How Long Does It Take to Build Credit From Nothing?

How Long Does It Take to Build Credit?

Building good credit (or any credit at all) doesn’t happen overnight. Instead, if you’re starting from scratch, you may need to have an open credit account for around three to six months before you first get a credit score.

From there, a good credit profile and good credit score can take a while to build. In reality, it can be much faster and easier to lower your credit score, which is why it’s vital to aim to make solid financial choices, like consistently paying your bills on time. Building and maintaining good credit isn’t always easy, but by following a few simple steps, you can improve your standing.

Key Points

•   Establishing a credit score takes three to six months after opening a credit account.

•   On-time payments are essential for a good credit score.

•   Credit scores depend on payment history, credit utilization, account types, age of accounts, and inquiries into accessing credit.

•   Opening too many accounts at once can harm credit scores.

•   Beware of scams promising quick credit improvement; building credit is gradual.

How Long It Can Take to Build Credit From Scratch?

The exact length of time it takes to build credit from scratch varies. That being said, it’s usually around three to six months from the time you first open a credit account.

Even though establishing and building credit can take time, it’s worth it as a way to improve your overall financial situation. Having good credit can make it easier to get approved for loans and secure lower interest rates.

Recommended: How to Avoid Interest on a Credit Card

4 Ways to Build Credit

If you’re hoping to begin building credit, here are some tactics you might consider.

Become An Authorized User

One way to help build your credit is by becoming an authorized user on an account of someone who already has good credit. This might be a trusted friend or family member. As they manage the account responsibly, that can have a positive impact on your credit score as well. Just know that if they miss or make late payments, that can also negatively impact your credit.

Recommended: When Are Credit Card Payments Due?

Apply For a Credit Card

If you’re getting a credit card for the first time, know that it is possible to apply for and get approved for a credit card with no existing credit history. However, you do need to be selective about which card you apply for.

You’re unlikely to get approved for, say, a rewards credit card if you don’t already have excellent credit. Still, there are credit cards that are marketed toward those who have no credit or a limited credit history. You might also consider a secured credit card, where you put down a refundable deposit that then serves as your credit limit.

If you can get approved for a credit card, and then use your credit card responsibly, such as by making on-time payments, can help you build up your credit.

Recommended: What to Know About Purchase Interest Charges on Credit Cards

Get a Cosigner

If you aren’t able to get approved for a loan on your own, you might consider applying for credit with a cosigner. Using a cosigner with good credit can help improve your chances of getting approved for a loan.

Then, your loan payments will be reported to the major credit bureaus and hopefully help you start building your credit score. Of course, that depends on your making those payments on time.

Maintain Good Credit Habits

Once you have opened a credit account like a loan or credit card, it’s important to practice good credit habits. This includes paying your statement off in full, each and every month. Demonstrating a pattern of reliably paying your bills over time shows potential lenders that you’re likely to repay your debts.

Recommended: Does Applying for a Credit Card Hurt Your Credit Score?

Factors That Affect Credit Score Calculations

There are five major factors that affect your credit score:

•   Credit utilization: Your credit utilization is the amount of the credit you’ve used compared to your total available credit. It’s recommended to keep this ratio to 30% or less.

•   Payment history: This indicates how reliably you make payments on your existing accounts.

•   Types of credit accounts: Having a good mix of different types of credit accounts has a positive impact on your credit score, as it indicates to lenders that manage multiple types of accounts.

•   Your average age of accounts: Having a lengthy credit history is a positive sign. This shows you have experience in responsibly managing accounts.

•   New credit: Opening a number of accounts or making a number of hard inquiries in quick succession can suggest to lenders that you’ve overextended yourself and are in need of funding to bail you out.

Recommended: Starting Credit Score for 18-Year-Olds

Things to Keep in Mind Before Building Credit

If you’re looking to build good credit, here are some tips on establishing credit to keep in mind.

Have a Solid Financial Plan

The first thing you’ll want to do is make a budget. Getting a new credit card should not be viewed as a way to fix your budget or dig yourself out of a financial hole. Instead, the best way to use a credit card is as a tool of convenience for money that you already have. Make sure that you have the financial ability and discipline to pay your bills in full, each and every month.

Watch Out For Scams

Usually building credit is something that you do over a period of several months or years. If someone tells you that they can build or repair your credit quickly, it could be a sign of a credit card scam. There aren’t many shortcuts to the simple rules noted above, like regularly paying your bills on time.

Don’t Open Too Many Accounts At Once

You might think that since opening a credit account can help build credit, opening many accounts will help build credit even faster. However, that is usually not the case. Many lenders view a high number of credit inquiries in a short period of time as a negative indicator. They may see it as a potential red flag that someone is in a bad financial situation.

The Takeaway

If you’re just starting out and have no credit history at all, you generally start without an actual credit score. It can take a few months after you open a credit account to start establishing a score. As you continue to show that you’re responsible for the credit you have, your score will likely increase. Building credit can take time, and you should be skeptical of any people or programs that say they can build your credit fast.

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

What credit score do you start with?

There isn’t a starting credit score for those without any credit history. While you might think that you start with the lowest possible credit score (like 300) and have to build your way up, you actually don’t start with any credit score at all. As you open credit cards or other accounts, you’ll start to establish a credit history and score.

How long does it take to build a good credit score?

It usually takes anywhere from three to six months to start building a credit score after you’ve opened your first credit account. You’ll then continue to build and improve your credit by continually making on-time payments. You can always check your credit score periodically to see where you’re at on your credit journey.

How long does it take to recover from a hard inquiry on your credit?

Usually when you apply for a new credit card or other loan, your potential lender will pull your credit file. This is known as a hard inquiry. Since the number of recent hard inquiries is one factor in determining your credit score, applying for credit cards can lower your credit score. However, these inquiries typically only lower your score by a few points and drop off your report after a few months.

How fast can you build your credit in 3 months?

How fast you can build your credit depends on a number of factors. Generally, it takes a few months after you’ve opened a credit account to even establish any credit. Your credit score will improve as you continue to use your credit responsibly. It’s best to think about building credit as more of a marathon than a sprint.


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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.

This content is provided for informational and educational purposes only and should not be construed as financial advice.

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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How to Calculate Rate of Return

Rate of Return (RoR): Formula and Calculation Examples

Calculating rate of return, as it relates to investing, is a way for investors or traders to get a sense of how much money they stand to gain or lose from their investments. It’s a relatively simple formula and calculation, and can help investors evaluate their overall performance in the markets. It does have some shortcomings, however, such as not accounting for the time value of money or the timing of cash flows. So, there are alternative calculations out there to help get even more accurate results.

Key Points

•   The Rate of Return (RoR) measures an investment’s gain or loss as a percentage of its initial value over a specific period.

•   Calculating RoR involves identifying the initial and end values, applying the formula, and can be done manually or using tools like Excel.

•   RoR helps investors evaluate investment performance, compare different investments, and make informed decisions about resource allocation.

•   Understanding RoR is crucial for assessing investment performance, aligning with financial goals, and determining market performance relative to other opportunities.

What Is Rate of Return?

Rate of return (RoR) is a measure of an investment’s gain or loss, expressed as a percentage of its initial value, over a given period of time. If calculated correctly, your rate of return will be expressed as a percentage of your initial investment. Positive rate of return calculations indicate a net gain on your investment, while negative results will indicate a loss.

Don’t confuse this with the expected rate of return, which forecasts your expected returns using probability and historical performance.

When using the rate of return formula, your chosen time period is referred to as your “holding period.” Regardless of whether your holding period lasts days, months, or even years. It’s important that you keep the time periods consistent when comparing investment performance.

How to Calculate Rate of Return

You can calculate the rate of return on your online investing or other type of investing activity by comparing the difference between its current value and its initial value, and then dividing the result by its initial value.

Multiplying the result of that rate of return formula by 100 will net you your rate of return as a percentage. You’ll know whether you made money on your investment depending on whether your result comes in as positive or negative.

Rate of Return Formula

The standard rate of return formula can be represented as follows:

R = [ ( Ve – Vb ) / Vb ] x 100

In this equation:

R = Rate of return

Ve = End of period value

Vb = Beginning of period value

The aforementioned formula can be applied to any holding period to find your rate of return “R” over that timespan.

“Ve,” your end of period value, should represent the value of your investment, including any interest or dividends earned over your holding period.

Finally “Vb” should represent the value of your initial investment. It will be used as the relative basis on which your investment returns are calculated.

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Example of Calculating Rate of Return

To help you understand how to calculate the rate of return, we’ll walk you through an example. Again, here’s the formula:

R = [ ( Ve – Vb ) / Vb ] x 100

Let’s say an investor buys an investment for $125 a share which pays no dividends. This $125 investment will be your beginning of period value (“Vb”).

After one year, the value of the investment rises to $150 and the investor chooses to sell it. Given that $150 represents the value of the investment at the end of the holding period, $150 will be your end of period value (“Ve”).

To calculate the rate of return, enter the values for Vb and Ve into the rate of return formula. With the correct values in place, your equation should look like this:

R = [ ( $150 – $125 ) / $125 ] X 100

Solving out this formula using order of operations, your calculations should proceed as follows:

R = [ $25 / $125 ] X 100

R = 0.2 X 100

R = 20%

If done correctly, the formula should calculate a one year rate of return of 20%, based on the beginning and end of period values provided.

Considerations When Using Rate of Return

The main advantages of the rate of return calculation is that it’s simple and easy to calculate. It gives you a straightforward method to measure the profitability of an investment over any time period.

However, its simplicity does result in some shortcomings, particularly when it comes to more complex investments with numerous cash flows. We dive into these limitations below.

Recommended: What Is a Good Rate of Return?

What are the Limitations of Simple Rate of Return?

The main limitations of the simple rate of return calculation are that it ignores the time value of money and timing of cash flows.

The time value of money is an important concept when it comes to finance, as it explains that money today is always worth more than the same sum of money paid in the future. This is due to the inherent earnings potential of cash held now.

In tandem with the concept above, the simple rate of return calculation also fails to account for the timing of cash flows.

Cash flows are particularly important when dealing with more complex portfolios or investments that might have multiple reinvestment periods over time or multiple dividend payouts.

The simple rate of return calculation, in some ways, oversimplifies the rate of return into a simple accounting measure over an arbitrary amount of time. To address these shortcomings, professionals typically use alternate measures like internal rate of rate (IRR) and annualized rate of return.

Annualized Rate of Return Formula

The annualized rate of return is a slightly more complicated formula that solves the compatibility issues of the simple rate of return calculation by standardizing all calculations over an annual period.

The annualized rate of return formula can be exhibited as follows.

Ra = ( Ve / Vb ) 1 / n – 1 X 100

Where,

Ra = Annualized Rate of Return

Ve = End of period value

Vb = Beginning of period value

n = number of years in holding period

Annualized rate of return (Ra) standardizes your rate of return on an annual basis; this allows you to make fair comparisons with other annualized performance figures.

“Ve,” your end of period value, represents the value of your investment at the end of the holding period, including any interest or dividends earned.

“Vb” represents the value of your initial investment.

Other Types of Return Formulas

There are a multitude of other return metrics that can help you evaluate performance.

While the calculations for these metrics fall outside the scope of this reading, we touch on some of the most commonly used ones and why they’re used.

•   Internal Rate of Return (IRR): This represents the expected annual compound growth rate of a specific investment and is usually used to help determine whether an investment is worthwhile.

•   Return on Invested Capital (ROIC): Measures a firm’s profitability in relation to the total debt and equity invested by stakeholders.

•   Return on Equity (ROE): Measures a firm’s net income in relation to the total value of its shareholder’s equity.

How Investors Can Use Rate of Return

Retail investors, institutional investors, and even corporate decision makers use the rate of return to gauge the performance of their investments over time. It’s useful when compared against a benchmark index, return expectations, or other investment options to gauge how your investment performed on a relative basis.

When comparing investment returns, it’s important to make sure you’re making fair comparisons to ensure you’re making apples-to-apples comparisons. For example, the S&P 500 might not serve as a fair benchmark for a portfolio invested 100% in international equities, as these are substantially different investment types. Benchmark comparisons give meaning to your rate of return and help you evaluate whether you’re outperforming on a relative basis.

The Takeaway

Knowing how to calculate your rate of return gives you a useful tool for evaluating your investments’ performance. The best part about the rate of return calculation is that it can be done over almost any timespan, provided the returns you’re trying to compare have the same holding period.

Investors can calculate rate of return by hand, or by using an online spreadsheet. The same is true for annualized rate of return — which helps to standardize return rates over longer periods. Those are fairly simple ways to gauge investment returns, but there are a number of other metrics that help you assess and compare investment returns, so be sure to use the tool that aligns best with what you need to know.

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Do Wire Transfers Go Through Immediately?

Typically, domestic wire transfers are available within a business day, while international wire transfers can take up to five days. In other words, whether sending money to relatives or completing a business transaction, wire transfers can quickly move money from one bank account to another, but they usually don’t go through instantly.

Below, you’ll learn the steps for making a wire transfer, how timing can vary, and alternative methods for sending money.

Key Points

•  Domestic wire transfers typically complete within one business day; international transfers can take up to five days.

•  Factors affecting transfer duration include timing, location, and transfer method.

•  Required information includes personal and banking details for both parties involved, and possibly the transfer purpose.

•  Steps include verifying funds, choosing a provider, filling out forms, and factoring in and paying fees.

•  Expediting transfers may be possible, especially within the same bank, but may incur fees.

Factors That Affect How Long a Wire Transfer Takes

How long it takes to wire money depends on a few factors. Wire transfers exchange funds between two parties, and the timing, where the sender and recipient are located, and how funds are transferred can all influence its duration.

•  Timing: While bank holders may have 24/7 access to ATM withdrawals, the same isn’t true for wire transfers. Banks and financial institutions may set cutoff times in the day for processing wire transfers. If a wire transfer is initiated after the cutoff time of the sender’s or recipient’s bank, it will be processed the following day. For this reason, it won’t be available in the recipient’s bank account the same day.

  Also, wire transfers may be completed in batches rather than in real time. So even if you submit a wire transfer at 11am, the next batch might not be processed until, say, 3pm. This could delay the arrival of funds to the recipient’s bank.

•  Geographic location: Whether you’re sending the money within the U.S. or abroad matters. The Expedited Funds Availability Act requires that wire transfers made within the U.S. are available to recipients within one business day. But in terms of how long it takes for a wire transfer to go through internationally, that usually takes between one and five business days. Such factors as the number of intermediaries, time zone differences, and regulations in the recipient’s country can impact timing.

•  Transfer method: There are several ways to wire funds. You can wire money for immediate transfer domestically with the Federal Reserve Wire Network (Fedwire). Another option is the Clearing House Interbank Payments System (CHIPS), which processes transactions in batches, making it cheaper but slower than Fedwire. Though CHIPS can process international transfers, the Society for Worldwide Interbank Financial Telecommunication (SWIFT) is often used for making electronic payments abroad. SWIFT transfers undergo anti-fraud and anti-money laundering review processes, adding time to when the funds are available to the recipient.

Recommended: How to Transfer Money From One Bank to Another

What Do You Need to Complete a Wire Transfer?

To send funds with a wire transfer, you’ll typically need to provide personal and banking information for yourself and the recipient. These requirements can vary depending on whether you’re transferring funds with a bank or non-bank provider, but may include:

•  Your driver’s license, or another valid government-issued photo ID

•  Your bank account and routing number, if using a provider other than your bank

•  The amount of money being transferred

•  Possibly the purpose of the transfer, especially for international wire transfers

•  Recipient’s personal information, including their full name, address, and contact information

•  Their banking information, including the recipient’s bank account and ABA or routing number, and their bank address and phone number, especially when transferring abroad

•  If transferring money outside the U.S., the SWIFT Code or Business Identifier Codes (BIC) and the National ID or IBAN number

Keep in mind that wire transfers are usually irreversible once they’ve cleared, unless a mistake is made by the sending or receiving bank. Double-checking to confirm the details before sending can avoid delays and help ensure the funds are received.

Steps to Making a Wire Transfer

Once you have the required personal and banking information, follow these steps to make a wire transfer.

1.   Verify funding availability: Check your bank account to make sure you have enough money for the wire transfer. Funds must be available at the time of authorization to complete the wire transfer.

2.   Choose a provider: Senders can opt to wire money with a bank or non-bank transfer service (such as Western Union). The cost of a wire transfer varies by provider, so be sure to compare fees before making a decision.

3.   Fill out the forms carefully: To send a wire transfer, you’ll need to provide certain personal and banking information to the provider. Forms may be available online or completed in person. Be sure to double-check the account numbers, spelling of names, and other details before submitting.

4.   Factor in fees: Providers can set their own rates for wiring money, with international transfers typically costing more than domestic transfers. Confirm these bank fees upfront and verify your account has sufficient funds to cover them. For outgoing domestic wire transfers, fees are often between $0 and $40, while international wire transfers can be between $0 and $50, depending on your account and other factors.

  Keep in mind that the recipient’s bank may charge fees on top of what was paid to wire the money. Depending on the nature of your transaction, the recipient could ask you to cover those fees.

5.   Get a receipt: It’s a good idea to keep a record of the transaction. Since wire transfers aren’t always immediate, having the confirmation or tracking number handy is useful for monitoring the payment.

Can You Speed Up a Wire Transfer?

Wire transfers are often used when money needs to be moved quickly. When time is of the essence, it may be possible to expedite the wire transfer. This option depends on the financial institution or provider used. It may be easier to speed up a wire transfer if the transaction is between two accounts held at the same bank. In some cases, a fee may be charged to move the money more quickly.

Being mindful of a provider’s cutoff time for sending and receiving wire transfers can help expedite a wire transfer. The cutoff time may occur before closing hours, and any request received after this time won’t occur until the following business day.

Can You Slow Down a Wire Transfer?

If you’ve made an error and want to pause or recall a wire transfer, it’s important to contact your provider immediately. You could have a window of opportunity to recall or pause the transfer for corrections if a cancellation notice is received before it’s credited to the recipient’s account. Typically, it’s a very small window of time, so act as soon as possible.

Do Wire Transfers Go Through on Holidays?

Wire transfers are typically only processed on business days and prior to a bank’s cutoff hours. If you wire money on a bank holiday or weekend, it likely will be delayed until the next business day.

When sending funds internationally, factoring in holidays and weekends merits additional consideration. For instance, a number of countries in the Middle East observe the weekend on Friday and Saturday, not Sunday.

Alternatives to Wire Transfers

Wire transfers aren’t the only option available for moving money between bank accounts.

Here are a couple alternative ways to send money to someone.

•  Automated Clearing House (ACH) transfer: ACH payments allow businesses and individuals to transfer funds between financial institutions, such as banks, through an electronic network. This type of bank-to-bank payment requires an initial setup and takes more time to send funds than wire transfers. Usually, transfers take one to three days, but expedited service may be available. However, ACH fees are typically lower than wire transfer fees, and some banks don’t charge customers for them at all, factoring such costs into their overall fee structure. Check with your financial institution about whether you’ll be assessed a fee.

•  Peer-to-peer (P2P) payment: A growing number of apps, such as Apple Pay and PayPal, can facilitate electronic payments between two users. P2P apps can link to a bank account, debit card, or credit card to transfer money quickly. However, transferring the funds from the app to a bank account can take several days or incur a fee for immediate transfer. Also, P2P apps may set limits on transfer amounts and whether you can send money abroad.

Recommended: ACH vs EFT: What Is the Difference?

The Takeaway

Wire transfers do not typically go through immediately. The speed will depend on several factors, including when you initiate the transfer, where it’s being sent, and the transfer method. Domestic transfers are usually completed within one day, while international ones can take between one and five days. In some cases, it may be possible to expedite a wire transfer.

There are multiple ways to transfer and receive money. SoFi currently offers incoming and limited outgoing domestic wire transfers, and our bank accounts have plenty of other features that make managing and sending money easy.

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FAQ

Are wire transfers immediate?

Wire transfers are typically completed within a day for domestic transactions and within one to five days for international ones, though there may be options available to expedite the transfer. Factors that can impact timing include the cutoff hours of financial institutions and whether it’s a business day or a weekend or holiday. In addition, transferring funds between two accounts at the same bank can often move more quickly than transactions between two different banks.

What happens if a wire transfer gets delayed beyond your control?

If a wire transfer is delayed, it can be wise to notify your bank or provider immediately to investigate the claim. They should be able to advise you on what the issue is and what (if anything) can be done to move the payment ahead quickly. You will likely want to let the intended recipient know as well. Keeping the receipt and having the reference number on hand can help you track the transfer.

Do international wire transfers take longer than domestic?

International wire transfers typically take longer than domestic wire transfers. Plan for up to five business days before the funds are available to the recipient. Domestic wire transfers are usually completed within one business day.


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

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

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

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

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

*Awards or rankings from NerdWallet are not indicative of future success or results. This award and its ratings are independently determined and awarded by their respective publications.

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

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

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Are ATM Machines Safe to Use?

Overall, ATMs (automatic teller machines) can be a safe way to access money en route to a cash-only restaurant, say, or to conduct other banking transactions. But that doesn’t mean that theft, fraud, or other issues never crop up. They can and sometimes do.

That’s why it’s important to practice safe habits when using ATMs. Learn the ground rules here.

Key Points

•  ATMs offer convenient cash access but require caution to avoid theft and fraud.

•  Use ATMs in well-lit, busy areas; cover the keypad when entering your PIN.

•  Card skimming is a risk; ATMs inside banks may help you avoid this issue vs. outdoor ATMs.

•  Verify receipts and account balances to catch transaction errors.

•  Avoid ATMs late at night or in isolated areas to reduce robbery risk.

What Are the Pros of Using ATMs?

ATMs can really come in handy in a pinch. For example, if someone is heading to a tag sale or farmer’s market, there’s often an ATM on the way where they can take out some cash.

Here’s a closer look at why people use ATMs and what their advantages are:

•  Easy to locate; accessible in banks, stores, airports, and other locations

•  Make cash accessible when going to the bank isn’t possible

•  Can be free to use when the ATM is in-network

•  Depositing cash and checks at an ATM can be possible

•  Can check account balance on the go

For these reasons, ATMs can play an important role in facilitating your access to cash on an everyday basis.

Recommended: ATM Cards vs Debit Cards: What’s the Difference?

What Are the Risks of Using ATMs?

As helpful as ATMs can be, people do look to take advantage of consumers using these machines. Unfortunately, ATM fraud and theft is common enough that consumers need to approach these devices with a measure of caution.

These are some of the risks associated with using ATMs that consumers need to be aware of to ensure their safety and financial wellbeing:

•  Fraudsters can attach a card skimmer (thin plastic devices that slip over the card slot) to an ATM that collects debit card information, which can lead to financial loss.

•  Errors can occur such as deposits being counted incorrectly or checks being read wrong, which can cause problems with bank accounts.

•  Power outages in the midst of a transaction can make technical glitches occur and deposits not register.

•  ATMs can dispense too much money, which may seem like a money windfall for the user, but can result in legal trouble if the consumer fails to report the error.

•  Because thieves know the person using the ATM has the ability to access cash quickly, this can make them a target for robbers (especially late at night or at locations without much foot traffic).

•  It’s possible to hit an ATM withdrawal limit or to overdraft, which can lead to fees and other issues with your financial institution.

It’s wise to keep these downsides in mind so you can take steps to avoid them.

Get up to $300 when you bank with SoFi.

No account or overdraft fees. No minimum balance.

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Keeping Yourself Safe While Using an ATM

To stay safe when using an ATM, consumers can practice these habits to protect their financial health:

•  Use ATMs within bank branches, where card skimmers are much less likely to be found.

•  Cover the keypad when entering a PIN to block anyone from seeing the code.

•  Scope out any ATMs that aren’t inside a bank before use to see if there are any misaligned card readers or other signs of tampering.

•  Always try to use ATMs during the day or in well-lit and trafficked locations.

•  Visit ATMs with another person or when other people are around, which can reduce the likelihood of being a robbery target.

•  Using these devices can result in ATM fees, which can add up and harm someone’s budget.

•  Do a cardless withdrawal, which relies on mobile phone technology instead of a debit card. This means you’re not vulnerable to card skimming.

These steps can help you keep yourself and your money safe when using an ATM.

Are ATMs Safe From Being Hacked?

The practice of card skimming is a principal reason why some consumers wonder if ATM machines are safe from hacking. As briefly noted earlier, ATM machines can have card skimmers attached to them. These devices collect debit card information and can allow fraudsters to access the associated bank account. Unfortunately, skimmers can be quite sophisticated and hard for consumers to detect. Some ways to protect yourself:

•  Using an ATM located within a bank can significantly lower the odds of interacting with a skimmer compared to accessing more isolated ATMs. Examples of isolated ATMs would be those located outside gas stations or similar sites.

•  It’s also possible to find ATMs in other safer locations, such as busy grocery stores and airports, where fraud may be less common due to the ATM machines being too visible or there being good security measures in place.

It’s worth noting that freestanding ATMs, the kind you might find at a convenience store or outside at a self-service gas station, may be hacked by criminals with wifi scanners and other ways of getting past any less-than-optimal security protocols. For this reason, it’s wise to use ATMs that are part of a major network and securely built into a location whenever possible.

Recommended: What Is a Contactless Payment?

The Takeaway

ATMs can offer a convenient way to quickly access essential banking services (and get cash) when on the go. While usually a safe option, using an ATM does come with some risk of fraud and theft. Because of this, it’s important to practice safe habits when using an ATM, such as only visiting one at a well-trafficked location and/or during the daytime.

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

Can you use an ATM at any time?

Some ATMs are open 24 hours a day, seven days a week; it’s often possible to find one accessible at any time. But because other ATMs are located within larger retail spaces (such as malls) or banks, they can have limited operating hours. ATMs may also be closed during less popular hours (such as the middle of the night) due to higher crime rates in an area.

When is the safest time to use an ATM?

The safest time to use an ATM is during the daylight hours, in well-trafficked locations when there are many people around. Whenever possible, try to avoid using an ATM after dark. If you must, it’s best to park close to the ATM and to only use it if it is in a well-lit area. Ideally, you should also bring someone else with you, to help you appear less vulnerable to a would-be thief.

How can ATMs be made safer?

ATMs are safest when they are in highly visible, well-lit areas that make committing a crime less appealing due to an increased likelihood of being caught. Having security cameras surrounding the ATM can also help discourage criminals, including those who may want to apply a card-skimming device. In general, it’s wise to use ATMs that are inside financial institutions or built into well-trafficked locations (such as your supermarket) vs. the freestanding ones or devices that are found outside, say, self-service gas stations.

One other note: Using cardless withdrawal methods can help you avoid the threat of card skimmers stealing your data.


Photo credit: iStock/Zorica Nastasic

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


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

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

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

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

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

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

*Awards or rankings from NerdWallet are not indicative of future success or results. This award and its ratings are independently determined and awarded by their respective publications.

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

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What Is a Bank Draft?

A bank draft (which SoFi doesn’t offer at this time) is a document that looks like a check, but the payer’s bank guarantees the funds, making them extremely reliable. Since bank drafts have no limit, their increased security makes them ideal for hefty transactions, such as purchasing a car. They are often used in business transactions as well.

Bank drafts can foster trust in a deal involving large sums of money since there’s no worry about a bounced check or handing over piles of physical cash. Here’s how a bank draft works and what to expect when you use one.

Key Points

•   Bank drafts are secure financial tools that are guaranteed by the issuing bank, and cannot bounce.

•   There is no limit on the amount of a bank draft, which can make them ideal for significant purchases, such as cars.

•   Bank drafts can be requested from a bank and typically have a fee of up to $10.

•   Bank drafts are physical documents that can be lost or stolen, and are difficult to cancel.

•   Alternatives to bank drafts include ACH payments, wire transfers, and money transfer apps.

🛈 While SoFi does not currently offer bank drafts, there are alternative online transfer methods you can use through the SoFi app or a web browser.

Bank Draft Definition

A bank draft is a financial instrument used to make payments — frequently large ones — that have your bank’s financial backing. Bank drafts look like typical checks but can’t bounce because the bank ensures the payment will go through, usually within 24 hours. In addition, bank drafts can be for any amount you like, unlike the situation with wrangling, say, ATM withdrawal limits.

You typically obtain a bank draft either by visiting a bank branch in person or making a request in writing. You’ll usually pay a fee of $0 or $10 to get a bank draft drawn on your checking account. While bank drafts technically don’t expire, financial institutions may refuse to process a bank draft that is more than a few months old.

Money Orders vs Bank Drafts

You can use both money orders and bank drafts to make payments, but these tools differ in several ways.

•   Money orders sent domestically must be less than $1,000, while bank drafts don’t have limits.

•   You must have a bank account to draw upon in order to get a bank draft, but you can get a money order from a bank, U.S. post office, and select grocery stores and retail locations. Money orders are often bought with cash, a debit card, or a traveler’s check.

•   You can cancel a money order and get a refund if your payee hasn’t cashed it yet, but banks usually won’t cancel a bank draft.

Knowing these differences can help you determine which financial tool is best suited for your situation.

How Do Bank Drafts Work?

To get a bank draft, you will typically follow these steps.

•   Ask your bank or credit union to issue a bank draft for the desired amount. You can do so in person at a branch or in writing.

•   Next, your financial institution confirms your account has sufficient funds for the bank draft and moves the money from your account into its reserve account. This way, they can guarantee the bank draft, meaning your payee can be sure of receiving payment.

•   Lastly, your financial institution creates the physical document with the payee’s name on it. Typically, you get a bank draft in person at a branch, though they can also be obtained via mail.

Like ATM fees, your financial institution may charge a nominal fee for bank drafts (as noted above, typically close to $10). However, you might receive the first several bank drafts for free at your bank. In addition, using a specific amount of bank drafts per month might eliminate the fee.

Pros and Cons of Bank Drafts

Bank drafts have pros and cons, just as checks, e-checks, money orders, and cash do. Keep the following in mind when using bank drafts:

Pros

First, the advantages of bank drafts:

•   Your financial institution acts as the intermediary for the transaction, making the payment secure and convenient. It adds a level of trust.

•   A bank draft is safer than carrying thousands of dollars in cash.

•   Bank drafts can’t bounce since your financial institution guarantees the payment.

•   Bank drafts have no limit in terms of the amount.

•   Therefore, they’re helpful for sizable transactions, such as a down payment for a home.

•   The Federal Deposit Insurance Corporation, or FDIC, insures most financial institutions, meaning the government will fulfill the bank draft’s value in the rare instance of a financial institution failing. This insurance covers up to $250,000 per depositor, per account category, per institution.

•   Bank drafts generally clear within 24 hours.

•   Financial institutions can usually convert bank drafts into the payee’s preferred currency, from U.S. dollars to euros and beyond.

As you can see, bank drafts can be a very useful tool to make a large payment.

Cons

Next, the downsides of bank drafts:

•   Your financial institution might charge you to issue a bank draft.

•   The bank draft isn’t an electronic transfer; it’s a physical document you must deliver to your payee.

•   Since it’s a physical document, your bank draft might become lost, stolen, or damaged.

•   It’s typically impossible to cancel a bank draft and receive a refund.

•   It may be challenging (but not impossible) to recover your money if it is lost.

•   Fees could be higher than other methods.

In these ways, there are some negative aspects to bank drafts that may mean they are not appropriate for every situation.

Canceling a Bank Draft

Generally, you can only cancel a bank draft in dire situations. Theft or fraud are usually the only reasons a financial institution will cancel a bank draft. However, your financial institution may have a policy stating they won’t cancel bank drafts under any circumstances.

That said, if you want to cancel a bank draft for a reason other than theft or bank fraud, you could have the payee cash the bank draft and give you the money. This option requires trusting the payee to agree to and provide the refund.

Bank Draft Alternatives

While bank drafts may suit some payment scenarios, they are just one among many ways to send money.

•   One alternative to bank drafts is automatic clearing house (ACH) payments. The ACH network allows banks, credit unions, and financial institutions to transfer funds to each other electronically. ACH payments are usually free but may have transfer limits. Also worth noting: They are solely for domestic transactions.

•   You could use a wire transfer, another electronic payment type that usually completes the payment within 24 hours. As with ACH payments, wire transfers have limits, such as $10,000 or $100,000. However, wire transfers are viable for foreign transactions.

•   Checks are another option. Receiving a large sum via a standard check involves the risk of it bouncing, so payees may hesitate to accept this form of payment. You could pay for a cashier’s check from your financial institution. This means the bank uses its funds to guarantee the payment. A certified check, in which the bank verifies that you to have the necessary funds in your account, is another possibility.

•   Money transfer apps, including such P2P platforms as PayPal and Venmo, are a financial tool that can offer speed and security as you move funds. (Instant accessibility may be available if the recipient pays a fee.) These apps may charge transaction fees and usually have daily transaction limits.

Money transfer apps link to your bank account, making their use seamless and convenient. However, depending on the app, your transaction might not have FDIC insurance, meaning a botched transaction could result in the permanent loss of money. In addition, the payer and payee need to have the same app to conduct a transaction.

As you see, there are many ways to transfer funds if a payment by bank draft doesn’t suit your needs.

The Takeaway

A bank draft is a financial tool typically used for large transactions, such as the payment for a home, a vehicle, or the purchase of office equipment. The bank guarantees payment to the payee by using its own reserves after verifying and transferring the issuer’s funds into a reserve account, which adds a layer of security and trustworthiness. However, because bank drafts are physical documents that you can’t easily cancel and that are subject to damage or theft, it’s best to handle them carefully and perhaps consider alternatives, such as electronic payments.

FAQ

How long does it take for bank draft to clear?

Bank drafts usually take 24 hours or less to clear because the payer’s financial institution guarantees the funds. However, the receiving bank may have its own policies about when it makes funds available to the account holder, so check with your financial institution about timing if you are receiving a bank draft.

Is a bank draft available immediately?

Bank draft funds generally become available within 24 hours of the payee depositing them. However, the payee’s financial institution might take up to a few business days to make the funds available, depending on its policies.

What do you need for bank draft?

You need a bank account to issue a bank draft. In addition, you need your account to have funds equal to or greater than the payment amount. You may also need to pay a small fee for the bank draft; typically, the cost is $10 or less.

Does a bank draft require a signature?

Neither the issuer nor the payee need to provide a signature for a bank draft. The sole party that signs a bank draft is an employee of the issuer’s bank or financial institution.


Photo credit: iStock/deepblue4you

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.

This content is provided for informational and educational purposes only and should not be construed as financial advice.

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