Mar
24
2025
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 with eligible direct deposit when you bank with SoFi.

No account or overdraft fees. No minimum balance.

Up to 3.80% APY on savings balances.

Up to 2-day-early paycheck.

Up to $3M 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.

About the author

Rebecca Lake

Rebecca Lake

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


Photo credit: iStock/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 $3M 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. ©2025 SoFi Bank, N.A. All rights reserved. Member FDIC. Equal Housing Lender.
The SoFi Bank Debit Mastercard® is issued by SoFi Bank, N.A., pursuant to license by Mastercard International Incorporated and can be used everywhere Mastercard is accepted. Mastercard is a registered trademark, and the circles design is a trademark of Mastercard International Incorporated.

SoFi members with Eligible Direct Deposit activity can earn 3.80% annual percentage yield (APY) on savings balances (including Vaults) and 0.50% APY on checking balances. Eligible Direct Deposit means a recurring deposit of regular income to an account holder’s SoFi Checking or Savings account, including payroll, pension, or government benefit payments (e.g., Social Security), made by the account holder’s employer, payroll or benefits provider or government agency (“Eligible Direct Deposit”) via the Automated Clearing House (“ACH”) Network during a 30-day Evaluation Period (as defined below).

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

Deposits that are not from an employer, payroll, or benefits provider or government agency, including but not limited to check deposits, peer-to-peer transfers (e.g., transfers from PayPal, Venmo, etc.), merchant transactions (e.g., transactions from PayPal, Stripe, Square, etc.), and bank ACH funds transfers and wire transfers from external accounts, or are non-recurring in nature (e.g., IRS tax refunds), do not constitute Eligible Direct Deposit activity. There is no minimum Eligible Direct Deposit amount required to qualify for the stated interest rate. SoFi members with Eligible Direct Deposit are eligible for other SoFi Plus benefits.

As an alternative to Direct Deposit, SoFi members with Qualifying Deposits can earn 3.80% APY on savings balances (including Vaults) and 0.50% APY on checking balances. Qualifying Deposits means one or more deposits that, in the aggregate, are equal to or greater than $5,000 to an account holder’s SoFi Checking and Savings account (“Qualifying Deposits”) during a 30-day Evaluation Period (as defined below). Qualifying Deposits only include those deposits from the following eligible sources: (i) ACH transfers, (ii) inbound wire transfers, (iii) peer-to-peer transfers (i.e., external transfers from PayPal, Venmo, etc. and internal peer-to-peer transfers from a SoFi account belonging to another account holder), (iv) check deposits, (v) instant funding to your SoFi Bank Debit Card, (vi) push payments to your SoFi Bank Debit Card, and (vii) cash deposits. Qualifying Deposits do not include: (i) transfers between an account holder’s Checking account, Savings account, and/or Vaults; (ii) interest payments; (iii) bonuses issued by SoFi Bank or its affiliates; or (iv) credits, reversals, and refunds from SoFi Bank, N.A. (“SoFi Bank”) or from a merchant. SoFi members with Qualifying Deposits are not eligible for other SoFi Plus benefits.

SoFi Bank shall, in its sole discretion, assess each account holder’s Eligible Direct Deposit activity and Qualifying Deposits throughout each 30-Day Evaluation Period to determine the applicability of rates and may request additional documentation for verification of eligibility. The 30-Day Evaluation Period refers to the “Start Date” and “End Date” set forth on the APY Details page of your account, which comprises a period of 30 calendar days (the “30-Day Evaluation Period”). You can access the APY Details page at any time by logging into your SoFi account on the SoFi mobile app or SoFi website and selecting either (i) Banking > Savings > Current APY or (ii) Banking > Checking > Current APY. Upon receiving an Eligible Direct Deposit or receipt of $5,000 in Qualifying Deposits to your account, you will begin earning 3.80% APY on savings balances (including Vaults) and 0.50% on checking balances on or before the following calendar day. You will continue to earn these APYs for (i) the remainder of the current 30-Day Evaluation Period and through the end of the subsequent 30-Day Evaluation Period and (ii) any following 30-day Evaluation Periods during which SoFi Bank determines you to have Eligible Direct Deposit activity or $5,000 in Qualifying Deposits without interruption.

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

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

Members without either Eligible Direct Deposit activity or Qualifying Deposits, as determined by SoFi Bank, during a 30-Day Evaluation Period and, if applicable, the grace period, or who do not enroll in SoFi Plus by paying the SoFi Plus Subscription Fee every 30 days, will earn 1.00% APY on savings balances (including Vaults) and 0.50% APY on checking balances.

Interest rates are variable and subject to change at any time. These rates are current as of 1/24/25. There is no minimum balance requirement. Additional information can be found at http://www.sofi.com/legal/banking-rate-sheet.
Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.


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

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Mar
24
2025
What Is an IPO Roadshow?

What Is an IPO Roadshow?

By | Growing Wealth, invest, Investing | Comments Off on What Is an IPO Roadshow?

Before a company can sell its shares on an exchange, it first needs to go through the Initial Public Offering (IPO) process. One of the most critical steps in this process is the IPO roadshow, in which the company pitches itself to potential investors.

A roadshow presentation can take place in-person, with meetings in cities across the country, or the company can offer an online event instead. Either way, the goal is the same: to generate interest in the company that will encourage investors to buy in.

Key Points

•   An IPO roadshow is a series of meetings or presentations in which key members of a private company pitch the initial public offering to prospective investors.

•   Digital roadshows have become increasingly popular and offer an advantage of increased efficiency compared to traditional roadshows.

•   The purpose of an IPO roadshow is to generate interest in a company among prospective investors in order to raise capital.

•   Virtual IPO roadshow presentations have the potential to reach a broader audience, rather than being limited to a handful of cities.

•   Buying IPO stock can help diversify an investment portfolio, but is typically high risk and requires due diligence.

What Is a Roadshow?

In general, a roadshow is a series of meetings or presentations in which key members of a private company, usually executives, pitch the initial public offering, or IPO, to prospective investors. Effectively, the company is taking its branding message on the road to meet with investors in different cities, hence the name.

The IPO roadshow presentation is an important part of the IPO process in which a company sells new shares to the public for the first time. Whether a company’s IPO succeeds or not can hinge on interest generated among investors before the stock makes its debut on an exchange.

There are also some cases where company executives will embark on a road show to meet with investors to talk about their company, even if they’re not planning an IPO.

💡 Quick Tip: IPO stocks can get a lot of media hype. But savvy investors know that where there’s buzz there can also be higher-than-warranted valuations. IPO shares might spike or plunge (or both), so investing in IPOs may not be suitable for investors with short time horizons.

How Roadshows Work

Typically, the roadshow is the third step in the IPO process, following the selection of an underwriter to oversee the process and the completion of due diligence. At this point, the Securities and Exchange Commission (SEC) reviews all of the documents submitted in connection with the IPO, while the company and the underwriting team get ready for the roadshow.

The underwriters and executives taking part in the IPO roadshow work together to decide which cities to visit, which investors to target, and which information to include in the roadshow presentation.

A typical IPO roadshow presentation highlights the most important information the company wants investors to know, including:

•   The company’s history and its plans regarding the IPO

•   Details about the top executives

•   The current vision and mission statement

•   Financial performance and earnings history

•   Future sales projections and anticipated growth

•   IPO goals

A roadshow IPO presentation may include digital media, such as videos or a slideshow. Investors have a chance to ask questions during a Q&A session following the presentation.

The roadshow tour for an IPO can last anywhere for two to four weeks, depending on how many stops the company makes along the way.

New Digital Roadshows

Virtual roadshows have become an increasingly popular alternative to the traditional IPO roadshow. The pandemic forced companies to rethink the way they meet with investors, resulting in a growing number of roadshows taking place online only.

Digital roadshows mean companies forgo a chance to meet with prospective investors face-to-face, but they offer an advantage in terms of increased efficiency. Company executives and underwriters save money and time, since they’re not traveling. Virtual IPO roadshow presentations also have the potential to reach a broader audience, rather than being limited to just a handful of cities.

If a company schedules multiple presentations in a single day, using a virtual format, they can complete the roadshow move through the IPO process more quickly. This could make it easier to determine the price of an IPO if there’s less opportunity for pricing to be affected by volatility. Pricing the IPO typically happens at the conclusion of the road show.


💡 Quick Tip: The best stock trading app? That’s a personal preference, of course. Generally speaking, though, a great app is one with an intuitive interface and powerful features to help make trades quickly and easily.

Importance of Roadshows

The IPO roadshow presentation is an opportunity for a company to convince investors that buying stock in their company is a good investment opportunity. The main purpose of an IPO is generally to raise capital and companies can’t do that without interest from investors.

IPO stocks are considered high-risk investments, and while some companies may present an opportunity for growth, there are no guarantees. Like investing in any other type of stock, it’s essential for investors to do their due diligence. While individual investors aren’t included in the IPO roadshow process, they can follow the coverage, to understand new details that might emerge about the company.

Pros and Cons of a Roadshow

If the company goes public and no one buys its shares, then the IPO ends up being a flop, which can affect the company’s success in the near and long term. If the company experiences an IPO pop, in which its price goes much higher than its initial offering price, it could be a sign that underwriters mispriced the stock.

A roadshow is also important for helping determine how to price the company’s stock when the IPO launches. If the roadshow ends up being a smashing success, for example, that can cause the underwriters to adjust their expectations for the stock’s IPO price.

On the other hand, if the roadshow doesn’t seem to be generating much buzz around the company at all, that could cause the price to be adjusted downward.

In a worst-case scenario, the company may decide to pull the plug on the IPO altogether or to go a different route, such as a private IPO placement.

The Takeaway

The IPO roadshow presents an opportunity for a new company to convince investors to invest in their organization. The main purpose of an IPO is to raise capital and companies can’t do that without interest from investors.

The underwriters and executives taking part in the IPO roadshow work together to decide which cities to visit, which investors to target, and which information to include in the roadshow presentation.

While individual investors typically don’t have access to roadshows, eligible investors may still participate in IPO trading. Buying IPO stock can help you to diversify your investment portfolio, and may present growth opportunities — but IPO shares are typically high risk. The key is doing your research to find the right companies to invest in as they go public.

Whether you’re curious about exploring IPOs, or interested in traditional stocks and exchange-traded funds (ETFs), you can get started by opening an account on the SoFi Invest® brokerage platform. On SoFi Invest, eligible SoFi members have the opportunity to trade IPO shares, and there are no account minimums for those with an Active Investing account. As with any investment, it's wise to consider your overall portfolio goals in order to assess whether IPO investing is right for you, given the risks of volatility and loss.

Invest with as little as $5 with a SoFi Active Investing account.

FAQ

What is the purpose of a roadshow?

The purpose of an IPO roadshow is to generate interest in a company among prospective investors. The company executives and underwriting can meet with investors in-person or virtually to share details about the IPO, the company’s financials and its goals.

How long after the roadshow is the IPO?

The IPO can take place as little as two weeks after the roadshow is completed. The actual timing depends on a number of factors, including whether the underwriters determine that a price adjustment is needed or if any snags come up involving the filing of key documents.

Are IPO roadshows public?

The IPO roadshow process typically focuses on institutional investors, rather than retail investors. So the roadshow presentations have traditionally been private affairs. But with more companies opting to host virtual roadshows, there’s potential for the general public to be able to view IPO presentations online.

About the author

Rebecca Lake

Rebecca Lake

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


Photo credit: iStock/FreshSplash

SoFi Invest®

INVESTMENTS ARE NOT FDIC INSURED • ARE NOT BANK GUARANTEED • MAY LOSE VALUE

SoFi Invest encompasses two distinct companies, with various products and services offered to investors as described below: Individual customer accounts may be subject to the terms applicable to one or more of these platforms.
1) Automated Investing and advisory services are provided by SoFi Wealth LLC, an SEC-registered investment adviser (“SoFi Wealth“). Brokerage services are provided to SoFi Wealth LLC by SoFi Securities LLC.
2) Active Investing and brokerage services are provided by SoFi Securities LLC, Member FINRA (www.finra.org)/SIPC(www.sipc.org). Clearing and custody of all securities are provided by APEX Clearing Corporation.
For additional disclosures related to the SoFi Invest platforms described above please visit SoFi.com/legal.
Neither the Investment Advisor Representatives of SoFi Wealth, nor the Registered Representatives of SoFi Securities are compensated for the sale of any product or service sold through any SoFi Invest platform.
For a full listing of the fees associated with Sofi Invest please view our fee schedule.

Investing in an Initial Public Offering (IPO) involves substantial risk, including the risk of loss. Further, there are a variety of risk factors to consider when investing in an IPO, including but not limited to, unproven management, significant debt, and lack of operating history. For a comprehensive discussion of these risks please refer to SoFi Securities’ IPO Risk Disclosure Statement. IPOs offered through SoFi Securities are not a recommendation and investors should carefully read the offering prospectus to determine whether an offering is consistent with their investment objectives, risk tolerance, and financial situation.

New offerings generally have high demand and there are a limited number of shares available for distribution to participants. Many customers may not be allocated shares and share allocations may be significantly smaller than the shares requested in the customer’s initial offer (Indication of Interest). For SoFi’s allocation procedures please refer to IPO Allocation Procedures.

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

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Mar
24
2025
What Is a Guaranteed Minimum Income Benefit (GMIB)?

What Is a Guaranteed Minimum Income Benefit (GMIB)?

By | Growing Wealth, invest, Investing, Terminology | Comments Off on What Is a Guaranteed Minimum Income Benefit (GMIB)?

A guaranteed minimum income benefit (GMIB) is an optional rider that can be included in an annuity contract to provide a minimum income amount to the annuity holder. An annuity is an insurance product in which you pay a premium to the insurance company, then receive payments back at a later date. There are a number of different types of annuities, with different annuity rates.

A GMIB annuity can ensure that you receive a consistent stream of guaranteed income. If you’re considering buying an annuity for your retirement, it’s helpful to understand what guaranteed minimum income means, and how it works.

Key Points

•   A Guaranteed Minimum Income Benefit (GMIB) is an optional rider in an annuity contract ensuring a minimum income.

•   GMIBs protect annuity payments from market volatility, offering stable income in retirement.

•   These benefits are available in variable or indexed annuities, which tie earnings to market performance.

•   The cost of GMIBs can be high, as adding riders increases the overall expense of the annuity.

•   Evaluating the financial stability of the annuity provider is crucial, as the company’s health impacts the security of the guaranteed income.

GMIBs, Defined

A guaranteed minimum income benefit (GMIB) is a rider that the annuity holder can purchase, at an additional cost, and add it onto their annuity. The goal of a GMIB is to ensure that the annuitant will continue to receive payments from the contract — that’s the “guaranteed minimum income” part — without those payments being affected by market volatility.

Annuities are one option you might consider when starting a retirement fund. But what are annuities and how do they work? It’s important to answer this question first when discussing guaranteed minimum income benefits.

As noted, an annuity is a type of insurance contract. You purchase the contract, typically with a lump sum, on the condition that the annuity company pays money back to you now or starting at a later date, e.g. in retirement.

Depending on how the annuity is structured, your money may be invested in underlying securities or not. Depending on the terms and the annuity rates involved, you may receive a lump sum or regular monthly payments. The amount of the payment is determined by the amount of your initial deposit or premium, and the terms of the annuity contract.

A GMIB annuity is most often a variable annuity or indexed annuity product (though annuities for retirement can come in many different types).

💡 Quick Tip: How do you decide if a certain trading platform or app is right for you? Ideally, the investment platform you choose offers the features that you need for your investment goals or strategy, e.g., an easy-to-use interface, data analysis, educational tools.

How GMIBs Work

Let’s look at two different types of annuities for retirement: variable and indexed.

•   Variable annuities can offer a range of investment types, often in the form of mutual funds that hold a combination of stocks, bonds, and money market instruments.

•   Indexed annuities offer returns that are indexed to an underlying benchmark, such as the S&P 500 index, Nasdaq, or Russell 2000. This is similar to other types of indexed investments.

With either one, the value of the annuity contract is determined by the performance of the underlying investments you choose.

When the market is strong, variable annuities or indexed annuities can deliver higher returns. When market volatility increases, however, that can reduce the value of your annuity. A GMIB annuity builds in some protection against market risk by specifying a guaranteed minimum income payment you’ll receive from the annuity, independent of the annuity’s underlying market-based performance.

Of course, what you can draw from an annuity to begin with will depend on how much you invest in the contract, stated annuity rates, and to some degree your investment performance. But having a GMIB rider on this type of retirement plan can help you to lock in a predetermined amount of future income.

Recommended: Types of Retirement Accounts

Pros & Cons of GMIBs

Guaranteed minimum income benefit annuities can be appealing for investors who want to have a guaranteed income stream in retirement. Whether it makes sense to purchase one can depend on how much you have to invest, how much income you’re hoping to generate, your overall goals and risk tolerance.

Weighing the pros and cons can help you to decide if a GMIB annuity is a good fit for your retirement planning strategy.

Pros of GMIBs

The main benefit of a GMIB annuity is the ability to receive a guaranteed amount of income in retirement. This can make planning for retirement easier as you can estimate how much money you’re guaranteed to receive from the annuity, regardless of what happens in the market between now and the time you choose to retire.

If you’re concerned about your spouse or partner being on track for their own retirement, that income can also carry over to your spouse and help fund their retirement needs, if you should pass away first. You can structure the annuity to make payments to you beginning at a certain date, then continue those payments to your spouse for the remainder of their life. This can provide reassurance that your spouse won’t be left struggling financially after you’re gone.

Cons of GMIBs

A main disadvantage of guaranteed minimum income benefit annuities is the cost. The more riders you add on to an annuity contract, the more this can increase the cost. So that’s something to factor in if you have a limited amount of money to invest in a variable or indexed annuity with a GMIB rider. Annuities may also come with other types of investment fees, so you may want to consult with a professional who can help you decipher the fine print.

It’s also important to consider the quality of the annuity company. An annuity is only as good as the company that issues the contract. If the company were to go out of business, your guaranteed income stream could dry up. For that reason, it’s important to review annuity ratings to get a sense of how financially stable a particular company is.

Examples of GMIB Annuities

Variable or indexed annuities that include a guaranteed minimum income benefit can be structured in different ways. For example, you may be offered the opportunity to purchase a variable annuity for $250,000. The annuity contract includes a GMIB order that guarantees you the greater of:

•   The annuity’s actual value

•   6% interest compounded annually

•   The highest value reached in the account historically

The annuity has a 10-year accumulation period in which your investments can earn interest and grow in value. This is followed by the draw period, in which you can begin taking money from the annuity.

Now, assume that at the beginning of the draw period the annuity’s actual value is $300,000. But if you were to calculate the annuitized value based on the 6% interest compounded annually, the annuity would be worth closer to $450,000. Since you have this built into the contract, you can opt to receive the higher amount thanks to the guaranteed minimum income benefit.

This example also illustrates why it’s important to be selective when choosing annuity contracts with a guaranteed minimum income benefit. The higher the guaranteed compounding benefit the better, as this can return more interest to you even if the annuity loses value because of shifting market conditions.

It’s also important to consider how long the interest will compound. Again, the more years interest can compound the better, in terms of how that might translate to the size of your guaranteed income payout later.

💡 Quick Tip: Are self-directed brokerage accounts cost efficient? They can be, because they offer the convenience of being able to buy stocks online without using a traditional full-service broker (and the typical broker fees).

The Takeaway

As discussed, guaranteed minimum income benefits (GMIB) are optional riders that can be included in an annuity contract to provide a minimum income amount to the annuity holder. Annuities can help round out your financial strategy if you’re looking for ways to create guaranteed income in retirement.

Annuities may be a part of a larger investment and retirement planning strategy, along with other types of retirement accounts. To get a better sense of how they may fit in, if at all, it may be a good idea to speak with a financial professional.

Ready to invest in your goals? It’s easy to get started when you open an investment account with SoFi Invest. You can invest in stocks, exchange-traded funds (ETFs), mutual funds, alternative funds, and more. SoFi doesn’t charge commissions, but other fees apply (full fee disclosure here).

Opening and funding an Active Invest account gives you the opportunity to get up to $1,000 in the stock of your choice.

FAQ

What are guaranteed benefits?

When discussing annuities for retirement, guaranteed benefits are amounts that you are guaranteed to receive. Depending on how the annuity contract is structured, you may receive guaranteed benefits as a lump sum payment or annuitized payments.

What is the guaranteed minimum withdrawal benefit?

The guaranteed minimum withdrawal benefit is the amount you’re guaranteed to be able to withdraw from an annuity once the accumulation period ends. This can be the annuity’s actual value, an amount that reflects interest compounded annually or the annuity contract’s highest historical value.

What are the two types of guaranteed living benefits?

There are actually more than two types of guaranteed living benefits. For example, your annuity contract might include a guaranteed minimum income benefit, guaranteed minimum accumulation benefit or guaranteed lifetime withdrawal benefit.

About the author

Rebecca Lake

Rebecca Lake

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


Photo credit: iStock/Luke Chan

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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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Mar
24
2025
What Are Get Rich Quick Schemes?

Understanding and Avoiding Get-Rich-Quick Schemes

By | Life & Career, money | Comments Off on Understanding and Avoiding Get-Rich-Quick Schemes

Unless you’re already a millionaire, you might be interested in finding ways to make more money and increase your net worth so you can join the ranks of the rich. You may even be tempted to participate in a get-rich-quick scheme to achieve your goals.

But hold on a minute: Get-rich-quick schemes attract people with the lure of easy money, but all too often, they create more financial problems instead of solving them.

Understanding these scams can help you avoid them — and avoid getting scammed by fraudsters.

Key Points

•   Get-rich-quick schemes promise large amounts of money for little to no investment but often fail to deliver.

•   Scammers use enticing language and false claims to attract victims to these schemes.

•   Examples of get-rich-quick schemes include MLMs (multi-level marketing), work-at-home scams, investment scams, and debt relief scams.

•   Spotting a get-rich-quick scheme involves looking out for upfront payments, misleading claims, secret tips, and unrealistic guarantees.

•   Legitimate alternatives to get-rich-quick schemes include starting a business, investing, and working with financial advisors.

What Is a Get-Rich-Quick Scheme?

Generally speaking, a get-rich-quick scheme is any plan or strategy that promises to put large amounts of money in your bank account for little to no investment. The term “get rich quick” has a less than desirable connotation, since these ventures often fail to live up to their claims.

It’s not uncommon to see get rich-quick-schemes advertised or promoted using language that’s designed to pique consumers’ interest. For example, you might come across a social media influencer that promises to help you “make money while you sleep” or “make money instantly without paying anything.”

That type of wording is often a red flag, and it may be a sign that a get-rich-quick scheme is actually a thinly veiled scam.

Get-rich-quick schemers can also take a more subtle approach and make promises that seem legitimate when taken at face value. Student loan forgiveness scams that claim to be able to help you wipe out student debt in exchange for a fee are a great example of this (you’ll learn more examples of these traps in a minute).

Recommended: 8 Common Online Bank Scams and How to Avoid Them

How Do Get-Rich-Quick Schemes Work?

Get-rich-quick schemes work by drawing people in and using some type of financial incentive as bait. Potential victims may be told that they’ll be able to make a large amount of money very quickly if they just pay a fee or make an initial investment. Or they’ll be told that they can get their debts eliminated for much less than what they owe.

In other cases, a get-rich-quick scheme is a major money scam that’s designed to get people to part with their hard-earned money in exchange for a product or service that will supposedly help them make more money. The purpose of this type of scheme is to get people to purchase something; the individual who’s hawking it can then make money themselves. Put simply, you are unlikely to benefit financially.

Using social media influencers as an example again, an influencer might promote a book or a course that teaches a “proven” system for how to make money online. They encourage their followers to buy the book or course and suggest that if they do so, they’ll be able to grow their income and get rich.

What their followers may not realize is that the influencer is likely getting paid for that promotion. Their posts may be sponsored by the book author or course creator. Or perhaps they’re earning affiliate commissions for referring people to the products. If the influencer convinces enough people to buy whatever it is they’re selling, they might get rich quick while their followers may not.

Technically, influencers and bloggers are required to disclose paid relationships to their audience. But disclosure alone doesn’t convey any guarantee that the product they’re promoting will work the way they say it will. So people buy in, expecting results that they may or may not see.

Recommended: How To Make Money Even With No Job

Are Get-Rich-Quick Schemes Illegal?

Get-rich-quick schemes themselves are not outlawed, though there are numerous regulations that attempt to protect consumers from scammers. As mentioned, influencers are required to disclose relationships they have with the brands that they promote. The Truth in Advertising Act exists to prevent companies or individuals from making false or misleading claims when advertising products and services. Advertisers must also be able to back up the claims they make with scientific evidence, when appropriate.

Whether a get-rich-quick scheme falls within legal boundaries or is illegal can largely depend on the nature of the scheme. Multi-level marketing (MLM) is a great example. What is an MLM? In simple terms, it’s a business structure in which people earn commissions by selling products or services to friends and family members. Mary Kay and Avon are two well-known examples of multi-level marketing operations that are legit.

MLMs are not illegal, but pyramid schemes are. What’s known as a pyramid scheme can resemble an MLM, but the difference is that all the money is made by bringing new people into the program. The person who recruited a new participant earns money by charging them an entry or registration fee or perhaps an introductory product package of some sort. The higher up you are in the pyramid, the more money you can make.

A Ponzi scheme is another type of illegal get rich quick scheme. In a Ponzi scheme, the person or persons at the top promise investors they can double or triple their money. They take the investors’ money and keep it for themselves, paying out nominal amounts to people who invested earlier in the scheme. The scheme can keep going — and continue making the people at the top rich — as long as new investors keep joining. Bernie Madoff, the convicted financial fraudster, was notorious for running one of the largest Ponzi schemes in history.

Recommended: Avoiding Mobile Deposit Scams, Fakes, and Hacks

Examples of Get-Rich-Quick Schemes

Get-rich-quick schemes can take many different forms, and it isn’t always easy to recognize them for what they are. Some of the most common examples of legal (and illegal) get-rich-quick schemes include:

•   MLMs and pyramid schemes disguised as MLMs

•   Work-at-home scams that promise you’ll earn major money

•   Investment scams that promise high returns for very little money

•   Side hustle and online business scams

•   Debt relief and credit repair scams

•   Lottery scams

•   Fake job listing scams

•   Scams related to student loan forgiveness or government benefits

•   Home improvement scams

•   Mystery shopping scams

•   Giveaway or free prize scams

And of course, there’s the ever-enduring “Nigerian prince” scheme. This scam and its many variations promise you a large inheritance, finder’s fee, or compensation in exchange for accepting a deposit into your bank account. Scammers, who claim to be royalty (perhaps hoping that will impress their target and sound legitimate), ask that once you receive the deposit, you send part of the money back to them and keep the rest.

In reality, the scammer is trying to trick you into handing over your bank information, so they can try to use your account number and routing number to cheat you. Or else they ask you to wire them a small amount to cover processing fees before they can send the money along to you. It’s an ongoing get-rich-quick scheme that unfortunately continues to collect victims.

Are Get-Rich-Quick Schemes Reliable?

A get-rich-quick scheme can make lots of promises, but they generally fall short when it comes to the delivery. What you can usually count on with a get-rich-quick scheme is that you’ll lose money if you participate. That’s because that’s how these schemes are designed to operate.

Getting money for nothing sounds attractive, and so it’s easy to fall victim to influencer schemes when you see the lavish lives they lead on social media. But there’s a significant difference between rich vs. wealthy and, again, there’s no guarantee that any get-rich-quick scheme will produce the results you want.

Even if you don’t lose money outright, you may only get a small return on investment. Or it can take much longer to see results. For example, say you’re interested in becoming a blogger so you can quit your full-time job. You see a popular writing course advertised by lots of different bloggers who claim to be making six figures a year.

You buy the course, believing that in exchange for your payment of just $497 you’ll soon be on your way to making $10,000 or more each month from home. Except you complete the course and don’t see instant results. In fact, it takes you more than three years to build up your business to the point where you’re making any kind of steady income.

You might eventually get rich, but there’s no “quick” about it. That’s why get-rich-quick schemes are so problematic. They rely on people looking for a shortcut to easy money, despite the reality that building one’s income and net worth typically takes years.

Recommended: Are You Bad with Money? Here’s How to Get Better

Tips to Spot a Get-Rich-Quick Scheme

Identifying a get-rich-quick scam isn’t always easy since some scammers can be so convincing and seem so sincere. And in some cases, schemes for quick riches are based on legitimate ways to make or invest money. If you’re worried about getting conned by a get-rich-quick schemer, here are some of the ways to spot a scam in action.

Upfront Payment

A request for upfront payment is often a dead giveaway that a scam is afoot. Email phishing scams like the “Nigerian prince” scheme are a great example. There are some common credit card scams that fall into this category as well. These scams make false claims about being able to raise your credit scores overnight or wipe out credit card debt instantly, as long as you pay their fee first.

Misleading Headlines With False Claims

Scammers often use clickbait-y headlines to grab consumers’ attention. They can make claims that are grandiose or outright false to get you to click and check out their product or service. You may not realize how misleading those claims are until you’ve bought into the scheme.

Secret Tips and Information

Another tactic scammers may use to get your attention is to tell you they have insider information that they’re willing to share with you to help you get rich. Of course, you’ll only be able to access those secret tips once you’ve purchased something or paid them a fee. It’s particularly important to be wary of those so-called secrets when it comes to investing, since insider trading is illegal.

“100% Success Rate Guaranteed!”

Scammers may also use language that suggests that everyone who’s ever used their product or service has seen success or that success is guaranteed. That could fall under the heading of misleading information in violation of the Truth in Advertising Act. And even if it’s technically true that the success rate is 100%, the results may not be the same for everyone.

Recommended: 8 Ways to Make Your Money Work For You

If It Sounds Too Good to Be True

Here’s perhaps the easier rule for spotting a get-rich-quick scam: if something seems too good to be true, it probably is, as the saying goes. Attempting to fact-check or verify claims that someone is making about a product or service can help to weed out scammers. If you can’t verify any of the claims they’re making, that’s a sign to be wary of their statements.

Going to Trusted Sources, Not Influencers or Celebrities

Influencers and celebrities can make a lot of money promoting products or services that are designed to help you get rich. But again, they may be getting paid for that promotion, so they can’t be considered a reliable source.

Researching get-rich-quick offers through trusted sources is important for separating fact from fiction. For example, the Federal Trade Commission (FTC) can be a great resource for reading up on the latest scams targeting consumers.

Unwilling to Share Their Business Model

Transparency is key to rooting out get-rich-quick scammers. Let’s say someone claims to be able to help you make $10,000 by starting your own business from home but is unwilling to tell you how they do it. That’s a sign that you might not want to take them at their word.

“You Do Not Need Any Experience!”

Wouldn’t it be nice if you could make a fortune with no prior experience or knowledge? That’s the hope upon which some get-rich-quick fraudsters capitalize. While there are legitimate ways to make money that don’t necessarily require years of experience, scammers can use that to persuade people to buy into a product or service that leaves you holding the bag. Or they can twist their wording to make it seem like you can make money even without experience, when really, there’s a steep learning curve involved.

Recommended: 6 Money Habits to Develop Financial Success

Alternatives to Get-Rich-Quick Schemes

Getting rich overnight probably isn’t the cards for most people, unless they happen to win the lottery or a wealthy relative passes away and leaves them a huge inheritance. If you want to get rich (or become wealthy), you’ll most likely need to put in some effort and give it some time.

Here are some legitimate wealth-building alternatives to get-rich-quick schemes:

•   Starting and growing a business

•   Using side hustles to supplement your income

•   Asking for a raise or promotion at work

•   Moving to a higher-paying job with a different company

•   Reducing spending and paying down debt

•   Investing money consistently

•   Working with a financial advisor or wealth manager

Admittedly, these ideas may seem a lot more boring and difficult than get-rich-quick schemes. But they’re all proven ways to increase financial stability and raise your net worth.

Banking With SoFi

Trying to get rich can be a lofty and elusive goal, but you can certainly take steps to improve your financial situation. Keeping your money in the right bank account can be a great place to start.

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


Better banking is here with SoFi, NerdWallet’s 2024 winner for Best Checking Account Overall.* Enjoy up to 3.80% APY on SoFi Checking and Savings.

FAQ

Can get-rich-quick schemes be good?

Get-rich-quick schemes often require you to pay money for an investment or product that claims to help you grow your wealth immediately. Typically, though, the results you get can be very different from what you expect. In other words, they are unlikely to be good.

How many businesses are considered get-rich-quick schemes?

There are no definitive statistics on how many businesses are considered to be get-rich-quick schemes. Multi-level marketing companies and direct sales companies often get labeled as get-rich-quick operations, even when those businesses are legitimate. This makes hard numbers difficult to find.

What can I do if I have fallen for a get-rich-quick scheme?

If you’ve fallen for a scam, try to minimize or limit your losses by not funneling any more money into the scheme. If you believe the scheme is illegal, you can report it to the Federal Trade Commission. You could also file a police report and report the scheme to your state attorney general’s office. If a scammer tricked you into handing over your banking or financial information, alert your bank to monitor your account for potentially fraudulent transactions. You may also need to update your login details for financial websites.

About the author

Rebecca Lake

Rebecca Lake

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


Photo credit: iStock/alfexe

SoFi® Checking and Savings is offered through SoFi Bank, N.A. ©2025 SoFi Bank, N.A. All rights reserved. Member FDIC. Equal Housing Lender.
The SoFi Bank Debit Mastercard® is issued by SoFi Bank, N.A., pursuant to license by Mastercard International Incorporated and can be used everywhere Mastercard is accepted. Mastercard is a registered trademark, and the circles design is a trademark of Mastercard International Incorporated.

*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.

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


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

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Mar
21
2025
CD Loans, Explained

CD Loans, Explained

By | Budgeting & Goals, Financial Independence, personal_loan | Comments Off on CD Loans, Explained

A certificate of deposit (CD) can be a useful tool for saving money for an upcoming goal. The downside is that you need to wait until the CD matures in order to access your money. If you withdraw some or all of your funds early, you typically get hit with a hefty penalty fee.

If you’re in a pinch and need cash quickly, however, you may be able to get a CD loan. Also known as a CD-secured loan, this is a type of personal loan that uses the value of a CD account as collateral. CD loans are offered by some banks and credit unions. Typically, the lender needs to be the same institution that holds your CD.

Here’s a closer look at how CD loans work and how they stack up against unsecured personal loans.

What Is a CD Loan?

A CD loan is a type of personal loan that is secured by the money you have in a CD. Since the collateral lowers the risk for the lender, these loans can be easier to qualify for and have lower interest rates than unsecured loans. However, if you don’t repay the loan, the bank can take the money out of your CD to cover their losses.

Of course, to get a CD loan, you need to have a CD, which is a type of savings account that pays a fixed interest rate over a set amount of time, or term. You must leave the money untouched for the CD term, which can range from three months to five years. If you withdraw your funds before the end of the CD’s term, you usually have to pay an early withdrawal penalty. CDs generally pay a higher annual percentage yield (APY) than regular savings accounts. And the longer the CD’s term, usually the higher the APY. Similar to other types of savings accounts, CDs come with FDIC protection, up to the applicable limits.

How Do CD-Secured Loans Work?

If you take out a CD loan, the lender will charge interest. So you’ll be earning interest on the CD but paying interest on the CD-secured loan. In some cases, a bank or credit union will set the minimum annual percentage rate (APR) on their CD loans at 2% over the CD rate. So if your CD pays 3%, your CD loan rate would start at 5%. Your actual rate would depend on your credit and the term of the loan, among other factors.

How much you can borrow with a CD-secured loan depends on the lender. Often, you are able to borrow up to 100% of the value of your CD principal. The term of the loan can generally be as long as the term of the CD.

While you can typically access money in a CD if absolutely necessary and pay a penalty, that may no longer be the case if you get a CD loan. Typically, the funds being used as collateral are sealed even in the event of an emergency.

Who Might CD Loans Be Right For?

The idea of paying interest on a loan backed by an interest-bearing CD may seem counterintuitive. However, there can be some logical reasons for taking out a CD-secured loan. One is that you may be able to build your credit by taking out a CD loan and then making a series of on-time payments on the loan. More common ways to do that include getting a secured credit card or becoming an authorized user on another person’s credit card. But if those options aren’t available, and you have a CD, you might use a CD loan for that purpose.

Another reason you might opt for a CD loan is that you need access to your funds for an emergency before it matures. However, you’ll want to first check what your CD’s early withdrawal penalty is. It might be cheaper and easier to simply break open a CD early and pay the penalty. However, if the penalty would be more than what you’d pay in a CD loan’s fees and interest, you might consider a CD loan.

Before taking out a CD loan, it makes sense to weigh the pros and cons.

CD Loan Pros

•   Lower interest rates CD-secured loans often have lower interest rates compared to credit cards and unsecured personal loans, making them an attractive option for borrowers seeking lower borrowing costs.

•   Building credit CD loans offer an opportunity to establish or improve your credit history if you currently have limited or no credit.

•   Retaining CD benefits Despite using the CD as collateral, you can still earn interest on the deposited amount.

•   Fast access to funds If you apply for a CD loan with the bank or credit union that holds your CD, you can often get approved quickly and receive funds within a day or two.

•   Good for those with bad credit Borrowers with poor credit often qualify for CD-secured loans.

CD Loan Cons

While CD loans have their benefits, there are also some drawbacks to keep in mind.

•   Frozen funds The funds in the CD are tied up as collateral, limiting access to the money until the loan is repaid.

•   Potential loss of CD If you default on the loan, the lender can seize the CD, resulting in the loss of the deposited funds.

•   Limited loan amount CD loans are typically limited to a percentage of the CD’s value, which might not meet your full borrowing needs.

•   Fees Your bank may charge fees, such as an origination fee, for issuing you a CD loan.

•   Hard to find CD loans aren’t as common as other types of personal loan, so your bank or credit union may not offer them.

CD Loan vs Personal Loan

While CD-secured loans and unsecured personal loans have some similarities, they also have some significant differences.

With both types of loans, you get a lump sum of money up front and can then use those funds for virtually any type of expense. Both also typically offer fixed interest rates and a set repayment term so payments are easy to predict and budget for.

Unlike a personal loan, however, a CD-secured loan can be hard to find. Also with a CD loan, you need to put your savings on the line to secure the loan. With an unsecured personal loan, you don’t need to provide any funds or personal assets as collateral, making them accessible to borrowers without a CD or other assets.

CD loans also tend to have lower interest rates than unsecured personal loans due to the collateral, while personal loans tend to offer more flexibility in loan amount and repayment terms.

Recommended: Typical Personal Loan Requirements Needed for Approval

The Takeaway

CD loans can be a viable option for someone who has a certificate of deposit and needs access to funds while keeping their deposited amount intact. The lower interest rates and potential credit-building opportunities make CD loans attractive for some borrowers.

However, these loans aren’t widely available and the cost of the loan could potentially exceed the CD’s early withdrawal fee. Also, you could lose the money in your CD if you have difficulty making payments. It’s crucial to weigh the pros and cons, consider your personal financial goals and needs, and compare loan options before deciding on the best borrowing solution.

If you’re interested in exploring personal loans, SoFi could help. SoFi’s unsecured personal loans offer competitive, fixed rates and a variety of terms. Checking your rate won’t affect your credit score, and it takes just one minute.

See if a personal loan from SoFi is right for you.

FAQ

Where can I get a CD loan?

CD loans are typically offered by banks and credit unions. It’s best to start by contacting your current financial institution to inquire about their CD loan options. They can provide you with specific details about their loan terms, interest rates, and application process. Typically, you need to take out a CD loan from the same institution that holds your CD.

What are CD loan interest rates?

CD loan interest rates vary depending on the lender, current market conditions, and your qualifications as a borrower. Rates tend to be lower than those of unsecured personal loans, since the loan is backed by the funds in the CD.

Some banks and credit unions will set the minimum annual percentage rate (APR) on their CD loans at 2% over the CD rate. So if your CD pays 3%, your CD loan rate would start at 5%. Your actual rate would depend on your credit and the term of the loan, among other factors.

Do you get money back from a CD loan?

When you take out a CD loan, you do receive money from the lender. However, it’s important to note that the funds received are borrowed money that you are obligated to repay, typically with interest. The funds from the loan are separate from the funds you have deposited in a certificate of deposit. The CD itself remains intact and continues to earn interest, but it is held as collateral until the loan is repaid. Once the loan is fully repaid, you regain full access to your CD and any interest it has earned during the loan term.

About the author

Rebecca Lake

Rebecca Lake

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


Photo credit: iStock/PeopleImages

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Checking Your Rates: To check the rates and terms you may qualify for, SoFi conducts a soft credit pull that will not affect your credit score. However, if you choose a product and continue your application, we will request your full credit report from one or more consumer reporting agencies, which is considered a hard credit pull and may affect your credit.

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