Are you still using the checking account your parents set up for you? There’s no shame in that, but there might be a reason, or maybe four, to add another bank account to your financial strategy.
Whether you’re looking to combine expenses with your significant other, starting your own freelancing business, struggling with paying off debt, or just want to start earning interest, here’s some tips around how and why an additional account could help.
Reasons for Having Multiple Bank Accounts
Joint Expenses
Splitting the cost of groceries, meals out, and internet bills with your significant other can get a little old, especially if you live together, but having fully combined finances in a joint checking account may not be right for you either.
Some couples choose a third road: keeping separate individual checking accounts and opening a new, joint account to pay for shared expenses like rent, bills, and food.
While you might be tempted to open a new account at the same bank you currently use, make sure you do your research first.
Once you complete your research and decide what features are a good fit for a new joint account, you can set up recurring shared expenses to debit directly from that account.
Many banks will offer each primary account holder a debit card linked to the account, which makes it easier to pay for joint expenses, even if you’re in different places.
Plus, having a separate checking account for yourself could help you keep track of personal spending. Whether you use your personal account to make student loan payments or pay for your weekly manicures and high-priced wine subscription box, keeping your personal money separate could help you stay on budget and might help to minimize money fights in your relationship.
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Freelancing or Business
One of the most common reasons people open an additional bank account is to manage business expenses. More and more people are choosing to either go full-time freelance or pick up a side hustle in addition to their full-time gig.
One of the more complicated aspects of managing your freelance work, however, can be dealing with the finances. After all, many of us are used to full-time staff positions where taxes and health insurance premiums are automatically deducted from our paychecks. Freelancers, on the other hand, are responsible for their own taxes.
Tax season can be made simpler when you have one checking account for payments and business expenses. You can use your business account to receive payments, pay for business expenses, and most importantly, pay yourself.
Keeping all your business transactions in one place allows you to easily access all the information you need come tax time, including the expenses you can write off and how much you paid yourself in income.
To set up “paychecks” to yourself, many banks allow you to create recurring automatic transfers to another account, even if it’s at a different bank. Once you’ve transferred that earned money from your business account to your personal account, you might have less difficulty separating the bill for brunch with friends from the business lunch with a prospective new client.
Some people even opt for two business accounts: one where they receive payments and pay for expenses, and one dedicated to saving a certain percentage of their earnings for tax time. That way, you’re not tempted to touch the part of your payments that will end up being paid in taxes.
Plus, if you keep your tax money in a savings account until tax season, you might be able to put your money to work earning more interest than it would in your plain old checking account.
Debt and Bills
If you’re struggling to stay on top of debt and monthly bills, having a separate account to cover those regular costs might be a big help. Setting up a separate bank account to hold the money you owe and pay out each month can help keep you from overspending—and it can also help ensure that you have enough in your account to pay your bills every month.
Let’s say you know that you need to budget in order to make a $300 student loan payment, pay a $50 internet bill, a $100 cable bill, a $10 Netflix charge, and, say, $100 in utilities every month, you might choose to put $560 in your second bank account every month to cover those costs.
You can also set up automatic bill pay directly from your secondary account so that you don’t have to worry about writing another check or missing another payment.
One major potential benefit to using a separate account for paying bills is that you minimize the risk of being overcharged because you know exactly how much should be coming out of this specific account every month. This makes it harder to miss an abnormally large payment or the continuation of a subscription you thought you’d canceled.
Savings
It’s never too early to start putting aside money for the future, and in a savings account your money can potentially earn more interest.
In taking some time to do some comparison shopping before making a final decision, you may just find that you’re able to secure a higher interest rate using an online bank account like SoFi Checking and Savings®.
SoFi Checking and Savings has no account fees, unlimited ATM fee reimbursements, and you earn 4.60% APY on your cash.
Plus, SoFi Checking and Savings has a new Vaults feature where you can create and customize separate folders to help you save for various goals. It allows you to separate your funds within your overall SoFi Checking and Savings checking and savings account for different purposes.
Ready to check out the SoFi Checking and Savings vaults feature? Try SoFi Checking and Savings today.
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.
Being debt-free is a hot topic nowadays. Everyone wants to know how to pay off their student loans, credit card debt, or mortgage.
Some people want to be debt-free because they’d like to save for retirement or because they feel like they’re living paycheck to paycheck.
But many don’t know there’s a great side effect that can come with being debt-free: More happiness. Being debt-free isn’t just a financial state of being, it’s also a mentality that can extend to other aspects of life.
Being debt-free could provide more flexibility to spend time taking care of other things that matter, like family, hobbies, or travel.
Why Buying Things Doesn’t Lead to Happiness
Researcher Tim Kasser from Knox College has extensively studied how buying things affects the human psyche. His research found that those who are more materialistic tend to have more depression, low self-esteem, and antisocial behavior.
They also had more “headaches, backaches, sore muscles, and sore throats” according to the research.
The study evaluated people who were paid after doing an activity they previously reported enjoying. People who weren’t paid reported enjoying the activity more than those who were.
Kasser found that people who tended to be more materialistic were more likely to buy and spend more money on items that only bring fleeting happiness. And when that joy is gone, they’re left with a huge credit card bill.
In his Knox College bio , Kasser said, “My colleagues and I have found that when people believe materialistic values are important, they report less happiness and more distress, have poorer interpersonal relationships, contribute less to the community, and engage in more ecologically damaging behaviors.”
How Debt Affects Anxiety and Stress
The link between debt and anxiety has been extensively reported in studies and research over the years.
In a 2019 “Stress in America” survey from the American Psychological Association, 60% of people reported that money was the second-biggest source of significant stress in their lives. Other financial-related stressors were healthcare at 69% and the economy at 46%.
Specifically, 34% of adults worry about surprise expenses and 30% worry about saving for retirement. About 25% worry about having enough for everyday essentials. Another quarter of Americans worry that the economy will affect their ability to “get ahead financially.”
Though people with debt may have more stress and anxiety, it’s not clear if mental health problems lead to debt or if being in debt exacerbates already-existing mental health issues.
According to Student Loan Planner, one in 15 student loan borrowers with significant debt have considered suicide. And a 2017 survey by SoFi found that 43% of those with student loan debt have passed on health insurance and gym memberships due to that debt.
When in debt, stress and anxiety can feel overwhelming, so treats or indulgences seem like a good idea to help relieve those feelings and escape from financial problems. But becoming debt-free is like exercising or eating healthy. There’s no quick fix for many financial problems.
Paying off debt is typically a long-term lifestyle change. It can take years or even decades to become debt-free. Like losing weight, becoming debt-free can be a difficult adjustment. Don’t be surprised or ashamed if there are stumbling blocks along the way. It’s normal to struggle making any changes.
Plenty of studies have also indicated that having more money leads to happiness. A study from Princeton University found that people report higher happiness levels when they earn more, though any earnings after $75,000 a year led to the same happiness level.
What Stops People From Becoming Debt-Free
Some of the biggest obstacles to debt freedom are systemic, like stagnant wages and rising housing costs. These might be difficult to overcome on an individual basis.
Other factors are within an individual’s control, like the amount of spending. Brian Walsh, CFP® and Manager of Financial Planning at SoFi, said social media can be a major contributor to overspending.
This is especially relevant for those following influencers trying to sell products, brands hawking their wares, or even a cousin who’s always sporting a new outfit.
“Studies have shown that social media leads to comparing your lifestyle to others and increases the likelihood of spending more to avoid FOMO” (fear of missing out), he said.
To fix this problem, avoiding people who encourage spending more and contribute to guilt for sticking to a budget might be a good idea.
Walsh said he started to feel motivated to pay off his student loans after following SoFi and seeing success stories from other people.
“Ironically, the old saying ‘you become who you surround yourself with’ is even more important in the digital era,” he said.
How Being Debt-Free Might Help You Feel Better
Becoming debt-free might provide more options for people. They might consider quitting their job, starting a business, spending more time with family, or switching careers.
“Once they have extra room in their budget, it almost opens their minds and wallets up to save for exciting long-term goals such as retirement, college planning, buying a house, or starting a family,” Walsh said.
Being debt-free could also minimize the effect of emergencies and catastrophes. If a job is suddenly lost, it might be easier to get by without huge student loan and car loan payments to make. If an unplanned surgery arises, paying off medical bills might be less stressful without other loan payments coming due.
People who are debt-free might feel more free to spend money on items and experiences that could help make them happier and healthier. If a $300 student loan payment isn’t on the horizon, money could be set aside to take a vacation, sign up for a gym membership, or indulge in hobbies.
That’s another reason those who are debt-free might be happier and healthier. They might be better able to afford unexpected health challenges, many of which require money to solve.
They might have the means to pay for good health insurance, pay for a therapist, or sign up with a personal trainer. This is partially why those with higher incomes live longer , healthier lives.
Creating a Debt-Free Plan
Once spending is figured out, it could be a good time to start a budget. Walsh said tracking expenses and creating a budget is the first step to paying off debt.
“Knowing where you stand and what you spend is often overlooked but critical to accomplishing your goals,” Walsh said.
Tracking expenses is a way to develop a mindfulness around spending. When someone uses a credit or debit card, they might not feel the weight of those purchases. It’s easy to forget about the $100 boots until it appears on a credit card statement two weeks later.
After creating a spending plan, SoFi members can speak one-on-one with a SoFi financial planner to discuss debt payoff and other financial goals, at no cost. These goals might include buying a house, saving for retirement, setting up an emergency fund, and more.
SoFi financial planners can customize a debt payoff plan that might explain which debt to pay off first, how to stay focused on the goal, and how to change spending habits.
“We have found that the simpler this process becomes, the more likely someone is to follow their plan,” Walsh said.
It may take a few weeks or months to get in the habit of using a debt payoff plan. Don’t beat yourself up if your spending plan goes awry.
Becoming Debt-Free
Walsh said the first step to becoming debt-free is to address goals, concerns, and priorities. Goals can include working part-time when kids come along or becoming self-employed. Concerns can be how to save for retirement or a child’s college education.
“By starting with the why, it typically helps frame decisions much better,” he said.
For example, if a goal is to save for a child’s college education, it might feel like a good reason to skip takeout in lieu of eating at home. The “why” could help with making adjustments without feelings of being deprived or frustrated as could happen without a strong goal.
It might be a good idea to align debt-free goals with a top priority. If traveling around the world sounds fantastic, a picture of a particular destination next to a credit card in the wallet might be a good deterrent and reminder.
Remember, spending money isn’t a bad thing. It just matters how. Giving money away to charity or developing interesting hobbies might make someone happier than buying a new sports car.
Paying Off Your Debt
Looking for options to help pay off your debt? A personal loan could be an option to help take control of your debt. For example, you could consolidate your credit card debt with a personal loan, that way you can focus on one payment rather than multiple different credit cards.
SoFi offers personal loans with low rates and no fees required. Check your rate in minutes.
External Websites: The information and analysis provided through hyperlinks to third-party websites, while believed to be accurate, cannot be guaranteed by SoFi. Links are provided for informational purposes and should not be viewed as an endorsement.
Third Party Trademarks: Certified Financial Planner Board of Standards Inc. (CFP Board) owns the certification marks CFP®, CERTIFIED FINANCIAL PLANNER™, CFP® (with plaque design), and CFP® (with flame design) in the U.S., which it awards to individuals who successfully complete CFP Board's initial and ongoing certification requirements.
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Closing your current bank account and opening a new one is like a dance—all you have to do is learn the steps. These proactive moves could help you avoid unnecessary charges and other unpleasant surprises that could get in the way of your smooth transition.
There could be advantages to switching to a new bank— maybe the new bank does not charge fees for ATM usage, offers a higher interest rate, or does not penalize you for low balances or for overdrafting. These small charges could add up to a big chunk of change over time!
Before you make the jump, you might consider the following:
Finding a New Bank
Work backwards. You might want to find a new bank before you take any steps to close your existing account.
This leaves you some wiggle room in the event that you have to write a check (yep, you remember checks), or need to perform an electronic transaction, like paying a bill.
Avoiding interrupting the flow
Most of us pay all of our bills online now, but if your creditors don’t know where to find you, it could mean late charges. Interruptions like these could affect your credit rating. A few proactive steps could make the difference—find out which automated accounts need to be redirected to your new bank.
This could include anything from rent payments and credit card bills to your streaming service, gym membership, life insurance premiums, and online magazine subscriptions. Your automatic savings and investment plans could be affected as well—make sure you attach those regular withdrawals to your new account.
Asking your old bank about any transfer or closed-account fees.
You may want to ask your old bank if you need to make your account closing official with a letter or email. Find out if there are penalties charged for closing accounts, or transfer limits.
Putting closure on it.
Don’t forget about any pending transactions that may be taking place during the course of your transition. If you are making the move at the end of the month, for instance, you might want to make sure all of those monthly payments and obligations are paid.
Contacting your employer
If you are enrolled in a direct deposit program at work, your HR or payroll department will need to know your new bank account information and when the change takes place. This can help eliminate any trip-ups on payday.
Of course, this goes for any other direct deposits you currently have going on. For instance, dividends and other investments, or, if you own property, tenant rent payments, etc.
Getting it in writing.
You might want to ask your bank to provide a written letter that officially states that your account is closed. Consider calling customer service to get this done, or, if possible, you could walk into the closest bank branch and request the letter in person.
You might ask how they will return any remaining funds that could be due to you—perhaps it will arrive in the form of a check or deposited directly into your new account.
Receiving a written letter stating that your old account is closed may help you to avoid future charges or accidental reactivation.
Cutting up your checks and debit card.
Erase them from existence so you can reduce the likelihood of your account being used illegally. Besides, shredding is fun.
Keeping records.
Don’t lose the confirmation letter the bank sends to you upon closing your account—you may need it to prove that you’ve moved on.
You’ve got to keep them separated.
Sure, it’s best to simplify, but sometimes it can make more sense to maintain separate accounts, to keep your funds from co-mingling. For instance, if you’re a freelancer, independent contractor, or entrepreneur, it may be good to keep your business and personal financial activities separate, for tax purposes.
If you’re saving for something special, like a trip or a new laptop, a separate account may help you achieve that goal faster, as you can see the dollars accumulate toward your goal.
Seeing the number grow might help keep you motivated! Long-term goals, like retirement or college expenses, may also benefit from separate accounts. Emergency savings may also be better placed in a separate account, so you’re not as likely to use it for impulsive splurging.
Opening a joint account?
A joint account is when more than one person has ownership over the account—it’s often understood as an account shared by a married couple, but it doesn’t have to be.
There are joint account types that can also work for business partners, adult children with aging parents, siblings, or anyone else with whom you have a relationship involving money.
A joint account helps ease the financial flow among the account holders, while keeping the account’s activities transparent for everyone involved.
Moving an account like this to a new bank, of course, takes a unanimous vote—everyone needs to be on board before you can close the current account.
If you’re the one doing the convincing that it would make sense to seek a new bank, it may take a list of the advantages, including a higher interest rate, less (or no) banking fees, and other benefits that can help make the move worthwhile for all the joint account holders.
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Open a SoFi Checking and Savings Account with direct deposit and get up to a $250 cash bonus. Plus, get up to 4.60% APY on your cash!1
Change can be good, especially if it helps you grow
Closing an old bank account and opening a new one doesn’t have to be a harrowing experience. When looking for a new bank, make sure that the grass really is greener on the other side—check out the new bank’s minimum balance requirements, fees, and withdrawal/transfer limits.
You can keep this list handy when new-bank shopping, making sure each category meets your personal requirements:
• Fees. That’s your money the bank will be using, and fees could add up quickly. You may want to consider opening an account that is fee-free. This could be at a bank or at another financial institution.
• Interest rates. This is the money the bank pays you to keep your money with them. How is that rate doing for you? These rates can get competitive among banks, so consider some careful rate shopping.
• Location. This could mean a brick-and-mortar location in your neighborhood, but it could also be the ability to handle all of your financial transactions simply from your phone. You may also consider the number of ATMs you will have access to, and whether or not they are fee-free.
• Digital capabilities. Your phone has already become one of your best friends—you could allow your bank to have your back too, with push alerts when your funds are low, and reminders when bills are due. Check out the bank’s ratings and reviews when it comes to its digital capabilities.
• Investment options. You may want to consider a bank that gives you more than merely checkings and savings. How about some long-term investment options, like college or retirement savings?
• Fine print. Don’t simply rely on a bank’s happy marketing messages. Be aware of the finer details, like terms and conditions, expiration dates for introductory annual percentage rates (APRs), maintenance fees, and out-of-network ATM charges. In other words, what is this bank going to cost you, and how? Also, find out if the bank is FDIC-insured.
Looking for a different experience than a bank?
SoFi Checking and Savings® is not a bank, but offers competitive interest rates and no account fees.
A SoFi Checking and Savings account where you can spend, save, and earn all in one product. Plus, you’ll get access to any ATMs worldwide that accept Mastercard® and we’ll reimburse you for the fees.
Plus, SoFi Checking and Savings charges no account fees. That means no account minimum fees, no overdraft fees, ATM, or foreign transaction fees. That being said, our fee structure is subject to change at any time.
You can open a SoFi Checking and Savings account in as little as 60 seconds, all online. You can use your phone to deposit checks, and you can send money to anyone directly from the app (they’ll get it right away if they have SoFi Checking and Savings). On top of that, your funds are FDIC insured up to $1.5 million.
Plus, SoFi members get access to exclusive benefits, like member-only events and experiences, as well as financial planning, career coaching, rate discounts on other SoFi products, and more — all at no cost.
Ready for a modern money experience? See if SoFi Checking and Savings® is right for you.
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.
Tax Information: This article provides general background information only and is not intended to serve as legal or tax advice or as a substitute for legal counsel. You should consult your own attorney and/or tax advisor if you have a question requiring legal or tax advice.
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 http://www.sofi.com/legal/banking-rate-sheet..
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The information provided is not meant to provide investment or financial advice. Investment decisions should be based on an individual’s specific financial needs, goals and risk profile. SoFi can’t guarantee future financial performance. Advisory services offered through SoFi Wealth, LLC. SoFi Securities, LLC, member FINRA / SIPC . The umbrella term “SoFi Invest” refers to the three investment and trading platforms operated by Social Finance, Inc. and its affiliates (described below). Individual customer accounts may be subject to the terms applicable to one or more of the platforms below.
Who hasn’t dreamt of all the crazy things they’d buy if they were to win the lottery? Or stared out into the night sky, wondering if there is some great-aunt out there planning to leave behind a big, unexpected inheritance?
And in life, these things can happen. Windfalls can result from fortunate events, like lottery winning, and unfortunate events, like a legal settlement. No matter the triggering event, a big injection of cash can certainly be a life-changing event in someone’s life. And hopefully, this chunk of change is a positive force.
But even though most people aren’t complaining about getting a bunch of money, coming upon a financial windfall may also usher in feelings of anxiety, stress, and guilt. If you are feeling this way, know that this is not unusual and you aren’t alone.
Not to mention the temptation to blow the money, which is a real one that shouldn’t be discounted. We’re all human.
While it’s fine to spend some money on the fun stuff, it may help to curb that urge by making a plan for investing windfall money.
If you have found yourself with some extra money, here are some steps you can take and ideas to keep in mind as you determine the best way to put the money to work. Here are just a few options you might consider:
Treating Yourself
While prioritizing your financial health is a good hill to die on, it’s also important to treat yourself and enjoy your life. Depending on the size of your windfall and how caught up on financial goals you are, you may want to take yourself out for a delicious lunch, weekend trip, or buy the Roomba that you know will make your life easier.
It may help you to give yourself a set percentage that you’re allowed to spend on fun. For example, you could make an agreement with yourself: “I will spend 5% of the total amount of the windfall, but the rest will be allocated to achieving my financial goals.”
Considering Taxes
Not all big sums of money that come into your life will be taxed the same, so do some research to make sure you know what your tax burden will look like.
For example, a gift from a relative, an inheritance, or a life insurance payout are generally tax-free to the recipient . (Although an inherited IRA would be taxed as income if withdrawn from the account.) However, the estate or gift-giver may owe taxes.
Compare this to money won through gambling or the lottery, which is considered taxable income. Be prepared to pay income taxes on these winnings. Selling an investment, such as a home or stocks, may trigger what is called a capital gains tax. And then the sale of employee stock options has its own set of unique rules.
To be certain, you’ll likely want to check with a tax professional to understand both the federal and state tax implications of your financial windfall.
Hiring Professionals
If you’re feeling overwhelmed by your new wealth, it’s also possible to hire help. There are professionals out there with expertise in navigating exactly your situation.
You may want to consider a tax advisor, an estate planner, or lawyer that can help provide you with legal advice and draft up legal documents like a will and trust.
If your questions are more general related to your overall financial situation, you can always work with a CERTIFIED FINANCIAL PLANNER™ professional. One unique member benefit at SoFi is complimentary access to credentialed financial planners to discuss your personal finances.
Prioritizing Your Goals
Coming upon a financial windfall could be an opportunity to evaluate or reevaluate your financial goals. What is important to you? What are your top money priorities?
Everyone’s money goals are going to be different. Personal finance is just that—personal. While there are certainly some financial guidelines on what to tackle and in what order, that doesn’t excuse a person from sitting down and doing the work of mapping out their goals.
For example, not everyone has the goal of buying a house. This is not to say that it is a good goal or a bad goal, but that home ownership is a personal decision that requires careful consideration.
Ask yourself questions like: “How would a mortgage fit into my current and long-term plan? How will buying (or not buying) a home impact my retirement? What would happen to my mortgage if I were to lose my job?”
Asking Yourself the Right Questions
When you come upon a large sum of extra money, a natural first question to ask is, “How should I invest this money?” But here’s the thing—there is no universal one right answer to this. How you invest the money—which asset classes you choose to invest within—will likely need to be dictated by many factors including what your goal is for that money.
How you invest the money will depend on what the money is earmarked for. For example, you would likely invest differently for retirement than you would for a shorter term goal such as a wedding that is a few years away or a down payment on a house that you will buy in 5 years. Whatever your financial goals are, SoFi can help you achieve your investment them through automated investing.
If the money is for ongoing expenses such a medical bills it is not likely to be in one’s best interest to have the money invested, but a consideration could be a high yield savings account or something that has principal protection.
Ask yourself the following questions: “What is my goal with this money? When do I need the money? And last, how much risk am I comfortable taking with this money?” Once you’ve homed in on what it is that you would like to accomplish with the money, you can better match it to an appropriate investment strategy.
Knowing That Cash Is Risky Too
With a large windfall, it can certainly be enticing to hold onto that money for dear life. But, depending on your goal, burying the cash in the backyard may not be the best strategy. Cash may not be as safe of an investment as you think.
Cash for short-term goals, like an emergency fund that you may want to deploy at any time, or for a down payment on a home that you’ll buy in a year might make sense. But beyond that, holding cash may actually cause you to lose purchasing power over time. That’s due to inflation, which is the phenomenon of rising prices over time. As goods and services increase in value over time, the value of your cash decreases.
Sometimes, people feel like it is safest to hold cash. That way, they won’t lose anything. But with the forces of inflation, you are losing, but in a way that’s harder to feel in real-time. But that doesn’t mean that the effect of inflation isn’t real.
Considering Your Options
When making a decision about what to do with your money, it’s helpful to have a solid understanding of the options available to you.
Folks may want to begin by paying off their high-interest debt, like credit cards, and saving up for an emergency fund. If you have credit cards or don’t have a fully funded emergency fund, this can be a good start for investing your financial windfall.
Paying Off Credit Cards
Why? The average interest rate on a credit card is over 15% . It is very hard to invest in such a way to out-earn what you are paying in credit card interest. Therefore, if the goal is ultimately to build wealth, then the credit card balance likely needs to go.
Creating an Emergency Fund
A cash reserve can be helpful in the event that an unexpected expense comes up. This way, an emergency doesn’t get put onto a credit card, which will likely have the effect of making the already-emergency into an even more expensive problem.
While it is ultimately up to you to determine how much money to keep in an emergency fund, a good place to start might be at least three months worth of expenses.
Retirement
Saving for retirement is a big job and most people are behind in doing so. Catching up on retirement savings can be an excellent use of unexpected money like an inheritance, lottery winnings, or a bonus at work.
Depending on your employment, income, and tax situation, you may look to add some or all of your windfall to a retirement account. Check with a tax advisor to see what options are available to you. If you are eligible to open an ira consider doing so with SoFi and take advantage of the broad range of investment options and planning tools.
If the money does not qualify for a retirement account, it is still considered a good idea to invest that money for the long-term, it just won’t have the same tax benefits of doing so within an account that offers tax advantaged investment growth.
You may decide investing is the way to go. Most investors keep some sort of mix of stocks and bonds for their long-term money, and the proportional mix is called “asset allocation.”
It is generally recommended that younger people have a higher allocation towards stocks which normally have more upside potential than stocks , and that mix moves to more bonds over time which are considered more stable as you move towards retirement years. To fulfill these allocations, it is possible to invest directly in stocks and bonds or by using mutual funds or exchange-traded funds (ETFs).
If you would like help creating and maintaining an investment portfolio, services like SoFi Invest® could be a great choice. SoFi Automated Investing uses a portfolio of exchange-traded funds (ETFs) based on the investor’s goals, risk tolerance, and timeline. And best of all, there’s no additional charge for this service.
Paying Off Student Loans
As far as interest rates are concerned, student loans can run the gamut. It might be a good idea to check on the interest rates of your loans, whether federal or private, and decide if paying down loans is a good use of your extra cash.
In making the decision between paying down debt and investing, a good rule of thumb is to compare interest rates. For example, you may expect to earn 7% investing in the stock market, and you’re paying 10% interest on a private student loan. In this comparison, you may choose to pay off the debt to save on interest.
The difficult part of doing this analysis is that it is impossible to predict the future of investing returns, therefore it cannot be known with certainty whether paying off the debt or investing in the stock market is the better financial decision.
Therefore, this is a very personal decision, and after performing research, you may end up honoring what your gut is telling you. For example, if the debt is a dark cloud over you and it would improve your mental health to eliminate it, then it may feel right to do that.
On the contrary, if you feel like you are totally missing out by not investing and taking advantage of compound returns, then investing may be the way to go instead. And of course, this decision does not have to be all-or-nothing, it’s likely you can do some combination of both.
Down Payment
If your dream is to own a home, a financial windfall can certainly be used to make that dream a reality. If this is your first time purchasing a home, consider review our home buyers guide to get an understanding of all of the intricacies involved. For some people, it is a lovely idea to take extra money and to use it to buy a home that they love and feel the value of each and every day.
A financial windfall can be used to aid in buying a home in a few ways. First, it can be used as a down payment. And as a bonus, having more money to put down on a home means a lower loan amount which can help to lower the overall interest costs of the mortgage. Further, having a slush fund of extra money as you enter into home ownership is probably not a bad idea.
Also, unexpected costs can arise, and home maintenance can be expensive. The next time a toilet breaks or windows need sealing or property taxes are more than expected, you won’t regret having some easily accessible cash available for use.
One of the first steps into home ownership is finding a lender that you can trust. Buying a home shouldn’t be stressful—or take you out of your financial comfort zone.
SoFi home mortgage loans can help you take a financial windfall and invest it into a home that makes you happy. They do this with competitive rates, no hidden fees, and as little as 10% down.
Best of all, they’ve got a team of people that can help you navigate this big step and who want you to feel confident in the way that you’re spending your financial windfall.
Checking mortgage rates with SoFi takes as little as two minutes. Explore your options and feel one step closer to making your dream home a reality.
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Third Party Trademarks: Certified Financial Planner Board of Standards Inc. (CFP Board) owns the certification marks CFP®, CERTIFIED FINANCIAL PLANNER™, CFP® (with plaque design), and CFP® (with flame design) in the U.S., which it awards to individuals who successfully complete CFP Board's initial and ongoing certification requirements.
Tax Information: This article provides general background information only and is not intended to serve as legal or tax advice or as a substitute for legal counsel. You should consult your own attorney and/or tax advisor if you have a question requiring legal or tax advice.
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The list of fees that banks might charge you is pretty darn long and, on average, they can cost you more than $161 per year. Per year.
Some of the more typical bank fees include monthly maintenance fees, overdraft charges, returned item fees, ATM fees, and foreign transaction fees. Some of these charges, such as the overdraft and returned item fees, can hit people the hardest when they have the least amount of money available to pay them.
So, if you’ve ever been frustrated by having to pay bank fees, or have been surprised when a charge showed up on a bank statement, this post will share tips on how to avoid those fees in the first place.
And, when thinking about bank fees, here’s something else you could consider: Picture what you would do with an extra $161. Save it? Buy something special? Also, think about how long you’ve had a particular account. If it’s been 10 years, for example, imagine how you’d spend an extra $1,610! That’s money you could put back into your pocket.
At the end of this post, you’ll find a possible way to avoid paying bank fees altogether.
Monthly Maintenance Fees
If your bank or financial institution charges maintenance fees, you may be so used to watching that money disappear out of your account each month that you’ve simply stopped trying to figure out how to make it stop.
It isn’t unusual for banks to charge about $12 a month in maintenance fees, nearly $150 a year for this fee alone.
If you keep a large enough balance in this account, you can typically avoid paying a monthly maintenance fee at many banks. That’s great for those who have that kind of money, but this is the type of fee that often hits those who don’t have a lot of money in their accounts.
If keeping a larger balance in your account isn’t practical right now, then it can make sense to explore online-only financial institutions that are more likely to not charge this fee.
Online-only banking doesn’t mean banks that they offer mobile services, though—it’s banks that don’t have a physical location and are online only, who have less overhead and, therefore, the opportunity to pass on more savings to you, the customer.
Overdraft Fees
Banks often have an overdraft program, so if you withdraw more than what’s currently available in your account, the bank won’t “bounce” the check. Instead, it will be covered, but often with a fee attached.
So, let’s say that you deposited $200 in your checking account but $100 of it has a short-term hold on it. This means that even though you have $200, only $100 is currently available. This is a common practice among financial institutions. So, if you withdraw $150 during this time, you could be charged an overdraft fee, depending upon your bank’s policies.
These types of fees can average around $35 per instance. To avoid being charged, you could decline to sign up for overdraft service (which may lead to bounced checks or declined debit card transactions).
Or you could ask if your bank has a service where, if you overdraft on your checking account, then the amount would be covered from your savings account. Note, though, that this kind of transfer may also come with a fee.
What may be most important here is, you may want to be clear about what your bank or financial institution will do in a certain circumstance. Let’s say that you’ve signed up for automatic bill pay at your bank. What will your financial institution do if there aren’t enough funds?
Pay it anyway and charge you an overdraft fee? A little research with your own financial institution could reveal the answer, and if it’s not what you want to hear, you could see if another institution handles the situation in a way that works better for you.
Returned Item Fees
If you don’t opt in to have overdraft protection on an account, banks typically decline or bounce, the transaction if there aren’t enough funds to cover a transaction.
Besides the problems associated with a bounced check, there is typically a returned item fee, averaging around $35 for each occurrence. And, unfortunately, sometimes a returned item fee can take an account balance to the point where another check may bounce, causing the situation to become increasingly worse.
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ATM Fees
ATM fees come with unique pain points that can be especially frustrating. That’s because you sometimes have to pay a bank or a random ATM just to get your own money! And sometimes you’ll pay ATM fees twice on the same transaction: once in a surcharge by the ATM being used and, second, by the bank that issued your card.
To make matters more frustrating, out-of-network surcharges from ATM owners keep increasing, becoming the highest to date in 2018. In fact, it’s 36% higher than it was almost a decade ago, with an average out-of-network ATM charge costing users around costing users around $4.68 , on average!
This situation isn’t especially likely to change, because the very nature of an out-of-network surcharge means that people getting socked with extra fees are non-customers.
If you’re trying to budget carefully, this can be painful. To reduce how much you could pay in ATM fees, pre-planning might help. You could research locations of in-network ATMs and only make withdrawals there.
If you know you’ll be shopping at a business or attending an event that operates as cash only, you could withdraw more than you might need, just in case, so you can avoid using an out-of-network ATM nearby.
When you go into a store, pharmacy, and so forth, you could also check to see if the ATMs located in them are part of your bank’s partnership network. Even if you don’t need cash right away, it might be a good idea to file away that information for when you do need it.
Here’s another idea: Many grocery stores and even some big box stores will let you get cash back when you make purchases there. This could be another way to circumvent ATM fees.
Foreign Transaction Fees
If you’ll be going abroad, then you will likely need to deal with foreign transaction fees. Credit card companies add these onto transactions processed by or passing through foreign banks.
A typical fee is 3% of the transaction amount. There is often a fee charged by the credit card network and another one by the card issuer. Some credit card companies charge fees in addition to network ones, while others don’t.
Credit card issuers typically don’t mention these fees up front (unless they’re advertising that they don’t charge them), so they can come as a surprise when the next statement arrives.
Just one foreign transaction fee might not seem like a big deal, but when you consider how many times you might use a credit card during a trip, it can really add up. And, often, you don’t earn any credit card rewards on these fees.
Returning to the painful subject of ATM fees, banks often charge an additional 1% to 3% for this type of fee on international transactions, meaning beyond what you’d normally pay on ATM withdrawals and debit card purchases.
To help mitigate these fees, you could check with your bank to see if they have affiliate banks in regions where you’re traveling and ask if you can withdraw from those ATMs without paying the additional international fees. You could also ask if your bank reimburses fees that you’ve paid.
As another way to reduce bank fees, you could exchange US dollars to foreign currency before you leave the country, perhaps eliminating the need for ATM withdrawals while traveling. Your bank might do this with no fees.
Online-Only Banking
With online-only banking, there are no physical branches, so overhead costs for the financial institution can be lower, giving them the ability to provide certain perks to customers, such as lower fees.
Sometimes, certain fees aren’t charged at all. Just like with traditional banks, policies differ from one online-only financial institution to another.
If this sounds appealing, you could consider investigating how online-only institutions might help you avoid fees. Many, for example, provide ATM services for free or refund ATM fees up to a certain amount each month.
Money and Millennials
A Kasasa study points out that an overwhelming percentage of millennials they surveyed—93% of them—say that fee-free banking is important to them. They note that no-fee banking matters to them when choosing a bank for everyday banking needs.
SoFi Checking and Savings®
SoFi Checking and Savings® is a checking and savings account where you can spend, save, and earn all in one place. You’ll earn 0.20% APY (annual percentage yield) on all your cash with no account fees (subject to change).
You can sign up for and open an account in just 60 seconds, and the account is FDIC insured for up to $1.5 million with additional fraud insurance.
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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.
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.
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