May
20
2024

A Guide to Managing Your Child’s Allowance

By | Budgeting & Goals, money, Money & Life | Comments Off on A Guide to Managing Your Child’s Allowance

Part of teaching your kids to be more independent is giving them money as part of an allowance. It can be an exciting time for your child — remember when you first got your hands on some cash? It can also be fraught with some bumps along the way as your child learns sound money management skills.

That’s not to say it’s not worth it. Rather, deciding on how to give them money and helping them budget their allowance can take time, but your kids will thank you for it. Read on for ways that you may handle this part of parenthood and help your child build financial literacy.

Key Points

•   Managing a child’s allowance helps teach them financial independence and responsibility from a young age.

•   Allowances can be set up on a weekly or monthly basis and may be tied to chores.

•   Different methods include a fixed allowance, a chore-based allowance, or a hybrid of both.

•   The amount of allowance can vary based on the child’s age, the complexity of tasks, or family budget constraints.

•   Teaching kids about money through allowances can build their confidence and money management skills.

What Is an Allowance?

An allowance for kids is a predetermined amount of money you give them on a consistent basis, most commonly on a weekly or monthly cadence. You can choose to have your child earn their allowance by completing chores or “jobs” or do none at all. The idea is that with an allowance, your child can learn the value of work (if you have them do chores), gain experience handling money, and learn responsibility.

The decision to give an allowance is up to the family. The same holds true regarding whether the allowance is earned by completing chores. Depending on the age, some parents may feel more comfortable with giving their kids cash. Some may feel older kids can handle their own debit card and a children’s checking account — with some limits, of course.

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Types of Allowances

The type of allowance you give your child is based on your preferences, what you want your child to learn, and their needs. Here are some options for how an allowance can work.

Chore-Based Allowance

The chore-based allowance tends to be the most common, where a child is given some household tasks and offered a certain amount once these tasks are complete.

•   Tasks typically will depend on your child’s age and their readiness to handle certain types of responsibilities.

•   It can be wise to assign tasks your child can realistically accomplish so that they don’t wind up feeling discouraged.

For example, say your nine-year-old wants to start doing chores regularly to receive allowance money, which they plan to save up to buy a new science kit. Based on what they’ve demonstrated to you in the past, you believe they’re able to load the dishwasher and help put the laundry away. You discuss this with your child, and you both agree that you’ll give them a weekly allowance if they complete all their assigned chores.

Pure Allowance

Some parents would rather teach their child money management skills without connecting this to some sort of labor. Instead of asking your child to complete chores, parents agree to give them an allowance — typically a consistent amount in cash or perhaps put on a debit card connected to a bank account. While your child may still do chores around the house, the allowance isn’t contingent upon its completion.

Hybrid Approach to Allowance

Parents who want to teach their kids about reaching a goal (and also how money is tied to work) can take the hybrid approach. Here, you’ll give your child a regular allowance that isn’t contingent on any chores. However, you give them an opportunity to earn more money by taking on extra chores around the house. In that way, they’d get more experience in allowance management.

•   For example, your child receives $5 a week, but they want to earn more so they can head to the local arcade for their friend’s birthday party or see their savings grow.

•   Based on their age and ability, you have them do a chore or two (pulling weeds in the yard or taking out garbage). Once the tasks are complete, you give your child the amount you agreed upon.

How Much Allowance Should You Give Out?

The amount you should give your child will depend on several factors. Ultimately, it will depend on your budget and what you can afford to give your child. One popular formula is to give a child $1 or $2 per week for every year of age, which would mean $8 or $16 for an eight-year-old and $16 or $32 for a 16-year-old.

You might consider not just the age of your child but also how challenging or time-consuming the task is. A couple of other pointers:

•   If you’re unsure what’s a good amount, you can ask some of your trusted parent friends or family members about what they’re giving their child.

•   If your child reaches the age where they can get a part-time job, you may even consider lowering the amount or not giving an allowance at all since they can earn their own pocket money.

Whatever the amount you choose to give, make sure you set clear expectations. This means spelling out the chores in detail (is the child making their bed every day or just on weekdays, for instance?). It also means determining how much money will be paid, when, and how, as well as what (if anything) they will receive if a task is not fully completed. This can result in headaches down the road.

Advantages of Giving an Allowance

There are plenty of upsides to giving an allowance. Consider the following:

Teaching Money Management

Giving an allowance, whether tied to chores or now, gives your child an opportunity to understand how money works. Plus, it can teach them that the items they want to purchase or activities they want to do cost money. It gives them hands-on experience earning, saving, and spending, providing a valuable lesson in money management for kids.

They’ll learn about what it takes to purchase something, such as looking at price tags in the store.

•   To go a step further, you can even teach the concept of saving and investing money and why that can help them as well.

•   If you open a children’s or teen’s bank account for your child’s allowance money, that will teach valuable basic banking and financial literacy skills too. They might see how interest compounds and grows their savings, for instance.

•   The same holds true if they get a debit card (typically one where you can view and possibly approve their spending).

Teaching Responsibility

An allowance can teach your child what it means to be responsible with money. They can learn not to spend their earnings on snacks if they’re saving for, say, a video game. They can learn to safely store their funds, be patient until their next paycheck rolls around, and earn extra money if they’re eager to accumulate a certain amount.

Building Confidence

Giving kids an allowance can help boost their confidence because it can show them you believe they’re ready to earn and manage their own money. They may also feel proud of their ability to make cash and spend it as they see fit, whether that means buying themselves new clothes or making a donation to a favorite charity.

Creating a Safe Space to Learn

Instead of having kids learn about money and other types of responsibilities when they’re grown, giving an allowance can give them a bit of a head start. You can help guide them to make their own decisions, which can include making money mistakes without huge consequences. Any errors they make can be an opportunity for you to teach your kid about what they can do differently next time.

Recommended: Guide to Opening a Bank Account for a Minor

The Takeaway

If you choose to give your child an allowance, whether it depends on chores or not, it can be a good way for them to learn how to manage a bit of money responsibly. You might have them work for the money, not work at all, or have them earn a bonus for doing additional chores.

Whatever amount you give, showing your child how to save their money in a savings account is a great teaching opportunity.

Currently SoFi Bank does not offer accounts to minors. But while you’re thinking about money management, why not take a fresh look at your own banking 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

What is a fair allowance for kids?

A fair allowance for kids should be based on age and what you feel is appropriate. Many parents provide $1 or $2 per week for each year of the child’s age (meaning, if a child is 10, they get $10 or $20 per week). You might survey other parents in your circle and see what they give their kids as a way of coming up with a ballpark figure.

Are allowances bad for kids?

In most cases, allowances can have several advantages for kids, such as learning how to handle money and becoming more responsible. However, some parents may believe that allowances aren’t appropriate and should in no way feel obligated to give one.

How do parents give allowance?

Parents can give an allowance in a weekly, biweekly, or monthly cadence (or whatever other frequency suits them). They can also give a consistent amount or vary it depending upon tasks completed. In addition, an allowance can be paid as cash, on a debit card for older kids, or deposited into children’s bank account or an account that their parent holds for them.

Photo credit: iStock/SbytovaMN

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.

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

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May
20
2024

Is a $70,000 Salary Good?

By | Financial Independence, Life & Career, money, Money & Life | Comments Off on Is a $70,000 Salary Good?

Whether or not $70,000 is considered a good salary depends on a number of factors. These include where you live, your lifestyle, what kind of work you do, your financial goals, and how many people are in your household.

While $70,000 is higher than average U.S. salary, it may be difficult to live well on this salary in certain parts of the country where the cost of living is high or if you’re supporting a family.

Here’s a closer look at whether or not earning $70,000 is a good salary and what factors influence this.

Key Points

•   A $70,000 salary’s adequacy largely depends on geographic location, household size, lifestyle, and financial obligations.

•   In high-cost areas or for larger families, this salary might not suffice for a comfortable living.

•   Nationally, $70,000 is above the average salary, but personal financial goals and living costs are key to determining its sufficiency.

•   For single individuals in regions with a lower cost of living, $70,000 can offer a comfortable lifestyle and savings potential.

•   Budgeting wisely and managing expenses are essential for making a $70,000 salary work, especially in more expensive urban areas.

Factors to Determine if a $70,000 Salary Is Good

A $70,000 salary can be considered good or not depending on various factors such as where you live, your lifestyle, and your financial obligations. Let’s explore these considerations in more detail.

Where you live: Living expenses vary significantly depending on where you live in the U.S. Your dollars won’t go as far in a metropolitan city as they would in a rural area. It’s a good idea to look into the costs of housing, groceries, transportation, and other necessities in your area and weigh them against your salary to determine if $70k is enough for you to live comfortably.

The size of your household: Whether you live alone or have a family has a major impact on how far your $70,000 salary can go. A single person may be able to live well on this income in many places. But if you’re supporting a spouse and children, it may prove more difficult. If you’re supporting others, consider your family’s monthly expenses to determine if $70,000 is enough to pay for everyone’s needs.

Debt and other obligations: You’ll also want to factor in any debt and other payments you must make each month when determining if your $70k salary is enough. If you have student loans, credit card debt, and/or mortgage payments, that could eat up a significant portion of your monthly take-home salary. Run through your essential monthly expenses and then see how much is left over for discretionary purchases. Paying down debt could help make your $70k go further.

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

Get up to $300 when you bank with SoFi.

No account or overdraft fees. No minimum balance.

Up to 4.00% APY on savings balances.

Up to 2-day-early paycheck.

Up to $2M of additional
FDIC insurance.


Where Does a $70,000 Salary Compare to the American Median Income?

According to the Bureau of Labor Statistics’s most recent data (May 2022), the mean, or average, salary nationwide is $61,900.

That means that on a nationwide scale, you’re earning more than most people. However, the cost of living in your area, personal lifestyle choices, and your financial expectations and goals also play a crucial role in determining whether $70k is a good salary for you or not.

What Percentage of Americans Make Over $70,000 Annually?

U.S. Census data reports that in 2022 (the most recent data available), 49.8% of Americans made $75,000 and more, and 16.2% earned between $50,000 and $75,000. Based on these statistics, at least half of Americans make $70,000.

$70,000 Salary Breakdown

Here’s a look at exactly how a $70,000 annual salary breaks down. Keep in mind that these numbers look at gross income, which is what you earn before any taxes and other withholdings (such as health insurance, social security, and retirement contributions) are deducted from your paycheck.

•   Monthly income: $5,833.33

•   Biweekly income: $2,916.66

•   Weekly income: $1,346.15

•   Daily income: $191.78

•   Hourly income: $7.99

Your actual take-home pay will depend on where you live, your household income, whether you’re a full-time employee or self-employed, and what employee benefits you participate in.

Can You Live Individually on a $70,000 Income?

If you’re single and have a salary of $70k, you are part of above-average earners in the U.S. Depending on where you live, you may be able to live comfortably on a $70,000 salary as a single person. You may even be able to save for goals, like building an emergency fund, contributing to a retirement fund, and saving for a downpayment on a home.

However, in high-cost-of-living areas, this salary might require careful budgeting to maintain a good standard of living. Indeed, economists estimate that someone making $70,000 a year in other parts of the country would need to make $166,000 in New York City to enjoy the same standard of living.

Can You Live as a Family on a $70,000 Income?

Living as a family on $70,000 could be challenging. According to the Economic Policy Institute’s Family Budget Calculator, the monthly household cost for two adults and two children living in Dayton, Ohio, for example, adds up to $7,658, including housing, food, childcare, transportation, healthcare, and taxes.

If your monthly gross income is $5,833.33 (which it would be if you earn 70k a year), that would likely not be enough to support a family in a midsize midwestern city. You might find it easier, however, if you live in a more rural part of the country.

How Much Rent Can You Afford Living on a $70,000 Income?

One popular guideline is to spend no more than 30% of your gross income on rent. So if your monthly gross income is $5,833.33, you would ideally try to spend no more than $1,750 per month on rent.

However, this guideline isn’t realistic for everyone. Sticking to spending 30% on rent may not be feasible in a place like New York City or San Francisco, for example, where median rents for a one-bedroom apartment are over $2,000.

If you need to spend more than 30% of your $70 salary on rent, you may need to watch your spending in other areas, such as clothing, entertainment, and dining out.

Best Places to Live on a $70,000 Salary

The following cities each have a median household income of below $70,000 and a lower-than-average cost of living, making them among the best places to live on a $70,000 salary.

•   Decatur/Hartselle, Alabama

•   Charleston, West Virginia

•   Rockford, Illinois

•   Knoxville, Tennessee

•   Amarillo, Texas

•   Waterloo/Cedar Falls, Iowa

•   Oklahoma City, Oklahoma

•   Anniston, Alabama

•   Winston-Salem, North Carolina

•   Great Falls, Montana

•   Morristown, Tennessee

•   Springfield, Missouri

Worst Places to Live on a $70,000 Salary

Here’s a look at the 12 most expensive places to live in the U.S. — and some of the worst places to live on a $70,000 salary.

•   San Diego, California

•   Los Angeles, California

•   Honolulu, Hawaii

•   Miami, Florida

•   Santa Barbara, California

•   San Francisco, California

•   Salinas, California

•   Santa Rosa, California

•   San Juan, Puerto Rico

•   Vallejo, California

•   Fairfield, California

•   New York City, New York

Recommended: Cost of Living by State

Tips for Living on a $70,000 Budget

Living on a $70,000 budget requires careful planning and smart financial decisions. Whether you’re just starting out or looking to improve your financial situation, these tips can help you make the most of your income.

💡 Quick Tip: Are you paying pointless bank fees? Open a checking account with no account fees and avoid monthly charges (and likely earn a higher rate, too).

Saving Up for Retirement

One of the most important aspects of managing your finances is saving for retirement. Even on a $70,000 budget, it’s crucial to prioritize saving for your golden years. Consider contributing to a 401(k) or IRA, which can provide tax advantages and help your money grow over time. A good rule of thumb is to try to save at least 10% to 15% of your income for retirement, and increase this amount as your income grows

Getting on a Budget

Creating and sticking to a budget is key to living within your means on a $70,000 budget. Start by tracking your income and expenses to get a clear picture of where your money is going. Then, set realistic goals for saving and spending. Consider using budgeting apps or tools to help you stay on track.

Getting Out of Debt

If you have debt, such as credit card balances or student loans, it’s important to prioritize paying it off. You might start by paying off high-interest debt first, as this will save you money in the long run. Consider consolidating your debt or negotiating with creditors to lower your interest rates. Once you’ve paid off your debt, focus on staying debt-free by living within your means.

Saving Your Money

Saving money is a crucial part of living on a $70,000 budget. Look for ways to cut expenses, such as dining out less often or shopping for discounts. Consider setting up automatic transfers to a savings account to make saving easier. Additionally, consider building an emergency fund to cover unexpected expenses, such as car repairs or medical bills. This will help you avoid running up high-interest credit card debt in the event of the unexpected.

Managing Finances With SoFi

Whatever your salary, it’s important to not only live within your means but also to put some money into a high-yield savings account each month. This will give you a cushion for emergencies and help you work towards — and reach — your financial goals.

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


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

FAQ

What jobs pay over $70,000?

According to the U.S. Bureau of Labor Statistics, occupations that make over $70,000 include jobs in the medical and healthcare field, managers (in a variety of industries), engineers, software developers, financial advisors, jobs in the legal field, commercial pilots, economists, and actors/producers/directors, among many others.

Is making $70,000 a year common?

According to the Bureau of Labor Statistics’s most recent data (May 2022), the average salary nationwide is $61,900, which means that $70,000 is a common salary — but above the national average.

Can I make a living on $70,000?

You may be able to live comfortably off $70,000, depending on where you live and how many people are in your household. If you’re single and live in an area where the cost of living is below average, you can likely live well on $70,000.

Photo credit: iStock/Eleganza

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

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

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

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

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

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

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

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.

We do not charge any account, service or maintenance fees for SoFi Checking and Savings. We do charge a transaction fee to process each outgoing wire transfer. SoFi does not charge a fee for incoming wire transfers, however the sending bank may charge a fee. Our fee policy is subject to change at any time. See the SoFi Checking & Savings Fee Sheet for details at sofi.com/legal/banking-fees/.
Tax Information: This article provides general background information only and is not intended to serve as legal or tax advice or as a substitute for legal counsel. You should consult your own attorney and/or tax advisor if you have a question requiring legal or tax advice.

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May
20
2024

What Is ACH Debit and How Does It Work?

By | money, Money & Life | Comments Off on What Is ACH Debit and How Does It Work?

An ACH debit is an electronic transfer that will take money from one account and credits it to another account. ACH, or the Automated Clearing House, is an interconnected system that allows banks to transfer money to and from accounts at different banks. ACH debits are common for things like recurring subscriptions and online payments.

The counterpart to an ACH debit is an ACH credit, and these debits and credits are a key part of the world’s banking infrastructure. ACH debits and ACH credits are safe, convenient, and come with many advantages over writing paper checks or other forms of payments. Learn more about ACH debits and how they work here.

Key Points

•   ACH debit is an electronic transfer that moves funds from one bank account to another using the Automated Clearing House network.

•   This method is commonly used for recurring payments like subscriptions and online transactions.

•   ACH debits offer advantages such as convenience, speed, reduced need for paper checks, and lower transaction costs.

•   However, they may pose risks like less control over automatic payments and potential exposure of bank account details.

•   ACH debits differ from ACH credits; the former withdraws money, while the latter deposits money into an account.

What Is ACH Debit?

An ACH debit is when money is electronically removed from your account to another account at another bank via the Automated Clearing House (ACH). In most cases, you will see an ACH debit listed on your account when you are making a payment to another bank or account. This could be a regular monthly subscription payment (perhaps for a streaming channel) or another type of automated payment.

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How Does ACH Debit Work?

Now that you know the “ACH debit” meaning, consider what it actually involves. ACH works because nearly all of the banks in the United States are connected electronically. Each bank that is part of the ACH system has a nine-digit routing number that identifies it to other banks.

When you make an ACH debit, you provide your bank’s routing number and your savings or checking account number to the other customer/bank. They instruct their bank to contact your bank and debit your account. Then, their account is credited once the funds are transferred.

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Different Types of ACH Debit

There are several types of ACH debits, each coming with its own three-digit code that might identify it to the banks in question. To the customer, these codes or types of debits come without distinction:

•   ARC (Accounts Receivable Entry)

•   BOC (Back Office Conversion)

•   CCD (Corporate Credit or Debit Entry)

•   POP (Point-of-Purchase Entry)

•   POS (Point-of-Sale Entry)

•   PPD (Prearranged Payment & Deposit Entry)

•   TEL (Telephone-initiated Entry)

•   WEB (Internet-initiated Entry).

Advantages of ACH Debit

Here are a few of the biggest advantages of using ACH debits:

Ease and Convenience

One of the biggest advantages of the ACH system is its ease and convenience. ACH transactions happen automatically, without having to take any action besides the initial setup. This can make them perfect candidates for recurring monthly transactions, as one example.

They are also typically quite quick, taking one to three days to be completed.

No Need to Write Checks

If you have a recurring monthly transaction, it is much easier to set up a recurring ACH debit than to write a check each month. Moving your transactions to ACH means that you may no longer have to write checks (or order additional checks).

Save On Postage

Using ACH to make and receive payments can also help you save money. You will no longer have to pay for postage to mail checks or other payments.

Easier Payment Tracking

Using an electronic payment system like ACH also allows for better payment tracking. Rather than having to say “the check is in the mail,” you or your bank may be able to see exactly when ACH payments are sent and received.

Better for the Environment

ACH can also be better for the environment. Some of the green reasons to use ACH include the fact that you don’t have to use paper checks, nobody has to physically deliver your payment, and there is no leftover paper to recycle, shred or throw away once the payment is complete.

Disadvantages of ACH Debit

Here are some of the biggest disadvantages of using ACH debits:

Less Control

You may have a little bit less control over an ACH payment, since it can happen automatically. Still, banks will investigate and overturn any fraudulent ACH transactions, should they happen.

Exposing Private Information

When you make or receive an ACH payment, you do have to give your bank’s routing and account information to the other party. That does run the risk of fraudulent use of your private information.

However, it is important to understand that these same routing and checking or savings account numbers also appear on the bottom of every paper check that you have.

Risk of Mistakes

You do run the risk of making a mistake in your routing or account number, perhaps especially if you are entering the information online. While it is common that you have to confirm your account and routing numbers when setting up an ACH transaction, it is still possible to make mistakes. It is very important to make sure that you are entering your checking account information correctly when setting up an ACH transaction.

Potential for Overdrafting

Because ACH transactions happen automatically, you may have an increased risk of overdrafting your checking or savings account. Make sure that you have set up a good budget and are regularly monitoring your accounts. This will help reduce the risk of overdrafting your accounts.

Forgetting to Cancel Services

One of the biggest potential disadvantages of using ACH payments is that it makes it easier to forget to cancel services that you are no longer using. Because it is easy to set up recurring ACH payments, you may find yourself getting ACH debits for services that you are no longer using or meant to cancel.

What’s the Difference Between ACH Debit and ACH Credit?

An ACH debit is when your account is debited (money taken out) and sent to a customer at another bank. An ACH credit is when you receive money into your account. Both ACH debits and ACH credits come through the automated electronic ACH system.

What’s the Difference Between ACH Debit and eCheck?

An electronic check or eCheck is another form of electronic payment that uses the ACH network. One big difference between ACH debits and eChecks is the time that it takes to process. eChecks often take between three and seven days to clear, while usually ACH debits process much more quickly (say, in one to three days).

What’s the Difference Between ACH Debit and Direct Deposit?

A direct deposit is generally credited to your account as an ACH credit. This means that money is moving into your account. On the other hand, an ACH debit is when money is electronically moved out of your account, generally to an account at another bank.

Is ACH Debit Safe?

Yes, the ACH system is generally very safe. ACH debits and other transactions are commonly considered safer than payments made by paper checks and other forms of payment. Check with your bank or credit union to make sure you understand the fraud protections that you have to secure your account against unauthorized ACH debits.

The Takeaway

The Automated Clearing House (ACH) is a system of interconnected banks that allows for safe, quick electronic payments between customers at different banks. An ACH debit is one form of electronic payment that allows you to pay an account at another bank. This may be a one-time payment or a recurring monthly payment, such as for an online subscription. To make an ACH debit payment, you will generally give the other party your bank’s routing and account information.

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 did I get ACH money?

There are a variety of reasons why you might get money via ACH. It could be a refund of a transaction that you canceled or returned or a credit on a closed account. Check with the merchant in question or your bank if you’re not sure where an ACH transaction came from.

Do I have to pay back ACH credit?

Whether or not you have to pay back an ACH credit depends on what the credit is for and whether it was intended for you. If you received a legitimate ACH credit, then you generally do not have to pay it back. If you received an ACH credit that was not intended for you, you will likely have to pay back the money.

What is an ACH refund?

Above, you learned what is an ACH debit. An ACH refund, however, is typically an ACH credit to your account that you receive due to a refund of a transaction you made. This might be a refund of a transaction you canceled, items you returned in person, or another form of returned payment. Check with your bank or the source of the ACH refund if you don’t know where your ACH refund came from.

Photo credit: iStock/JLco – Julia Amaral

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.

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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May
20
2024

What to Do When You’re Running Out of Money

By | Budgeting & Goals, Family Finances, money, Money & Life | Comments Off on What to Do When You’re Running Out of Money

There’s no feeling in the world quite like running out of money before your next paycheck hits — and it’s not a good sensation. It can have you feeling stressed and unsure of your options.

But, the truth is, when you’re running out of money, you still have ways to move forward. There are also steps that’ll help prevent the problem from cropping up again.

Here, you’ll get a closer look at what happens when you’re running out of money, what options you have, and how to avoid this situation recurring.

Key Points

•   Running out of money before payday can be stressful, but there are ways to manage and prevent it.

•   Excessive spending on fixed and living expenses often depletes funds quickly.

•   Creating a tailored budget helps control finances and prevent overspending.

•   Essential bills should be prioritized, and unnecessary spending should be cut.

•   Exploring additional income sources and government benefits can provide financial relief.

Reasons for Running Out of Money

In order to fix a problem, we first have to understand why it’s happening. That means it’s time to take a good, hard look at your finances to learn why you’re running out of money in the first place. Here are some common causes.

Spending Too Much on Fixed Expenses

Major budget line items, like a rent or your car payment, can take a serious chunk out of the funds you have available for everything else. Although trading in your car for a bicycle or enlisting a roommate might seem like huge changes, they can also make huge differences in your financial life.

Spending Too Much on Living Expenses

Where and how you live can make a big difference in your personal finances. A person who lives in a small town with a couple of roommates will probably be able to stretch their paycheck a lot further than someone who has their own place in a major city where the cost of living is significantly higher.

Also, people vary: According to the USDA’s monthly estimates, a single adult might spend as little as about $275 to as much as $450 or more per month on groceries. Finding ways to cut down on non-fixed living expenses, like groceries, can pack a big punch in terms of not running out of cash before your next pay day.

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Spending Too Much on Discretionary Purchases

Don’t beat yourself up: We live in a world in which we’re the subject of constant advertisement. (According to some estimates, we see as many as 10,000 ads each day.) So it makes sense that we often grab that new pair of boots or book a quick weekend getaway. However, making a habit out of treating yourself or making impulse purchases can wreak havoc on your bank account.

Not Earning Enough

If you’ve cut back in every way that feels comfortable (and perhaps even some ways that do not) and still feel you’ve run out of money, the answer may be to increase your income. While starting a side-hustle can make a dent, finding a better-paid full-time job or making a career change might be a more sustainable course of action.

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Up to 4.00% APY on savings balances.

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Tips for When You’re Running Out of Money

Once you’ve figured out exactly where your monetary life is going awry, you can take concrete steps to make your personal finances better. Here are some ways that can help you get off the paycheck-to-paycheck roller coaster.

Create a Budget That Fits Your Needs

As you’ve doubtless noticed by now, if you don’t make a plan for your money ahead of time, it pretty much develops a mind of its own and walks away. Creating a budget is exactly the anecdote to this problem: planning ahead for where your money is going. And don’t worry, it doesn’t have to be tedious or boring.

Using one of the many online apps built for this purpose or a plain old pencil and paper, start the process:

•   List your monthly income at the top, and then deducting your fixed living expenses. (Think: rent or mortgage payment, insurance, any car payments or other loans you pay.)

•   Next, budget for living expenses whose amounts can change (like utilities and groceries.)

•   It’s also a good idea to set aside at least a little bit of your money each month towards your savings goals, which is an objective that you can boost when you open a high-yield savings account.

•   Finally, the rest of the money is yours to do with as you please, so be sure to budget for items and activities that are meaningful to you. You can have just about anything you want on a budget, just not everything.

Pay Your Most Important Bills

The next idea for what to do when you’re running out of money: Know how to handle bills that are threatening to go unpaid.

Not being able to pay your bills is indeed a sad and scary circumstance, but it’s not actually the end of the world. Stay calm, and prioritize. Important bills to put first include:

•   Housing

•   Health insurance and healthcare expenses

•   Food

•   Utilities.

Keep in mind, too, that you might be able to negotiate with your creditors or put your student loans in forbearance. Either way, it’s worth the phone call to find out.

Spend Money on Essentials Only

When money is (very) tight and you’re scraping the bottom of the bank account barrel, it’s not the right time to splurge on any fun extras.

Until you can build up a bit of a cushion (even a $1,000 emergency fund is better than none at all), limit your spending to only the essentials: the stuff you need to live. It may feel like a sacrifice today, but you’ll thank yourself in a few weeks when you’re breathing easier.

Limit Borrowing and Taking Out Loans

When you’re out of money, there are plenty of companies who are happy to give you some… in exchange for even more money they’ll expect you to pay them (aka interest).

As tempting as it is to borrow money or take out a loan when your well has run dry, in the long run, it can exacerbate the problem. So if you’re already in dire financial straits, it may actually be a bad time to take out a loan.

Use Credit Cards Sparingly

Similarly, you want to avoid racking up interest charges by breaking out your plastic when money is tight. Credit card debt is high-interest debt and can be a real challenge to pay off. Whenever possible, pay for items with cash or a debit card.

Also consider a balance transfer credit card if you already have an amount of credit card debt that is making you uncomfortable. It can give you a period of low or no interest that can help you pay down your balance.

Make Time to Make Extra Income

As mentioned above, your problem might be improved by earning more. Picking up a side gig, like driving for Uber or selling crafts on Etsy, is one road forward. Training and applying for a more lucrative career could be another path through this tough time.

Look at Government Benefits

Nobody should have to forego medical care, food, or shelter because of their financial situation. That’s why government benefits like the SNAP program (previously known as food stamps) and low-cost health care options exist.

Specifics vary by state, but your local government website should have details available and phone numbers to call. If your income is under a certain threshold, you may qualify for programs that can make it a lot easier to budget what you’re earning on other needs.

Downsize When Possible

Moving or changing your favored mode of transportation are big life changes, for sure… but they can also make big changes in your financial life, for the better. If you downsize your cost of living, you won’t have to struggle quite so hard to pay for it, which could be well worth the sacrifices.

Sell Items You Don’t Need

Selling things you don’t need can help you downsize and line your pockets with some extra change in the short term. You could have a yard sale, offer them on eBay or another online platform, or see if a local second-hand store will purchase them, among other options.

Take Care of Yourself

No matter how dire your financial circumstances get, don’t neglect your personal needs. Going outside for a walk, sitting down to eat nutritious foods, and talking to loved ones are imperative for your mental and physical well-being, and none of them are exorbitantly expensive. In addition, you might look into low-cost or no-fee financial counseling from a nonprofit to help you pull through this challenge.

Managing Finances with SoFi

You’ve just learned ways to cope when you’ve run out of money. Also make sure that the funds you do have are easily managed and earning some interest to help your cash grow.

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 options are available if I can’t afford to pay my bills?

If you can’t afford to pay a credit card bill, auto loan, or student loan payment, consider calling your creditor or lender and asking about ways to negotiate the payment amount or file for forbearance. Debt consolidation loans are another option if your debt is spiraling out of control, but they should be approached with caution.

Which budgeting methods are helpful for people that are running out of money?

One popular budget is the 50/30/20 budget rule, which says, of your take-home pay, to allocate 50% towards the musts in life, 30% to the wants, and 20% to savings and additional debt payments.

Should I contribute to my retirement fund if I don’t have the money?

As important as it is to save for a comfortable retirement, if you don’t have the money to live today, it’s hard to be focused on the money you’ll need to live tomorrow. If you’ve made all possible budget cuts and still don’t have any money to contribute to your retirement fund, so be it for the present. Consider using “windfalls” like your tax refund, bonuses, or birthday gifts to pay into your retirement accounts when they show up.

Photo credit: iStock/miniseries

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.

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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May
20
2024

Checking Account Definition and Explanation

By | Budgeting & Goals, Growing Wealth, money, Money & Life | Comments Off on Checking Account Definition and Explanation

A checking account is a secure place to deposit money and then withdraw funds, say, when it’s time to pay bills. This type of deposit account — either at a bank or credit union — allows you to move funds in and out using different methods. It’s typically considered the hub of a person’s daily financial life, and it’s usually much more flexible compared to other types of bank accounts.

Key Points

•   A checking account is designed for frequent transactions, allowing easy deposit and withdrawal of funds.

•   Various types of checking accounts cater to different needs, including student, senior, and second chance accounts.

•   Features of checking accounts can include direct deposits, ATM access, and the ability to issue checks.

•   Pros of checking accounts include flexible access to funds and direct deposit options; cons include potential monthly fees and low interest on balances.

•   Opening a checking account typically involves selecting a suitable option, providing necessary documentation, and making an initial deposit.

What Is a Checking Account?

The meaning of a checking account is a bank account that’s designed to be used for frequent transactions. FDIC- or NCUA-insured checking accounts are considered safe, and you store your cash in the account and withdraw as needed.

The main goal of a checking account is for you to have a place to put your cash temporarily until needed. The bank expects this money to be moved into and out of your account regularly, which is why these accounts typically don’t pay interest, unlike savings accounts, where the money tends to stay put.

That said, some checking accounts may earn a modest amount of interest, especially those held at online vs. traditional banks.

You can use a checking account to deposit and withdraw funds in a variety of ways, depending on your institution (more details in a minute).

You will also likely find that there are a variety of options available: There are personal, small business, and commercial checking accounts. You can also open one in your name or with someone else as a joint account or authorized user.

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.

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FDIC insurance.


How Do Checking Accounts Work?

Now that you know the meaning of a check account, consider how they operate. Checking accounts allow you to deposit and withdraw or spend your money. Depending on your bank and type of bank account, you can deposit in a variety of ways, including:

•   ATM deposit

•   Direct deposit

•   Incoming wire transfer

•   Mobile check deposit

•   ACH deposits (which can include those with PayPal, Venmo, Zelle, and other services).

•   Depositing funds at a brick and mortar location.

These methods can also be used to withdraw or send money to others. For example, if you want to pay for a subscription service using your checking account, you can sign up for automatic withdrawals each month. Or you might be able to send an outgoing wire transfer for your down payment for your home during closing.

5 Types of Checking Accounts

There are several different kinds of checking accounts, each one offering different features.

Traditional Checking

This is a basic checking account you can use for your day-to-day transactions like paying bills or making purchases with your debit card. There aren’t many extra features, though you’ll most likely get unlimited transactions, a debit card, checks, and access to an online or mobile banking portal as well as certain ATMs without a fee. You may need to pay an annual bank fee, maintain a minimum balance, and make a minimum initial deposit.

Interest Checking

An interest-bearing checking account is similar to a basic or traditional checking account except you’ll earn interest. The amount of interest you can earn will vary from bank to bank, but it is typically significantly less than funds in a savings account will earn.

Student or Teen Checking

These accounts are specifically geared towards students or teenagers and may earn interest. In some cases, parents or guardians will also need to have their name on the account and may monitor transactions. One perk to be aware of: These bank accounts may not charge fees.

Senior Checking

Senior checking accounts will offer features similar to basic checking accounts, except you may have more perks such as free checks and other benefits geared towards the senior population, including those on a fixed income.

Second Chance Checking

If you’ve been denied a checking account, you can try applying for a second chance account. These accounts are geared towards those who tend to have negative ChexSystems reports, which can track a person’s banking history. Keep in mind that some may charge fees and have fewer features than other types of accounts.

If you manage this kind of somewhat limited account well, your bank may upgrade you to a standard checking account down the line.

Pros and Cons of a Checking Account

If you’re considering whether a checking account is right for you and how to manage it, take a look at these benefits and downsides of checking accounts.

Pros

 Cons
More flexible access to cash Little or no interest earned on deposits
Ability to set up direct deposit You may be subject to monthly fees
Access to a debit card May need to maintain a minimum balance in your account

Checking Accounts vs. Debit Cards

You may wonder exactly how a checking account and a debit card are connected. A debit card is a feature you can get with your checking account that allows you to make withdrawals and deposits at an ATM machine. You can also use it to make purchases at retailers — you may see a Visa or Mastercard symbol on your card. Typically, you can tap or swipe a debit card as you go through your day, whether paying for some groceries or snapping up some new clothes on sale.

The money you spend or deposit will be linked to your checking account. Purchases you make will be deducted typically in real-time. In many cases, your bank or credit union may have limits as to how much you can spend daily, weekly, or monthly when using your debit card.

However, here’s a distinction to note: There are also prepaid debit cards that aren’t part of a checking account. In this case, you can buy one at many major retailers. The purchase price is part of the amount you have on the card.

Using a Checking Account

There are several features that you need to be aware of when you use a checking account; these can make your financial life easier or, in some cases, could literally cost you.

Overdraft Fees

Whenever you make a withdrawal and there isn’t enough money on deposit, you are in what’s known as overdraft (a negative balance). Your bank may choose to deny the transaction (due to non-sufficient funds) or cover the difference. In either case, you are charged a fee — NSF fee or overdraft fee. The amount you’ll be charged will depend on your bank, though you can expect to pay around $35 per overdraft on average.

Some banks may forgive your first overdraft fee (meaning your don’t pay the extra charge) or allow you to link your savings account from the same institution as a form of overdraft protection. That way, if you don’t have enough money in your checking account, your bank will automatically transfer the difference from your savings account.

Autopay

With autopay, you can set up automatic withdrawals from your checking account in regular intervals and in amounts you choose to other accounts. For example, you can use the autopay feature to deposit money into a savings account for your emergency fund or to pay rent every month. Setting up these seamless recurring payments can be part of what people refer to as automating your finances.

Direct Deposit

You can receive deposits automatically into your check account through direct deposit. This is a very popular way for companies to pay their employees, and it eliminates the need for you to have to deposit a paycheck. What your employer or another payor would need to do this: your banking details, such as your routing number, account number, account name, and sometimes the bank’s address and phone number. (You may need to provide a voided check as well.)

Service Charges

Aside from overdraft and NSF fees, you may be charged monthly maintenance fees to have a checking account at a financial institution. In some cases, this fee may only be assessed if you don’t meet the minimum balance requirements. These bank fees are meant to help cover the expenses required to maintain a bank account.

You can avoid fees by choosing a checking account with no monthly fees, or try calling customer service to waive fees, like an overdraft charge if it’s your first time doing so.

ATMs

You can use your debit cards at ATM machines to make deposits or withdrawals. Some bank accounts may charge fees if you’re using one that’s out of network and/or when you’re making withdrawals abroad. It can be wise to read the fine print on your agreement with your bank about your account so you understand what charges may be assessed. Also, you may want to check if fee-free ATMs are conveniently located near where you live and work.

Interest

Not all checking accounts earn you interest, but some do. Granted, they’re probably not as high as compared to savings accounts, but earning some money is better than none. Just be sure to check if minimum balance requirements exist in order for you to reap that interest.

4 Steps to Opening a Checking Account

Though opening a checking account is generally the same across all financial institutions, the specifics may differ. Here, the four basic steps:

1. Review Your Options

Before signing up for an account, shop around to find one that offers the best fit for your needs. Review such features such as fees, interest rates, minimum balance requirements (if any), ATM network accessibility, and whether you want a brick-and-mortar location. Some banks may offer signing bonuses and the like to get your business.

2. Gather Relevant Documentation

Once you’ve chosen your bank and the kind of checking account you want to open, you’ll need to make sure you have the right information available to sign up. This includes your address, name, and Social Security number. You may need to have a government-issued photo ID (like your driver’s license) available. If you’re opening a joint account or adding an additional user, you’ll need that person’s information as well.

3. Fill out the Application

Go to the bank’s website and fill out an application form. In some cases, you may be asked to create an online account before you can complete your checking account application. Another option is likely to go to a bank branch, if you’re applying at a traditional bank, and fill out forms there.

4. Make Your First Deposit

Once your application is approved, you’ll be asked to make your first deposit. Depending on the bank, you can do this in different ways, from mailing in a check to transferring funds online. You may also need to wait several days to allow for the account to be fully opened and your new debit card to arrive in the mail.

Can You Be Denied a Checking Account?

Your application for a checking account may be denied in some cases. Your ChexSystems report — similar to a credit report, but for banking — could show negative remarks that could result in the bank not approving your application.

•   Some of these reasons could include:

•   Too many overdrafts

•   Unpaid banking fees

•   Negative balances

•   Suspected identity theft or fraud.

If you are denied, you can ask the bank for the reason and ask them to reconsider. Otherwise, you can apply for a different type of checking account to see if that works.

In addition, some banks might deny you an account because you lack the requested forms of identification. In that case, you may want to look into other banks that accept alternate forms of ID.

Recommended: Opening a Bank Account as a Non-US Citizen

Checking vs Savings Accounts

Though checking and savings accounts are both types of deposit accounts held at a financial institution, there are some critical differences between the two.

Unlimited Withdrawals

Checking accounts generally provide more flexibility in terms of how many withdrawals you can make. You should be able to take money out as often as you want as long as you have the funds to do so.

Savings accounts used to be limited to six withdrawals per month as mandated by Regulation D, but the regulation has since been dropped during the pandemic. Some financial institutions may still impose this limit — check with your bank to make sure.

Use of Debit Cards

Savings accounts usually don’t provide debit cards, whereas checking accounts do. Having one can make it more convenient to spend your money, since you can use it to make purchases at most retailers.

Interest Rates

Interest rates for savings accounts tend to be higher (often, considerably so) compared to those for checking accounts. That’s why it’s usually recommended that if you’re holding on to your cash, you may be better off depositing it in a savings account. Banks pay you higher interest for the privilege of having that money on deposit and being able to lend some of it out for other purposes.

Creating a Checking Account With SoFi

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


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

FAQ

WWhat is the difference between a savings and checking account?

The definition for a checking account is that it offers flexible ways to deposit and then withdraw your money, allowing you to make frequent additions and subtractions to your account with a minimum of fees. A savings account, however, is meant to store your cash for longer periods of time. Another key difference: Many checking accounts earn no interest, unlike savings accounts, where interest does accrue.

Is a debit card a checking account?

A debit card is not a checking account, but a feature that may come with your checking account. A debit card allows you to transfer funds from your checking account to a merchant, but it is not the account that actually holds your funds.

Is it OK to save money in a checking account?

You can save money in a checking account and it will likely be FDIC- or NCUA-insured, but you may not earn as much interest (if any) as you would with a savings account.

Is there a minimum credit score for a checking account?

A bank most likely won’t check your credit score when reviewing your application for an account. However, it will often look at your ChexSystems report. If you have any past negative behavior such as a large number of overdrafts or negative balances, it could cause your application to be denied.

What is the difference between a checking account and current account?

A checking account is a secure place to deposit and withdraw money for daily use; it tends to earn little or no interest. A current account is either a similar account but used for business purposes or, in macroeconomics, a record of a nation’s financial transactions with the rest of the world.

Photo credit: iStock/Delmaine Donson

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.

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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