SoFi

Maintaining cash flow and covering essential expenses can be a challenge for small business owners. When faced with limited options and a pressing need for quick funding, a merchant cash advance (MCA) can be helpful.

Read on to learn what a merchant cash advance is, its advantages and disadvantages, when businesses use them, and how to apply for one. We’ll also explore some alternative loan options if you decide an MCA isn’t right for your business.

What Is a Merchant Cash Advance?

A merchant cash advance is a small business funding option that allows you to receive money in exchange for future sales. MCAs are technically not loans since they offer cash upfront in return for a portion of a business’s future sales. For this reason, they do not have to follow small business lending laws.

Since they aren’t loans, MCAs don’t require collateral, and merchant cash advance companies typically won’t look at your credit scores to determine approval. However, there is little government regulation on MCAs, which can lead to some merchant lenders engaging in practices that are costly to your business.

Merchant Cash Advance Example

Merchant cash advances charge a factor rate instead of a traditional interest rate. A factor rate is a decimal multiplier used to calculate the total amount you’ll repay on a loan or, in this case, an advance. Most factor rates range from 1.1 to 1.5 depending on the lender and your specific business.

Let’s say you want a merchant cash advance for $75,000. Assuming a factor rate of 1.3, you’d pay a total of $97,500 over time to get that $75,000 now ($75,000 x 1.3 = $97,500). This does not include any additional fees the lender may charge.

To pay the MCA back, a portion of your daily or weekly credit card sales will be automatically withdrawn from your account. The lower your credit and debit sales are, the longer it will take you to pay back the MCA. However, the longer it takes, the lower your overall annual percentage rate (APR) will be. Keep in mind that MCAs are one of the most expensive forms of borrowing for small businesses.

How Does a Merchant Cash Advance Work?

A merchant cash advance is not a loan but a financing option that allows small businesses (“merchants”) to get a cash advance for business expenses in return for a portion of their future sales or receivables. Unlike traditional loans, an MCA involves purchasing future sales at a discount. Typically, the process looks like this:

1.   Apply for the MCA: The merchant applies for a cash advance, providing necessary business and financial information. The merchant and MCA provider agree on the terms, including the percentage of future sales or fixed payments.

2.   Application approved: The MCA provider reviews the application and approves the advance based on business performance and future sales projections.

3.   Funds received: Once approved, the merchant receives the cash advance, usually within a few days.

4.   Repayment: There are two repayment options. A percentage of daily debit and credit card sales is automatically deducted until the advance is repaid or fixed amounts are withdrawn directly from the merchant’s bank account on a predetermined schedule. The advance is fully repaid once the agreed-upon amount, plus any fees, has been collected.

This structured process ensures that small businesses can quickly obtain the funds they need while clearly understanding their repayment obligations.

Factor Rate Used for Merchant Cash Advances

So, what goes into the factor rate merchant cash advances use?

As noted earlier, a factor rate is a decimal figure that reflects the total amount to be repaid on the merchant cash advance. They often range from a rate of 1.1 to 1.5, depending on the terms of the advance.

Similar to how traditional lenders calculate interest, merchant cash advance companies calculate factor rates by assessing the potential risk of providing funds to your business. Items that may affect the factor rate you receive include:

•  The type of industry your business operates in

•  Your business’s financial history

•  Credit and debit card sales

•  Your number of years in business

To calculate how much you could owe on an MCA, you’d typically multiply the entire amount of the merchant cash advance by the factor rate. For example, if you’re getting a cash advance of $5,000 and your factor rate is 1.3, then the total amount you’ll owe is $6,500. Here’s the calculation:

$5,000 × 1.3 = $6,500

The factor rate does not include any additional fees that may be associated with the cash advance, so check with your merchant cash advance company to make sure you’re aware of any additional costs. This step is important, as some merchant cash advances have been known to have APRs in the triple digits.

Other Fees in Merchant Cash Advances

It’s important to be aware of the various fees that MCA lenders may charge in addition to the cost of the merchant cash advance itself. These fees can significantly impact the overall cost of the financing. They include:

•  Origination fees: MCA providers charge origination fees for processing the application and setting up the advance. This fee is typically a percentage of the total advance amount and can range from 1% to 5%. It’s a one-time fee deducted from the advance before the funds are sent to you.

•  Underwriting fees: Underwriting fees cover the cost of evaluating the risk associated with providing the advance. This process involves assessing your creditworthiness, sales volume, and business health. The fee compensates the MCA provider for the time and resources spent on this evaluation. Like origination fees, underwriting fees are often a percentage of the advance amount but may also be a flat fee, depending on the provider.

•  Administrative fees: Administrative fees cover the ongoing management of the advance. These fees can cover a range of administrative tasks, such as account maintenance, payment processing, and customer support. While some providers include these costs in the factor rate (the fee structure used to determine the total repayment amount), others may charge them separately. Administrative fees can vary widely and may be a monthly fee or a percentage of the advance.

•  Other potential fees: Merchants might also encounter electronic fund transfer fees, early repayment fees, and fees for insufficient funds if scheduled payments cannot be processed. These additional costs can add up, so review the terms and conditions of the MCA agreement carefully.

Merchant Cash Advance Repayment

Merchant cash advance repayment terms are distinct from traditional loans. Instead of fixed monthly payments, repayment is typically tied directly to sales, providing flexibility and scalability with your business’s cash flow.

Credit Card Sales

This repayment method involves the provider taking a fixed percentage of your daily credit and debit card sales. This percentage, known as the holdback rate, usually ranges between 5% and 20%. Because repayments are based on sales, the amount paid each day fluctuates with your business’s revenue.

For example, suppose your business receives an MCA of $50,000 with a holdback rate of 10%. On a day the business makes $1,000 in credit card sales, $100 (10% of $1,000) would go toward repaying the advance. If sales drop to $500 the next day, only $50 would be deducted. This structure provides a cushion during slower periods, as payments reduce in line with decreased sales.

Fixed Withdrawals

Some MCAs use fixed daily or weekly withdrawals from your bank account. This method provides predictability in repayment amounts but lacks the flexibility tied to sales volume. The fixed amount is determined based on the advance size, the factor rate (the fee structure used to calculate the total repayment amount), and the anticipated repayment term.

For example, say you take out a $30,000 MCA with a total repayment amount of $39,000 over 12 months. If the provider opts for daily fixed withdrawals, the repayment might be calculated as follows: $39,000 divided by 260 business days (assuming a five-day workweek), resulting in a daily repayment of approximately $150.

Alternatively, for weekly repayments, $39,000 divided by 52 weeks equals about $750 per week. While this method provides consistency, it can strain cash flow during slower periods.

What If You Default on an MCA?

Defaulting on a merchant cash advance happens when you can no longer make your daily or weekly payments. If this happens, the MCA lender can file a lawsuit against you, possibly freeze your personal and/or business bank accounts, or even contact your vendors to try and collect payments directly.

If you think you may struggle with making your MCA payments, it’s best to stay one step ahead and apply for a small business loan to pay off the MCA. You can also contact the MCA lender directly to see if you can negotiate new terms.

Small Business Loan vs. Merchant Cash Advance

Merchant cash advance is the most common term used for such financing, but you may also see MCAs referred to as credit card processing loans, business cash advance loans, merchant loans, or merchant advance loans. Just remember, these aren’t loans. That means they come with little federal oversight and require you, the borrower, to do your due diligence when researching your options.

Traditional small business loans are different from MCAs because they provide merchants with a sum of money, typically for a specific purpose, which is then repaid in regular installments. Small business loans tend to have longer repayment terms and stricter approval requirements than MCAs. Whereas a traditional lender like a bank or online loan provider may look at your credit scores and require collateral, merchant cash advance companies usually do not.

Small business loans come with fixed or variable interest rates, which are applied to the principal balance. Interest rates on small business loans can vary depending on the loan type and borrower but may be lower than the factor rates you’d encounter on a merchant cash advance.

While there may be fees associated with a small business loan, APRs are typically lower than those of MCAs. This means that small business loans tend to be more affordable than merchant cash advances. Examples of lending options that could be workable alternatives to MCAs include:

•  Equipment financing

•  Invoice factoring

•  SBA loans

•  Small business loans

•  Working capital loans

•  Online business loans

4 Common Uses for a Merchant Cash Advance

One of the most common reasons a small business owner would choose a merchant cash advance is to access quick funding for short-term business expenses.

Businesses of any size can use merchant cash advances, but they are particularly helpful for startups with little to no business history, businesses with low or no credit that don’t want to apply for a bad credit business loan, small business owners without collateral, and businesses unable to qualify for loans from traditional lenders.

Here are some of the most common reasons businesses use MCAs.

1. Fill Cash Flow Gaps

If a small business has fluctuating cash flow that prevents it from making bill payments or payroll, a merchant cash advance can act as supplementary funding until cash flow returns.

2. Emergency/Unexpected Expenses

If short-term business loans are not accessible to cover unexpected expenses, small business owners can opt for merchant cash advances that could get them cash within a couple of days.

3. Inventory

Small businesses with consistent credit and debit card sales can use MCAs to purchase inventory and then repay the advance with a percentage of the revenue from inventory sales.

4. Seasonal Fluctuations

Some businesses experience significant revenue variation depending on the season. To ensure there’s always cash on hand, small business owners can get a merchant cash advance to cover expected losses during slow times.

Benefits and Risks of Merchant Cash Advances

Like any source of business financing, a merchant cash advance has advantages and disadvantages. Generally, MCAs are a last resort due to their high cost, but there could be times when it’s the right choice for your business. Let’s look at some of the pros and cons so you can make the best decision for your business.

Pros of Using MCAs

•  Quick funding: Unlike a traditional loan, MCAs often provide you with funds in a matter of days.

•  Minimal paperwork: Merchant lenders offering cash advances typically require a simple application and only need to see basic financial information about your business, like a record of recent credit card transactions.

•  Unsecured: Business owners do not need to offer collateral to obtain a merchant cash advance.

•  Payments may change with sales: If the merchant cash advance is based on a percentage of sales, the repayment amount might adjust depending on the success of your business.

•  Don’t need perfect credit: If you have low credit scores, haven’t established business credit, or are struggling to get a short- or long-term business loan, a merchant cash advance can help supplement, as it is one of the few no-credit check business funding options.

Cons of Using MCAs

•  Expensive: Factor rates are typically 1.1 to 1.5, depending on the terms and conditions of the MCA. When you consider additional fees and APRs possibly in the triple digits, a merchant cash advance can be significantly more costly than a traditional loan.

•  No advantage to early repayment: With a merchant cash advance, you typically pay a set amount regardless of how much of the balance you’ve paid off. Merchant cash advances do not amortize like a loan, in which case you could pay less interest when you pay off the balance early.

•  Lack of government oversight: Because MCAs are considered commercial transactions, merchant cash advance companies can offer cash advances to those who otherwise may not qualify for a small business loan. However, the lack of specific government regulation can also lead to questionable financing practices and less protection for your business.

•  Don’t promote good credit: Merchant cash advance companies are not required to report to credit agencies. If you’re trying to build good business credit, using an MCA is unlikely to help the same way a loan would.

•  Hard to get out of debt: If you struggle to get loans, relying on high-APR merchant cash advances has the potential to keep you in a debt cycle that can be hard to get out of.

•  Cash flow restriction: While using an MCA can help secure funding in the short term, it could hurt cash flow in the long term. If you agree to give your merchant lender a high percentage of your daily credit/debit card transactions, for example, cash flow may run leaner during the MCA repayment period, especially if your sales are high.

Applying for a Merchant Cash Advance

Merchant cash advance companies make it fairly simple to apply for financing. The process typically involves the following steps:

•  Fill out an application: A merchant lender may ask for basic identification like your Social Security number, business tax ID (EIN), and contact information.

•  Collect and provide necessary documentation: This can vary depending on the MCA company, but you may need records of credit card transactions, business banking statements, lease agreements, gross revenue, and tax returns.

•  Approval: A decision can take as little as 24 hours or a few days, depending on the company.

•  Set up credit card processing: Your business may be required to set up credit card processing with a specific partner of the MCA provider.

After you’ve been through the application and approval process, you’ll have funds deposited into your small business account. Payments are typically deducted automatically from this account until the entire merchant cash advance is paid off.

Alternatives to Merchant Cash Advances

Because of their lack of regulation and incredibly high APRs, merchant cash advances are usually considered a last resort. Before taking on an MCA, consider these small business lending options:

Invoice Factoring

Invoice factoring uses unpaid invoices as collateral in exchange for a cash advance from a lender. This is different from an MCA, which is based on projected sales. Invoice factoring also typically has a lower APR than MCAs, generally falling between 15% to 35%.

Inventory Financing

Inventory financing is an asset-based loan provided to pay for products that will be sold at some time in the future. The inventory acts as collateral for the loan.

Equipment Financing

Equipment financing is a secured loan to purchase machinery, vehicles, or other business-related equipment.

Recommended: Leasing vs. Purchasing Equipment for Businesses

SBA Loans

SBA loans are backed by the U.S. Small Business Administration (SBA) and offered by banks and other approved lenders. They typically come with competitive rates and terms, but the approval process is lengthier than it is for other small business financing options.

Personal Loans

Personal loans are typically unsecured and based on your personal credit history (not business credit) and income. Personal loans can be used for almost any purpose, including business expenses.

Commercial Real Estate Loans

Commercial real estate loans provide funds to purchase business-related real estate, such as an office space or retail shop.

Business Credit Cards

Like a business line of credit, business credit cards can be used for short-term business needs. Business credit cards use a revolving line of credit, with interest charged only on unpaid balances from previous billing cycles.

Online Small Business Loans

Some online business lenders offer similar loan options as a traditional bank. They typically have a faster approval process and may offer more options (albeit usually at higher interest rates) for people with lower credit scores.

Business Lines of Credit

Business lines of credit are a flexible, revolving form of financing that allows you to use the funds as you need them, pay them back, and use them again. Interest is only charged on the amount you borrow.

Compare Small Business Loan Rates

If you’re considering a small business loan, consider SoFi. With SoFi’s Small Business Loans Marketplace, you can receive a small business loan offer from a top lender with just a single application and no obligation to you. Take the first step toward securing your business’s financial future today with SoFi.

If you’re seeking financing for your business, SoFi can help. On SoFi’s marketplace, you can shop top providers today to access the capital you need. Find a personalized business financing option today in minutes.

FAQ

What is a merchant cash advance?

A merchant cash advance (MCA) provides a lump sum to a business in exchange for a percentage of future sales or fixed daily or weekly withdrawals.

How much is a merchant cash advance fee?

MCA fees, typically represented by a factor rate, can range from 1.1 to 1.5 times the advance amount, depending on the provider and risk assessment.

What is the difference between an MCA and a loan?

An MCA is repaid through a percentage of daily sales or fixed payments, offering flexibility, whereas a loan requires fixed monthly payments with interest, regardless of business revenue fluctuations.

Photo credit: iStock/mapodile

SoFi's marketplace is owned and operated by SoFi Lending Corp. See SoFi Lending Corp. licensing information below. Advertising Disclosures: SoFi receives compensation in the event you obtain a loan through SoFi’s marketplace. This affects whether a product or service is featured on this site and could affect the order of presentation. SoFi does not include all products and services in the market. All rates, terms, and conditions vary by provider.

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

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

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

SOSMB-Q324-022

In most cases, opening a checking or savings account is not reported to the major credit reporting bureaus and will not have an impact on your credit score. The same holds true for normal bank transactions and account balances.

That said, there may be some cases when a bank will perform what is known as a “hard pull” when you open an account, requesting access to your credit file. This can temporarily lower your credit score. Here, take a closer look at how your banking activity can impact your credit and the best way to keep your score as high as possible.

Consider Your Options Before Choosing a Bank to Avoid a Hard Pull Penalty

Banks and other lenders usually make a hard pull, or hard inquiry, when you apply for credit. This action will lower your credit score slightly (say, by perhaps five points) and temporarily. While the hard pull will stay on your credit report for two years, its impact on your credit should only last for a few months.

While your credit score is updated regularly, here’s why you should be concerned about too many of these in-depth credit checks. Several hard pulls on your credit report at the same time can make it look like you’re taking on too much credit and therefore might have a hard time paying your debts back.

When you open a bank account in person or online, the good news is that most banks will perform what is known as a soft pull. This sort of informal credit check when you apply to open checking at a bank has no impact on your credit score. (As mentioned above, in some rare cases, a bank will also make a hard pull when you open checking and/or savings. For example, some overdraft protection programs are considered a line of credit, so a bank may make a hard pull before approving you.)

If you’re worried about how a hard pull might affect your credit score, especially if you’re actively seeking credit, ask a bank whether they use them and under what circumstances. If they do plan on doing a hard inquiry, it may be worth considering banks that avoid this option.

How to Protect Your Credit Score

While opening a bank account likely won’t have an affect on your credit, there are certain other bank-related transactions that may lower your score, such as failing to pay your bank back when you use overdraft.

Your credit score is used by banks and other lenders to determine how risky it is to extend credit to you. The lower your score, the more risk you represent to them, and they’ll offset this risk by offering you higher interest rates. If you have bad credit, lenders may not extend credit at all. If you’re applying for a home, car, or personal loan, this can obviously have major ramifications!

So, as you’re establishing credit, it’s critical that you protect your credit score. The goal is to have access to cheaper credit when you need it. That means if you are not sure whether a hard inquiry will be performed, ask before approving a credit check. You don’t want those hard pulls to pile up. 

Also, you may receive many different kinds of credit card offers. Don’t assume more is better, as each one you apply for will likely trigger a hard pull, which in turn can raise red flags regarding your creditworthiness in the future.

Here are some other moves that can help keep your credit score in good shape.

Avoid Overdrafts

When you dip into the overdraft zone, you’ve spent more than you have in your checking account. If you have overdraft protection, your bank will step in and cover the shortfall. They will usually charge overdraft protection fees, and you’ll have to repay the money using a credit card or money from a savings account.

Overdrafts themselves do not affect your credit score if you promptly pay back the overdraft fees and what you owe. However, failing to do so will have an adverse effect on your credit. If, for instance, you are unable to pay off your credit card or the overdraft is sent to collections, your score is likely to tumble.

Avoid overdrafts whenever possible by keeping a close eye on how much money you have in your checking account and never spending beyond that amount. If you’re someone who frequently overdrafts, you may consider dropping overdraft protection. This means your debit card transaction will be declined when you try to make a purchase with money you don’t have. It may be momentarily embarrassing or inconvenient, but it will help protect your credit.

Pay Back Your Debts on Time

Punctuality counts. Your payment history plays a big role in determining your credit score. It may take into account credit cards, auto loans, student loans, home loans, and other forms of credit. It will show details on late or missed payments, including how much you owed, how delayed a payment was, and how often you’ve missed payments. Late and missed payments will detract from your score and can even stay on your credit report for up to seven years. So it’s important to pay on time.

Don’t Co-sign

Say a friend or family member is having troubling securing credit for themselves due to their bad score. They may ask you to co-sign a loan, using your good credit to help bolster theirs. Your heart may be in the right place and you may want to help, but proceed with extreme caution.

When you co-sign, you are also taking on responsibility for paying off that debt. That means if the friend or family member fails to make a payment, you’re on the hook for it. What’s more, their missed payments may have a negative impact on your credit score. For this reason, when you are in “protect my credit score” mode, it’s probably prudent to avoid co-signing.

File for Unemployment

If you lose your job and a steady stream of income, you may find it more difficult to pay your bills on time or you may take on more debt. Each of these scenarios can hurt your credit score.

Filing for unemployment can help you replace some of that income stream and prevent you from falling behind. What’s more, there is no public record that keeps track of who is receiving unemployment, and receiving benefits does not affect your score.

Seek Credit Counseling

Sometimes, despite one’s best efforts, debt gets out of hand or a credit score can spiral downward. If you are feeling overwhelmed and not sure of how to improve the situation, get help. Credit counselors are professionals trained to help you with money issues, including setting up a debt management plan as well as preparing and sticking to a budget.

You can find a counselor through nonprofit services, such as the National Foundation for Credit Counseling . With this kind of organization, there is usually no fee for your first counseling session, though there may be fees for subsequent services, such as crafting a debt management plan. These costs should be modest at most.

Be a Prudent Spender

The world has a lot of temptation out there in the form of tricked-out cars and mobile phones, great restaurants and vacation destinations, new clothes and more. But running up credit card charges you can’t pay off on time or taking out too steep loans can damage your credit and leave you deep in debt. Making a budget and spending within your means can help you avoid this kind of debt.

A budget can help you determine how much you can comfortably spend each month. To build a budget, you’ll need to establish budget categories. First tally your necessary expenses, including rent, mortgage payments, utility bills, groceries, insurance and debt payments. Subtract this from your monthly income. The money you have left can be put toward discretionary expenses such as eating out and entertainment, as well as paying down debt and saving. Be especially wary of spending beyond that discretionary limit. That’s where debt loves to live.

Monitor Your Score

You may wonder if checking your own credit score can lower it. The answer is no, and in fact, you should check. You can ask for a free credit report from each of the major credit reporting bureaus — Experian®, Equifax®, and TransUnion® — once per year. Each bureau will display slightly different credit scores. Take a look at each report and make sure it’s correct. If you find any mistakes, let the bureau know immediately.

Do Cash Management Accounts Do Hard Credit Checks?

Cash management accounts are alternatives to traditional bank accounts that are offered by online banks or robo-advisors. As with traditional bank accounts, cash management accounts typically will not perform a hard credit pull when you open an account. It is therefore unlikely to lower your score.

The Takeaway

For the most part, opening a checking, savings, or cash management account will not hurt your credit score. Banks, credit unions, and other providers typically do what is known as a soft pull, not a hard pull, when considering your application. This process should not lower your credit rating nor linger on your report. That said, there may be some activity related to your accounts that can cause your score to drift downward, such as unpaid overdrafts. Do what you can to avoid these, and protect your credit score. 

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.

FAQ

What are the 5 C’s of credit?

They are 1) character (overall, are you trustworthy?), 2) capacity (will you be able to maintain your end of a financial arrangement?), 3) capital (do you have sufficient funds to enter this arrangement?), 4) conditions (looking at the big picture, are economic forces favorable to your entering this arrangement), and 5) collateral (if you’re taking out a loan, do you have something of value to offer as security?).

What is a hard inquiry?

A hard inquiry, also known as a hard pull, occurs when you apply for credit and your lender has requested to look at your credit file. A hard pull will temporarily lower your credit score, typically by five points or less.

Does it hurt your credit to open a checking account?

Generally speaking, opening a checking account does not trigger a hard pull and does not hurt your credit score.

Is there a downside to opening a checking account?

When opening a checking account, it is important to be aware of any fees you may be required to pay or account minimums you’ll need to maintain.

Does opening a savings account require a credit check?

While most banks, credit unions, and other financial institutions do check your credit when you submit an application to open an account, these are most often soft inquiries that don’t impact your credit score.

Does opening a savings account impact your credit score?

As with checking accounts, opening a savings account does not typically trigger a hard pull that would affect your credit score.

Is it bad to open a savings account?

It’s usually a good idea to open a savings account. It establishes a foothold for future savings, and you can open an account with just a little bit of cash – in some cases, you can even start an account without depositing anything.

Photo credit: iStock/svetikd

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

SoFi members with direct deposit activity can earn 4.30% annual percentage yield (APY) on savings balances (including Vaults) and 0.50% APY on checking balances. Direct Deposit means a recurring deposit of regular income to an account holder’s SoFi Checking or Savings account, including payroll, pension, or government benefit payments (e.g., Social Security), made by the account holder’s employer, payroll or benefits provider or government agency (“Direct Deposit”) via the Automated Clearing House (“ACH”) Network during a 30-day Evaluation Period (as defined below). Deposits that are not from an employer or government agency, including but not limited to check deposits, peer-to-peer transfers (e.g., transfers from PayPal, Venmo, etc.), merchant transactions (e.g., transactions from PayPal, Stripe, Square, etc.), and bank ACH funds transfers and wire transfers from external accounts, or are non-recurring in nature (e.g., IRS tax refunds), do not constitute Direct Deposit activity. There is no minimum Direct Deposit amount required to qualify for the stated interest rate. SoFi members with direct deposit are eligible for other SoFi Plus benefits.

As an alternative to direct deposit, SoFi members with Qualifying Deposits can earn 4.30% APY on savings balances (including Vaults) and 0.50% APY on checking balances. Qualifying Deposits means one or more deposits that, in the aggregate, are equal to or greater than $5,000 to an account holder’s SoFi Checking and Savings account (“Qualifying Deposits”) during a 30-day Evaluation Period (as defined below). Qualifying Deposits only include those deposits from the following eligible sources: (i) ACH transfers, (ii) inbound wire transfers, (iii) peer-to-peer transfers (i.e., external transfers from PayPal, Venmo, etc. and internal peer-to-peer transfers from a SoFi account belonging to another account holder), (iv) check deposits, (v) instant funding to your SoFi Bank Debit Card, (vi) push payments to your SoFi Bank Debit Card, and (vii) cash deposits. Qualifying Deposits do not include: (i) transfers between an account holder’s Checking account, Savings account, and/or Vaults; (ii) interest payments; (iii) bonuses issued by SoFi Bank or its affiliates; or (iv) credits, reversals, and refunds from SoFi Bank, N.A. (“SoFi Bank”) or from a merchant. SoFi members with Qualifying Deposits are not eligible for other SoFi Plus benefits.

SoFi Bank shall, in its sole discretion, assess each account holder’s Direct Deposit activity and Qualifying Deposits throughout each 30-Day Evaluation Period to determine the applicability of rates and may request additional documentation for verification of eligibility. The 30-Day Evaluation Period refers to the “Start Date” and “End Date” set forth on the APY Details page of your account, which comprises a period of 30 calendar days (the “30-Day Evaluation Period”). You can access the APY Details page at any time by logging into your SoFi account on the SoFi mobile app or SoFi website and selecting either (i) Banking > Savings > Current APY or (ii) Banking > Checking > Current APY. Upon receiving a Direct Deposit or $5,000 in Qualifying Deposits to your account, you will begin earning 4.30% APY on savings balances (including Vaults) and 0.50% on checking balances on or before the following calendar day. You will continue to earn these APYs for (i) the remainder of the current 30-Day Evaluation Period and through the end of the subsequent 30-Day Evaluation Period and (ii) any following 30-day Evaluation Periods during which SoFi Bank determines you to have Direct Deposit activity or $5,000 in Qualifying Deposits without interruption.

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

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

Interest rates are variable and subject to change at any time. These rates are current as of 10/8/2024. There is no minimum balance requirement. Additional information can be found at https://www.sofi.com/legal/banking-rate-sheet.

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

*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.

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.