts, manage your spending, and make informed financial decisions. Here’s what you need to know about the balance in your bank account.

What Is a Bank Account Balance?

By definition, a bank account balance is the amount of funds you have available in a given financial account, such as a checking account. It represents the amount available after credits have been added and debits have been subtracted.

Your account balance can fluctuate from day to day as transactions are processed, such as deposits, withdrawals, cashed checks, and electronic payments. Checks you’ve written but have not yet been cashed and upcoming automatic payments and direct deposits aren’t generally reflected in your available balance, so you’ll need to keep that in mind when budgeting.

Bank statements will typically provide two account balances: your “starting balance,” which is how much was in the account at the beginning of the statement period; and your “ending balance,” which is how much was in your account as of the end of the statement period, after all credits and debits were calculated.

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Understanding Your Bank Account Balance

Understanding how bank account balances work, and which transactions are factored into your balance, can help prevent you from running into issues like overdrafting your account or dipping below your bank’s required minimum balance to avoid monthly maintenance fees.

Pending Charges

Pending charges are transactions that have been authorized but not yet fully processed by the bank. A bank will temporarily hold funds in your account for these charges and reduce your available balance to prevent those funds from being otherwise spent. Common pending charges include debit card purchases, ATM withdrawals, and online bill payments. While these transactions have not yet been deducted from your account, they are still considered when calculating your available balance.

For example, let’s say you have $1,000 in your account and you make a $100 purchase with your debit card. Depending on the business that charged your account, there may be a delay in their banking system connecting with yours. In this case, your bank will factor that charge into your overall account balance, and will mark the payment as “pending” or “processing,” and give you an available balance of $900.

What Happens if Your Bank Account Balance Is Negative?

If you spend more money than you have in your bank account, you can end up with a negative account balance. This can happen if an automated payment goes through and you don’t have sufficient funds to cover it or you get hit with an unexpected bank fee. A negative balance can lead to several consequences:

•   Overdraft fees: If you’ve opted into overdraft coverage, your bank may cover a transaction that overdrafts your account then charge you an overdraft fee. They may charge this fee for each transaction that causes a negative balance or only one overdraft fee per day.

•   Nonsufficient (NSF) fees: If you don’t have overdraft coverage and a check or electronic payment is returned due to insufficient funds, your bank may charge you a nonsufficient funds (NSF) fee.

•   Account closure: Repeatedly overdrawing your account can lead to your bank closing your account.

•   Difficulty opening a bank account in the future: Information about your banking activity does not typically appear in credit reports from consumer credit bureaus or impact your credit scores. However, if ChexSystems, a reporting bureau for the banking industry, has a record on file reflecting negative account balances and an involuntary closure, it could make it more difficult to open a new bank account in the future.

Balancing a Checking Account

Balancing a checking account, also known as reconciling your account, involves comparing the transactions in your own records (such as a check register, accounting software, or personal finance app) to the ones on your bank statement to make sure the balances line up, and if they don’t, finding out why. Here’s how to do it.

•   Gather records: Collect your bank statement, check register, and any receipts or transaction records.

•   Compare transactions: Match each transaction in your check register (or other records) with those on your bank statement. Check off each item as you go.

•   Identify discrepancies: Note any transactions that don’t match or are missing and investigate them further. Be sure to account for any checks or payments that may not have cleared yet.

•   Contact your bank: If you find any unauthorized or incorrect transactions, contact your bank immediately to report the issue.

•   Update your records: Adjust your check register or other records for any interest earned, fees, or other transactions not previously recorded.

Account Balance vs Available Credit on a Credit Card

With your credit card, your account balance means something different. It represents the total amount of money you owe to the credit card issuer at a given time. This includes all purchases, interest charges, fees, and any other transactions that have been posted to your account.

Your available credit refers to the amount of unused credit you have left on your credit card. It is calculated by subtracting your current account balance from your total credit limit. For example, if your credit limit is $5,000 and your account balance is $1,000, your available credit would be $4,000. Available credit indicates how much more you can spend on your card before reaching your credit limit.

Recommended: Guide to Paying Credit Cards With a Debit Card

Where to Check Your Bank Account Balance

Checking your bank account balance regularly helps you stay informed about your financial status, make key budgeting decisions, and avoid overdrafts. Here are some easy ways to do it.

•   Online banking: Once you set up online banking, you can log in anytime to view your account balance, recent transactions, and other account details.

•   Mobile app: If you download your bank’s mobile app, you’ll be able to get an up-to-date view of your account balance and recent transactions on the go.

•   ATM: You can check your account balance at an ATM by inserting your ATM or debit card, entering your personal identification number (PIN), and selecting “balance inquiry” or something similar. You’ll see your account balance, along with any recent transactions.

•   Text alert: Some banks also offer low-balance alerts via text or email to keep you informed if your account dips below a certain threshold.

•   Over the phone: You can call the phone number listed on your debit/ATM card, then follow the prompts to check your account balance.

•   Bank statement: Whether you get paper statements or e-statements, you can use them to see your account balance as of the end of the statement period.

•   At a branch: You can also check your account balance in person with a teller. You’ll likely need to provide your debit/ATM card or account number and a photo ID to get your balance information.

Recommended: What Is an Online Savings Account and How Does It Work?

The Takeaway

A bank account balance is the total amount of money available in your financial account after debits and credits have been calculated. Keeping tabs on your account balance and regularly reconciling your account can help you monitor your spending, avoid overdrafting fees, and maintain good financial health.

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 4.00% APY on SoFi Checking and Savings.

FAQ

How do I check the balance on my bank account?

You can check your bank account balance by logging in to your bank’s online banking platform or mobile app, using an ATM with your ATM or debit card, calling your bank’s customer service number, or visiting a branch.

Does the “balance” mean I owe money?

With bank accounts, the “balance” typically refers to the amount of money you have available in the account, not what you owe. A positive balance means you have funds in your account, while a negative balance indicates you’ve overdrawn your account.

With credit accounts, such as credit cards, the “balance” refers to the amount you owe your lender.

What happens if my bank account balance is zero?

If your bank account balance is zero, you won’t have funds available for transactions. Any attempted withdrawals or payments may be declined or if you have overdraft coverage, they may go through but result in overdraft fees.

It’s important to monitor your account regularly to avoid a zero balance and ensure you have sufficient funds to cover your expenses. Some banks may also close accounts that remain at zero balance for an extended period.

Photo credit: iStock/simonkr

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.

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

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

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

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

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

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

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

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

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Aug
01
2024

Saving Money for Your Grandchildren

By | Budgeting & Goals, Family Finances, money, Money & Life | Comments Off on Saving Money for Your Grandchildren

In addition to spoiling them with toys and ice cream, many grandparents also want to help secure a solid financial future for their grandkids. That can mean setting up a custodial account, considering tax-advantaged savings options, and exploring other ways to start building a child’s wealth.

Below, you’ll learn about the different ways to save money for your grandkids, plus the pros and cons of each.

Why Open an Account for Grandchildren?

Sure, your grandkids might prefer a new video game or Lego set, but you’ll do them a favor, today and tomorrow, by opening a savings account for them. Here are a couple of good reasons to open a savings account for your grandchildren.

Teaching Financial Literacy Early

Money management skills are crucial, but personal finance education can be virtually nonexistent during school. It’s not typical for schools to teach kids how to balance a checkbook, how to invest in stocks, how to save for a down payment on a house, and how to file taxes.

Thus, it’s up to parents — and grandparents — to equip the next generation with financial literacy. Opening an account for your grandchildren can help teach them concepts such as interest, budgeting, and investing.

Getting a Head Start for College and Life

While teaching children how to manage money can give them a head start on the path to financial wellness, so too can providing them with a nest egg that can grow over time through various savings and investing accounts. Consider these options:

•   When you open a savings account for grandchildren early on, they could wind up having a sizable chunk of cash in young adulthood to put toward their first car or even a house down payment.

•   A 529 college savings plan could help them avoid taking on too much debt from student loans.

•   Retirement accounts, such as a Roth IRA, can help them achieve their retirement goals, even if those are more than half a century away. Remember, the earlier someone starts investing, the more they stand to earn in the long run.

Earn up to 4.00% APY with a high-yield savings account from SoFi.

No account or monthly fees. No minimum balance.

9x the national average savings account rate.

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Sort savings into Vaults, auto save with Roundups.


Types of Accounts to Consider

Grandparents have many options when it comes to opening an account for their grandchildren, including:

Savings, CDs, and Bonds

Many banks and credit unions offer savings accounts designed for kids. Do a quick search for “best savings accounts for grandchildren” or you could start by seeing if your own bank offers such an account.

Having money in savings at an early age will let your grandkids benefit from compounding interest, especially if you find a high-yield savings account for kids.

You can also consider opening a certificate of deposit (CD) or purchasing savings bonds for your grandchildren. CDs are savings accounts that typically provide a higher interest rate than a standard savings account in exchange for keeping your money in the account for a fixed period of time. Savings bonds, issued by the U.S. Department of Treasury, are a very low risk, longer-term investment that provides interest in return for lending the government money.

With both of these options, the money is less liquid, but if the CD or bond matures when your grandchild is older, they stand to have a reliable source of funds they can use in future years.

Custodial Accounts (UGMA/UTMA)

Beyond savings accounts for grandchildren, you can consider helping your grandkids actually start investing with a custodial account, through the Uniform Gifts to Minors Act (UGMA) or the Uniform Transfers to Minors Act (UTMA). Once your grandchild is between 18 and 25 (the exact age varies by state), they’ll take control of the account.

These accounts are taxable (meaning you will owe taxes on interest earned) and have no contribution limits. They’re an easy way to purchase stocks, mutual funds, and other securities for your grandchild — and you can even transfer your own securities into the custodial account.

529 College Savings Plans

The cost of college tuition continues to skyrocket, meaning it’s never too early to start saving. There are several benefits of a 529 college savings plan: While the contributions to this qualified tuition plan aren’t tax-deductible, your grandchild’s distributions from the account tax-free at the federal level, as long as the money is used for qualifying expenses.

A 529 college savings may have “college” in the name, but your grandchild can also use it for other higher education programs, such as a trade or vocational school. You can also roll over 529 funds into a Roth IRA if your grandkids don’t use all (or any) of the funds.

Contributions to a grandchild’s 529 account are not deductible on your federal income tax return. However, close to 30 states offer either a deduction or credit for this kind of contribution.
Another consideration: There’s an annual limit to how much you can give as a gift without triggering taxes. For 2024, for instance, the figure is $18,000 per giftee. If you were to put more than that into a 529 for a grandchild, you would have to pay a gift tax bill.

IRAs for Minors

Similar to custodial investment accounts, you can open custodial retirement accounts for your grandchildren, including a traditional IRA and a Roth IRA. While your grandkid won’t benefit from this account for decades, starting them early on the path to retirement savings means they could have considerably more money to work with when they reach retirement age.

However, it’s important to note that opening an IRA requires the child to have earned income in a given year. For teens, this can make sense. For a newborn, it is unlikely to be a viable option.

When making contributions to an IRA for a grandchild, note that the amount you deposit is subject to a gift tax exclusion before it becomes taxable. For 2024, this allows up to $18,000 per giftee. Funds given beyond that amount might mean you, the donor, are liable for taxes, though other factors will need to be considered to determine any tax burden.

Choosing the Right Account

Not sure how to choose the right savings account for your grandchildren? Here are some things to consider:

Comparing Interest Rates and Fees

If you’re opening a savings account, compare interest rates — you want an account with a high yield so that the money compounds more quickly over time. For example, currently the average interest rate for standard savings accounts is 0.45%, while the figure for high-yield savings accounts (often from online-only banks) can be several times that number.

For custodial accounts, you’ll want options with low or no fees. It can be wise to shop around and see what options you have from different banks and brokerage firms.

Recommended: How Old Do You Have to Be to Open a Bank Account?

Accessibility and Withdrawal Rules

Certain accounts allow your grandchildren to access funds sooner, while others (like IRAs) have strict rules about when they can withdraw funds and what the funds can be used for (as is the case with 529 plans). Think about the specific timeline and use case you envision for your grandchildren. Sometimes, opening more than one type of account makes sense, depending on how many goals you want to enable for your children’s kids.

Tax Implications and Benefits

Some accounts have tax-deductible contributions; others have tax-free withdrawals. For example, withdrawals from a 529 account are not usually taxable, provided they are used for qualified educational expenses. With a Roth IRA, withdrawals made after your child is older than 59 ½ (as hard as that may be to imagine) are not taxable. With a traditional IRA, taxes are paid when the money is withdrawn, usually in retirement, and are taxable.

Speaking with a financial advisor can help you understand the tax implications of each type of account you’re considering to better understand what you might pay — and what your grandchild might pay.

Setting up and Contributing to the Account

Ready to open a savings account for your grandchildren? Here’s how it works:

Opening and Funding the Account

Follow the bank’s or investment firm’s guidelines for opening the account. You will likely need some specific information from the grandchild’s parents to open the account. You’ll also need to deposit money into the account to start the nest egg. Custodial accounts may even let you transfer your own assets into the account.

Automatic Transfers and Recurring Contributions

If you’d like, you may be able to set up recurring transfers into the account. Perhaps you want a recurring transfer every holiday season or on your grandchild’s birthday. Work with the financial institution to set up these contributions — and perhaps find out how other loved ones might be able to contribute as well.

Monitoring and Managing the Account

After opening an account, it’s important to monitor it and see how the funds grow over time. Just as importantly, once your grandchild is a little older, it’s a good idea to sit down and review the account with them:

•   If it’s a savings account, walk them through how compound interest works.

•   If it’s a 529 plan, talk to them about college costs and how student loans work.

•   If it’s a custodial account, talk to them about the basics of investing and the importance of saving for retirement.

The Takeaway

It’s never too early to start thinking about your grandchild’s future. Savings accounts, 529 plans, and custodial accounts offer several ways for you to give them money that will help them with college, general expenses, and even retirement.

While saving for grandkids is important, it’s also crucial that you take care of your own finances.

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 4.00% APY on SoFi Checking and Savings.

FAQ

What are the contribution limits for custodial accounts?

There are no contribution limits for UGMA/UTMA custodial accounts, but you can only contribute up to a certain amount to avoid gift-tax implications (this changes each year). Contribution limits apply for custodial IRAs just as they would for regular IRAs.

Can grandparents open a 529 plan for grandchildren?

Yes, grandparents can open a 529 plan for grandchildren. If the grandchild’s parents have already set up a 529 plan, grandparents can also contribute to that plan directly. This will simplify account management and withdrawals for the recipient of the funds.

What happens to the account if the grandchild doesn’t need the funds?

If a grandchild doesn’t need funds from a 529 plan for college, they can still use them for trade or vocational schools or roll them into an IRA. Grandparents can also reassign the 529 plan to another grandchild.

Photo credit: iStock/gorodenkoff

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

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

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

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

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

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

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

*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.

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.

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Aug
01
2024

How to Find Your Debit Card Number

By | money, Money & Life | Comments Off on How to Find Your Debit Card Number

Every debit card comes with its own unique number imprinted on the front or back of the card. This number, typically 16-digits long, is used by a merchant or card processor to identify your specific account, ensuring that your transactions are approved and processed correctly.

Understanding the numbers on your debit card can be crucial for managing your finances effectively. Here’s a closer look at what your debit card number means, how to find it (even if you don’t have your debit card on you), plus how to keep your debit card numbers from falling into the wrong hands.

What Do the Numbers On a Debit Card Mean?

When you open a checking account, you typically receive a debit card that features a long number — referred to as a primary account number, or PAN — often spaced into four groups of four digits. While these numbers may seem random, they actually contain critical information in a specific format that identifies your bank, as well as your specific account. Below, we decode the typical 16-digit debit card number, though keep in mind the length of this number and its parts may vary.

Digit 1

The very first number in your debit card number is called the major industry identifier (MII). It indicates the category of the card issuer, such as bank, card network, airline, or the government.

Recommended: How to Use a Debit Card

Digits 2 to 6

The next five digits (typically) represent the financial institution that issued the debit card. Together with the MII, the first six digits of the debit card number make up the bank identification number (BIN), also referred to as the issuer identification number (IIN). This number helps the merchant identify the financial institution that issued the card and tells them how the transaction should be processed.

Digits 7 to 15

lose your debit card or it gets stolen, but often stays the same if the card is replaced due to expiration or damage.

Last Digit

The very last digit of your debit card number is known as the check digit. This number has a mathematical relationship to the previous numbers on the card. Using a specific equation (called the Luhn algorithm), this last digit can immediately detect whether or not a card number is valid. It is used to catch user typing errors as well as certain types of fraud.

Recommended: Different Types of Bank Account Fraud to Look Out For

Get up to $300 when you bank with SoFi.

No account or overdraft fees. No minimum balance.

Up to 4.00% APY on savings balances.

Up to 2-day-early paycheck.

Up to $2M of additional
FDIC insurance.


Where to Find Your Debit Card Number

You can usually find your debit card number, or PAN, embossed on the front of the card, commonly around the center. In some cases, the number may be featured on the back of the card.

If you don’t have your debit card on you and want to make a transaction, you may also be able to find your debit card number by logging into your account online or using your bank’s mobile app. Look for an option such as “View Account Information.”

You may also be able to find your debit card number by looking at your electronic or paper bank statements. Your debit card may be included in the details of any debit card transactions you made during the statement period.

Keep in mind, however, that many banks do not display the full card number online or in print for security reasons.

Other Parts of a Debit Card

In addition to the debit card number, there are some other key pieces of information on your debit card. Here’s a closer look.

Bank Logo

The logo of your bank is typically displayed on the front of the card and identifies the issuing bank. This logo helps cardholders and merchants quickly recognize which financial institution issued the card.

Your Name

Debit cards typically feature the cardholder’s name on the front of the card below the debit card number. This identifies you as the authorized user of the card.

Smart Chip or Magnetic Stripe

Debit cards feature a magnetic stripe (on the back of the card) or, more commonly, a smart chip (on the front) that encrypts your account information. This enhances the security of in-person transactions, making it more difficult for fraudsters to clone the card.

Security Code (CVV)

The security code, also known as the CVV (card verification value) is a three-digit number found on the back of the card. It’s also sometimes referred to as the card verification code (CVC) or the card security code (CSC). This code is used to verify that you have physical possession of the card when making online or over-the-phone transactions.

Bank’s Contact Information

Information about how to contact your bank, such as its mailing address, website, and phone number, is typically printed on the back of your debit card.

Payment Network Logo/Hologram

If your debit card allows you to process transactions through a credit card network, the credit card’s logo and, often, hologram, will be printed on the card, usually in the corner.

Keep in mind, however, that choosing “credit” rather than “debit” during a transaction doesn’t turn your debit card into a credit card. The money will still be withdrawn from your checking account. The key difference is that a transaction processed as “credit” could take several days to authorize and complete, while a “debit” transaction is deducted from your account almost immediately. With a “credit” transaction, you’ll also sign versus typing in a personal identification number (PIN).

Recommended: Guide to Using a Credit Card Like a Debit Card

A Signature Strip

The back of your debit card may contain a box for you to sign. A merchant may look at this if a debit transaction is processed through a credit card network and requires you to sign.

Expiration Date

The expiration date, typically printed on the front of the card, indicates the month and year when the card will expire. After this date, the card will no longer be valid for transactions.

Tips for Protecting Your Debit Card Number

Debit card numbers contain critical information about your financial account, so you generally don’t want anyone but you to have access to them. Here are six ways to protect your card information and help prevent debit card fraud.

1.    Only make secure online transactions: Before using your debit card for an online transaction, you’ll want to make sure the website uses “https” not “http” in the URL. The “s” means that the website uses a secure sockets layer (SSL) that creates an encrypted link between a web server and a web browser.

2.    Use a digital wallet: Consider linking your debit card to the digital wallet app on your smartphone. When you pay with your digital wallet instead of a physical card, your debit card numbers are encrypted and not visible to the merchant (or any nearby customers).

3.    Only use ATMs at banks: ATMs located in gas stations, convenience stores, subway stations, and elsewhere generally run a higher risk of having a “skimming” device attached by a criminal that could steal your debit card data. While this can happen at a bank ATM as well, it tends to be less likely due to surveillance cameras.

4.    Be wary of phishing scams: You’ll want to be cautious of any emails, texts, or calls requesting your debit card information. Banks will never ask for your card number or PIN via these methods.

5.    Monitor your account: Time is of the essence when it comes to recouping any funds lost to debit card fraud. So be sure to regularly check your bank statements and transaction history for any unauthorized charges. If you spot any suspicious activity, report it to your bank immediately.

6.    Report lost or stolen cards right away: If your debit card gets lost or stolen, it’s a good idea to contact your bank as soon as possible and have the card blocked.

Recommended: Pros & Cons of Using a Debit Card Online

The Takeaway

Your debit card number is a unique identifier linked to your bank account. You can use your card number, along with your CVV and PIN, to process a transaction even without a physical card. Understanding the numbers on your debit can help you safeguard your information and enjoy all the benefits that come with your card.

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 4.00% APY on SoFi Checking and Savings.

FAQ

Should you write down your PIN number to remember it?

It’s generally not a good idea to write down your personal identification number (PIN), as this can compromise your account’s security should it get lost or stolen. You’re better off memorizing your PIN. If you have difficulty remembering it, consider using a number that has personal significance but isn’t easily guessed by others. If you must write your PIN down, be sure to store it in a secure, locked location separate from your debit card.

Can a scammer use your debit card without a PIN number?

A scammer may be able to use your debit card without a PIN number for fraudulent online or phone transactions, where only the card number, expiration date, and CVV (Card Verification Value) are required. It’s also possible to use a debit card without providing a PIN by choosing the “credit” rather than “debit” option during an in-person transaction.

What is the most important debit card number?

The most important debit card number is the 16-digit card number typically printed on the front of your card. This number is essential for identifying your account and processing transactions. It includes the bank identification number (BIN), which identifies the issuing bank, and the personal account number (PAN), which is unique to your account. Protecting this number is crucial to prevent unauthorized use and debit card fraud.

Photo credit: iStock/urbazon

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.

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

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

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

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

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

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

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

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Aug
01
2024

Dividend Checking Accounts Explained

By | Financial Independence, money | Comments Off on Dividend Checking Accounts Explained

Unlike savings accounts, checking accounts are designed for everyday money management and generally don’t pay interest on the money sitting in the account. However, there are some exceptions to this rule, including dividend checking accounts.

Dividend checking accounts are essentially the same thing as interest or interest-bearing checking accounts. The only difference is that they are offered by credit unions rather than banks. While banks pay interest, credit unions are not for profit and generally pay dividends, which are the credit union’s way of sharing their profits with members.

Both interest and dividend checking accounts allow you to earn a return on your everyday checking balance while also enjoying the flexibility and features of a checking account — like checks, a debit card, and an unlimited number of withdrawals per month.

However, these accounts generally come with more stipulations than regular checking accounts. For example, you may need to maintain a certain balance or make a certain minimum amount of monthly debit card transactions in order to earn the advertised rate or avoid paying a monthly fee (which could negate the benefit of these accounts).

Here’s a look at whether dividend checking accounts are worth it.

What Is a Dividend Checking Account?

A dividend checking account is a type of checking account that pays interest on the balance held within the account. The term “dividend” is often used by credit unions, whereas banks might refer to similar accounts as interest-bearing or high-yield checking accounts.

The main appeal of these accounts is their ability to generate interest on funds that would otherwise sit idle or earn a nominal return. This allows account holders to maximize their earnings while maintaining easy access to their money for daily transactions.

Get up to $300 when you bank with SoFi.

No account or overdraft fees. No minimum balance.

Up to 4.00% APY on savings balances.

Up to 2-day-early paycheck.

Up to $2M of additional
FDIC insurance.


How Dividend Checking Accounts Work

Dividend-bearing checking accounts work in the same way as regular checking accounts but with the added benefit of earning interest on the account balance. The interest is typically calculated as a percentage of the balance and automatically credited to the account monthly. The account may require you to meet a minimum balance threshold or receive a specified amount in direct deposits each month to earn interest.

The interest rate offered by a dividend checking account can vary significantly between financial institutions. It’s often higher than what is provided by standard savings accounts, though it may not be as high as what you could earn in a high-yield savings account.

You can use dividend checking accounts for everyday transactions, including writing checks, using a debit card to make purchases and get cash, and setting up direct deposits and automatic payments. Like other checking accounts, your money is typically federally insured up to $250,000 per depositor; co-owners of joint accounts at the same institution are usually each insured up to $250,000.

Key Features of Dividend Checking Accounts

Dividend checking accounts come with several features designed to provide added value to account holders. Here’s a look at some of the benefits of these accounts.

Higher Interest Earnings

You can typically earn a significantly higher interest rate compared to standard checking accounts. The rates may be tiered, with higher balances earning higher interest rates. This makes dividend checking accounts particularly appealing for those who can maintain substantial balances.

Recommended: What Are Brokerage Checking Accounts?

Monthly Service Fee Waivers

Many dividend checking accounts offer ways to waive monthly service fees, which are common with standard checking accounts. To qualify for a fee waiver, you typically need to meet certain criteria, such as maintaining a minimum balance, setting up direct deposits, or signing up for e-statements.

Access to Other Account Benefits

In addition to higher interest earnings and potential fee waivers, dividend checking accounts often come with other perks. These might include:

•   Free or discounted access to financial products and services, such as loans, credit cards, or investment services

•   Out-of-network ATM fee reimbursements

•   Enhanced customer service, including dedicated account managers or priority support

•   Access to “early pay” (which allows you to get your paycheck or federal benefits a day or two early)

•   Cash-back rewards for certain types of purchases using your debit card

Requirements and Qualifications

To open and maintain a dividend checking account, financial institutions typically require account holders to meet specific criteria. Here’s a look at some common account requirements.

Minimum Balance Thresholds

Many dividend checking accounts require that you make a certain minimal initial deposit to open the account. In addition, you may need to keep a minimum average monthly balance in order to earn interest and avoid fees. If your balance falls below the required threshold, you may earn a reduced interest rate or no interest and/or get hit with monthly service fees.

Debit Card Usage Requirements

Some dividend checking accounts require a certain level of debit card usage each month. This might include making a specific number of transactions or spending a certain minimum amount using the debit card. Since retailers pay a small fee to the bank or credit union each time they accept a debit card payment, this makes the account more profitable to the institution and enables them to offer higher interest rates.

Credit Union Membership

To open a dividend checking account at a credit union, you will need to first become a member of that credit union. Requirements vary by institution, but you may need to:

•   Work, live, or worship in a certain geographic area

•   Be a member of certain professional organization or labor union

•   Work in particular industry or a certain employer

•   Have a family member who is a member of the credit union

How to Apply for a Dividend Checking Account

Applying for a dividend checking account is similar to how you would apply for other bank accounts. Here are the general steps to follow.

1.    Shop around: You might start by doing an online search using the terms “dividend checking” or “interest checking” to find interest-bearing checking accounts available at different banks and credit unions.

2.    Compare rates and terms: Pay attention to annual percentage yields (APYs), terms, and fees. Keep in mind that the account with the highest APY may not always be the best option if there are high fees and you need to maintain a high balance to have them waived.

3.    Check qualification requirements: If you’re looking at an account at a credit union, find out what’s required to become a credit union member and if you are able to meet those requirements.

4.    Gather required documentation: Typically, you will need to provide identification (such as a driver’s license or passport), proof of address, and your Social Security number or Tax Identification Number.

5.    Submit an application: Depending on the institution, you may be able to apply online or by phone, or you may need to visit a branch. Either way, you’ll need to complete the application form, providing all necessary information and documentation.

The Takeaway

A dividend checking account, available at credit unions, can offer a valuable mix of competitive returns on your balance along with the flexibility of a traditional checking account. However, you may need to meet certain criteria, such as maintaining a minimum balance or conducting a certain number of debit card transactions each month, in order to earn the advertised rate or avoid monthly fees.

Before opening an account, it’s a good idea to shop around and compare not only rates but also fees and requirements to earn the advertised rate or avoid fees to make sure you can fully benefit from the account.

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 4.00% APY on SoFi Checking and Savings.

FAQ

Are dividends taxed in these accounts?

Yes, dividends earned in dividend checking accounts are typically considered taxable income. The interest paid by the bank or credit union is reported to the IRS, and you must include it in your annual tax return. The financial institution will usually send you a Form 1099-INT or 1099-DIV at the end of the year, detailing the total interest you earned on the account for the year.

What are typical dividend checking rates?

Typical dividend checking account rates vary widely depending on the financial institution and the account balance. Annual percentage yields (APYs) can anywhere range from 0.10% to as 4.00%-plus. Higher rates are often available to those who maintain larger balances or meet specific account activity requirements, such as a certain number of debit card transactions per month.

Can I lose money in a dividend checking account?

No, you generally can’t lose your money (up to certain limits) in a dividend checking account. Checking accounts at credit unions are typically federally insured up to $250,000 by National Credit Union Administration (NCUA). Interest checking accounts at banks are similarly insured by the Federal Deposit Insurance Corporation (FDIC).

Photo credit: iStock/solidcolours

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

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

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

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

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

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

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.

*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.

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.

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Aug
01
2024

What Is a Checking Line of Credit?

By | Credit, money | Comments Off on What Is a Checking Line of Credit?

A checking line of credit, also known as an overdraft line of credit, is a type of loan that is attached to your checking account. It essentially acts as a safety net, providing you with access to funds when your checking account balance is insufficient to cover a transaction.

A checking line of credit can help you out during a cash crunch and allow you to avoid hefty overdraft fees, missed payments, and the embarrassment and inconvenience of having your debit card denied. However, these accounts come with costs and risks of their own. Find out if opening a checking line of credit is worth it.

How a Checking Line of Credit Works

A checking line of credit is a type of revolving credit linked to your checking account. If your account balance falls below zero, the credit line automatically covers the shortfall up to your credit limit. This allows transactions to go through despite insufficient funds and avoids bouncing checks, missing automatic payments, or having your debit card denied.

A per-transfer fee may apply, but it may be much less than what you would otherwise be charged for overdrawing your account. You’ll also pay interest on the borrowed balance, which will begin accruing on the date of transfer and continue until you pay off the borrowed funds in full. Missing or late payments can negatively impact your credit, so (like any other forms of borrowing) it’s important to manage a checking line of credit responsibly.

Get up to $300 when you bank with SoFi.

No account or overdraft fees. No minimum balance.

Up to 4.00% APY on savings balances.

Up to 2-day-early paycheck.

Up to $2M of additional
FDIC insurance.


Key Features

Here’s a look at some of the features offered by a checking line of credit.

•   Automatic overdraft protection: A checking line of credit can automatically cover overdrafts, preventing declined transactions and bounced checks.

•   Credit limit: The amount you can borrow is predetermined by the lender and may range from $250 to $5,000, though it can be higher for those with excellent credit.

•   Variable interest rates: Interest is charged only on the amount you borrow, and rates are usually variable, meaning they can change over time based on market conditions.

•   Revolving credit: Similar to a credit card, you can borrow, repay, and borrow again up to your credit limit without reapplying.

•   Fees: Some banks charge you a fee for each transfer from your checking line of credit or for each day that a transfer is made from your line of credit to your checking account. Some institutions may also charge a yearly maintenance fee.

Recommended: How Many Lines of Credit Should I have?

Requirements and Eligibility

Not everyone who has a checking account can open a line of credit. Depending on your bank, you may have to meet certain eligibility requirements. These may include:

Good Credit History

Lenders generally look for applicants with a strong credit history, indicating responsible credit management. A good credit score (typically 670 or higher) increases your chances of approval and may result in a higher credit limit and lower interest rates.

Income and Debt Levels

Lenders typically want to make sure that you have a stable income and manageable debt levels, demonstrating your ability to repay the borrowed amount. Banks can check your current debt levels by accessing your credit reports. You may need to provide proof of income, such as pay stubs or tax returns.

Existing Banking Relationship

You typically need to have a checking account in good standing with the bank that offers the protection line of credit. Some banks may also require that you’ve had the account open for a certain amount of time, or that you’ve made deposits within a specific time frame.

Pros of a Checking Line of Credit

Here’s a look at some of the benefits of having a checking account with an overdraft line of credit.

May Save Money

Overdraft lines of credit are often less expensive than standard overdraft protection programs, which can range from $25 to $35 for each overdraft that hits your account. This can be especially true if you wind up making multiple overdrafts in one day.

Offers Emergency Protection

An overdraft line of credit provides you with a safeguard in the event of a financial emergency. If necessary, you can cover essential expenses that would otherwise get declined from your checking account. Some banks also allow you to withdraw funds directly from your credit line to cover emergency expenses.

Only Pay Interest on What Your Borrow

Unlike a traditional loan, where you receive a lump sum amount up front and pay interest on the full amount starting when it’s disbursed, a credit line allows you to borrow funds as needed and only pay interest on the amount you end up borrowing.

Recommended: Dividend Checking Accounts Explained

Cons of a Checking Line of Credit

Checking lines of credit also come with a few pitfalls. Here are some to be aware of.

High Interest Rates

Interest rates on checking lines of credit can be higher than other forms of credit, such as personal loans or home equity lines of credit. Variable rates can also lead to unpredictable borrowing costs. On top of interest, you may pay transfer fees and account maintenance fees.

Borrowing Limits

An overdraft protection line of credit can help you out in a pinch, but it won’t cover a major unexpected expense. You can often only qualify for credit limits up to $1,000. If your approved line of credit is insufficient to cover a transaction, it likely will not go through.

Debt Cycle Risk

Having a line of credit attached to your checking account is similar to having a credit card — it allows you to spend money you don’t actually have. The ease of access to funds can lead to a cycle of borrowing and repayment that is difficult to break, potentially leading to long-term debt.

When to Consider a Checking Line of Credit

A checking line of credit can provide some peace of mind and be useful for getting through occasional gaps in cash flow. If you do opt for this type of coverage, however, it’s generally wise to use it as little as possible. Once you open the credit line, it’s a good idea to balance your checking account regularly and sign up for low-balance alerts so that you know when you’re running low on funds. This can help keep your overdraft loan at a manageable amount and your interest charges and transfer fees low.

Alternatives to Consider

If a checking line of credit doesn’t seem like the right fit, here are some other options to consider.

•   Emergency savings account: Building a savings account for emergencies can provide a financial cushion without the cost of interest or fees.

•   Linking to another account: Your bank might allow you to link your checking account to a savings account or another checking account for automatic transfers in case of an overdraft. This way, you’re just using your own money to cover transactions instead of the bank’s.

•   Personal loan: For larger, planned expenses, a personal loan may offer lower interest rates and fixed repayment terms.

•   Switching banks: If you feel that the overdraft fees (and possibly other fees) at your bank are exorbitant, it can be worth shopping around for checking accounts that charge lower fees.

The Takeaway

A checking line of credit can be a valuable tool for managing your finances, offering convenient access to funds, protection against overdrafts, and the flexibility of revolving credit. That said, it’s important to understand the costs and potential risks associated with this type of credit. Alternatives to checking credit lines include using a linked savings account to cover overdrafts, building an emergency fund, getting a lower-interest loan, and switching to a bank that charges less in fees for standard overdraft protection.

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 4.00% APY on SoFi Checking and Savings.

FAQ

How much can I borrow with a checking line of credit?

The amount you can borrow with a checking line of credit is usually up to $500 to $1,000. Some banks may offer higher limits to customers with strong credit, higher incomes, and a long-standing relationship with the bank.

Does a checking line of credit require collateral?

No, a checking line of credit usually does not require collateral. It is an unsecured form of credit, meaning that it is not backed by any assets like a house or car. Instead, approval and credit limits are based primarily on your credit score and history of repaying past debts.

How do I apply for a checking line of credit?

Here are the steps typically involved in applying for a checking line of credit:

•   Make sure you meet the bank’s requirements, such as having a checking account in good standing.

•   Gather the necessary documents, which might include a photo ID and proof of income.

•   Fill out and submit an application (you may be able to do this online, by phone, or by visiting a branch).

If approved, the checking line of credit will be linked to your checking account, ready for use as needed.

Photo credit: iStock/AleksandarNakic

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

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

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

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

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

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

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.

*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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