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Q: How do I void a blank check?

To void a blank check, take a blue or black pen or marker and write “VOID” across the face of the check. You could also write “VOID” in the payee line, amount line, amount box, or the signature line.

Jun

2024

Tips for Voiding a Check

By Emily Greenhill Pierce | Budgeting & Goals, Financial Independence, money | Comments Off

If you’re asked to void a check, which often happens when you’re setting up direct deposit, you might not be sure how to do it. Checks are being used less often these days, and as a result, people may be unfamiliar with the way they work.

Fortunately, the process of voiding a check for direct deposit or for any reason is pretty simple.

Definition of a Voided Check

First of all, what is a voided check? When you write the word “VOID” on a blank check, it becomes a voided check meaning it cannot be used to draw money out of your account. This type of check is not used for deposit or cashing purposes.

Instead, the voided check can be used to set up direct deposit or bill pay. Establishing direct deposit or online bill pay eliminates the hassle of going to the bank to make payments or deposit your paycheck. It also automates your transactions to speed delivery and help you keep tabs on the money going in and out of your account.

Recommended: Can I Use Checks with an Old Address?

How Do You Void a Check?

To void a check, all you need is a blank check and a pen. Here’s how to complete the process:

• Take a blank check from your checkbook.

• Grab a blue or black pen.

• Write “VOID” in large letters across the face of the check. However, be sure not to cover the account numbers at the bottom. You could also write “VOID” in smaller letters on the payee line, amount line, in the amount box, and on the signature line, if you prefer.

• Write down the check number, recipient, and date in your checkbook and note that the check was voided so you don’t get confused by a skipped check when you balance your checkbook.

Reasons for Voiding a Check

There are practical uses for voiding a check including setting up direct payments or deposits, and automatic bill payments. Providing a voided check is a convenient way to share your banking information for such purposes. After all, copying your banking information (routing and account number) by hand leaves you vulnerable to mistakes.

Here are the top reasons to void a check:

• Set up direct deposit with your employer for wages, salary, or expense reimbursement. Employers often let workers set up direct deposit instead of receiving a physical paycheck, and a voided check speeds the process.

• Set up direct deposit for government benefits. Unemployment benefits and Social Security payments may be delivered by direct deposit instead of a mailed check. This way, both parties can enjoy the increased security of a digital transaction.

• Establish automatic bill pay for loans, utility bills, or other payments. You may have the option to set up automatic payments for bills such as an auto loan or mortgage. Setting up auto-pay helps ensure you don’t miss a payment.

• Void checks with mistakes. If you are writing a check from your checking account and make a mistake, you can write “VOID” across it, so no one uses or deposits it.

Voided vs Canceled Check

You may wonder what the difference between a voided and a canceled check is. When you make a void check, you are canceling a physical check you have in your possession. If you’ve lost a check (especially a blank one) or have sent out a check in error, that’s a different situation. You can contact your bank about stopping payment on the check.

When banks and credit unions talk about canceled checks, however, they are likely referring to ones that have already been used to transfer funds. The work of these checks is done, so to speak, so they are considered canceled.

The differences between a voided check and a canceled check are:

• You can void a check yourself. To cancel a check, however, a bank or credit union has already been involved.

• Voiding is quick and free. If you seek to cancel a check by stopping payment, it will involve time to speak to your bank, and there may be a fee charged to stop payment.

What to Expect After Voiding a Check

After you submit your voided check with the required paperwork for direct deposit, it may take a few days to complete the setup process. Typically, employers will establish the direct deposit within one or two paycheck cycles.

This is also true for government benefits like Social Security. Once direct deposit is established, you’ll know exactly when deposits will hit your account.

With direct deposit, you can use the money in your account immediately since there’s no temporary hold on deposits.

With auto-pay, funds are withdrawn from your account based on a bill’s due date. Some businesses give you a choice of dates to submit payment.

What if You Don’t Have Checks?

If you don’t have any checks, the first step to getting a checkbook is to open a new bank account. Many banks will give you pre-printed “starter checks” to use until your personalized ones arrive.

If you already have a checking account but no checks, you can contact your bank or credit union about ordering checks. They can usually be ordered online, via a mobile app, over the phone, or in person.

Alternatives to a Voided Check

Aside from a voided check, you have other options to establish autopay or direct deposit. Here are some alternatives:

• Direct deposit form. Some employers may let you use a direct deposit form without a voided check. In this case, ensure you complete your bank information correctly.

• Preview a check. Some financial institutions let you “preview” your checks on your bank or credit union’s website before you order them online. If your financial insulation allows this, you might be able to print out the preview and write “VOID” across it.

• Enter bank information online. Depending on how your employer sets up direct deposit, you might have the option to connect directly to your bank account through your company’s payroll website. Just enter your bank information instead of supplying a voided paper check.

• Request a counter check at a bank branch. You may have the option to request a “counter check” at your local bank branch. You can use this specially printed check containing your bank information for your voided check. Some banks charge a fee for this service.

The Takeaway

Knowing how to void a check is a good skill to have, and it’s part of becoming a savvy financial consumer. When you write “VOID” on a check, it becomes a voided check you can use to set up auto-pay or direct deposit. Voided checks are not available for deposit or cashing.

Once you submit your forms and voided check, employers can usually establish direct deposit within a few days. Another option is to request a “counter check” from your bank branch and void that check, though some banks may charge a fee for this service.

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 I void a blank check?

To void a blank check, take a blue or black pen and write “VOID” across the face of the check. You could also write “VOID” in the payee line, amount line, amount box, and the signature line.

How do I void a check for direct deposit?

You void a check for direct deposit by writing “VOID” across the face of the check with a blue or black pen. Or you could fill that in on the payee line, amount line, amount box, or the signature line.

How do I void a check I’ve already sent?

You can’t void a check you have already sent. You’ll have to cancel the check. To do this, first make sure the check hasn’t cleared yet. Then, make sure you have your account number, check number, dollar amount, and date you wrote on the check. Contact your bank or credit union to stop payment. This action may require a fee.

Photo credit: iStock/AsiaVision

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.

SOBK-Q224-1916919-V1

Jun

2024

Understanding How P2P Lending Works

By Becca Stanek | Debt Payoff, money, Terminology | No Comments

Sometimes you need a loan for a venture that a traditional bank might not approve. In these instances, a peer-to-peer (P2P) loan might be what you’re looking for. Peer-to-peer lending, also known as social lending, rose out of the 2008 financial crisis. When banks stopped lending money as freely as they had in the past, potential borrowers had fewer loan options. At the same time, low interest rates meant lower returns from savings accounts or CDs.

Enter P2P lending sites. P2P lenders essentially cut out the middleman (banks and traditional lenders) and created a space for borrowers and investors to do business. Since then, the concept of lending person-to-person has taken off, with the rise of a number of peer-to-peer lending platforms.

Wondering if a P2P loan is right for you? Or if investing in P2P lending is a smart way to diversify your portfolio? Let’s take a look at some of the pros and cons.

Key Points

• Peer-to-peer (P2P) lending connects borrowers directly with investors, bypassing traditional banks, and emerged after the 2008 financial crisis when lending options diminished.

• The most common P2P loans are personal loans, with amounts ranging from $1,000 to $50,000, typically having repayment periods of 36 to 60 months.

• Investors face risks, including the possibility of borrower defaults, as P2P loans are unsecured and not FDIC-insured, making returns uncertain.

• P2P lending offers benefits such as easier eligibility and competitive rates for borrowers, while providing investors with potential higher returns and a sense of community.

• Despite its advantages, P2P lending involves risks for both parties, including higher interest rates for borrowers and uncertainties regarding the industry’s regulation and stability.

What Is Peer-to-Peer (P2P) Lending?

P2P lending links up people who want to borrow money with individual investors who want to lend money. P2P lending sites like Prosper, Upstart, and Kiva — three prominent P2P lenders — provide low-cost platforms where borrowers can request loans and investors can bid on them.

The most common type of loan available through P2P lending is a personal loan, which provides borrowers with a lump sum of money they can use for virtually any purpose. However, other types of loans, including car loans, business loans, and home loans, are offered.

Personal loan amounts offered on P2P platforms range anywhere from $1,000 to $50,000 and repayment periods are typically 36 to 60 months. Interest rates can vary widely, from around 7.5% to 35.99%, depending on factors including the individual’s credit history and perceived risk, as well as the purpose of a loan.

The lending platforms make money from serving as the intermediary in this process. In exchange for keeping records and transferring funds between parties, they charge a fee — typically 0.5% to 1.5% of the interest earned — to the investors lending the money. Some platforms also charge origination or closing fees to the borrowers, which typically range from 1% to 8% of the loan amount.

Is Peer-to-Peer Lending Safe?

The bulk of the risk of peer-to-peer lending falls onto investors. It’s possible that borrowers will default on their loans, and that risk increases if the investor opts to lend to those with lower credit ratings. If the loan were to go into default, the investor may not get paid back.

Further, peer-to-peer lending is an investment opportunity, and returns are never guaranteed when investing. There is the risk that investors could lose some or all of the amount they invest. Unlike deposit accounts with a traditional bank or credit union, P2P investments are not FDIC-insured.

How Does Peer-to-Peer (P2P) Lending Work?

The basic P2P lending process works like this: A borrower first goes through a quick soft credit pull with the P2P lending platform of their choice to determine initial eligibility. If eligible to continue, the lender likely will conduct a hard credit pull and then assign a borrower a “loan grade,” which will help lenders or investors assess how much of a risk lending to them might be.

The borrower can then make a listing for their loan, including the interest rate they’re willing to pay. With some P2P lending platforms, the borrower has an opportunity to make a case for themselves; they can provide an introduction and describe why they need the loan. A compelling, creative listing might have more luck grabbing a lender’s attention and trust.

Next, lenders can bid on the listing with the amount they can lend and the interest rate they’d be willing to offer. After the listing has ended, the qualified bids are combined into a single loan and that amount is deposited into the borrower’s bank account.

Peer-to-Peer (P2P) Lending Examples

Here are some examples of popular peer-to-peer lending sites:

• Prosper: Prosper can provide loans in amounts anywhere from $2,000 up to $50,000. Loan terms are two to five years, and funding can happen in as little as one business day.

• Upstart: Upstart is an AI lending marketplace that can offer borrowers loans of up to $50,000, with loan terms of either three or five years. It’s possible to check your rate in minutes, and most loans are funded within one business day after signing.

• Kiva: Kiva connects borrowers in need of money to fund their small businesses with a network of lenders who aren’t seeking to make a profit. Kiva requires borrowers to get some funding from one of the microlending partners. Once a certain threshold amount is met, their loan becomes available for public funding.

Peer-to-Peer (P2P) Lending for Bad Credit

It is possible to get a peer-to-peer loan with a bad credit score (meaning a FICO score below 580). However, those with lower credit scores will almost certainly pay higher interest rates.

Additionally, those with bad credit may have more limited options in lenders, though there are peer-to-peer lending platforms for bad credit. Many platforms have minimum credit score requirements, which tend to be in the range of fair (580-669) to good (670-739). For instance, Prosper requires a minimum score of 600.

If you have bad credit and are seeking a P2P loan, you might first work to improve your credit profile before applying. Or, you could consider getting a cosigner, which can increase your odds of getting approved and securing a better rate if you’re finding it hard to get a personal loan.

Peer-to-Peer (P2P) Lenders Fees

Peer-to-peer lending platforms can charge fees to both borrowers and investors. Which fees apply and the amount of these fees can vary from lender to lender.

A common fee that borrowers may encounter is an origination fee, which is typically a percentage of the loan amount. Other fees that borrowers may face include late fees, returned payment fees, and fees for requesting paper copies of records.

Investors, meanwhile, may owe an investor service fee. This is generally a percentage of the amount of loan payments they receive.

Pros of Peer-to-Peer (P2P) Lending

There are upsides to peer-to-peer lending for both borrowers and investors. However, the benefits will differ for both parties involved.

Pros of P2P Loans for Borrowers

• Easier eligibility: The biggest advantage for a borrower getting a personal loan peer-to-peer is being eligible for a loan they might not have been able to get from a traditional lender.

• Faster approval and competitive rates: P2P lenders might approve your loan faster and offer a more competitive rate than a traditional lender would.

• Possible to pay off credit card debt: One way that people are using P2P loans is to crush their credit card debt. People with high credit card balances could be paying up to 24.37% APR or higher in interest charges. If they can wipe it out with a P2P loan at a lower interest rate, it can save them a lot of money.

• Option to finance upcoming expenses: Those who are facing a lot of upcoming expenses might find it more cost-effective to take out a P2P loan rather than put those expenses on a high-interest credit card.

Pros of P2P Loans for Investors

• Promising alternative investment opportunity: Some see P2P lending as a promising alternative investment. When you lend money P2P, you can earn income on the returns as the borrower repays you. Those interest rates can be a few percentage points higher than what you might earn by keeping your money in a savings account or a CD. While there is some risk involved, some investors see it as less volatile than investing in the stock market.

• Option to spread out risk: P2P lenders also offer many options in terms of the types of risk investors want to take on. Additionally, there are ways you can spread the amount you’re lending over multiple loans with different risk levels.

• Sense of community: For borrowers and investors, the sense of community on these sites is a welcome alternative to other forms of lending and investing. Borrowers can tell their stories and investors can help give their borrowers a happy ending to those stories.

Cons of Peer-to-Peer (P2P) Lending

Though there are upsides to peer-to-peer lending, there are certainly drawbacks as well. These include:

• Risk for investors: The biggest disadvantage of P2P lending is risk. Since P2P loans are unsecured, there’s no guarantee an investor will get their money back. The borrowers on a P2P site might be there because traditional banks already declined their application. This means investors might need to do extra legwork on their end to evaluate how much risk they can take on.

• Potentially higher rates for borrowers: While P2P lenders might approve a loan that a traditional bank wouldn’t, they might offer it with a much higher interest rate. In these cases, it could be wiser to search for alternatives rather than accepting a loan with a costly interest rate.

• Effort and personal exposure for borrowers: There can be a lot of effort and personal exposure involved for the borrower. Borrowers have to make their case, and their financial story and risk grade will be posted for all to see. While we’re used to sharing a lot of our lives online, sharing financial information might feel like too much for some borrowers.

• Relatively new industry with evolving regulations: Then there’s the risk of P2P lending itself. The concept is still relatively new, and the decision on how best to regulate and report on the industry is still very much a work in progress. Some lending platforms have already hit growing pains as well. As regulations around the industry change and investors are tempted elsewhere, the concept could lose steam, putting lending platforms in danger of closing.

Peer-to-Peer (P2P) Loans vs Bank Loans

When it comes to P2P loans compared to bank loans, the biggest difference is who is funding the loan. Whereas bank loans are funded by financial institutions, peer-to-peer loans are funded by individuals or groups of individuals.

Further, bank loans tend to have more stringent qualification requirements in comparison to P2P loans. This is why those with lower credit scores or thinner credit histories may turn to peer-to-peer lending after being denied by traditional lenders. In turn, default rates also tend to be higher with peer-to-peer lending.

The Takeaway

Peer-to-peer lending takes out the middleman, allowing borrowers and investors to do business. For borrowers, P2P loans can offer an opportunity to secure financing they may be struggling to access through traditional lenders. And for investors, P2P loans can offer an investing opportunity and a sense of community, as they’ll see where their money is going. However, there are drawbacks to consider before getting a peer-to-peer loan, namely the risk involved for investors.

Whether you’re getting a P2P loan or a loan from a traditional lender, it’s important to shop around to find the most competitive terms available to you.

Think twice before turning to high-interest credit cards. Consider a SoFi personal loan instead. SoFi offers competitive fixed rates and same-day funding. Checking your rate takes just a minute.

SoFi’s Personal Loan was named NerdWallet’s 2024 winner for Best Personal Loan overall.

FAQ

Is peer-to-peer lending safe?

There are certainly risks involved in peer-to-peer lending, particularly for investors. For one, borrowers could default on their loan, resulting in investors losing their money. Additionally, there’s no guarantee of returns when investing.

What is peer-to-peer lending?

Peer-to-peer lending is a type of lending wherein individual investors loan money directly to individual borrowers, effectively cutting out banks or other traditional financial institutions as the middlemen. This can allow borrowers who may have been denied by more traditional lenders to access funds, and provide investors with a shot at earning returns.

What is an example of peer-to-peer lending?

Some popular P2P lending sites include Prosper, Upstart, and Kiva. Borrowers can use peer-to-peer loans for a variety of purposes, such as home improvement, debt consolidation, small business costs, and major expenses like medical bills or car repairs.

SoFi Loan Products
SoFi loans are originated by SoFi Bank, N.A., NMLS #696891 (Member FDIC). For additional product-specific legal and licensing information, see SoFi.com/legal. Equal Housing Lender.

Non affiliation: SoFi isn’t affiliated with any of the companies highlighted in this article.

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

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.

Disclaimer: Many factors affect your credit scores and the interest rates you may receive. SoFi is not a Credit Repair Organization as defined under federal or state law, including the Credit Repair Organizations Act. SoFi does not provide “credit repair” services or advice or assistance regarding “rebuilding” or “improving” your credit record, credit history, or credit rating. For details, see the FTC’s website .

SOPL-Q224-1909619-V1

Jun

2024

Guide to Short- vs Long-Term Certificates of Deposit (CDs)

By Dan Miller | Growing Wealth, Investing, money | Comments Off

A certificate of deposit (CD) is a type of savings account that holds your funds for a set period of time, or term. In exchange, the bank pays you a fixed annual percentage yield (APY), which tends to be higher than what you could earn in a traditional savings account.

When you open a CD, you can typically choose between a short-term CD (one year or less), mid-term CD (two to three years), or long-term CD (four years or longer). Generally, the longer the term of the CD, the higher the interest rate will be. However, these days, that’s not always the case. Nonetheless, APY is one of several factors to consider when deciding which type of CD is right for you.

How Do CDs Work?

A certificate of deposit is a type of deposit account offered by a variety of financial institutions, including brick-and-mortar banks, online banks, and credit unions. When you open a CD, you make a lump sum deposit then agree to leave the money untouched until the end of the CD’s term.

Unlike a regular savings account, you typically can’t add money to a CD after your initial deposit. And if you withdraw money before the end of the CD’s term, you will likely get hit with an early withdrawal penalty.

There are some no-penalty CDs on the market that don’t charge a fee for pulling your money out early, but be sure you understand the terms and potential tradeoffs with regard to lower rates or fees.

Are CDs Insured?

Yes, CDs are typically insured by the Federal Deposit Insurance Corporation (FDIC) for up to $250,000, which makes them a relatively safe investment. Any money you deposit, up to $250,000, would be covered in the event of fraud or a bank collapse.

If the CD is issued by a credit union, it would be insured for the same amount, by the National Credit Union Administration (NCUA).

What Is a Short-Term CD?

Short-term CDs are CDs with terms of one year or less. Different banks offer CDs with different terms, but 3-month, 6-month, and one-year CDs are common.

A short-term CD gives you greater flexibility than a longer-term CD, since you’ll have access to your money sooner. But a short-term CD will also typically offer a lower annual percentage yield (APY) than a CD with a longer maturity date.

Advantages and Disadvantages of Short-Term CDs

Short-term CDs come with both pros and cons. Here are some to consider.

Advantages of Short-Term CDs

• They typically pay a higher interest rate than traditional savings accounts.

• They offer a safe place to park savings for a big purchase, while earning a steady rate.

• If rates change or your needs shift, you won’t have to wait long to access your money.

Disadvantages of Short-Term CDs

• They may offer lower interest rates than long-term CDs.

• You may be able to find higher rates with other financial products, such as a high-yield savings account.

• If you need the money before the CD matures, you’ll have to pay an early withdrawal penalty.

What Is a Long-Term CD?

Generally speaking, a long-term certificate of deposit is a CD that has a term of four years or more. Long-term CDs typically offer the highest rates of any type of CD, but the returns you’ll earn even with a long-term CD tend to be lower than historical stock market averages. That said, the beauty of CDs is that they offer a predictable rate of return, in a vehicle that’s relatively low risk.

The tradeoff to the higher interest rates that come with long-term CDs is that you won’t have access to your money for several years without paying a penalty.

Advantages and Disadvantages of Long-Term CDs

As with short-term CDs, long-term CDs come with both benefits and drawbacks. Here are some to keep in mind.

Advantages of Long-Term CDs

• They typically offer the highest interest rates of any type of CD.

• The predictable rate of return can help balance more volatile investments in your portfolio.

• Knowing that you’ll incur penalties for early withdrawal can deter you from dipping into your savings prematurely.

Disadvantages of Long-Term CDs

• If you end up needing to take money out before the term is over, you will likely get hit with early withdrawal penalty fees.

• Some long-term CDs require a minimum opening deposit of $1,000 or more.

• There’s a risk that inflation or interest rates will go up while your money is tied up in the CD.

Main Differences Between Short-Term and Long-Term CDs

Here’s a look at how short- and long-term CDs compare side-by-side.

	Short-Term CD	Long-Term CD
Term length	3 months to 1 year	4 years or more
Early withdrawal penalty?	Yes	Yes
Safety	FDIC or NCUA Insured	FDIC or NCUA Insured
APY	Typically lower	Typically higher
Found at:	Traditional banks, online banks, and credit unions.	Traditional banks, online banks, and credit unions.

When Should I Consider a Short-Term or Long-Term CD Over the Other?

Whether you should go with a short-term or long-term CD will depend on your financial goals, the amount of money you can afford to lock away, and your need for flexibility.

Consider a short-term CD if:

• You may need access to your funds in the near future.

• You want to take advantage of potentially higher interest rates compared to traditional savings accounts.

• You are uncertain about future interest rate changes and want to reassess your options sooner.

Consider a long-term CD if:

• You have money you want to set aside for a specific purpose that won’t happen for several years.

• You want to maximize your earnings with potentially higher long-term CD interest rates.

• You are confident you won’t need access to the funds before the CD matures.

It’s also important to consider your overall financial situation, including emergency savings, other investments, and financial goals, before deciding between short-term or long-term CDs.

The Takeaway

Opening a CD can be a smart way to earn a higher interest rate than you’d get from a traditional savings account. The tradeoff is that most CDs will charge an early withdrawal penalty if you remove your money before the end of the CD’s term, so you have to be willing to lock up your funds for the specific term of the CD you choose.

Generally, CDs with longer terms offer higher interest rates than shorter-term CDs, but this isn’t always the case so it’s a good idea to shop around and compare rates before opening a CD. You may also be able to find competitive rates with other types of accounts, like high-yield savings accounts.

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.

🛈 While SoFi does not offer Certificates of Deposit (CDs), we do offer alternative savings vehicles such as high-yield savings accounts.

FAQ

Is a long-term or short-term CD better?

It depends on your financial goals and circumstances. If you have funds you can comfortably lock away for a longer period and want to earn a potentially higher interest rate, a long-term certificate of deposit (CD) might be better. If you need more flexibility or anticipate needing the funds in the near future, a short-term CD might be a better fit.

How are rates different between short-term and long-term CDs?

Certificate of deposit (CD) rates can vary widely, but generally the longer the CD term, the higher the interest rate. Short-term CDs (usually up to one year) tend to offer lower interest rates compared to long-term CDs (four years or more).

Photo credit: iStock/AndreyPopov

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.

SOBK-Q224-1848020-V1

Jun

2024

Bank Guarantees: What You Need to Know

By Timothy Moore | Life & Career, money | Comments Off

A bank guarantee is a promise by a financial institution that it will assume liability for a business contract if one party fails to uphold its obligation to another. In this way, the bank acts like a cosigner for a buyer or borrower on a business agreement, reducing the risk for the seller or lender.

This can be a valuable assurance for organizations that are conducting financial transactions. For a small fee, bank guarantees often enable small businesses to enter into contracts with larger companies with which they otherwise would not be able to do business. Read on to learn more about how bank guarantees work and their pros and cons.

What Is a Bank Guarantee?

A bank guarantee promises that, if one party in a business agreement fails to meet its obligations, the bank will cover its debts. By backing up a transaction, it adds confidence to riskier deals.

Bank guarantees involve a thorough review of the business applicant’s finances and credentials. If, after this due diligence, a commercial bank feels confident that an applicant (the debtor) will be able to uphold their contractual obligations, the bank may offer the guarantee to the other party (the beneficiary). This can lead to greater assurance that the transaction will go smoothly.

Bank guarantees are usually a part of more complex financial transactions between businesses. The average borrower won’t need to worry about bank guarantees for auto loans, mortgages, or personal loans.

A little more detail on bank guarantees for business clients of a financial institution:

• Companies often use bank guarantees for complicated contracts involving goods and services. If a vendor fails to provide goods or services that have already been paid for, a bank guarantee ensures reimbursement for the business using that vendor.

If, on the other hand, a buyer fails to pay for goods or services that have already been delivered or rendered, the bank guarantee covers the unpaid balance for the seller.

• Because a bank guarantee might protect a buyer or a seller, it may be easier to think of them in terms of the beneficiary (the company that requires a bank guarantee to feel protected and move forward with a contract) and an applicant (the company that must apply for the bank guarantee to close the deal).

💡 Quick Tip: An online bank account with SoFi can help your money earn more — up to 4.20% APY, with no minimum balance required.

How Do Bank Guarantees Work?

If a contract includes a bank guarantee, that guarantee will specify an amount to be repaid (or the goods or services to be delivered) and a set timeframe in which the transaction will happen. The contract will also spell out the bank’s responsibility should the applicant fail to meet their contractual obligations.

To assume this risk, banks charge applicants a fee for the guarantee, expressed as a percentage of the cost or value of the transaction, typically around 0.5% to 1.5%.

If the bank deems a contract particularly risky, it might require the applicant to offer collateral. Unlike with secured personal loans, where a house or car might serve as collateral, bank guarantee collateral is typically liquid assets, like stocks or bonds.

Types of Bank Guarantees

There are two main types of bank guarantees: financial bank guarantees and performance guarantees.

Financial Bank Guarantee

With a financial bank guarantee, a bank promises to repay a debt if the borrower (or buyer) defaults on the agreement. For example, an applicant may purchase goods and services from a large company, receive said goods and services, and never pay the bill. In this instance, the bank would settle the debt with the large company since the funds can’t come out of the borrower’s bank account.

What Is a Performance Guarantee?

In this situation, if an applicant fails to perform the obligations laid out in contract (e.g., supplying parts to a company), the beneficiary can make a claim with the bank for the losses incurred from the non-performance of contractual obligations.

Performance failure might also mean that, though the goods or services were delivered, they did not meet quality standards specified in the contract. In these situations, the bank would step in to offset those losses.

Examples of Bank Guarantees

Bank guarantees can serve many purposes, usually between two businesses. Here are a few of the guarantees that banks often issue:

Rental Guarantee

A rental guarantee protects a landlord when entering into a contract with a company (like a restaurant or retailer) that wants to lease a space. This guarantee serves as collateral for a rental lease.

Advanced Payment Guarantee

An advanced guarantee protects a company that has paid in advance for goods or services that weren’t delivered. You may also hear this referred to as a cash guarantee. If the deal isn’t satisfied, the company that has paid out in advance will be refunded.

Performance Bond Guarantee

A performance bond is a kind of financial guarantee for a business deal, to protect against one party failing to meet its obligations. You may also hear this called a contract bond. If, say, a contractor doesn’t complete the work they agreed to do, a performance bond guarantee can protect the party paying for the project. That entity would be compensated for their loss.

Warranty Bond Guarantee

When a bank provides a warranty bond guarantee, that protects the buyer in a transaction, ensuring that goods are delivered as specified. This could refer to the quality and condition of the items as well as the timing of their arrival.

You may also hear this term used in another situation. Sometimes referred to as a maintenance bond, a warranty bond guarantee can be a financial guarantee in which a builder promises to protect the owner of a construction project from problems with workmanship or faults with materials that could occur after the project’s completion. A financial institution or insurer will back up this promise.

Payment Guarantee

A payment guarantee is quite simply what it sounds like: It guarantees that, if, say, a buyer fails to send adequate funds for a purchase, the bank will step in and cover the shortfall. It allows a seller to feel confident that they will be paid in full on a predetermined date.

Pros and Cons of Bank Guarantees

Here’s what you need to know about the upsides and downsides of bank guarantees.

Pros

Among the most important advantages or a bank guarantee are the following:

• Reduced costs: While not free, a bank guarantee can be a cost-effective way to encourage confidence and help a deal go through. It may be less expensive to obtain, say, than taking out a small business loan to cover a potential debt.

• Reduced risk: A bank guarantee reduces risk since the bank promises to pay if one party doesn’t hold up their end of the deal. In this way, a bank guarantee can open up new opportunities for businesses, especially those without a long or solid credit history.

• Quick activation: It typically takes only a few days to obtain a bank guarantee.

• Enhanced credibility: Before offering a guarantee, a bank does a comprehensive assessment of an applicant’s financial standing. Earning a bank’s backing through a guarantee demonstrates that the bank finds the applicant company to be credible.

Cons

Next, the potential drawbacks of bank guarantees to be aware of:

• Stringent approval guidelines: Bank guarantees aren’t given to just any entity. A business must show that it merits this backing. Not every applicant will qualify.

• Collateral requirement: If a venture seems particularly risky, banks may require collateral from applicants; this can be risky for startups with limited funding.

• Complex regulations: There have been scams involving bank guarantees in some international transactions. Using a bank guarantee for an international deal may therefore require many complex steps and assurances before it moves forward.

The Takeaway

In business transactions, a bank guarantee promises that the financial institution will cover any debts to one party if the other party does not meet its obligations. Larger companies often require small businesses and startups to obtain a bank guarantee before doing business with them. These guarantees can help a small or new business secure large deals since the bank has shown confidence in them.

That said, if you’re focused on your personal finances and are considering your options, see what SoFi offers.

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

FAQ

What is the difference between bank guarantees and letters of credit?

Both bank guarantees and letters of credit add confidence to business deals, with slight differences. With a bank guarantee, the financial institution promises to step in and pay debts, if needed, for the party they guaranteed. A letter of credit, useful in international trade, substitutes the bank’s credit for a business’. The bank will guarantee payment if the business defaults on their obligation, but only once certain criteria are met.

What is the purpose of a bank guarantee?

The purpose of a bank guarantee is to add confidence to a contract between two parties. If one party fails to uphold its contractual obligations or defaults on a loan, the bank promises to step in and uphold the contract and pay the debt that may result.

How can I get a bank guarantee?

If a business is requiring a bank guarantee to enter into a contract, contact your bank (or your business’ bank) and request an application. The bank will then review the completed application to determine your creditworthiness, typically within a few business days.

Photo credit: iStock/eclipse_images

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

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

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

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

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

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

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

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

*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.

SOBK-Q224-1897321-V1

Jun

2024

Supplementary Credit Cards: What They Are and How They Work

By Dan Miller | Credit, Family Finances, money | Comments Off

Adding supplementary credit cards — credit cards tied to a primary credit card account — can be a good way to help someone establish credit. For example, adding a supplementary credit card for a child can help them build credit, since they will get the benefit of the primary cardholder’s good credit history. Someone working to rebuild their credit could also benefit.

Still, it’s important to keep in mind that the primary cardholder is responsible for any charges made by any authorized users on the account. Read on to learn more about who can benefit from a supplementary credit card and the pros and cons of adding an authorized user to your account.

What Is a Supplementary Credit Card?

A supplementary credit card, also known as an authorized user credit card, is a secondary credit card tied to the account of an existing user. This existing user could be a trusted friend, family member, or caregiver. The primary cardholder is responsible for all charges made by any authorized users or supplementary credit card holders.

Recommended: What Is Considered a Fair Credit Score?

How Do Supplementary Credit Cards Work?

When you add a supplementary credit card to your credit card account, your credit card company will send a new physical card. The credit card issuer will typically mail the card to the address of the primary cardholder in order to prevent fraud.

In some cases, the supplementary credit card number will be the same as the card number of the primary credit card. In other cases, it may have a different number. Either way, all charges made on the account — including those made by supplementary cardholders — are the responsibility of the primary cardholder.

Supplementary Credit Card Annual Fees

For most credit cards, there is not a charge to add a supplementary credit card or authorized user. However, some premium cards, such as The Platinum Card from American Express, do charge an annual fee for additional cards.

Supplementary Credit Card Sign-Up Bonuses

Typically there is not a sign-up bonus or welcome offer for adding a supplementary card user. If you want to enjoy credit card bonuses, you must apply as the primary account holder.

Supplementary Credit Card Earnings and Redemption Rates

The earnings rates for supplementary credit cards are the same as the rates for the primary credit cardholder. Because the primary cardholder is financially responsible for all charges, they will receive the benefits of all rewards, regardless of which account makes the charges.

Who Needs a Supplementary Credit Card?

A supplementary credit card can be useful for someone who does not meet the credit card requirements to qualify for a credit card on their own.

For instance, you can get a supplementary card for a child to help them establish credit. Adding them to your account also offers an opportunity for you to teach them the ins and outs of using a credit card responsibly.

You might also add a trusted friend or family member to your account to help them build their credit score although this will depend on the primary cardholder keeping the account in good standing. Another reason you might add an authorized user to your account is to allow them to take advantage of travel or other benefits when you are not with them.

It’s also possible to add someone as an authorized user without actually giving them a card. This can allow them to enjoy the benefits to their credit score without the risk that they’ll overspend or otherwise use the card irresponsibly.

Pros and Cons of Supplementary Credit Cards

While there are benefits to supplementary credit cards, there are also downsides that are worth noting. Consider these pros and cons.

Pros of Supplementary Credit Cards	Cons of Supplementary Credit Cards
Can help those with poor credit or no credit history to build or improve their credit score	Primary cardholder remains financially responsible for all charges
Generally no annual fee to add a supplementary credit card	Could damage the credit of the primary and/or secondary cardholder if used irresponsibly
Can earn additional rewards from the spending of multiple people	Some cards may charge a fee to add an authorized user

Do Supplementary Credit Cards Affect Your Credit Score?

Yes, using a supplementary credit card can affect the credit score of both the primary and the secondary user. Depending on how a credit card is used, the effects could be either positive or negative.

If all cardholders on the account use their credit card responsibly, a supplementary credit card can have a positive impact on their credit scores due to how credit cards work. However, if the supplementary cardholder makes charges that the primary cardholder can’t repay, both of their credit scores could go down. Similarly, if the primary cardholder fails to make on-time payments, that could hurt the supplementary cardholder’s credit rather than helping it.

This is why it’s important that both cardholders are on the same page when it comes to credit card rules and best practices.

Recommended: When Are Credit Card Payments Due

How Much Do Supplementary Credit Cards Cost?

In most cases, there is no charge for adding supplementary credit cards or authorized user cards. However, some credit card issuers do charge an additional fee for adding supplementary cards. Make sure to check with your issuer before ordering one.

Applying for a Supplementary Credit Card

Because any supplementary credit cards are tied to the account of the primary cardholder, you can’t apply for a supplementary credit card directly. Instead, the primary cardholder will need to request an additional card directly from the issuer.

To do so, the primary cardholder can either call the customer service number listed on the back of their credit card or request an additional card through their online account or app.

Alternatives to Supplementary Credit Card

Opening a supplementary credit card can be a good way to help a family member build their credit, but it does come with some risk. One alternative to giving someone a supplementary credit card is to open a supplementary credit card account but keep the actual card.

With this arrangement, the authorized user gets the advantages of a supplementary account — namely, building their credit through the primary cardholder’s responsible use — without the risk that they will use their card irresponsibly.

The Takeaway

Supplementary credit cards, or authorized user cards, are additional cards tied to the credit card account of a primary cardholder. When used responsibly, they can help the authorized user build or establish credit. However, the primary account holder is responsible for all charges made by supplementary cardholders, so there is also some risk if the supplementary credit card is used irresponsibly.

Whether you're looking to build credit, apply for a new credit card, or save money with the cards you have, it's important to understand the options that are best for you. Learn more about credit cards by exploring this credit card guide.

FAQ

Are bills paid with the card number of the primary or supplementary card?

The card numbers of the primary and supplementary cards are both tied to the primary cardholder’s account. As such, the primary cardholder is responsible for all charges made, including by authorized users.

Is a supplementary credit card the same as a joint card?

A joint credit card account allows two people to use the same credit card account, with both account owners holding responsibility for all charges made to the account. In contrast, a supplementary credit cardholder is not responsible for charges they make. Instead, only the primary cardholder is financially responsible for all charges made by any user.

Who is responsible for a supplementary credit card?

Only the primary account holder is responsible for charges made by any and all authorized users. Any secondary or supplementary cardholders are not considered financially liable for any charges they make.

Does a supplementary card affect credit score?

Yes, having a supplementary card can affect your credit score. It can help build credit when used responsibly. But because the primary cardholder is ultimately responsible for all charges, their credit could suffer if an authorized user uses the card irresponsibly. An authorized user could also see their score suffer if the primary account holder fails to manage their account responsibly.

Photo credit: iStock/MixMedia

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.

Disclaimer: Many factors affect your credit scores and the interest rates you may receive. SoFi is not a Credit Repair Organization as defined under federal or state law, including the Credit Repair Organizations Act. SoFi does not provide “credit repair” services or advice or assistance regarding “rebuilding” or “improving” your credit record, credit history, or credit rating. For details, see the FTC’s website .

SOCC-Q224-1910822-V1

Tips for Voiding a Check

Definition of a Voided Check

How Do You Void a Check?

Reasons for Voiding a Check

Get up to $300 when you bank with SoFi.

Voided vs Canceled Check

What to Expect After Voiding a Check

What if You Don’t Have Checks?

Alternatives to a Voided Check

The Takeaway

FAQ

How do I void a blank check?

How do I void a check for direct deposit?

How do I void a check I’ve already sent?

Understanding How P2P Lending Works

What Is Peer-to-Peer (P2P) Lending?

Is Peer-to-Peer Lending Safe?

How Does Peer-to-Peer (P2P) Lending Work?

Peer-to-Peer (P2P) Lending Examples

Peer-to-Peer (P2P) Lending for Bad Credit

Peer-to-Peer (P2P) Lenders Fees

Pros of Peer-to-Peer (P2P) Lending

Pros of P2P Loans for Borrowers

Pros of P2P Loans for Investors

Cons of Peer-to-Peer (P2P) Lending

Peer-to-Peer (P2P) Loans vs Bank Loans

The Takeaway

FAQ

Is peer-to-peer lending safe?

What is peer-to-peer lending?

What is an example of peer-to-peer lending?

Guide to Short- vs Long-Term Certificates of Deposit (CDs)

How Do CDs Work?

Are CDs Insured?

What Is a Short-Term CD?

Advantages and Disadvantages of Short-Term CDs

Advantages of Short-Term CDs

Disadvantages of Short-Term CDs

What Is a Long-Term CD?

Advantages and Disadvantages of Long-Term CDs

Advantages of Long-Term CDs

Disadvantages of Long-Term CDs

Main Differences Between Short-Term and Long-Term CDs

When Should I Consider a Short-Term or Long-Term CD Over the Other?

The Takeaway

FAQ

Is a long-term or short-term CD better?

How are rates different between short-term and long-term CDs?

Bank Guarantees: What You Need to Know

What Is a Bank Guarantee?

How Do Bank Guarantees Work?

Types of Bank Guarantees

Financial Bank Guarantee

What Is a Performance Guarantee?

Get up to $300 when you bank with SoFi.

Examples of Bank Guarantees

Rental Guarantee

Advanced Payment Guarantee

Performance Bond Guarantee

Warranty Bond Guarantee

Payment Guarantee

Pros and Cons of Bank Guarantees

Pros

Cons

The Takeaway

FAQ

What is the difference between bank guarantees and letters of credit?

What is the purpose of a bank guarantee?

How can I get a bank guarantee?

Supplementary Credit Cards: What They Are and How They Work

What Is a Supplementary Credit Card?

How Do Supplementary Credit Cards Work?

Supplementary Credit Card Annual Fees

Supplementary Credit Card Sign-Up Bonuses

Supplementary Credit Card Earnings and Redemption Rates

Who Needs a Supplementary Credit Card?

Pros and Cons of Supplementary Credit Cards

Do Supplementary Credit Cards Affect Your Credit Score?

How Much Do Supplementary Credit Cards Cost?

Applying for a Supplementary Credit Card

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