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A bank guarantee is a promise by a financial institution that it will assume liability for a contract if one external party fails to uphold its obligation to another. In this way, the bank acts like a cosigner for a buyer or borrower on a business agreement, reducing the risk for the seller or lender.

For a small fee, bank guarantees often enable small businesses to enter into contracts with larger companies with which they otherwise would not be able to do business. In this article, we’ll explore:

•   How bank guarantees work

•   The different types of bank guarantees

•   The benefits and downsides of bank guarantees

•   How they differ from letters of credit.

What Is a Bank Guarantee?

Here’s what a bank guarantee is: It’s a financial instrument that adds confidence to riskier business deals. If, after doing its due diligence, a bank feels confident that an applicant (the debtor) will be able to uphold their contractual obligations, the bank will offer the guarantee to the other party (the beneficiary).

And if the applicant fails to fulfill that obligation to the beneficiary? The bank will cover the loss.

Bank guarantees are usually a part of more complex financial transactions between businesses. The average borrower won’t need to worry about bank guarantees for auto loans, mortgages, or personal loans.

Instead, companies utilize bank guarantees for much more complicated contracts around the provision of goods and services. If a vendor fails to provide goods or services that have already been paid for, a bank guarantee ensures reimbursement for the business using that vendor. Conversely, if a buyer fails to pay for goods or services that have already been delivered or rendered, the bank guarantee covers the unpaid balance for the seller.

Because a bank guarantee might protect a buyer or a seller, it’s easier to think of them in terms of the beneficiary (the company that requires a bank guarantee to move forward with a contract) and an applicant (the company that must apply for the bank guarantee to close the deal).

How Do Bank Guarantees Work?

If a contract includes a bank guarantee, that guarantee will specify an amount to be repaid (or goods or services to be delivered) and a set timeframe for that to happen. In addition, the contract will articulate the bank’s responsibility should the applicant fail to meet their contractual obligations.

To assume this risk, banks charge applicants a fee for the guarantee, expressed as a percentage of the cost or value of the transaction. While the fee will vary (perhaps from 0.5% to 2.5%), it is typically around 1%.

If the bank deems a contract particularly risky, it might require the applicant to offer collateral. Unlike with secured personal loans, where a house or car might serve as collateral, bank guarantee collateral is typically liquid assets, like stocks or bonds.

Types of Bank Guarantees

There are two main types of bank guarantees: financial bank guarantees and performance guarantees.

What Is a Financial Bank Guarantee?

With a financial bank guarantee, a bank has promised to repay a debt if the borrower (or buyer) defaults on the loan, meaning the payment. For example, an applicant may purchase goods and services from a large company, receive said goods and services, and never pay the bill. In this instance, the bank would settle the debt with the large company since it can’t come out of the borrower’s bank account.

What Is a Performance Guarantee?

A performance guarantee is just the opposite: If an applicant fails to perform the obligations laid out in contract (e.g., supplying parts to a company), the beneficiary can make a claim with the bank for the losses incurred from the non-performance of contractual obligations. Performance failure might also mean that, though the goods or services were delivered, they did not meet quality standards specified in the contract. In these situations, the bank would step in to offset those losses.

Examples of Bank Guarantees

Bank guarantees can serve many purposes, usually between two businesses. Here are a few kinds of guarantees that banks often issue:

Rental Guarantee

A rental guarantee protects a landlord when entering into a contract with a company (like a restaurant or retailer) that wants to lease a space. This guarantee serves as collateral for a rental lease.

Advanced Payment Guarantee

An advanced guarantee protects a company that has paid in advance for goods or services that weren’t delivered. You may also hear this referred to as a cash guarantee. If the deal isn’t satisfied, the company that has paid will be refunded.

Shipping Guarantee

A shipping guarantee protects a carrier when a shipment (i.e., import) arrives before required documentation. It is designed to smooth this kind of transaction when the documents have not yet become available.

Pros of a Bank Guarantee

When considering bank guarantees, you’ll see the term “beneficiary.” Don’t jump to conclusions about which party that might be. Bank guarantees can provide benefits for both the beneficiary and the applicant.

Benefits for the Beneficiary

First, let’s consider how a bank guarantee can help the beneficiary.

•   Reduced costs: A large, international company might save money in a specific region or country by doing business with a local vendor who does not have an international presence. By requiring that vendor to acquire a bank guarantee, the large company can feel confident about the decision while reducing costs.

•   Reduced risk: As mentioned above, the bank guarantee reduces the risk for the beneficiary. If the applicant fails to pay or to provide services or goods as outlined in the contract, the beneficiary can expect reimbursement from the bank.

Benefits for the Applicant

Now, here’s how a bank guarantee can benefit the applicant.

•   Increased opportunity: Bank guarantees let smaller companies and startups earn business they might not otherwise. Their newness in an industry might otherwise elicit hesitation from potential customers; a bank guarantee is often the boost needed to get business deals rolling.

•   Low cost option: All things considered, typical bank guarantee fees are low, especially when small business owners are used to dealing with higher interest rates (5.5% to 11.25%) on their small business loans, according to Experian, one of the major credit reporting agencies.

•   Credibility: Before offering a guarantee, a bank does a comprehensive, accurate assessment of an applicant’s financial standing. Earning a bank’s backing through a guarantee demonstrates that the bank finds the applicant company to be credible.

Cons of a Bank Guarantee

Both beneficiaries and applicants may encounter drawbacks to bank guarantees when initiating a contract.

Added complexity

First and foremost, a bank guarantee adds a layer of complexity to deal-making and may slow down business decisions. Companies operating in fast-paced markets may not be able to afford the delay.

Collateral requirement

If a venture seems particularly risky, banks may require collateral from applicants; this can be risky for startups with limited funding.

Lack of guarantee

Ultimately, a bank may not offer a guarantee, which means the beneficiary needs to be ready to continue its search for a new company to partner with.

Bank Guarantees vs Letters of Credit

Bank guarantees, as we’ve mentioned above, are typically used by companies bidding on large projects. The bank guarantee can underscore the business’ financial credibility. It provides assurance that a company has the financial means to complete the project in question.

Though they share some similarities with bank guarantees, letters of credit are more common in international trade. With a letter of credit, the bank is involved to a greater extent. Essentially, the bank releases the funds that the buyer owes the seller only when the seller has completed its contractual obligation (i.e., shipment has been received.)

Letters of credit instill confidence in sellers (exporters) that they will receive payment once they have shipped their goods. Likewise, importers only have to make payments (to their bank) after they have received the goods, so their funds aren’t tied up with no goods to show for it.

The Takeaway

A bank guarantee is a useful financial instrument that instills confidence between two external parties entering into a contract together. Such bank guarantees promise that the financial institution will cover any debts to one party if the other party does not meet its obligations. Larger companies often require small businesses and startups to obtain a bank guarantee before doing business with them. These guarantees can help a small or new business secure large deals since the bank has shown confidence in them.

If you want confidence in your bank for your personal accounts, consider SoFi. We help you bank smarter by offering you higher interest and no fees when you open our online bank account with direct deposit. You’ll earn a competitive APY while paying no monthly, minimum-balance, or overdraft charges.

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

What is the purpose of a bank guarantee?

The purpose of a bank guarantee is to add confidence to a contract between two parties; if one party fails to uphold its contractual obligations or defaults on a loan, the bank promises to step in and uphold the contract.

How can I get a bank guarantee?

If a business is requiring a bank guarantee to enter into a contract, contact your bank (or your business’ bank) and request an application. The bank will then review the application to determine your creditworthiness.

What are the types of bank guarantee?

There are two main types of bank guarantees: financial bank guarantees and performance guarantees. In a financial bank guarantee, the bank assures that a buyer will repay any debts owed to a seller. If the buyer does not, the bank will take on the debt. In a performance guarantee, the bank assures that the applicant will fulfill the tasks laid out in a contract. If the applicant does not, the bank will compensate the beneficiary to cover losses from the lack of contractual fulfillment.

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

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.

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If you’re wondering if it’s okay to use checks with an old address, the answer is yes…most of the time.

Encountering a checkbook with your old address isn’t so unusual these days. Checks can come in handy from time to time, but many of us don’t need to use them all too often in this era of online electronic payments. Because of this, it’s easy to see how a checkbook might collect dust and the address on the checks might become outdated.

Read on to learn when it’s possible to use checks with an old address. You’ll find out:

•   Can you use a personal check with an old address?

•   Can you use a personal check with a wrong address?

•   What about business checks with an old or wrong address; are they okay to use?

•   Do checks expire?

•   How can you update checks when you move?

•   What are alternatives to using personal checks?

Can You Use a Personal Check With an Old Address?

Can you use a check with an old address? It is possible to use a check with an old address on it as long as it still has the correct routing and account numbers on it. If those numbers properly identify which bank and account the money should come from in order to pay a check, you’re good to go. That being said, it’s a good idea to let the bank know about a change of address to ensure they send statements and other important info about the account to the correct location.

If someone were to use a check with an old address on it, it can be helpful to let the recipient know about the address being wrong just in case they need to send a receipt or create any other correspondence regarding the payment via mail.

But what if the check writer got a new bank account number or the bank changed routing numbers (this can happen, for instance, when one bank merges with another)? In this situation, it is necessary to order new checks with the correct information on them. This is a great time to update the address on the check, too. Making sure a check’s routing numbers and account number are accurate is something to take seriously. If someone knowingly writes a check for an account that has already been closed, this is considered a form of fraud known as writing a bad check. Because of this, it’s a good idea to confirm check details are current and accurate whenever you move or switch banks to, say, open a new checking account.

Can You Use a Business Check With an Old Address?

It is possible to use a business check vs. a personal check that has an old address on it as long as the account number and routing number are accurate. The main difference between business checks and personal checks is that business checks can be a bit harder to deposit in a personal checking account. This however doesn’t really affect the person writing the check.

Can You Use a Personal Check With a Wrong Address?

It’s fair to wonder, is it okay if my checks have the wrong address? Whether it’s a typo or you moved, this situation definitely happens.

While writing a personal check with the wrong address on it isn’t ideal, it is possible to use one. As mentioned earlier, as long as the routing number and account number for your checking account are accurate, the check can be cashed properly. All of that being said, the check writer may want to inform the check recipient of their current correct address in case they need to mail them a receipt or any other type of communication.

Can You Use a Business Check With a Wrong Address?

As explained earlier, it is possible to write a business check with the wrong address on it as long as the routing number and account number listed on the check remain accurate. Most businesses will want to order new checks with the correct address on them to avoid confusion surrounding where their business is located and where correspondence should be directed. But they don’t need to worry if they have old checks left to use up. They should still be fine to issue.

Do Unwritten Checks Expire?

How long will a check be good for? As long as someone keeps their account open and the correct account number and routing number remain on a check, they won’t expire. However, there is still a situation to consider. If someone closes a bank account, this means the checks associated with the account become unusable. Another situation to be aware of is that bank routing numbers can change, especially when banks merge. So it’s always worth confirming if a check’s information is up to date.

When Are Checks With an Old Address Unusable?

As we mentioned, checks with an old address on them only become unusable if the routing number or account number listed on the check are inaccurate. This causes problems because these numbers are used to verify that the check is good and identify the account the money needs to be withdrawn from in order to process the check.

Ordering New and Correct Checks

If someone needs new checks for any reason — such as a desire to update their address — these are the steps they’ll generally take to order new ones.

•   Log on to their online bank account. It’s usually possible to order checks online or via a mobile account dashboard.

•   Request a counter check. If someone is really in a rush and can’t wait for new checks to come in the mail, they can go to a local bank branch and purchase counter checks. These will have your account information on them, and they typically cost $1 or $2 per check.

•   Review terms and fees. All banks charge different fees to buy checks or a checkbook, so double check how much doing so will cost.

Changing Your Address on Checks

Can you use checks with your old address? You can.

•   If you need to change the address listed on the checks in your personal checkbook, order more checks via one of the methods previously mentioned. This can be done online or in-person at the bank.

•   An alternative would be to use stick-on address labels to cover and replace the old address that appears on your checks.

Do You Need to Write Your Address on a Check?

Checks typically have an address already printed on them. Therefore it is not necessary for the check writer to write it on the check themselves. However, some people may prefer that only their name appears on their checks. Maybe they know they’ll be moving soon, or perhaps they simply prefer this for privacy and security reasons. If you do need to write your address on a check that doesn’t have your address:

•   Use blue or black pen

•   Print your new address under your name at the upper lefthand corner of the check

•   See if the business or merchant wants your phone number as well; this is a fairly common request so they can reach you if necessary. An altered check may not inspire complete confidence.

Do Checks Need an Address?

Checks do not need to have an address printed on them. However, if you choose to omit an address (say, because you know you’ll likely be moving soon), some businesses may hesitate to accept the check. They might ask for a form of ID or a phone number in case they need to contact you.

Alternatives to Personal Checks

If someone doesn’t want to write a check for whatever reason, these are some of their alternative payment options.

Money Orders

It’s possible to buy a money order from the post office and other select locations. Money orders are a very quick form of payment, and can cost less than $2 in fees.

Cashier’s Checks

A cashier’s check, which usually costs a small fee, can be bought at the bank and is a check that is guaranteed by the bank. It will usually require a visit to the bank to get one, though.

P2P Money Transfer Apps

Here’s a very convenient payment option: P2P money transfer apps — like Venmo — that allow users to instantly transfer cash electronically to an individual as long as they have enough money in their bank account. These may be free to use or can involve a small fee (a percentage of the transaction) depending on a few variables. (Sometimes e-checks, or electronic checks, are a payment option for utilities and other accounts. While not a P2P app, they do allow for a seamless transfer of funds.)

The Takeaway

As long as the routing and account numbers on the check are accurate, it’s possible to use a check with an old, incorrect address on it. That said, it’s a good idea to order new checks with the correct address on them to help lessen any confusion the wrong address might cause with check recipients. Having all your details correct can help make banking as simple as possible.

Here’s another way to simplify your financial life: Manage your money with SoFi. It’s a better way to bank. Sign up for online banking with direct deposit, and you’ll earn a competitive APY. What’s more, we don’t charge you any of the usual fees, like monthly, minimum-balance, or overdraft charges.

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

Does it matter if the address on my check is wrong?

If you’re wondering, “Can I use old address checks?” here’s the answer: It is possible to use a check with a wrong address on it. The key is to make sure the routing number and account number is still accurate on the check before using it.

Can you cash a check with an incorrect address?

Cashing a check without the correct address on it is possible. Just make sure the recipient knows the writer’s current address in case they need to contact them.

Do checks need an address?

Checks commonly have an address on them, but it’s not a requirement. If you are using a check without an address, the business or service you are playing may require some additional ID or info.

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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.

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Opening a business checking account isn’t much different from opening a personal account, but it’s an important step when it comes to running your business. A business account can help you keep your personal finances separate from your professional transactions. This, in turn, can make growing your credibility and completing your taxes easier, among other benefits.

The requirements to open a business checking account tend to vary, depending on the financial institution and other factors like your location and business entity. But, in most cases, it’s generally a straightforward process to start one.

Let’s take a closer look at:

•   What a business checking account is

•   How it works

•   How to open a business checking account.

What Is a Business Checking Account?

If you have a personal checking account, you may wonder, “What is a business checking account anyway? Do I really need a separate account?” Let’s get those questions answered. A business checking account is similar to a personal checking account in that you have flexibility in your day-to-day banking. Depending on the type of account, you may be offered features such as unlimited transactions, a debit or ATM card, and check-writing capabilities.

In some cases, you may even be able to earn interest. But, and this is important, business checking accounts are meant to house a company’s funds. Therefore, there may be different features and requirements to maintain the account. Check with a few banks to get acquainted with the details.

Now, for that second question — “Do I need a separate business account?” — the answer is probably “yes” if you own a business. Even a brand new, currently part-time endeavor may need a small business account. In terms of a business vs. personal checking account, you want to keep that biz income separate for tax purposes and to gain legitimacy for your enterprise. Also, if you need to be paying employees or vendors, a business account is the way to go, so as not to get those kinds of transactions mixed up with, say, your home-loan payments and other personal expenses.

How Does a Business Checking Account Work?

Business checking accounts are quite similar to personal checking, but they typically have different limitations, fees, and balance requirements. For instance, business checking accounts may come with higher bank fees, especially if your business deals with a large amount of transactions. In that same vein, there may also be higher minimum balance requirements to waive monthly fees or to earn interest.

That’s not to say they aren’t budget-friendly options. Many online business checking accounts are being offered to smaller businesses or sole proprietors, though they may not offer interest earnings.

You can use a business checking account to conduct transactions such as bill paying, receiving funds, and writing checks. In many cases, you may even be able to order debit cards for you and your employees to withdraw money and make purchases. The primary account holder (such as the business owner) can set ATM withdrawal limits and spending limits for employee cards.

Can Anyone Open a Business Checking Account?

Almost anyone can open an bank account as long as they have the right type of documentation. In general, you’ll need to prove that you own a business. Now, what if you’re a sole proprietor or an independent contractor (say, a gig worker)? Even if you don’t have the usual kind of paperwork, you may still be able to open a business checking account. However, you’ll probably need to speak with the bank to see how you can do so.

What You Need to Open a Business Checking Account

The types of documentation you’ll need to provide depends on the bank at which you’re opening a business bank account and also on your legal business entity. Typically, sole proprietors will only need to provide their personal information, whereas LLCs and corporations will need documentation about the company and details from each of the majority owners.

Here’s a list of what kind of identification and documentation you’ll most likely need to provide to start your account. This applies whether you are heading to a bricks-and-mortar branch or opening an online business checking account:

•   Personal information: Financial institutions will require some form of government-issued photo ID such as a driver’s license or passport. If you have multiple business owners, then banks may require personal details of each owner.

•   Employer Identification Number (EIN): Every business should have an EIN, though sole proprietors and single-member LLCs may be able to submit their Social Security number in their application.

•   Business details: You’ll need to provide your business name, address, and, if applicable, your DBA (doing business as) name. In many cases, you’ll also need to disclose the industry your business falls under.

•   Documentation: Depending on your business entity, you’ll have to provide your business name registration certificate, business license, articles of organization, partnership agreement, and operating agreements.

•   Opening deposit: To finalize your business account opening, you may be required to deposit a certain amount of money. Check with your financial institution to determine what that amount would be.

Do I Need Revenue to Open a Business Bank Account?

Most banks don’t require you to be earning revenue in order to open a business checking account. That means if you’re starting a business, you don’t need to wait until you earn a certain income to open that account. So it can be a smart move to put opening your business checking as one of the first items on your to-do list when you start your enterprise. As long as you have the required documentation needed, you should be able to open an account.

Benefits of a Business Checking Account

Opening a business checking account comes with a myriad of benefits, including:

•   Liability protection: If you use a personal checking account for business purposes and have legal issues, it’s more likely that a court will have the right to go after your personal assets. That’s because it doesn’t look like you’re operating a separate business. Opening a business account generally shields you from this potential issue, especially if you’re registered as an LLC or corporation.

•   Tax simplification: Having a business checking account allows you to completely separate your personal and business finances. That way, it can help you include all the transactions you need to file your taxes accurately and efficiently. Plus, it’ll be easier to scrutinize your expenses to see whether you can identify further deductions.

•   Credibility: Your business may be taken more seriously if you used a business checking account. Your clients or vendors may be more likely to trust you if your payments or checks are coming from an account with your business name on it. These types of accounts also help when you decide to apply for small business financing or credit card. In other words, establishing your business could show business credit bureaus you’re serious enough of an entity to create a credit report for your company.

•   Potential future growth: Having a business checking account can help prevent any potential hiccups down the road, such as having to find ways to make payroll for your employees.

Things to Consider When Choosing a Business Checking Account

Many banks offer different business checking accounts suited to a variety of needs, so it’s important to look at the following features when making your decision. There’s probably an account available that fits your needs just about perfectly:

•   Fees: Most business checking accounts charge monthly maintenance fees. You may be able to have them waived, but you’ll need to meet certain requirements such as maintaining a certain balance.

•   Interest rates: In general, interest rates for business checking accounts are lower when compared to savings or money market accounts. However, you may still be able to earn a small return on your deposits. Assuming the fees may be higher for interest-bearing accounts, do some calculations to determine whether the APY makes it worth paying them.

•   Transaction limits: Business checking accounts tend to come with deposit and withdrawal limits per month. If you go over a certain limit, you may be required to pay an additional fee.

•   Bundled services: Some business checking accounts may offer unlimited employee debit cards, dispense free checks, or waive fees if you sign up for a business credit card or merchant services.

Do You Need a Business Checking Account?

Getting a business checking account is a smart move for anyone looking to launch and grow their business. Even if you’re the only employee (and plan to be for a long time), having this type of account still makes sense.

However, if you’re running a side business, are a gig worker, and don’t intend on venturing away from your full-time job, it might not be necessary. As long as you keep meticulous records to ensure you know what your business transactions are, you may be able to get away with only having a personal account. Note the use of the word “may.” If your business grows or just keeps chugging along for a number of years, you may at a later date regret not having gotten a separate business account. It can simplify and clarify your finances.

The Takeaway

If you’ve started or are running your own biz, it’s a smart idea to open a separate account to differentiate your business and your personal transactions. Applying is typically quite straightforward, involving presenting identification and other business documents. In return, you’ll get the flexibility, legitimacy, and services you need to conduct business professionally. Plus, you’ll keep your enterprise separate from your personal finances and avoid confusion.

If you’re looking to rev up your personal banking, however, give SoFi a look. Open linked Checking and Savings with direct deposit, and you’ll have access to your paycheck up to two days early, you won’t pay any account fees (including no overdraft fees) and you’ll earn a competitive APY.

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

What is the difference between a personal and business checking account?

Both types of accounts are similar, except business checking accounts are meant for corporations and business owners, and they feature services that cater to professional needs.

What is the purpose of a business checking account?

The purpose of a business checking account is to facilitate banking for businesses with needs like paying vendors and employees and paying for supplies. It also separates personal and business assets for liability purposes. What’s more, a business account provides a company with more legitimacy.

What makes an account a business account?

Business accounts are designed for professional needs, which may mean many more transactions than a personal account typically engages in, as well as ways to pay employees and vendors. They may have merchant services too, which incorporate credit and debit card payments.

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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.

Photo credit: iStock/Halfpoint
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Looking good comes with a cost. Ask cosmetologists. The average price of beauty school is $16,000 a year.

A career in cosmetology can be rewarding. You get a creative outlet and a chance to help others look their best. It also offers flexibility for a good work-life balance. But the licensing process can add up.

Cosmetology and esthetics programs are offered through community, technical, and vocational colleges — accredited institutions that qualify for financial aid. Accreditation broadens the range of financial aid options. Prospective students can consider interest-free payment plans, financial aid from schools, scholarships, grants, and loans from the government or private entities. Read on for more detailed information on the types of financial aid that pay for cosmetology school, and what options don’t.

Esthetician vs Cosmetology School

Esthetician (or aesthetician) licenses specialize in skincare treatment, recommendations, and analysis. Treatments include facials, massages, and waxing. With this license, you can work at spas, salons, or doctor’s offices, such as plastic surgeons or dermatologists.

Cosmetology covers the creative styling of hair, skin, and nails — but also provides basic training in treatments. Students can get an esthetician license through a cosmetology program. A career in cosmetology can lead to work as a makeup artist, hairstylist, or manicurist. License holders typically work in salons, spas, the entertainment industry, and hotels or resorts. The table below outlines some of the differences between an esthetics license and a cosmetology license.

Field	Esthetics License	Cosmetology License
Average School Tuition	$7,433 average of top ten US schools	$16,000
Subjects	Techniques and science behind skin care treatments. Specific subjects include skin anatomy, facial and makeup techniques, hair removal, and medical office esthetics.	Hair, skin, and nail care and styling. Specific subjects include dermatology, makeup, and haircutting.
2021 Median Salary	$37,300/year	$29,680/year
Job Growth 2020-30	29% (Faster than US average)	19% (Faster than US average)
Types of Jobs	Skin care specialist (esthetician), makeup artist	Hair Stylist, nail technician, makeup artist, barber

Be sure that your school is state-approved. You can search for schools through your local government’s licensing process. Also, it’s helpful to know whether your certificate is transferable to other states and which states accept it. This way, your time and resources aren’t lost.

Below are organizations that can help you find accredited and state-approved programs:

•  Accrediting Commission of Career Schools and Colleges (ACCSC)

•  Accrediting Council for Continued Education & Training (ACCET)

•  Council on Occupational Education (COE)

•  National Accrediting Commission of Career Arts and Sciences (NACCAS)

Typical Cost of Beauty Schools

Beauty school programs are generally more affordable than the average four-year program. According to the College Board’s annual Trends in College Pricing report, during the 2021 school year, the average cost of tuition at a four-year nonprofit institution was $38,070. Cosmetology students, in contrast, can expect to pay around $16,000 to complete a degree in their field. But beauty school students still borrow $7,300 per year on average.

Esthetician School

Requirements for esthetics licenses vary by state. Connecticut is the only state that does not require a license.

Students can expect to complete 300 to 1,500 hours depending on state program requirements. Most states require students to pass a state-issued exam to obtain a license after completion of a program. For example, Washington requires students to complete a program of not less than 750 hours and to fill out a license application.

Students can also specialize in esthetics as part of their overall cosmetology program.

Cosmetology School

Each state requires a cosmetology license in order to practice. While requirements differ, most states require three things: you must be 16 or older, hold a high school diploma, and have completed a state-licensed cosmetology program.

Some states also require an exam in order to obtain a license. And some require regular license renewals.

While states can issue a license that covers all cosmetology specialties, some require separate licenses in specializations such as barbering or manicures.

Programs range anywhere from 1,000 to 2,100 hours across states, and usually include retail and business admin training to supplement. Specializing in a field, such as nail care, requires additional hours. Finally, programs are hands-on—meaning students have limited online options.

To find out your state’s requirements, the National-Interstate Council of State Boards of Cosmetology has a registry of state offices. ​​

Possible Funding Source #1: FAFSA®

Does FAFSA pay for cosmetology school? Yes! But, students who apply must be enrolled in an accredited program to be eligible.

The first step to applying for government financial aid is filling out a Free Application for Federal Student Aid (FAFSA) form. New forms are released each year on October 1st — and the sooner you complete one, the more likely federal grants will be available.

Information provided on the FAFSA helps to determine your eligibility for federal student aid. The government, states, and colleges also use it to determine the amount of financial aid to award you. Schools you list in your form will review your FAFSA and put together an aid offer. If your school’s financial aid does not cover the entire cost of tuition, you can use the FAFSA to apply for federal grants and student loans.

Not familiar with setting up FAFSA? This FAFSA guide provides an overview of the form and the aid options available through the FAFSA. Here’s a brief explainer on some of the aid types that may be available to students.

Recommended: FAFSA 101: How to Complete the FAFSA

Pell Grants

The government awards Pell Grants to students from lower-income families and who have not previously earned a degree. Unlike loans, they do not need to be repaid.

The Pell Grant’s 2022-2023 maximum is $6,895 and students may be eligible for up to twelve terms. The amount is determined by the following:

•  Expected Family Contribution (EFC), or the amount your family can pay

•  Cost of Attendance (COA), finalized in your school offer letter

•  Full-time or part-time status as s student

•  Length of your school’s academic year

Schools will disburse the federal grant to you directly, apply it to your tuition, or both. In order to receive Pell Grants, students must stay enrolled in their respective program of study and fill out the FAFSA form each year.

Direct Subsidized and Unsubsidized Loans

The Department of Education also offers Direct Loans. Cosmetology students may be eligible for either subsidized or unsubsidized loans. The government pays for the interest rate of subsidized loans as long as you’re enrolled in a program, for the first six months after leaving school, and during qualifying deferment periods. Interest rates for unsubsidized loans are not covered. Subsidized loans are awarded based on financial need, while unsubsidized loans are not.

Applying for a federal loan offers these key advantages:

•  Low fixed interest rates

•  Flexible repayment plans

•  Possibility of forgiven loans

•  Deferment and forbearance options

Parent PLUS Loans

PLUS loans are available to parents of undergraduate students or graduate or professional students. They offer some of the advantages of federal Direct Loans, but offer higher borrowing limits.

Parents can apply for Parent PLUS Loans on behalf of their children as well. Unlike other federal student loans, these types require a credit check and are not based on financial need.

Possible Funding Source #2: Scholarships

Research scholarships. A good place to start is with your school. Their aid letter will outline scholarships awarded from its program. You can contact them to see if there are additional scholarships you can apply for at the school.

Professional associations also offer scholarships based on need or merit. The below beauty industry associations have lists of scholarships.

•  Professional Beauty Association

•  National-Interstate Council of State Boards of Cosmetology

•  American Association of Cosmetology Schools

The U.S. Department of Labor also offers a free scholarship finder .

Finally, ethnicity-based groups, employers, or your parent’s employers may also offer tuition assistance and scholarships.

Possible Funding Source #3: Working Part Time

Since cosmetology programs are shorter in duration — working part-time to help pay for college is feasible. Try getting work in your field — as an assistant or admin at an office. That way, you can learn while getting paid — and even get a foot in the door.

Studying and working is a fine balance. It depends on how much time you can commit. If studying fills up most of your week — you may not be able to focus on studying for the career you hope to work in and may also hurt your score needed to pass exams needed to work in the industry.

You can even find working cosmetologists to get advice on how to do both.

Possible Funding Source #4: Private Student Loans

After exhausting all other avenues of aid, private student loans can help cover the difference. A private undergraduate student loan can be offered through banks, credit unions, and online lenders. They can be applied to a range of programs, even applied towards paying for CDL school.

Lenders will perform a credit check to determine your interest rate and how much you are eligible for. Students who don’t have credit scores will need a cosigner, usually a parent.

Possible Funding Source #5: School-Specific Financial Aid

Financial aid availability depends on your school.

Aveda Institute Maryland, for example, offers financial assistance for current and former military servicemen. Paul Mitchell Schools also offer three forms of military financial aid. One includes a My Career Advancement Account Scholarship Program for military spouses.

Delgado Community College in New Orleans provides financial assistance on a first-come, first-serve basis. Students must complete a FAFSA, online scholarship form, and accept or decline their aid offer letter.

Possible Funding Source #6: School-Specific Payment Plans

College tuition payment plans are an option. Instead of paying tuition upfront at the beginning of the year, students pay tuition in installments.

Payment plans are an excellent alternative to taking out loans since plans are generally interest-free. Check with your school for eligibility requirements and deadlines for enrollment periods.

The Board of Cooperative Educational Services in Western Suffolk, Long Island, and Alexander Paul Institute of Hair Design offer no-interest payment plans.

Explore Private Student Loans With SoFi

Cosmetology and esthetician careers require state-approved schooling and licenses. These accredited programs are covered by federal financial aid, and some schools offer financial aid. Zero-interest payment plans can also be a huge help to pay for a program.

If you still come up short of tuition, you can explore private student loans.

SoFi offers student loans that offer qualifying borrowers competitive private student loan rates. Plus, there are no fees and flexible repayment plans. The application process can be completed online.

Find out if you qualify for an undergraduate student loan or graduate student loan in just a few minutes.*

FAQ

Can FAFSA be used for beauty school?

Yes. States require students to participate in state-approved accredited beauty schools to obtain a license. Students enrolled in post-secondary programs at accredited institutions qualify for financial aid.

Do you work and earn money while in cosmetology school?

Students typically cannot work in their field without a license, unless it’s an unrelated job in the industry. Find out if your school participates in the Federal Work-Study Program. These programs are available to part-time or full-time students with financial needs. Students will usually find jobs at their school or private for-profit employers that have agreements with your school. The jobs are typically relevant to your field of study.

Are beauty schools accredited? How do you select a good program?

Yes, beauty schools can be accredited for post-secondary education. Always check to make sure your program is accredited to avoid predatory schools with poor programming. Consider starting your search with state license departments. The National-Interstate Council Of State Boards Of Cosmetology has a directory of all 50 states’ centers.

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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.

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

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It may not be a fun thing to think about or talk about, but it’s important to get your estate planning organized. Unfortunately, death doesn’t just happen to other people. We should all get our affairs in order so that our loved ones can focus on grieving and moving on once we pass.

Of course, a “getting your affairs in order before death checklist” may not rank as the ultimate way to kick off a relaxing weekend, but you will rest easy once it’s all said and done. Luckily, it’s not nearly as painful as you might think. It can be less painful than doing your taxes every year. Here, we break it down for you into 12 steps.

12 Estate Planning Must-Haves

Estate planning isn’t just something for retirees or people with multiple homes. All of us need to take this step and determine how and by whom decisions will be made if we are incapacitated or near the end of our life. We also need to funnel our assets to the appropriate people when our time on earth is over.

It can sound grim, we grant you that, but it’s actually a gift to your loved ones to get all of this taken care of. So let us take you through the dozen items to wrangle so you know your affairs are in order.

1. Last Will and Testament

This is super-important because it outlines how your estate (your assets) will be divided. A will is a legal document that serves a couple of important functions. Wills are mainly used to specify how you want to distribute your assets. Assets can include things like personal property, real estate, cars, bank accounts, art, jewelry, or stocks. Despite what some people think, you can give your assets to anyone. You aren’t limited to immediate family. You can even donate your assets to charities or nonprofits if you wish.

A will also ensure that the people you care about are taken care of after you have passed away. If you have any children, a will can name whom you intend to become their guardians if you die. It can also do the same for pets.

You can create a will online using digital tools (you will need it signed and witnessed, though) or work with an attorney, often for under $1,000, to create one.

Recommended: What Happens If You Die Without A Will?

2. Proof of Identity

When the time comes for a will to be put into effect, an executor of the estate plays a crucial role. This individual, who you can name in your will, carries out your will’s instructions. To help this person do their job, make sure you have all of your IDs in one place. Documents you will want to have may include:

•   Birth certificate

•   Social security card

•   Armed forces discharge papers

•   Marriage certificate

•   Prenuptial agreement

•   Divorce certificate

This will make following your directives that much easier.

3. Digital Logins and Passwords

In recent years, our digital lives have become inextricably woven into our “real life.” It’s not uncommon for people to have dozens of digital accounts, containing vital information about our assets. Should you fall ill or suddenly die, your loved ones will likely need to access some of them. For example, you may have financial account information there, and email may be how you interact with some of your closest friends and colleagues. Fortunately, there are many ways to properly document and keep track of your online accounts. Whether you use a digital vault, an integrated password manager, or simply pen and paper, you should establish a system for your loved ones. You can pass this information along to your financial power of attorney to deal with, or you can name a digital executor to close your accounts and distribute your assets.

4. Property Deeds and Titles

Any titles you have for cars, homes, or real estate need to be gathered and put in a safe place. Details on that “safe place” need to be shared with one or two key people in your life, like your next of kin and/or your will’s executor. However, just gathering these items doesn’t mean you can necessarily spare your loved ones the process known as probate. Probate is a potentially complicated and expensive process in which a deceased person’s property is reviewed and allocated. Having a will is of course an important step, but with real estate, for example, things can get complicated even with that document in place. To skip the probate process, you can create a revocable living trust (which is discussed below), and then transfer ownership of your properties to it and list the trust as the current owner.

It’s important to remember that any names on titles or deeds will overrule anything you write in a will. For example, if you bought a car with your ex-wife a few years before you got a divorce and her name is still on the title, it won’t matter whose name you write in your will. She will inherit the car because it is her name that is on the title.

5. Revocable Living Trust

Above, we mentioned the potentially drawn-out and expensive process of probate and why you would want to take steps now to help your loved one’s avoid it later. Let’s drill down on one way to do just that. A revocable living trust is a type of legal instrument that allows you to use and control your property while you’re alive, but also change who inherits it at will. If you have one legally established, it allows all of the assets you entrust to it to skip probate, meaning your beneficiaries can receive your assets much more quickly.

After you’ve created a revocable living trust, you must also name a ‘successor trustee’ to manage your trust. This person will be responsible for distributing your assets to the proper beneficiaries.

Recommended: What Is A Trust Fund?

6. Debts

It would be nice if all debts vanished when our lives ended, but, sorry, that’s not how things work. Your beneficiaries are going to need to know about and potentially address your debts (these are often paid out from your estate before the remaining assets are distributed). To smooth the process, compile a list of all your debts. This may include things like:

•   Auto loans

•   Credit cards

•   Mortgages

•   Personal loans

•   Student loans

On your list include contact information for the lender, your account number, login information, and approximate debt amount. For credit cards, include a list of frequently used credit cards and ones you simply have but rarely use. If you have a lot of open cards in your name, and aren’t quite sure how many you have, you may want to get a free credit report from Annual Credit Report .

7. Non-probate Assets and Beneficiaries

If you have assets that are able to skip probate, meaning they can be transferred directly to the named beneficiaries after you die, then you should keep up to date on naming beneficiaries (say, if a death or divorce has occurred) and keep a list of these assets with account details. Which details exactly? Details like where any paperwork or policies are, account numbers, and contact information for the issuing entity are a good place to start.

Non-probate assets include such things as:

•   Insurance policies

•   401(k) accounts and IRAs

•   Pensions

Non-probate assets should not be listed in your will because any designations you make with each institution will override anything you write anyway.

8. Financials

While you are gathering all of your estate materials, make sure to keep a neat list of all your login and password information for the following:

•   Bank accounts

•   Car insurance

•   Credit cards

•   Health insurance

•   Home insurance

•   Life insurance

•   Loans

•   Pension plans

•   Retirement benefits

•   Tax returns

If everything is online, you may want to make sure every account is listed along with your other digital accounts in your password manager or digital vault.

9. Advance Healthcare Directive

An advance healthcare directive (also known as an AHCD) allows you to decide, in advance, how medical decisions should be made on your behalf if you are unable to communicate your wishes. AHCDs typically have two parts: designating a medical power of attorney (you may also hear this called a healthcare proxy; we share more on this below) and a living will.

A living will describes and outlines your medical care wishes just in case you are ever unable to communicate them to your healthcare providers or loved ones. It can describe any aspect of healthcare preferences, and can include things like:

•   End-of-life requests

•   Medications

•   Resuscitation requests

•   Surgeries and surgical procedures

10. Power of Attorney

This is an important part of putting together your estate-planning checklist. The goal here is typically to make sure that, if you were incapacitated (say, due to dementia or a medical emergency), someone could act on your behalf. When you give someone power of attorney, that person then has legal authority to manage all of your affairs. There are two types of power of attorney: financial and medical.

A financial power of attorney is responsible for:

•   Accessing your bank accounts to pay for healthcare, bills, groceries, and any other housing needs you have

•   Collecting upon any debts you have

•   Filing taxes on your behalf

•   Applying for benefits, such as Medicaid

•   Making investment decisions on your behalf

•   Managing any properties you own

A medical power of attorney (also sometimes referred to as a healthcare proxy) is responsible for:

•   Choosing which doctors or care providers you see

•   Deciding what type of medical care you receive

•   Will advocate if there are disagreements about your care

It’s not uncommon for one person to be designated as both a financial and medical power of attorney, but they don’t have to be the same person. It often provides tremendous peace of mind to know you have designated who will look after your best interests in the situations outlined above.

11. Funeral Wishes

Okay, take a deep breath for this one. It may sound morbid at first, but wouldn’t you want your earthly remains and any celebration of your life to reflect your wishes? So it can make sense to spell out what you want to happen to your body (say, burial, cremation, organ donation).

You can also detail funeral wishes. This typically includes things like what type of music you want to be played or passages to be read, and you can even specify that you want charitable donations instead of flowers.

Whatever you decide, just make sure you communicate your wishes. Unlike other things on this list, there isn’t a formal, legal document you need to sign, but you can usually include your wishes somewhere in your will.

12. Speak with an Estate Planner

Now that you’ve read almost all of this estate planning checklist, you should still consider getting some skilled guidance. Even if you’re completely comfortable writing up legal documents, it’s a good idea to visit an estate planner to make sure you’ve covered all of your bases. He or she may have recommendations for you that can save everyone money and better protect your beneficiaries.

Recommended: Estate Planning 101: The Basics of Estate Planning

The Takeaway

While it can be a difficult topic to think about, estate planning takes time and patience. If you have children, dependents, or a spouse, clear up a weekend and do it as soon as possible. Life happens fast even in the best of circumstances

Estate Planning Made Easier: SoFi and Trust & Will Partnership

Now that you know the steps involved, here’s a super-simple way to approach some of these to-do’s: with a digital estate planning partner. No in-person sales pitches or long phone calls required! SoFi has joined forces with Trust & Will^*, a leading provider, and offers a 10% discount to help you purchase Guardian, Will, or Trust-based estate plans.

Interested in the easy and reliable route to estate planning? Check out what’s offered by SoFi in partnership with Trust & Will.

Photo credit: iStock/Kerkez

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^*Trust & Will, a leading digital estate planning platform, is offering a 10% discount specifically for SoFi members. No promo code required. The 10% discount is automatically applied at checkout to the initial purchase of any Guardian, Will, or Trust-based estate plan.
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Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

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