SoFi

Wire transfers are a way to quickly and conveniently send and receive money, both domestically and internationally. Maybe you want to securely send some cash as a security deposit to a landlord across town ASAP. Or perhaps you need to pay for a painting you bought at an auction overseas. Either way, a wire transfer may be a good option.

However, there are often wire transfer fees in exchange for their speed and convenience. The cost to send and receive money via wire transfer varies, but international wires are usually costlier than domestic wires.

However, with the right steps, you can reduce or even eliminate the fees you’ll pay using wire transfers.

Here, you’ll learn important details about this technique for transferring funds, including:

•   What are wire transfer fees?

•   How much do wire transfer fees cost?

•   How do international wire transfer fees vs. domestic compare?

•   How can you avoid wire transfer fees?

•   What are other ways to send and receive money?

What Are Wire Transfer Fees?

A wire transfer is an electronic funds transfer between financial institutions. Wire transfers can be faster than bank transfers, with same-day processing possible for most domestic wires. Wire transfers can occur domestically or internationally, but most banks charge fees both for sending and receiving funds in this way.

In addition to speed, another reason to use wire transfers is when sending money internationally, as a regular bank transfer isn’t possible in this situation. But international wire transfers can have higher wire transfer fees than domestic wires, and there might be more steps involved. For instance, the transaction might have been processed by the foreign country’s system and also possibly involve a currency conversion.

Recommended: ACH vs. Check: What Are the Differences?

How Much Do Wire Transfer Fees Cost?

As mentioned earlier, how much wire transfer fees cost can vary. Some financial firms waive wire transfer fees in certain situations, and others waive them entirely. When sending and receiving international wires, there can be a fee of $50 or more for each transaction

Typically, you might expect the following fees:

•   For domestic wire transfers, outgoing fees usually range from $0 to $35; incoming fees can range from $0 to $15.

•   For international wire transfers, outgoing fees can often range from $35 to $50; incoming fees are likely to be between $0 and $16.

Wire Fees by Financial Institution

Below is a list of wire transfer fees for large banks in the United States. However, third parties may be involved that charge additional fees, especially for international wires.

Bank	Incoming domestic	Outgoing Domestic	Incoming international	Outgoing international
Bank of America	$15	$30	$16	$45 or $0 when sent in foreign currency
Capital One	Up to $15	Up to $30	Up to $15	$40-$50
Chase	$0-$15	$25-$35	$0-$15	$0-$50
Citi	Up to $15	Up to $25	Up to $15	Up to $35
Fidelity	$0	$0	$0	$0
PNC	$15	$25-$30	$15	$40-$45
TD Bank	$15	$30	$15	$50/td>
USAA	$0	$20	$0	$45
U.S. Bank	$20	$30	$25	$50
Wells Fargo	$15	$30	$16	$45

Do International Fees Cost More Than Domestic?

On average, international wire transfer fees are higher than domestic ones. But as is often the case, averages don’t tell the whole story. Some financial institutions don’t impose wire transfer fees, even for international transactions.

Still, it’s important to remember that there may be extra fees when dealing with international wire transfers. For instance, there may be a currency conversion fee when sending money between two countries that use different currencies. When sending or receiving money internationally, you’ll need information like an international bank account number (IBAN) or a SWIFT code to move the funds to the right account. Overall, it’s a somewhat more complex transaction than a domestic one.

Why Do Banks Charge Wire Transfer Fees?

Banks charge wire transfer fees because of the work that goes into processing wire transfers. For instance, wire transfers are processed individually as they are received. This differs from automated clearinghouse (ACH) transfers, which are processed in batches.

You also pay a premium for the faster processing speed. Domestic wire transfers can sometimes be completed within a few hours and are usually processed the same day. International wire transfers can be completed within one to two business days.

Another reason banks charge wire transfer fees is their higher transaction limits. Wire transfer limits are usually much higher than bank transfer limits, so they can be worth using if you must send a large amount in a single transaction.

Lastly, the international reach of wire transfers can lead to higher fees. For instance, when large amounts of foreign currency are exchanged, banks charge what is known as a midmarket, or interbank, exchange rate. The bank will often charge a higher markup if that currency must be converted. This results in higher wire transfer fees.

Recommended: How to Earn More Interest on Your Money

Tips to Avoid Wire Transaction Fees

While wire transfer fees are common, they aren’t always a given. Here are some ideas about how to avoid wire transfer fees in some situations:

•   Send money in foreign currency. For outbound international wires, it can be smart to send money in the currency used by the foreign company, if possible. In this scenario, some banks waive wire transaction fees since no currency conversion is necessary.

•   Do it yourself digitally. Some financial institutions allow you to initiate a wire transfer using their website or app, and doing so may reduce the fees or even eliminate them.

•   Look for firms that don’t charge wire transfer fees. Some banks and nonbank providers waive wire transfer fees in some cases, or they don’t charge them at all.

•   Open an account with no wire transaction fees. Shop around: Some of the most popular banks offer accounts that let you wire money with no transaction fees.

Alternative Ways to Send and Receive Money

Some methods of sending money may allow you to reduce or eliminate transaction fees. You can do so by using one of the following methods to conduct the transfer:

•   Use a payment app. Payment apps like Venmo, Zelle, and PayPal generally let you send money electronically to friends and relatives without paying a fee. However, sending money to those who are not “friends and family” may incur fees.

•   Send money with a bank transfer. A bank transfer, or ACH transfer, might be preferable if you send money domestically. In 2022, the same-day transfer limit was increased to $1 million, enabling large funds transfers in a single day.

However, note that limits on single transactions might be lower, and there might be ACH fees.

•   Use a cashier’s check. A cashier’s check is an alternative to wire transfers because it can be suitable for large transactions. This type of check draws the funds from the bank’s reserves rather than your account. However, the check must be delivered to you, so this method can take longer than a wire transfer. In addition, there might still be fees involved.

The Takeaway

Wire transfers can be a quick, secure way to send money domestically or internationally. These transfers have several benefits, such as shorter processing times and larger transaction limits than ACH transfers. But wire transfers can also have significant transaction fees, especially when dealing with international transfers.

If you prefer to avoid costly wire transfer fees, look for firms that don’t charge them or offer accounts that don’t charge for wire transfers. You can also consider alternative methods of sending money, like using a payment app or sending a cashier’s check.

If you’re looking for other ways to save on your banking costs, consider opening an online bank account. With SoFi Checking and Savings, for instance, you won’t pay any account fees, and your money will earn a competitive annual percentage yield (APY), both of which can help your cash grow faster. You’ll also spend and save in one convenient place, have a suite of tools (like Vaults and Roundups) that can amp up your savings, and, for qualifying accounts with direct deposit, you can get paycheck access up to two days early.

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

Do you pay a fee to receive a wire transfer?

It depends, but most banks do charge a fee for income wire transfers. However, the fee for incoming wires is usually considerably less (maybe 50% lower) than the fee for outgoing wires.

Why are wire transfers so expensive?

Wiring money can be expensive for several reasons, such as their shorter processing times and higher transaction limits than bank transfers. Also, international wire transfers have more processing steps, which can increase their cost.

Do all banks charge wire transfer fees?

The majority of banks charge wire transfer fees in at least some situations. Some waive them in certain situations, while nonbank providers are more likely to waive them entirely.

---

Photo credit: iStock/Ridofranz

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.

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.

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

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

SOBK1222027

Read more

If your paycheck or another check is burning a hole in your wallet, you might be able to cash it at an ATM. Depositing a check into an ATM can be a convenient, painless way to get your cash fast.

If you don’t have access to remote banking or just can’t make it to a bank during business hours, cashing a check at an ATM can be an excellent alternative. Here’s what you need to know in order to make the transaction happen, including answers to:

•   When can you cash checks at ATMs?

•   What are the steps to cash a check at an ATM?

•   What kinds of checks can be cashed at an ATM?

•   What are alternative ways to cash a paper check?

Steps to Cash a Check at an ATM

The first thing you’ll need in order to cash a check at an ATM is a checking account. A checking account traditionally comes with an account number and a debit card. You will need both of these.

Make sure you’ve activated your debit card, selected and memorized a PIN number, and know your account number. The debit card and PIN number are essential for performing the most basic of transactions, including making ATM deposits and withdrawals.

Once you have your account details, card, and PIN number, cashing your check at an ATM is pretty much the same as making a cash deposit at an ATM. Most banks will require you to have a minimum amount in your checking account in order to cash your check.

Here are the steps to cashing a check at an ATM:

•   Endorse the back of your check. With a pen (not pencil), sign your name on the back of your check and write your account number. Security tip: Wait until you get to the ATM location to sign the back of your check, even if you have to bring a pen with you. If an endorsed check gets lost or stolen, someone else could cash it.

However, do add your signature before your turn at the ATM itself to save time and as a courtesy to those waiting behind you.

•   Fill out a deposit slip. Some banks may still require you to fill out a deposit slip to insert into the ATM along with your check. The deposit slips are typically available in the bank branch or the ATM area. Some banks may require you to put a check and the slip into a deposit envelope.

•   Insert a compatible card. To begin the transaction, you’ll need a valid ATM card, debit card, or prepaid debit card issued from a bank or credit union.

•   Enter your PIN. After inserting your card, the ATM will prompt you to enter your personal PIN number. Do not share your PIN number with anyone.

•   Follow the prompts. Follow the ATM’s instructions that appear on the screen. This can involve selecting “Make a deposit” and “Get cash back” and entering a dollar amount.

•   Insert the check into the machine. The ATM will invite you to make your deposit. If no check envelope is used, it will scan your check and ask you to confirm the amount.

If you are a customer who qualifies for same-day deposits, you may be able to withdraw funds right away, essentially “cashing your check” while avoiding additional transaction fees. In other situations, you may only have, say, $225 available to withdraw.

One thing to keep in mind: Even an in-network machine may have ATM withdrawal limits — typically between $500 and $1000 per day.

With some bank’s ATMs and account types, the funds may not be available until the second business day after the deposit. And if you are using an out-of-network ATM, you may be charged additional ATM transaction fees, and it can take up to 5 business days before you see the money in your account.

Types of Checks That May Be Cashed at an ATM

There is more than one kind of check. Personal, cashier’s, and certified checks are all ways to distribute sums of money without the risk of handling cash. But what kind of checks will an ATM accept?

Here are some check types you can feed an ATM that won’t get spit back out:

•   Personal checks. If you find yourself wondering, “Can I cash a personal check at an ATM?”, the answer is “yes!” So, go on — deposit that birthday check from Aunt Trudy. You can even write a check to yourself from another account and deposit it.

•   Cashier’s check. A cashier’s check draws on a bank’s funds and is signed by a cashier to guarantee the money. To cash this kind of check, it is beneficial to use an ATM connected to the bank that issued the check. You can also deposit it in your own bank’s ATM if you want the money to go into your account.

•   Certified checks. Like cashier’s checks, certified checks are issued by the bank but signed by you vs. a cashier. As long as you have your debit card, you can go ahead and deposit it in the ATM.

•   Any pre-printed check. Basically, any pre-printed can be deposited and withdrawn against at an ATM if your bank allows it. Government checks (such as a tax refund check) are the easiest for a bank to verify, and you might get your money right away. Foreign-issued checks may take longer to process.

Do All ATMs Support Check Deposits?

Not all ATMs support check deposits. Some ATMs located in grocery and convenience stores, restaurants, and other businesses may only have the ability to dispense cash and check your bank balance.

If you’re looking to cash a check at an ATM, your best bet is to use the machine at your bank. Most major banks and credit unions support check cashing at their ATMs. Plus you’re likely to avoid ATM fees.

Alternative Ways to Cash a Check

You don’t have to use an ATM to turn your paycheck into paper money. There are other ways to cash a check for free because who wants to pay more in bank fees? These techniques include:

•   Go to a bank teller. If you have time during business hours, you can cash your check the old-fashioned way. Your bank branch or credit union will likely perform the service, as long as you have a deposit slip, debit card, a valid ID, and meet your account’s requirements.

•   Go to the check distributor’s bank. You may be able to cash the check by paying a visit to the bank where the check writer holds the account. This could be a valid option if you are unbanked (don’t have any bank accounts). The check writer’s bank will probably be able to verify that the issuing account is in good standing and extract the funds for you.

•   Mobile apps. Who uses cash anyway these days? If your bank offers a mobile banking feature, also called mobile deposit, and you have a smartphone, you can use their app to snap a photo of your check and deposit it from the comfort of your living room sofa. You can gain access to your money quickly (instantly with some accounts), and pay back your bestie through Venmo.

•   Visit a retail store. Some retail shops, such as Walmart, grocery stores, and even gas stations may cash your check. However, they could charge you a small fee.

•   Check-cashing stores. The name says it all. Check-cashing businesses will give you cash for your check, but typically charge a stiff transaction fee. You may want to pursue other options and save this as a last resort due to the steep charges.

The Takeaway

Using an ATM to cash a check can be a quick and secure way to get your money. As long as you have a bank that supports check cashing, have the minimal required funds in your account, and have your debit card and PIN number ready, you’ll likely be on your way with some green in your hand.

3 Money Tips

1.    Typically, checking accounts don’t earn interest. However, some accounts do, and online banks are more likely than brick-and-mortar banks to offer you the best rates.

2.    When you overdraft your checking account, you’ll likely pay a non-sufficient fund fee of, say, $35. Look into linking a savings account to your checking account as a backup to avoid that, or shop around for a bank that doesn’t charge you for overdrafting.

3.    If you’re faced with debt and wondering which kind to pay off first, it can be smart to prioritize high-interest debt first. For many people, this means their credit card debt; rates have recently been climbing into the double-digit range, so try to eliminate that ASAP.

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

Can you deposit a check at an ATM?

It depends on your bank or credit union, but most banking institutions allow you to deposit checks at an ATM.

How long does it take to cash a check at an ATM?

As long as you’ve endorsed your check, written the account number on the back, and have your debit card and PIN number ready, cashing a check at an ATM shouldn’t take more than a few minutes if the financial institution makes the funds available. Not all ATMs will be this fast; in some cases, it will take at least two days for the funds to clear.

Can any type of check be cashed at an ATM?

As long as the routing and account number are legible, you can insert most traditional check types into an ATM. Personal and government-issued checks will probably be validated and credited to your account faster.

---

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.

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.

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

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

SOBK1222013

Read more

When your home energy usage peaks in the summer and winter, you could be surprised by a higher energy bill — and might have to scramble to cover the cost. Signing up for budget billing with your utility providers can eliminate these unexpected cost surges and make it easier for you to plan your monthly expenses.

But what exactly does budget billing mean, and is it right for everyone? Here, you’ll learn:

•   What is budget billing?

•   How does budget billing work on a monthly basis?

•   What are the pros and cons of budget billing?

•   Does budget billing save you money?

•   Can you start budget billing on your own, without the utility provider’s help?

What Is Budget Billing?

Budget billing is an alternative, optional payment program for utilities like gas and electric. By opting into budget billing, you will pay the same predictable amount each billing cycle, regardless of how much or how little energy you actually used.

With budget billing, you can avoid the roller coaster-like highs and lows of utility billing — where costs skyrocket during sweltering summers and frigid winters. For many, this makes building a monthly budget much easier.

To opt into budget billing, call your utility provider or check out the website for information about what is available.

Recommended: How to Organize Your Bills

How Does Budget Billing Work?

Energy prices and usage fluctuate throughout the year. This can make it difficult to anticipate what your gas and electric bills will be each month. Depending on where you live and how harsh the seasons are, you might be in for a surprise on a few bills each year.

Budget billing eliminates those bill fluctuations. Instead, your utility provider analyzes past energy usage for your residence (usually over the prior 12 or 24 months) to estimate an annual total. The company then divides that total into 12 identical payments for the upcoming year.

Of course, it’s unlikely that your energy consumption will be exactly the same as it was the previous year. And with increased inflation and unpredictable weather events, the price of electricity and natural gas could increase over time. To account for this, your utility provider will track your actual energy usage throughout the year and calculate what you would owe (sometimes called a “true-up amount”).

•   If you overpaid for the year, the provider will issue you a credit on an upcoming bill.

•   If you underpaid for the year, you’ll have to pay the outstanding balance.

Either way, the utility provider will use this year’s worth of data to calculate a new monthly payment for the year ahead.

Note: While annual plans are common for budget billing, some providers may also offer a quarterly (three-month) plan.

Recommended: Automating Your Finances

Does Budget Billing Save You Money?

Budget billing does not save money on utility bills. Instead, it just makes your monthly payments more predictable. Some months, you will likely pay less than what you actually owe. In others, you could be paying more than what you would owe.

Having a predictable line-item budget may make it easier for you to handle other monthly expenses or keep you from needing to dip into your emergency fund to cover an especially high energy bill.

Advantages of Budget Billing

So what are the pros of budget billing? For many families, budget billing can add some stability to their finances. Here’s how it may help you out:

Easier Budget Management

Not knowing how much you’ll owe your utility providers each month can make it tough to build a budget. With predictable bills, you’ll know how much money to set aside each month for utilities. You’ll also know how much is left for other expenses, as well as for savings and retirement contributions, debt repayments, and investments.

Less Financial Stress

If seeing an unusually high total on an email statement or paper bill can send you into a panic, you may appreciate the stability afforded by budget billing. Budget billing won’t save you money, but when you know what to expect each month, you might rest a little easier.

Reducing Late Payment Penalties

If you receive a high energy bill that you can’t afford to pay, you may have to take on unwanted credit card debt with a high interest rate, dip into emergency savings, or even just pay the bill late. The latter could result in late payment penalties.

With budget billing, you won’t have to worry about a spike in your monthly energy bills. This may help you avoid late payments altogether.

Drawbacks of Budget Billing

As helpful as budget billing can be for some families, there are also some cons to consider:

Potential Fees

Some utility providers charge a fee to enroll in budget billing. On top of the startup fee, the provider may charge ongoing fees for the service. If that’s the case, budget billing will actually cost you more money than a traditional billing program. It’s a good idea to ask about fees before signing up for any new program.

Recommended: Can You Change the Due Date of Your Bills?

Chance You Could Underpay

At the end of the program — usually a year after it kicks off — the gas or electric company will calculate what you actually owed for the year, based on your energy consumption. If you overpaid, you’ll get a credit on a future bill (nice!).

But if you didn’t pay enough each month, you’ll owe whatever remains. If it’s a sizable amount, you may have to rely on a credit card to cover other expenses or take money out of savings to pay off the bill. Many people enroll in budget billing to avoid such surprises to begin with, so this can be counter-productive.

Complacency

When you’re on a budget billing plan, you might get used to a low electric bill in the summer and be tempted to blast the AC. Similarly in the winter, it could be tempting to get all toasty by cranking up the heat. You won’t feel the financial repercussions of those decisions until much later, when your provider calculates your true-up amount and determines that you owe more money.

If you don’t think you can be responsible with energy consumption without the threat of a high bill looming over you each month, budget billing may not be the right fit for you.

Recommended: How to Pay Bills with a Credit Card

What Happens If You Are Billed Incorrectly?

Mistakes can happen. When you opt in to budget billing, it’s a good idea to read the agreement and understand how your monthly total is calculated. You want to be sure you understand how bill pay works. Even if you have your bill set to autopay, you may want to review your statement each month to ensure it’s what you expected. If it’s not, you can call your utility provider to discuss.

Recommended: Pros and Cons of Automatic Bill Payment

Can You Make Your Own Budget Billing System?

You don’t have to opt into a utility provider’s system to take advantage of budget billing. In fact, you can make your own budget billing system if you’re willing to do some math.

Just analyze what you spent on utilities over the previous 12 months to figure out an average monthly total. Use this amount when building your monthly budget.

If your first bill comes in and is less than your monthly budgeted amount, pay the bill and hang on to the leftover funds. Stash them somewhere safe, where you won’t spend them. When your bill is eventually higher than what you’ve budgeted, you can dip into that leftover money to cover the difference.

By handling budget billing yourself, you can avoid any potential fees the utility provider might have charged you. Plus, you can store leftover budgeted funds in a high-interest savings account. While this approach requires discipline, it can be well worth the effort.

Alternatives to Budget Billing

Budget billing may not be for everyone. Some alternatives include:

•   Traditional bill programs: You’ll pay what you owe each month, but that means some bills might be high in the summer and winter. In other months, you may enjoy lower-than-average bill totals.

•   DIY budget billing: If you don’t mind doing some math to figure out an average monthly payment, you may be able to do budget billing without the fees and hassle of going through a provider. You’ll still pay what you owe each month, but by planning ahead and setting money aside in savings, you can make a more predictable budget.

•   Low Income Home Energy Assistance Program (LIHEAP): Depending on your income level, you may qualify for government assistance with your home energy bills. Qualifying for the program does not guarantee assistance; roughly 20% of households that qualify actually receive help through LIHEAP.

Recommended: What to Do If You’re Bad With Money

The Takeaway

Budget billing allows utility customers to pay a set amount each month for electricity and gas, based on past usage patterns. You won’t save any money with budget billing, but it can make monthly budgeting more predictable. Before enrolling in a budget billing program, it’s a good idea to review the pros and cons and understand how it can affect your finances each year.

3 Money Tips

1.    Typically, checking accounts don’t earn interest. However, some accounts will pay you a bit and help your money grow. Online banks are more likely than brick-and-mortar banks to offer you the best rates.

2.    An emergency fund or rainy day fund is an important financial safety net. Aim to have at least three to six months’ worth of basic living expenses saved in case you get a major unexpected bill or lose income.

3.    If you’re faced with debt and wondering which kind to pay off first, it can be smart to prioritize high-interest debt first. For many people, this means their credit card debt; rates have recently been climbing into the double-digit range, so try to eliminate that ASAP.

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

Do all utility companies offer budget billing?

Not every utility company offers budget billing. Your state may have a network of regulated electric and gas providers that are required to offer this program, but unregulated suppliers may not offer budget billing.

Am I better off budget billing or not?

Budget billing can be helpful if you like a predictable utility bill each month. Knowing what you’ll spend may make it easier to budget for other expenses. However, budget billing does have its drawbacks, especially if the utility provider charges a fee for the service.

Can I budget bill for other areas of my budget besides utilities?

Outside of utilities, most recurring monthly bills are predictable — rent or mortgage, internet, phone, student loan payments, etc. But if you like the predictability offered by budget billing for utilities, you might benefit from creating your own budget billing program for other unpredictable monthly totals, like groceries and fuel for your car. To do so, just calculate your expenses from the last year and divide by 12 to determine your average monthly total. You may want to account for inflation when estimating expenses like food and gas.

---

Photo credit: iStock/Milan_Jovic

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.

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.

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.

SOBK0822019

Read more

Not all methods of getting paid are the same. Taking a paper check to the bank can be time-consuming, not to mention you also have to wait a few days for it to clear before withdrawing funds. Direct deposit is a popular option that simplifies the process of getting paid.

With direct deposit, you can schedule payments to be added to your bank account automatically. Depending on where you maintain a checking and savings account, it may be possible to get paid up to two days early with direct deposit. Plus there’s no running to a bank branch or ATM to deposit an old-school paper check.

Understanding the benefits of direct deposit can help you decide if it’s worth taking advantage of this banking feature. Read on to get the full story, including:

•   What is direct deposit?

•   What are the benefits of direct deposit?

•   Are there any disadvantages to direct deposit?

•   How can you set up direct deposit?

What Is Direct Deposit?

What is a direct deposit? In simple terms, direct deposit is a service that allows money to be deposited directly into bank accounts, without requiring a paper check. You may be eligible to set up direct deposit of paychecks and other payments, including:

•   Federal and state tax refunds

•   Government benefits, such as Social Security payments

•   Court-ordered child support payments (when garnished from the payer’s wages)

•   Travel and expense reimbursements from your employer

•   Pension plan benefit payments

•   Annuity payments

•   Dividend payments from stocks or other investments

You may not have access to direct deposit if your employer doesn’t offer it or if you don’t receive any of the other types of payments listed above. It’s also possible to miss out on the benefits of direct deposit if you don’t have a bank account and rely on alternative banking products and services, such as prepaid debit cards, to pay bills and cover expenses.

Recommended: Do Bank Transactions Process Through the Holidays?

10 Direct Deposit Benefits to Know

The main advantages of direct deposit center on convenience and flexibility. If you’re not enrolled in direct deposit yet, here are some of the main benefits you may be missing out on.

1. Get Paid Early

One of the main benefits of direct deposit is the ability to collect your paychecks early. Direct deposits may hit your account one to two business days ahead of your regular pay date. In terms of how long you’ll have to wait for the payment to clear, the average time for direct deposit varies. Some banks can make funds available the same day they’re deposited.

2. Skip the Branch

In addition to getting an early paycheck, direct deposit allows you to avoid the time and energy of visiting a bank to deposit a paper check. Going to a bank to deposit checks can be inconvenient if you’re trying to squeeze it in on your lunch break or scrambling to get to a branch before it closes at the end of the work day.

3. Easy Setup

Enrolling in direct deposit is usually as simple as filling out a form and passing it along to the appropriate payer, which may be your employer or a government agency. You’ll need to provide your personal information as well as your bank account information.

You may only need to have your bank account number and routing number to set up direct deposit. In some cases, you might be asked for a voided check to verify your account details.

What is a voided check for direct deposit? It’s simply a blank check that has “VOID” written across the front. You won’t sign this check or make it out to anyone. It’s only used as physical evidence of your bank account information.

4. Get Paid Anywhere

If you’re used to picking up paper checks from your employer, direct deposit eliminates the need for that in-person presence. That means you can still get paid if you’re on vacation, out sick, or traveling for work on payday. The money goes straight to your bank account, so you don’t have to worry about delays if you need to schedule bill payments or cover expenses.

5. No Risk for Stolen or Lost Checks

Getting a paper paycheck can be problematic if you misplace it or, worse still, someone steals it. In either case, you’d have to ask your employer to cancel the original check and issue a new one. That could result in a delay in getting paid. With direct deposit, you don’t have to worry about losing a check or having it stolen since there’s no piece of paper changing hands.

6. Control Where Your Money Goes

One nice benefit of direct deposit is that you can decide where to send the money. For example, if you’d like to save $100 out of every paycheck, you can ask your employer to send that amount to your savings account via direct deposit and put the rest in your checking account. That’s an easy way to pay yourself first and build savings automatically.

7. No Check Cashing Fees

Check cashing fees can take a bite out of any payments you receive. If you’re tired of paying steep fees for check cashing services, that could be a great reason to open a bank account and set up direct deposit. You can get paid without having to go through a third-party company or hand over part of your earnings in fees.

8. Avoid Bank Fees

Some banks charge a monthly maintenance fee for checking and savings accounts. They may waive that fee when you set up qualifying direct deposits. If you’d like to reduce what you pay in fees without switching to another bank, enrolling in direct deposit could be a simple way to cut costs and save money.

9. Simplify Multiple Deposits

As mentioned, you can use direct deposit to receive many different types of payments. If you have income from multiple sources, then managing multiple paper checks could be a headache. Having those funds added to your account through direct deposit can streamline the way you track incoming payments.

10. Easier Budgeting

Direct deposit can also take the stress out of budgeting. If you know when your payments will be deposited and when you can expect them to clear, that can eliminate the guesswork of timing bill payments. You can plan out your budget by paycheck or by the month, using your direct deposit schedule as a guide.

Are There Any Disadvantages to Direct Deposit?

If there’s a disadvantage or downside to direct deposit it’s that not everyone is eligible to enroll. If your employer insists on paper checks, then you may not be able to take advantage of the benefits of direct deposit. You can, however, still use direct deposit to receive other types of payments.

One other thing to keep in mind is that it may take a few pay cycles to get your direct deposit going. So if you enroll on the first of the month, for example, you may not see any direct deposits until the first of the following month. That means you’ll still need to deposit paper checks at the bank in the meantime.

Another possible issue is, as mentioned above, if you don’t have a conventional bank account, you won’t be able to sign up for the service.

Also, some people may prefer to get a paper check, with the pay stub attached, so they can immediately review earnings and deductions rather than look up that info online. There may be some people as well who don’t feel comfortable sharing their banking information with an employer or other business. For them, direct deposit may not be a good fit.

How to Enroll in Direct Deposit

The process for enrolling in direct deposit can vary, based on where you’re trying to set up the payments. Generally, you’ll need to fill out a direct deposit form in person or online and tell the payer where you want the money to go.

The payer will verify your bank account information and personal information to get the direct deposit process started. You can also specify whether you want your payments to be split across multiple accounts. Keep in mind that you may be asked for a voided check or deposit slip to complete the process.

The Takeaway

Enrolling in direct deposit can make your financial life easier since it means spending less time on banking, getting faster access to your funds, and being able to be paid, wherever you may be. If you’re not enrolled in direct deposit yet, it may be worth asking your employer about whether it’s an option.

You might also consider opening a new Checking and Savings account to receive direct deposit payments. With SoFi, qualifying accounts can get paycheck access up to two days early. You’ll also enjoy other perks, like no account fees and a competitive APY on balances. Plus, our Checking and Savings account lets you spend and save in one convenient place.

Start getting paid early with SoFi.

FAQ

Does direct deposit work on holidays?

Typically, banks do not process transactions on holidays. However, if you’re enrolled in direct deposit, your employer may schedule your payment to arrive a day before the holiday so there are no delays in receiving your pay.

What happens if my direct deposit goes to the wrong account?

If you’re sending a direct deposit to a closed account, then the bank may reject the transaction and return the payment to the payer. If you’re depositing money into an account that’s open but it’s the wrong account, you’ll have to contact the bank to ask about possible solutions. You may be able to withdraw money or transfer it to the proper account if both accounts belong to you. However, if you accidentally deposit money into the wrong account then the bank may leave it to the account owner to return it to you.

How long can a bank hold direct deposit?

Banks can vary in how long they hold direct deposits before releasing the funds to you. Depending on the bank, the holding period may be anywhere from one to seven business days.

---

Photo credit: iStock/skynesher

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.

SOBK1122007

Read more

Making a budget can be the foundation of taking control of your money and reaching your financial goals. It can help you get in touch with the cash you have coming in, your spending, and your savings. Put simply, a budget can get your financial life in balance.

The math involved doesn’t have to be complicated, and a good budget can be easily revised to align with changes in your life, whether that’s a rent increase or a raise at work. Read on for the five simple steps to creating a budget that can boost your financial savvy and make your money work harder for you:

5 Steps to Creating a Budget

  1. Determine Your Financial Goals

  2. Calculate Your Income

  3. Review Your Expenses

  4. Choose Your Budgeting Method

  5. Make Adjustments

1. Determine Your Financial Goals

Setting financial goals is a crucial first step to being more intentional with your money management tactics. As in, having a purpose can give you more motivation to stick to your budget and get you on your way to creating smart financial goals that suit your life.

How to set financial goals? Start by taking time to come up with a clear idea of your short-term and longer-term aspirations. What kind of things could you dream about? Anything that’s ultimately important counts.

Examples of financial goals could include:

•  Having $1,000 in the bank

•  Hosting an amazing 30th birthday party for your partner

•  Buying a home

•  Saving enough to cover your kid’s college tuition

•  Getting some new wheels

•  Taking a dream vacation

•  Getting out of credit card debt

•  Starting your own business

•  Planning for retirement

•  Establishing and maintaining an emergency fund.

2. Calculate Your Income

Before allocating money for various spending categories and goals, you need to know how much money you have to work with each month. Calculate your income — you can look at your paystub and/or other earnings from your side businesses or second job. Or maybe you are the lucky holder of an investment account that generates dividends. Perhaps you regularly receive bonuses or tips at work. Add it all up.

💡 Quick Tip: Make money easy. Open a bank account online so you can manage bills, deposits, transfers — all from one convenient app.

3. Review Your Expenses

To make a solid, workable budget, you also need to know exactly how much money is typically going out. Pull together all your financial statements and look at how much you typically spend per month for different categories.

Budget categories can include:

•  Loans (such as student or car loan payments) and debt (including credit cards)

•  Insurance premiums

•  Housing

•  Utilities

•  Monthly food expenses

•  Childcare, child support, or related family obligations

•  Transportation-related expenses

•  Healthcare

•  Savings/investments (for instance, 401(k) or IRA automatic savings deductions).

In addition, think about some other spending categories that are more about discretionary purchases. This is about identifying wants vs. needs. For instance, in terms of wants, you can also track discretionary spending:

•  Dining out (even those lattes to go)

•  Entertainment, such as movies, books, concert tickets, and streaming services

•  Personal care (manicures, yoga classes, etc.)

•  Travel

•  Gifts or treating friends to birthday drinks or dinners

•  Non-essential clothing, electronics, home furnishings, and any other fun things you might go shopping for.

As you gather this information, you may want to look at a couple of months’ worth of records. For example, your credit card bill may vary considerably, so averaging a few months will give you a more realistic picture than checking a single month.

Once you have an idea of what you spend, it’s time to take a look at where you may be able to make adjustments.

•   Many people look at their spending as “needs” versus “wants.” A need is something required for basic existence, while a want is discretionary spending. Needs also include debt payment, so if you have a student loan or similar monthly expenses, include that in the need category.

•  Also consider looking at each spending category in terms of fixed and variable expenses. For instance, your mortgage is a fixed expense since it typically won’t change from month to month, whereas entertainment would be a variable expense since it can change. Don’t forget to look at occasional expenses — like semi-annual car insurance payments — so you can set aside money in your budget each month to account for this expense.

💡 Quick Tip: Want a simple way to save more everyday? When you turn on Roundups, all of your debit card purchases are automatically rounded up to the next dollar and deposited into your online savings account.

4. Choose Your Budgeting Method

Subtract your monthly expenses from your monthly income. How are you doing? If there’s money left over, it means you may be able to meet your financial goals. Otherwise, you may need to either cut your expenses a bit or earn more money (or try a combination of both).

Whichever direction your money is trending in, you can benefit from a budget to get your cash aligned with your goals and provide guardrails for your spending and saving.

While there are a bunch of budgeting methods, what’s most important is to find an organizing principle that works for your personal and financial style. Some options to consider:

The 50/30/20 Budget Rule

The 50/30/20 budget rule breaks up your budget using the following percentages:

•  50% on essential expenses. This category could include housing costs, utilities, car payments, debt payments (student loans, credit card minimums due, etc.), education costs, food, basic clothing, childcare, and medical expenses.

•  30% on discretionary expenses. Your discretionary expenses could include shopping, entertainment, personal care, travel, and other expenses that may not necessarily be considered essential.

•  20% toward your goals. This amount of money can go into savings and investments as you work toward things like an emergency fund, a new car, retirement, and/or covering your child’s college education expenses.

Recommended: Check out the 50/30/20 rule calculator to see a breakdown of your money.

The 70/20/10 Budget Rule

The 70/20/10 rule is another type of budgeting method. It’s similar to the 50/30/20 one, but you organize your money differently. In this case, you divide it up as follows:

•  70% toward spending on both needs and wants

•  20% toward saving

•  10% toward debt payoff and/or giving.

This budget can be a good variation for people who want to be sure they are covered for that debt payoff and/or giving category.

Zero-Based Budget

The zero-based budget system gives every single dollar a purpose so that every bit of your income is accounted for. You start with your monthly income then keep subtracting expenses (even savings or a sinking fund counts here) until you get to zero. This system can help you be more mindful since you know how your money is allocated.

The Envelope Budget System

With this technique, you write the name and cash amount you have for each spending category for a month. For example, you allocate $2,000 for housing for one envelope, and $600 for food in another. You can only spend the allocated amount in each category.

If there is no more cash in the envelope but the month isn’t over yet, you will need to wait until the next month to replenish it or borrow from another category and spend less there. For instance, if you need cash for an insurance premium that went up, you could save on streaming services by dropping a platform or two while you adjust your budget.

This method can be adapted to use debit card payments. You don’t have to literally only use cash.

5. Make Adjustments

A budget is a dynamic, living entity. Some months may be more expensive than others. For instance, you might have an emergency one month (your laptop dies) and wind up spending more (or even going into debt) to make ends meet. Life happens: use these situations to learn and readjust.

You can also look for trends in your money. If you find you are living paycheck to paycheck, you might find ways to economize (such as getting a roommate) or to earn more money.

After using your new budget plan, you should review and update it regularly. You may need to do it more often at the beginning of your budgeting journey when you’re getting used to looking at your finances in a new light. Still, it is typically useful to review your spending at the end of each month to see if your budget is still working for you. If not, then take the time to see what may be happening and tweak your spending as necessary.

Another reason you may want to make adjustments is if your life situation changes, such as you have a baby or get a divorce. Or your income may have gone up, so you will need to think strategically about how best to allocate those dollars to help you reach your financial goals.

Why Is Creating a Budget Important?

Creating a budget is important because it allows you to see where your finances stand: You see how much money is coming and how much is going out, plus what it is being spent on.

It can provide you with a snapshot of your financial life, and it can illuminate any issues you need to address. Think about it: If you don’t know where your money is going, you can easily spend more than your means, leading to more debt than you can handle. Not budgeting can also prevent you from reaching your goals, such as having enough in retirement savings or being able to afford that kitchen renovation you’re pining for.

Although some people think a budget will cramp their style, the truth is that a budget doesn’t have to hold you back, restrict you from fun, or sour your lifestyle. It can eventually set you free from the financial burdens that are keeping you from setting and reaching your ultimate life goals.

Monthly Budget Example

Here is an example of a family’s monthly budget:

Total monthly income: $4,650

Monthly breakdown of expenses:

Monthly income	$4,650
Monthly expenses
Rent	$2,000
Groceries	$400
Student loan payments	$337.50
Car payment	$150
Credit card payment	$300
Discretionary spending	$232.50
Utilities	$330
Auto & renters insurance	$150
Career enrichment class	$60
Savings	$400
TOTAL:	$4,360 ($290 surplus)

How to Handle Unexpected Expenses in Your Budget

You know how it goes: Life can be filled with unexpected expenses, such as a car repair or larger than expected medical bills. Instead of letting these derail you, work unexpected expenses into your budget.

There are several ways you can go about it, one of which is to have a bit of a buffer in your account. Meaning, you can allocate some extra cash each month just in case — any money that isn’t spent, you can roll it over onto the next month. It can act as a cash cushion in your checking account.

You can also consider building up an emergency fund, a separate set of savings in case you have unexpected expenses. The amount will vary, but a good rule of thumb for how much to have in an emergency fund is to save three to six months’ worth of basic living expenses.

💡 Quick Tip: An emergency fund or rainy day fund is an important financial safety net. Aim to have at least three to six months’ worth of basic living expenses saved in case you get a major unexpected bill or lose income.

How to Work With Your Family or Partner to Create a Budget

Creating a budget with others means being open to a conversation about what each one needs and how you can keep each other accountable. It can start by having a meeting about family spending. You can discuss and agree to budget goals and reasonable expenses and use a budget planner to help you solidify things.

Once a preliminary budget is created, find a way to ensure that everyone sticks to it. Some tactics include having one joint account to ensure everyone can track spending or having an app where your partner or family can see an overview of the finances. Whatever you choose, it’s important to meet regularly to review your budget to see whether adjustments need to be made.

The Takeaway

Creating a budget to set and reach your financial goals doesn’t have to be hard, and it can be a great way to guide your spending and saving. While there are many approaches and techniques to try, what matters most is finding one that is a good fit for you personally and helps you feel in control of your cash. By learning how to manage your money well, you can be on track to crush your personal and financial goals, whether short- or long-term.

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

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

FAQ

Why is creating a monthly budget important?

Creating a budget is important because it allows you to see where your finances stand: You see how much money is coming and how much is going out, plus what it is being spent on. It can also help illuminate any issues you need to address.

What are some common budgeting mistakes to avoid?

Common budgeting mistakes include not tracking your spending, not saving enough (say, for an emergency fund or retirement), and forgetting to plan for occasional expenses, such as membership renewals, car maintenance, and holiday gift giving.

How often should I review and update my budget?

It’s wise to review and update your budget regularly. Some people may want to do so monthly; others, quarterly. You can find the right frequency to suit your needs. It’s also a good idea to tweak your budget after big life events, such as moving, getting married, or having a child.

How can I involve my family or partner in creating and sticking to a budget?

To involve others in creating and sticking to a budget, you might first meet and develop the plan together. Then, you could share accounts and both (or all) use an app so that all involved are watching where the money is going. This can help everyone stay on track.

How can I handle unexpected expenses in my budget?

You can allocate a bit of money in your budget to be “just in case” funds. This cash cushion or buffer can help if there’s an unexpected expense. If you have a major unplanned expense, you might have to dip into emergency savings; that’s why it’s crucial to have this kind of safety net.

---

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.

SOBK1023008

Read more