Buying a new home requires managing a lot of moving parts, from mortgage preapproval to closing. Even after an offer is accepted, buyers and sellers are still at the negotiating table. If closing costs or surprise expenses become too much for the buyer, a seller concession could help seal the deal.
Although seller concessions can work to a buyer’s advantage, they are neither a guaranteed outcome nor a one-size-fits-all solution for every real estate transaction.
To determine if seller concessions are the right move from a buyer’s perspective, here are some key things to know, including what costs they can cover and when to consider asking for them.
Seller concessions represent a seller’s contribution toward the buyer’s closing costs, which include certain prepaid expenses and discount points. A seller concession is not the equivalent of a price reduction; nor is it received as cash or a loan discount.
Closing costs usually range from 3% to 6% of the loan principal on your mortgage. When combined with a down payment, the upfront expense of buying a home can be burdensome, especially for first-time homebuyers.
Buyers can ask for concessions on the initial purchase offer or later if the home inspection reveals problems that require repairs.
Although this can be a helpful tool to negotiate a house price, there are rules for eligible costs and limits to how much buyers can ask for.
A buyer’s closing costs can vary case by case. Generally, buyers incur fees related to the mortgage loan and other expenses to complete the real estate transaction.
There are also types of prepaid expenses and home repairs that can be requested as a seller concession.
Some common examples of eligible costs include the following:
• Property taxes: If the sellers have paid their taxes for the year, the buyer may be required to reimburse the sellers for their prorated share.
• Appraisal fees: Determining the estimated home value may be required by a lender to obtain a mortgage. Appraisal costs can vary by geography and home size but generally run between $300 and $500.
• Loan origination fees: Money paid to a lender to process a mortgage, origination fees, can be bundled into seller concessions.
• Homeowners insurance costs: Prepaid components of closing costs like homeowners insurance premiums can be included in seller concessions.
• Title insurance costs: A title insurance company will search if there are any liens or claims against the property. This verification, which averages $1,000 but varies widely, protects both the homeowner and lender.
• Funding fees: One-time funding fees for federally guaranteed mortgages, such as FHA and VA loans, can be paid through seller contributions. Rates vary based on down payment and loan type.
• Attorney fees: Many states require a lawyer to handle real estate closings. Associated fees can run $500 to $1,500 or more, based on location.
• Recording fees: Some local governments may charge a fee to document the purchase of a home.
• HOA fees: If a home is in a neighborhood with a homeowners association, there will likely be monthly dues to pay for maintenance and services. A portion of these fees may be covered by the seller.
• Discount points: Buyers may pay an upfront fee, known as discount points, to lower the interest rate they pay over the life of the mortgage loan. (The cost of one point is 1% of the loan amount.)
• Home repairs: If any issues emerge during a home inspection, the repair costs can be requested as a seller concession.
Closing costs can also be influenced by the mortgage lender. When shopping for a mortgage, evaluating expected fees and closing costs is a useful way to compare lenders. Factoring in these costs early on can give buyers a more accurate idea of what they can afford and better inform their negotiations with a seller.
Determining how much to ask for in seller concessions isn’t just about negotiating power. For starters, the seller’s contributions can’t exceed the buyer’s closing costs.
Other factors can affect the allowable amount of seller concessions, including the type of mortgage loan and whether the home will serve as a primary residence, vacation home, or investment property.
Here’s a breakdown of how concessions work for common types of loans.
Conventional Loans
Guidance on seller concessions for conventional loans is set by Fannie Mae and Freddie Mac. These federally sponsored enterprises buy and guarantee mortgages issued through lenders in the secondary mortgage market.
With conventional loans, the limit on seller concessions is calculated as a percentage of the home sale price based on the down payment and occupancy type.
If it’s an investment property, buyers can only request up to 2% of the sale price in seller concessions.
For a primary or secondary residence, seller concessions can add up to the following percentages of the home sale price:
• Up to 3% when the down payment is less than 10%
• Up to 6% when the down payment is 10-25%
• Up to 9% when the down payment is greater than 25%
FHA Loans
FHA loans, which are insured by the Federal Housing Administration, are a popular financing choice because down payments may be as low as 3.5%, depending on a borrower’s credit score.
For this type of mortgage, seller concessions are limited to 6% of the home sale price.
VA Loans
Active service members, veterans, and surviving spouses may qualify for a mortgage loan guaranteed by the Department of Veterans Affairs. For buyers with this type of mortgage, seller concessions are capped at 4% of the home sale price.
VA loans also dictate what types of costs may qualify as a seller concession. Some eligible examples: paying property taxes and VA loan fees or gifting home furnishings, such as a television.
Seller Concession Advantages
There are a few key ways seller concessions can benefit a homebuyer. For starters, they can reduce the amount paid out of pocket for closing costs. This can make the upfront costs of a home purchase more affordable and avoid depleting savings.
Reducing closing costs could help a buyer make a higher offer on a home, too. If it’s a seller’s market, this could be an option to be a more competitive buyer.
Buyers planning significant home remodeling may want to request seller concessions to keep more cash on hand for their projects.
Seller Concession Disadvantages
Seller concessions can also come with some drawbacks. If sellers are looking for a quick deal, they may view concessions as time-consuming and decline an offer.
When sellers agree to contribute to a buyer’s closing costs, the purchase price can go up accordingly. The deal could go awry if the home is appraised at a value less than the agreed-upon sale price. Unless the seller agrees to lower the asking price to align with the appraised value, the buyer may have to increase their down payment to qualify for their original financing.
Another potential downside is that buyers could ultimately pay more over the loan’s term if they receive seller concessions than they would otherwise. If a buyer offers, say, $350,000 and requests $3,000 in concessions, the seller may counteroffer with a purchase price of $353,000, with $3,000 in concessions.
Seller concessions can make a home purchase more affordable for buyers by reducing closing costs and expenses, but whether it’s a buyer’s or seller’s market will affect a buyer’s potential to negotiate. A real estate agent can offer guidance on asking for seller concessions.
The vast majority of homebuyers finance their purchase. So for most buyers, finding the right mortgage is an important step in landing their dream home.
SoFi offers home mortgages with competitive rates and down payments as low as 5%. And prequalifying takes just a few minutes.
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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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Are you thinking about hunting for a home or already hitting the open houses? If so, creating a home-buying wish list can help you identify what you need, what you want, what to avoid, and other key factors in your decision of whether to bid on a property or not.
By getting these thoughts down on paper (or an online document), you can better focus your house hunting and have a guide as you navigate this process.
Here, you’ll learn more about creating a home-buying wish list template and zooming in on the right property for you. It will also help you steer clear of falling for a house that can wind up being a bad fit as time passes.
What Is a Home-Buying Wish List?
A home-buying wish list is a simple template that can help you identify and prioritize the features you are looking for in a home. It gives you a method to evaluate whether a property is one to bid on or one to pass on.
For example, a wish list can help you zero in on the price you want to pay, the community you want to be in, the style and size of the home, the acreage of the property and outdoor features, and other variables.
By having a wish list, you can stay on target. Say you fell in love with a charming farmhouse with shutters and perfect window boxes full of flowers, but no ground-floor bathroom (or room to add one) and a roof in need of repair. If your wish list said, “Must have a ground-floor bathroom” and “Roof in good repair,” you would hopefully be able to say no to the home’s curb appeal and keep searching. That way, you may well avoid having buyer’s regret.
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Benefits of a Home-Buying Wish List
A home-buying wish list has several pros:
• Creating a wish list gives you the opportunity to consider your needs and wants in a home. It also will help you prioritize the features that you most want in a property.
• A wish list can help you stay on budget. If you know that you absolutely must have a spa-style bathroom or a chef’s kitchen, you need to stay focused on finding a home that offers that or else have money set aside to renovate to those specifications.
• By developing a wish list, you and your partner or family member you are house shopping with can align on priorities.
• You can better understand trade-offs involved in a home purchase. For instance, if you are determined to buy in an area with a hot housing market or a pricey school district, you may only be able to afford a smaller property than you might like.
If you are ready to dive in, follow these steps to develop your wish list.
First, Daydream a Little
After you’ve closed your eyes and thought about it, write down everything you saw in the vision.
Before writing down all your wants on a home-buying wish list, sit back and fantasize a little about what an ideal home looks like. This dream house will look different to everyone, but after you’ve closed your eyes and thought about it for a while, you should write down everything you saw in the vision.
Is there a big yard and open space (or even a pool), or is it in the center of town where all the action is? Do you gravitate toward a mid-century modern home or a center-hall colonial? Does the dream home come with a big eat-in kitchen, or are lots of bedrooms more important? Is there space for a game room? An outdoor spa? A wraparound deck or a balcony overlooking it all?
It’s your dream. Go ahead and dream about home size, home age, and home style. That way, you can better realize what you really want (and want to steer clear of) in a home. Start writing down your wish list.
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Whittle Down the Dream List
After spending some time thinking about what a dream home would look like if money were no object and jotting down notes, you might then start crossing things off your list.
Realistically, maybe you don’t need five bedrooms but can live with three instead, and maybe the basement doesn’t need to be finished just yet. Or, perhaps a kitchen remodel can come with lower-end appliances that look like commercial ones but come with a more manageable price tag.
Bring down that daydream list to reality before beginning the search.
Consider Who You’re Buying With, Too
Before going out to buy a home, whether you’re a first-time home buyer or old hand, it’s important to think about who’s going to live there. Is it just for one? A couple? A whole family?
It would be best to get everyone’s input on wants vs. needs to ensure that all will be satisfied with this monumental life and financial decision. You might want to sit down as a group and consider the following.
• Setting: It may also be a good idea to get granular about your location. For instance, a potential homebuyer who has a dog may want to consider a neighborhood that has good walkability and sidewalks.
A potential buyer who works from home may want to think about how close a coffee shop is so they can pop over for a snack. Websites like Walk Score can help people discover how close cafes, shops, restaurants, grocery stores, and public transportation are to their new address.
• The right school district: If a person is buying a new home with family members in mind, it’s important to consider every home’s school district. Websites like GreatSchools provide information on school district rankings. All users need to do is pop in the ZIP code.
Even if a person isn’t thinking about having children, school districts still may play a role in their home-buying decision. That’s because a school district can play a major part in a home’s resale value.
It may be a good idea to also draw up a neighborhood wish list.
💡 Quick Tip: To see a house in person, particularly in a tight or expensive market, you may need to show proof of prequalification to the real estate agent. With SoFi’s online application, it can take just minutes to get prequalified.
Home-Buying Wish List Template
Need some inspo for creating a home-buying wish list? Check out the U.S. Department of Housing and Urban Development’s checklist .
You can then customize it and drill down on the features that really matter to you. For instance, if you have school-age kids, you might add a line for after-school care programs; are they offered or not?
If you know you will be tight on cash for renovations, then you might get more specific about the age of key home systems, such as the HVAC, the major appliances, the roof, and so forth.
Questions to Ask While Home Shopping
In addition to running through the usual features of a home, here are a few additional points to consider:
• Are you in an area that is prone to natural disasters? Would you, say, need flood insurance, and how much would it cost?
• Have any additions been made to the home? If so, was the paperwork (permits and such) properly filed?
• What are the typical monthly utility costs for the home? This may help you get a ballpark number that can help you assess your home-buying budget.
• Is there an HOA? If so, what costs are involved, and what rules are enforced?
Creating a homebuying wish list helps to identify wants and needs, what is in the budget, and what everyone involved—spouse, children, pets, guests, an elder parent—can live with happily (if not ever after, for a while). Home style, size, neighborhood, and amenities come into play.
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FAQ
How do I make a house wish list?
A good place to start is with the U.S. Department of Housing and Urban Development’s checklist. You can then customize the wishlist to better suit your areas of focus, such as school districts and programs, or, say, acreage and outdoor features.
How do I get my house ready to sell with a checklist?
Many home-buying sites and mortgage lenders offer downloadable checklists that help you get your house in order to sell. These typically review how to assess and enhance the exterior of your home, your property, as well as the interior. Usually, they go room by room with features for you to note and maintenance issues to potentially wrangle.
*SoFi requires Private Mortgage Insurance (PMI) for conforming home loans with a loan-to-value (LTV) ratio greater than 80%. As little as 3% down payments are for qualifying first-time homebuyers only. 5% minimum applies to other borrowers. Other loan types may require different fees or insurance (e.g., VA funding fee, FHA Mortgage Insurance Premiums, etc.). Loan requirements may vary depending on your down payment amount, and minimum down payment varies by loan type.
SoFi Mortgages
Terms, conditions, and state restrictions apply. Not all products are available in all states. See SoFi.com/eligibility-criteria for more information.
SoFi Loan Products
SoFi loans are originated by SoFi Bank, N.A., NMLS #696891 (Member FDIC). For additional product-specific legal and licensing information, see SoFi.com/legal. Equal Housing Lender.
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.
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.
An IRA CD is simply an individual retirement account (IRA) in which the investor has opened one or more certificates of deposit (CDs).
This may provide tax advantages and be a smart long-term move for some savers. Keep reading to learn how an IRA CD works and its pros and cons.
What Is an IRA CD?
An IRA CD is an IRA where your money is invested in certificates of deposit. In other words, an IRA CD is a traditional, Roth, or other type of IRA account where the funds are invested at least partly in CDs.
Investing in CDs can offer some tax advantages and may be a good option for long-term savings. As you may know, a CD, or certificate of deposit, is a time deposit. You agree to keep your funds on deposit for a certain amount of time, typically at a fixed interest rate.
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How Do IRA CDs Work?
If you choose to put your retirement money in an IRA, you have the chance to choose investments that might include stocks, mutual funds, bonds — and also CDs. By investing in CDs within an IRA, you can add to your portfolio’s diversification. Unlike equities, CDs can offer a predictable rate of return.
By investing in an IRA CD, you no longer have to pay taxes on the interest gains, and the money can grow taxed-deferred.
But if you withdraw funds prior to the CD’s maturity date, and you’re under age 59½, you’ll need to pay income taxes and likely a 10% penalty. Plus, your bank may charge you a fee for making an early withdrawal from the CD. Once the IRA CD matures, you can renew the CD or transfer the funds into another investment held in your IRA.
How much can you contribute to an IRA CD? It depends on the type of IRA account you choose. The annual contribution limit for a traditional and Roth IRA is $7,000 for both 2024 and 2025. Those 50 and older can contribute an additional $1,000 per individual, for a total of $8,000 per year. The contribution limits for SEP IRAs are typically higher.
If you choose an IRA CD with a bank or credit union backed by the Federal Deposit Insurance Corp., or FDIC, your money in the IRA CD is insured for up to $250,000 per depositor, per account ownership category, per insured institution. This means that if the bank goes under for any reason, your retirement funds are covered up to that amount.
CD Basics
A CD or a certificate of deposit is a type of savings or deposit account that usually offers a fixed interest rate for locking up your money for a certain period of time, known as the term. An investor deposits funds for the specified terms (usually a few months to a few years), and cannot add to the account or withdraw funds from the account until the CD matures.
In exchange, for keeping your money in a CD, the bank will offer a higher interest rate compared with a traditional savings account. But the chief appeal for retirement-focused investors is that CDs can provide a steady rate of return, versus other securities in a portfolio which may entail more risk.
An IRA or individual retirement account is a tax-advantaged account designed for retirement planning. There are different IRA types to choose from, such as a traditional IRA, Roth IRA, or SEP IRA. By contributing to this type of account, you can have your money grow tax-free or tax-deferred, depending on the type of IRA you open.
Think of an IRA as a box in which you place your retirement investments. With an IRA, investors have the flexibility to invest in a variety of securities for their portfolio.
For this reason, it might make sense for some investors to include CDs as part of their asset allocation within the IRA.
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Pros and Cons of IRA CDs
IRA CDs have unique characteristics that can benefit account holders as they think about how to handle their retirement funds. The upsides include:
• Compared to investing in the stock market where investment returns can be volatile and unpredictable, IRA CDs are low-risk cash investments.
• CDs guarantee a fixed return.
• With an IRA CD, there are similar tax benefits that come with a traditional IRA. Investors can enjoy tax benefits such as growing your account with pretax dollars while having your earnings accumulate tax-deferred until you reach retirement.
There are some cons associated with IRA CDs to keep in mind:
• With an IRA CD, you have to keep your money locked away for a period of time that varies depending on the maturity date you choose. During this time, you cannot access your funds in the event you need capital.
• If you decide to withdraw cash prior to the IRA CD’s maturity, you will incur early withdrawal penalties. After age 59 ½ there is no penalty for withdrawing cash.
• While putting your retirement funds in an IRA CD is a safer and lower-risk option than investing in the stock market, the returns can be quite low. If you are in retirement and are concerned about the stock market’s volatility, an IRA CD could be a safer option than other securities. But if you are many years away from retirement, an IRA CD may not yield enough returns to outpace inflation over time.
Pros of IRA CDs
Cons of IRA CDs
Low-risk investment
Money is locked away until maturity
Guaranteed return
Penalty for early withdrawal
Tax-deferred growth
Returns can be low vs. other retirement savings options
Who Should and Should Not Invest in an IRA CD?
IRA CDs are a safe way to invest money for retirement. However, they are best suited for pre-retirees who are looking for low-risk investments as they approach retirement age.
If you are many years away from retirement, an IRA CD is probably not the best option for you because they are low-risk and low-return retirement saving vehicles. In order to see growth on your investments you may need to take on some risk.
If you decide an IRA CD is the right option for you, you also must determine if you are comfortable with keeping your money stowed away for a period of time. Account holders can choose the length of maturity that best suits them.
How to Open an IRA CD
The first step is to open an IRA at a bank, brokerage, or other financial institution. Decide if a traditional, SEP, or Roth IRA is right for you. You can set up the IRA in-person or online. Once you open an IRA account, you can buy the CD.
Choose the CD that fits your minimum account requirements and length of maturity preference. Typically, the shorter the CD maturity, the lower the minimum to open the account. When considering maturity, you also should compare rates. Often, the longer the maturity, the higher the rate of return.
The Takeaway
If you’re looking to add diversification to the cash or fixed-income part of your portfolio, you might want to consider opening an IRA CD — which simply means funding a CD account within a traditional, Roth, or SEP IRA. Bear in mind that CDs typically offer very low interest rates, though, and your money might see more growth if you chose other securities, such as bonds or bond funds.
If you’re thinking about how to earn a steady rate of return on your savings, consider an account with SoFi.
Interested in opening an online bank account? When you sign up for a SoFi Checking and Savings account with direct deposit, you’ll get a competitive annual percentage yield (APY), pay zero account fees, and enjoy an array of rewards, such as access to the Allpoint Network of 55,000+ fee-free ATMs globally. Qualifying accounts can even access their paycheck up to two days early.
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FAQ
What is the difference between an IRA CD and a regular CD?
A standard CD is a separate account you open at a bank or credit union. An IRA CD is where the CD is funded within the IRA itself.
Can you withdraw from an IRA CD?
With a regular CD, you withdraw the funds penalty-free when the CD matures. With an IRA CD, however, you can withdraw the funds penalty free starting at age 59½, per the rules and restrictions of the IRA.
What happens when an IRA CD matures?
Once your IRA CD matures, you’ll receive the principal plus interest. Then you can either leave the IRA CD as is or renew it. You cannot withdraw the funds from an IRA CD until age 59 ½, as noted above.
Are IRA CDs safe?
Yes, IRA CDs are considered low-risk. If you open an IRA CD with a federally insured institution, your funds can be covered up to $250,000 per depositor, per account ownership category, per insured institution.
Who offers IRA CDs?
IRA CDs can typically be found at traditional and online-only banks as well as credit unions and brokerage firms.
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.
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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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Payroll deductions are amounts of money that are taken out of your gross pay, leaving you with net (or take-home) pay. Common types of payroll deductions include taxes, retirement savings, and Social Security contributions, among others. However, it can be confusing (and sometimes a little discouraging) to see how much money comes out before you have cash in hand.
Here, take a closer look at the deductions that are required by law and are out of your control, as well as others that are part of your employee benefits package, which means that you may be able to adjust them. This paycheck breakdown can help you understand more about where your money goes so you can manage it better.
Key Points
• Payroll deductions include mandatory and elective amounts taken from gross pay, affecting net pay.
• Common deductions include taxes, Social Security, Medicare, retirement contributions, and employee benefits.
• Federal taxes depend on W-4 form details.
• Retirement contributions reduce taxable income but have limits.
Whether you’re paid hourly or by salary, your rate of pay is the compensation that you and your employer agreed upon when you accepted the job. That said, it’s typically expressed as your annual salary for full-time employees.
This number appears in official contracts and is referred to as your gross pay. However, it does not represent the actual amount that you will be paid.
Net pay, also referred to as take-home pay, is the compensation that is paid out via check or direct deposit to an employee. It is your gross pay with all the deductions taken out, which can make you think, “Wait, where’d my money go?” when it hits your checking account.
What Are Payroll Deductions?
So, to answer that question: Here’s where your money goes before it lands in your checking account:
• Mandatory deductions: By law, an employer must subtract various mandatory federal and state tax withholdings.
• Elective deductions: Employers will also subtract costs for employer-sponsored offerings that the employee takes part in, such as healthcare, life insurance, and retirement.
Whether required or optional, these are pulled out of your gross pay and applied where needed. While you may feel disappointed to see these funds siphoned off, they have an upside. They are saving you from owing major taxes come April 15, and they are potentially helping provide important elements of financial fitness, like saving for your future. This knowledge can be reassuring, especially if you are filing taxes for the first time, and are feeling a bit shocked about the difference between your gross and net pay on an annual basis.
How Do Payroll Deductions Work?
As mentioned above, payroll deductions may be required, such as federal or any state taxes, or they may be optional (say, a 401(k) plan or health insurance). The mandatory and elective deductions are subtracted from your paycheck’s gross pay amount.
What remains after these payroll deductions is your net pay. This is the amount that is paid to you. You can typically see a breakdown of exactly what has been subtracted from your compensation by looking at your paystub. If you are paid via direct deposit, you will likely find this information online at your employer’s portal. If you receive a paper paycheck, the paystub is often attached.
Types of Payroll Deductions
As you look at your paystub and see all the deductions that are being taken out of your gross pay, you may want a bit of help understanding what’s what. Below are explanations of some of the most common paycheck deductions:
Federal Taxes
Federal taxes include all the taxes you are required by law to pay to the federal government. These taxes (which are often referred to as being withheld vs. paid) help fund the federal government, allowing them to invest in things such as infrastructure, education, and national defense, and provide services to the American people.
It’s common to wonder what tax withholding is and how much must you allocate towards it. When you were first hired, you likely filled out an Employee’s Withholding Certificate or W-4 form form and claimed the number of tax exemptions you have. This amount tells the federal government how much money to take out of each paycheck to cover your taxes. The more allowances you take, the less federal income tax the government will take out of your paycheck.
One way to ensure that you have the right amount of tax withheld for each pay period is to use the Internal Revenue Service’s IRS Tax Withholding Estimator or speak with someone in your company’s HR department. You can tell them if you’re single or married, how many dependents you have, and if you have any other sources of income, and they should be able to help you fill out your form accurately.
It’s also a good practice to revisit your IRS Form W-4 selections annually as significant life events may change your withholding and also because the W-4 form is periodically updated. It can be wise to think about your exemptions regularly
During tax season of each year, individuals who have overpaid in federal taxes receive a refund from the government. Those who’ve underpaid, however, are required to pay additional funds and possibly a penalty.
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State and Local Income Taxes
There are other types of taxes that will possibly be withheld from your gross pay. Many states require a state tax to help fund government projects and services. To learn more about your state’s taxation policy, you can look at this map for details.
Just as with federal taxes, your state income tax will get deducted from your paycheck to cover taxes you may owe at the end of the year.
Social Security and Medicare
Another common paycheck deduction you’ll see: Social Security and Medicare taxes that are part of the Federal Insurance Contributions Act (FICA) tax, a group of payroll taxes collected from both the employer and the employee. As the name implies, these taxes fund our nation’s Social Security and Medicare programs, helping with income and insurance needs once you reach retirement age.
The tax rate for social security is currently 6.2%, and Medicare receives an additional 1.45% (employers match these tax rates, bringing the total of FICA tax contributions to 15.3%).
Wage Garnishments
Another possible payroll deduction to know about: wage garnishments. These are legal procedures designed to repay delinquent, outstanding debts, such as unpaid child support, overdue credit card payments, or even unpaid taxes.
Most wage garnishments are initiated by court order. However, the IRS and other tax collection agencies also levy for unpaid taxes in the form of wage garnishment.
Garnishments are made on earnings leftover after all legally required deductions are made. The actual amount of any garnishment will depend on the amount of debt owed and income earned.
Employee Benefits
Depending on where you work, you may be able to opt into a variety of benefits. Typically, these costs are automatically deducted from your paycheck.
If you sign up for your employer-provided health insurance, at least some of the cost is likely to be a type of paycheck deduction.
Under the Affordable Care Act, employers with 50 employees or more must offer affordable health insurance. As part of an employee’s compensation package, many companies will pay half, or another percentage, of the insurance premiums. The employee’s portion of those premiums is represented on a pay stub as a deduction.
Other benefits, like flexible spending plans, commuter plans, and life insurance, may also be deducted from your pay, depending on whether or not you opt into them and if your employer picks up the bill fully or partially.
Health insurance and other benefits typically come out before your taxes, and you may be able to reduce your taxable income by signing up for them.
If you opt into this benefit, your employer will deduct funds from your wage earnings and deposit them into a retirement account. (How much of your paycheck should you save? Experts often recommend 20% should go towards saving for retirement and other short- and long-term goals.)
Employees are typically able to choose the amount they would like deducted from their earnings for retirement savings. In some cases, employers may contribute an additional percentage of your salary into your retirement account.
Contributions to your 401(k) can not only help you save for the future but also lower your taxable income, since they come out of your paycheck before taxes get assessed.
3. Calculate any overtime for those employees who are not exempt and worked over 40 hours a week.
4. Take any pre-tax deductions.
5. Calculate and deduct federal income tax based on pay, withholding status, what tax bracket an employee is in, and other factors.
6. Determine and deduct Social Security and Medicare payments.
7. Calculate and deduct any state and local taxes.
8. Take any other deductions, and move funds to the appropriate entity.
Tips to Manage Payroll Deductions
If you are an employee seeking to tweak your deductions, you will have a few options. You might update your W-4 to reflect more or fewer exemptions, depending on whether you want to reduce or increase the taxes withheld.
In addition, if you could use some breathing room in your budget during a financial crunch, you might decrease retirement contributions a notch to free up a little more money for bills.
If you are in a position to be managing payroll deductions, consider these tips for making the process run smoothly:
• Develop organizational systems to manage forms, deadlines, and other aspects of the process. There are many digital and online tools you can use for this.
• Keep up to date with federal, state, and local tax laws to make sure you are deducting the proper amounts; know the guidelines about, say, equal pay provisions; and more.
• Automate the entire process with payroll software. This can save time and boost accuracy versus doing things by hand. Or consider outsourcing the responsibilities to an external agency.
• Regularly update training for payroll and HR teams, if you employ them.
• Don’t touch payroll taxes that are only paid quarterly. It may be tempting to dip into those funds before they are due and use them for other business expenses, but this is a very risky path to pursue. If you wind up being short when the taxes must be paid, you could face penalties.
While you may be surprised to see all the deductions coming out of your paycheck, once you know what number to expect to see landing in your bank account each pay period, you’ll be able to plan your spending and budget accordingly. Deductions can include those you can’t change, such as taxes, and those that you may be able to alter, such as retirement contributions.
It’s a good idea to check your pay stubs periodically to ensure that the deductions being taken out are accurate and align with your financial goals.
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FAQ
What are some common incorrect payroll deductions?
Examples of incorrect employee payroll deductions are expenses that have to do with running the business, workers’ compensation premiums, and some personal protective gear costs. In addition, payroll deductions should not bring an employee’s income below minimum wage.
How do I report payroll deductions?
If you are an employee, your payroll deductions will be reflected in the end-of-year W-2 form that you receive. If you are an employer, you are likely filing IRS Form 941, Employer’s Quarterly Federal Tax Return, or Form 944, Employer’s Annual Federal Tax Return, which shows the wages you’ve paid and various taxes withheld.
What are the pros and cons of payroll deductions?
Payroll deductions are a fact of life. On the plus side, they whisk away taxes regularly so you don’t face a huge tax bill come April 15, and the money paid in taxes can help quality of life in America. Also, deductions like health insurance and retirement savings go towards achieving financial security. The main con, of course, is that you take home less pay than your gross earnings and may need to budget wisely to balance your spending and saving.
What are the categories of payroll deductions?
The main categories of payroll deductions are federal, state, and local taxes; Social Security and Medicare; employee benefits; and retirement contributions.
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.
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Luxury goods are sometimes called the finer things in life. Think about those fancy sports cars, watches, handbags, shoes, and jewelry that can cost a mint. Those beautiful objects of desire are not at all necessary to support basic human needs, but they may make life a lot more enjoyable.
Demand for luxury goods is typically driven by perceived value (that is, being a status symbol) as much as product quality and design. Brand awareness is an important aspect of the luxury market. These high-end items from exclusive brands are expensive, putting them out of reach of many consumers, which can add to their allure.
If you’re simply curious about luxury goods or contemplating buying some, read on to understand what makes them special, the pros and cons of purchasing high-end products, and how to afford a luxury item.
Key Points
• Luxury items are desirable, exclusive, and typically expensive.
• Saving and budgeting strategies can help you afford luxury goods without incurring debt.
• Renting or buying pre-owned luxury items are cost-effective alternatives to owning new ones.
• Luxury goods can offer status, quality, and better resale value, but also come with high costs and potential depreciation.
• The demand for luxury goods is driven by perceived value, brand awareness, and the desire to display wealth and status.
What Makes a Luxury Good “Luxury”?
Luxury items are defined by their exclusivity and higher cost, which limits access to them. To put it simply, they are expensive! Once a luxury item becomes more readily available at a lower price point, it may lose its appeal, and demand wanes.
Different cultures around the globe have varying tastes about what luxury goods are. That is, what is considered a highly desirable luxury good in one society may not be as valuable in another. However, there are brands that have become international icons of living well (more on that below).
Luxury goods are linked to the economic term “conspicuous consumption,” which occurs when consumers buy higher priced goods to display their wealth and class status. People who want to publicly communicate their economic and social status may buy luxury goods that signal that message. Purchasing luxury goods is typically tied to a consumer having more expendable cash. That said, some people spend well beyond their means in order to own a luxury item.
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Examples of Luxury Items
What exactly is a luxury item? There are lots of examples in the nearly $300 billion industry. Luxury products have traditionally included aspirational items, such as:
• Yachts
• Top-of-the-line cars
• Fine and antique furniture
• Art
• Furs
• Watches
• Jewelry
• Designer clothing and handbags
• Wine
• State-of-the-art electronics
• Cosmetics and fragrances
You’ll likely see some familiar names in the luxury goods market. Many companies have established themselves as luxury brands with their exclusive products.
Some of the top, recognizable luxury brands include:
• Porsche
• Ferrari
• Chanel
• Hermès
• Balenciaga
• Alexander McQueen
• Louis Vuitton
• Burberry
• Gucci
• Cartier
• Tiffany & Co.
• Rolex
• Dior
• Prada
• Bulgari
When you see those names when shopping, you probably are looking at what are known as luxury items.
If you’re looking at purchasing a luxury item for the first time, there’s more to it than its price tag. Purchasing a luxury item can bring other benefits. These can include:
• Status
• Better quality products
• Better service at retail locations or service centers
• Better resale value than other goods
• Strong value appreciation in some goods (such as jewelry or art)
• Exclusivity
Cons of Purchasing Luxury Goods
Conversely, purchasing a luxury item isn’t always a good idea. Some of the downsides to purchasing luxury goods include:
• High cost
• Money used to purchase a luxury good could be used elsewhere
• Can lead to more conspicuous consumption
• Depreciation on certain goods may be high
• Can undermine confidence; some people wind up feeling inauthentic (as if they are “faking it”) after spending a lot of cash on luxury items
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Luxury Goods vs Normal Goods: What’s the Difference?
Buying normal goods means you are buying items whose cost increases at the same rate as your income increases. If you, say, shopped for clothing at garage sales to save money on your wardrobe at the beginning of your career, and now you spend money on clothing at a traditional retailer, your consumption increased to the higher-priced clothing at the same rate as your income increased. These goods are within a reasonable range given your earning power.
Compare that with what is a luxury good. In this case, the cost of consumption increases, but generally not at the same rate as income. The price tag for a luxury item is often exponentially more than could be afforded by one’s salary raises.
Luxury Goods vs Inferior Goods: What’s the Difference?
According to the principles taught in economics class, an inferior good is one whose consumption decreases as a consumer’s income increases. If you ate ramen in college, for example, but no longer consume them now that you’re making more money in your career, that pack of noodles is an example of an inferior good. Your consumption of it decreased as you made more money.
Typically, with luxury goods, consumption increases with a higher income; with an inferior good, consumption decreases with a higher income.
Tips for Affording a Luxury Item
Saving up for a luxury item and then paying in cash can be a good strategy. Whether the object you’re craving is a handbag or a sports car, you won’t feel guilty about spending money when you’ve stashed the money away for it and can pay without creating credit card debt. If you automate your savings for the luxury item, you may well reach your goal without too much effort.
Saving for a Luxury Good
Saving up for a luxury item and then paying in cash can be a good strategy. Whether the object you’re craving is a handbag or a sports car, you won’t feel guilty about spending money when you’ve stashed the money away for it and can pay without creating credit card debt. If you automate your savings for the luxury item, you may well reach your goal without too much effort.
Waiting for Sales
Even luxury goods can go on sale, though perhaps less often than with lower-priced items. Even if you miss their sales, you may be able to find some premium items at discounted prices at outlet stores.
When saving for that luxury item, it can be wise to avoid trendy luxury products. Those probably won’t stay in style for long, and if you’re making a major purchase, it can be smarter to spend your money on things that will last.
You might want to consider renting a luxury item rather than paying loads of money to own it. For instance, you could lease a luxury car for a while and see if you truly love it. And there are many businesses that rent designer clothing and handbags, such as Rent The Runway and Bag Borrow or Steal. That can give you a taste of luxury at a more affordable price point.
Lowering Your Other Expenses
If you’re really set on affording a luxury item, see where else you can cut back on spending. Knowing you’d rather own a luxury car than go out every weekend can help you feel more motivated to cut back on dining and entertainment expenses.
Buying Pre-Owned
Another way to afford luxury items is to buy ones that have been pre-owned. From BMWs to Louis Vuitton handbags, there’s a large marketplace for gently used posh goods. How to afford luxury items can be a matter of being the second owner rather than the first of the item you desire.
The Takeaway
A luxury good is a product that is generally costly. It may also be of superior quality and retain its value better than non-luxury goods. Owning one can also be an ego boost and a source of pride. Saving to obtain luxury goods can help you cultivate good financial habits, which in turn can help you reach other goals and build wealth.
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FAQ
Why do people buy luxury goods?
Luxury goods can signal exclusivity, wealth, and a higher social status. People who buy luxury goods typically want to communicate this to themselves and others. Also, luxury items are often very well made and can last for many years.
Do luxury goods have high resale value?
Luxury goods, especially when in excellent condition, can have a high resale value. Some brands, such as Chanel and Hermès, have a better resale value than others. Jewelry by well-known brands (like Tiffany & Co.) tend to hold their value well too.
Does luxury always mean expensive?
A luxury item is typically highly desirable and very exclusive, which is usually tied to the amount of money it costs to obtain it. However, many luxury brands produce cheaper alternatives of their signature products to sell to more consumers at a more affordable cost. The Coach outlet stores are one example that luxury items don’t always have to be expensive, and the Mercedes CLA Coupe starts at about $44,400.
Photo credit: iStock/MoustacheGirl
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.
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/.
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