Apr
17
2023
Maximum Deposit and Balance Limits for Checking Accounts

Maximum Deposit and Balance Limits for Checking Accounts

By | Budgeting & Goals, Financial Independence, money | Comments Off on Maximum Deposit and Balance Limits for Checking Accounts

Having a bank account can simplify money management, but it’s important to know that there may be limits on how much money you can put in and move through your accounts. Limits like these can impact the timing and efficiency of your transactions.

Banking details matter to almost all of us. According to the Federal Reserve , 95% of U.S. households have at least one account with a bank or credit union. If you are wondering how much you should keep in checking and savings and whether bank accounts have limits, do read on. We’ll help you answer these important questions so you know where to keep your money and what to expect when you do your banking.

What are Maximum Deposit Limits?

Generally speaking, banks and credit unions don’t impose maximum deposit limits on checking and savings. This means that there usually is not a maximum deposit amount for your checking account that you need to know. The same applies for savings accounts. So if you were to win the lottery (wouldn’t it be nice?), you could go ahead and deposit that mega check into your checking or savings account without any issues.

There may, however, be maximum deposit limits for other types of deposit accounts. For example, if you’re opening a certificate of deposit (CD) account, the bank may cap those deposits at a certain amount. Depending on the bank, the maximum deposit may be as high as $1 million.

Now, do checking accounts have maximum limits on what you can deposit in a single transaction? Yes, they can, depending on the bank.

Maximum Account Balance Limits

Just as banks usually don’t impose a maximum deposit limit, they also don’t set limits on account balances. There is, however, a limit on how much of your money is protected by the Federal Deposit Insurance Corporation (FDIC).

The FDIC insures bank accounts in the very rare event of a bank failure. The FDIC coverage limit is $250,000 per depositor, per account ownership type, per financial institution. Having two checking accounts with the same bank or multiple savings or CD accounts at the same bank doesn’t affect your coverage limit if the total balance is under $250,000.

If you have multiple accounts at the same bank and the balances exceed $250,000, then it’s possible that part of your deposits might not be covered. The FDIC offers an online estimator tool that you can use to calculate how much of your deposits are covered at an insured bank.

One important note: Some banks participate in programs that extend the FDIC insurance to cover millions. If you want to keep large sums of money on deposit, you may want to consider these programs1.

What Is the Right Amount of Money to Keep In a Checking Account?

How much money can you have in a bank account? The short answer is as much as you want. But a better question might be, “How much money should you have in checking?”

There are different rules of thumb you might follow. Much depends on your personal situation and comfort level, but let’s consider two popular ways to look at this matter. You may choose the “emergency account” route and keep two to three months’ worth of expenses in checking. You could add another 20% to that amount as a just-in-case cushion to cover any small unexpected expenses that might come up so you don’t have to tap into your emergency savings.

If your bank imposes a minimum balance requirement, you could use that as a guide instead when deciding how much to keep in checking. So if your bank has a $1,000 minimum daily balance in order to avoid a monthly service fee, you might aim to keep at least that much in checking.

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.


What to Consider When Withdrawing Money

Maintaining a minimum balance in your checking and savings has some benefits. Specifically, it can help you to avoid fees or situations where you might run the risk of being short on funds. Here are three things to weigh when making withdrawals from bank accounts which can have implications in terms of maintaining your balance and avoiding excess charges.

Overdrafts

Overdraft occurs when you withdraw more money than you have available in your bank account, resulting in a negative balance. This is problematic because not only do you not have money to spend or pay bills, but also because your bank can also charge you a fee. According to the latest research from the Consumer Financial Protection Bureau , banks collected $15.47 billion in 2019 alone. Ouch! Keeping a minimum balance in checking and monitoring your balance regularly can help lower the risk of overdrafting your account.

Pre-Authorizations

Some transactions may require a pre-authorization hold before money is deducted from your account. For example, if you use your debit card to get $50 in gas, there may be an initial hold for that amount against your available funds. This lowers the dollar amount you have available for other spending. Having some extra funds in your accounts means all of your money isn’t tied up by these kinds of holds. Better yet, you might consider setting up a credit card account just for things like gas, hotel, and other travel purchases which often require pre-authorization.

Minimum Balance Requirements

As mentioned, banks and credit unions can impose minimum balance requirements for deposit accounts. This is separate from any initial minimum deposit requirement you might need to make to open the account. If your balance dips below the minimum deposit requirement, that could trigger a fee. How would you enter that “too low” zone? It might happen if you make a larger than usual withdrawal or debit card purchase, or decide to write a check that pays off your credit card bill one month.

Of course, you could avoid this by choosing a checking and savings option that doesn’t charge a monthly fee or set minimum balance requirements. This is an option if you’re banking with SoFi.

What to Consider When Depositing Money

The purpose of checking and savings is to hold your money until you need it. You therefore may not think twice about plunking some funds into your bank and parking it there. But when making deposits, it’s important to consider:

•   How much interest you’re earning with your bank vs. what you might earn elsewhere

•   How accessible your money is once you deposit it

•   What kind of fees you might pay to withdraw funds

Let’s review these points in a little more depth.

Investment Opportunities

Keeping all of your cash in checking and savings may seem like a good idea. After all, your money is relatively safe (thank you, FDIC), and you can dip into it as needed. But if you’re hoping to grow wealth, then investing some of your money in the stock market can deliver better returns over time. Allocating part of your paychecks to an investment account where you can buy stocks, exchange-traded funds (ETFs), cryptocurrency, or IPOs could pay off over the long term more so than simply earning interest with a bank account.

Liquidity

Liquidity is an investing term that describes how easy it is to turn an asset into cash. Bank accounts are highly liquid since you can get money from them fairly quickly. For example, if you need $500 to pay for an emergency vet bill, you could swipe your debit card, write a check, or hit the ATM.

When deciding how much money to deposit to checking and savings, consider an amount you’d feel comfortable having on hand if you needed it in an emergency. Then, if there’s an amount beyond that which you don’t think you’d need to access right away, you could invest that or put it into a high-yield CD account.

Transfer and Withdrawal Fees

There may be times when you need to transfer funds between bank accounts — perhaps on a regular basis. It’s worthwhile to consider the kind of fees this activity may trigger, so you don’t wind up taking too much of a financial hit. For example, if your bank sets a savings withdrawal limit, you may have to pay an excess withdrawal fee if you go over that limit. The Federal Reserve eliminated the “six withdrawal per month limit” for savings and money-market accounts, but banks can still charge a fee for excess withdrawals. Check the policies at your bank. This can guide you when deciding how much to deposit in savings. You’ll want to think about how soon you might need to take that money out again and what it might cost.

The Takeaway

Bank accounts can make life easier when you need to pay bills, make purchases with a debit card, or set aside money for savings goals. That said, you’ll want to be aware of limits on your accounts in terms of minimum balance requirements, deposit limits, and withdrawal limits. This can help you to avoid excessive fees. Because your checking should be a convenient financial tool, not something that is causing you concern or charging you an array of fees!

Bank Better with SoFi

If you’re looking for a checking and savings option that’s accessible and fee-friendly, consider online banking with SoFi today. Not only do eligible accounts earn a competitive APY, you’ll also bank free of account and overdraft fees. Plus SoFi recently announced that deposits may be insured up to $2 million through participation in the SoFi Insured Deposit Program.

Why not see how simple and stress-free banking can be?

3 Great Benefits of Direct Deposit

  1. It’s Faster

    2. As opposed to a physical check that can take time to clear, you don’t have to wait days to access a direct deposit. Usually, you can use the money the day it is sent. What’s more, you don’t have to remember to go to the bank or use your app to deposit your check.

  2. It’s Like Clockwork

    3. Whether your check comes the first Wednesday of the month or every other Friday, if you sign up for direct deposit, you know when the money will hit your account. This is especially helpful for scheduling the payment of regular bills. No more guessing when you’ll have sufficient funds.

  3. It’s Secure

    4. While checks can get lost in the mail — or even stolen, there is no chance of that happening with a direct deposit. Also, if it’s your paycheck, you won’t have to worry about your or your employer’s info ending up in the wrong hands.

FAQ

How much money can you put in a checking account?

Generally, there’s no checking account maximum amount you can have. There is, however, a limit on how much of your checking account balance is covered by the FDIC (typically $250,000 per depositor, per account ownership type, per financial institution), though some banks have programs with higher limits. Banks can also impose daily, weekly or monthly limits on mobile check deposits.

Should I keep all my money in my checking account?

Keeping all of your money in your checking account usually isn’t ideal, as you may be able to earn a higher rate of return by investing some of it. It can, however, be a good idea to keep two to three months’ worth of expenses in checking, plus a small cushion of 20% to 30% extra for any surprise expenses that might pop up.

What is the limit of depositing money in the bank?

Banks may not impose an aggregate limit on how much you can deposit to checking and savings. But there may be limits on how much you can deposit each day via mobile check deposit, with a teller or through the ATM. This limit can vary from bank to bank.

Photo credit: iStock/Prostock-Studio

1SoFi Bank is a member FDIC and does not provide more than $250,000 of FDIC insurance per depositor per legal category of account ownership, as described in the FDIC’s regulations. Any additional FDIC insurance is provided by banks in the SoFi Insured Deposit Program. Deposits may be insured up to $2M through participation in the program. See full terms at SoFi.com/banking/fdic/terms. See list of participating banks at SoFi.com/banking/fdic/receivingbanks.

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.

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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Apr
17
2023

To Tip or Not to Tip — And How Much?

By | Budgeting & Goals, events, Family Finances | Comments Off on To Tip or Not to Tip — And How Much?

Travel is an amazing way to see the world, make new discoveries, and immerse yourself in the local culture. And planning your trip can be a thrill too, as you suss out a boutique hotel with a rooftop bar, the best sunset sail experience, plus must-see restaurants and stores.

As you plan, you are likely sticking to a budget, but don’t overlook one area: tipping. When you travel, especially abroad, it’s helpful to know the local customs. In some countries, tipping is a must. In others, it’s optional, and in a few, it’s considered downright rude.

Are you ready to learn the ropes? Here’s your cheat sheet on:

•   Who should you tip when traveling?

•   How much should you tip when you travel?

•   In which countries don’t you tip?

Recommended: Apply for an Unlimited Cash Back Credit Card

Who Should You Tip While on Vacation?

As you travel, there are many people you could tip: the ones who help you into the airport, out of the airport, into your hotel, out again, into a taxi…the list goes on and on. Most people want to be polite and tip appropriately but don’t want to burn through more money than they have to.

To help you manage this aspect of travel, here are some of the people you probably do want to tip, plus some insight into how much to tip.

Luggage attendants can help get your luggage from the curb at the airport to the check-in counter. You can definitely manage the process on your own, but if you’re wrangling young kids, traveling with pets, or simply packed extra-jumbo bags so you’d have loads of outfits to choose among, it’s nice to get help.

Traditionally, it’s polite to tip $2 for your first bag and $1 for any additional luggage. If your bags are legitimately humongous, consider tipping the full $2 for each one. This expense can’t go on your airline credit card or any other kind of plastic, so be sure to keep cash on you.

Note: Airline employees stationed outside the airport may not be able to accept tips, so be prepared for your bills to be rebuffed if one of these workers assists you.

Car valets park and return your car directly from the curb of hotels and restaurants. It’s a major convenience and generally deserves a monetary thank-you. How much to tip? In the $1 to $5 range when your car is returned to you. Tipping when your wheels are first whisked away is generous, though not necessary.

Housekeepers should be tipped each day during your stay, whether you splurged on luxe accommodations or figured out how to save on hotels and booked a rock-bottom rate. Housekeepers freshen your room, replace those damp towels, and otherwise make it a pleasure to return after a long day of visiting museums, lolling on the beach, or whatever else you’ve been up to.

The best method is to leave the cash in a marked envelope (some hotels provide them for just this purpose) or folded in some hotel stationery that is clearly marked “For Housekeeping.” Best practice suggests $3 to $5 each day of your stay.

Room service is a luxurious treat during vacation. Some hotels automatically include a gratuity on your bill. If you don’t see it on your receipt, however, the answer to the “to tip or not to tip” quandary is that it’s likely a good idea to add 15% to 20%, just as you would in a restaurant.

Drivers help in a few different travel scenarios. If you’re taking a taxi or rideshare, consider tipping either $4 to $5 for short rides and 10% to 20% for long rides. Add an extra tip if the driver helps with your luggage. It’s also customary to tip shuttle drivers, typically from $1 to $5 depending on the size of your party.

Tour guides share their expertise and passion with you, as they lead you around the best snorkeling spots in Tulum or show you the hidden treasures of Paris. Their services can be a memorable highlight of your summer travel plans, so it’s nice to tip them, especially when you have a great experience. An easy rule of thumb is to tip 10% to 20% of the tour’s cost for your group.

Why Tipping Is Important

Tipping is by no means a requirement, but in many economies throughout the world (including the U.S.), it’s a way to help workers make ends meet. Many service industry employees are not guaranteed minimum wage.

In fact, in most states in America, there is a much lower minimum wage for tipped employees; hourly rates can dip below $3. While economic policies are a larger discussion, the fact of low wages can help put things in perspective and show the very real value of rewarding workers for a job done well.

For this reason, when budgeting for an upcoming trip, it’s wise to think about your plans, estimate a tip budget, and include that as part of where you keep your travel fund. It’s one of those incidentals that can add up and throw your financial planning out of whack if not accounted for.

Also, since tips are often given in cash rather than plastic (sorry, you can’t reap those credit card rewards this way), you may want to plan ahead to get some foreign currency for this purpose.

Recommended: How Families Can Afford to Travel

Tipping Guidelines by Destination

You likely do a good amount of research before traveling, scoping out cool hotels, amazing restaurants, and an affordable car rental. So why not, before your next trip, familiarize yourself with tipping customs in different parts of the world? It’ll help you prepare for the costs coming your way and make you feel more comfortable and in control while traveling. Here’s some useful intel:

US

Across the U.S., it’s customary to tip up to 20% for restaurant servers, bartenders, and drivers. In some cities, like New York, the answer to “How much to tip?” is nudging up to 22% or even 25%.

Europe

If you’re planning an epic trip to France, Spain, Italy, or other European countries, service tips may already be included in your restaurant bill in Europe. Look on the menu; it will probably say so. If it’s not, a maximum 10% tip is recommended. When it comes to your hotel stay, you might tip one euro per bag if a staffer helps you, and leave one euro per day for housekeeping.

Mexico and the Caribbean

Whether you’re heading to Cancun, Mexico City, or the Bahamas, be prepared to tip. Restaurant gratuities usually average between 10% and 20% in Mexico and the Caribbean.

If you’re staying at a resort, remember to keep cash on hand for bellhops, housekeeping, and other employees. Typically, a dollar or two per day/interaction is appropriate.

Central and South America

Heading to Argentina, Bolivia, Colombia, or beyond? Here’s the scoop: The standard tip rate for Latin America is 10% in restaurants. Some countries (like Brazil) may include the gratuity in your bill, so look carefully at the check before paying for your feijoada. Not sure? There’s no harm asking your server; you’re likely not the first person to do so.

When it comes to hotel staff and drivers, you’ll need a dollar or two (or the equivalent), so it’s wise to have some cash stashed in advance.

Recommended: Where to Find Book Now, Pay Later Travel

Places You Probably Don’t Have to Tip

Here’s a travel budget bonus: There are a number of countries you might visit that do not have a tipping custom. In fact, it may even be considered rude or insulting to leave a tip. So before you add a tip when paying with your travel credit card or plunking down cash, double-check local etiquette. Here, some pointers:

Australia

Tipping is not vital when Down Under. Compared to the U.S. and many other countries, Australia has a high minimum wage. That’s one of the reasons why tipping in the service industry is seen as optional.

China

If you are going to be exploring China, know that tipping is actually taboo there. And in some places like airports, it’s illegal because it can be seen as a bribe. Stay polite and safe by skipping the tip.

Japan

Heading to Tokyo, Kyoto, or other locations in Japan? Heads up: Tipping is not customary in Japan and is actually considered rude. Although it may feel odd, when wondering whether to tip or not to tip, just don’t do it. Save your money for more shopping or sushi.

Scandinavia

Iceland and Scandinavia typically don’t expect you to tip. You might round up a restaurant tab if there isn’t already a service charge added, but these aren’t countries where a 20% gratuity is routine. Taxi drivers don’t expect tips either.

The Takeaway

Preparing for a trip often involves budgeting, and a key way to wind up on or under your budget is to anticipate what costs are coming your way. Tips are one of those incidentals it’s easy to forget about and can throw your financial planning for a loop. By understanding local tipping customs, you can have a smooth, on-budget trip wherever you may go. What’s more, you’ll know exactly what to expect so you can travel with confidence.

FAQ

Are tourists always expected to leave a tip?

It depends on where you’re staying. Countries in North and South America, Europe, and Africa typically have tipping customs, particularly at restaurants and resorts. But Asian and Pacific countries like Australia, Japan, and China often do not incorporate tipping into their cultures — and it can even seem impolite.

Who are you supposed to tip at the airport?

In many countries (with China being an exception), it’s polite to tip a baggage handler who carries your luggage to the check-in counter.

How much do you tip internationally?

Research each country individually to understand tipping customs. While it’s traditional in many foreign countries, it’s also rude (and sometimes illegal) to tip in others.

Photo credit: iStock/DragonImages

1See Rewards Details at SoFi.com/card/rewards.

**Terms, and conditions apply: The SoFi Travel Portal is operated by Expedia. To learn more about Expedia, click https://www.expediagroup.com/home/default.aspx.

When you use your SoFi Credit Card to make a purchase on the SoFi Travel Portal, you will earn a number of SoFi Member Rewards points equal to 3% of the total amount you spend on the SoFi Travel Portal. Members can save up to 10% or more on eligible bookings.


Eligibility: You must be a SoFi registered user.
You must agree to SoFi’s privacy consent agreement.
You must book the travel on SoFi’s Travel Portal reached directly through a link on the SoFi website or mobile application. Travel booked directly on Expedia's website or app, or any other site operated or powered by Expedia is not eligible.
You must pay using your SoFi Credit Card.

SoFi Member Rewards: All terms applicable to the use of SoFi Member Rewards apply. To learn more please see: https://www.sofi.com/rewards/ and Terms applicable to Member Rewards.


Additional Terms: Changes to your bookings will affect the Rewards balance for the purchase. Any canceled bookings or fraud will cause Rewards to be rescinded. Rewards can be delayed by up to 7 business days after a transaction posts on Members’ SoFi Credit Card ledger. SoFi reserves the right to withhold Rewards points for suspected fraud, misuse, or suspicious activities.
©2024 SoFi Bank, N.A. All rights reserved. Member FDIC. Equal Housing Lender. NMLS #696891 (Member FDIC), (www.nmlsconsumeraccess.org).



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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Apr
17
2023
How Are Local Small Banks Different From Large Banks?

How Are Local Small Banks Different From Large Banks?

By | Financial Independence, money | Comments Off on How Are Local Small Banks Different From Large Banks?

In light of recent events in the banking sector, many people are wondering about the differences between small, midsize, and large banks. What are the risks and benefits associated with different bank types?

While a bank’s size is determined primarily by the assets it holds, the size of a bank may also influence the range of services and products it offers. Small banks may offer a more personalized customer experience, while big banks may be more comprehensive, offering an array of deposit accounts, loans, insurance, financial planning and wealth management.

When choosing a bank, and understanding how different banks operate, size is only one consideration, however. Whether the institution is a regional or national bank is another factor that can determine whether it’s a good fit for your needs. You may also want to consider whether an institution is insured, as this can help protect your deposits.

Are Small Banks Safer Than Large Banks?

The Federal Deposit Insurance Corporation (FDIC) is an independent agency that helps protect banks and their customers by insuring deposits. The size of a bank doesn’t affect its eligibility for FDIC insurance, therefore the money you have on deposit with an FDIC member bank is fully protected up to $250,000, per depositor, per insured bank, per account ownership category. For those who want to keep a considerable amount of money on deposit, it can be wise to look for those banks that participate in programs that extend the FDIC insurance to cover millions1.

Also important: Although 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.

Types of Banks

When considering the benefits and drawbacks of different types of banks, it’s important to weigh the size as well as whether the bank is regional or national in scope. You may also want to consider whether a given institution exists only online (i.e. as a digital bank, without brick-and-mortar branches), or provides online services and physical locations.

Small Banks

The criteria that determine a bank’s size can vary widely depending on the source.

According to the FDIC’s definition, small banks are banks with assets of less than $1.384 billion for either of the two calendar years prior to December 31, 2022. That might not seem all that small, but it’s a fraction of the trillions of dollars in assets that some larger banks maintain.

Small banks can also be defined as commercial banks of modest size. So what is a commercial bank? Simply, it’s a bank that accepts deposits, offers savings accounts, and makes loans to customers.

Midsize and Large Banks

Midsize banks have assets that generally fall between $10 billion and $100 billion. Banks with assets north of $100 billion are considered large banks.

Community Banks

Community banks can be small or midsize institutions. They are smaller than regional banks, and like regional banks they may offer specific products that cater to local businesses (e.g. agricultural loans).

Regional Banks

Regional banks are generally larger than community banks, but they are also anchored in a specific geographic area and may have a niche focus.

National Banks

A national bank is a commercial bank that’s chartered by the U.S. Treasury. As part of the national network of U.S. banks, a national bank has a defined role in the country’s banking system, including an ongoing relationship with its local Federal Reserve Bank.

While many of the nation’s biggest banks are national banks — e.g. J.P. Morgan Chase, Bank of America, Wells Fargo, Citibank — SoFi is smaller in size but holds a national charter.

The important thing to understand if you’re inquiring into the merits of one bank versus another is that the size, products, services, features, and focus of an institution can overlap in various ways.

Other Types of Financial Institutions

The above only covers some of the most common types of banks. Here are some others.

•   Savings and loan associations are financial institutions that are primarily focused on helping customers get residential mortgages.

•   Niche banks focus on a particular audience, such as medical professionals, farmers, or the LGBTQ+ community.

•   Mutual savings banks are a kind of credit union that originally served low-income communities and focused on providing mortgages.

•   Community Development Financial Institution (CDFI) banks. Many people may wonder what is a CDFI? These are financial institutions that aim to create economic opportunity for individuals and small businesses, quality affordable housing, and essential community services.

•   Online banks provide services online rather than via bricks-and-mortar branches.

•   Neobanks are fintech businesses that operate in similar ways to an online bank. They may partner with FDIC-member banks or other financial institutions to offer accounts and banking services through an app or online. Neobanks, however, do not have bank charters and technically aren’t banks.

You may notice that some of the organizations mentioned above are defined as thrifts or credit unions. When comparing credit unions vs. banks, the main difference to note is how they operate.

Credit unions operate on a membership basis; there are usually specific requirements to join. A credit union is member-owned while a bank is not. Both can offer deposit accounts and loans, though credit unions return profits back to members in the form of higher rates for savers and lower rates for borrowers.

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.


How Small Banks Differ From Large Banks

When looking at big banks vs. small banks, there are a number of things that set them apart beyond the scope of their assets. Understanding the main differences can help if you’re on the fence about whether to open an account at a large bank or bank locally instead.

Here are some of the most notable ways big banks and small banks differ.

Big BanksSmall Local Banks
Can offer a wide range of financial products and services, including deposit accounts, loans, credit cards, insurance, business banking, and wealth managementMay have a narrower range of products and services; may offer products and services that serve the local community or a specific population
Usually have a sizable ATM network, as well as numerous branch locationsTypically have a smaller ATM network and fewer branches
May charge higher fees for ATMs and other services and offer lower interest rates on deposit accountsMay charge fewer and/or lower fees and offer more competitive rates on deposit accounts and loans
Service is often standardized and designed to fit all customersServices may be more personalized
May use the latest technology, with an emphasis on mobile and online bankingMay be slower to pick up on and adopt the latest tech trends

Tips for Choosing a Bank

There are a number of things to consider when picking a bank to make sure you find the right fit. If you’re hunting for a new bank, here are some of the most important questions to ask:

•   What kind of banking products and services do I need? And what kind of banking products and services are offered?

•   Do I feel comfortable and safe banking online-only, or will I need branch banking services from time to time?

•   How much can I expect to pay in fees for an account?

•   What kind of interest rates do deposit accounts earn?

•   Is there a minimum deposit requirement or a minimum balance requirement?

•   How large is the ATM network? Are there any fee refunds for using out-of-network or foreign ATMs?

•   When is customer support available and how can I reach them?

•   Are online and mobile banking access available?

•   Will a teller or bank officer be available if I need to consult with someone, person to person?

•   Does the bank support the community in any way?

Whether you’re considering a big bank or a small bank, check to see if it’s FDIC-insured. Again, FDIC insurance covers deposits up to $250,000 per depositor, per ownership category, per bank in the rare event of a bank failure. And some banks participate in programs that extend that coverage to millions.

Banking With SoFi

Switching to a new bank can seem a little daunting, but it can be worthwhile if you’re not 100% thrilled with your current banking situation. Choosing a small bank over a large bank could be a good fit if you want banking services with a personal feel. If you crave more product offerings or the latest tech bells and whistles, however, a large bank could be a better fit.

Choosing a bank is all about deciding what matters most to you and understanding what different financial institutions offer. With that knowledge, you can find the right fit.

Banking online is a great alternative if you don’t necessarily need brick-and-mortar branches. Online banks, like SoFi, can offer some rewarding options. For instance, when you open a high yield bank account at SoFi with direct deposit, you won’t pay any of the usual account fees, plus you’ll earn a super competitive APY.

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

FAQ

How is a small bank different from a large bank?

Small banks can differ from large banks in a number of ways, including assets, products and services offered, geographic footprint, and cost. The most common metric used to measure bank size involves assessing its assets according to FDIC guidelines.

Should I switch to a local bank?

Switching to a local bank could make sense if you want to bank close to home and enjoy having a personal relationship with the bank’s staff. When comparing local banks, consider the types of accounts and services offered, the fees you’ll pay, how you’ll be able to access your money, and customer support.

What is an advantage of local community banks?

Local community banks can offer numerous advantages, starting with personalized service. A local bank may be less costly than a larger bank and have lower employee turnover. You can also bank closer to home and may find that the financial institution offers special products and programs tailored to the local community.

Photo credit: iStock/Drazen_

1SoFi Bank is a member FDIC and does not provide more than $250,000 of FDIC insurance per depositor per legal category of account ownership, as described in the FDIC’s regulations. Any additional FDIC insurance is provided by banks in the SoFi Insured Deposit Program. Deposits may be insured up to $2M through participation in the program. See full terms at SoFi.com/banking/fdic/terms. See list of participating banks at SoFi.com/banking/fdic/receivingbanks.

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.

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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Apr
17
2023
Key Terms to Improve Your Financial Literacy

Key Terms to Improve Your Financial Literacy

By | Budgeting & Goals, Family Finances, money | Comments Off on Key Terms to Improve Your Financial Literacy

Financial literacy isn’t something that many of us are taught in school, but it’s essential when managing your money. It gives you the basic foundation of knowledge that can help you thrive.

If you feel you lack the knowledge you need, you might have to learn it on your own. Familiarizing yourself with some basic personal finance vocabulary can be a good place to start.

Finance terminology might seem confusing at first glance, but you don’t need to be a CPA or a financial advisor to make sense of it. Getting to know some of the most common personal finance words can help you build a stronger money foundation.

Read on to do just that, as you learn:

•   What is financial literacy

•   How a financial vocabulary can benefit you

•   Key terms that will improve your financial literacy

What Is Financial Literacy?

You might hear a lot about financial literacy but not know exactly what it means. In simple terms, being financially literate means that you have some money knowledge as well as the ability to put it to work.

Money skills can be learned in the classroom, at home, and in the real world as you navigate things like opening a bank account or taking out student loans. Becoming financially literate is important because it can help you to:

•   Have a positive money mindset

•   Act more responsibly with regard to saving and avoiding debt

•   Build wealth and plan for the future

If there are gaps in your financial education, it’s never too late to fill them. Learning some personal finance basics for beginners, including key financial literacy vocabulary, can help you get on track with your money goals.

What Is Financial Literacy Vocabulary?

Financial literacy words are simply the various terms you’ll see used again and again when discussing different money topics. For example, there are personal finance words related specifically to banking, others that are focused on insurance, and more that deal with investing.

Do you need to be a walking dictionary to understand finance and make the most of your money? Not at all. But you can benefit from knowing what certain finance terminology means and why it’s important when making money decisions.

Understanding financial literacy vocabulary can also help you avoid potentially costly money mistakes. If you’re taking out a mortgage, for example, it’s important to understand concepts like amortization and closing costs so you know exactly what you’re paying to buy a home.

Recommended: Guide to Practicing Financial Self-Care

Personal Finance Words to Know

Ready to improve your financial knowledge? Here’s an alphabetical list of some important terms to add to your personal finance vocabulary.

1. Budget

A budget is a plan for deciding how to spend your money each month. Making a budget means adding up your income, then subtracting all of your expenses.

The goal of a budget is to ensure that you’re not living beyond your means and that you have money left over to work toward your goals.

There are different budgeting techniques, like the 50/30/20 rule or the envelope system, and there are different categories people want to set guidelines and guardrails for. For example, you might want to start an emergency fund or pay down debt.

2. Cashier’s Check and Certified Check

Cashier’s checks and certified checks are two types of official checks banks can issue as a form of payment. So what’s the difference between a certified vs. cashier’s check?

Cashier’s checks are drawn on the bank’s account while a certified check is drawn on an individual’s account. Between the two, a cashier’s check is generally considered to be a safer way to pay since the bank guarantees the amount.

3. Certificate of Deposit

A certificate of deposit (CD) is a time deposit savings account. When you open a certificate of deposit, you add money to the account and agree to leave it there for a certain amount of time, known as the term. The bank pays interest while your money is in the CD and when it matures (or reaches the end of the term), you can withdraw the initial deposit and the interest earned.

A CD is not the same as a regular savings account or a high yield savings account. With savings accounts, you can generally withdraw money up to six times each month or possibly more without any penalty. You’re not locked in the way you are with a CD.

4. Compound Interest

Compound interest means the interest you earn on your interest. That’s different from simple interest, which is paid on your principal balance only. Compounding interest is central to investing, since it’s what allows you to build wealth and increase your net worth over time.

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.


5. Credit

Credit means borrowing money with the promise to pay it back. When you open a credit card account, for example, the credit card company issues you a credit line that you can make purchases against. You use the card to buy groceries, get gas, or cover other expenses, then pay that amount back to the credit card company.

A credit card is revolving credit, since your balance can go up or down over time as you make purchases and pay them back. Loans are a form of installment debt, since the balance only goes down over time as you make your scheduled payments.

6. Credit Score

A credit score is a three-digit number that measures how responsible you are financially. Your credit scores are generated from information in your credit reports. A credit report collects details about your debts, including payment history, balances, and available credit.

FICO scores are the most commonly used credit scores. These scores range from 300 to 850, with 850 being considered a “perfect” credit score. The better your credit scores, the easier it usually is to qualify for loans and credit cards.

7. Debt

Debt is money owed to someone else. A debt may be secured, meaning that it’s attached to a specific piece of collateral. Collateral is something your creditor can take possession of if you fail to repay the debt. So if you own a home, for example, your mortgage is a debt, and your home is the collateral.

Unsecured debts don’t have any collateral, so if you fail to pay them, your creditor has to pursue other means to collect what’s owed. Credit cards, medical bills, and student loans are examples of unsecured debt.

8. Debt to Income Ratio

Debt to income (DTI) is one of several important personal finance ratios to know if you’re trying to improve your financial literacy. Your debt to income ratio means how much of your income goes to debt repayment each month.

So why is that important? The more money you put toward debt, the less cash you have to save and invest. And when your DTI is too high, that could make it harder to qualify for a mortgage or other types of loans.

9. Emergency Fund

An emergency fund is money that you set aside for unplanned or unexpected expenses. When you save for emergencies, you’re saving for the unknown, versus setting aside money for a specific goal like a vacation or new furniture.

But you may wonder, how much emergency savings should I have? Saving three to six months’ worth of expenses is a commonly used rule of thumb but ultimately, your emergency fund should reflect the amount that you need to feel comfortable.

10. FDIC

The Federal Deposit Insurance Corporation (FDIC) is an independent agency that’s responsible for maintaining stability in the banking industry. One of the ways the FDIC does that is by insuring banks in the rare event of a failure. If you have accounts at an FDIC-insured bank, they’re covered up to $250,000 per depositor, per account ownership type, per financial institution.

11. Financial Planning

Financial planning means creating a plan or strategy for reaching your financial goals. Creating a financial plan is something you can do on your own or with the help of a financial advisor. If you’re not sure how to go about finding a financial advisor, consider what type of planning services you might need first. That can help you decide if you should work with an online advisor or seek out an advisor in person.

12. Gross Income and Net Income

Understanding gross income and net income are central to making a budget. Your gross income is all the money you earn before any deductions or taxes are taken out. Your net income is the money that hits your bank account, once you take out things like taxes, health insurance, and retirement plan contributions.

If you’re not sure about the difference between your gross pay and net pay, reviewing your pay stubs can help. You should be able to see a breakdown of everything you earned and everything that was deducted for the pay period.

13. Health Savings Account (HSA)

A Health Savings Account (HSA) is a savings account that’s attached to a high deductible health plan. An HSA allows you to set aside money for health care expenses on a tax-advantaged basis.

It’s easy to confuse HSA with other health insurance terms, like HMO. But the difference between HMO vs. HSA is that HMO stands for Health Maintenance Organization and is a type of health care plan. An HSA is a special type of health care savings account.

14. Inflation

Inflation is a rise in prices for consumer goods and services over time. In the United States, inflation is generally measured by the Consumer Price Index (CPI). When inflation rises, the things you spend money on every day cost more. Understanding inflation is important for managing your budget but it can also affect how you invest your money.

15. Investing

Investing money means putting it into the market or other vehicles in the hopes that it will grow in value. Investing money is not the same thing as saving it. When you save money, you might park it in a savings account, CD account, or money market account. There’s virtually no risk of losing money, especially if your bank is FDIC insured.

When you invest money, however, you’re using it to buy stocks, mutual funds, real estate, cryptocurrency, and other investments. You can potentially get a much higher rate of return with investing vs. saving, but you’re usually taking more risk. And if an investment doesn’t pan out, you could lose money instead of growing it.

16. Life Insurance

Life insurance provides a death benefit to your beneficiaries when you pass away. Buying life insurance can offer peace of mind if you’re worried about how your loved ones might be able to pay the bills if something were to happen to you. There are different types of life insurance to choose from, depending on your needs and situation. Life insurance, along with a will, are often part of a comprehensive financial plan.

17. Money Market Account

What is a money market account? In simple terms, it’s a deposit account that blends features of a savings account and a checking account. You can deposit money and earn interest on the balance. If you need to withdraw money, you may be able to do so using a linked ATM card or by writing checks. But those withdrawals are not unlimited; banks can still cap you at six withdrawals per month. Also known as MMAs, these accounts are not to be confused with money market funds, a kind of mutual fund.

18. Net Worth

Net worth is the difference between what you owe and what you own. To calculate net worth, you’d add up all of your debts, then subtract that amount from the value of your assets. An asset is anything that has a positive value, such as a home, retirement account, or CDs. Net worth can be positive if you have more assets than debts, but it can be negative if your debt outweighs your assets.

19. Overdraft

Overdraft is a banking term that means you’ve spent more money than you had in your account. Banks can allow certain transactions to go through, even if you don’t have enough cash in your account to cover them (say, paying a $100 check you wrote when there’s only $85 in your account). The bank covers the excess amount for you and charges an overdraft fee for that convenience.

Your bank may give you the chance to opt into overdraft protection. When you opt in, the bank can transfer money automatically from a linked savings account to cover overdrafts. You’ll still likely pay a fee, though it might be less than the standard overdraft fee.

20. Time Value of Money

Time value of money means the relationship between time, money, and interest. The longer the time frame during which you save or invest, the more money you save, and the higher the rate, the more your money will grow.

The Takeaway

Expanding your personal finance vocabulary can give you a better understanding of how your money works and how to make it work for you. Knowing these terms can grow your financial literacy and help you achieve your goals.

One of the fundamentals of good money management is having a bank account that works for your needs and lifestyle. When you open a SoFi bank account, you can get checking and savings together in one place. SoFi makes it easy to keep track of spending and income online and through the SoFi mobile app. When you open an account with direct deposit, you can earn a great interest rate and pay no account fees, which can help your money grow faster.

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

FAQ

What are the four pillars of personal finance?

The four pillars of personal finance are income, expenses, assets, and debt. Income and expenses are important for creating a budget. Assets and debt reflect the difference between the things of value that you own and the money that you owe to other people.

What are financial skills?

Financial skills are the skills you use to manage money. For example, budgeting is a financial skill, since it requires you to understand the difference between income and expenses and prioritize spending in a prudent way. Financial skills can be learned at school, at home, or through daily experiences.

Why is financial literacy important?

Financial literacy is important for helping you to better understand your financial situation. When you know how to make a budget, create a plan for saving and investing, and use debt responsibly, it becomes easier to get ahead financially. On the other hand, lacking financial literacy skills could make you more susceptible to poor decision-making, like overspending or carrying high-interest debt.

Photo credit: iStock/Geber86

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.

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.

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Apr
17
2023
How Safe Is a Checking Account?

How Safe Is a Checking Account?

By | Budgeting & Goals, Financial Independence, money | Comments Off on How Safe Is a Checking Account?

In light of recent events, some bank customers may wonder how safe a checking account is in terms of stashing their cash.

Banks are far better for protecting your hard-earned cash than you keeping a wad of bills hidden somewhere in your home — mainly because the money you deposit in a bank is insured up to $250,000 or possibly more1.

But there’s more to the story. So read on, and we’ll tell you in detail how banks make sure your money is well defended — and what you can do to help keep those dollars safe.

Is My Money Safer at a Bank?

It’s only natural to wonder where your money is safest, and keeping your cash on deposit at a bank is one of the safest things you can do. For one thing, carrying cash with you — or, worse, hiding it in your house — leaves you vulnerable to theft or loss (or some other unforeseen event).

In addition, banks are highly regulated and, as mentioned, deposits are insured. And as many people now know, the government is fully invested in protecting the cash of its citizens.

Why Your Money Is Safer in the Bank

Here are some of the protections your checking account may have:

•   FDIC insurance

•   NCUA insurance

•   Capital requirements

•   Protection from fires, floods, and thefts

Read on for a brief description of these protections.

FDIC Insurance

The Federal Deposit Insurance Corporation (FDIC) protects people who deposit money into FDIC-insured financial institutions against loss. This kind of insurance is backed by the federal government and depositors are automatically insured, generally up to $250,000 per depositor, per FDIC-insured institution, per ownership category. (Some banks participate in programs that extend the FDIC insurance to cover millions.) If your bank were to go out of business, you’re covered up to the cap.

NCUA Insurance

Maybe you’re the kind of person who prefers to keep your cash at a credit union. Don’t worry; it’s still safe. Congress created the National Credit Union Administration (NCUA) in 1970 to insure deposits of up to $250,000 at federally insured credit unions. The $250,000 is for each member, per insured credit union, per ownership category. Basically, NCUA is an agency that provides coverage for credit union members that’s comparable to what FDIC does for bank customers.

Capital Requirements

Banks and other financial institutions that accept deposits must have enough liquid assets to cover their expenses while still being able to provide cash when depositors request withdrawals. Formulas to calculate capital requirements can be complicated, but know that they are in place and are protecting you.

A financial institution is required to have a risk-to-asset ratio of at least 4% to safeguard people who deposit funds into their institution.

Protections From Fires, Floods, and Thefts

Banks purchase banker blanket bonds, which protect the institution in case of fire, flood, robbery, embezzlement, earthquakes, and other causes of lost funds. As a result, even if the bank loses money, customers won’t lose their funds.

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.


Advantages of Keeping Money in a Checking Account

Now, let’s pull back and take a big-picture look at why a checking account is such a sweet spot for protecting your money. Some of the pluses:

•   Your money is covered from loss when deposited in an FDIC-insured bank or an NCUA-insured credit union.

•   If your funds exceed the amount of these significant coverages ($250,000), then you can simply open accounts at an institution that offers an insurance program with a higher amount. Or you might open additional accounts at other insured banks and be covered through those institutions.

•   Interest-bearing checking accounts (though not all checking accounts do pay interest) allow you to earn money simply by keeping it in the account.

•   You can easily use your deposited funds by writing a check, withdrawing money from the bank or by an ATM, or transferring it.

•   Checking accounts that come with debit cards make it simple to make purchases through a card reader in person or by entering data online. (Note: There are cons of using a debit card online, like less fraud and purchase protection.)

•   Mobile banking makes it easy to conduct financial transactions wherever you go. You may be wondering, Is mobile banking safe? The answer is yes, most of the time, but you do need to take some precautions to avoid potential hacking activity (more on that below).

•   You can have your paycheck automatically/directly deposited into your checking account. This eliminates a paper check that could get lost or stolen; plus, you don’t have to physically deposit it yourself on payday.

•   A checking account can provide a record of what you spent — and when and where — which is helpful with budgeting, at tax time, and more.

•   Some banks allow you to get paid up to two days early — meaning that your direct deposit is available 48 hours before it’s actually deposited.

Your Role in Protecting Your Money in the Bank

You’ve learned about how banks safeguard your deposits…but what about your role in protecting your money? Yes, even when your dinero is locked up tight at a bank, your actions can impact its security. Consider the following points:

•   If you have any reason to believe that fraudulent activity is occurring or has occurred with your checking account, contact your bank immediately as well as local law enforcement.

•   Create a unique password for your checking account; consider storing it in a secure password management system. Then regularly change your password.

•   Regularly check your balance and balance your statements. This way, you can spot suspicious-looking activity early and address any discrepancies. Identity theft is not unusual and a proactive approach is the best way to protect yourself.

•   Be especially careful when using public Wi-Fi at libraries, coffee shops, and the like. While they’re convenient for information gathering, when you’re conducting financial transactions on them, the open connection makes it easier for hackers to do bad things.

•   Keep your own computer up to date, installing appropriate software updates, malware blockers, and so forth.

•   Sign up for fraud alerts with your bank. Receiving real-time transaction info through texts, emails, or mobile apps allows you to quickly respond to any attempts at fraud.

•   Also, don’t share your banking information with anyone by phone or email. For example, if someone claims to be a representative from your financial institute, hang up. Then use the contact information you have for your bank and share what happened.

The Takeaway

So, how safe are checking accounts? At insured institutions, depositors enjoy deep levels of protection. Besides being safe, there are numerous advantages to having a checking account. Definitely a win-win versus hiding your bucks somewhere at home. But depositing your funds is just part of the bargain: Then you have to do your share and keep vigilant and make sure that fraudsters don’t get their fingers on your dough.

If you’re looking for a bank that protects your money with 24/7 account monitoring, apply for an online bank account with SoFi. SoFi recently announced that deposits may be insured up to $2 million through participation in the SoFi Insured Deposit Program. But here’s what else: If you sign up for direct deposit with us, you’ll earn a competitive APY. Plus, you’ll pay no account fees, and you’ll be able to access your paycheck up to two days early.

Better banking is here with  up to 4.00% APY on SoFi Checking and Savings.

FAQ

Is your money safe in a checking account?

Yes, your money is safe in a checking account. Federally insured banks and credit unions automatically protect depositors like you for up to $250,000 per person, per insured institution, per ownership category (or possibly more). These financial institutions are even covered in case of fire, flood, and earthquakes, as well as when crimes, such as robbery and embezzlement, occur.

What are the risks of a checking account?

Checking accounts come with plenty of benefits and, at federally insured financial institutions, with solid protection against risk. That said, there are a couple of potential disadvantages to checking accounts. For example, not all of them pay interest (although some do). Some come with monthly fees (which can get pricey). And some financial institutions will require a minimum balance in your account.

There’s also some risk of criminal activity: If you ever suspect that someone has hacked into or otherwise fraudulently used your checking account, contact your bank and local law enforcement.

Can someone steal your checking account?

Physical checks and debit cards can be stolen, and your account could be hacked. So keep all personal data in a secure place and, if any items are lost, contact your financial institution immediately. If you believe your checks or debit card to be stolen, also inform your local law enforcement.

Photo credit: iStock/akinbostanci

1SoFi Bank is a member FDIC and does not provide more than $250,000 of FDIC insurance per depositor per legal category of account ownership, as described in the FDIC’s regulations. Any additional FDIC insurance is provided by banks in the SoFi Insured Deposit Program. Deposits may be insured up to $2M through participation in the program. See full terms at SoFi.com/banking/fdic/terms. See list of participating banks at SoFi.com/banking/fdic/receivingbanks.

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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