Mar
28
2025
Guide to Achieving a Better Life Experience (ABLE) Accounts

Guide to Achieving a Better Life Experience (ABLE) Accounts

By | Budgeting & Goals, Financial Independence, money | Comments Off on Guide to Achieving a Better Life Experience (ABLE) Accounts

An ABLE account — short for Achieving a Better Life Experience — is a tax-advantaged savings vehicle that’s designed for eligible people with disabilities. Designated beneficiaries can use an ABLE savings account to set aside money to pay for qualified disability-related expenses.

An ABLE savings account can offer substantial tax benefits for qualified individuals, as contributions grow tax deferred and qualified withdrawals are also tax free. Also referred to as a 529 A account (owing to its similarity to a 529 college savings plan), the ABLE account is designed to make saving and investing more advantageous for people with disabilities and their families.

What Is an ABLE Account?

An ABLE account is a tax-advantaged savings account for people with disabilities and their families. ABLE savings accounts allow people to pay for qualified disability expenses (QDEs) without impacting their ability to qualify for Medicaid or other government assistance programs.

The Achieving a Better Life Experience Act became law in December 2014. The intention behind the ABLE Act and the creation of ABLE accounts was to ease financial stress associated with paying for many of the QDEs associated with different disabilities. Qualified expenses include: housing, education, assistive technologies, specially equipped vehicles, and even food.

Under the ABLE Act, states have the authority to establish an ABLE disability account program. As of June 2022, all 50 states offer at least one ABLE savings account program, according to the ABLE National Resource Center. However, plans are currently inactive in Idaho, North Dakota, South Dakota, and Wisconsin.

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How Do ABLE Accounts Work?

An ABLE account is a type of tax-deferred savings account similar to a 529 college savings plan. These accounts work by allowing designated beneficiaries to contribute money, up to prescribed limits.

The money can come from various sources, including individual or corporate contributions, or a trust. The money in an ABLE savings account does not affect your eligibility for other government benefits.

Also like a 529 plan, the money grows on a tax-deferred basis and can be withdrawn tax free when it’s used to pay for qualified disability expenses. Broadly speaking, QDEs are any expenses a person with disability pays in order to maintain their health, independence, and quality of life.

However, withdrawals from an ABLE savings account for non-qualified expenses can result in those distributions being subject to tax. Using money in an ABLE disability account for non-qualified expenses could also affect eligibility for government assistance.

Benefits of an ABLE Account

Generally speaking, ABLE savings accounts are designed to make paying for certain expenses easier for people with disabilities. Here are some of the main advantages of opening an ABLE savings account.

Tax-Deferred Growth and Tax-Free Withdrawals

One of the main draws of ABLE accounts is their tax-advantaged status. The money that goes into an ABLE account can be invested and allowed to grow on a tax-deferred basis. As long as distributions are used to pay for QDEs, withdrawals are always 100% tax-free.

ABLE accounts have an edge over savings accounts, since designated beneficiaries can invest their money in the market. That means they have an opportunity to grow their savings through the power of compound interest.

Flexibility

The ABLE account allows for flexibility, since the money can be used to pay for a wide range of disability-related costs. With a traditional 529 plan, savers are limited to using funds to pay for education-related expenses. The ABLE savings account allows designated beneficiaries (i.e. the disabled individual or family member) to use the money for the categories noted above — housing, transportation, technology, food, etc. — as well as employment training, health and wellness costs, legal and administrative fees, and more.

Friends, family members, and others can contribute to ABLE accounts on behalf of the designated beneficiary, up to the annual limit. For 2024, the annual contribution limit, including rollovers from 529 plans, is $18,000.

And beneficiaries don’t have to worry about those contributions affecting their ability to qualify for Medicaid, Supplemental Security Income (SSI), or other forms of government aid, assuming they’re within certain limits. To learn more about who can make qualified contributions, check the ABLE website, or consult the ABLE program in your state.

One further note: In addition, a U.S.-resident ABLE account owner who doesn’t participate in an employer-sponsored retirement plan can contribute up to an additional $14,580 from their earnings into their ABLE account. The amount that can be added to the account is higher for residents of Alaska at $18,210 and Hawaii at $16,770. (More details on this below.)

Financial Autonomy

ABLE accounts afford designated beneficiaries with a measure of financial independence, since they can set up an ABLE account themselves and make contributions on their own behalf. Individuals can also manage the account, and decide how to invest their savings and when to take qualified distributions for eligible expenses.

An ABLE account can give a person with disabilities more control than something like a special needs trust, a type of trust fund. In a special needs trust, the trust grantor sets aside assets for a disabled beneficiary but that beneficiary doesn’t have a say in how the money can be used.

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Drawbacks of an ABLE Account

While ABLE accounts have some positives, they’re not necessarily right for everyone who has a disability. Here are some of the potential drawbacks to consider when deciding whether to open an ABLE account.

Non-Deductible Contributions

Contributions to an ABLE savings account do not offer a tax break in the form of a deduction. (This is also true of some state 529 plans.) So even if you fully fund an ABLE account up to the annual limit each year, you can’t use those contributions as tax deductions.

Age Restrictions

An ABLE account can only be established for someone who has a blindness or disability that began before age 26. So someone who becomes disabled at age 27 or later would not be able to open an ABLE disability account.

The age requirement puts this type of special needs savings account out of reach for some individuals, though they could still be named the beneficiary of a special needs trust.

Worth knowing: There’s legislation afoot to raise the age of eligibility to “before 46” versus “before 26” in 2026.

Means Testing

Money held in an ABLE account is subject to means testing for the purposes of qualifying for Supplemental Security Income and Medicaid. The first $100,000 in ABLE account assets is disregarded for SSI but going over that limit can result in a suspension of your benefit payments.

The $100,000 account balance threshold doesn’t affect Medicaid eligibility. But if a designated beneficiary passes away with money remaining in their ABLE account, the state can lay claim to those assets in order to recoup any Medicaid benefits that were received.

Opening an ABLE Account

People with disabilities can open an ABLE account in any state, as long as that state’s plan is open for enrollment. The ABLE National Resource Center maintains a map with details for each state’s program, including whether out-of-state residents are accepted.

Once you find an eligible program, you can open an ABLE account online. There’s some basic information you’ll need to provide, including:

•   Your name

•   Date of birth

•   Social Security number

•   Bank account number

Parents can open an ABLE account on behalf of a minor child with disabilities. You also have to meet the definition of a designated beneficiary. In New York, for example, you must be able to show that one of the following is true:

•   You’ve been classified as blind as defined in the Social Security Act

•   You’re entitled to SSI or Social Security Disability Insurance (SSDI) due to a disability

•   You have a disability that’s included on the Social Security Administration’s List of Compassionate Allowances Conditions

•   You have a written diagnosis from a licensed physician documenting a physical or mental impairment which severely limits function, and is expected to last at least one year, or can cause death

Similar to opening a bank account, there may also be a low minimum deposit requirement to open an ABLE account.

Requirements of an ABLE Account

There are certain requirements that must be met in order to open an ABLE account. Generally, you’re eligible for one of these accounts if you:

•   Become eligible for Supplemental Security Income based on disability or blindness that began before age 26; or

•   Are entitled to disability insurance benefits, childhood disability benefits, or disabled widow’s or widower’s benefits based on a disability or blindness that began before age 26; or

•   Certify that you have a medical impairment resulting in blindness or disability that began before age 26.

Again, age and disability status are the most important requirements for ABLE savings accounts. You can open an ABLE account in your home state or in another state, if that state’s program allows non-residents to enroll. It’s important to note, however, that you can only have one ABLE account in your name.

How Much Can You Contribute to an ABLE Account?

The annual contribution limit is pegged to the gift tax exclusion limit each year, which is $18,000 for 2024. Eligible designated beneficiaries can, however, contribute additional money if they’re employed and have earned income for the year.

The IRS limits those contributions to an amount up to the lesser of:

•   The designated beneficiary’s compensation for the year, OR

•   The poverty line amount for a one-person household as established by the Community Services Block Grant Act

For 2024, the allowable amount for persons with disabilities in the continental United States is up to $14,580. The limit for residents of Alaska $18,210 and Hawaii at $16,770.

Funds from a 529 college savings account can be rolled into an ABLE account. Any rollovers count toward the annual contribution limit. So if $6,000 have been contributed to the plan for the year already, in theory you could rollover up to $12,000 into an ABLE account from a 529 savings account for 2024.

How Can You Use ABLE Money?

As discussed earlier, money in an ABLE savings account can be used to pay for qualified disability expenses. That means expenses that are paid by or for the designated beneficiary and are related to their disability.

Examples of things you can use ABLE money for include such living expenses and other costs as:

•   Education

•   Housing expenses

•   Food

•   Transportation

•   Employment and career training and support

•   Assistance technology and related services

•   Health care

•   Prevention and wellness

•   Financial management and administrative services

•   Legal expenses

•   Funeral and burial expenses

•   Day-to-day living expenses

The IRS can perform audits to ensure that ABLE account funds are only being used for qualified disability expenses. So designated beneficiaries may want to keep a detailed record of withdrawal and how those funds are used, including copies of receipts.

ABLE Accounts vs Special Needs Trusts

A special needs trust (SNT) is another option for setting aside money for disability expenses. In a special needs trust, the beneficiary does not own any of the trust assets but the money in the trust can be used on their behalf. A trustee manages trust assets according to the direction of the trust grantor.

Here’s how ABLE accounts and special needs trusts compare at a glance. You may benefit from consulting a tax professional to understand when and how income from an SNT may be taxed.

ABLE Account

 Special Needs Trust
Tax Treatment Growth is tax-deferred and qualified withdrawals are tax-free; there is no tax deduction for contributions. Income generated by the trust (i.e. withdrawals) is generally taxable to the beneficiary during their lifetime.
Control Designated beneficiaries can control how assets in their account are managed. The trustee manages the trust on behalf of the beneficiary, according to the wishes of the grantor.
Contribution Limits Contribution limits correspond to annual gift tax exclusion limits. No limit on contributions, though the gift tax may apply to contributions over the exclusion limit.
Medicaid/SSI Impact Up to the first $100,000 in assets is not counted for SSI purposes; balances are not counted for Medicaid eligibility. Assets are not counted toward Medicaid or SSI eligibility.
Use of Funds Funds can be withdrawn tax-free to pay for qualified disability expenses. Funds can be withdrawn for any purpose, though they’re typically used for disability expenses. The beneficiary may owe taxes.
Age Requirement Disability must have occured before age 26. Beneficiaries must be under age 65 when the trust is created.

Alternatives to ABLE Accounts

If you don’t qualify for an ABLE account or you’re looking for ways to save on behalf of a disabled child or dependent, there are other accounts you might consider. Here are some options to weigh when looking for alternatives to ABLE accounts.

Special Needs Trust

As mentioned, an SNT can also be used to pay for disability-related expenses. Establishing a trust can be a little more involved than opening an ABLE account, since you’ll need to create the trust on paper, name a trustee, and fund it with assets. But doing so could make sense if you care for a disabled child or dependent and you want to ensure that they’ll be taken care of should something happen to you.

529 College Savings Account

A 529 college savings account is designed to help parents and other individuals save money for education while enjoying some tax benefits. Contributions can be made on behalf of a beneficiary with disabilities. That money can grow tax-deferred, then be withdrawn tax-free to pay for qualified education expenses.

You might open a 529 college savings account for yourself or your child to help them pay for school without incurring student debt.

Bank Accounts

Opening one or more bank accounts is another way to set aside money to pay for disability expenses. Bank accounts won’t yield any tax breaks but they can allow for convenience and accessibility.

•   Opening deposits: Brick-and-mortar banks might require an opening deposit of anywhere from $5 to $100 while online banks might allow you to open a checking or savings account with as little as $1 or even $0, with funds to be deposited in the future.

•   You’ll need government-issued ID, like a driver’s license, to open an account.

•   So how long does it take to open a bank account? Not long, if you’re doing it online. Typically, when you have your basic forms of ID ready, the time it takes to open an online account is minimal.

•   When can you create a bank account online? The simple answer is when you’re old enough to do so. Keep in mind that the legal age to open a bank account in your name is typically 18 so if you’re underage, you may need your parents to open the account for you.

•   Online banks and traditional banks can offer a variety of account options. Student checking and savings accounts, for example, are designed for younger teens. Older teens who are headed off to university might be interested in opening a bank account for college students.

Banks can also offer certificate of deposit (CD) accounts and money market accounts.

If you’re wondering whether you can open a bank account with no ID, the answer is no. You’ll need some form of personal identification, such as a government-issued ID, in order to open a bank account online or at a brick-and-mortar bank.

The Takeaway

An ABLE account can make it easier for someone with disabilities to meet their needs while maintaining control over their finances. With an ABLE account, the money that’s contributed grows tax-free and can be withdrawn tax free to pay for qualified expenses relating to the care of a disabled person. Another benefit: Those qualified expenses aren’t limited to health care. The range of expenses include housing, food, transportation, employment — as well as health and wellness and preventive care.

In addition, you may want to consider other options, such as online bank accounts, for growing your savings.

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FAQ

What is considered an ABLE account?

An ABLE account is a tax-advantaged account that’s administered through a state program for the purposes of helping persons with disabilities to save and invest money. An ABLE account’s tax status sets it apart from bank accounts, college savings accounts, or Individual Retirement Accounts (IRAs). You can sign up with your state program.

Should you have both an ABLE account and a special needs trust?

It’s possible to have both if that’s desired. An ABLE account can be managed by its designated beneficiary, allowing them control over their finances. Special needs trusts are managed by a trustee on behalf of the beneficiary, meaning they cannot direct how the money is spent. Having both an ABLE account and a special needs trust can help to ensure that someone with disabilities is taken care of financially while allowing them a measure of independence.

Is a Roth IRA an ABLE account?

No. A Roth IRA is a tax-advantaged account that’s used for retirement savings. Roth IRAs are funded with after-tax dollars and qualified distributions are tax-free. They’re not limited to persons with disabilities while an ABLE account is designed to be used specifically for qualified disability expenses.

About the author

Rebecca Lake

Rebecca Lake

Rebecca Lake has been a finance writer for nearly a decade, specializing in personal finance, investing, and small business. She is a contributor at Forbes Advisor, SmartAsset, Investopedia, The Balance, MyBankTracker, MoneyRates and CreditCards.com. Read full bio.


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Mar
28
2025
Guide to Individual Development Accounts (IDAs)

Guide to Individual Development Accounts (IDAs)

By | Budgeting & Goals, Family Finances, Growing Wealth, money | Comments Off on Guide to Individual Development Accounts (IDAs)

An Individual Development Account (or IDA) is a special type of matched savings account that’s designed to help lower-income individuals and households achieve their financial goals. IDA accounts were first introduced in the 1990s as part of a federal initiative to encourage wealth-building among financially-challenged populations.

The IDA account program is specifically designed to encourage saving toward one of four goals, including home ownership. There are certain requirements that must be met to qualify for an Individual Development Account.

Here, take a closer look at how these accounts work and their pros and cons.

What Is an Individual Development Account (IDA)?

An Individual Development Account is a bank account that allows lower-income Americans to set aside money to fund specific goals. Generally, money in an IDA account can be used for one of four purposes:

•   Buying a car

•   Purchasing a home

•   Starting a business or supporting an existing business

•   Paying for post-secondary education or training

Some programs may allow you to use the money for other things, like home repairs and improvements or retirement.

IDA accounts are matched savings accounts that are funded partially with grant money. The IDA program can also provide other benefits to participating savers, including financial literacy training and homebuyer education.

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How Does an Individual Development Account Work?

Individual Development Accounts work by encouraging participants to save and then matching a percentage of those savings to fund specific financial goals. A sponsoring organization, which may be a non-profit or state government agency, partners with banks and other financial institutions to offer IDA accounts to underserved populations.

In terms of the matching component, IDA accounts are similar to 401(k) plans in that savers can essentially get free money for participating. The match is designed to act as an incentive to encourage account owners to save. The IDA savings match varies by program.

For example, you may be eligible for a 1:1 match, meaning you get $1 for every $1 you save. Other programs may offer a 5:1 match instead, so you get five times the matching contributions for every dollar you save (that means $5 to every dollar you tuck away). IDA programs can also cap the total maximum match allowed to a set dollar amount. In some cases, the cap will be in the $5,000 range, though higher and lower amounts are possible as well. These Individual Development Account programs typically last five years.

Once you reach your target savings amount, you can then use that money to fund your goals. So if you save $25,000, including your contributions and the match, you could then use that money to put a down payment on a home or start a business under the guidelines of the IDA program. Account minimum balance requirements and fees may be waived for IDA savers.

One word of caution: If you stop saving before you reach the goal amount or if you use the funds for a purpose other than described by the IDA, you may risk forfeiting the matching money.

History of Individual Development Accounts (IDAs)

The idea for IDA accounts was first proposed in 1991 by author Michael Sherraden. In his book, “Assets and the Poor: A New American Welfare Policy,” Sherraden proposed IDA accounts as a means of introducing real assets into the lives of poorer populations that might otherwise lack them. Specifically, the Individual Development Account was meant to be a tool for encouraging personal responsibility in building wealth.

In 1996, the Personal Responsibility and Work Opportunity Reconciliation Act reformed welfare programs and included IDAs as an eligible use for federal funds.

How to Open an Individual Development Account

If you’d like to open an Individual Development Account, the first step is locating programs in your area. The Administration for Children and Families offers an online mapping tool to help you locate IDA programs in each state.

Once you find an IDA program provider near you, you can contact them to find out the specific steps you need to take to open an account and which banks they partner with. Keep in mind that you’ll also need to meet the following eligibility requirements to have an Individual Development Account.

Earn Less Than 200% of Federal Poverty Level

Income is a key eligibility requirement for IDA accounts. Your income has to be below 200% of the federal poverty level for your household size. These levels are set by the federal government and are also used to determine eligibility for other benefits, like Medicaid. You can use an online federal poverty calculator to determine whether your income falls within the guidelines.

Have a Paying Job

A paying job is another requirement for opening an Individual Development Account. If you’re planning to buy a home, for instance, the government wants reassurance that you’ll be able to save money now and make your payments later. There are, however, no specifications on what kind of job you need to have.

Asset Restrictions

The IDA program assumes that participants aren’t starting out with significant wealth. So another condition for eligibility may be a $10,000 cap on assets. You can, however, typically exclude the value of one home and one car from this total.

Must Take Free Financial Literacy Courses

Financial literacy and education courses are typically provided and required by IDA programs. These courses are designed to educate participants about financial basics, such as budgeting, saving, and debt. A participant might learn financial hacks, such as how a parent can set up a kids’ savings account for a child, even though the minimum age to open a bank account in one’s own name is 18. This can give a kid a head start on accumulating money. Or perhaps the class would illuminate the value of creating an emergency-fund savings account to achieve greater financial stability.

Programs can also offer additional topic-specific classes on concepts like home buying and business planning. The idea here is that an IDA isn’t just helping you build wealth, it’s also teaching you how to manage it wisely.

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Pros and Cons of an Individual Development Account (IDA)

Individual Development Accounts are designed to help people who participate in them to build wealth and get ahead financially. Those are among the upsides of these accounts. There are, however, some disadvantages to weigh against the potential benefits. Here’s a closer look:

Pros

 Cons

•   Matched savings can help you fund your goals more quickly

•   The money you receive in matching contributions isn’t taxable to you

•   Financial literacy courses can help to make you more knowledgeable about money

•   IDA accounts have limited flexibility since they can only be used to fund specific goals

•   Not everyone is eligible to open and contribute to an IDA account

•   Saving money in an IDA isn’t guaranteed to improve your financial outlook

•   You may risk forfeiting the matching money if you can’t meet your goal or if you use the funds for something other than approved expenditures

Alternatives to an Individual Development Account (IDA)

An IDA account isn’t the only way to save money toward your financial goals. Some of the other possibilities for saving money include:

•   Establishing a money market account

•   Opening a brokerage account

•   Setting up one or more high-yield savings accounts

•   Contributing to a 401(k) or IRA

•   Building a CD ladder with multiple certificates of deposit

Each savings option has pros and cons, and you may need to spend a little time learning about each one. If you don’t know how a money market account works, for example, that could make it more difficult to choose the best account for your savings.

And in terms of whether an IRA vs. 401(k) is better for retirement saving, the answer depends on your goals and tax situation. In addition, not everyone has access to a 401(k) account and may need to find other ways (like an IRA) to save for their future.

Another important bit of advice: If you choose to open a savings account, keep in mind that you have options. Your decision may determine the interest rate you earn and the fees you pay. For example, a college student bank account (if you are eligible for one) might charge fewer fees than a traditional savings account.

You may also be debating whether to open a joint vs. separate bank account if you’re married and want to save for a goal like a down payment on a house. Having a joint account for shared savings goals or expenses and separate accounts for individual goals could help you to strike the right balance. But again, do your research to find the option that best suits your financial style and goals.

Recommended: Savings Account vs Money Market Comparison

The Takeaway

An Individual Development Account (IDA) was created to help lower-income individuals secure financial stability. Thanks to matching funds, it can accelerate a person’s saving towards such expenses as buying a home. However, not everyone is eligible for these accounts, and the funds, once saved, can only be used on certain expenses. Still, it’s an opportunity to possibly snag some free money and definitely worth consideration for many people who qualify.

Another way to boost your financial wellness is by partnering with a top-notch financial institution for your bank account.

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 3.80% APY on SoFi Checking and Savings.

FAQ

How do I get an IDA account?

To open an Individual Development Account, you’ll need to meet the eligibility requirements. Assuming that you’re eligible, you can then contact an IDA program near you to learn what steps are necessary to open an account.

What is a federal IDA?

The federal IDA program is a savings match program that’s designed to help underserved populations build wealth. Money in an IDA account can be used to buy a home, pay for higher education expenses, start a business, or even buy a car.

Can I take money out of my IDA?

Money in an IDA can be withdrawn to fund a specific goal. For example, if you’re ready to buy a home, you can take money from your account to pay for the down payment or closing costs. Or if you’re starting a business, you can withdraw IDA money to cover operating costs. However, if you take out the money for other purposes, you may forfeit the matching funds.

About the author

Rebecca Lake

Rebecca Lake

Rebecca Lake has been a finance writer for nearly a decade, specializing in personal finance, investing, and small business. She is a contributor at Forbes Advisor, SmartAsset, Investopedia, The Balance, MyBankTracker, MoneyRates and CreditCards.com. Read full bio.


Photo credit: iStock/HAKINMHAN

SoFi® Checking and Savings is offered through SoFi Bank, N.A. ©2025 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 Eligible Direct Deposit activity can earn 3.80% annual percentage yield (APY) on savings balances (including Vaults) and 0.50% APY on checking balances. Eligible 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 (“Eligible Direct Deposit”) via the Automated Clearing House (“ACH”) Network during a 30-day Evaluation Period (as defined below).

Although we do our best to recognize all Eligible Direct Deposits, a small number of employers, payroll providers, benefits providers, or government agencies do not designate payments as direct deposit. To ensure you're earning 3.80% APY, we encourage you to check your APY Details page the day after your Eligible Direct Deposit arrives. If your APY is not showing as 3.80%, contact us at 855-456-7634 with the details of your Eligible Direct Deposit. As long as SoFi Bank can validate those details, you will start earning 3.80% APY from the date you contact SoFi for the rest of the current 30-day Evaluation Period. You will also be eligible for 3.80% APY on future Eligible Direct Deposits, as long as SoFi Bank can validate them.

Deposits that are not from an employer, payroll, or benefits provider 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 Eligible Direct Deposit activity. There is no minimum Eligible Direct Deposit amount required to qualify for the stated interest rate. SoFi members with Eligible Direct Deposit are eligible for other SoFi Plus benefits.

As an alternative to Direct Deposit, SoFi members with Qualifying Deposits can earn 3.80% 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 Eligible 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 an Eligible Direct Deposit or receipt of $5,000 in Qualifying Deposits to your account, you will begin earning 3.80% 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 Eligible 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 Eligible 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 Eligible 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 Eligible Direct Deposit or Qualifying Deposits until SoFi Bank recognizes Eligible Direct Deposit activity or receives $5,000 in Qualifying Deposits in a subsequent 30-Day Evaluation Period. For the avoidance of doubt, an account holder with both Eligible Direct Deposit activity and Qualifying Deposits will earn the rates earned by account holders with Eligible Direct Deposit.

Separately, SoFi members who enroll in SoFi Plus by paying the SoFi Plus Subscription Fee every 30 days can also earn 3.80% APY on savings balances (including Vaults) and 0.50% APY on checking balances. For additional details, see the SoFi Plus Terms and Conditions at https://www.sofi.com/terms-of-use/#plus.

Members without either Eligible Direct Deposit activity or Qualifying Deposits, as determined by SoFi Bank, during a 30-Day Evaluation Period and, if applicable, the grace period, or who do not enroll in SoFi Plus by paying the SoFi Plus Subscription Fee every 30 days, will earn 1.00% 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 1/24/25. There is no minimum balance requirement. Additional information can be found at http://www.sofi.com/legal/banking-rate-sheet.
*Awards or rankings from NerdWallet are not indicative of future success or results. This award and its ratings are independently determined and awarded by their respective publications.

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


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.

We do not charge any account, service or maintenance fees for SoFi Checking and Savings. We do charge a transaction fee to process each outgoing wire transfer. SoFi does not charge a fee for incoming wire transfers, however the sending bank may charge a fee. Our fee policy is subject to change at any time. See the SoFi Checking & Savings Fee Sheet for details at sofi.com/legal/banking-fees/.

SOBK-Q224-1918870-V1

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Mar
28
2025
Guide to Irrevocable Letters of Credit (ILOC)

Guide to Irrevocable Letters of Credit (ILOC)

By | Credit, money | Comments Off on Guide to Irrevocable Letters of Credit (ILOC)

An irrevocable letter of credit (or ILOC) is a written agreement between a buyer (often an importer) and a bank. As part of the agreement, the bank agrees to pay the seller (typically an exporter) as soon as certain conditions of the transaction are met. These letters help reduce a seller’s concern that an unknown buyer won’t pay for the goods they receive. It also helps eliminate a buyer’s concern that an unknown seller won’t send the goods the buyer has paid for.

Irrevocable letters of credit are often found in international trade, though they can be used in other types of financial arrangements to ensure that a seller will be paid, even if the buyer fails to uphold their end of the bargain.

Key Points

•   An irrevocable letter of credit is a written agreement between a bank and a buyer to guarantee payment, ensuring that the seller will be paid even if the buyer fails to fulfill their obligations.

•   Irrevocable letters of credit cannot be canceled or modified in any way without the explicit agreement of all parties involved.

•   Irrevocable letters of credit are commonly used in international transactions but can be used in other situations as well.

•   Alternatives to irrevocable letters of credit include trade credit insurance and standard letters of credit, which offer different levels of flexibility and protection.

What Is an Irrevocable Letter of Credit?

Simply defined, an irrevocable letter of credit represents an agreement between a bank and a buyer involved in a financial transaction. The bank guarantees payment will be made to the seller according to the terms of the agreement. Since the letter is irrevocable, that means it cannot be changed without the consent and agreement of all parties involved.

Irrevocable letters of credit can also be referred to as standby letters of credit. Once an irrevocable letter of credit is issued, all parties are contractually bound by it. This means that even if the buyer in a transaction doesn’t pay, the bank is obligated to make payment to the seller to satisfy the agreement.

Having an irrevocable letter of credit in place is a form of risk management. The seller is guaranteed payment from the bank, which can help to reduce concerns about the buyer failing to pay. And it ensures that the seller will follow through on their obligations by providing whatever is being purchased through the agreement. In simpler terms, a standby letter of credit or irrevocable letter of credit is a sign of good faith on the part of everyone involved in a transaction.


💡 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 Does an Irrevocable Letter of Credit Work?

An irrevocable letter of credit establishes a contractual agreement between a buyer, a seller, and their respective banks. It effectively creates a safeguard for both the buyer and the seller, in that:

•   Buyers are not required to forward payment until the seller provides the goods or services that have been purchased.

•   Sellers can collect payment for goods and services, as long as the conditions outlined in the letter of credit are met.

The bank issuing the letter of credit acts as a go-between for both sides, guaranteeing payment to the seller even if the buyer doesn’t pay. Assuming the buyer does fulfill their obligations, they would then make payment back to the bank. In a sense, this allows the buyer to borrow from the bank without formally establishing credit in the form of a loan or credit line. (Check with your financial institution to learn what fees may be involved.)

Before an irrevocable letter of credit is issued, the bank will first verify the buyer’s creditworthiness. Assuming the bank is reassured that the buyer will, in fact, repay what’s owed to complete the purchase, it will then establish the irrevocable letter of credit to facilitate the transaction between the buyer and seller. Irrevocable letters of credit are communicated and sent through the SWIFT banking system.

Recommended: How Do Banks Make Money?

Irrevocable Letter of Credit Specifications

The exact details included in an irrevocable letter of credit can depend on the situation in which it’s being used. The conditions that are set for the completion of the transaction will also matter. But generally, you can expect an irrevocable letter of credit to include:

•   Buyer’s name and banking information (that is, their bank account number and other details)

•   Seller’s name and banking information

•   Name of the intermediary bank issuing the letter of credit

•   Amount of credit that’s being issued

•   Date that the letter of credit is issued and the date it will expire

An irrevocable letter of credit will also detail the conditions that must be met by both the buyer and seller in order for the contract to be valid. For example, the seller may need to provide written verification that the goods or services referenced in the agreement have been provided before payment can be issued. The letter of credit must be signed by an authorized bank representative. It may need to be printed on bank letterhead to be valid.

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Do I Need an Irrevocable Letter of Credit?

You may need an irrevocable letter of credit if you’re doing business with someone in a foreign country. You may also require one if you are conducting a transaction with a new company or individual (one with which you don’t yet have an established relationship).

Irrevocable letters of credit can help to mitigate some of the risk that goes along with international transactions. These letters ensure that if you’re the seller, you get paid for any products or services you’re providing. They also protect you if you’re the buyer, promising that products or services are delivered to you.

An irrevocable letter of credit could also come in handy if you’re still working on building credit for your business and you’re the buyer in a transaction. The bank will pay the money to the seller; you’ll then repay the bank. Payment may be required in a lump sum from your business bank account or another source. Or the bank may also offer the option of repaying it in installments over time. Repaying your obligation could help to raise your business’s creditworthiness in the bank’s eyes. This may make it easier to take out other loans or lines of credit later.


💡 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 towards your financial goals.

Alternatives to Irrevocable Letters of Credit

An irrevocable letter of credit is not the only way to do business when engaging in international transactions. You may also consider trade credit insurance or another type of letter of credit instead.

Trade Credit Insurance

Trade credit insurance, also referred to as accounts receivable insurance or AR insurance, is used to insure businesses against financial losses resulting from unpaid debts. You can use trade credit insurance to cover all transactions or limit them to ones where you believe there may be a heightened risk of loss, such as transactions involving foreign businesses.

A trade credit insurance policy protects your business in the event that the other party to a financial agreement defaults. It can insulate your accounts receivable against losses if an unpaid account turns into a bad debt. Purchasing trade credit insurance may be an easier way to manage risk for your business overall, as it’s less involved than an irrevocable letter of credit.

Recommended: Business Loan vs Personal Loan: Which is Right for You?

Letters of Credit

A letter of credit guarantees payment from the buyer’s bank to the seller’s bank in a financial transaction. Like an irrevocable letter of credit, it establishes certain conditions that must be met in order for the transaction to be completed. But unlike an irrevocable letter of credit, a standard letter of credit can be revoked or modified.

You might opt for this kind of letter of credit if you’re doing business with someone you don’t know and you want reassurance that the transaction will be completed smoothly. A regular letter of credit may also be preferable if you’d like the option to modify or cancel the agreement.

The Takeaway

An irrevocable letter of credit is something you may need to use from time to time if you run a business and regularly deal with international transactions. It adds a layer of protection to buying and selling, as a bank is saying it will cover the transaction. An ILOC, as it’s sometimes known, can provide reassurance when working with a new business or establishing your company overseas. The letter cannot be changed, so you’re getting solid peace of mind.

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 3.80% APY on SoFi Checking and Savings.

FAQ

What is the difference between a letter of credit and an irrevocable letter of credit?

A letter of credit and irrevocable letter of credit are largely the same, in terms of what they’re designed to and in what situations they can be used. The main difference is that unless a letter of credit specifies that it is irrevocable, it can be changed or modified by the parties involved.

What is the cost of an irrevocable letter of credit?

You generally need to pay a transaction fee for an irrevocable letter of credit. The fee is typically a small percentage of the transaction amount. The rate will vary from bank to bank.

Does an irrevocable letter of credit expire?

Yes, an irrevocable letter of credit will typically state the date by which the seller must submit the necessary paperwork in order to receive payment.

About the author

Rebecca Lake

Rebecca Lake

Rebecca Lake has been a finance writer for nearly a decade, specializing in personal finance, investing, and small business. She is a contributor at Forbes Advisor, SmartAsset, Investopedia, The Balance, MyBankTracker, MoneyRates and CreditCards.com. Read full bio.


Photo credit: iStock/Photoevent

SoFi members with Eligible Direct Deposit activity can earn 3.80% annual percentage yield (APY) on savings balances (including Vaults) and 0.50% APY on checking balances. Eligible 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 (“Eligible Direct Deposit”) via the Automated Clearing House (“ACH”) Network during a 30-day Evaluation Period (as defined below).

Although we do our best to recognize all Eligible Direct Deposits, a small number of employers, payroll providers, benefits providers, or government agencies do not designate payments as direct deposit. To ensure you're earning 3.80% APY, we encourage you to check your APY Details page the day after your Eligible Direct Deposit arrives. If your APY is not showing as 3.80%, contact us at 855-456-7634 with the details of your Eligible Direct Deposit. As long as SoFi Bank can validate those details, you will start earning 3.80% APY from the date you contact SoFi for the rest of the current 30-day Evaluation Period. You will also be eligible for 3.80% APY on future Eligible Direct Deposits, as long as SoFi Bank can validate them.

Deposits that are not from an employer, payroll, or benefits provider 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 Eligible Direct Deposit activity. There is no minimum Eligible Direct Deposit amount required to qualify for the stated interest rate. SoFi members with Eligible Direct Deposit are eligible for other SoFi Plus benefits.

As an alternative to Direct Deposit, SoFi members with Qualifying Deposits can earn 3.80% 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 Eligible 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 an Eligible Direct Deposit or receipt of $5,000 in Qualifying Deposits to your account, you will begin earning 3.80% 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 Eligible 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 Eligible 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 Eligible 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 Eligible Direct Deposit or Qualifying Deposits until SoFi Bank recognizes Eligible Direct Deposit activity or receives $5,000 in Qualifying Deposits in a subsequent 30-Day Evaluation Period. For the avoidance of doubt, an account holder with both Eligible Direct Deposit activity and Qualifying Deposits will earn the rates earned by account holders with Eligible Direct Deposit.

Separately, SoFi members who enroll in SoFi Plus by paying the SoFi Plus Subscription Fee every 30 days can also earn 3.80% APY on savings balances (including Vaults) and 0.50% APY on checking balances. For additional details, see the SoFi Plus Terms and Conditions at https://www.sofi.com/terms-of-use/#plus.

Members without either Eligible Direct Deposit activity or Qualifying Deposits, as determined by SoFi Bank, during a 30-Day Evaluation Period and, if applicable, the grace period, or who do not enroll in SoFi Plus by paying the SoFi Plus Subscription Fee every 30 days, will earn 1.00% 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 1/24/25. There is no minimum balance requirement. Additional information can be found at http://www.sofi.com/legal/banking-rate-sheet.
SoFi® Checking and Savings is offered through SoFi Bank, N.A. ©2025 SoFi Bank, N.A. All rights reserved. Member FDIC. Equal Housing Lender.
The SoFi Bank Debit Mastercard® is issued by SoFi Bank, N.A., pursuant to license by Mastercard International Incorporated and can be used everywhere Mastercard is accepted. Mastercard is a registered trademark, and the circles design is a trademark of Mastercard International Incorporated.

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

We do not charge any account, service or maintenance fees for SoFi Checking and Savings. We do charge a transaction fee to process each outgoing wire transfer. SoFi does not charge a fee for incoming wire transfers, however the sending bank may charge a fee. Our fee policy is subject to change at any time. See the SoFi Checking & Savings Fee Sheet for details at sofi.com/legal/banking-fees/.

SOBK-Q224-1885505-V1

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Mar
28
2025
What Is ChexSystems?

Understanding ChexSystems

By | Budgeting & Goals, Financial Independence, money | Comments Off on Understanding ChexSystems

ChexSystems is a nationwide credit reporting system that collects information about bank accounts that are now closed. It compiles data on red flags, such as whether a bank account was closed due to numerous overdrafts or suspicious financial transactions.

Many (but not all) financial institutions rely on ChexSystems data to decide whether or not to approve an application for a new checking or savings account. If you have a bank account or plan to open one, it’s helpful to understand what goes into a ChexSystems report and why it might matter to you.

Key Points

•   ChexSystems is a nationwide reporting system that collects information on closed bank accounts, highlighting negative behaviors like overdrafts and fraud for financial institutions.

•   Individuals can obtain a free copy of their ChexSystems report annually to review their banking history and dispute any inaccuracies found.

•   Negative information on a ChexSystems report generally remains for up to five years and can impact the ability to open new bank accounts.

•   Cleaning up a ChexSystems report involves disputing errors, settling outstanding debts, and practicing responsible banking habits to avoid future negative marks.

•   Alternative options exist for those denied a bank account, such as seeking banks that do not use ChexSystems or considering second-chance accounts.

What Is ChexSystems?

Authorized by provisions in the Fair Credit Reporting Act (FCRA), ChexSystems is a risk-management tool for financial entities that are checking an individual’s banking history.

ChexSystems compiles information that can help financial institutions gauge whether a customer is creditworthy before granting them an account. The information that ChexSystems compiles is based only on closed accounts, not current ones, and can reveal whether past accounts were closed voluntarily or due to negative behavior, such as repeated overdrafts or suspected fraud.

Negative marks typically stay on a ChexSystems report for up to five years. If a financial institution sees any kind of negative activity on a ChexSystems report, the applicant may be denied a bank account.

The information in your ChexSystems report can also be used to generate a ChexSystems consumer credit score. This is separate from consumer credit scores generated using information from the three major credit reporting bureaus to help lenders decide who may qualify for a loan.

💡 Quick Tip: An online bank account with SoFi can help your money earn more — up to 3.80% APY, with no minimum balance required.

What Is In a ChexSystems Report?

Not everyone will have a file with ChexSystems. Those who have a clean banking record may not be listed. However, those who have had bank accounts closed in the past for negative reasons will likely have a report with ChexSystems.

A report will usually include basic identifying information, such as name, address, phone number, and date of birth. It will also include details about your banking history, such as:

•   Suspected fraudulent activity

•   Non-sufficient funds (NSF) or overdraft activity

•   Inquiries (when someone has viewed your ChexSystems report)

•   Check cashing inquiries

•   Returned checks reported by retailers

•   History of checks ordered

•   Checking account closures

ChexSystems only collects information for closed accounts, and negative behaviors typically stay on file for five years, as noted above. Current checking accounts do not show up on a ChexSystems report.

Worth noting: If you’ve ever had a security freeze in place, that will usually show up on your ChexSystems report, as will identity theft alerts.

Recommended: Why Is Having a Good Credit Score Important?

How to Get a Copy of Your ChexSystems Report

You can get a copy of your ChexSystems report for free once every 12 months under the Fair and Accurate Credit Transaction Act (FACTA), similar to the way you can request a free copy of your credit reports once a year from the three main credit bureaus.

You can request your ChexSystems report online, by phone, or by mail:

•   You can complete and submit the Consumer Request for Disclosure Form online.

•   You can call 1-800-428-9623 Monday through Friday, 8:00 am to 7:00 pm CST.

•   You can mail a Consumer Request for Disclosure Form to ChexSystems, Inc., Attn: Consumer Relations, PO Box 583399, Minneapolis, MN 55458.

ChexSystems also offers options for people with visual or hearing impairments. In addition, the ChexSystems website details ways to obtain a report for those under age 18 or for an adult for whom you have power of attorney.

There is an exception to this “once a year” free report rule: If you’ve been denied a bank account, you can request a copy of your ChexSystems report to understand the factors behind the bank’s decision, even if less than a year has passed since the last time you pulled a report. The bank is required to specify the reason for the denial, too.

How to Clean Up Your ChexSystems Report

To clean up your ChexSystems report, you’ll first need to get a copy of it, if you haven’t done so already. You can then dispute any negative information you may find. This can help improve your ChexSystems profile if you can get the information removed.

You can reach out to the bank that shared any negative information about your past account and offer to make good on any outstanding obligations. The bank could agree to remove the negative information.

Going forward, you can prevent any further negative information from being reported by practicing good banking habits, such as:

•   Maintaining positive balances across accounts so you don’t land in overdraft

•   Keeping of checks and deposits to avoid bounced checks

•   Protecting your banking information to prevent fraud

•   Reporting any suspected fraud to your bank right away

Those actions won’t erase a negative ChexSystems file. But they can help you to stay on your bank’s good side.

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Does a ChexSystems Report Affect Your Credit Score?

Your ChexSystems report doesn’t affect your consumer credit scores directly. FICO® credit scores, for example, are based on how responsibly you manage credit and debt. For example, it can reveal how often you pay bills late, how much of your available credit you’re using, and how often a hard credit inquiry shows up on your report.

Those are some of the main factors that affect credit scores.

But there could be a ripple effect. If your ChexSystems report makes it difficult or impossible to open a bank account, you might have a hard time paying bills when they are due. If, as a result, you send payments late, that could lower your credit score.

Options if You’ve Been Denied a Bank Account Due to ChexSystems

If you’ve been denied a checking account because of a negative ChexSystems report, it helps to know what to do next. You have a few options:

•   Clean up your ChexSystems file. Request a copy of your ChexSystems report to understand why you were denied. Review your report for any errors or inaccuracies, and dispute any errors you find. Or, if you owe a debt to your previous bank, you could pay it off and request that the bank remove the mark against you.

If successful in cleaning up your report, you can ask the financial institution you recently applied to if they would reconsider the denial. You might also try opening a savings account with the new bank first, see if you can build a relationship, and then add a checking account.

•   Try another bank. Find a bank that doesn’t rely on ChexSystems reports to evaluate potential clients. They are out there and can be found with a little research.

•   Consider a second chance bank account. These are designed for people who have been denied a checking account previously. These accounts may have higher fees or more restrictions than regular bank accounts. They can, however, help you establish a positive banking history and, if managed well, transition to a standard checking account in the future.

•   Use prepaid debit cards in the short term for spending and bill payment. You can load funds onto these cards (which typically charge fees) and then take care of daily needs with that money.

The Takeaway

ChexSystems is a nationwide reporting system for closed bank accounts. Qualified institutions may access ChexSystems reports to evaluate individuals who are applying for new checking or savings accounts. Being listed in ChexSystems means you likely have negative incidents on your closed accounts (e.g., overdrafts, fraud, unpaid negative balances). This can prevent you from opening new accounts. In this situation, you can focus on cleaning up your ChexSystems report or try some workarounds so you can manage daily financial transactions.

SoFi is among the banks that do not rely on ChexSystems when reviewing account applications.

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 3.80% APY on SoFi Checking and Savings.

FAQ

What happens if you are on ChexSystems?

If you have a file on ChexSystems, you may find it hard to open a bank account. ChexSystems gathers negative information about past bank accounts, such as past overdrafts or involuntary account closings.

Can you remove yourself from ChexSystems?

It may be possible to remove yourself from ChexSystems if your report includes information that’s inaccurate or reported in error. You’ll need to dispute the information through ChexSystems in order to have it corrected or removed from your file. Or if, say, you owe overdraft charges on a now-closed account, you could contact your former bank, pay what you owe, and see if they would remove the negative information from ChexSystems.

How do I know if I am in ChexSystems?

You can request a free copy of your ChexSystems report annually. If there is a report on file for you (those in good standing may not be listed), getting this record can reveal the details of negative information.

How long does a person stay in ChexSystems?

Generally, negative information can stay on a ChexSystems report for up to five years. If you have multiple negative items on your ChexSystems report, the five-year reporting time frame applies separately to each one.

Which banks report to ChexSystems?

ChexSystems doesn’t specify which banks use its reporting system. If you’re unsure whether a bank reports to ChexSystems or reviews ChexSystems reports when you apply for a new account, you can call the bank and ask. You can also ask whether second-chance banking is an option, in case you’re denied a traditional bank account.

About the author

Rebecca Lake

Rebecca Lake

Rebecca Lake has been a finance writer for nearly a decade, specializing in personal finance, investing, and small business. She is a contributor at Forbes Advisor, SmartAsset, Investopedia, The Balance, MyBankTracker, MoneyRates and CreditCards.com. Read full bio.


Photo credit: iStock/atakan

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SoFi members with Eligible Direct Deposit activity can earn 3.80% annual percentage yield (APY) on savings balances (including Vaults) and 0.50% APY on checking balances. Eligible 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 (“Eligible Direct Deposit”) via the Automated Clearing House (“ACH”) Network during a 30-day Evaluation Period (as defined below).

Although we do our best to recognize all Eligible Direct Deposits, a small number of employers, payroll providers, benefits providers, or government agencies do not designate payments as direct deposit. To ensure you're earning 3.80% APY, we encourage you to check your APY Details page the day after your Eligible Direct Deposit arrives. If your APY is not showing as 3.80%, contact us at 855-456-7634 with the details of your Eligible Direct Deposit. As long as SoFi Bank can validate those details, you will start earning 3.80% APY from the date you contact SoFi for the rest of the current 30-day Evaluation Period. You will also be eligible for 3.80% APY on future Eligible Direct Deposits, as long as SoFi Bank can validate them.

Deposits that are not from an employer, payroll, or benefits provider 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 Eligible Direct Deposit activity. There is no minimum Eligible Direct Deposit amount required to qualify for the stated interest rate. SoFi members with Eligible Direct Deposit are eligible for other SoFi Plus benefits.

As an alternative to Direct Deposit, SoFi members with Qualifying Deposits can earn 3.80% 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 Eligible 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 an Eligible Direct Deposit or receipt of $5,000 in Qualifying Deposits to your account, you will begin earning 3.80% 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 Eligible 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 Eligible 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 Eligible 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 Eligible Direct Deposit or Qualifying Deposits until SoFi Bank recognizes Eligible Direct Deposit activity or receives $5,000 in Qualifying Deposits in a subsequent 30-Day Evaluation Period. For the avoidance of doubt, an account holder with both Eligible Direct Deposit activity and Qualifying Deposits will earn the rates earned by account holders with Eligible Direct Deposit.

Separately, SoFi members who enroll in SoFi Plus by paying the SoFi Plus Subscription Fee every 30 days can also earn 3.80% APY on savings balances (including Vaults) and 0.50% APY on checking balances. For additional details, see the SoFi Plus Terms and Conditions at https://www.sofi.com/terms-of-use/#plus.

Members without either Eligible Direct Deposit activity or Qualifying Deposits, as determined by SoFi Bank, during a 30-Day Evaluation Period and, if applicable, the grace period, or who do not enroll in SoFi Plus by paying the SoFi Plus Subscription Fee every 30 days, will earn 1.00% 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 1/24/25. There is no minimum balance requirement. Additional information can be found at http://www.sofi.com/legal/banking-rate-sheet.
*Awards or rankings from NerdWallet are not indicative of future success or results. This award and its ratings are independently determined and awarded by their respective publications.

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


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


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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What is a Good Salary for a Single Person Living in California for 2022

What Is a Good Salary for a Single Person Living in California?

By | Budgeting & Goals, relay | Comments Off on What Is a Good Salary for a Single Person Living in California?

Calling California home can be expensive, and some locations carry a much higher cost of living than others. In fact, if you’re wondering where to live in the Golden State, your income may be the deciding factor. A good salary for a single person in California varies widely depending on location and industry: $50K may be enough in some areas, $150K in others.

Here, we’ll provide real-world stats to show you what the cost of living is really like. And we’ll compare annual salaries for different occupations to offer some insight into what a single Californian typically earns.

Key Points

•   A good salary in California varies widely depending on location and industry, ranging from $50K to $150K.

•   California ranks as the second-most expensive state in the U.S. for living costs.

•   In Los Angeles, households spend an average of $77,024 annually, with housing and transportation being major expenses.

•   San Francisco Bay Area residents spend about $101,880 per year, with housing as the largest expense.

•   A living wage for a single adult in California is estimated at $56,825 annually, assuming a 40-hour workweek.

What Is the True Cost of Living in California?

California is the second-most expensive state in the U.S., according to the Missouri Economic Research and Information Center (MERIC). Only Hawaii, Washington, D.C., and Massachusetts have a higher cost of living. Data from the Bureau of Economic Analysis (BEA) calculated that the average annual cost of living in California is $60,272.

Average cost of living numbers reflect both the highs and lows of what people spend to live in California. Cost of living generally means necessary expenses, such as:

•   Housing

•   Food

•   Utilities

•   Transportation

•   Taxes

•   Health care

•   Child care

•   Clothing

•   Education

Where someone chooses to live in California and their lifestyle can influence their personal cost of living. Their choice of career can determine how easily they’re able to keep up with the cost of living. What is considered a good salary for a single person in a metro area may be very different from that of someone living in a farming community.

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What Is the True Cost of Living in Los Angeles?

Households in the Los Angeles metro area spent an average of $77,024 per year in 2021-22, according to the Bureau of Labor Statistics (BLS). The majority of spending was divided across eight categories:

•   Housing

•   Transportation

•   Food

•   Personal insurance and pensions

•   Healthcare

•   Entertainment

•   Cash contributions

•   Apparel and services

August 2024 data from the BLS shows that the Consumer Price Index (CPI) for goods and services in Los Angeles has increased 2.9% from August 2023. Some of the biggest price increases have been in the food and medical care categories. Meanwhile, the average weekly wage across all industries in Los Angeles was $1,411.60, which adds up to $73,403 in annual salary.

What Is the True Cost of Living in the San Francisco Bay Area?

Residents of the San Francisco Bay Area spent an average of $101,880 per year in 2021-22, according to BLS data. San Franciscans spent the most on housing, followed by:

•   Personal insurance and pensions

•   Food

•   Transportation

•   Personal insurance and pensions

•   Cash contributions

•   Entertainment

•   Education

Similar to Los Angeles, San Francisco saw its consumer price index increase 2.7% between August 2023 and August 2024, with consumers paying more for food, energy, and apparel. In terms of weekly salary, workers in the Bay Area bring in $1,874 on average, or $97,468 annually.

Why Is the Cost of Living in California So High?

California’s high cost of living can be attributed largely to supply and demand. Generally speaking, when demand for goods and services outpaces supply, that can result in higher prices.

High demand vs. low supply for things like housing, for instance, can send real estate values soaring. California is an attractive place to live because of its strong economy and job market, prompting more people to move there, driving up demand for housing. The state ranks second for the highest rent prices. And the typical home is valued at $784,989, according to Zillow.

Meanwhile, California residents are subject to higher property tax rates, which adds to the cost of living. They also typically pay more for fuel due to a combination of higher taxes and environmental regulation surcharges.

Inflation can add to the high cost of living in California. As of August 2024, the CPI increased 2.5% year over year. When inflation rises, everything you spend money on tends to become more expensive, driving up the cost of living even further.

Recommended: Does Net Worth Include Home Equity?

Living Wage Calculation for California

A living wage in California is the hourly rate that someone must earn to support themselves and their family, if they have one. It’s not the same thing as the federal minimum wage. The gap between the two is often used as an argument for raising the minimum wage across the board.

Here’s what an hourly living wage calculation looks like for different household sizes in California. Note that the state minimum wage for companies with 26 or more employees is $16.00 an hour.

1 Adult

 2 Adults, Both Working
Number of Children 0 1 2 3 0 1 2 3
Living Wage $27.32 $47.96 $61.58 $82.16 $18.17 $26.21 $33.26 $40.24


Data courtesy of the MIT Living Wage Calculator

So what is a good annual salary for a single person in California? Using living wage data, you could assume that $56,825 in annual pay would be a good salary for a single person with no children. On the other hand, a single adult raising three kids would need to make $170,892 yearly. Those income numbers assume a 40-hour workweek and 52 weeks of work per year.

It’s important to understand the distinction between salary vs. hourly pay, in terms of how much work is involved to earn a living wage. A salaried employee who works 60 hours a week may end up earning the same average hourly wage as someone who works 40 hours per week, even though they’re spending more time on the job.

Typical Expenses

Comparing typical spending to living wage calculations can offer some perspective on how easily Californians are able to keep up with their cost of living. Here’s a closer look at what adults spend in several key budget categories. Comparing typical spending to living wage calculations can offer some perspective on how easily Californians are able to keep up with their cost of living. (If you’re struggling to get a grip on spending, then using a money tracker app like SoFi’s can help.)

Here’s a closer look at what adults spend in several key budget categories.

1 Adult

 2 Adults, Both Working
Number of Children 0 1 2 3 0 1 2 3
Food $4,508 $6,645 $9,967 $13,427 $8,264 $10,287 $13,248 $16,153
Child Care $0 $14,433 $28,866 $41,020 $0 $14,433 $28,866 $41,020
Medical $2,603 $8,317 $8,205 $8,668 $5,886 $8,205 $8,668 $8,263
Housing $21,079 $28,494 $28,494 $38,263 $23,371 $28,944 $28,944 $38,263
Transportation $10,655 $12,343 $15,548 $17,890 $12,343 $15,548 $17,890 $17,869
Civic $3,032 $5,335 $6,715 $7,776 $5,335 $6,715 $7,776 $7,269
Other $4,739 $8,459 $8,994 $12,431 $8,459 $8,994 $12,431 $11,950

Data courtesy of the MIT Living Wage Calculator

“Civic” refers to civic activities and includes costs related to entertainment, culture, pets, hobbies, and education.

Typical Annual Salaries in California

A good yearly salary for a single person in California varies widely, as does what is considered competitive pay. It mostly depends on the industry someone works in. Here’s an overview of annual salaries in California across different industries and sectors.

Occupational Area

 Typical Annual Salary
Management $160,360
Business & Financial Operations $101,390
Computer & Mathematical $142,270
Architecture & Engineering $121,910
Life, Physical, & Social Science $103,010
Community & Social Service $69,470
Legal $166,300
Education, Training, & Library $80,940
Arts, Design, Entertainment, Sports, & Media $97,180
Healthcare Practitioners & Technical $128,010
Healthcare Support $40,280
Protective Service $69,330
Food Preparation & Serving Related $40,300
Building & Grounds Cleaning & Maintenance $44,510
Personal Care & Service $44,170
Sales & Related $59,650
Office & Administrative Support $54,960
Farming, Fishing, & Forestry $38,590
Construction & Extraction $74,240
Installation, Maintenance, & Repair $66,960
Production $51,340
Transportation & Material Moving $50,010

The highest paying jobs by state tend to be in the management, legal, technology, and healthcare fields. That makes sense, given how much big business and tech contribute to the state’s economy.

California’s large population also means greater demand for things like legal services and health care. These are not the best jobs for antisocial people, since they demand a good deal of interaction and communication, but that doesn’t mean introverts can’t find great opportunities here.

So, what is a good entry level salary in California? Entry level pay is likely to be higher in industries that have higher demand for talent. The downside is that hiring can be much more competitive.

New hires seeking jobs in the state may do well to read up on how to ask for a signing bonus or more perks in their benefits package, which can help supplement a lower entry level salary.

Recommended: What Trade Makes the Most Money?

Is the Cost of Living in California Worth It?

California is far from the cheapest state to live in. Whether it’s worth it to you to make your home there can depend on your reasons for wanting to live in the Golden State. If you’ve landed a high-paying job in a promising field, for instance, then a higher cost of living might be a trade-off you can accept to launch your dream career.

On the other hand, you might find that California’s cost of living is simply too much for your budget. In that case, you might consider relocating to a less expensive state or, at the very least, moving to a different part of California.

Regardless of where you end up, using a budget planner app can be a great way to keep track of your spending. You can link the app to your bank accounts and credit cards to keep tabs on where your money goes and see at a glance where you might need to cut back. Maintaining a budget is one of the most effective ways to keep your cost of living under control.

Recommended: Should I Sell My House Now or Wait?

The Takeaway

What is a good yearly salary for a single person? The simplest answer might be this: An amount that allows you to meet all of your basic expenses, save a little, and pay down debt or work toward another financial goal. Whether that’s $50,000, $150,000 or more can depend on your preferred lifestyle and where you choose to live.

Take control of your finances with SoFi. With our financial insights and credit score monitoring tools, you can view all of your accounts in one convenient dashboard. From there, you can see your various balances, spending breakdowns, and credit score. Plus you can easily set up budgets and discover valuable financial insights — all at no cost.

SoFi helps you stay on top of your finances.

FAQ

What is a livable salary for a single person in California?

A living wage for a single person in California with no children is $27.32 per hour or $56,825 per year, assuming a 40-hour workweek. Whether that salary is livable for someone can depend on where they live in California and how they typically spend their money.

What is a comfortable salary in California?

The salary that’s required to live comfortably in California depends on how many people live in the household, how many people in the household earn an income, where you live in the state, and your typical annual expenses.

What is a good monthly income in California?

A good monthly income in California is $5,002, based on what the Bureau of Economic Analysis estimates that Californians pay for their cost of living. A good monthly income for you will depend on what your expenses are and how much you typically spend per month.

About the author

Rebecca Lake

Rebecca Lake

Rebecca Lake has been a finance writer for nearly a decade, specializing in personal finance, investing, and small business. She is a contributor at Forbes Advisor, SmartAsset, Investopedia, The Balance, MyBankTracker, MoneyRates and CreditCards.com. Read full bio.


Photo credit: iStock/lechatnoir

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

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