Jun
20
2024
What’s the Difference Between a Certified Check and a Cashier’s Check?

What’s the Difference Between a Certified Check and a Cashier’s Check?

By | Budgeting & Goals, Financial Independence, money | Comments Off on What’s the Difference Between a Certified Check and a Cashier’s Check?

If someone needs to make or receive a payment via check, both cashier’s checks and certified checks can offer a more secure option than a personal check. That said, there’s an important difference between a certified check and a cashier’s check. With the former, the payer backs the check; with the latter, the bank guarantees it.

Key Points

•   Cashier’s checks and certified checks are both secure payment options, but there are important differences between them.

•   A cashier’s check is guaranteed by a bank or credit union, while a certified check is guaranteed by the individual making the payment.

•   Cashier’s checks are usually considered the safest form of payment and are often required for major transactions, such as a real estate purchase.

•   Certified checks work more like personal checks with the bank saying there are funds to cover the amount as an extra layer of protection.

•   Alternatives to cashier’s checks and certified checks can include money orders, P2P payments, and money transfer services.

🛈 Currently, SoFi does not offer members certified checks or cashier’s checks.

What Is a Cashier’s Check?

A cashier’s check is a specific type of check that has a guarantee from a bank or credit union that if the check doesn’t go through, the financial institution will make the payment. This situation can arise if there aren’t sufficient funds in the payer’s account for the check to process. Because of this, cashier’s checks are considered to be the safest form of payment. This type of check is often required when making a major purchase like buying a car or putting a downpayment on a home.

How Do Cashier’s Checks Work?

The way that a cashier’s check works is that the payer requests a cashier’s check at the financial institution where they have their bank account. They then pay the bank the amount they want to provide to the payee and the bank will cut a check using their own funds.

The bank will list the payee on the check to ensure that the check is used by the person the payer intended it to go to. Cashier’s checks usually clear faster than personal checks issued from someone’s checkbook.

In many cases, the payer needs to be a member of a bank or credit union to request a cashier’s check be generated. A fee is typically involved as well. It can cost approximately $8 to $15 to obtain a cashier’s check, though some banks may waive the fee for certain customers.

What Is a Certified Check?

A certified check is a different type of check that works more like a personal check. With a certified check, the money comes straight from the payer’s checking account. But first the bank verifies to make sure that the payer has sufficient funds in their account to cover the amount. If for some reason the check bounces, the account holder is held responsible (unlike with a cashier’s check where the bank is the one on the hook if the check bounces). Because of this, certified checks tend to be more secure than personal checks.

Recommended: How Much Money Do I Need to Open a Checking Account?

How Do Certified Checks Work?

To certify a check, the bank verifies that the account associated with the check has sufficient funds to make the payment. They will also verify the payer’s identity and will add an official bank stamp or watermark to the check.

It’s possible to get a certified check at some banks, however, not all banks offer them. A certified check typically costs $15 to $20.

Which Check Is Safer?

While both certified checks and cashier’s checks are safer than a personal check from your checking account, cashier’s checks are a bit more secure. The reason: The bank that backs them won’t default on the payment. That being said, both types of checks are good options for someone paying a large amount of money. They can also be used when transferring or receiving money from a stranger.

Most likely, if a situation arises that requires one of these check types, it’s because the payee requested payment be made with a specific type of check. They’re probably seeking a higher level of certainty that the payment will go through.

Differences Between a Cashier’s Check and a Certified Check

Is a cashier’s check the same as a certified check? Simply put, no. There are a few key differences when it comes to certified check vs. cashier check that it’s worth understanding.

Source of Funding

Ideally, with either type of check, the funds will come out of the payee’s bank account. However, if a cashier’s check is issued and then can’t be processed because of insufficient funds, the bank will need to fund the amount due. If the check was a certified check, the payer still needs to fund it through their bank account.

Check Signature

A cashier’s check can include bank employee signatures. With a certified check, however, the bank simply verifies the payer’s signature.

Payer of the Check

With both types of checks, the payer is the one paying the check. If, during processing, the check bounces, they will only be held responsible with a certified check. With a cashier’s check, the bank that backed the check will then be the one who is required to fund it.

Funds Availability

As briefly noted earlier, with both a cashier’s check and a certified check, the funds available come from the payer’s bank account. If the check bounces and it’s a cashier’s check, then the bank will need to provide the funding. If it was a certified check, the payer will be responsible for making funds available.

How It Works

With a cashier’s check, the payer requests a cashier’s check at the bank. Then, the payer gives the bank the amount the check will be for. The bank will then cut (or issue) a check using their own funds.

When it comes to certified checks, the bank verifies that the bank account associated with the check has sufficient funds to make the payment. It also verifies the payer’s identity and adds an official bank stamp or watermark to the check. If the check bounces, the payer is held responsible.

Guarantees

A cashier’s check is guaranteed by a financial institution, whereas a certified check is guaranteed by the individual making the payment.

Costs of Checks

A cashier’s check may involve a fee of up to $15; the cost for a certified check can run up to $20.

Safety of Checks

Cashier’s checks are guaranteed by a bank or credit union and are typically considered the safest form of payment. With a certified check, the bank simply certifies the money was available when the payer wrote the check and then verifies the payer’s signature.

Avoiding Scams and Fraud

To help avoid scams and other types of bank fraud when writing or receiving a check, here are some best practices to keep in mind.

•   Don’t ever send money back to someone who sent you a check unless you have cashed the check or deposited it and are sure it cleared.

•   If selling something to a stranger online, consider using an escrow or online payment service instead of a check.

•   Never accept a check that is worth more than it was supposed to be.

•   Don’t lose a check with personal banking information on it.

Alternatives to Cashier’s Checks and Certified Checks

If a cashier’s check or certified check doesn’t seem like the right fit for you, there are other ways you can send money to someone’s account.

Money Orders

When it comes to a certified check or cashier’s check vs. a money order, a money order functions much like a standard check. It can be bought at retail stores, supermarkets, financial institutions, and U.S. post offices. The payer pays for the money order upfront, so there’s no chance of overdrafting like there is with a check. No bank account is required. At the post office, fees are likely to be about $3 for a domestic money order of up to $1,000.

P2P Payments

P2P payment services like Cash App, PayPal, and Venmo make it easy to send cash for smaller purchases instantaneously. These may be ideal for daily life (for instance, when you owe friends money for dinner). This isn’t the right choice, though, when managing a large payment such as a downpayment on a home.

Money Transfer Services

Money transfer services are a convenient form of electronic payment that involve sending money from one bank to another via the Automated Clearing House (ACH). Among the transactions that work this way are e-checks and direct deposit.

The Takeaway

The main difference between a certified check vs. cashier check is who guarantees the check. In the case of a cashier’s check, the bank guarantees it, but with a certified check the consumer writing the check guarantees it. Cashier’s checks are typically thought to be the safest option and they may also be more readily available (certified checks are only offered by some banks). Both types of checks are important financial tools when you need a more trustworthy form of payment than a standard check.

Having a bank account that can provide you with the tools and services you need, like a certified or cashier’s check or an array of digital features such as mobile deposit and bill pay, is important. When choosing a bank, make sure to find out all the offerings they have, as well as what their account fees are and any minimum balance required. That way, you can make the most informed decision.

FAQ

Do certified checks clear immediately?

When you deposit a certified check, it doesn’t clear immediately. It typically takes one to two business days.

Can you get scammed with a certified check?

Both certified checks and cashier’s checks are safer than a personal check. Of course, there is still a small chance that fraud may occur. Checks can be faked. It’s wise to always be careful when receiving or making payment via checks, especially for large sums of money.

Is it safe to accept a cashier’s check?

Yes, it is generally safe to accept a cashier’s check. A cashier’s check is much more reliable than a personal check; it is guaranteed by the bank or credit union issuing it.

Photo credit: iStock/Dilok Klaisataporn

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.

4.00% APY
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.

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Jun
20
2024
Guide to the CD Barbell Strategy

Guide to the CD Barbell Strategy

By | Growing Wealth, Investing, money | Comments Off on Guide to the CD Barbell Strategy

With the CD barbell strategy, you invest in short-term and long-term certificates of deposit, and don’t invest any of your money in medium-term CDs — a strategy that may help maximize income and minimize risk.

CDs have different terms, and generally the longer the term, the higher the interest rate. When you invest money in a longer-term CD, you can take advantage of their higher rates. The downside with a long-term CD is that your money is tied up for a longer period of time. You have more liquidity with a short-term CD, but you will typically earn a lower return.

By splitting your money between short-term and long-term CDs, the idea is to capture the best of both worlds. Find out if a barbell CD strategy makes sense for you.

What Is a Certificate of Deposit (CD)?

A certificate of deposit is a time deposit account that offers a guaranteed return that’s typically higher than a savings or money market account.

With a CD, you invest a lump sum upfront (called the principal). Your money earns a specified interest rate for a specific period of time (known as the term). Most CDs are insured against loss by the FDIC (Federal Deposit Insurance Corporation) or the NCUA (National Credit Union Association) for up to $250,000. Certificates of deposit are considered a type of cash equivalent.

CDs typically pay a higher rate than standard deposit accounts because the account holder agrees not to withdraw the funds until the CD matures. If you deposit $5,000 in a 5-year CD, you cannot withdraw the $5,000 (or the interest that you’ve earned) without incurring an early withdrawal penalty until the end of the five years.

If you do need access to your money before the end of the term, you might consider a certificate of deposit loan, where the bank gives you a loan with the money in the CD serving as collateral.

💡 Quick Tip: Help your money earn more money! Opening a bank account online often gets you higher-than-average rates.

What Is the Certificate of Deposit (CD) Barbell Strategy?

The longer the term of the CD, the higher the interest rate you’ll typically earn, but the longer your money will be tied up. The CD barbell strategy is one way that you can attempt to get the benefits of both long- and short-term CDs. By dividing your money between these two types of CDs, you will blend the higher interest rates from long-term CDs with the accessibility of short-term certificates of deposit.

In addition to the CD barbell strategy, there are a variety of different strategies for investing in CDs, including the bullet strategy, which involves buying several CDs that mature at about the same time and the CD ladder strategy, which consists of opening multiple CDs of different term lengths.

So if you’re wondering where to store short term savings, you have several different options to choose from.

Real Life Example of the CD Barbell Strategy

If you want to start investing in CDs and are interested in learning more about the CD barbell strategy, here is one example of how it could work. Say you have $10,000 that you want to invest using the CD barbell strategy.

•   You invest $5,000 in a 3-month CD earning 1.50%

•   You invest $5,000 in a 5-year CD earning 5.35%

Your total return would be 3.42% (the average of 1.50% and 5.35%). That’s less than you would get if you put all of your money in a long-term CD, but more than if you put it all in a short-term CD. Depending on your financial goals, you can adjust the terms of your CDs and the amount you put in each half of the barbell.

With the CD barbell strategy, when your short-term CD expires, you could choose to take the proceeds and reinvest it in a new short-term CD.

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.


Benefits of the CD Barbell Strategy

Here are a few of the benefits of the CD barbell strategy:

Higher Returns Than Investing Only in Short-Term CDs

Because half of your money is invested in long-term CDs that pay a higher return, you’ll get a higher return than if you invested only in short-term CDs. This can make it a viable investment strategy if you need access to some of your money but also want higher returns.

More Liquidity Than Investing Only in Long-Term CDs

Another benefit of the CD barbell strategy is that you have easier access to your money than if you invested only in long-term CDs. Half of your money is in short-term CDs, which means that if you need access to your money after a few months, you can withdraw the money in your short-term CD when it matures without penalty.

Drawbacks of the CD Barbell Strategy

Here are a few of the drawbacks of the CD barbell strategy:

Excludes Medium-Term CDs

The barbell CD strategy focuses solely on short-term and long-term CDs, excluding medium-term CDs. Depending on your financial situation, you might find it worthwhile to include medium-term CDs as part of your investment strategy.

Ties Up Some of Your Money

When you invest in a long-term CD that won’t mature for several years, you won’t have penalty-free access to that money until the end of the CD’s term. While long-term CDs do typically come with higher returns than CDs with shorter terms, you need to make sure that you won’t have a need for that money until the CD matures.

Barbell CD Strategy vs CD Laddering

Barbell CD Strategy

CD Laddering

Includes only short-term and long-term CDsUses short-term, medium-term, and long-term CDs
Insured by the FDIC or NCUA up to $250,000Insured by the FDIC or NCUA up to $250,000
You’ll have access to some of your money each time your short-term CD expiresAccess to your money varies depending on the terms of the CDs you ladder with

When Should I Use a Certificate of Deposit Strategy?

If you decide you need a long-term savings account, you might want to consider a certificate of deposit strategy like the CD barbell strategy.

CDs with different terms come with different interest rates, so there can be advantages to splitting up your money. Rather than putting all of your savings into one CD, you can distribute your money to a few different CDs as a way to diversify your potential risk and reward.

The Takeaway

CDs come with different lengths or terms, and the longer the term, usually the higher the interest rate that you’ll earn. A CD barbell might make sense if you want the benefit of having some of your money in a higher-interest CD, while keeping the rest of it more liquid (although at a lower rate).

Using a CD strategy like the CD barbell strategy is one potential way to get higher returns with long-term CDs while still being able to access some of your money by using shorter-term CDs as well. You will, however, have your money tied up for a longer period of time, so there is a tradeoff that you’ll need to consider.

If you’re looking for better interest rates for your cash while maintaining easy access to your money, you might want to consider other options, such as a high-yield bank account. Do some investigating to see what savings strategy makes the most sense for you.

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

Better banking is here with SoFi, NerdWallet’s 2024 winner for Best Checking Account Overall.* Enjoy up to 4.00% APY on SoFi Checking and Savings.

FAQ

Why is it called a barbell strategy?

The CD barbell strategy is so named because you are investing in CDs at either end of the spectrum of possible terms, with nothing in the middle. This is similar to the shape of a barbell that has weights on either end but nothing in the middle.

Does the CD barbell strategy make more money than CD laddering?

With CD laddering, you usually invest an equal amount of your money in CDs that mature each year. Whether the CD barbell strategy makes more money than CD laddering will depend on exactly how you divide your money into different CD terms, as well as how interest rates change over the life of your CD strategy.

Does the CD barbell strategy make more money than the bullet CD strategy?

The bullet CD strategy is an investment strategy where you buy CDs that all mature at the same date. Which of these two CD strategies makes more money will depend on a couple of factors. The first is how interest rates change over time, and the second is exactly how you divide up your investments.

Photo credit: iStock/hachiware

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.

4.00% APY
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.

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20
2024
Guide to Sinking Funds

Understanding Sinking Funds

By | Budgeting & Goals, Financial Independence, money | Comments Off on Understanding Sinking Funds

It may sound like a negative thing, but a sinking fund is money that’s saved toward a specific goal. Governments and businesses can use sinking funds to hold reserve cash to fund future expenses, but this kind of account also has a place in personal finance as you build wealth and achieve goals.

What sinking funds are is a way to earmark and stash money so you can, say, buy a new car or take an amazing vacation. Understanding how sinking funds work can help you decide if you need to include them in your budget.

What Is a Sinking Fund?

A sinking fund is money that’s earmarked to pay planned expenses that fall outside of your regular budget. In accounting, a sinking fund is used to save money to pay debt or replace an asset that is declining in value. The name, which can admittedly sound negative, may be derived from the idea of sinking, or paying off, a debt.

As mentioned, individuals, businesses, and even governments can use sinking funds to hold money in reserve for future expenses. For example, the U.S. Treasury Department maintains a sinking fund for unused appropriations.

For an individual, the meaning shifts somewhat. A sinking fund can help you be financially prepared to pay certain expenses that are on the horizon. In this way, it can help you avoid having to turn to high-interest credit cards or loans to cover expenses that don’t fit into your monthly budget. Being able to avoid debt is one of the main reasons why saving is important.

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

Examples of s Sinking Fund

A sinking fund can be used to save money for a variety of expenses. Some of the most common sinking funds categories include:

•   Vehicle maintenance and repairs

•   Pet care

•   Home maintenance and repairs

•   Birthdays, holidays, and other special occasions

•   Wedding expenses

•   Baby expenses

Those are just a few of the things you might need a sinking fund for. The number of sinking funds you choose to establish can depend on your financial goals. You might create one for, say, a down payment on a home or a trip to Bali. It’s up to you.

You can set up separate accounts for each goal and, if you like, automate savings into each. You might add $25 per pay period to one, $100 to another. By setting up recurring transfers to occur right after your paycheck hits your checking account, you can help your savings grow with minimal effort.

Recommended: Should I Pay off Debt Before Buying a House?

Benefits of a Sinking Fund

Setting up sinking funds can offer some advantages if you have planned or recurring expenses.

•   You can use them to create a structured plan for saving toward various expenses or financial goals.

•   Depending on where you keep your sinking funds, you may be able to earn a decent rate of interest on your deposits.

•   Sinking funds ensure that when a planned expense comes due, you have the money to pay it. You can avoid dipping into your emergency fund or using a credit card.

Drawbacks of a Sinking Fund

Sinking funds can help you to be consistent with saving, but there are some potential drawbacks.

•   You have to be organized and disciplined when setting up a fund or multiple funds.

•   If you’re also saving or investing in other accounts, you may have trouble keeping track of what is sinking fund money and what isn’t.

•   Saving in multiple sinking funds could leave you spread thin financially if you’re not careful about budgeting.

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 to Create a Sinking Fund

Getting started with sinking funds isn’t that difficult. Here are a few simple tips for using sinking funds to save toward planned expenses.

List Your Sinking Fund Categories

The first step in creating a sinking fund is deciding what categories to include. A good way to choose sinking fund categories is to review your spending for the last six months to a year. Look for expenses that may recur periodically, like biannual or annual insurance premiums or annual home maintenance.

From there, consider what savings goals you might be working toward that are one-time expenses. That may include a wedding, a down payment on a home, a vacation, new furniture, or something else you only expect to pay for once. You can then use your recurring expenses and planned expenses to create your sinking fund categories.

Determine Your Savings Target

Next, decide how much you need to save toward each expense or goal on your sinking fund list. Assign an overall dollar amount first, then determine how much you need to save monthly, based on when you plan to spend the money.

Say you want to save $1,000 for a trip you’d like to take in a year. You’d divide the total by 12, and your savings goal would be $83.33 per month.

Decide Where to Keep Sinking Funds

Once you know what you need to save each month, you can choose where to keep your sinking funds. Again, this may be a single savings account or money market account, or a savings account with multiple subaccounts.

Certificate of deposit (CD) accounts are usually not the best place to keep sinking funds. They require you to leave money in them untouched for a set maturity term to avoid a penalty. However, you may be able to find an add-on CD account that is a work-around to this. These accounts may allow you to increase the funds on deposit; check with a financial institution that offers this product for more details.

Set Up Automatic Transfers

If you’ve opened sinking fund accounts, you can take the final step and link them to your checking account. You can then schedule recurring automatic transfers from checking to your sinking fund account each month to grow your savings automatically.

You might want to set up your automatic deductions for payday. It can be helpful to have the money whisked out of your checking account and into savings before you see it and think about spending it.

Sinking Funds vs Emergency Funds

You may be tempted to dip into your emergency fund for some expenses, like, say, buying a new mobile phone. However, a sinking fund may be a better option. While a sinking fund and an emergency fund are both designed for saving, they serve very different purposes.

With a sinking fund, you’re setting aside money regularly that you plan to spend at some point. (In the example of a new phone, maybe your current one is starting to have some glitchiness, and you know a new model will be released in six months with lots of bells and whistles.) Some sinking fund expenses may be one-time; others may be recurring.
An emergency fund, on the other hand, is designed to hold emergency cash in case you have an unexpected expense that you need to cover. Emergency funds are there for those “uh-oh” moments, when your hot water heater conks out or you get hit with a major dental bill.

Starting an emergency fund while also having sinking funds can be a good idea. When you have both, you have money set aside to pay foreseen and unforeseen expenses. And just like sinking funds, one of the benefits of having an emergency fund is that you’re less reliant on high-interest credit cards to pay for things.

Sinking Funds vs Savings Accounts

Sinking funds and savings accounts can refer to the same thing. For example, you might hold your sinking funds in a high-yield savings account at an online bank. But it’s also possible that you have other savings accounts that are not specifically used for sinking funds. Sinking funds usually have a specific goal, which can help you get motivated to save money.

Saving funds can be more general. If you have kids, you might set up savings accounts for them to teach them the value of money. Or you might have a savings account that you treat as a slush fund, where you keep money that you haven’t earmarked toward any specific goal.

If you have both sinking funds and savings accounts, it’s important to track what money goes where. That way, you can ensure that you’re saving enough in your sinking funds and not shortchanging any of your planned expenses.

Recommended: Smart Short-Term Financial Goals to Set for Yourself

Where Can You Keep a Sinking Fund?

When deciding where to keep a sinking fund, accessibility matters. You need to be able to add money to your sinking fund and withdraw it when needed. For that reason, you might open an online bank account to hold your sinking funds.
With an online savings account, you can earn interest on deposits and link your account to checking for easy transfers.

Some banks allow you to open a main savings account with multiple subaccounts. You might choose this option if you’d like to be able to add money to individual sinking funds for specific expenses. Subaccounts can allow you to see all of your sinking fund money in one place while keeping goals separate.

A money market account is another candidate for holding sinking funds. These accounts can earn interest like a savings account, but they may offer check-writing abilities or debit card access, which you typically don’t get with a savings account.

Just be sure to check if your bank limits the number of withdrawals you’re allowed to make from a money market account. For some people, this factor (if it exists) can be a deal breaker.

The Takeaway

A sinking fund can help you stay on track when saving for planned expenses. You can use sinking funds to save for a wide range of expenses, without having to dip into other savings, your emergency fund, or breaking out your plastic. It can be a helpful way to organize your finances and meet your money and lifestyle goals.

Where to keep money in a sinking fund? Someplace that bears interest but is easily accessible can work well.

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 is a sinking fund in simple terms?

A sinking fund is a type of account that has a specific goal (such as a down payment on a house or debt repayment). Funds are typically added to it regularly.

How much should you have in a sinking fund?

If your sinking fund is an emergency fund, you should aim to have at least enough money to cover three to six months’ worth of standard living expenses. Otherwise, it’s up to you to set the purpose of a sinking fund (a Peloton bike or a trip to Yellowstone?) and how much you want to save.

What is considered a healthy sinking fund?

A healthy sinking fund has enough money to cover any planned expenses you might have on the horizon. The size of your sinking fund will depend on which expenses you’re planning for, how often you’re saving for those expenses, and how much you’re saving toward them each month.

Photo credit: iStock/whitebalance.oatt

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.

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Jun
20
2024
What Is a Christmas Club Account?

Guide to Christmas Club Accounts

By | Budgeting & Goals, Family Finances, money | Comments Off on Guide to Christmas Club Accounts

Are you toying with the idea of opening a Christmas Club account? It may sound like a retro idea, but a Christmas Club (or Holiday Club account) is simply a short-term savings fund that can help you plan for and manage the annual spending blizzard. The strategy can be smart, since during the most recent season, consumers spent a whopping $964 billion, according to the National Retail Foundation.

Pacing yourself to save in advance of the holiday crush is great, but there can be pros and cons of a Christmas Club account. Learn the details here.

What Is a Christmas Club Account?

Christmas Club accounts started in 1909 at a Pennsylvania bank and are designed to help you save money for holiday expenses. They typically do not earn high interest but can help you pull back your purse strings when December comes along and avoid debt.

After making regular, scheduled contributions to the Christmas account, the money is withdrawn, typically in October, November, or December, depending on your bank’s rules. Christmas Club funds are transferred to your regular checking account with the bank or withdrawn in a check to cover your holiday expenses, be they toys, trimmings, or latke parties.

Saving in increments can be easier on your budget than scrambling for cash when Yuletide, Hanukkah, and Kwanzaa come around. It can also spare you from putting all those charges on your credit cards and having a high balance due.

💡 Quick Tip: Don’t think too hard about your money. Automate your budgeting, saving, and spending with SoFi’s seamless and secure mobile banking app.

How a Christmas Club Account Works

When you sign up for a Christmas Club account, you start with a deposit. Rules and regulations vary by bank. Some require a minimum to start; others don’t. Some have no minimum balance requirement in person at a branch but need a $25 minimum for setting up a Holiday Club account online.

You decide the amount you want to contribute regularly. For instance, you might opt for $25 or $100 swept from your checking account into your Christmas account every week or every payday.

Historically, banks have charged fees for withdrawing money before the club account matures. That encourages consumers to leave their money there until holiday shopping time. Just be aware that if an emergency comes up, like a broken water heater, and you take the money out, you will get hit with a fee.

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.


Reasons to Use a Christmas Club Account

There are several benefits to Christmas Club accounts that can make them a helpful financial tool. Here are some of the reasons why people open them:

•   To save for a predictable spend above and beyond your year-round monthly budget. Many of us try to celebrate the holidays on a budget. But the gifting/decorating/entertaining spree can still hit every winter. A club account plumps up a money cushion to help you avoid credit card debt.

•   To afford holiday travel. Most of us need extra dough, whether to rent a car to visit family or fly the kids home from college. To score the lowest airfare, car rental, and lodging costs, brush up on smart tips for finding travel deals. (If short-term savings won’t cover your trip, shop for the best travel loans with lower APRs, no compounding interest, and no fees.) Stashing funds in a club account, of course, is a viable solution.

•   To build up funds for other planned annual costs. Just because they are called Christmas Club accounts doesn’t mean they have to be used for holiday spending. Puzzling over how to save on spring break expenses or how to pay for your child’s summer sleepaway camp? In those cases, a club account can be golden.

Where Can You Find a Christmas Club Account?

Christmas Club accounts are most often available at smaller community banks and credit unions vs. banks with a national presence. You can open one in person at a branch or online at your bank’s website. (Search under savings accounts.) Often, the same banks that set up payroll direct deposit plans also offer short-term club accounts.

Christmas Club accounts are offered at credit unions all across America, from the Fidelity Bank and Trust in Iowa to the Pasadena Federal Credit Union in California, and in too many places in between to count.

Pros of a Christmas Club Account

If you’re trying to decide if a Christmas Club account is right for you, it’s worthwhile to consider the advantages of these accounts.

Simplifies the Process of Saving for the Holidays

Framing your holiday budget ahead of time can cut stress. Pacing yourself to save over months may be even better. If it helps, you can give these targeted accounts nicknames to keep your eye on the goal; say, “Christmas in Vermont” to “Kids’ Lego Fund.”

Alternative to Putting Holiday Purchases on Credit Card

Using Christmas cash can help you avoid overspending with credit cards. Once you turn to plastic, things can get out of control. You start hunting online for a scooter a child has her heart set on and then see an ad for the brown suede boots you’ve been wanting…ka-ching. Interest rates on credit cards are quite high, and you can be left with debt that takes a long time to pay off.

Recommended: How Does a Credit Limit Work?

Cons of a Christmas Club Account

It’s not all a winter wonderland; Christmas Club accounts can have downsides. Here are a few to consider.

Most Banks Have Saving Limits

Most Christmas Club accounts have a maximum dollar amount you can save. Some banks allow up to $5,000, but this number will vary. The cap might be less than what you’d like to save. If need be, consider opening a second Christmas club if the bank allows it or open an additional one at another bank, too.

Potential Fees for Early Withdrawal

If you need to get the money out before the set withdrawal date, you will most likely incur early withdrawal fees. These can vary. Find out what they are when you open your account.

Alternatives to Christmas Club Accounts

If you want to save money for the holidays but aren’t sure a Christmas Club account is right for you, consider these options.

•   Certificate of Deposit. A certificate of deposit (or CD) generally offers a higher interest rate than a savings account but comes with a term. The bank holds your money for anywhere from months to years, and you collect the interest when the CD matures at the end of the term. Since a CD will lock up your money for a specific amount of time (typically between six months and 18 months, but shorter and longer terms are available), you may need to plan this right to have funds available for holiday expenses.

•   Money Market Account. A money market account is an interest-bearing account that is federally insured and has competitive interest rates. It generally requires a higher opening deposit.

•   High-yield Savings Account. These high-yield bank accounts earn significantly more interest than standard savings; you may find the best rates at online banks. However, the accessibility of these funds can be a downside. We all know how tempting it can be to transfer money from savings to checking when an unexpected household expense or special occasion comes up.

•   Travel account. Like Christmas accounts, these savings accounts likely won’t pay great interest, but they help you save for your goal. You can pick where to keep travel fund savings, and then use the money to hop on a plane when the holidays roll around.

The Takeaway

Christmas Clubs (or Holiday Club accounts) can spur you on to save regularly for the winter holiday spend. Planning ahead reduces stress. What’s more, setting a savings goal can help you keep your eye on the limit and avoid credit card overspending. But beware of fees for early withdrawals and caps on total amount saved. In some cases, you might be better off with another savings vehicle, like a CD or money market account.

Another option is to stash cash in a high-yield account and earn more interest there.

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

Do banks still do Christmas Club accounts?

Yes, community banks, smaller banks, and credit unions still offer Christmas Club accounts. Ask at your branch or search the bank’s website.

Are Christmas Club accounts worth it?

Christmas Club accounts generally have low interest rates. However, they can be worthwhile if they help you put money away regularly and thereby avoid a holiday spending blowout using credit cards.

Is there interest on Christmas Club accounts?

Yes, most accounts offer interest. The rates, though, tend to be lower than the interest rates for regular savings accounts, money market accounts, and certificates of deposit (CDs).

Photo credit: iStock/NoSystem 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 4.00% 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.

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Jun
18
2024
What Is an International Bank Account Number (IBAN)?

Guide to International Bank Account Numbers (IBANs)

By | Budgeting & Goals, Financial Independence, money | Comments Off on Guide to International Bank Account Numbers (IBANs)

International Bank Account Numbers (IBANs) are standardized numbers that play a key role in overseas banking. They identify bank accounts so that international financial transfers can be completed quickly and accurately.

Here, you’ll learn more about IBANs, how they work, and how they differ from other banking numbers.

🛈 Currently, SoFi does not support international money transfers, and therefore does not support IBAN, BIC, or SWIFT codes.

What Is an International Bank Account Number (IBAN)?

An International Bank Account Number, or IBAN, is a one-of-a-kind identifier that banks use to refer to a specific bank account in any of 80+ countries around the world. In turn, banks use that info to quickly move money between accounts in different countries.

While IBANs are useful in sending and receiving funds, they aren’t used for withdrawing funds or for transferring ownership of accounts.

How Does an IBAN Work?

An IBAN is a standardized numbering system that includes up to 34 alphanumeric characters to identify accounts for transactions. While the length of an IBAN varies by country, the sequence remains the same to ensure proper routing:

•   Country code (two letters)

•   Check digits (two digits); this validates the routing numbers and accounts. It is sometimes referred to as a control code.

•   Basic Bank Account Number (BBAN); this is an alphanumeric sequence that’s up to 28 characters long and represents a country-specific bank account number (which could represent different types of bank accounts, such as checking or savings).

While the format is standardized around the globe, the length of the code varies depending on the country.
It’s worthwhile to note that when using an IBAN to send or receive payments, there might be a processing fee or commission on the transfer.

IBANs are very much a part of the daily financial flow today. You may not have had international transactions in mind when you took the time to open a bank account, but they are becoming quite common. For instance, you might do business with a vendor overseas or shop online from a company based on another continent.

IBAN Example

Here is an invented example of an IBAN:

•   GB 28 2021 6126 1431 9576 17

This would be for a UK bank. It begins with GB for “Great Britain” and has 22 characters.

Here are other examples:

Albania: AL 35 2021 1109 0000 0000 01234567
Denmark: DK 95 2000 0123 4567 89
Spain: ES 7921 0008 1361 01234 56789

Recommended: All You Need to Know About Wire Transfer Fees

IBAN vs. SWIFT Code

Both IBANs and SWIFT codes (aka Society of Worldwide Interbank Financial Telecommunications) are globally recognized and accepted banking transfer identifiers. They play a part in making sure a transfer goes through successfully, and they help keep international finance running smoothly.

They are not, however, the same set of digits. The main difference between an IBAN and a SWIFT code lies in what they identify. Whereas a SWIFT code identifies the financial institution, the IBAN points to a specific bank account. Both work in tandem to help a transaction proceed.

To provide a bit more detail, here are a few other key differences between IBANs and SWIFT codes:

•   While an IBAN works more to identify a bank, branch, and bank account numbers, SWIFT identifies a particular bank during a transaction.

•   SWIFT Codes are issued by the Society of Worldwide Interbank Financial Telecommunications, which is a member-owned cooperative. The SWIFT banking system is a messaging network that enables financial institutions around the world to talk to one another securely. IBANs, on the other hand, are issued directly by the financial institutions.

•   Whereas IBANs are alphanumeric codes that are up to 34 digits, SWIFT codes include alphanumeric code that’s either 8 or 11 characters.

Do All Countries Use IBANs?

While more than 80 countries use IBANS, not every nation does. IBANs are generally used in the majority of banks in the Eurozone and other European countries. Parts of the Middle East, the Caribbean, and North Africa also use IBANs.

Some countries, such as Austria, Croatia, France, and the Netherlands make IBANs mandatory. Other countries don’t require the use of IBANs, but it is recommended. These include Albania, Brazil, Costa Rica, and the Virgin Islands.

Lastly, there are countries that don’t use IBANs. China, New Zealand, Canada, and the U.S. fall into this camp.

Recommended: What You Need to Know About Foreign Currency Bank Accounts

When Is an IBAN Number Required?

An IBAN number is typically required for international banking transactions. It allows for the accurate transfer of funds between accounts in different countries.

If, say, you need to make a payment to a business in South America or you have bought an item at an auction in Europe, you would likely need the recipient’s IBAN to complete the transaction. With that information, the money could be moved from your checking account to the payee’s account.

How Do I Find an IBAN?

If IBANs are available in both the country you live in and in the recipient’s country, you can obtain an IBAN by reaching out to your bank or checking on your bank statement. The person you’d like to send or receive money from will also need to to get their IBAN by contacting their bank or looking at their bank statement.

If you live in the U.S. and need an IBAN to complete an international transaction, the payee will typically share their banking details for the transfer of funds, including their IBAN.

Worth noting: The IBAN website also has a handy tool to calculate your IBAN code based on your country, bank code, and account number.

The Takeaway

While the U.S. doesn’t use the IBAN (International Bank Account Number) system, when you are sending funds overseas, you’ll need the other party’s IBAN. This number contains vital information that will help the money get to the intended account in another country safely and quickly. In this way, IBANs play an important role in keeping international financial transactions flowing.

FAQ

What is the IBAN number for the USA?

The U.S. does not identify bank accounts by IBANs. Instead, we use routing numbers and account numbers.

Is an IBAN the same as an account number?

An account number is specific to the individual and identifies their account, while an IBAN layers in more information. It’s an alphanumeric sequence that contains such information as an account number, along with a bank code, bank branch code, and location code.

How many digits are in an IBAN?

IBANs vary in length depending on the particular country. They can include up to 34 alphanumeric characters.

Which countries don’t use an IBAN?

Among the countries that don’t use IBANs are the U.S., Canada, China, and New Zealand. Additionally, there are some countries that suggest using IBANs, but don’t make it mandatory.

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