When you’re ready to buy a house and need a home loan, a mortgage broker can help you shop for a mortgage, or you can go straight to a direct lender such as a bank or credit union and get the mortgage on your own.
Which way of shopping for a mortgage is better? If you have credit issues or other needs, using a broker to see an array of options might make sense. But if your financial health is solid and you want to save time and money, applying with a direct lender could be a good course of action.
In any case, it’s smart to get a few quotes and compare offers for the same type of loan and term.
What Is a Mortgage Broker?
A mortgage broker is like a personal shopper for home loans and serves as an intermediary between the mortgage seeker and lenders, including banks, credit unions, and private mortgage companies.
With a single application, a broker will provide you with access to different types of mortgage loans and, if you choose one, will walk you through underwriting.
Mortgage brokers are licensed and regulated. You’ll want to ensure that any broker you’re interested in working with is credentialed by checking the Nationwide Multistate Licensing System & Registry consumer access site. You can also check platforms like the Better Business Bureau and Yelp to see what past clients say.
Brokers are compensated by the borrower or lender. Borrower fees typically range from 1% to 2% of the total loan amount. Lender commissions may range from 0.50% to 2.75% of the total loan amount, but lenders usually pass the costs on to borrowers by building them into the loan.
How to Find a Mortgage Broker
You could ask your current lending institution, friends, family members, or real estate agent for a referral to a mortgage broker. After checking licensing, you may interview more than one broker before deciding on one. You might want to ask about their fees, lenders they work with, and experience.
First-time homebuyers can
prequalify for a SoFi mortgage loan,
with as little as 3% down.
What Is a Direct Lender?
In the mortgage broker vs. lender dichotomy, a direct lender is the bank, credit union, or mortgage company that originates, processes, and funds mortgages.
Mortgage loan officers, processors, and underwriters work for the company. Loan originators usually work on commission.
A loan officer may offer a mortgage at various price points, from a loan with discount points for a lower rate to a no-closing-cost loan, which is when the lender agrees to pay the closing costs in exchange for a higher interest rate.
Most people have a relationship with a bank or credit union, so you can always start by getting a quote there. But there are myriad online mortgage lenders and it’s worth considering these options. Pulling up the day’s mortgage rates online will conjure a list of direct lenders advertising their rates.
What Are the Pros of Working With a Mortgage Broker?
Because they are able to offer a variety of quotes from different sources, brokers can be useful if you’re looking to easily compare mortgage options.
They may offer specialized loans, and because loan brokers set their own profit margins, negotiating could be easier.
A broker could be useful if you have concerns like a fair or bad credit score or student loan debt.
What Are the Cons of Working With a Mortgage Broker?
Brokers may have preferred lenders that don’t necessarily offer the best interest rate. If paid by lender commission, a broker could be tempted to steer a borrower to a more expensive loan.
If paid by lender commission, a broker could be tempted to steer a borrower to a more expensive loan.
Brokers’ loans may take longer to close.
Broker fees tend to be higher, but that could be because the mortgages offered are sometimes more complex. And mortgage brokers may charge borrowers directly (the fee of 1% to 2% of the total loan amount).
What Are the Pros of Working With a Direct Lender?
By working with a direct lender, you’ll skip the broker fees, and you may get a better rate with lower closing costs (although both lenders and brokers can offer “rebate pricing” — a higher interest rate in exchange for lower up-front costs).
A direct lender typically does all the loan processing, underwriting, and closing in-house.
You may be able to negotiate underwriting or origination fees.
What Are the Cons of Working With a Direct Lender?
Comparing rates and terms on your own from a sample of lenders takes time.
You’re limited to the loan programs of the institutions where you decide to shop.
Once you’ve found a home and your offer has been accepted, it’s decision time on a lender. You are not required to stay with the lender you used for pre-approval.
If you have a sparse credit history, subpar credit, or other challenges, a mortgage broker might be able to find a loan program that’s a good fit.
But if you have solid credit, a strong income, and assets, you may be able to save time and money by working with a direct lender.
What about rates? In weighing mortgage broker vs. bank, there might be no difference to speak of. The rate you’re offered depends more on your qualifications than on the lender.
The mortgage loan process can seem mysterious, and a broker or a loan officer at a direct lender can act as a loan seeker’s guide.
That guide should be willing to answer all of your mortgage questions, including those about points, fees, mortgage insurance, and the closing timetable.
You’ll receive loan estimates after applying. When comparing mortgage offers, it’s important to look at more than the interest rate. Be sure to compare annual percentage rates, or APRs, as well.
Look at the fees in the “loan costs” section, and compare closing costs.
Gain home-buying insights
with the latest housing
market trends.
The Takeaway
If you’re in the market for a mortgage, you might think the choice comes down to mortgage broker vs. direct lender. But you may get loan quotes from both and compare them. It’s called shopping, and a home is a rather important purchase. And as with any form of shopping these days, it’s easily done with a phone or computer, from the comfort of your couch.
Looking for an affordable option for a home mortgage loan? SoFi can help: We offer low down payments (as little as 3% - 5%*) with our competitive and flexible home mortgage loans. Plus, applying is extra convenient: It's online, with access to one-on-one help.
SoFi Mortgages: simple, smart, and so affordable.
FAQ
Is it better to use a broker or a direct lender?
If you have a challenging credit score, or limited credit history, or other financial complexities, a broker might be the way to go. But if your finances are solid you may find going the direct lender to be the most cost-effective way to obtain a home loan.
Why use a mortgage broker instead of just going to a bank?
A mortgage broker can research possible rates from a wide range of lenders, which could save you time. And if you have a challenging financial situation or credit history, a broker might be able to steer you to a lender who will work with your profile.
Does a mortgage broker charge a fee?
Yes. A borrower may have to pay a mortgage broker’s fee of 1% to 2% of the loan amount. When the lender pays a broker a commission, it may range from 0.50% to 2.75% of the total loan amount and these costs are passed on to the borrower by being built into the loan.
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.
SoFi Mortgages
Terms, conditions, and state restrictions apply. Not all products are available in all states. See SoFi.com/eligibility-criteria for more information.
*SoFi requires Private Mortgage Insurance (PMI) for conforming home loans with a loan-to-value (LTV) ratio greater than 80%. As little as 3% down payments are for qualifying first-time homebuyers only. 5% minimum applies to other borrowers. Other loan types may require different fees or insurance (e.g., VA funding fee, FHA Mortgage Insurance Premiums, etc.). Loan requirements may vary depending on your down payment amount, and minimum down payment varies by loan type.
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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There are several reasons why you might be denied a personal loan, ranging from a lower credit score or income than required to incorrect information on your application. No doubt about it, though: Being denied for a denied personal loan can add stress to your life when you expect money to come through.
Follow this guide to understand why personal loans are rejected and how to help improve your approval odds in the future.
Why Was My Personal Loan Rejected?
Here are some common reasons financial institutions reject personal loan applications. Any one of these, or a combination of factors, could lead to a personal loan application being denied.
• Low income: Lenders may worry about your ability to repay a loan if your income is too low. However, most lenders don’t publish their requirements, nor do they always set specific cutoffs. In other words, it can be hard to know what earnings you need to show to secure a personal loan.
• Variable income: If you don’t always have a predictable income (as may be the case with entrepreneurs, freelancers, and seasonal workers), a lender might also have concerns about your ability to repay your loan.
• Unsteady work history: Another reason that lenders may feel you are not a good candidate for a personal loan is if you are in and out of the job market. For instance, a person who has been steadily employed at $60,000 per year could be perceived as more credit-worthy than someone who earned $100,000 for one year, was unemployed for six months, and then employed at $65,000 for nine months.
• Low credit score: Your credit score can be one of the most important factors on a personal loan application. A poor credit score (below 580) can mean you’ve had difficulty repaying your loans on time (or at all) in the past, so a lender may deny your personal loan application. (Or, if approved, you may wind up with a higher interest rate on your loan than someone with a stellar score.) You can see if a prospective lender shares what credit score you need for a personal loan before applying to save time and energy.
• High debt-to-income ratio: Your debt-to-income (DTI) ratio is the amount of debt you carry relative to your income. You can determine yours by adding up all your monthly debt payments and dividing that by your monthly income. Multiply that number by 100 to see if it comes in at no more than 43%, which many lenders use as a qualification. The lower your number, the better.
• Incorrect application information: Your application may include erroneous information, such as accidentally mixing up digits on an account number. This might be an easy fix when you reapply for your personal loan.
• Not meeting lender requirements: It’s a good idea to ensure you meet all lender requirements before you apply for a personal loan, which at the basic level include having U.S. citizenship or permanent residency, government-issued ID, a Social Security number or individual taxpayer identification number, proof of income, and being at least 18 years of age.
• Requested too much money: You may have requested more than the maximum amount your lender was willing to lend to you. They take into consideration the amount you can comfortably afford to repay based on your income and DTI.
• Incomplete application: You may get denied simply because you didn’t complete your paperwork when applying for a personal loan. If so, next time around, consider going over your application extra carefully.
• Loan purpose didn’t match lender criteria: Lenders often impose restrictions on how you use your loan. If you intend to use a personal loan as a student loan, for example, the lender may have restrictions against that and deny your loan application.
By the way, it’s worth noting that even if you were preapproved for a personal loan, you might still ultimately be denied. Here’s why: The preapproval process may not give your lender the full information they need to definitively approve the loan.
If your personal loan application has been rejected, the lender must share what’s known as an adverse action notice, which reveals which information was used to make this decision. This can point you in the right direction about what may have triggered the denial and help guide you toward getting a personal loan in the future.
You might also check with your lender directly to find out why. If the rejection was due to an error on your application, you could potentially apply again and correct that mistake. (Check with your lender about any waiting period before reapplying.)
Can You Improve Your Loan Approval Chances?
If you were rejected for a personal loan, here are some ways you can improve the odds of being approved in the future.
Finding a Cosigner
Your lender may suggest you reapply within a short period of time with a cosigner. This would be someone with good credit who agrees to take ownership of the loan if you can’t repay it in full yourself. Keep in mind just what a big commitment this is for a cosigner: They must agree to be responsible for the debt if you default.
Checking Your Credit Report
Your credit report is a statement that contains information about your credit activity and reflects how well you’ve handled debt in the past. However, your credit report may contain erroneous information about your identity, account errors, debt duplication, and more.
You can get a free annual copy of your credit report from each of the three credit bureaus at AnnualCreditReport.com, by calling 877-322-8228, or via mail at Annual Credit Report Request Service, P.O. Box 105281, Atlanta, GA 30348-5281. If you do find any mistakes, you can dispute them and potentially build your credit score.
Building Your Credit
If your credit score wasn’t high enough to qualify for a personal loan, you may want to check your lender’s requirements and reapply when you have a better credit score. There are several ways to build your credit:
• Be meticulous about paying your bills on time.
• Don’t apply for too many loans or credit lines in a short period of time.
• Keep your DTI at no more than 43%, preferably lower.
• Maintain credit accounts in good standing; length of credit history counts toward building your score.
• Aim for a good credit mix. Having installment loans, say, as well as credit cards can help build your score.
How soon you can reapply for a personal loan may vary depending on your lender and the reason why you were rejected. Some lenders may allow you to quickly reapply if you bring a cosigner on board, as noted above. Others may require you to wait up to 90 days before you apply again for a personal loan. Also, you may need to wait a period of time to, say, build your credit score to bring it in line with what a lender requires. That could take months.
Your lender can likely give you some suggestions about whether it makes sense to reapply quickly or wait a while.
Alternatives to Personal Loans
If you can’t get approved for a personal loan, here are some other funding sources to consider.
• Credit cards: Credit cards are a definite alternative to personal loans, but if you don’t pay off your monthly balance, the interest rates are higher for these than personal loans. That could lead to you having significant credit card debt. Credit cards also work differently than personal loans; what you owe is based on the amount of credit you use and the interest charged, versus how a lump-sum personal loan is paid back.
• Home equity loan: A home equity loan differs from a personal loan because you use your home equity (the difference between the home’s value and what’s owed on the mortgage) to secure the loan. This is critical to note: If you stop making payments, the lender can seize your home. In terms of how it works, you’ll receive the money in one lump sum and pay back principal plus interest monthly over the term of the loan.
• Home equity line of credit (HELOC): A HELOC, just like a home equity loan, is secured by your home. However, it works like a credit card, allowing you to draw on your loan as much as you want through a withdrawal period. After that period, a HELOC enters the repayment phase.
• Cash-out refinance: A cash-out refinance is a type of mortgage refinance that allows you to borrow more than you currently owe. You can take that difference in cash. Again, as with a home equity loan or HELOC, your property will serve as collateral. If you can’t make the payments, you could lose your home.
• Peer-to-peer loan: These loans, which bypass traditional lenders, are also called “crowdfunding loans” or “social lending loans.” They differ from loans from financial institutions because multiple investors fund them. Peer-to-peer loans may offer an alternative to individuals who can’t get loans from traditional lenders. Some peer-to-peer lenders include Prosper and Upstart.
As you consider these options, it’s important to shop around and compare interest rates and repayment terms before you make a decision.
If you’re denied for personal loans, it could be due to low or variable income, your credit score, or other factors. It’s important to consider your options, whether reapplying or finding an alternate source of funding, so you can find the best fit for your finances.
Shopping for a personal loan? See what SoFi offers.
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
Why do I keep getting denied for a small loan?
The reasons for a personal loan denial can vary. Low income, a poor credit score, and other factors may be to blame. Often, however, you can gain insight about why your application was not approved and then work to secure funding in the future. If you are applying often for various forms of credit, that could be one reason why lenders are wary.
How can I get a loan when I can’t get approved?
If you’ve been turned down for a personal loan, you might be able to bring on a cosigner and get approved. Or you could consider waiting and applying for a personal loan with a stronger application package. You can also seek a different form of funding, such as a home equity loan or a peer-to-peer loan.
How hard is it to get a $30,000 personal loan?
You may qualify for a $30,000 personal loan if you meet the requirements, which often include having a credit score of at least 580 to qualify and above 700 for more favorable terms.
Photo credit: iStock/Milan Markovic
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.
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 .
Non affiliation: SoFi isn’t affiliated with any of the companies highlighted in this article.
External Websites: The information and analysis provided through hyperlinks to third-party websites, while believed to be accurate, cannot be guaranteed by SoFi. Links are provided for informational purposes and should not be viewed as an endorsement.
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.
You may think of a bank as simply a safe place to put your money. But banks do a lot more than accept deposits. They also extend loans, facilitate payments, exchange currency, set monetary policy, and provide a range of other financial services to individuals, businesses, and governments. Here are key things to know about banks, including how they work, how they make money, and the different products and services they offer.
What Is a Bank?
By definition, a bank is an institution that accepts deposits in checking and savings accounts and makes loans. In serving both functions, banks act as intermediaries between depositors (who essentially lend money to the bank) and borrowers (to whom the bank lends money). The money the bank pays to depositors and charges on loans is called interest.
Banks also offer a range of other financial products and services, including:
Banks also facilitate payments — from employers to employees, buyers to sellers, and taxpayers to the government — and play a major role in the nation’s economy. There are also many different types of banks, including retail banks, corporate banks, and central banks.
• Interest on loans: Banks lend money to individuals and businesses at higher interest rates than what they pay on deposits, earning the interest rate spread.
• Fees: Banks may charge fees for various services, including account maintenance, overdrafts, wire transfers, and out-of-network ATM usage.
• Investment income: Banks may invest in securities, bonds, and other financial instruments, earning returns on these investments.
• Interchange fees: When customers use their debit or credit cards, banks earn fees from merchants processing the transactions.
Get up to $300 when you bank with SoFi.
No account or overdraft fees. No minimum balance.
Up to 4.00% APY on savings balances.
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A Brief History of Banks
The concept of banking dates back to ancient civilizations, when temples were used as safe places to store valuable items and grain, and priests would lend these resources to local farmers and merchants. The temples were also responsible for keeping records of these transactions, laying the groundwork for bookkeeping.
The first modern banks emerged in Renaissance Italy, with institutions like the Medici Bank setting the standard for banking operations. Over centuries, banks evolved, expanding their products and services and adopting technological advancements to meet the growing demands of consumers and businesses. Today, banks are integral to the global economy.
Modern Bank Products for Consumers
Modern banks offer a variety of products tailored to meet the financial needs of consumers. Common banking products include:
Loans
Banks provide various types of consumer loans, such as mortgages, personal loans, and auto loans. These loans help individuals finance large purchases and manage their cash flow.
Savings and Checking Accounts
Savings and checking accounts are fundamental banking products. A savings account is designed to hold cash you don’t need right away and allow you to earn interest and grow your money over time.
Checking accounts are set up to offer easy access to funds for everyday transactions. They come with checks and typically a debit card that can be used for purchases or to withdraw funds at an ATM. Checking accounts generally earn little or no interest, though some banks now offer high-yield checking accounts.
Mortgages
Banks offer mortgage loans to help individuals purchase homes. These long-term loans typically come with fixed or variable interest rates and generally require you to use the property being purchased as collateral for the loan. Mortgage terms are typically 15, 20, or 30 years.
Investing Accounts
Many banks offer investment accounts, including IRAs and taxable brokerage accounts. These accounts enable customers to invest in stocks, bonds, mutual funds, and other financial instruments designed for long-term growth.
Credit Cards
Credit cards provide consumers with a revolving line of credit, allowing them to make purchases and pay for them over time. Banks earn interest and fees from credit card users, making it a significant revenue source.
Certificates of Deposit (CDs)
CDs are time deposits that offer a fixed interest rate for a specified term. You agree to leave your money in the account for a set period of time (which generally range from three months to five years). In return, these accounts typically pay a higher interest rate than a standard savings account.
Money Market Accounts
A money market account is a hybrid account that offers competitive interest on your balance, along with the conveniences of a checking account, such as a debit card and checks. However, you may be limited to a certain number of withdrawals per month. Some money market accounts also have minimum balance requirements.
Useful Bank Features
In addition to products, banks offer various services to help customers manage their money. Here are some features you may want to look out for when exploring different bank options.
Customer Support
Banks typically offer customer support through various channels, including phone, email, online chat, and in-person assistance. Whether you need assistance with your checking account or help choose between two banking products, a customer service rep can generally point you in the right direction.
Credit Score Checkers
Many banks offer tools that allow customers to monitor their credit scores for free. This service allows you to stay informed about your credit health and, if necessary, take steps to build your scores. Having strong credit can help you unlock credit cards, mortgages, and other types of loans with attractive rates and terms.
ATMs
Whether you open an account at a traditional brick-and-mortar institution or an online-only bank, you’ll typically have access to a wide network of fee-free automated teller machines (ATMs). This allows you to withdraw cash or make deposits without needing to visit a branch during business hours.
Online/Mobile Banking
Online banking and mobile banking apps allow you to monitor your accounts, transfer money, pay bills, and deposit checks from your computer or mobile device.
Financial Planning Tools
Many banks offer financial planning tools that help customers budget, save, and invest wisely. These tools can include calculators, goal-setting features, and personalized financial advice.
Bank Regulations
While banks are typically privately owned entities that must answer to their shareholders, banking is a highly regulated industry. Regulatory bodies, such as the Federal Reserve, Federal Deposit Insurance Corporation (FDIC), and Office of the Comptroller of the Currency (OCC), oversee banks’ operations, ensuring they adhere to laws and maintain sufficient capital reserves. This is to minimize disruptions and ensure the U.S. banking system runs smoothly.
The majority of U.S. banks are also insured by the FDIC. This covers deposit accounts up to $250,000 per insured bank, per depositor. Co-owners of joint accounts at the same bank are typically each insured up to $250,000. The agency’s BankFind site can help you identify FDIC-insured banks throughout the country.
Types of Banks
There are several different types of banks, each serving different purposes and customer bases. The large global banks often operate separate arms or divisions for each of these categories.
Retail Banks
Retail banks focus on individual consumers, rather than businesses or other banks. They provide personal banking services, such as checking and savings accounts, personal loans, mortgages, auto loans, short-term loans like overdraft protection, and credit cards. They may also offer access to investment products, such as mutual funds and IRAs.
While some retail banks offer in-person services through brick-and-mortar locations, others operate exclusively online. Due to lower overhead costs, online banks tend to offer higher yields on savings accounts and charge lower (or no) fees.
Corporate banks (also known as commercial banks) cater to large businesses and corporations. They also serve government agencies and institutions like colleges and universities. Along with business checking and savings accounts, these banks offer business loans and lines of credit, letters of credit, payment processing, foreign exchange transactions, and more for their clients.
Investment Banks
Investment banks serve as intermediaries in large, complex financial transactions. They specialize in initial public offerings (IPOs), raising capital, facilitating mergers and acquisitions, and providing advisory services to corporations and governments. Unlike retail banks, they do not take deposits from or provide loans to the general public.
Central Banks
Central banks manage a nation’s monetary policy, regulate the banking industry, and act as a lender of last resort. The central bank in the U.S. is the Federal Reserve (a.k.a, “the Fed”). The Fed sets the federal funds rates, which impacts everything from the annual percentage yields (APYs) you earn on savings accounts to the interest rates you pay on credit card balances and loans. Unlike the banks types listed above, central banks do not deal directly with the public.
Pros and Cons of Banks
Retail and commercial banks offer myriad benefits, but they also have some downsides. Here’s a look at how the pros and cons stack up.
Pros
Cons
Safe and secure
Potential fees for various services
Easy access to funds
Lower interest rates on deposits
Wide range of services
Potentially complex fee structures
Highly regulated
Potential for poor customer service
Pros
• Safety: Banks provide a secure place to store money, reducing the risk of theft or loss. Deposits in most banks are federally insured (up to certain limits), which means that even if the bank were to fail, customers will still recover their funds, up to the insured limit.
• Convenient access to funds: Banks offer easy access to funds through a network of branches, ATMs, and digital banking platforms.
• One-stop shop: Banks provide a variety of financial services beyond basic checking and savings accounts, allowing you to manage all aspects of your finances under one roof.
• Regulatory protection: Banks are heavily regulated by government agencies. These regulations protect consumers from fraud, ensure the safety of deposits, and promote ethical banking practices.
Cons
• Fees: Banks often charge fees for their services, including fees for account maintenance, overdrafts, and wire transfers.
• Low interest rates: Many banks offer relatively low interest rates on savings accounts and other deposit accounts. These rates often fail to keep pace with inflation, which can diminish the purchasing power of your savings over time.
• Complex fee structures: The complexity of bank fees can create confusion for customers and result in unexpected expenses.
• Potential for poor customer service: Large banks may offer impersonal or poor customer service due to their size and scale.
Banks vs Credit Unions
While banks and credit unions offer similar financial services, there are key differences between them. Here’s a closer look:
Ownership
Banks,typically, are owned by shareholders and operate for profit. Credit unions, by contrast, are owned by their members and operate on a not-for-profit basis. The main goal of a credit union is to benefit its members.
Fees and Interest Rates
Credit unions often offer lower fees and better interest rates on loans and savings accounts compared to traditional banks, as they are not driven by maximizing profits.
Membership
Banks are open to the general public. Credit unions require membership, which may be based on specific criteria such as employment, geographic location, or affiliation with a particular organization.
Customer Service
Credit unions tend to provide more personalized customer service due to their smaller size and member-focused approach. While small banks can also offer personalized customer service, larger banks may lack the personal touch.
Getting Started Banking With SoFi
A bank is an excellent resource to help manage your money. You can deposit funds for safekeeping, manage everyday spending, and invest for the future. Understanding the products, services, and perks offered by different banks can help you find the institution for your needs.
Interested in opening an online bank account? When you sign up for a SoFi Checking and Savings account with direct deposit, you’ll get a competitive annual percentage yield (APY), pay zero account fees, and enjoy an array of rewards, such as access to the Allpoint Network of 55,000+ fee-free ATMs globally. Qualifying accounts can even access their paycheck up to two days early.
Better banking is here with SoFi, NerdWallet’s 2024 winner for Best Checking Account Overall.* Enjoy up to 4.00% APY on SoFi Checking and Savings.
FAQ
How do banks make money?
Banks primarily make money by lending out deposits at higher interest rates than they pay to depositors, earning the interest rate spread. They also earn money from the fees they charge for account maintenance, overdrafts, and transactions. Additionally, banks may invest in securities and earn returns.
Why do they call it a bank?
The term “bank” is thought to originate from the Italian word “banca,” which means bench or counter. In medieval times, moneylenders conducted their business on benches in marketplaces, and the term evolved to represent financial institutions.
What is a bank, simply put?
Simply put, a bank is a financial institution that accepts deposits and makes loans. Banks also play a key role in a nation’s economy, facilitating the management and movement of money for individuals, businesses, and governments.
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.
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 .
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Although an IRA and a TSP are both types of retirement accounts, they are governed by different sets of rules, starting with the fact that anyone with earned income can open an IRA, but only employees of the U.S. government or the armed forces can fund a thrift savings plan.
A TSP effectively functions more like the government version of a 401(k) plan, with similar rules and contribution limits to these private company-sponsored plans.
When considering the advantages of an IRA vs. a TSP, remember that in many cases it’s possible to fund both types of accounts, as long as you understand the rules and restrictions that apply to each.
What Is an IRA?
You may already be familiar with what IRAs are: These are individual retirement accounts that are tax advantaged in different ways. Anyone with earned income can open an IRA, as long as they meet certain criteria.
Retirement savers can generally choose between traditional and Roth IRAs, with some exceptions owing to Roth eligibility rules (more on that below).
Traditional IRAs allow for pre-tax contributions, while Roth IRAs involve after-tax contributions and permit qualified tax-free withdrawals in retirement.
For tax year 2024, the maximum annual amount you can contribute to either type of IRA is $7,000; $8,000 if you’re 50 or older. This is the total annual contribution amount allowed across all ordinary IRA accounts. So, if you contribute $3,000 to a Roth IRA for 2024, then you can only contribute up to $4,000 in another IRA for that year.
The Thrift Savings Plan (TSP) is an employer-sponsored plan that is open to members of the military and civilian employees of the federal government. TSPs are tax-advantaged plans that share many similarities to 401(k) plans offered by private employers.
Like 401(k) plans, you can contribute to a traditional TSP or a designated Roth TSP, both of which come with the types of tax advantages that are similar to traditional and Roth IRAs, as described above. In other words, many different types of retirement accounts may also offer a Roth-style option, for after-tax contributions. Be sure to check the rules and restrictions on contributing to both sides of a plan.
Perhaps the biggest difference with a TSP vs. an IRA is the annual contribution limit. You can contribute up to $23,000 for tax year 2024; for those 50 and older there is also an annual catch-up contribution of $7,500 per year, for a total of $30,500.
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1Terms and conditions apply. Roll over a minimum of $20K to receive the 1% match offer. Matches on contributions are made up to the annual limits.
TSP vs. IRA
In addition, there are other similarities and differences between a TSP and an IRA.
Similarities
Both the TSP and IRAs provide tax-advantaged ways to save for retirement. With both TSPs and IRAs you can choose between a traditional (tax-deferred) account or a Roth (tax-free) account.
• With a traditional-style TSP or IRA, funds are deposited pre-tax, and you owe ordinary income tax on the withdrawals.
• With a Roth-style TSP or IRA, you deposit after-tax money, and qualified withdrawals are tax-free starting at age 59 ½, as long as you’ve held the account for at least five years.
• With both types of accounts, you may face tax consequences and/or a penalty if you withdraw your funds before age 59 ½.
Differences
There are far more differences between TSPs and IRAs, as you’ll see in the table below.
IRAs
TSP
Anyone with earned income can open an IRA
Only members of the military and government employees are eligible
Annual contribution limits for 2024 are $7,000; $8,000 with the catch-up provision
Annual contribution limits for 2024 are $23,000; $30,500 with the catch-up provision
A wide range of investment choices
Investment choices are limited to the funds the TSP provides
You have some control over the investment fees you pay, so be sure to check your all-in costs.
You have little control over the investment fees you pay, though TSP account and investment fees tend to be low.
Traditional IRAs are subject to RMD rules; Roth IRAs are not
RMD rules apply to TSPs, but there are different distribution options: e.g. an installment plan or a lifetime annuity, among other choices
Pros and Cons of IRAs
As the name suggests, an IRA is an account that you manage individually. As such, it comes with its own set of advantages and disadvantages.
Pros
• You can open an IRA at most brokerage firms, and manage it yourself, as long as you have earned income.
• An IRA account typically offers access to a wide range of investment options.
• Traditional and Roth IRAs offer different tax treatments; you can choose whatever works best for your financial plan.
Cons
• Annual contribution limits are lower than many other types of retirement plans.
• Eligibility rules for Roth IRAs are complicated and can be limiting.
• Only you can fund an IRA; there is no employer match for a traditional IRA or Roth.
• You cannot take a loan from any type of IRA (but you may be able to take early withdrawals under some circumstances without owing a penalty; see IRS.gov).
Pros and Cons of TSPs
Remember that you can only participate in a TSP if you are an employee of the federal government or a member of the armed forces. Here are some other considerations.
Pros
• The annual contribution limits are higher than IRAs, and the same as 401(k) plans.
• TSPs include an employer match up to 5%.
• When setting up your income plan in retirement, TSPs offer a range of options for taking withdrawals, including fixed installments and a lifetime annuity option.
• You can take a loan from a TSP.
• TSP accounts have lower fees, generally, than IRA accounts
Cons
• Investment options within a TSP can be limited.
• If you leave your government job, you can no longer contribute to your TSP.
• TSP plan participants have less control, and cannot opt for lower-fee or investment options.
Can You Roll a TSP Into an IRA?
Yes, you can rollover your TSP funds into a qualified trust or eligible retirement plan. Eligible retirement plans include IRAs as well as qualified employer-sponsored plans.
Keep in mind that generally you generally need to rollover funds from a traditional TSP account into a traditional IRA and funds from a Roth TSP account into a Roth IRA in order to avoid taxes on the amount you rollover.
You may want to consult with a professional.
The Takeaway
The Thrift Savings Plan (TSP) is a government program intended to help government employees and members of the military save for retirement. It is an employer-sponsored plan similar to a 401(k). An individual retirement account (IRA) is also a way to save for retirement, but is an account you open and manage yourself.
While there are advantages and disadvantages to each, a TSP allows you to invest more of your savings over time; contribution limits are lower for traditional and Roth IRAs.
Ready to invest for your retirement? It’s easy to get started when you open a traditional or Roth IRA with SoFi. SoFi doesn’t charge commissions, but other fees apply (full fee disclosure here).
Help grow your nest egg with a SoFi IRA.
FAQ
Is a TSP or IRA better?
A TSP and an IRA are two different ways to save for retirement, and may suit different people for different reasons. Contributing to an IRA may provide you with more investment options, while you can save more in a TSP and the government may match some of your contributions — but not everyone has access to a TSP.
Should you move your TSP to an IRA?
If you leave government service, you can’t contribute to your TSP anymore — but you may be able to open an IRA and rollover the TSP funds. Doing a TSP-to-IRA rollover within the standard 60-day window can help ensure that you don’t have to pay any taxes or penalties, and this may help your retirement plan.
Is a TSP the same as an IRA?
No, a TSP is not the same as an IRA. A TSP is for employees of the government or the armed forces, and it’s comparable to an employer-sponsored plan like a 401(k) or 403(b). By contrast, anyone can open an IRA, as long as they have earned income and qualify.
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INVESTMENTS ARE NOT FDIC INSURED • ARE NOT BANK GUARANTEED • MAY LOSE VALUE
SoFi Invest encompasses two distinct companies, with various products and services offered to investors as described below:
Individual customer accounts may be subject to the terms applicable to one or more of these platforms.
1) Automated Investing and advisory services are provided by SoFi Wealth LLC, an SEC-registered investment adviser (“SoFi Wealth“). Brokerage services are provided to SoFi Wealth LLC by SoFi Securities LLC.
2) Active Investing and brokerage services are provided by SoFi Securities LLC, Member FINRA (www.finra.org)/SIPC(www.sipc.org). Clearing and custody of all securities are provided by APEX Clearing Corporation.
For additional disclosures related to the SoFi Invest platforms described above please visit SoFi.com/legal.
Neither the Investment Advisor Representatives of SoFi Wealth, nor the Registered Representatives of SoFi Securities are compensated for the sale of any product or service sold through any SoFi Invest platform.
Tax Information: This article provides general background information only and is not intended to serve as legal or tax advice or as a substitute for legal counsel. You should consult your own attorney and/or tax advisor if you have a question requiring legal or tax advice.
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.
Disclaimer: The projections or other information regarding the likelihood of various investment outcomes are hypothetical in nature, do not reflect actual investment results, and are not guarantees of future results.
What unlimited cash-back means is you can earn uncapped rewards using the card — in other words, your earning potential isn’t limited to a certain amount. While this might sound too good to pass up, there are both pros and cons to consider to determine whether unlimited cash back is worth it for you.
What Is Cash Back?
Cash back is a type of reward that a credit card issuer may offer through its rewards credit cards. Depending on the terms, cardholders can earn a certain percentage back on qualifying purchases (cash advances typically don’t qualify). For instance, you may be able to earn 2% cash back on purchases at gas stations, or 3% back at grocery stores.
Some cards may put caps on how much cash back you can earn. As an example, a card may limit cardholders to 2% cash back for up to $5,000 in purchases in a calendar year. While cardholders may still be able to earn cash back after they’ve hit their certain earnings threshold, they may earn rewards at a lower rate thereafter.
What Is Unlimited Cash Back?
Unlimited cash back means that your credit card offers cash-back rewards with no caps or limits on how much you can earn. In most cases, you can earn cash back on all of your purchases, though some cards may only offer unlimited cash back on certain spending categories.
For most credit cards, your cash-back rewards don’t expire as long as you keep your card open. This means that if you continue racking up rewards, you may be able to redeem your accumulated cash-back rewards for a sizable statement credit or other perk.
How Unlimited Cash Back Credit Cards Work
How credit cards work that offer unlimited cash back is that they allow cardholders to earn cash back on their purchases with no earning cap. In other words, there is no limit as to how much you can earn on qualifying purchases with these types of credit cards.
As you earn these rewards, you can redeem them in several ways. This includes as a statement credit or actual cash via a check or bank transfer.
In general, you’ll need good or excellent credit (meaning a score of 670 or above) to qualify for an unlimited cash back card. That being said, there are also cash back credit cards with less stringent credit card requirements, meaning you may be able to qualify even if you have a fair credit score or limited credit history. In general, however, the higher your score, the better the rewards tend to be.
Before signing up for an unlimited cash back credit card, consider the advantages and disadvantages first.
Pros
Cons
Can earn money back on purchases, with no caps on earnable rewards
Generally need at least good credit to qualify for top rewards programs
Don’t have to worry about hitting spending thresholds or other caps
May need to pay an annual fee
Simple and straightforward to earn and redeem rewards
Like other rewards credit cards, may have a higher APR (annual percentage rate) than standard credit cards
Can help to build credit with responsible usage
Not as lucrative of a rewards option for frequent travelers
Is Unlimited Cash Back Worth It?
Getting an unlimited cash back credit card might be worth it if you’re confident you can maximize its rewards. For instance, if you continually make purchases in higher rewards categories, you can save some serious cash due to the rewards earnings. Ideally, you’d be able to earn enough rewards to entirely offset the annual fee, if your card has one.
An unlimited cash back card may not be a great fit if you continually carry a balance on your credit card, given what a credit card is and how you’ll accrue interest. Your interest rate will likely be higher than the cash back rate you’ll earn, which means carrying a balance could cancel out rewards earnings.
Another reason to think twice about an unlimited cash back card is if you’re a frequent traveler. A travel rewards program may be a better choice since you can earn free flights, hotel rooms, and even cash back. Plus, you might earn more lucrative rewards on travel-related spending than a cash back card would offer.
Categories of Unlimited Cash Back Credit Cards You Can Choose From
There are several ways credit cards give you cash back, including flat rate and through different spending categories.
Flat Rate
Flat-rate rewards allow you to earn the same cash-back rate across all purchases made using a credit card. For instance, you might earn 3% cash back on all purchases made with the card. Some may issue you a certain percentage cash back when you make a purchase, and then another amount you pay off your credit card bill. Regardless, your specific spending category won’t matter for earning with a flat-rate rewards card.
Rotating Categories
Your credit card may offer several spending categories each quarter that you can select from to earn cash back. For instance, you might be able to choose to get 5% cash back on purchases at gas stations or office supply stores for the first quarter. After the quarter is over, you can choose a different spending category.
While rotating categories can allow you to maximize your rewards-earning potential, this setup does require some strategizing. You’ll need to stay on top of choosing a new category each quarter. Plus, you’ll then have to make sure you adequately take advantage of spending within that category.
Fixed Spending Categories
Instead of choosing different categories every quarter, some credit cards offer fixed cash-back earnings for various spending categories. For instance, a card may allow you to earn 3% cash back for purchases at grocery stores, and 1% cash back on all other purchases.
While fixed spending categories require much less planning ahead for, you will want to ensure the card you sign up for credit card rewards you in a category you regularly spend in. Otherwise, you could end up forgoing valuable rewards.
Maximizing Unlimited Cash Back Earnings
If you want to make the most of earning unlimited cash back, here are some general credit card rules to keep in mind:
Select the Right Card
It’s a good idea to do your research and find a card that matches your spending habits. For example, if you use your credit card a lot at gas stations, it might not be the best choice to sign up for a card that doesn’t offer cash back rewards for this category.
Time Your Spending
If you sign up for a credit card with a sign up bonus, consider timing your card opening with a major purchase you’d been planning. Doing so will help ensure that you meet the minimum spend requirements in order to earn the bonus.
Or, if your credit card is about to have extra earnings for a rotating category, you might think about waiting until that time to make a planned purchase.
Note Spending Categories
After signing up for a card, pay attention to how much cash back you’ll earn in different categories if it’s not a flat rate card. That way, you can be sure to use that card exclusively for certain spending categories, or make sure you sign up for rotating categories well within the deadline.
Review Credit Card Terms
Looking over your credit card terms can help to ensure that you know what does and doesn’t count toward earnings. You might also discover through your card’s terms that you can earn enhanced rewards by taking certain actions, such as holding a certain amount of money in an associated bank account.
The Takeaway
A cash-back credit card is a great way to earn rewards that doesn’t necessarily require a complicated redemption process. Even better is when the card doesn’t place limits on the amount of cash-back rewards you can earn, which is the meaning of unlimited cash back.
Still, you’ll need to make sure you avoid carrying a balance and take steps to maximize your rewards to ensure you don’t negate your cash-back rewards earnings.
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
How does unlimited cash back work?
If you have a credit card with unlimited cash back, that means there are no limits on the amount of rewards you can earn through qualifying purchases.
Is unlimited cash back better than points?
Whether cash back or points is better really depends on your preferences. Cash back is straightforward to track and redeem. Meanwhile, points may translate to a greater range of redemption opportunities, including for travel-related purchases. However, the value of points can vary depending on the card and the way the points are redeemed.
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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.
