SoFi

A health savings account (HSA) and a health reimbursement account (HRA) both help set aside money for medical expenses not covered by a health insurance plan. But there is a major difference between the two types of accounts: Funds in an HRA are contributed to and distributed by an employer. An HSA, however, is controlled entirely by you, the participant.

Since many people are looking for ways to reduce their healthcare spending, it can be wise to get better acquainted with HSAs and HRAs. Then, provided you are eligible, you can decide which is the best option for you and your family (there’s a chance you might have both kinds of accounts).

To help you with this process, read on to learn:

•   What is an HSA vs. HRA?

•   What are the pros and cons of an HSA?

•   What are the pros and cons of an HRA?

•   How to know which plan is right for you.

•   Alternatives to HSAs and HRAs.

What Is a Health Savings Account?

To compare the differences between an HRA vs. an HSA, it’s helpful to first define what each one is.

A health savings account (HSA) permits employees and freelancers to put away tax-free funds to be used for future medical purposes. There is one major qualification for an HSA: You must be enrolled in a high-deductible health plan (HDHP).

How do you know if you have this kind of plan? Here are the guidelines for 2022: The plan must have a deductible of at least $1,400 for an individual or $2,800 for a family. In addition, the plan’s total yearly out-of-pocket expenses can’t exceed $7,050 for an individual or $14,100 for a family.

HDHPs usually offer lower monthly premiums, but you can get hit with major costs as you work your way towards reaching those high deductibles. That’s where a health savings account can help save the day. An HSA can bridge the gap between your high deductible and out-of-pocket payments.

Also, the money in the HSA isn’t a “use it or lose it” proposition. The cash is yours, and you can even access unused HSA funds as a way to boost your retirement savings. Another plus: If you leave your job, the HSA can travel with you.

A Health Savings Account operates much like a checking account, abiding by its own HSA rules and limits. At any time, an individual may make contributions, allocate HSA funds to pay for qualified medical costs not covered by an HDHP, pay bills online, and make monetary transfers.

Direct deposits can be made straight from payroll into your HSA, and employers can also contribute. Health Savings Account contributions rollover every year, so there’s no rush to spend those pre-tax funds in your account.

What Is a Health Reimbursement Account?

A health reimbursement account (HRA), on the other hand, is an employer-owned account. It’s a job perk that the employer funds and offers to workers, with the HRA money earmarked for qualifying employee medical expenses. The details, including how much is in the HRA, are determined by the employer.

With an HRA, the employer makes the contributions and oversees reimbursement distributions. Unused amounts rollover into the following year, but since your workplace makes the contributions, they keep any accumulated funds if you leave your job, retire, or are let go. Put another way, you can’t take any HRA money with you.

Differences Between an HSA and HRA

Because their names are similar and they both help manage healthcare expenses, HSAs and HRAs can easily be confused. Here are the primary differences between an HRA vs. HSA account:

Health Savings Account (HSA)	Health Reimbursement Account (HRA)
HSAs are created, managed, and owned by an individual (an employee or self-employed worker)	HRAs are established, funded, and owned by an employer
Contributions are yours to keep. They can be used as you move from job to job and after you retire	Funds can only be used while a person is employed at the company that owns the plan
HSAs can be opened by an individual as long as they are enrolled in a HDHP	HRAs can only be opened through an employer. The health plan offered by the employer does not have to be an HDHP
Contributions are tax-free, can grow, and earn interest	Tax benefits are only for the employer
Funds roll over year to year	Employers may roll over unused funds to use in the future
Contribution limits and qualifying medical expenses are determined by the IRS	Rules around contribution limits and qualifying medical expenses may be set by the employer
HSA contributions can be invested into mutual funds	Money in an HRA cannot be put toward an employee’s personal investments

Advantages of an HSA

There are many benefits of using an HSA, including:

•   Covering out-of-pocket medical costs, including copays, dental expenses, orthodontia, hearing aids, and eyeglasses. The IRS has an extensive list of how you can use your tax-free dollars.

•   Lower premiums. To qualify for an HSA, you must be enrolled in a high deductible health plan, which means your monthly payments are probably lower than other types of health insurance plans.

•   Lowering taxable income. HSA contributions go into your account before taxes are taken out. This can have the effect of lowering your taxable income, so you could owe less come tax time.

•   Covering family health expenses. HSAs can benefit anyone who is currently on your high-deductible savings plan, including a spouse or children.

•   Rollover contributions. Unused contributions rollover into the next year, accumulating tax-free interest.

•   Investments. You can choose to invest your HSA dollars in certain mutual funds once you reach a required minimum balance.

•   Retirement savings. After the age of 65, you may be able to take advantage of the rules of using HSAs for retirement. Specifically, unused funds can be withdrawn during retirement without penalty. The money doesn’t have to be spent on health expenses — it can be spent on anything!

•   Ownership of the account. The money in an HSA is yours; you don’t forfeit it if you change jobs or are let go.

Disadvantages of an HSA

There are some possible cons to having an HSA. These include:

•   Contribution limits. As of 2022, you can contribute a maximum of $3,650 for individuals and $7,300 per family to an HSA.

•   Monthly or annual fees. Some health savings accounts can charge a monthly service fee. These fees tend to be no more than $5 per month. If you choose to invest in mutual funds, there may be an annual account management fee.

•   Penalties for non-qualified expenses. Any funds used for unapproved healthcare purchases before the age of 65 can get hit by a hefty 20% fine by the IRS. Also, once spent on non-qualified expenses, the money will be considered taxable income.

•   Monetary losses. Any investments you make with HSA funds could cause your balance to fall if the market drops.

•   Unable to contribute. There may be times, due to unemployment or a change in life’s circumstances, when you might not be able to regularly contribute to your HSA. If you can’t add funds, then you might not have enough in your account to cover qualified expenses.

•   Keeping tabs for tax purposes. HSA contributions and expenditures must be reported on your tax return. Keeping track of the transactions can be a chore.

Advantages of an HRA

Despite having a lack of personal control over an employer-owned HRA account, there are some benefits:

•   No money out of your paycheck. Your employer pays for qualifying healthcare costs out of the HRA fund. Be sure to understand your company’s monetary limits and qualifying expenses to avoid any surprises or disappointment.

•   No HDHP requirement. Companies can offer both a low-deductible health plan and an HRA.

•   Companies of all sizes can participate. Small businesses that can’t offer group health plans can create HRAs (known as individual coverage HRAs) to reimburse employees who purchase individual health insurance and pay for other medical costs.

•   No contribution limits. There is no cap on how much money a business can contribute to an HRA.

•   Some HRAs may cover insurance premiums as well as out-of-pocket expenses. Be sure to understand the rules and limits of your employer’s HRA.

Disadvantages of an HRA

As you might expect, there are potential downsides to HRAs. Among these are:

•   You can’t take it with you. When you leave the job, HRA funds don’t come with you. Any unused funds stay with the company.

•   Inconsistent guidelines. HRAs are not standardized. A company can change the rules and what qualifies as a health expense as they see fit. HRA terms at one office can differ wildly from another’s. It can be important to spend time to make sure you understand common health insurance terms as well as your account guidelines.

•   Limited sign-up window. You may only be able to enroll in your company’s HRA during a specific window of open enrollment.

•   Lack of availability. Self-employed people cannot participate in an HRA; it’s strictly an employer-sponsored program offered to their staff.

Which One Is Right for You?

The terms HRA and HSA look and sound so similar, but these plans are very different. When deciding if an HRA vs. HSA is better, the choice may be made for you. Many companies only offer one or the other.

Then again, you might be able to have both, if your employer offers an HRA and you choose to open an HSA. Imagine that you have an HDHP and your employer offers an HRA, which you sign up for. You could therefore open an HSA as well. You might be in a situation in which your employer provides a limited purpose HRA; say, it only covers vision and dental expenses. You could then use your HSA for all your other health expenses or simply save the funds till retirement rolls around.

In the end, the key is to know which plan (or plans) you are eligible to access and then decide if it will help you better handle your healthcare costs.

Alternatives to HSAs and HRAs

HSAs and HRAs aren’t the only game in town when it comes to setting aside money to pay for healthcare expenses. A flexible spending account (FSA) is one that you can contribute pre-tax dollars to and use for certain qualifying expenses. Employers make these accounts available, and in some cases, they may contribute some funds to the account.

These accounts come in a few varieties:

•   Health care FSAs: The money in these funds can be used for eligible medical expenses that aren’t covered by your health plan

•   Dependent care FSAs: The cash in these accounts can be applied to eligible care-related expenses for dependents who are age 12 and under or are disabled and of any age.

•   Limited purpose FSAs: The money in these accounts can cover eligible vision and dental expenses for those enrolled in HDHP and who have an HSA.

Whether you qualify for and enroll in an HSA, HRA, and/or an FSA, these savings accounts can help make healthcare more affordable. These options can have a significant and lasting positive impact in today’s world of skyrocketing healthcare costs.

Banking with SoFi

Another positive financial step can lie in choosing the right banking partner. SoFi can be just that. We can help your money grow faster when you open an online bank account with direct deposit.

Our Checking and Savings offers a competitive APY with direct deposit and zero account fees. We make mobile banking easy, with no minimum balance requirement and no monthly maintenance fees, so your money can thrive and grow!

Make healthy choices for your money — start banking with SoFi today.

FAQ

Is it better to have an HRA or HSA?

Both types of accounts can be useful in helping to lower your healthcare costs. Not everyone has access to an HRA; these funds are created and offered by certain employers, who give employees healthcare funds as a benefit. HSAs, on the other hand, are only for those who have high deductible healthcare plans. If you have one of these HDHPs, an HSA can hold funds that belong to you. This money can be distributed for eligible expenses, invested, rolled over, and used in retirement.

What happens to my HRA if I leave my job?

An HRA is owned by your employer. If you are fired, quit, or retire, the funds in your HRA stay with your employer.

Is an HRA a high-deductible plan?

No. An HRA is a health reimbursement account, which some employers fund to help cover medical costs for their employees.

---

Photo credit: iStock/Nudphon Phuengsuwan

SoFi® Checking and Savings is offered through SoFi Bank, N.A. ©2023 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 4.60% annual percentage yield (APY) on savings balances (including Vaults) and 0.50% APY on checking balances. Direct Deposit means a deposit to an account holder’s SoFi Checking or Savings account, including payroll, pension, or government 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, do not constitute Direct Deposit activity. There is no minimum Direct Deposit amount required to qualify for the stated interest rate.

SoFi members with Qualifying Deposits can earn 4.60% 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 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 4.60% 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 10/24/2023. There is no minimum balance requirement. Additional information can be found at https://www.sofi.com/legal/banking-rate-sheet.

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

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

SOBK0522002

Read more

The 20’s can be a really busy, really exciting time, whether you’re finishing school, building a career, getting married, or starting a family. Sometimes all of that and more happens during a single decade. The “more” can be things like traveling, hanging out with friends, and discovering your passions in life, whether that’s protecting the environment or playing acoustic guitar.

Point being—it can be hard to prioritize financial planning when you have that much on your plate. But it’s important not to miss out on this important decade when major financial progress can be made.

Keep reading for more insight into why financial planning in your 20s matters and how to make the most of this time period. You’ll learn:

•   What things you should prepare for in your 20s

•   What steps to take for financial planning for 20-year-olds

•   What financial mistakes to avoid in your 20s.

Why Your 20s Are an Important Time to Start Being Financially Responsible

So, why is financial planning for 20-year-olds so important? Learning to adopt healthy financial habits when young can help create a strong foundation for your financial future. The sooner you master and deploy these habits, the better off you’ll be now and in the long term.

For instance, one important bit of advice for 20-year-olds is to nurture your credit score. Pay attention and help it grow stronger and higher. That can pay off down the road, because people with a solid credit history typically qualify for lower interest rates on loans. You’ll be grateful for this if you decide to take out a mortgage or car loan.

Also, getting a head start on when you start saving for retirement is very beneficial. You’ll have extra years for the interest to compound and your money to grow. Here’s an example for you:

•   Let’s say you start saving at age 25 and put away $10,000 a year for 15 years, and then stop saving. Let’s also say you earn a 6% return on your money. If that money just sits there, earning interest, you’ll have $1,058,912 at age 65.

•   Now let’s say you have a friend who starts saving $10,000 a year at age 35, does so for 30 years, and earns the same 6% return. Your pal will have $838,019 at age 65.

They saved twice as long as you did, but wound up with less money. That’s the beauty of compounding in action. And it can serve as an important incentive to start saving ASAP.

What Are Things That I Should Start Planning for Financially?

Some people get lucky and earn loads of money early in their careers, but for most of us, it takes time to reach financial goals. Your 20s can be a very busy time, and it’s easy to push saving for financial goals off until things feel more stable and you’re earning a higher income.

But if you can buckle down and focus on the money goals that matter now, your financial fitness can benefit greatly. You can develop a financial strategy for achieving the following:

•   Buying a home

•   Retirement

•   Child rearing expenses

•   A child’s college education

•   Emergency fund

•   Paying off student loan debt

•   Paying off credit card debt

These are all important components of good money management and building wealth. They’ll keep you financially stable in your 20s and beyond.

Financial Steps to Take in Your 20s

There’s a lot of financial advice for 20-year-olds out there, but it’s wise to focus on the things you can do to set up a strong financial future.

Let’s take a closer look at how to manage money in your 20s.

Opening Your Own Bank Account

If you’re a 20-something who doesn’t already have a bank account, you’ll want to open one so you have a safe place to save your money while earning interest on savings. You’ll also want a checking account so you can direct-deposit your paychecks, easily pay bills electronically, and have a debit card for daily spending. Having a bank account makes it easier to stay organized and work towards financial goals clearly.

Budgeting Your Expenses

If you’re like many young adults, you may earn a limited income while building your career. Creating and sticking to a budget can be a very helpful move. Alongside budgeting for what are considered your living expenses, you can also add savings goals into your budget. Financial planning in your 20s can be hard to accomplish without a strong budget in place.

There are various ways to learn how to budget as a beginner, like the envelope system or the 50/30/20 rule. You can also find many apps that will help with this task. Checking your account balances is another good step, as it helps you stay in touch with your money and course-correct if you are out of sync with your budget.

Don’t Overspend While Having Fun

The reason it’s so important to add savings goals into a budget is so you can prioritize them over fun spending. Sure, it can be very tempting to spend any extra cash on things like travel, entertainment, and new clothes.

However, being a financially responsible adult involves slowly chipping away at savings goals like retirement or a downpayment for a home. It can be helpful to set aside 10% to 15% of your earnings each month for your savings goals. (Bonus tip: Stash some of that money in an emergency fund; it’s a wise move to have three to six months’ worth of basic living expenses set aside for a rainy day.) You can have that 10% to 15% amount automatically transferred from checking to savings on payday, for instance, so you aren’t tempted to overspend.

Avoiding Credit Card Debt

Credit card debt comes with pricey interest charges and fees which can make it hard to pay it down. As of this writing, the average credit card interest rate on new offers was just a tad under 19%. Think about it: Purchases cost a lot more than they seem to in the moment when you consider that interest getting tacked onto the purchase price. Plus, those high rates can mean that paying only the minimum amount due on your balance will take quite a while to pay off.

Whenever possible, it’s best to avoid taking on credit card debt. Otherwise, the interest charges will just mount. If you do have credit card debt, explore offers for balance transfer cards that give you no or super low interest rates for a period of time so you can hopefully get out of debt. Or consider a lower interest personal loan or talking to a debt counselor at a non-profit like NFCC (National Foundation for Credit Counseling).

Being Smart About Student Loans

If you’re out of school and are paying back student loans, that can certainly take a bite out of your disposable income. Whether you have a federal or private student loan, you can benefit by regularly making extra payments, if possible, so you can pay down your debt faster and spend less on interest.

Still in school? Carefully calculate how much you need to borrow so you don’t wind up taking on more debt than you truly need. The more you borrow, the more you need to pay back and the more interest you’ll owe. Major student loan payments can really make a dent in your budget when you are in your 20s. If the amount you owe seems overwhelming, you might look into options for switching repayment plans or consolidating your loans.

Earning Interest on Your Money

As noted briefly earlier, it’s possible to earn interest on savings by keeping them in a savings account. To earn even more, 20-somethings can turn to high-yield savings accounts which tend to earn more interest than traditional savings accounts do, which is of course a good thing. These accounts also keep your cash liquid, meaning your funds are very accessible.

Or, if you have additional funds available and are comfortable with taking on more risk, you can look into investing in your 20s.

You might also seek professional guidance on managing your money, though there’s likely a cost for working with a financial advisor.

Investing for Retirement Early

It takes decades to save for retirement, so the younger you can start saving, the more time your savings have to grow. Once you enter the working world, if your employer offers a 401(k) plan or a different retirement account type, you may want to go for it; you can really benefit from this kind of tax-advantaged saving. If your employer matches some of your contributions, that’s even better. It’s akin to free money that helps you grow your savings for the future.

Paying Your Bills off on Time

It may seem like a no-brainer that it’s important to pay bills on time. But doing so isn’t just about the joys of punctuality; it’s also a great way to improve your credit score. Paying bills on time is one of the largest components of your credit score, and a solid credit score can help you borrow money in the future (say, when you take out a mortgage) at the best possible rates.

Not sure where your credit score stands? You can pull a free copy of your credit report annually from each of the big three reporting agencies (Equifax, Experian, and TransUnion) to see how you’re doing and report any errors.

Building Your Credit

Speaking of credit scores, it takes time to build a credit history, and you need to take out credit to do so. A credit card is a great place to start. If you can apply for a credit card in your 20s and make payments on it month after month, this can help your credit score grow. Just be sure not to charge more than you can afford to pay off.

Another tip is to keep your credit utilization ratio low; under 30% is good, and under 10% is even better. Here’s an example of how this plays out: If your credit limit is $10,000, a wise move is to avoid carrying a balance of $3,000 (30%) or more on it. Ideally, you can keep that number at $1,000 (10%) or lower.

Open a Free Checking and Savings Account With SoFi

Now you know the basics for smart money management in your 20s. It’s a combination of getting financially savvy, starting to save, and avoiding pitfalls like too much debt. Taking proactive steps today will keep your money in good shape and prepare you to navigate and enjoy the years ahead.

One of the best places to start is simply opening a bank account online with a financial institution that’s all about helping you meet or exceed your goals. SoFi can partner with you to help your money grow faster. Open a Checking and Savings with direct deposit, and you can earn a competitive APY while not paying any account fees.

Better banking is here with SoFi, NerdWallet’s 2024 winner for Best Checking Account Overall. Enjoy up to 4.60% APY on SoFi Checking and Savings.

FAQ

Should a 20-year-old have a financial advisor?

While hiring a financial advisor isn’t necessary, some 20-year-olds may find it valuable. This is especially true if you’re earning a high income and aren’t sure how to best save and invest your money.

Where should I put money in my 20s?

Paying down high-interest credit card debt is a great place to allocate any extra money when you’re in your 20s. After you pay off your credit card debt, you may want to turn your focus to student loan debt. The less interest in your life, the better.

Where should I be financially at 25?

There’s no right answer to this question; each person moves at their own pace. That being said, a good goal at any age is to focus on paying down debt and saving for retirement.

---

Photo credit: iStock/Wiphop Sathawirawong

SoFi® Checking and Savings is offered through SoFi Bank, N.A. ©2023 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 4.60% annual percentage yield (APY) on savings balances (including Vaults) and 0.50% APY on checking balances. Direct Deposit means a deposit to an account holder’s SoFi Checking or Savings account, including payroll, pension, or government 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, do not constitute Direct Deposit activity. There is no minimum Direct Deposit amount required to qualify for the stated interest rate.

SoFi members with Qualifying Deposits can earn 4.60% 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 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 4.60% 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 10/24/2023. There is no minimum balance requirement. Additional information can be found at https://www.sofi.com/legal/banking-rate-sheet.

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

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

Disclaimer: Many factors affect your credit scores and the interest rates you may receive. SoFi is not a Credit Repair Organization as defined under federal or state law, including the Credit Repair Organizations Act. SoFi does not provide “credit repair” services or advice or assistance regarding “rebuilding” or “improving” your credit record, credit history, or credit rating. For details, see the FTC’s website .

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.

SOBK0622040

Read more

When trying to transfer payments to a bank overseas, not having a standardized process to identify bank accounts can easily turn into a quagmire. If you’re making a payment internationally, two major identifiers help standardize financial transfers made overseas — IBANs and SWIFT codes.

Let’s shine a light on what an international bank account number (IBAN), the difference between IBANs and SWIFT codes, and which countries use them:

What is an International Bank Account Number?

In a nutshell, IBAN’s meaning is International Bank Account Number, and it’s a one-of-a-kind identifier that banks use to refer to a specific bank account in any of 70+ countries around the world. In turn, banks use that info to swiftly send money between accounts in different countries.

While IBANs allow for sending and receiving funds, they aren’t used for withdrawing funds or for transferring ownership of accounts.

How Does an International Bank Account Number Work?

Now that you know what an IBAN is, let’s look at how this numbering system identifies bank accounts in other countries. If you want to send or receive payments internationally, the IBAN can help you identify a specific bank account and do so.

An IBAN is a standardized numbering system that includes up to 35 alphanumeric characters. While the length of an IBAN varies by country, the sequence remains the same: A two-digit country code, a two-digit check digit, followed by the remaining characters. This includes the bank code, branch code, and account number.

IBANs are very much a part of the daily financial flow today. You may not have had international transactions in mind when you took the time to open a bank account, but they are becoming quite common. Whether doing business with a vendor overseas or shopping online for items that wind up being stocked on another continent, financial transfers across country lines happen frequently.

IBAN vs. SWIFT Code

Both IBANs and SWIFT (aka Society of Worldwide Interbank Financial Telecommunications) codes are globally recognized and accepted banking transfer identifiers. They play a part in making sure a transfer goes through successfully, and they help keep international finance running smoothly.

They are not, however, the same set of digits. The main difference between an IBAN and a SWIFT code lies in what they identify. Whereas a SWIFT code identifies the financial institution, the IBAN points to a specific bank account. Both work in tandem to help a transaction proceed.

To provide a bit more detail, here are a few other key differences between IBANs and SWIFT codes:

•  While an IBAN works more to identify a bank, branch, and bank account numbers, SWIFT identifies a particular bank during a transaction.

•  SWIFT Codes are issued by the Society of Worldwide Interbank Financial Telecommunications, which is a member-owned cooperative. The SWIFT banking system is a messaging network that enables financial institutions around the world to talk to one another securely. IBANs, on the other hand, are issued directly by the financial institutions.

•  Whereas IBANs are alphanumeric codes that are up to 35 digits, SWIFT codes include alphanumeric code that’s either 8 or 11 characters.

Requirements for International Bank Account Numbers

IBANs contain a very specific sequence of characters to ensure that they encode the information needed to identify a bank account. They are up to 35 characters long, and include:

•  A country code (two digits)

•  Check digits (two digits); this validates the routing numbers and accounts. It is sometimes referred to as a control code.

•  A Basic Bank Account Number (BBAN); this is an alphanumeric sequence that’s up to 28 characters long and represents a country-specific bank account number (which could represent different types of bank accounts, such as checking or savings).

While the format is standardized around the globe, the length of the code varies depending on the country.

It’s worthwhile to note that when using an IBAN to send or receive payments, there might be a processing fee or commission on the transfer.

Do All Countries Use IBANs?

While more than 70 countries use IBANS, not every nation does. IBANs are generally used in the majority of banks in the Eurozone and other European countries. Parts of the Middle East, the Caribbean, and North Africa also use IBANs.

Some countries, such as Austria, Croatia, France, and the Netherlands make IBANs mandatory. Other countries don’t require the use of IBANs, but it is recommended. These include Albania, Brazil, Costa Rica, and the Virgin Islands.

Lastly, there are countries that don’t use IBANs. Australia, New Zealand, Canada, and the U.S. fall into this camp.

Why Were IBANs Created?

As you might imagine, the world of international bank transactions can be very complex. The IBAN system was developed to smooth the process and minimize errors. By having such specific information about a bank account compressed into 35 or fewer digits, there’s less opportunity for mistakes and delays to occur, and for the related fees to be charged.

What Does an IBAN Number Look Like?

An IBAN is up to 35 digits of alphanumeric code. The length of the code varies according to the country. Regardless, an IBAN always begins with a two-digit country code, and a two-digit check digit. The rest of the code will vary in length depending on the country.

Here are some examples of IBANs:

Albania: AL 35 202111090000000001234567
Denmark: DK 95 20000123456789
Spain: ES 7921000813610123456789

When Is an IBAN Number Required?

An IBAN number is required if you’re sending or receiving money from a country that participates in using IBANs. If you’re going to start the process of wiring money to a country with a financial system that uses IBANs, you’ll need the IBAN to wire funds.

How Can I Get an IBAN?

If IBANs are available in both the country you live in and in the recipient’s country, you can obtain an IBAN by reaching out to your bank or checking on your bank statement. The person you’d like to send or receive money from will also need to to get their IBAN by contacting their bank or looking at their bank statement.

In addition, the IBAN website also has a handy tool to calculate your IBAN code based on your country, bank code, and account number.

Alternatives to IBANs

As mentioned before, some countries don’t use IBANs. One alternative, as previously mentioned, are SWIFT codes or BICs (Bank Identifier Codes). These identify financial institutions, but they don’t point to specific bank accounts. So to send or receive money internationally, you’ll need additional information, such as an account number. For instance, financial institutions in the U.S. and Canada use a mix of routing and account numbers.

What’s the difference between a routing vs. an account number? A routing number identifies the financial institution, while the account number is linked to an individual account.

(One vocabulary note: When performing financial transactions, you may hear some people use the term ABA number. That’s the same thing as what most people call a routing number.)

Here’s one more example of an alternative to IBANs: New Zealand and Australia use SWIFT codes to send or receive payments, and Bank State Branch (BSB) codes for local money transfers.

The Takeaway

While the U.S. doesn’t use the IBAN (International Bank Account Number) system, when you are sending or receiving funds from overseas, you’ll need the other party’s IBAN. This number contains vital information that will help funds to safely and quickly get to the intended account in another country. IBANs play an important role in keeping international financial transactions flowing.

If you’re looking to open a bank account closer to home, however, see what the mobile banking app from SoFi offers. When you sign up for our Checking and Savings with direct deposit, you’ll earn a competitive APY, pay zero account fees, and have all the convenience that an online bank can deliver.

Better banking is here with SoFi, NerdWallet’s 2024 winner for Best Checking Account Overall. Enjoy up to 4.60% APY on SoFi Checking and Savings.

FAQ

How do I find my international bank account number?

If you live in a country with banks that use IBANs, you can typically find your IBAN on your bank statement. You can also contact your bank to locate your unique IBAN.

What is the difference between an IBAN and an account number?

An account number is specific to the individual and identifies their account, while an IBAN layers in more information. It’s an alphanumeric sequence that contains an account number, along with a bank code, bank branch code, and country code, and location code.

Which countries use an IBAN?

More than 70 countries globally use IBANs. The Eurozone and other European countries use them, as do some parts of the Caribbean, the Middle East, and North Africa and other areas.

---

Photo credit: iStock/tolgart

SoFi® Checking and Savings is offered through SoFi Bank, N.A. ©2023 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 4.60% annual percentage yield (APY) on savings balances (including Vaults) and 0.50% APY on checking balances. Direct Deposit means a deposit to an account holder’s SoFi Checking or Savings account, including payroll, pension, or government 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, do not constitute Direct Deposit activity. There is no minimum Direct Deposit amount required to qualify for the stated interest rate.

SoFi members with Qualifying Deposits can earn 4.60% 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 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 4.60% 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 10/24/2023. There is no minimum balance requirement. Additional information can be found at https://www.sofi.com/legal/banking-rate-sheet.

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

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

SOBK0322047

Read more

Who doesn’t want to retire early? If you have $1 million stashed away by age 55, you may feel like you have enough to leave the rat race and ride out your golden years. Unfortunately, it may not be enough.

It all depends on your lifestyle and location. For some professionals, asking if $1 million is enough to retire on may be downright naive. As people live longer and prices continue to rise, many of us can end up needing much more.

If sitting on a cool million at 55 makes you feel like you’re ahead of the game, it’s probably a good idea to slow your roll and take some key factors into consideration.

How Far $1 Million in Retirement Will Realistically Take You

One million dollars sounds like a lot of money: surely enough to last the rest of your life, right? But how far will $1 million really take you in retirement? There’s no single answer that applies to everyone. The nest egg that an individual will need hinges on the following variables:

•   Where you’ll live when you retire

•   The lifestyle you want to lead

•   Whether you have dependents

•   Healthcare costs

•   Other retirement income

•   Investment risk

•   Inflation

Considered another way, the answer comes down to your withdrawal rate — how much money you regularly withdraw from your accounts to live on — and how long you end up living. A conservative withdrawal rate, for example, is 3%. So, if you’re eating up 3% of your savings per year (with inflation on top of that), you’ll want to make sure you have enough to last for a few decades.

This is complicated stuff, and it may be best to consult a financial professional to help you plan it all out. At the very least, run some numbers yourself to figure out, “Am I on track for retirement?”

Recommended: Average Retirement Savings by State

Why You Need to Figure on Needing a Lot More if You Retire Early

Financial experts often say that you’ll need around 80% of your pre-retirement annual income for each year of retirement. That means that if your pre-retirement annual income is $80,000, you should plan on saving around $64,000 per year of retirement.

In that scenario, if you hope to retire at 55, you would need almost $2 million! That amount would last you for around 30 years, until you are 85. As you may have noticed, this is considerably more than $1 million.

Even then, you have to think about what happens if you live until you’re 95, or even 105. That’s 50 years of retirement — and $1 million is probably not going to last half a century. If you’re planning on retiring early, it seems, you will need a lot more than $1 million.

How Much You Should Ideally Save for Retirement

Again, the amount you should ideally save for retirement will depend on the kind of lifestyle you want to have during your retirement years. Because there are so many unknowns and variables to consider, many people simply aim to save as much as they can.

To get to a ballpark figure, though, ask yourself the following questions when crunching the numbers:

•   At what age would you like to retire?

•   What kind of lifestyle do you want to have?

•   Will you work part-time? If so, what kind of work will you do, and what is the average pay for that type of work?

•   Will you have passive income (such as rental income from a real estate property)?

•   What other sources of income will you have (Social Security, etc.)?

•   Where will you live when you retire, and what is the cost of living in that location?

•   How big of a safety net do you want for unforeseen circumstances?

Once you’ve thought about how you want to live your retirement, you can plan for that scenario. Create the budget you would like to have, then calculate the cost per year and the number of years you plan on being retired.

While we don’t know how long we will live, expecting a longer lifespan is a smart way to plan for retirement. You don’t want to outlive your savings and be too old to go back to work.

So, how much you should ideally save for retirement will vary in a big way from person to person. Perhaps the simplest answer is to save as much as you can.

Factors to Consider When Saving for Retirement

In addition to your cost of living after retirement, you should factor in inflation. Adjust your yearly cost of retirement with an inflation calculator to learn the change in value of your saved money over time. For perspective: Inflation, historically, has averaged just over 3%.

Happily, the stock market has grown faster than the inflation rate over time. So you can do some stock portfolio tracking to see whether your investments may help you stay ahead of inflation.

And another thing: Life expectancy is higher than it used to be. Americans are living, on average, until 80. With that in mind, plan for a longer lifespan. That way you won’t feel as though you’re running out of money later in retirement.

How to Determine the Right Amount to Retire For You

If you want to keep your current cost of living and lifestyle, take your current salary and multiply it by the number of years you are planning on living off your retirement and multiply it by around 80%. Then, adjust it for inflation using an online calculator. Finally, add a cash cushion for unforeseen events.

It’s a bit of math, but this should give you a ballpark idea of your needs. You can always use a retirement calculator, too, of which there are many.

The Takeaway

Long story short: It is possible to retire with $1 million at 55. However, $1 million is not going to be enough for most people. You’ll need to create a customized financial plan based on your lifestyle goals if you want to try, though — there is no magic formula or a one-size-fits-all plan to do it. So identify what matters to you and then plan your retirement based on your ideal type of retirement.

If you want some tools to help you get started, SoFi has them — including a debt payoff planner that can help you boost your savings and investing rates and knock out your debt. After all, you probably won’t want to carry debt in retirement, and the sooner you pay it off, the sooner you can save more!

SoFi — proof that some free things are worth a lot more than their cost.

FAQ

How much money do I need to retire at 55?

The amount of money you will need to retire at 55 will depend on the kind of lifestyle you want to lead during retirement. If you’re planning on living off of $60,000 per year, and are hoping to live for another 30 or so years, you will need almost $2 million.

Can you live on $1 million in retirement?

One million dollars is not going to be enough for most people in the U.S. to retire on. Whether $1 million is enough will largely depend on the kind of lifestyle you want. If you are planning on receiving a pension and/or Social Security, that will significantly help to stretch your savings.

Can I retire with $1 million in my 401(k)?

Depending on your lifestyle, $1 million in your 401(k) may not be enough. When combined with other savings and investments, it can be. But it’s probably best to consult with a financial planner who can help you determine how to best use your 401(k) savings.

---

Photo credit: iStock/LaylaBird

SoFi Relay offers users the ability to connect both SoFi accounts and external accounts using Plaid, Inc.’s service. When you use the service to connect an account, you authorize SoFi to obtain account information from any external accounts as set forth in SoFi’s Terms of Use. Based on your consent SoFi will also automatically provide some financial data received from the credit bureau for your visibility, without the need of you connecting additional accounts. SoFi assumes no responsibility for the timeliness, accuracy, deletion, non-delivery or failure to store any user data, loss of user data, communications, or personalization settings. You shall confirm the accuracy of Plaid data through sources independent of SoFi. The credit score is a VantageScore® based on TransUnion® (the “Processing Agent”) data.

*Terms and conditions apply. This offer is only available to new SoFi users without existing SoFi accounts. It is non-transferable. One offer per person. To receive the rewards points offer, you must successfully complete setting up Credit Score Monitoring. Rewards points may only be redeemed towards active SoFi accounts, such as your SoFi Checking or Savings account, subject to program terms that may be found here: SoFi Member Rewards Terms and Conditions. SoFi reserves the right to modify or discontinue this offer at any time without notice.

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.

SORL0522026

Read more