May
20
2024
3 Reasons Why Your Bank Account is Frozen

3 Reasons Why You Have a Frozen Bank Account

By | Budgeting & Goals, Financial Independence, money | Comments Off on 3 Reasons Why You Have a Frozen Bank Account

Bank accounts can be frozen for such reasons as your financial institution suspecting fraud or illegal activity. Your funds can also be made inaccessible if your bank is adhering to a court order about unpaid debts you owe. In addition, the government can freeze your account if you have unpaid student loans or taxes.

Regardless of the reason, having a bank account locked can be an upsetting situation that makes your basic financial life difficult. You might be left scrambling to pay bills and cover daily expenses.

Read on to take a closer look at this situation, including why bank accounts are frozen and what you can do if you find yourself facing this scenario and want your money unlocked.

Key Points

•   Bank accounts may be frozen due to suspected fraud, such as unusual large transactions or activities in unfamiliar locations.

•   Unpaid debts like taxes, student loans, or child support can lead to account freezes without a court judgment.

•   Illegal activities, including money laundering or funding terrorism, might result in a bank freezing an account.

•   The duration of an account freeze varies, depending on the resolution of the issue that caused the freeze.

•   To unfreeze an account, contacting the bank promptly and providing necessary documentation or resolving debt issues is essential.

What Is a Frozen Bank Account?

When a bank account is frozen it means the bank will no longer let you perform certain transactions. You can still access your account information and monitor your account. You will still be able to make deposits, including manual or direct deposit of your paycheck.

However, you won’t be able to make any withdrawals from the account or transfer money from the account to a different account.

Typically, any previously authorized payments or transfers will not go through either. That means that any bills you have set up on autopay likely won’t get paid.

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Why A Bank Would Freeze Your Account

Banks have the authority to freeze, or even close, a bank account for a range of reasons. These reasons generally fall into the following three categories.

1. Suspected Fraud

A bank’s reputation relies heavily on its ability to keep money safe, so account security is typically taken very seriously.

Banks are familiar with how you tend to spend your money, so an unusually large purchase or cash withdrawal can indicate fraud and trigger an account freeze.

Banks are also familiar with where you typically spend your money. A transaction that occurs in a different city or especially a different country can be a red flag that could trigger an account freeze.

It can be a good idea to inform your bank about travel plans both nationally and internationally to help prevent any account freezes during a trip.

If your bank flags suspicious behavior you’re certain you weren’t responsible for, it could be due to identity theft.

2. Unpaid Debts

Missing a single bill payment isn’t generally something that would disrupt access to your bank account, but a longstanding overdue bill might.

Collection agencies that purchase unpaid debts can secure court judgments for those debts, giving them the power to freeze (or “attach”) the bank accounts of debtors until they paid the money they are owed.

Most creditors can not have your account frozen unless they have a judgment against you. However, not all. Government agencies that collect federal and state taxes, child support, and student loans do not need to have a court judgment to attach your account.

Recommended: Debt Buyers vs. Debt Collectors

Any of the following types of outstanding debt could be the cause of a frozen account.

•   Unpaid Taxes

•   Student Loans

•   Mortgages

•   Car Loans

•   Personal Loans

•   Civil Lawsuits

•   Divorce Settlements

•   Child Support.

3. Illegal Activity

A bank account that is used to conduct criminal activity, or shared with someone who might be, can lead to the account being frozen.

Banks also work directly with law enforcement agencies and will freeze accounts of individuals that have been convicted of a crime or are under investigation.

Some specific activities that could lead to an account freeze include:

Writing Bad Checks. A single bounced check isn’t cause for alarm, but knowingly writing multiple checks from a bank account that doesn’t hold the funds to support them is illegal. If a bank observes too many bad check transactions, they may be inclined to freeze the account and alert the police.

Money Laundering. This is the process of generating money through illegal activity, and attempting to make it appear legal via multiple financial transactions. All banks and financial institutions are required to comply with federal anti-money laundering regulations and report any suspected activity directly to the authorities.

Terrorist Financing. Funding or organizing funds for terrorist groups and organizations is an illegal activity that can also result in an account freeze. Banks comply with federal laws that help prevent terrorism by freezing and reporting any accounts that exhibit suspicious activity related to terrorists.

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How Long Can A Bank Account Be Frozen?

Banks don’t typically follow any set rules regarding how long an account can be frozen. The length of time generally depends on how long it takes for the account holder to notice the freeze, contact the bank, and can resolve the issue that caused the freeze.

How Does a Frozen Bank Account Affect You?

Having a frozen bank account essentially means not having access to your money, and it can be especially difficult if it is your primary bank account.

Frozen funds means not being able to make purchases with a debit card, or withdrawals from an ATM. It can also mean that any auto-payments linked to that account will likely not be fulfilled, and any scheduled transfers won’t be completed.

Because these payments can bounce, you could also incur a non-sufficient funds charge, which may be deducted from your account.

If you don’t have enough in the account to cover it, you could end up with a negative balance, putting you into an overdraft. In this case, you could end up having to pay additional bank fees and interest to cover the shortfall.

Recommended: How to Avoid Overdraft Fees

Those with frozen accounts often must resort to using credit cards and can end up accumulating debt in order to cover their expenses while they sort out the issue with their bank.

If the bank suspects you’ve been using the account illegally for any reason, it could close your account completely. It can also report your account activity to authorities.

Recommended: Bank Fees You Should Never Pay

How Do You Unfreeze a Bank Account?

It can be a good idea to contact your bank as soon as you notice a freeze on your account. When discussing the issue, it can help to have a clear account of your most recent locations and transactions, and be prepared to share any information and supplemental documentation that can help clear up the issue.

If you can show that there’s no reason for the freeze, the bank will likely release the suspension and grant you full access to the account again.

If your account is frozen over unpaid debts, it can be a good idea to get the creditor’s contact information from your bank and then reach out to them directly. Once you have a better idea of what’s going on with your account, you may be able to work out a payment arrangement.

The Takeaway

When a bank freezes your account, it can mean there is something wrong with your account or that someone has a judgment against you to collect on an unpaid debt.

The government can also request an account freeze for any unpaid taxes or student loans.

Once the bank account is frozen, you cannot make withdrawals but can only put money in your account until the freeze is lifted.

If your account is suddenly inaccessible, it can be a good idea to contact your bank immediately to find a resolution.

Consider Opening a SoFi Checking and Savings®

If you’re on the hunt for a new type of bank account, see what SoFi offers.

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.

Photo credit: iStock/happyphoton

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.

This article is not intended to be legal advice. Please consult an attorney for advice.

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
The 70-20-10 Rule for Budgeting

The 70-20-10 Rule for Budgeting

By | Budgeting & Goals, Financial Independence, money | Comments Off on The 70-20-10 Rule for Budgeting

There are plenty of budgets out there that promise to help you manage your money more efficiently, and some of them can get quite complicated. That’s why many people opt for the 70-20-10 budget rule. It’s a simple, percentage-based formula that can help you get and keep your personal finances in good order.

This system can help you get better acquainted with what you earn and where it goes, while tracking your daily spending (that’s the 70% of your after-tax earnings) plus debt repayment and saving (the 20% and the 10%). These aspects of the 70-20-10 budget are part of its appeal, and it can guide you to better money habits. Read on to learn how it works and can be adapted for your particular needs.

Key Points

•   The 70-20-10 budget rule simplifies money management by allocating income into three categories: living expenses, savings/debt repayment, and investments/donations.

•   Living expenses should consume 70% of after-tax income, covering necessities and discretionary spending.

•   Savings and debt repayment are prioritized at 20%, focusing on high-interest debts and building emergency funds.

•   The remaining 10% is designated for investments or charitable donations, supporting long-term financial growth and personal values.

•   This budgeting framework can be adjusted based on individual financial situations and goals, ensuring flexibility.

What Is the 70-20-10 Rule?

The 70-20-10 rule is a way to allocate your monthly income into three categories:

•   Living expenses

•   Debt repayment and short-term savings

•   Investing and donations.

Using these categories can help organize the way you think about your income — how it comes in, and importantly, how it goes out. It’s a simple and often very successful way to get a personal budget in place.

Note: If it sounds very familiar, it’s worth noting that there is also the 50/30/20 budget rule, a slightly different spin on budgeting that also works with easy-to-calculate percentages. To see a breakdown using this method, check out the 50/30/20 rule calculator.

Now, take a closer look at each of the three components of this budget tool.

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

70% for Living Expenses

Living expenses are exactly what they sound like — expenditures you need or want to make each month. To see how much of your post-tax dollars go toward these costs every month, you’ll do a little math. You’ll add up the monthly payments that cover essentials such as housing, utilities, food, childcare, and medical expenses.

It also includes expenditures made only once or twice a year, such as auto or home insurance premiums or yearly car tune-ups. In those cases, you simply figure the total paid for the year, divide by 12, and add that number to the monthly figure.

For the purposes of the 70-20-10 rule budget, living expenses also include discretionary spending on things like shopping, entertainment, travel, gym memberships, and other non-essential items.

To get started, scan through a couple of months of your bank statements, credit card, utility, medical, housing, insurance, and cable and internet bills to see how you’re tracking. Use the common living expenses listed below as a guide.

Housing

•   Rent or mortgage and property tax

•   Utilities

•   Maintenance

•   Insurance

Transportation

•   Car payments

•   Maintenance

•   Gas and tolls

•   Parking

•   Public transportation costs

•   Taxis and ride shares

•   Auto insurance

Childcare

•   Day care

•   After-school programs

•   Tuition

•   Babysitting

•   Clothes, personal care, and related expenses

Insurance

•   Health insurance premiums (if not deducted from your paycheck)

•   Auto and home insurance premiums

•   Life insurance premiums

•   Disability income insurance premiums

Food

•   Groceries

•   Takeout and restaurants

Health

•   Deductibles, copays, and coinsurance

•   Medical and dental appointment costs not covered by insurance

•   Prescriptions and over-the-counter drugs

•   Eyeglasses and contacts

Entertainment

•   Concert, theater, and movie tickets

•   Paid streaming and podcast services

•   Books

•   Travel

Pets

•   Food, equipment and accessories, and toys

•   Flea and tick prevention/other medications

•   Vet bills

•   Pet insurance

Personal

•   Clothing/shoes/accessories

•   Hair care and other grooming

•   Toiletries/cosmetics

•   Gym membership

If your monthly number hits the 70% mark or less, congratulations. You’re living within your means. For most people, however, this first calculation will likely exceed 70%. More on what to do when that happens below. For now, keep looking at the big picture of tallying your 70-20-10 numbers.

20% for Saving and Debt Repayment

Next, you want to calculate how much it will take to hit the 20% goal of saving and debt repayment. (If you don’t have debt, hooray; you can zoom straight to saving. But many people need to use this bucket to pay off debt and save.)

If you have credit card debt, you’ll likely want to focus all or part of this 20% on paying that down so you can avoid the high interest payments. If you have college debt, the monthly repayment amount should be included here in the 20% category.

Once that’s done, you’ve cleared the decks for other savings, whether for an emergency fund (aim for three to six months’ worth of expenses) or a near-term goal such as a vacation or down payment for a home.

Depending on what and why you are saving, different kinds of savings accounts may make sense. Consider these smart options to get extra benefits:

•   High-yield savings accounts make sense if you need your money liquid (accessible) but want to earn more interest than the current rate on traditional savings accounts. Online banks vs. traditional banks often offer the best rates.

•   A certificate of deposit (CD) is another option. These accounts lock up your money at a specific interest rate for a period of time, usually from six months to a few years. What’s nice is you know how much money your money will earn, but keep in mind, if you pull your money out early, you’ll typically face penalty fees.

•   Money market accounts (MMAs) combine some aspects of a savings account with features of a checking account. You’ll earn interest on your savings (possibly in the ballpark of high-yield accounts), and you may be able to access funds via debit card or checks.

Once you’ve taken a look at your savings/debt picture, you’ll determine how best to handle the 20% rule. Depending on the size of your debts and your living expenses, you may need to temporarily allocate more or less funds to this category. More on that below.

💡 Quick Tip: Most savings accounts only earn a fraction of a percentage in interest. Not at SoFi. Our high-yield savings account can help you make meaningful progress toward your financial goals.

10% for Donation or Additional Savings

The remaining 10% can be allocated to investing in your future, usually for retirement. Contributions to an IRA, 401(k) 403(b), self-employed retirement savings vehicles, or other long-term, tax advantaged savings plan can be best for this category. This is money that you won’t need in the short term, so it can be invested more aggressively than the savings in your 20% category.

In addition, part of this allocation can go to charitable donations. Perhaps there’s a cause you want to support, from animal rescue to medical research, or you like to donate to your college; it’s your call.

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.


Example of the 70-20-10 Budget Rule

In terms of calculations, say your monthly income after taxes is $6,000. Here’s how that money would look on the 70-20-10 budget plan.

•   For living expenses, you would multiply 6,000 x 0.70, and see that you have $4,200 of after-tax dollars for housing, utilities, food, entertainment, and all the other items listed above.

•   For savings, you would multiply 6,000 x 0.20, or $1,200 to put toward savings and debt.

•   Lastly, you would multiply 6,000 x 0.10, and see that you have another $600 to put toward additional savings and/or donations.

Here’s the math: $4,200 + $1,200 + $600 = $6,000.

How to Customize the 70-20-10 Rule to Fit Your Needs

The beauty of the 70-20-10 plan is its simplicity — and flexibility. Once you create a budget this way, you can customize the allocations within reason to meet your own needs and financial goals over time. Creating a budget can give you peace of mind, because you’ll know you are taking care of your financial health. Here, a few tips for increasing your likelihood of success in following this plan:

Include Side Hustle Earnings and Windfalls

Bonuses, tax refunds, money from side hustles and other income should be factored in later, as they are earned; don’t consider them as part of your base income. The bulk of the extra income can be designated toward the area most in need of attention, such as paying off credit card debt or boosting emergency savings. But do feel free to set aside a small percentage of those earnings as a reward for your hard work and have some fun with it.

An important note: If not already evident, this budget technique works best for those with a steady income, who are on a payroll. If you are freelance, a gig worker, or seasonal employee and your income is variable, this may not be the best technique for you.

Adjust the Percentages When Needed

After tracking your spending and making possible cuts, you may find you still can’t fit living expenses into the 70% category. Maybe you are just starting your post-grad life, earn a lower income, or live in an area with a high cost of living.

Don’t stress out over this! If you have limited funds and lots of bills, you may have to allocate a bit more to that category and put less in short-term savings until that next raise or other income spurt comes through.

Protect the 10%

A quick note for people with lots of credit card debt: Those hefty bills are a sign that you may be spending more than your income level allows. You’ll probably do better with the 70-20-10 budget if you increase the paying debt/savings percentage to higher than 20% till your debt is lower. Take steps to reduce discretionary spending, perhaps even more than you have already.

In addition, you may find you need to make more drastic cost-cutting moves too, such as finding an apartment with less expensive rent or ditching the expensive car payments and switching to mass transit. The goal is to get costly debt under control so you can start saving for your priorities and peace of mind.

Prioritize High-Interest Debt

Whenever you find the need to adjust percentages, it may be best to avoid tampering with the 10% investing for the future allocation. The sooner you start saving for retirement, the more that money will add up over time. By the same token, older people who may need to catch up on retirement savings may want to increase this 10% allocation. One of the reasons the 70-20-10 plan can be successful is that it helps you balance both short-term needs with long-term financial planning.

If you do make percentage adjustments, be sure to continue to track expenses so you can see when you can readjust allocations back to the original 70-20-10 plan.

The Takeaway

The 70-20-10 budget formula divides your after-tax income into three buckets: 70% for living expenses, 20% for savings and debt, and 10% for additional savings and donations. By allocating your available income into these three distinct categories, you can better manage your money on a daily basis. You can also take steps toward achieving your financial goals in the short- and long-term.

As you establish a budget that works for you, don’t forget to find the right banking partner.

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.

Photo credit: iStock/baona

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
Am I Responsible for My Spouse's Debt?

Am I Responsible for My Spouse’s Debt?

By | Family Finances, Life & Career, money | Comments Off on Am I Responsible for My Spouse’s Debt?

You may enter into marriage with shared goals and plans for the future, but what about debt? Whether your partner’s debt becomes your responsibility when wed depends on the state you reside in, the kind of debt, and other specifics.

You’ll learn more about that ahead. This guide covers the difference between common law and community law states and the different sorts of debt that may be managed in a marriage. Read on to learn the details.

Key Points

•   Responsibility for a spouse’s debt depends on the state’s laws, specifically if it’s a common law or community property state.

•   In community property states, debts incurred during marriage are usually shared.

•   Separate debts before marriage generally remain the individual’s responsibility.

•   Joint account holders are liable for any debts accrued through those accounts.

•   Specific state laws and the type of debt influence whether one is responsible for their spouse’s debts.

How Does Debt in Marriage Work?

Here’s a quick course in marital property and marriage guidelines:

•   Marital property refers to assets acquired as a couple, such as real estate, bank accounts, and investments. Debt can also be a facet of marital property.

•   The state in which you live (meaning where your permanent address is) determines whether you are in a community or common law state and governed by its rules.

•   Most states are common law states. If property is acquired during a marriage by one partner and in only that partner’s name, it’s their sole property. So if you were married and bought a Tesla in your name, the car is yours.

•   In a community property state, however, assets and debts acquired by one spouse in a marriage are considered to be the property of both partners.


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In Which States Are You Responsible for Your Spouse’s Debt?

You are probably curious about which states have community property law. Here’s the list or the nine that do:

•   Arizona

•   California

•   Idaho

•   Louisiana

•   Nevada

•   New Mexico

•   Texas

•   Washington

•   Wisconsin

What’s more, Alaska, the Commonwealth of Puerto Rico, South Dakota, and Tennessee have enacted elective community property laws. These are “opt-in” if a couple chooses to do so.

There are exceptions to these rules, such as if one partner receives an inheritance or if one owned property prior to marriage.

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Am I Responsible for My Spouse’s Credit Card Debt?

Whether or not you are responsible for your spouse’s credit card debt can depend on which state you reside in.

In a common law state:

•   In a common law state, your partner’s credit card belongs only to them. The law provides that one spouse owns a particular asset unless you both put your names on it. That includes property like houses, automobiles, and even credit cards. If your spouse has a credit card with their name on it, it’s theirs alone. Therefore, the credit card debt liability also falls entirely on their shoulders.

•   You would need to become a joint account holder in order to own any part of that debt. However, you could also be on the hook for that debt if you co-signed on the account.

•   If your spouse made you an authorized user, though, that still leaves the credit card entirely in their name and not yours, meaning you hold no responsibility for paying any associated debts.

In a community property state:

•   In a community property state, if they get a credit card while you’re married, that debt now belongs to both of you. Both partners are liable, regardless of who might have opened the account or accrued the debt.

•   There is an exception: If you and your spouse are separated before they begin racking up the debt in question, you may not be held responsible. Each situation is different, however, and the state could hold you responsible for the debt in question should it be proved the debt was incurred for the benefit of the marriage.

•   It’s good to keep in mind that if you have debts from before the marriage, such as a car loan, those will belong only to you. However, if you get another car loan after getting married, that is now a communal debt that you and your partner share.

Am I Responsible for My Spouse’s Medical Debt?

As you might guess, in community property states, a spouse is likely to be held responsible for a spouse’s debts, though the specifics may vary state by state. This includes medical debt.

In a common law state, you typically would not be responsible for debts your spouse alone incurred, but again, there are exceptions to this rule. (For instance, if you cosign when a partner is admitted for medical treatment.) You’ll learn more about these scenarios below.

Recommended: What Is Financial Minimalism?

Situations Where You May Be Responsible for Your Spouse’s Debt

When it comes to debt and marriage, there are some scenarios worth considering. If you are the kind of person to wonder, “How can I protect myself from my husband’s debt?” or “wife’s debt,” then read on.

When You Are a Joint Account Holder

Even if you live in a community property state, if your spouse racks up debt on a credit card you jointly hold, you may indeed be liable.

When You Live in a Community Property State

As you read above, if you live in a community property state, your spouse’s debts acquired during marriage will become yours as well.

When You “Opt in” into Community Property

As noted above, Alaska, the Commonwealth of Puerto Rico, South Dakota, and Tennessee have laws that can allow you to opt into community property arrangements although the states may default to common law guidelines. If you do so, you will become liable for debt that your partner incurs.

When You Cosign for Medical Payments

In a situation where you live in a common law state, if your spouse were to enter medical care or a medical facility, and you agree to cosign, you will become liable for the expenses related to this treatment.

Possibly When Your Spouse Dies

Much as no one wants to think about death, there are situations in which you could be liable for a deceased partner’s debts. These include if you live in a community property state, if you cosigned on a loan or for medical care, or if you had a joint account, among other scenarios.

Will My Partner’s Debt Affect My Credit Score?

Regardless of whether you live in a community property or common law state, your credit score is yours alone. Being married doesn’t mean that you and your spouse now have the same score or that your scores get merged.

However, if you and your spouse both sign up for a joint credit card or take out a loan together, that information will show up on each of your credit reports.

What Happens to Debt If We Separate Or Divorce?

When couples decide to separate, one of the first questions may be “How much will a divorce cost me?” That is typically very quickly followed by, “What happens to our debt?” The answer to the latter will likely be: It depends.

•   Debt responsibility in a divorce isn’t as simple as dividing things in half. For example, if you have a credit card that is only in your name, that debt remains entirely with you in a common law state. However, if you have a joint credit card, most states will see that as joint debt if you separate or divorce, meaning you’ll both be responsible for that debt. It doesn’t matter who was making payments or running up bills; the law will see it as a shared burden.

•   If, however, you live in a community property state and your spouse rings up a considerable amount of credit card debt, that could be seen as a shared burden. A creditor might be able to seek repayment from both of you. There are various factors to consider, so working with a legal professional with expertise in this realm can be a smart move.

•   If you have a house, you may want to consider selling it off and splitting the money. Trying to untangle a mortgage (a form of consumer debt) if one of you will be moving out can get dicey. The partner who’s staying in the home may need to buy out the partner who’s leaving, for instance.

•   If you did any investing as a couple during your marriage, that property will need sorting out. Investments come with legal and tax obligations, on top of the financial complexity. If you invested together, you may want to split the shares or account. Or you might think about selling off those investments and dividing the proceeds during a divorce. However, a lot of investments like that come with tax burdens, so keep that in mind if you have to go this route.

Of course, the courts might answer this and other questions for you. Divorces play out in different ways, including whether they are contested or uncontested. Working with a divorce attorney can help you understand the options and possible outcomes as your marriage ends.

Recommended: 10 Personal Finance Basics

The Takeaway

Even if you decide to merge your financial lives completely, finances can become complicated in a marriage. In terms of debt and whose is whose, there is the question of whether you live in a community property or common law state. There will also be the matter if debt was held before marriage or after the wedding. And then there are such concerns as whether you and your spouse cosign or become joint holders on loans and/or accounts or keep things separated. All of these factors (and more) can impact whether or not you are liable for your spouse’s debt.

When you marry, your personal banking will be impacted as well as your lines of credit and debt. You could completely merge your banking, keep things separate, or have both a joint and separate account. SoFi can offer you options to suit your particular 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.


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FAQ

Will my partner’s debt affect my credit score?

Credit scores are specific to each individual. However, if you cosign a loan or open a joint credit card, the specifics of that account will turn up on each partner’s credit reports and could impact each spouse’s score.

Am I responsible for my spouse’s debt after death?

Whether or not you are liable for your deceased spouse’s debt will depend on various factors, such as whether you live in a community property or common law state, whether the debt was incurred before or during the marriage, and whether the debt is in a joint or cosigned form.

Are married couple’s responsible for each other’s debt?

Married couples can be responsible for each other’s debt in certain circumstances, such as if the debt was incurred during the marriage in a community property state or if the debt was cosigned for or accrued with a joint credit card, among others.

Can I be forced to pay my spouse’s debt?

There are a couple of situations in which you could be forced to pay your spouse’s debts, such as if you live in a community property state or if you are a joint account holder.

Photo credit: iStock/AleksandarNakic

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.

This article is not intended to be legal advice. Please consult an attorney for advice.

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 Is an ACH Payment and How Does It Work?

By | Budgeting & Goals, Financial Independence, money | Comments Off on What Is an ACH Payment and How Does It Work?

To put it simply, an ACH transfer moves funds electronically from one bank account to another. The three letters ACH stand for Automated Clearing House, which is a centralized system. You might think of it as Grand Central Station for the electronic distributions of funds. The ACH network could be how your paycheck appears right on schedule in your bank account thanks to direct deposit, and it may be how you send online payments to, say, your WiFi provider.

Key Points

•   ACH transfers electronically move funds between bank accounts via a centralized system known as the Automated Clearing House.

•   These transfers are integral for direct deposits from employers, government benefits, and online bill payments.

•   The ACH network was established in the late 1960s to reduce the overwhelming number of checks processed by banks.

•   ACH payments are typically faster and more cost-effective than traditional methods, often completing within one business day.

•   Despite their benefits, ACH transfers can have limitations such as transaction caps and potential fees for expedited services.

What Is an ACH Payment?

An ACH transfer is a convenient way to move money around, without using checks, credit cards, or other methods. It enables direct deposits from employers and government benefit programs, bill payments, and external fund transfers. What’s more, ACH transfers fuel person-to-person payments. Such providers as PayPal and Venmo use the ACH network.

As mentioned above, ACH stands for Automated Clearing House. But it’s not a bricks and mortar location. It is a network that financial institutions use to aggregate transactions for processing. This processing is then typically completed three times a day on every business day.

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How Do ACH Payments Work?

Here, you’ll learn a little more about what is ACH, the history of ACH payments, and how they work.

History of ACH

The ACH network began in the late 1960s, when a group of U.S. bankers worried about the increasing number of checks being issued and cashed. They feared that rising numbers of checks would overwhelm the banking system, and they began to explore technological solutions.

•   In 1972, an ACH association formed in California to manage electronic banking transactions, with other regional ACH networks forming soon after that.

•   In 1974, these regional networks formed NACHA (the nonprofit National Automated Clearing House Association) to oversee and administer the ACH network. This organization creates and enforces how this network works, while the Federal Reserve and The Clearing House actually process the transactions.

•   In 1975, the Social Security Administration began testing direct deposit, which led to today’s widespread adoption. Approximately 99% of SSA’s payments are currently completed via direct deposit.

•   In 2001, online and phone payments via ACH became available, a key step forward to accelerating and automating banking transactions.

•   In the most recent year studied, ACH payments numbered more than 30 billion, and the total dollars transferred exceeded $77 trillion. These figures indicate how big a role ACH transfers play in global finance.

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Categories of ACH

The ACH network processes bank transfers for both direct deposits and direct payments. Direct deposits usually include:

•   Paychecks

•   Government benefits

•   Tax refunds

•   Expenses that an employer is reimbursing an employee for

•   Annuity payments

•   Interest payments.

In terms of direct payments, the ACH network may process other transactions. What is an ach transfer can include:

•   Online bill payments from your bank account

•   PayPal, Venmo, and other P2P services.

Types of ACH

As you’ve already learned, ACH works both ways: incoming and outgoing payments can be processed via the ACH network.

ACH Credit

An ACH credit occurs when one party sends funds to another entity. A very familiar instance of this would be the way (if you are among the millions who have direct deposit) arrives in your designated bank account on payday. Your employer sent instructions, their bank transmitted funds to yours, and you received your money.

ACH Debit

An ACH debit, as you might expect, moves in the opposite direction. In this case, funds are pulled from one account and processed in batches to get to their destination. In the situation of a direct deposit paycheck, while the employee receives the ACH credit, the employer’s account gets debited.

Recommended: How to Calculate Savings Account Interest

What Is an Example of an ACH Payment?

You’ve just gotten the scoop on ACH credits vs. debits, but what is a specific example of an ACH payment? When Social Security payments get deposited in millions of Americans’ bank accounts monthly, that’s the ACH system at work.

Also, if you’ve set up an automated payment of a utility or other recurring bill, that may also be an example of an ACH payment in action.

Benefits of ACH Payments

So now you know what ACH transactions are and how they became so popular. Let’s look at their benefits to your daily life and banking.

•   Speed. They are quick and save you time running around with checks and the like. Plus, the transactions themselves can be fast. The transfers are typically completed within one day. There may be ways offered to speed up your payment, often for a fee (such as when PayPal or Venmo offers an instant transfer).

•   Convenience. It can be very convenient to have mortgage payments, utility bills, and other payments automatically deducted from a bank account. Or send money to someone via a P2P service. With ACH payments, as we noted, there’s no need to travel to the financial institution to pay the bills or to write a paper check and mail it in.

•   Low cost. ACH transfers are typically free and may even actually save you money. For example, a bank may offer a lower rate on a mortgage loan or student loan if you set up an automatic ACH funds transfer for your payments. (An exception may be when a financial institution charges a nominal fee to transfer funds to another bank.)

Downsides of ACH Transfers

There are a few potential disadvantages when it comes to using ACH transfers. Specifically:

•   Transaction limits. Some banks will limit how much money you can send by ACH transfer in a specific time period, or they might not accept international ACH transfers.

•   Penalties for too many transactions. If you are completing ACH payments from your savings account and that account has a cap on how many withdrawals you can complete per month, you could be penalized.

•   Timing matters. Not all banks send ACH transfers at the same time of day — meaning they may have a cut-off time for a transfer to be processed on the next business day. This might cause problems for people needing to pay a bill by a certain due date and/or time.

Security of ACH Transfers

You may wonder whether these electronic transactions are secure. An ACH transfer can in fact be more secure than many other payment methods.

•   The reality is that paper checks can always be lost or stolen. With ACH deposits or payments, you only need to provide bank information once, when the automated transaction is set up. Contrast that with writing a check every month and mailing it.

•   Regulations exist that protect consumers in the rare case of an electronic funds transfer negatively impacting their bank accounts because of fraud or error.

•   ACH payments are very safe because they go through a clearing house that has strict rules about confidentiality of information. In addition, ACH transfers typically have an extremely low rate of error.

ACH Transfers vs. Wire Transfers

When thinking about these kinds of transactions, you may wonder, “What’s the difference between ACH transfers vs. wire transfers?” A wire transfer is another method of electronically transferring funds, which means this system comes with many of the same benefits as ACH transfers bring.

Consider a couple of scenarios that highlight the potential differences:

•   Wire transfers may occur within one business day, with funds often available for use the same day. In many cases, though, a bank employee needs to review this largely automated process, so the funds may not be immediately visible in the recipient’s account — and international wire transfers may take more than a day.

•   ACH transfers, however, are processed in clearinghouses and banks in batches. The ACH system may sometimes provide same-day transfers and is increasingly moving towards this same-day benefit being available more often.

•   In general, a wire transfer cannot be reversed.

•   An ACH transfer, though, can be reversed in some situations.

•   A last but important point: ACH transfers are often free, while wire transfer fees can cost the person sending it up to $35 or more, and the recipient might have to pay a small fee, too.

Recommended: Can You Use Your Debit Card in Another Country?

The Takeaway

ACH transfers can speed and smooth your financial life, automatically depositing and withdrawing funds so you don’t have to deal with checks, cards, or the time it takes for money to clear. That’s why they are such a popular way to transfer funds, such as receiving one’s paycheck by direct deposit.

In addition to ACH payments, another way to ensure a smoothly functioning financial life is to partner with a bank account that offers convenient access and the tools you need most.

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


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

FAQ

How long does an ACH transfer take?

ACH transfers typically take a day, but they may take as long as three days.

What is needed for an ACH transfer?

To complete an ACH transfer, the following are needed: the name, routing number, and account number of the destination, whether the account is a business or personal account, and the amount of money to be sent.

How do I set up an ACH payment?

An ACH payment can be set up in a variety of ways. As a consumer vs. a business, you might use a payment app or see what forms of money transfers your bank uses. For instance, many use Zelle®. Or you could see if the prospective recipient of your funds (say, a utility company) offers an automated payment system, which might use the ACH network.

Can you send an ACH to a personal account?

Yes, you can send an ACH payment to a personal account. For example, if you use a payment app to send a friend money for your share of a dinner out that they paid for, you would likely be sending an ACH payment.

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 Is a Returned Item Fee (NSF Fee)?

Returned Item Fees: What They Are & How to Avoid Them

By | Budgeting & Goals, Financial Independence, money | Comments Off on Returned Item Fees: What They Are & How to Avoid Them

Returned item charges are bank fees that are assessed when you don’t have enough money in your account to cover a check (or online payment) and the bank doesn’t cover that payment. Instead, they return the check or deny the electronic payment, and hit you with a penalty fee. Returned item fees are also called non-sufficient funds (NSF) fees. While these fees used to be ubiquitous, some banks have chosen to eliminate them.

Read on to learn exactly what NSF/returned item fees are and how you can avoid paying them.

Key Points

•   Returned item fees, also known as non-sufficient funds (NSF) fees, are charged when an account lacks enough funds to cover a check or electronic payment.

•   These fees can be avoided by closely monitoring account balances and setting up bank alerts for low balances.

•   Linking a savings account to a checking account can provide a backup to cover shortfalls, potentially avoiding NSF fees.

•   Using a debit card strategically can prevent large holds that might lead to NSF fees for other transactions.

•   Choosing a bank that offers no-fee overdraft protection can also help avoid these fees.

What Is a Non-Sufficient Funds (NSF) Fee?

A non-sufficient fund or NSF fee is the same thing as a returned item fee. These are fees banks charge when someone does not have enough money in their checking account to cover a paper check, e-check, or electronic payment. They are assessed because the bank has to put forth additional work to deal with this situation. They also serve as a way for banks to make money. The average NSF fee is $19.94.

In addition to being hit with an NSF fee from the bank, having bounced checks and rejected electronic payments can cause you to receive returned check fees, late fees, or interest charges from the service provider or company you were attempting to pay.

💡 Quick Tip: Banish bank fees. Open a new bank account with SoFi and you’ll pay no overdraft, minimum balance, or any monthly fees.

How Do Non-Sufficient Fund Fees Work?

Here’s a basic example. Let’s say that someone has $500 in the bank. They withdraw $100 from an ATM and forget to record that transaction. Then, they write a check for $425, believing that those funds are available:

•   Original balance: $500

•   ATM withdrawal: $100

•   New actual balance: $400

•   Check amount: $425

•   Problem: The check is for $25 more than what is currently available.

The financial institution could refuse to honor this check (in other words, the check would “bounce” or be considered a “bad check”) and charge an NSF fee to the account holder. This is not the same thing as an overdraft fee.

An overdraft fee comes into play when you sign up for overdraft protection. Overdraft protection is an agreement with the bank to cover overdrafts on a checking account. This service typically involves a fee (called an overdraft fee) and is generally limited to a preset maximum amount.

Are NSF Fees Legal?

Yes, NSF or returned item fees are legal on bounced checks and returned electronic bill payments. However, they should not be charged on debit card transactions or ATM withdrawals.

If you don’t opt in to overdraft coverage (i.e., agree to pay overdraft fees for certain transactions), then the financial institution cannot legally charge overdraft (or NSF) fees for debit card transactions or ATM withdrawals. Instead, the institution would simply decline the transaction when you try to make it.

No federal law states a maximum NSF fee. But The Truth in Lending Act does require banks to disclose their fees to customers when they open an account.

The Consumer Financial Protection Bureau has been pushing banks to eliminate NSF fees, and their efforts have paid off. Many banks have done away with NSF fees and others have lowered them.

Are NSF Fees Refundable?

You can always ask for a refund. If you’ve been with a financial institution for a while and this is your first NSF fee, you could contact the bank and ask for a refund. The financial institution may see you as a loyal customer that they don’t want to lose, so they may say “yes.” That said, it’s entirely up to them — and, even if they agree the first time, they will probably be less willing if it becomes a pattern. (Or, they may say “no” to the very first request.)

Recommended: Common Bank Fees and How to Avoid Them

Do NSF Fees Affect Your Credit?

Not directly, no. Banking history isn’t reported to the consumer credit bureaus. Indirectly, however, NSF fees could hurt your credit. If a check bounces — say, one to pay your mortgage, car payment, credit card bill, or personal loan — this may cause that payment to be late. If payments are at least 30 days late, loans and credit cards can be reported as delinquent, which can hurt your credit.

And if a payment bounces more than once, a company might send the bill to a collections agency. This information could appear on a credit report and damage your credit. If you don’t pay your NSF fees, the bank may send your debt to a collection agency, which could be reported to the credit bureaus.

Also, keep in mind that any bounced checks or overdrafts could be reported to ChexSystems, a banking reporting agency that works similarly to the credit bureaus. Too many bounced checks or overdrafts could make it hard to open a bank account in the future.

What Happens if You Don’t Pay Your NSF Fees?

If you don’t pay your NSF fees, the bank could suspend or close your account and report your negative banking history to ChexSystems. This could make it difficult for you to open a checking or savings account at another bank or credit union in the future. In addition, the bank may send your debt to a collection agency, which can be reported to the credit bureaus.

How Much Are NSF Fees?

NSF were once as high as $35 per incident but have come down in recent years. The average NSF is now $19.94, which is an historical low.

When Might I Get an NSF Fee?

NSF fees can be charged when there are insufficient funds in your account to cover a check or electronic payment as long as the bank’s policy includes those fees.

Recommended: Negative Bank Balance: What Happens to Your Account?

What’s the Difference Between an NSF and an Overdraft Fee?

An NSF fee can be charged if there aren’t enough funds in your account to cover a transaction and no overdraft protection exists. The check or transaction will not go through, and the fee may be charged.

Some financial institutions, though, do provide overdraft protection. If you opt in to overdraft protection and you have insufficient funds in your account to cover a payment, the bank would cover the amount (which means there is no bounced check or rejected payment), and then the financial institution may charge an overdraft fee. So with overdraft, the transaction you initiated does go through; with an NSF or returned item situation, the transaction does not go through and you need to redo it. Fees may be assessed, however, in both scenarios.

How to Avoid NSF Fees

There are ways to avoid overdraft fees or NSF fees. Here are some strategies to try.

Closely Watch Your Balances

If you know your bank balance, including what’s outstanding in checks, withdrawals, and transfers, then a NSF situation shouldn’t arise. Using your bank’s mobile app or other online access to your accounts can streamline the process of checking your account. Try to get in the habit of looking every few days or at least once a week.

Keep a Cushion Amount

With this strategy, you always keep a certain dollar amount in your account that’s above and beyond what you spend. If it’s significant enough, a minor slip up still shouldn’t trigger an NSF scenario.

💡 Quick Tip: If your checking account doesn’t offer decent rates, why not apply for an online checking account with SoFi to earn 0.50% APY. That’s 7x the national checking account average.

Set Up Automatic Alerts

Many financial institutions allow you to sign up for customized banking alerts, either online or via your banking app. It’s a good idea to set up an alert for whenever your balance dips below a certain threshold. That way, you can transfer funds into the account to prevent getting hit with an NSF fee.

Link to a Backup Account

Your financial institution may allow you to link your savings account to your checking account. If so, should the checking balance go below zero, they’d transfer funds from your savings account to cover the difference.

Use Debit Cards Strategically

If you use your debit card to rent a car or check into a hotel, they may place a hold on a certain dollar amount to ensure payment. It may even be bigger than your actual bill. Depending upon your account balance, this could cause something else to bounce. So be careful in how you use your debit cards.

Look for No-Fee Overdraft Coverage

You can avoid NSF fees by shopping around for a bank that offers no-fee overdraft coverage.

The Takeaway

Returned item fees (also known as NSF fees) can be charged when there are insufficient funds in your account to cover your checks and electronic payments. When you get hit with an NSF fee, you’re essentially getting charged money for not having enough money in your account — a double bummer. To avoid these annoying fees, keep an eye on your balance, know when automatic bill payments go through, and try to find a bank that does not charge NSF fees.

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 happens when you get an NSF?

If you get charged an non-sufficient funds (or NSF) fee, it means that a financial transaction has bounced because of insufficient funds in your account. You will owe the fee that’s listed in your bank’s policy.

Is an NSF bad?

If a financial transaction doesn’t go through because of insufficient funds, then this can trigger returned item charges (NSF fees). This means you’re paying a fee for not having enough money in your account to cover your payments, a scenario you generally want to avoid.

Does an NSF affect your credit?

An NSF fee does not directly affect your credit, since banking information isn’t reported to the consumer credit agencies. However, if a bounced check or rejected electronic payment leads to a late payment, the company you paid could report the late payment to the credit bureaus, which could impact your credit.

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