Mar
21
2023
Opening a Foreign Currency Bank Account Online

What You Need to Know About Foreign Currency Bank Accounts

By | Financial Independence, Life & Career, money | Comments Off on What You Need to Know About Foreign Currency Bank Accounts

A foreign currency bank account, also known as a multicurrency account, can facilitate transactions made in foreign currencies; that is, not in U.S. dollars. This can be a significant benefit for businesses. They may use multicurrency (or foreign currency) bank accounts for international transactions as well as to support operations overseas. This can offer a major convenience because of the flexibility with different currencies.

But these multicurrency accounts aren’t just for businesses. Some Individuals may also want to fund a bank account with foreign currency in certain situations. Read on to learn more about this topic, including:

•   What a foreign currency account is

•   How to open a multicurrency account

•   The pros and cons of a foreign currency account

•   The fees associated with this kind of bank account

🛈 Currently, SoFi does not allow bank accounts to be opened in any currency other than USD.

What Is a Multicurrency Account?

A foreign currency bank account, or multicurrency account, is an account that’s designed to hold money denominated in foreign currencies. It may also be referred to as a borderless account. It is a simpler way to deal with regular deposits of foreign currencies.

The types of currencies accepted for deposit or used for withdrawals can be determined by the bank. Some of the currencies your bank may process include:

•   Australian dollars (AUD)

•   Canadian dollars (CAD)

•   Euros (EUR)

•   Great Britain pound sterling (GBP)

•   Japanese yen (JPY).

As mentioned, foreign currency accounts can be opened for business or personal reasons. Businesses that operate globally may require these accounts in order to send payments to vendors or receive payments from international clients.

You might open a foreign currency account for yourself, as an individual, in a few different circumstances. Perhaps you live or are working abroad, Or maybe you regularly make payments overseas or need to send money to friends and family internationally.

How Does a Multicurrency Account Work?

With a multicurrency account, you are able to deposit, hold, and send money in different currencies, just as the name implies. Depending on the financial institution, you may be able to earn interest on deposits, as well.

You may be able to convert funds back and forth into foreign currencies as needed without paying the usual fees associated with these operations.

A multicurrency bank account that’s set up as a savings account might follow typical savings account rules. For example, the bank may limit you to six withdrawals from the account per month (though these regulations have been loosened since the COVID-19 pandemic; check with your financial institution). If that limit applies and you exceed it, the bank may impose an excess withdrawal fee. Keep in mind that any fees assessed for a foreign currency account may be processed in U.S. dollars.

Multicurrency accounts at Federal Deposit Insurance Corporation (FDIC) member banks enjoy FDIC protection, up to the established limit. The FDIC insures banking customers up to $250,000 per depositor, per financial institution, per ownership category. This may well reassure you about the safety of your funds.

One thing to note is that foreign currency bank accounts aren’t used for forex trading. If you’re interested in trading foreign currency as an investment, you’d need to open a separate brokerage account for that. There are a number of online brokerages that offer the option to trade forex alongside other investments, such as stocks and exchange-traded funds (ETFs).

Typical Requirements to Apply for a Foreign Currency Bank Account

If you’re interested in opening a foreign currency account, it’s important to know what documents you’ll need. That way, you can gather the necessary materials and speed through the application process. The specifics can vary from bank to bank but generally, you must:

•   Be of minimum age to open an account, typically 18 or 19

•   Have a valid, government-issued form of identification

•   Provide identifying information, including your name, address, date of birth and Social Security number

•   Meet minimum-deposit requirements

•   Provide proof of income and employment

The requirements to open a foreign currency account aren’t that different from those for a foreigner opening an account in the U.S. Whether you can apply for a foreign currency bank account online or not will depend on the bank. Some banks do allow you to start the application online, while others require you to open an account over the phone or in-person at a branch. Check with yours to learn the exact protocol.

You may also need to already have at least one other account open with the bank before you can apply for a multicurrency account. If the bank imposes this requirement, you may also need to maintain a specific minimum balance in that account to qualify.

Pros of Foreign Currency Account

If you’re curious about multicurrency accounts, it may well be because you are tangled in some red tape as you try to bank in, say, both U.S. dollars and euros. A foreign currency bank account can help meet certain money management needs, like toggling back and forth between two kinds of currency.

Here, the pros of multicurrency accounts.

•   When you deposit funds into your account, you can hold it as multiple currencies, including leftover foreign currency from travel, in one place. You don’t have to exchange foreign currency before you can use it.

•   You typically avoid foreign transaction fees you might otherwise incur.

•   Being able to switch among different currencies could allow you to leverage the most favorable exchange rates.

•   You may be able to earn interest on your balances.

•   If the institution where your account is has FDIC insurance, you are covered for $250,000 per depositor, per ownership category, in the rare event of a bank failure.

•   Multicurrency bank accounts can be used for personal or business purposes.

•   Sending payments or money in foreign currencies can be more convenient.

A foreign currency account could also come in handy if you travel. You can use a linked debit card to make purchases or withdraw cash in each country you visit, without having to get traveler’s checks from your bank.

So how do traveler’s checks work? If you’ve never used them, you might not know that these are paper financial instruments that can be used the same way you would a paper check or cash. Thanks to the convenience of credit cards and debit cards, however, travelers don’t need to rely on them as much to make payments when visiting destinations outside the U.S.

Cons of Foreign Currency Account

While a multicurrency bank account might be appropriate in some situations, there are a few drawbacks to consider. Specifically:

•   Your financial institution might charge you account and minimum balance fees the same as you might pay for any other bank account.

•   Interest rates and APYs may be low.

•   Initial deposit requirements or minimum balance requirements may be on the higher end.

•   Changing currency rates can affect the value of the money in your account.

Another drawback of foreign currency accounts is that not all banks offer them. And some banks may only offer these accounts for businesses, not individuals.

Multicurrency Account Fees

Foreign currency accounts can have fees, just as any other type of bank account may. Depending on the bank, some of the fees you might pay include:

•   Monthly maintenance fees

•   Excess withdrawal fees (for savings accounts)

•   Overdraft or non-sufficient funds (NSF) fees

•   Foreign transaction fees

•   Currency conversion fees

When comparing multicurrency bank accounts, take time to review the details thoroughly. It’s important to understand which currencies you can hold, which fees you might pay, and whether you’re required to maintain a minimum balance in the account.

Once you’ve scoped those details out, see if the benefits of this kind of account will outweigh the fees. It could wind up being a good way to simplify your banking life if your financial life requires frequent foreign transactions.

The Takeaway

Foreign currency accounts can simplify money management if you regularly send or receive money in currencies other than U.S. dollars. Opening one of these multicurrency bank accounts is not that different from opening any other type of account. It can be a major convenience if your daily life involves receiving and/or sending funds overseas — and a good way to take control of your international financial life.

FAQ

What is the purpose of a multicurrency account?

A multicurrency or foreign-currency bank account allows you to receive, hold, and send funds in more than one currency. This can be convenient for businesses and individuals who frequently make international transactions and would like to have an account that recognizes multiple currencies.

What types of banks offer multicurrency accounts?

Many but not all banks offer multicurrency accounts. Some of the U.S. banks that offer foreign currency accounts at press time include Citi, HSBC, and TIAA Bank. For businesses, Wells Fargo and PNC offer foreign currency accounts. You can contact your current bank to find out if multicurrency accounts are available.

How does a multicurrency account work?

A multicurrency bank account allows you to deposit, keep, and send funds in more than one currency. You can decide if you keep the funds in different currencies or convert them. This kind of account can help you conduct international transactions without necessarily paying all the usual fees involved.

Photo credit: iStock/RgStudio

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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Mar
15
2023

FDIC Insurance: What It Is And How It Works

By | Budgeting & Goals, money, Terminology | Comments Off on FDIC Insurance: What It Is And How It Works

With the Federal Deposit Insurance Corporation (FDIC) recently in the news, many people are wondering what the FDIC is, exactly, and what it does.

The Federal Deposit Insurance Corporation, or FDIC, is an independent agency of the U.S. government. In the unlikely event of a bank failure, it protects you and reimburses your deposits, typically up to $250,000 per depositor, per insured bank, per account ownership category.

People often take the FDIC guarantee for granted now, but it was created from a very real need and has kept many people and their money safe.

Here, you’ll learn more about this important aspect of banking, including:

•   What the FDIC is

•   What the FDIC does

•   How does the FDIC work

•   Which accounts are and are not eligible for FDIC protection

What Is the FDIC?

The FDIC is the shorthand way of referring to the Federal Deposit Insurance Corporation. It is an independent agency created by Congress in 1933, after the Great Depression, when thousands of banks failed. The goal was to shore up confidence in the U.S. financial system and protect Americans from losing their cash if their bank failed.

In January 1934, the FDIC began insuring deposits, covering them up to $2,500. That number has increased through the years, of course, most recently with the Emergency Economic Stabilization Act of 2008. President George W. Bush signed the act to temporarily raise FDIC insurance coverage from $100,000 to $250,000 per depositor during the financial crisis. President Barack Obama made the coverage hike permanent in 2010 with the signing of the Dodd-Frank Wall Street Reform and Consumer Protection Act.

It’s important to note how this insurance works: The standard coverage is $250,000 per depositor, per insured bank, for each account ownership category. Joint accounts may be covered up to $500,000.

Related: The Government Takes Decisive Action on Bank Closures

What Does the FDIC Do?

Since its creation, no depositor has lost any money from an FDIC-insured deposit. This means that, unlike your great-grandparents, you can put your money into an eligible financial institution, whether a savings vs. checking account or other qualifying account, and know it’s more secure than stuffing it under your mattress. (Yes, that used to be a thing for many savers.)

Also of note: Though it’s the customers’ money that’s covered by the FDIC, the agency is funded by premiums paid by the banks and from earnings on investments in U.S. Treasury securities. Customers do not pay for this insurance; they are automatically covered when they open an FDIC-insured account.

There are rules and limits you should know about, however, if you want to make the most of the FDIC’s coverage.

Types of Accounts Insured by the FDIC

The FDIC insures all deposit accounts at insured banks and savings associations up to the FDIC’s limits, including:

•   Checking accounts

•   Savings accounts

•   Money market accounts

•   Certificates of deposit (CDs)

•   Prepaid cards when the underlying funds are deposited in an insured bank (these funds are only insured in the instance of bank failure, not loss or theft)

•   Certain retirement savings accounts, but only when placed in certain types of investments and in accordance with all FDIC requirements.

   Deposit accounts, such as checking and savings accounts, money market deposit accounts, and certificates of deposit, can all be held in traditional IRAs and Roth IRAs and are eligible for FDIC insurance.

Recommended: Tips for Overcoming Bad Financial Decisions

How to Tell if Your Money Is FDIC-Insured

How can you tell for sure if your account is covered? While the FDIC insures deposits in most banks and savings associations, not all of them are protected. Every FDIC-insured depository institution must display an official sign at each teller window or teller station, so that’s an easy way to check if you bank at a brick-and-mortar location.

If you’re using an online bank or a mobile-first financial product, the company’s website should contain information about its coverage.

Or you can find out if your deposits are insured by using the FDIC BankFind tool .

Recommended: Comparing the Different Types of Deposit Accounts

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.


Types of Accounts Not Insured by the FDIC

Now, here are the kinds of funds not covered by FDIC insurance. Money held in these ways, even if purchased from an insured financial institution, is not protected:

•   Stocks

•   Bonds

•   Annuities

•   Mutual funds

•   Municipal securities

•   Life insurance policies

•   The contents of a safety deposit box

This is an important point to note as you think about your financial security.

Also, you may wonder about the FDIC vs. NCUA in terms of protecting your finances. The National Credit Union Administration (NCUA), created by Congress in 1970, covers federally insured credit unions in much the same way as the FDIC covers banks, including deposits up to $250,000. If your funds are held at a credit union, you may want to make sure it has NCUA coverage. The FDIC will not be protecting you, but it’s likely the NCUA is.

How FDIC Insurance Works

Here’s more important intel if you’re wondering, How does the FDIC work?

The FDIC covers your holdings in certain accounts, as listed above. What amount of money is insured in a bank account? Usually, the limit is $250,000. It is calculated to cover both principal and interest earned by the depositor. If you have an account that has $200,000 in it and has accrued $20,000 in interest, you will be covered in the amount of $220,000.

As mentioned above, there is a standard $250,000 cap on FDIC insurance. If you have high net worth, this coverage may not be enough. As a result, you may want to keep in mind that by having money in excess of that amount in one bank or one account, you may be putting yourself at risk.

Because the $250,000 applies to each bank where you have an account, one way you may be able to increase the FDIC insurance coverage available to you is by using multiple banks.

Another option is to structure your accounts properly within a single bank. If you have any concerns about your coverage, it can be a good idea to discuss them with a representative at your bank.

Quick Money 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 towards your financial goals.

What Happens if a Bank Fails?

If a bank were to fail, the FDIC would intervene in two ways:

•   The FDIC would pay depositors up to the insurance limit to cover their losses. So, if you had $10,500 in an insured account and the bank failed, you would be reimbursed for that amount. Typically, this happens within a few days after a bank closes.

•   The FDIC also takes responsibility for collecting the assets of the failed bank and settling its debts. As assets are sold, depositors who had more than the $250,000 limit in an insured account may receive payments on their claim.

How to Recover Your Money if a Bank Fails

Because of the FDIC safety net, you won’t likely see fearful customers lining up to get their money the way they did before deposit insurance was established.

Still, when a bank closes, it can cause depositors to worry and wonder how to get their money. Typically, there are one of two scenarios when a bank fails:

•   Most commonly, you would become a depositor at a healthy, FDIC-insured bank. You would have access to your insured funds at this new bank and could likely choose to keep your accounts there if you like.

•   If there is not a healthy, FDIC-insured bank that can step in quickly, the FDIC will likely pay the insured depositor by check within as little as a few days after the bank closes.

As for immediate next steps if you learn your bank is closing, the FDIC aims to post information as promptly as possible, or you can contact the agency at 877-ASK-FDIC or visit the FDIC Support Center website .

The Takeaway

Though it’s quite a rare occurrence, a bank can fail when it takes on too much risk or, as was the case recently, was exposed to interest rate risk. If your bank is covered by FDIC insurance you can receive reimbursement up to $250,000, meaning your funds aren’t lost for good. FDIC insurance covers checking, savings, money market accounts, CDs, and other deposit accounts.

The FDIC does not cover some of the other financial products or services offered by banks, including stocks, bonds, mutual funds, annuities, and securities.

Putting your money in a brick-and-mortar financial institution isn’t the only way to make sure it’s protected. SoFi Checking and Savings is a mobile-first online bank account that keeps your hard-earned dollars safe; all accounts receive FDIC insurance of up to $250,000 per member.

What’s more, we offer an array of great features that can make managing your money easier, such as spending and saving in one convenient place and using savings tools such as Vaults and Roundups. Plus, you’ll earn a competitive annual percentage yield (APY) and pay no account fees, both of which can help your money grow faster.

Want security, convenience, and no account fees? Bank smarter with SoFi.
 

FAQ

How often does a bank fail?

Currently, banks fail very rarely. In the past two years, no banks failed in the United States. However, the FDIC was created in response to thousands of bank failures around the time of the Great Depression.

How does the FDIC differ from the NCUA?

FDIC insurance applies to qualifying accounts at banks. NCUA insurance covers qualifying accounts at credit unions.

How many banks are FDIC insured?

As of September 2022, the FDIC insured a total of 4,746 institutions. Of these, 4,157 were commercial banks, and 589 were savings institutions.

Are credit unions FDIC-insured?

Credit unions don’t qualify for FDIC insurance. Instead, they may be covered by the National Credit Union Administration, or NCUA, insurance.

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

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

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

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

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

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

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

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

External Websites: The information and analysis provided through hyperlinks to third-party websites, while believed to be accurate, cannot be guaranteed by SoFi. Links are provided for informational purposes and should not be viewed as an endorsement.

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Mar
07
2023
What Is an FSA Debit Card?

Guide to FSA Debit Cards

By | Family Finances, money, Terminology | Comments Off on Guide to FSA Debit Cards

If you have a flexible spending account, an FSA debit card allows you access these pre-tax dollars you’ve set aside. With an FSA debit card, you can pay for qualifying medical purchases without having to file a reimbursement claim through your employer.

In other words, an FSA debit card can make your healthcare spending that much easier. But it’s important to understand the full story on how these cards work to make sure you get the most out of one.

This guide will coach you through that, including:

•   What is an FSA debit card?

•   How can you get an FSA debit card?

•   How do you use an FSA debit card?

•   What are the pros and cons of an FSA debit card?

•   When should you use your regular debit card instead?

Read on and you’ll learn the best FSA debit card practice so you can benefit from the money in your flexible spending account.

What Is an FSA Debit Card?

An FSA debit card will typically come with your flexible spending account, which is a tax-advantaged account offered through an employer’s benefit package. The funds in your FSA can be used to help cover out-of-pocket medical expenses.

As of 2023, once you’re enrolled in an FSA account, you can contribute up to $3,050 dollars (an increase of $200 vs. 2022’s amount) per individual; in a couple, each spouse can contribute up to that amount.

An FSA debit card looks and performs like a bank debit card, but it is connected to your flexible savings account, not your checking. You can only use it to pay for qualified medical and dental expenses not covered by your health insurance.

Worth noting: You may wonder what an HSA vs. FSA is. Though they sound alike, a flexible spending account works differently than a health savings account (HSA). You can only get an FSA through an employer; freelancers and self-employed individuals are not eligible. Also, HSAs are only available to those who are enrolled in a high deductible health plan, or HDHP.

Recommended: Benefits of Health Savings Accounts

Ways That You Can Use an FSA Debit Card

There are quite a few FSA rules and regulations dictating what you can spend your untaxed funds on.

The list of FSA-eligible expenses is extensive, covering everything from co-pays to bandages. Here are just some of the things you may be able to use your FSA debit card for:

•   Medical copays and deductibles

•   Prescription medications

•   Approved over-the-counter drugs, such as allergy, cough, and pain medications

•   Testing kits, including those for COVID-19 and cholesterol

•   Crutches, canes, and walkers

•   Dental expenses, including crowns and dentures

•   Vision expenses, including glasses and contact lenses

•   Fertility treatments

•   Hospital and ambulance fees

•   Lab fees

•   Acupuncture, chiropractic treatments, and massage therapy.

Ways That You Cannot Use an FSA Debit Card

An FSA debit card can be a convenient way to pay for medical fees, prescriptions, and other health-related items your health insurance doesn’t cover. But not all wellness-related expenses are covered. Here are some things you cannot use an FSA card for, including:

•   Groceries. Although diet is an important part of a healthy lifestyle, your FSA card won’t pay for, say, organic beef and green beans.

•   Cosmetic procedures. Expenses for electrolysis, face lifts, hair transplants, and the like are typically not covered.

•   Dining out. You can’t use an FSA debit card at a restaurant, even if it’s a vegan or “health food” eatery

•   Vitamins and nutritional supplements, unless you can prove they were prescribed by a physician

•   Getting cash. Unlike with a debit card, you will not be able to use an FSA card to withdraw cash funds from your account.

Recommended: Guide to Practicing Financial Self-Care

Process of Getting an FSA Debit Card

The steps to getting an FSA debit card are pretty straightforward:

•   Sign up for an FSA account offered by your employer. There is typically an “open season,” a window of time during the year when you are eligible to enroll.

•   Make a contribution or set up a contribution commitment for the account. These accounts are typically pre-funded, by the way, which is a nice perk. What that means: If you enroll in an FSA on January 1st and pledge to contribute $2,400 over the year, paying $200 a month, the $2,400 becomes available for you to use right away.

•   Wait for your FSA debit card. Once you enroll and contribute to your FSA account, the debit will be sent to your address. This can take 7 to 10 business days.

Recommended: HSA vs. HRA: What’s the Difference?

Pros and Cons of FSA Debit Cards

If you are someone who anticipates having frequent out-of-pocket healthcare expenses, a flexible spending account and an FSA debit card can be convenient. It can be a good way for you to save pre-tax dollars and put them toward those expenditures.

However, it’s worthwhile to consider both the upsides and downsides to having an FSA debit card:

Pros of having an FSA account and debit card

•   Easy access to tax-free funds to spend on qualifying medical expenses. You can use the FSA card like a debit card to make payments.

•   Online shopping. You can use your FSA debit card for online shopping, as long as it’s with a vendor that accepts the FSA card. Amazon, CVS, and other online shopping sites identify which items are FSA eligible, making shopping even simpler.

•   Avoiding pesky paperwork. Using the FSA debit card means you don’t have to keep track of receipts and file a reimbursement report with your employer.

•   No cash out-of-pocket. With an FSA debit card, you’ll avoid a trip to the ATM or having to use your personal debit card, and you won’t have to wait for a reimbursement. What’s more, you can avoid using a credit card for some health-related expenses, thereby possibly avoiding hefty interest charges, too.

Cons of having an FSA debit card

Here are some potential downsides to using an FSA debit card:

•   Contributions are use-it-or-lose-it. In many cases, if you don’t use your FSA funds by the end of the year, you will forfeit the remaining balance. Some employers may allow for a grace period to spend the money or for certain amounts to be rolled over. But this aspect is probably the biggest drawback of having an FSA account and debit card.

•   If you leave, the money stays. Usually, if you quit or change jobs, the money you contributed to your FSA stays with your employer.

•   No reward perks. You won’t get any bonus miles or other award points from swiping an FSA debit card.

Recommended: Beginner’s Guide to Health Insurance

FSA Debit Card vs Traditional Debit Card

An FSA debit card and personal debit card from your bank or credit union share a number of features. Both provide access to funds for in-person purchases, and you should have no issues using a debit card online nor an FSA debit card.

But there are some distinct differences between an FSA debit card and traditional debit card, including:

FSA Debit Card Traditional Debit Card
FSA debit cards can only be used to purchase qualifying medical expenses Debit cards from a bank can be used to purchase just about anything
With an FSA debit card, it’s a good idea to keep the receipts from your purchases, in case you need them for your employer or the IRS Debit card purchases are personal, and typically don’t require reporting to the IRS
Account funds attached to an FSA debit card can expire at the end of the year There’s no time limit for spending your own personal account money
FSA debit card purchases don’t usually come with any reward perks or bonus points With some debit cards, you can build up reward points and bonus miles with every purchase
You can only use FSA debit cards at stores and medical locations that accept them You can use your debit card at almost any store, venue, or medical facility that accepts card payments
You cannot get cash with your FSA card You can get cash with your traditional debit card, whether at an ATM or other location

Recommended: What Is a Debit Card?

The Takeaway

Using an FSA debit card can be a hassle-free way to pay for qualifying, out-of-pocket medical expenses. These cards function much like a traditional debit card, helping you pay for health-related items with the pre-tax dollars that are in your account. However, if you have one of these cards, it’s wise to know the pros and cons so you can use it most effectively.

3 Money Tips

1.    If you’re saving for a short-term goal — whether it’s a vacation, a wedding, or the down payment on a house — consider opening a high-yield savings account. The higher APY that you’ll earn will help your money grow faster, but the funds stay liquid, so they are easy to access when you reach your goal.

2.    If you’re creating a budget, try the 50/30/20 budget rule. Allocate 50% of your after-tax income to the “needs” of life, like living expenses and debt. Spend 30% on wants, and then save the remaining 20% towards saving for your long-term goals.

3.    When you overdraft your checking account, you’ll likely pay a non-sufficient fund fee of, say, $35. Look into linking a savings account to your checking account as a backup to avoid that, or shop around for a bank that doesn’t charge you for overdrafting.

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 be denied an FSA debit card?

If you qualify for an FSA account through your employer and the account comes with an FSA debit card, there’s little chance you would be denied one, unless you have missed the deadline for the enrollment period.

Is it good to have an FSA debit card and a traditional debit card?

It’s wise to have an FSA debit card and a traditional debit card. You can only use an FSA debit card to pay for qualifying medical expenses at vendors who will accept it.. You will likely need a standard debit card to pay for groceries, clothes, and life’s other expenses.

Can I withdraw cash with an FSA debit card?

Unlike with a traditional debit card, you cannot withdraw cash with an FSA debit card.

Does a bank provide an FSA debit card?

An FSA debit card is not provided by a bank, but rather through a vetted healthcare FSA vendor chosen by your employer.

Photo credit: iStock/praetorianphoto

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.

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.

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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Mar
07
2023

12 Tips for the Cheapest Way to Rent a Car

By | Budgeting & Goals, money | Comments Off on 12 Tips for the Cheapest Way to Rent a Car

There’s nothing like the convenience and freedom of having a car at your disposal when traveling, but it can definitely add to the cost of a trip.

What’s more, it can be hard to know just how much a car rental will add to the bottom line because the daily rate you see advertised may wind up not reflecting the amount you will pay once surcharges are added to the bill. Additional insurance, mileage, and other fees can really add up.

But with some smart strategies, you can control the costs of renting a car. These include uncovering special offers and deals, knowing which day of the week is cheapest to rent a car, and avoiding those pricey add-ons that you don’t truly need.

Here, you’ll learn some of the best ways to rent a car for less.

12 Tips to Save Money on Car Rentals

These tactics can help you save money the next time you rent some wheels while traveling.

1. Understanding All Those Add-On Costs

At first glance, advertised deals on car rentals can seem inexpensive.

The sticker shock may come once you’re actually at the counter. That’s because, in addition to the base rate of a rental car, costs may include:

•   Additional driver cost. Are you going to be the only driver or will you be sharing driving duties with someone else? If someone else will be driving, it’s a good idea to add them to the rental to potentially avoid liability if something were to happen if someone else were behind the wheel.

•   Fuel Purchase Option (FPO). This option allows a renter to pay for the full tank of gas at the time of rental and return the tank empty. It may be cheaper to fill the tank yourself. However, if you are the kind of person who likely returns a car close to the deadline and is racing to catch a flight, the FPO can save time and might be worth it.

•   Fuel and Service. If you forgo the FPO and don’t return the car with a full tank, you will likely be charged for the cost of fuel, as well as a fee for the refueling service.

•   Insurance. Insurance can include Loss Damage Waiver, Liability Insurance, Personal Accident Insurance, and Personal Effects Coverage. This insurance may or may not be necessary, depending on your existing car insurance coverage or the possibility of coverage via the credit card used for the reservation.

•   Premium Emergency Roadside Service. This service can provide roadside assistance in the event of an emergency.

•   Additional fees and taxes. Fees and taxes are not optional and can add up. Taxes and fees are dependent on where you rent your vehicle (different states have different taxes). There is typically an additional fee for cars rented at an airport or a hotel.

•   Toll fees. This typically includes not only the cost of driving on toll roads, but also convenience fees for having a transponder included in your rental to seamlessly pay those charges.

Recommended: How to Save Money on Gas

2. Considering Your Insurance Coverage

One way to get the cheapest possible deal on a rental car is to make sure you’re not doubling up on insurance coverage.

Find out what your car insurance covers. It may cover collision damage, and your homeowner’s or renter’s insurance may cover personal items that could be stolen from your vehicle.

But the disadvantage would be that if the worst were to happen, you would need to file a claim through your personal insurance, which could cause your rate to increase.

As noted above, your credit card’s car rental coverage may be a money-saving option. This can be a good travel hack that allows you to waive the insurance offerings from a rental car company yet not need to use your personal car insurance to file a claim.

Some pointers:

•   If you are renting a car with a credit card, as many people do, find out if your card has the coverage you need. You can check your card’s benefits to see if it includes primary car rental coverage. If it does, it’s a good idea to read the fine print for exactly what the insurance covers, as well as any coverage limits.

•   Calling your credit card company, as well as your car and home insurance companies, with any questions can give you a full picture of whether or not added car rental insurance is necessary for your situation.

You may also be able to waive roadside service if you have a membership to another roadside assistance company.

Get up to $300 when you bank with SoFi.

No account or overdraft fees. No minimum balance.

Up to 4.00% APY on savings balances.

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3. Looking Beyond Airports and Hotels

Because of the fees associated with renting from an airport or hotel — which can add as much as 20% to your total bill — it may be cheaper to rent from an outpost within the city.

The flip side is that it’s less convenient, and you may need to take a taxi or use a rideshare service to get to and from the car rental agency.

Comparing costs of rentals both at the airport and within 20 miles (adding in the cost of getting to that other location) can help you assess whether giving up some convenience will pay off.

4. Signing Up For Loyalty Programs

Before you rent a car, it can be helpful to sign up for several loyalty programs across rental companies. (To avoid junk mail, consider creating a separate email address to register for loyalty programs.)

Some rental car programs will give you an automatic percentage off just for being a member. Other rental car programs may give additional perks, such as upgrades or separate lines at the agency, which can help you avoid the hassle.

5. Using Your Memberships

There are various ways to snag a reduced price on your car rental, including working your memberships.

Many big-box stores and wholesale clubs have ties with rental car companies that can net you significant discounts if you’re a member. Auto clubs (like AAA), trade associations, unions, as well as AARP, may also offer rental car perks and discounts, including insurance on rental cars.

Shop around, and don’t be surprised if the most enticing deals emerge from an unexpected source.

6. Booking Early

Reserving a car as soon as you know your travel dates can be a money-wise move. Here’s why: Rental car companies often keep a limited number of cars in their fleets. As a result, they need to estimate demand several weeks ahead of time. To encourage customers to book early and help them manage their pool of vehicles, they may offer lower rates when you reserve in advance vs. last-minute.

Booking a car in advance can help you not only get a better deal but also help to ensure you’ll get the car you want. This can help you avoid paying for a Suburban when all you need is an economy car.

If you do book early, consider searching prices again right before your trip.

•   If you find a better deal last-minute, you may be able to request a price adjustment from your original agency.

•   Or you may be able to cancel your current reservation and book a cheaper reservation at another company.

Before you book, you may want to read through the cancellation policy and make sure there is no penalty for canceling.

7. Shifting Your Dates

Prices of rental cars can fluctuate based on demand, and these fluctuations can sometimes be significant.

Of course, you can’t always change the days of your trip. But as a frugal traveler, you may want to weigh the cost-benefit of not having a rental car for a few days to score a lower rate.You could reap significant savings.

The cheapest day to rent a car can vary depending on market demand, but you may see lower rates on Fridays and Saturdays, and the highest rates on Sundays, Mondays and Tuesdays.

8. Noting Any Damage Before You Drive Away

You may be eager to get on the road, but it’s a good idea to do your due diligence and make sure you point out and/or document any damage to the car when you receive it. Consider the following:

•   No matter how minor a scratch or ding, you could get charged for the damage unless you account for it on your rental agreement prior to driving away.

•   You may be asked to mark damage on the car rental agreement, but you may also want to take photos as well. That way, there is less likely to be any dispute about the extent of any damage or markings.

Recommended: Different Ways to Earn More Interest on Your Money

9. Paying Tolls in Cash if You Can

Rental car companies commonly tack on fees for using their transponder (the gizmo that lets you whiz past toll booths), in addition to the toll itself.

You may also have to pay a daily convenience fee for having the transponder even if you don’t use it.

To avoid using the rental company’s transponder, try these hacks:

•   Pay cash at tolls that still accept it. For cashless tolls, you may be able to pay online later.

•   It may also be possible to use your own transponder. Some transponders (such as E-ZPass) can be used in multiple states, so it could be worth doing your research beforehand to see if your personal transponder is accepted.

•   For a longer-term rental, you might consider buying a transponder or toll pass that is accepted in the state where you’ll be driving. In many cases, the fee for the pass goes into your account as credit for tolls.

10. Bringing Your Own Car Seat

Rental car companies may offer infant and child car seat rental options, but the additional charges can add up. You might pay $10 to $15 per day, per seat, plus tax, up to a cap of $66 and up.

In addition to the cost, you may not necessarily know the size and reliability of a rental car seat.

Obviously, it is not always convenient to bring your own seat, but It may be a better bet when possible. Even though car seats are bulky, airlines typically don’t charge baggage fees on them.

11. Think Small and Simple

This one may be obvi, but renting a larger or premium car will likely jack up your costs considerably. Though this is a no-brainer, it’s easy to creep into higher pricing tiers as you scroll through the options and see a cool SUV or convertible next to that economy sedan you originally thought you wanted to book.

For example, a recent search on Enterprise for a rental car found a compact car in Los Angeles for $75 a day, a mid-size SUV for $106 per day, and a convertible for $143 a day. That’s a major difference!

12. Let One Person Do the Driving

It’s not always possible, of course, to have a single driver (say, if you’re criss-crossing the United States), but for shorter distances, having just one driver can help you save money.

Many rental car agencies will add $10 to $15 a day for an additional driver who is not a spouse, domestic partner, or business partner. So, if you are on a trip with a friend and the distances are fairly short (perhaps zipping between Miami and the Florida Keys), having just one driver can help cut rental car costs.

The Takeaway

Car rentals often end up costing more than you expect, due to add-on costs and the details of when and where you rent a vehicle. To get the best deal on a rental, it’s a good idea to do some research in advance so you can get the best rates and opt out of the extras you don’t need.

You can also explore other ways to get a good deal, such as looking for discounts through clubs and organizations you already belong to, shifting your dates slightly, and trying other clever hacks.

If you, like many people, love to find easy ways to make the most of your money, see how opening an online bank account with SoFi can help you do just that. With a SoFi Checking and Savings account, you’ll earn a competitive annual percentage yield (APY) and pay no account fees, both of which can help your cash grow. You’ll also have Vaults and Roundups to help your savings grow, not to mention the convenience of spending and saving in one place.

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.

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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Mar
07
2023

What Is PMI & How to Avoid It?

By | Home Ownership, mortgage, Terminology | No Comments

If you don’t have a 20% down payment on a home, that’s OK. Most buyers don’t. But if you’re in that league and acquire a conventional mortgage, the lender will want extra assurance — insurance, if you will — that you’ll pay the loan back.Private mortgage insurance is usually the price to pay until you reach 20% equity or, as lenders say, 80% loan-to-value.

In an effort to help low- and middle-income borrowers, the Biden-Harris Administration recently reduced monthly mortgage insurance premiums for new FHA loans. Those cuts will not affect homebuyers with conventional loans and private mortgage insurance (PMI).

Can you avoid PMI? Other than coughing up 20% down, you could seek a piggyback mortgage or lender-paid mortgage insurance.

What Is PMI?

Private mortgage insurance is charged by lenders of conventional mortgages, which are loans not insured by a government agency. FHA, VA, and USDA loans are.

The 30-year conventional home loan is the most common mortgage, and 20% down is ideal. But…

You’ve seen home prices lately. Twenty percent down on a $250,000 or $400,000 or $750,000 home is just not doable for many, or most. The average down payment for all buyers has been about 13%, according to the National Association of Realtors.®

PMI is meant to protect the lender from risk. The premiums help the lender recoup its losses if a borrower can’t make the mortgage payments and goes into default.

How Much Does PMI Cost?

PMI is often 0.5% to 1.5% of the total loan amount per year but can range up to 2.25%.

The cost of PMI depends on the type of mortgage you get, how much your down payment is, your credit score, the type of property, the loan term, and the level of PMI coverage required by your lender.

If you’re shopping for a mortgage and you apply for one or more, the premium will be shown on your loan estimate. If you go forward with a home loan, the premium will be shown on the closing disclosure.

Estimate PMI Costs

Use this calculator to estimate PMI based on how much home you can afford.

How to Pay PMI

Most borrowers pay PMI monthly as a premium added to the mortgage payment.

Another option is to pay PMI with a one-time upfront premium at closing.

Yet another is to pay a portion of PMI up front and the remainder monthly.

How to Avoid PMI Without 20% Down

One way to avoid PMI is to make use of a piggyback mortgage. Another is to seek out lender-paid mortgage insurance.

Piggyback Loan

With a piggyback loan, typically an 80/10/10 mortgage, you’d take out two loans at the same time, a first mortgage for 80% of the home price and a second mortgage for 10% of the home value, and put 10% down.

The 80% loan is usually a 30-year fixed-rate mortgage, and the 10% loan is typically a home equity line of credit that “piggybacks” on the first mortgage.

A 75/15/10 piggyback loan is more commonly used for a condo purchase because mortgage rates for condos are higher when the loan-to-value ratio (LTV) exceeds 75%.

Both loans do not have to come from the same lender. Borrowers can tell their primary mortgage lender that they plan to use a piggyback loan and be referred to a second lender for the additional financing.

Because you’d be taking out two loans, your debt-to-income ratio (monthly debts / gross monthly income x 100) will fall under more scrutiny. Mortgage lenders typically want to see a DTI ratio of no more than 36%, but that is not necessarily the maximum.

Piggybackers will need to be prepared to make two mortgage payments. They will want to think about whether that secondary loan payment will be higher than PMI would be.

Lender-Paid Mortgage Insurance

In most cases with lender-paid mortgage insurance (LPMI), the lender pays the PMI on your behalf but bumps up your mortgage interest rate slightly. A 0.25% rate increase is common.

Monthly payments could be more affordable because the cost of the PMI is spread out over the whole loan term rather than bunched into the first several years. But the loan rate will never change unless you refinance.

Borrowers will want to look at how long they expect to hold the mortgage when comparing PMI and LPMI. If you need a short-term mortgage, plan to refinance in a few years, or want the lowest monthly payment possible, LPMI could be the way to go.

When PMI Is No Longer Required

Borrowers generally need to have 20% equity in their home to drop PMI.

The Homeowners Protection Act was put in place to protect consumers from paying more PMI than they are required to. Specifically for single-family principal mortgages closed on or after July 29, 1999, the law covers two scenarios: borrower-requested PMI termination and automatic PMI termination.

Once you’ve built 20% equity in your home, meaning you’re at an 80% LTV based on the home’s original value (the sales price or the original appraised value, whichever is lower), you can ask your mortgage loan servicer — in writing — to cancel your PMI if you’re current on all payments. Your monthly mortgage statement shows your loan servicer information.

The very date of this occurrence, barring no extra payments, should have been given to you in a PMI disclosure form when you received your mortgage.

As long as you’re current on all payments, PMI will automatically terminate on the date when your principal mortgage balance reaches 78% of the original value of your home.

If that LTV ratio is not reached by the midpoint of the mortgage amortization period, PMI must end the month after that midpoint.

PMI vs MIP vs Funding Fees

The upside of PMI is that it unlocks the door to homeownership for many who otherwise would still be renting. The downside is, it adds up.

If you’re tempted to go with a mortgage backed by the Federal Housing Administration, realize that an FHA loan requires up front and annual mortgage insurance premiums (MIP) that go on for the life of the loan if the down payment was less than 10%.

Mortgages insured by the Department of Veterans Affairs come with a sizable funding fee, with a few exceptions, and loans backed by the Department of Agriculture come with up front and annual guarantee fees.

Type of Loan Upfront Fee Annual Fee
Conventional n/a 0.5% to 1.5%+
FHA 1.75% 0.15% to .75%
VA 1.4% to 3.6% n/a
USDA 1% 0.35%

Recommended: PMI vs. MIP

Ways to Boost a Down Payment

A bigger down payment not only may allow a borrower to avoid PMI but usually will afford a better loan rate and provide more equity from the get-go, which translates to less total loan interest paid.

So how to afford a down payment? You could shake down Dad or Granny (just kidding; Grandma responds better to sweet talk than coercion). For a conventional loan, gift funds from a relative or from a domestic partner or fiance count toward a down payment. There’s no limit to the gift, but you may be expected to come up with part of the down payment. You’ll also need to present a formal gift letter to validate the funds given to you.

A gift of equity is a wonderful thing indeed. When a seller gives a portion of the home’s equity to the buyer, it is shown as a credit in the transaction and may be used to fund the down payment on principal or second homes.

You could look into down payment assistance from state, county, and city governments and nonprofit organizations, which usually cater to first-time homebuyers. And home listings on Zillow now include information about down payment assistance programs that might be available to buyers searching for homes on the platform.

Even if you can’t come up with 20%, it’s all good because PMI doesn’t last forever, and real estate is one of the key ways to build generational wealth.

The Takeaway

What is PMI? Private mortgage insurance, which typically goes along for the ride when a borrower puts less than 20% down on a conventional mortgage. How to avoid PMI? Hunt for lender-paid mortgage insurance or a piggyback loan, or seek gifts or other assistance to fatten the down payment.

SoFi offers fixed-rate conventional mortgages at competitive rates. Qualifying first-time homebuyers can put just 3% down, and others can put 5% down.

Look into all the advantages of getting a home mortgage loan with SoFi.

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