Jun
28
2024
Guide to Market-Linked Certificates of Deposit (CDs)

Guide to Market-Linked Certificates of Deposit (CDs)

By | Growing Wealth, Investing, money | Comments Off on Guide to Market-Linked Certificates of Deposit (CDs)

A market-linked certificate of deposit (CD) tracks a basket of underlying securities, or an index like the S&P 500. They differ from traditional CDs, which generally pay a fixed rate of interest. These accounts are sometimes called equity-linked CDs or stock CDs.

A market-linked CD (MLCD) is similar to a traditional certificate of deposit, in that it’s a time-deposit account with a fixed term during which the investor’s funds are unavailable. The principal (though not the gains) is federally insured up to $250,000. But market-linked CDs come with some risks — including the possibility of zero gains at maturity.

What Is a Market-Linked CD?

As noted, a market-linked CD tracks an underlying index or collection of securities, rather than paying a fixed rate of interest. Investing in CDs offers some familiar advantages, chiefly that the CD investor can deposit their funds for the specified term (typically a few months to a few years), and count on a steady rate of return until the CD reaches maturity.

The CD’s total return is unlikely to be high, especially when comparing deposit accounts, because it’s based on current interest rates, but there is little to no market risk. Traditional CDs are federally insured, whether by a bank or a credit union, for up to $250,000. For this reason, traditional CDs are considered a fairly low-return, low-risk investment.

Market-linked CDs share some of these features — e.g. the investor deposits funds for a set period of time, and the funds are unavailable until the CD matures. But the returns of an MLCD are, as the name suggests, linked to the stock market, which adds in a layer of potential reward, but also potential risk.

Unlike traditional CDs, which are considered cash equivalents, market-linked CDs are more like securities. The reason for creating market-linked CDs goes back to the days when banks couldn’t sell securities, and these products offered investors a workaround.

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How Do Market-Linked CDs Work?

Unlike traditional CDs, market-linked CDs do not offer fixed interest payments. Rather the return is based on the underlying investments or market index the CD tracks. Some of these market benchmarks include equity, commodity indexes, or a basket of commodities or currencies. But investors don’t see precisely the same gains and losses as the market.

Typically, the upside of MLCDs is capped in one of two ways. For example, the return on a market-linked CD will be determined by its participation rate, i.e. the percentage of the upside you will see. For example, an 80% participation rate means you only receive 80% of the gains from the underlying market. An interest cap refers to an MLCD where there is simply an upper limit for any gains.

Fortunately, the principal amount deposited in the CD is protected. At maturity, investors will get their full deposit back. But if the market underperforms, the CD may not have any gains. In other words, at maturity there is no guarantee your return will be more than your deposit amount.

Recommended: How Do CD Loans Work?

How to Calculate the Return of a Market-Linked CD

To calculate the return of a market-linked CD, financial institutions average out the close price of the underlying index over a certain period of time. For this method, you can take the average of the index’s different values in two different periods.

Another method you can use is the point-to-point method, which involves identifying two values. The first is the value of the index when the market-linked CD was issued, and the other is the value of the index before the CD’s maturity date, which is referred to as the ending point. The difference between these two values will yield the expected return on your market-linked CD.

The final return also assumes that the funds are left in the CD until maturity. Withdrawing funds earlier than the maturity date — whether that’s two months or 20 years — will likely trigger early withdrawal penalties.

Pros of Market-Linked CDs

Market-linked CDs have several favorable characteristics that may be appealing for investors who are looking for alternatives to conventional CDs, or directly investing in the stock market without having too much risk exposure.

•   Protection: Market-linked CDs protect your principal and when held to maturity, the principal is backed by the bank that issues it. In the scenario where the underlying market declines during the period where you hold the CD, investors are protected from losses.

•   Insurance: Market-linked CDs are also FDIC- or NCUA-insured for up to $250,000 on the principal investment, not investment earnings.

•   Potential for greater returns: Market-linked CDs have the ability to provide investors with higher returns than traditional CDs. Because the underlying is based on a collection of stocks, commodities, or indexes, there is a chance market-linked CDs can outperform traditional CDs.

•   Return on original deposit: At time of maturity, you will get the full amount of your original deposit regardless of the performance of the underlying market index or securities. If you choose to sell your market-linked CD prior to maturity on the secondary market, there is no guarantee that you will get the full amount of your principal back.

Cons of Market-Linked CDs

Investors must also consider the risks associated with holding market-linked CDs.

•   Liquidity risk: Investors must be aware that when opening a market-linked CD, they are locking up their money for a period of time, and they must be willing to hold on to the CD through its maturity to achieve the full benefits, even though they are not obligated to do so. If you need access to the capital in the CD and want to withdraw money, you may incur withdrawal fees.

•   Market risk: Market-linked CDs that are linked to the equity markets are subject to volatility, which can impact the market-linked CD returns. Other factors can influence market-linked CDs such as changes in interest rates.

•   Taxes: MLCD earnings are taxed as interest income, not as capital gains, and thus investors will pay a higher rate for their earnings. Also, interest must be reported annually, even though it’s not paid until maturity.

•   Little or no profit: The worst scenario is holding a market-linked CD to maturity — but not making a profit. Even though your original principal will be protected, there is no guarantee that you will make more than your deposit amount.

   You may have the possibility of greater gains if you invest your money in an exchange-traded fund (ETF) or index fund directly, which provides similar diversification benefits. However, you are still exposed to market risk, and your original principal is at risk.

How to Open a Market-Linked CD

Opening a market-linked CD is fairly straightforward. Here are some broad steps.

•   At the financial institution of your choosing, you can open a market-linked certificate of deposit by choosing the interest rate and maturity date.

•   Next, deposit the amount of money you are able to lock up for a period of time.

•   Some market-linked CDs have a minimum investment requirement and a maximum deposit limit per account which must be considered.



💡 Quick Tip: Did you know that opening a brokerage account typically doesn’t come with any setup costs? Often, the only requirement to open a brokerage account — aside from providing personal details — is making an initial deposit.

Alternatives to a Market-Linked CD

Alternatives to market-linked CDs could include investing in a bond fund. Similar to a CD, bond funds have different maturity dates, either short term or long term, and can offer competitive yields. Depending on the creditworthiness of the bonds, the yield can vary. Bonds with a high credit rating which are lower risk may have a lower yield than bonds with a lower credit rating, but the latter may come with higher risk. The choice of bond fund depends on the investor’s risk tolerance.

Investors may also consider a high-yield savings account, which is lower risk but yields less than a market-linked CD. These types of accounts are more for emergency funds but if you are looking for the lower risk options to store your cash, high yield savings accounts can be another alternative to a market-linked CD.

When to Consider Investing in Market-Linked CDs

Investors may be interested in a market-linked CD if they are looking for an alternative for a traditional CD and for the potential for higher returns. Market-linked CDs may also offer some diversification, and protection of principal investment.

If you are looking for exposure to the broader stock market with managed risk, a marked-linked CD may be a suitable option because it’s viewed as an alternative to directly investing in the stock market. That said, market-linked CDs are insured products and are not considered securities.

The Takeaway

Market-linked CDs are, as the name implies, a sort of hybrid savings/investment option. They offer some of the features of traditional CDs: You invest your money for a fixed period of time; if you withdraw funds before the maturity date you face an early withdrawal penalty; and your funds are federally insured for up to $250,000. Because MLCDs are market-linked, though, a CD’s performance is tied to underlying securities or a market index.

Thus, investors don’t receive a fixed interest rate, and returns can fluctuate. Typically these CDs are also capped in terms of the gains they can provide. And while an investor’s initial principal deposit is protected from a market drop, you can still lose money if you withdraw funds early or try to sell this type of CD on the secondary market. Finally, like any other investment in the markets, there’s no guarantee that a market-linked CD will see a profit by the time it matures.

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For a limited time, opening and funding an Active Invest account gives you the opportunity to get up to $1,000 in the stock of your choice.

FAQ

What is a market-linked CD?

Market-linked CDs are certificates of deposits that can be linked to stocks, commodities, an index — or a mix of these — depending on the type of return the investor is seeking, and their risk tolerance.

Is a market-linked CD a security?

No. A market-linked CD is federally insured in the event of bank failure or fraud, so your principal is protected up to $250,000. Insured products are not considered securities.

What is a stock market CD?

A stock market CD is another name for a market-linked CD, and is linked to a broad stock market index like the S&P 500. This means the CD’s performance will adjust as the index changes.

Photo credit: iStock/MicroStockHub

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Jun
28
2024
What Are the Consequences of Not Saving Money?

What Are the Consequences of Not Saving Money?

By | Budgeting & Goals, Financial Independence, money | Comments Off on What Are the Consequences of Not Saving Money?

Many Americans struggle to save money, but it’s generally worth the effort to do so since there can be serious downsides to not stashing away cash. Those consequences can range from going into debt, facing financial hardship after losing your job, and not being able to achieve your aspirations, like homeownership.

There are a variety of strategies that may be helpful in saving more money, and it may be useful to put together a simple budget and set some savings goals. If all else fails, you may even want to consult with a financial professional, because neglecting to save can lead to some undesired outcomes, as noted.

The Importance of Saving Money

To help you get motivated to put money in the bank, here are a dozen dangers or potential consequences related to not saving money. They may help you understand why it’s best to put away cash and motivate you to tuck some into a savings account.

1. Going Into Debt

Without a savings cushion, any expense — from an unexpected car repair to paying for your child’s college education — can put you in debt. In addition, while credit cards and loans are convenient ways to afford more than your bank account, you pay more in the long run because of interest and loan fees.

Since debt often costs more than the actual expense, you can essentially save a considerable amount of money by plumping up your piggy bank. You can try easy ways to save, such as creating a simple budget or automating savings, to put aside a few dollars a month before you can spend it. These moves can ensure that you’ll be using savings instead of debt to pay for your upcoming expenses.


💡 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.

2. Having a Social Life Can Be Nonexistent

Spending time with your friends and family are likely on the list of things you enjoy most in life. But a full social calendar may put you in a sticky financial situation if you haven’t saved anything. From movie dates to happy hours to ball games, these expenses can add up.

No matter your income level, how much money you save each paycheck can make the difference between having a nonexistent social life and a happening one.

3. Life Being More Stressful

Most Americans say money is a major stressor in their lives. When you think about it, failing to save can make you feel stuck or overwhelmed. Your personal, financial, and professional life can suffer because a lack of savings has cut off your options.

Achieving your goals, financial and otherwise, may be a struggle without savings to propel you forward. The importance of saving money goes beyond paying an unexpected bill; it can affect your daily quality of life.

4. Not Having the Money for an Emergency

You’ll find many articles, resources, and financial professionals advising you to set aside an emergency fund. Life is expensive and doesn’t always go as planned. So, saving in advance helps you manage life’s unexpected costs.

For example, building an emergency fund might be a better choice than splurging if you get a raise. You’ll thank yourself later when, say, your furnace goes out or you wind up with a major medical bill. Typically, money experts recommend having at least three to six months’ worth of basic expenses salted away in an emergency or rainy day fund.

5. Not Being Able to Celebrate Events

Life can be full of amazing milestones like getting married, starting a family, or graduating from college. Unfortunately, celebrating these life events with your family often takes substantial cash. Not being able to recognize these events the way you’d like to is another one of the many dangers of not saving money. The lack of a financial cushion could also lead you to skip, say, a friend’s destination wedding.

Although you could put your celebration on your credit card, you run the risk of going into debt. This will likely cost more over the long run since you have to pay for interest. In other words, you might still be paying it off for years to come.

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6. Not Having a Viable Option if You Are Fired

No one plans on getting fired; however, it’s always possible to lose your job unexpectedly. Financial emergencies like this are an important reason to save. Saving can give you security during this kind of a crisis. If you don’t have some cash available, you might have to look into financially downsizing.

This underscores the importance of saving money from your salary when you are employed. You might consider having a small amount automatically transferred from your checking account into savings on payday.

As mentioned above, you should save at least three months of your expenses in an emergency fund. This way, you can have a solid safety net if you get laid off or are temporarily disabled and can’t work for an extended period.


💡 Quick Tip: Want to save more, spend smarter? Let your bank manage the basics. It’s surprisingly easy, and secure, when you open an online bank account.

7. Not Having an Inheritance for Your Children

If you’re a parent or plan to be one, you likely want to give your kids a leg up in life. An inheritance can help your children or heirs to build their nest eggs and meet life’s expenses without stress.

Having both savings and an estate plan can be a lasting, life-changing gift to those who matter to you most. These assets can serve to eliminate the possibility of financial legal challenges for your family. That said, being unable to leave a legacy is a consequence of not saving money.

8. Not Being Able to Buy a Home

Many people hope to buy a home one day, but you’ll probably need some cash saved up to initiate the purchase.

In many cases, you may need a 20% down payment to qualify for most conventional mortgages. Buying a home also usually involves other expenses, such as closing costs, repairs, moving costs, and more. Not having savings can make it almost impossible to afford the home of your dreams.

9. Not Being Able to Go on Vacation

Without savings, it’s challenging or even sometimes impossible to take time off for some rest. When you don’t set money aside, you can get sucked into the never-ending cycle of living paycheck-to-paycheck. Since you need to work to support yourself, vacations may become less frequent or disappear altogether.

While you may think you can put a vacation on credit, that can perpetuate the “can’t save” situation, because you’ll have debt to wrangle. You could wind up coming home from your getaway to face more bills.

10. Not Having Much Financial Freedom

One of the most potent limiting factors in life can be a lack of savings. With a robust bank account to fall back on, you increase your options and flexibility. Moving to a city or state with more opportunity, taking a professional course or college classes, and starting a business can all be possibilities if you’ve saved money.

Of course money can’t solve every problem life throws at you. However, it is a powerful tool that allows you to access opportunities. Remembering this can help you get serious about saving money.

11. Not Being Able to Invest

If you aren’t able to save money, you likely won’t be able to invest those savings, either. Which means potentially missing out on market gains over time (the market tends to go up over time, though it is volatile over the short-term).

There are different levels of risk, of course, when you decide to invest your money rather than keeping it in a savings account, but the main point is that if you can’t manage to save, you may also have a hard time managing to invest. That could mean that your money’s growth potential is stunted, and may delay you in reaching your financial goals.

12. Not Being Able to Help Others

When someone is in financial need, lending money can help them get back on their feet. Whether it’s through providing a micro-loan, donating to a charity, or contributing to a scholarship, you can make a difference in the lives of others no matter how much you give.

But, if you don’t have savings, you may not be able to afford a helping hand.

Why Saving Money Is Very Important

Since money touches almost every area of your life, saving it for what matters most can be essential. Reining in your spending habits can be hard, no doubt, but the payoff quite literally is being able to afford your needs and your goals.

​​Online Banking With SoFi

Reaching your financial goals will likely depend, in large part, on your ability to save your money. While this can be difficult in the moment (saying no to splurges, for instance), it can set you up for years of financial wellness.

Whether you want to be able to celebrate big moments with friends, start your own business, own a home, or take a major vacation, saving money can help put you on the right path.

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 4.20% APY on SoFi Checking and Savings.

FAQ

Can I get by without saving money?

While it’s possible to get by without savings, there may come a day when you run into an unexpected expense that causes financial hardship. If you live paycheck to paycheck without an emergency fund, an unforeseen cost could set you back and make it challenging to recover.

Is debt inevitable if you do not save?

Without savings to fall back on, it’s quite possible to go into debt when unforeseen expenses arise. Contributing to a savings account, even a small amount monthly, can make unexpected costs more manageable so you can sidestep debt.

When is the best time to start saving?

It’s best to start saving now to give yourself time to build a cushion. Remember, everyone has to start somewhere. Even if you can only save $20 per month, your future self will likely thank you.

Photo credit: iStock/nicoletaionescu

SoFi members with direct deposit activity can earn 4.20% annual percentage yield (APY) on savings balances (including Vaults) and 0.50% APY on checking balances. Direct Deposit means a recurring deposit of regular income to an account holder’s SoFi Checking or Savings account, including payroll, pension, or government benefit payments (e.g., Social Security), made by the account holder’s employer, payroll or benefits provider or government agency (“Direct Deposit”) via the Automated Clearing House (“ACH”) Network during a 30-day Evaluation Period (as defined below). Deposits that are not from an employer or government agency, including but not limited to check deposits, peer-to-peer transfers (e.g., transfers from PayPal, Venmo, etc.), merchant transactions (e.g., transactions from PayPal, Stripe, Square, etc.), and bank ACH funds transfers and wire transfers from external accounts, or are non-recurring in nature (e.g., IRS tax refunds), do not constitute Direct Deposit activity. There is no minimum Direct Deposit amount required to qualify for the stated interest rate. SoFi members with direct deposit are eligible for other SoFi Plus benefits.

As an alternative to direct deposit, SoFi members with Qualifying Deposits can earn 4.20% APY on savings balances (including Vaults) and 0.50% APY on checking balances. Qualifying Deposits means one or more deposits that, in the aggregate, are equal to or greater than $5,000 to an account holder’s SoFi Checking and Savings account (“Qualifying Deposits”) during a 30-day Evaluation Period (as defined below). Qualifying Deposits only include those deposits from the following eligible sources: (i) ACH transfers, (ii) inbound wire transfers, (iii) peer-to-peer transfers (i.e., external transfers from PayPal, Venmo, etc. and internal peer-to-peer transfers from a SoFi account belonging to another account holder), (iv) check deposits, (v) instant funding to your SoFi Bank Debit Card, (vi) push payments to your SoFi Bank Debit Card, and (vii) cash deposits. Qualifying Deposits do not include: (i) transfers between an account holder’s Checking account, Savings account, and/or Vaults; (ii) interest payments; (iii) bonuses issued by SoFi Bank or its affiliates; or (iv) credits, reversals, and refunds from SoFi Bank, N.A. (“SoFi Bank”) or from a merchant. SoFi members with Qualifying Deposits are not eligible for other SoFi Plus benefits.

SoFi Bank shall, in its sole discretion, assess each account holder’s Direct Deposit activity and Qualifying Deposits throughout each 30-Day Evaluation Period to determine the applicability of rates and may request additional documentation for verification of eligibility. The 30-Day Evaluation Period refers to the “Start Date” and “End Date” set forth on the APY Details page of your account, which comprises a period of 30 calendar days (the “30-Day Evaluation Period”). You can access the APY Details page at any time by logging into your SoFi account on the SoFi mobile app or SoFi website and selecting either (i) Banking > Savings > Current APY or (ii) Banking > Checking > Current APY. Upon receiving a Direct Deposit or $5,000 in Qualifying Deposits to your account, you will begin earning 4.20% 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 10/31/2024. There is no minimum balance requirement. Additional information can be found at https://www.sofi.com/legal/banking-rate-sheet.

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*Awards or rankings from NerdWallet are not indicative of future success or results. This award and its ratings are independently determined and awarded by their respective publications.

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Jun
26
2024
25 Items That Are Worth Saving for

25 Items That Are Worth Saving For

By | Budgeting & Goals, Financial Independence, money | Comments Off on 25 Items That Are Worth Saving For

Each of us has our own agenda in terms of what makes stashing our cash away worthwhile. For some of us, it’s the anticipation of doing something fun or buying something beautiful. For others, it’s all about using our money to secure some quality of life and peace of mind.

Regardless of what gets you saving, whether you’re stashing funds to buy a new computer, a used convertible, a house, or even retirement funds to ensure your future, you’ll be honing your saving skills and likely boosting your financial wellness as well.

Why Saving Is Important

The importance of saving cannot be overstated; it’s a very big part of successful money management. Consistently putting away cash can make a major difference over time, especially in your quality of life. By planning and prioritizing what expenses to fund, you’ll have the means to achieve your goals. It’s incredibly rewarding when you make a plan for your money and then realize it.

To jumpstart your savings, try one or more of these creative strategies.

•   Budget first. The mere mention of the word budget can stress some people out, but a budget is simply a plan for how you will spend your money. Having a strategy in place can really help keep your spending and savings on track. There are a number of methods you can use to budget, including the good old cash envelopes system and the 50/30/20 rule, as well as a number of mobile apps. Research your options online, and find the one that works best for you.

•   Automate savings. One of the easiest ways to ensure you’re saving toward your goal may be to automate your savings. This can take much of the stress out of saving. For instance, you could set up an automatic bank transfer from your checking to your savings account every payday.

•   Save consistently. Once you open a bank account, over time, you have a great chance of meeting your goal. Maybe it’s only $5 or $25 a pop, but contributing to your savings account regularly is vital. Be consistent and trust the process.

•   Save bonuses, tax returns, and other unexpected windfall amounts. These extras can give your savings account a tremendous boost.

•   Match your own purchases. For every amount that you spend on a treat, transfer that same amount into savings.

•   Save every $5 bill. By setting aside every $5 bill you encounter (as change from a purchase, from an ATM, etc.), you can save quite a bit in a year’s time.

•   Use the 30-day rule to control impulse purchases. Write down that shiny new thing you want, whether it’s a pricey new mobile phone or a designer bag, and wait 30 days to see if you still want it. You may find that your urge to spend on it has passed. If so, you can put the money you save this way into savings to fund something that’s on your wishlist.

Recommended: How Much of Your Paycheck Should You Save?

25 Smart Items to Save Up for

Spending money according to your own personal preferences — whether it’s a vacation, a new car, or a comfortable home for your family — should be the driving force behind your saving goals. This is how to make saving fun: Make a list of cool things to save up for. Create a vision board if you prefer; the idea is to entice yourself to perhaps pass up some unnecessary spending (takeout meals, a multitude of streaming services, and so on) and achieve those things you really crave. Not sure what to start saving for? Here are 25 ideas to get you going.

1. Vacations

You may have heard that vacations are good for both your physical and mental health. Even the act of looking forward to a vacation can improve your happiness. Whether the vacation you crave is a week at a nearby beach, a long weekend with your college besties, or a jaunt through Europe, the prospect of travel can be great motivation to save money.

2. Brand New Electronics

Buying new electronics isn’t just a leisure pursuit. New electronics can help with your productivity and ability to earn an income (or a higher one). It may be worth it to you to save for and invest in tools, such as a new laptop or video equipment, that can make your life better.

3. Starting a Business

If starting a business and becoming your own boss is a dream of yours, savings can go a long way toward making it happen. In fact, 82% of small businesses fail because of cash flow problems. Start accumulating capital so you can hopefully avoid becoming part of that statistic.

4. Home Maintenance

Keeping your home in tiptop shape can not only make living in it more enjoyable and enhance its looks and curb appeal, it can be helpful when you decide to sell it. Maintenance can include such things as getting your furnace and air conditioner checked regularly and getting your carpets cleaned, to lawn care, landscaping, and painting.

5. Weddings

This is a popular motivation to save. Most people dreaming of their big day know that it doesn’t come cheap. The average cost of a wedding in 2024 was about $33,000, according to one survey. Saving for this expense means you can celebrate the special day with loved ones, just the way you want to, while minimizing money stress.

6. Pet care

Owning a pet is enjoyable and rewarding, but it can also be expensive: The annual costs of owning a dog can run anywhere from $1,000 to more than $5,000. Pet care costs include, food, treats, veterinary bills, toys, grooming, and supplies such as beds, collars and leashes. Saving up for these expenses can help you enjoy your furry family member without being stressed out about paying for the things they need.

7. Brand New Car

Most people need wheels to get around, but cars aren’t just about function. Maybe you are dreaming of a low-slung sports car or an SUV that’s ready to offroad. When you get the keys to a new car, you’ll likely know that your time and energy spent saving was worth it.

8. Down Payment on a Home

Saving for a home is a top priority for many and for good reason. Home prices will typically rise 18% to 20% in the next five years, based on historical averages, meaning the value of your home will rise and likely continue to do so. Aside from the potential financial benefits, owning your dream home is a major boost to your and your family’s quality of life.

💡 Quick Tip: Want a simple way to save more each month? Grow your personal savings by opening an online savings account. SoFi offers high-interest savings accounts with no account fees. Open your savings account today!

9. Clothing and Shoes

There’s something about fresh clothes and shoes that can give you a psychological boost. For a household, costs averaged $1,434 for apparel for the year. Saving a little toward making yourself look good is one of the fun things you can save up for. It could be a whole wardrobe upgrade or a special splurge piece, but clothes can be excellent saving motivation.

10. Hobbies

If there’s something you enjoy doing in your free time, be sure to save enough money to fully invest yourself in the activity. Do you want a new acoustic guitar or perhaps a pottery wheel? Save for it. You may even be able to monetize your hobby or start a business from it.

Earn up to 4.20% APY with a high-yield savings account from SoFi.

No account or monthly fees. No minimum balance.

9x the national average savings account rate.

Up to $2M of additional FDIC insurance.

Sort savings into Vaults, auto save with Roundups.


11. A Quality Mattress and Mattress Accessories

According to the Centers for Disease Control and Prevention (CDC), one out of three Americans don’t get enough sleep. Being deprived of sleep can have a major impact on how you feel and function. Which is all the more reason to save for the comfiest mattress you can find.

12. Exercise Equipment

The right exercise equipment can help you make your health a priority and work out regularly. It’s not cheap, though. Equipment can cost less than $20 for a kettlebell or thousands for a top-of-the-line rowing machine, exercise bike, or Pilates equipment.

13. Professional Lessons (Sports, Dancing, Cooking, etc.)

Whether you want to dance more smoothly or perfect your golf swing, saving toward developing those skills can bring a lot of joy and satisfaction.

14. College

So many people feel the thrill of pride and achievement when earning a college degree, and it can help fuel a career. But college is expensive. As of 2024, the average cost of college in the U.S. is more than $38,000 per student per year, according to the Education Data Initiative. Saving toward these expenses, whether for yourself or your dependents, can help them get the education they need and dampen the blow of the cost of education.

15. Quality Home Appliances

Maybe you’d like to remove that old eyesore of a dishwasher and replace it with a top-notch new one, or swap out your old washer/dryer for an eco-friendly new model. Or, say, a professional-grade stove is calling to you to live out your gourmet dreams. Once you get the appliance you were dreaming about, you’ll likely feel that saving for it was worthwhile.

16. Home Security

While it may not exactly be a cool thing to save up money for, a home security system can give you peace of mind. As a bonus, you may have fun doorbell footage to look at once you buy your system.

17. Jewelry

If you love shiny baubles, they can certainly be worth saving for. Maybe there’s a dream piece you’ve been pining for. With the cost of some custom jewelry ranging from about $500 to $10,000 or more, you’ll definitely want to have a plan to save for it.

18. Home Furniture

If you value updated and stylish furniture, you’ll want to put it on your list. New furniture can uplift the comfort, function, and look of your home. Not to mention, when (or if) you sell your home, it can possibly help your place fetch a higher sales price.

19. Events & Special Occasions (Concerts, Dinners, Sports Games, etc.)

Many of us look forward to making lifelong memories at special events, from a Taylor Swift concert to the Super Bowl to a local gala. These occasions can both entertain and help you feel connected to the people who accompany you. Indulging in tickets every now and then is an incredibly fun and cool thing to save up for.

20. Home, Car and Health Insurance

Putting money toward insurance premiums may not always be fun, but it may give you peace of mind. It helps you know that you’re covered in case of accidents, unexpected health problems, and natural disasters. Saving up to afford a policy is wise if you are, say, planning to buy a house or car or are prepping for a big live event, like marriage or becoming a parent.

21. Retirement

Saving for retirement is a critical part of your financial health. A Federal Reserve survey found that only 34% of adults felt their retirement savings were on track. If you want to give yourself a healthy cushion for some of the most vulnerable years of your life, you may want to add to your retirement savings. While it doesn’t give you a tangible payoff now, you may rest easier knowing you’re prepared for tomorrow.

22. Anniversaries

Have someone (or something) special you want to celebrate? Put aside some money to do it up right, especially if it’s a nice round number that’s coming up. It’s up to you whether the funds go towards a gift, a trip, or a special night out with friends and family.

23. Repairs and Remodels

Home improvements can make your home more comfortable and functional but they are likely a major expense. With the average remodel topping $41,600 in 2024, it will take quite a chunk of change to make it happen. Saving for this type of cost can help you turn your place into the showplace you know it can be.

24. Birthdays

Celebrating birthdays is a fantastic way to nurture the relationships in your life. Maybe it’s with a candlelit dinner or tickets to a show, but it can be a great excuse to save and then spend some cash.

25. Holidays

Creating holiday memories is important for many of us. Saving up for the holidays and seeing your vision for your family come to life can be incredibly rewarding. Americans spend around $866 each holiday season, according to data from the National Retail Federation; 71% of that goes toward gifts. Stashing some cash in advance can help alleviate stress during the most wonderful time of the year.

Banking With SoFi

Focusing on a wish-list item can give you the motivation and discipline to start saving. Of course, the savings goal will vary with each person. One person may want a trip to Bali, another may need a new car, and a third may be focused on getting a down payment together for a home.

Whatever the goal, opening a bank account and consistently depositing your cash into it to save for an important purchase can be a great way to help build your financial skills, improve your financial foundation, and elevate your quality of life.

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 4.20% APY on SoFi Checking and Savings.

FAQ

How can I develop the mindset to save long-term?

To develop a mindset to save for the long term, be sure to start with a goal. Brainstorm some important, meaningful things to save up for. Then, automate regular transfers to your savings account. If you don’t see that money in your checking account, you likely won’t spend it.

Is saving money long-term hard?

Saving can be hard, and even a small amount stashed regularly can make a big difference in your financial wellness. The Federal Reserve Bank of St Louis reports that the personal savings rate in April 2024 was 3.6%. It may not be a huge amount, but it can be a good start.

How do I make saving money easier?

Saving money is easier when you have a plan in place. Automating money transfers to your savings account when your paycheck hits is one easy way to start saving towards a goal. You can also experiment with different budgeting methods to help “find” more money to put into your savings.

Photo credit: iStock/Borislav

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.

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

4.20% APY
SoFi members with direct deposit activity can earn 4.20% annual percentage yield (APY) on savings balances (including Vaults) and 0.50% APY on checking balances. Direct Deposit means a recurring deposit of regular income to an account holder’s SoFi Checking or Savings account, including payroll, pension, or government benefit payments (e.g., Social Security), made by the account holder’s employer, payroll or benefits provider or government agency (“Direct Deposit”) via the Automated Clearing House (“ACH”) Network during a 30-day Evaluation Period (as defined below). Deposits that are not from an employer or government agency, including but not limited to check deposits, peer-to-peer transfers (e.g., transfers from PayPal, Venmo, etc.), merchant transactions (e.g., transactions from PayPal, Stripe, Square, etc.), and bank ACH funds transfers and wire transfers from external accounts, or are non-recurring in nature (e.g., IRS tax refunds), do not constitute Direct Deposit activity. There is no minimum Direct Deposit amount required to qualify for the stated interest rate. SoFi members with direct deposit are eligible for other SoFi Plus benefits.

As an alternative to direct deposit, SoFi members with Qualifying Deposits can earn 4.20% APY on savings balances (including Vaults) and 0.50% APY on checking balances. Qualifying Deposits means one or more deposits that, in the aggregate, are equal to or greater than $5,000 to an account holder’s SoFi Checking and Savings account (“Qualifying Deposits”) during a 30-day Evaluation Period (as defined below). Qualifying Deposits only include those deposits from the following eligible sources: (i) ACH transfers, (ii) inbound wire transfers, (iii) peer-to-peer transfers (i.e., external transfers from PayPal, Venmo, etc. and internal peer-to-peer transfers from a SoFi account belonging to another account holder), (iv) check deposits, (v) instant funding to your SoFi Bank Debit Card, (vi) push payments to your SoFi Bank Debit Card, and (vii) cash deposits. Qualifying Deposits do not include: (i) transfers between an account holder’s Checking account, Savings account, and/or Vaults; (ii) interest payments; (iii) bonuses issued by SoFi Bank or its affiliates; or (iv) credits, reversals, and refunds from SoFi Bank, N.A. (“SoFi Bank”) or from a merchant. SoFi members with Qualifying Deposits are not eligible for other SoFi Plus benefits.

SoFi Bank shall, in its sole discretion, assess each account holder’s Direct Deposit activity and Qualifying Deposits throughout each 30-Day Evaluation Period to determine the applicability of rates and may request additional documentation for verification of eligibility. The 30-Day Evaluation Period refers to the “Start Date” and “End Date” set forth on the APY Details page of your account, which comprises a period of 30 calendar days (the “30-Day Evaluation Period”). You can access the APY Details page at any time by logging into your SoFi account on the SoFi mobile app or SoFi website and selecting either (i) Banking > Savings > Current APY or (ii) Banking > Checking > Current APY. Upon receiving a Direct Deposit or $5,000 in Qualifying Deposits to your account, you will begin earning 4.20% 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 10/31/2024. There is no minimum balance requirement. Additional information can be found at https://www.sofi.com/legal/banking-rate-sheet.

Our account fee policy is subject to change at any time.
*Awards or rankings from NerdWallet are not indicative of future success or results. This award and its ratings are independently determined and awarded by their respective publications.


Investment Risk: Diversification can help reduce some investment risk. It cannot guarantee profit, or fully protect in a down market.

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2024

Electronic Check (E-Check): What It Is and How It Works

By | Budgeting & Goals, Family Finances, money | Comments Off on Electronic Check (E-Check): What It Is and How It Works

An electronic check, or eCheck, is an electronic version of a paper check. Instead of writing out a check and handing (or mailing) it to the recipient, you enter your banking information and the payment amount online and authorize a transfer of funds from your bank account to the payee’s bank account.

Electronic checks are a fast, safe, and convenient form of payment, but they do have a few downsides. Here’s what you need to know.

What Is an Electronic Check (eCheck)?

An electronic check, or eCheck, is an electronic money transfer designed to perform the same function as a traditional paper check. You can often use an eCheck to pay bills, shop on an online marketplace, or make other types of payments.

To issue an eCheck, you need to provide your bank account number, bank’s routing number, and payment amount, then authorize the transaction by accepting a website’s terms and conditions. The eCheck is then processed by the Automated Clearing House (ACH), a secure system that facilitates electronic payments and money transfers between banks. Once authorized, the funds leave your checking account and get deposited into the payee’s checking account.

Since an eCheck is in an electronic format, it can be processed in fewer days than a traditional paper check. Electronic checks also generally have more security features than standard checks, including authentication, digital signatures, and encryption.

How Does an eCheck Work?

The process of paying by eCheck involves three basic steps:

•   Authorization: First, you need to fill out your eCheck through an online payment portal. You then click “Submit,” which authorizes the payee to withdraw the payment amount from your checking account. In some cases, you can provide your banking information and authorize an eCheck over the phone.

•   Processing: The business’s payment processor receives the eCheck and sends a payment request to the ACH network. The ACH network confirms that the funds are available in your account.

•   Settlement: Once the transaction is verified and approved by the ACH network, the funds are transferred from your account to the payee’s account.

How Long Does an eCheck Take to Clear?

The time it takes for an eCheck to clear can vary, but it generally takes between three to five business days. The reason for the delay is the ACH network processes payments in batches, not one by one. Once they start processing the eCheck, the network has to verify your bank information and perform security checks, which can take a few days.

Also keep in mind that eChecks aren’t processed on weekends and holidays. So if a you send an eCheck on a Friday, the payee may not receive the funds until the middle or end of the following week

Recommended: Cleared Funds: Definition and Breakdown of Funds Clearing Time

Advantages and Disadvantages of eChecks

EChecks have a number of advantages, but also a few drawbacks. Here are some things to keep in mind.

Advantages

•   Cost-effective: Electronic checks are often more cost-effective than paper checks, since you don’t need to pay for paper checks or stamps. And unlike using a credit card (which may come with a surcharge), eChecks generally don’t trigger a processing fee.

•   Convenience: Electronic checks eliminate the need for physical checks, reducing the time and effort required for writing, mailing, and processing paper checks. They can be easily initiated and authorized online or over the phone.

•   Security: Electronic checks offer enhanced security features, such as encryption and authentication, to protect sensitive financial information. This reduces the risk of fraud and unauthorized transactions.

•   Environmentally friendly: By reducing the need for paper checks, eChecks contribute to environmental sustainability by minimizing paper waste and the resources required for printing and mailing.

Disadvantages

•   Clearing time: Electronic checks can take several days to clear, which may be longer than other electronic payment methods. This can be a drawback for those who require immediate access to funds.

•   Possibility for errors: While eChecks reduce the risk of errors compared to paper checks, there is still a possibility of making a mistake in entering your bank account information or routing numbers. Such errors can delay the transaction process.

•   Limited acceptance: Not all businesses or individuals accept eChecks as a form of payment. This can limit the usability of eChecks in certain situations.

•   Potential for fraud: As with any electronic payment method, eCheck payment may be subject to fraud or unauthorized transactions. You want to be sure to share your bank account information only with trusted merchants.

What’s the Difference Between ACH and eChecks?

The terms ACH and eCheck are often used interchangeably, but they refer to different aspects of the electronic payment process.

ACH (Automated Clearing House): ACH is a network and system used for processing a wide range of electronic payments, including electronic checks. The network facilitates the transfer of funds between banks and ensures the secure processing of transactions.

Electronic check: An eCheck is a specific type of payment that is processed through the ACH network. It is an electronic version of a traditional check and involves the transfer of funds from one bank account to another.

In short, the ACH network is the infrastructure that enables various types of electronic payments, including eChecks. An eCheck is a type of transaction that utilizes the ACH network for processing.

Is Paying by eCheck Safe?

Yes, paying by eCheck is generally considered safe, thanks to several security measures that are in place. Most notably, eChecks use encryption to protect your sensitive financial information during transmission. This ensures that the data is secure and cannot be intercepted by unauthorized parties. Electronic checks also require timestamped digital signatures to help prevent fraud.

Recommended: Are Mobile Payment Apps Safe?

The Takeaway

Electronic checks are essentially the digital version of traditional paper checks. These checks are facilitated by the Automated Clearing House (ACH) network, an electronic network used by U.S. financial institutions. Funds are electronically withdrawn from the payer’s checking account, transferred over the ACH network, and deposited into the recipient’s checking account.

Electronic checks are a safer alternative than paper checks, and also faster to clear and cheaper to issue. However, eChecks take longer to process than paying with a debit or credit card and they aren’t accepted everywhere.

FAQ

How do I pay with an eCheck?

The process of paying with an eCheck mirrors that of writing a traditional check, but in a digital format. If the business you’re paying accepts eChecks, you simply need to enter your bank account number, bank’s routing number, and the payment amount on a secure online payment portal. You then authorize and submit the eCheck.

Does it cost money to send an eCheck?

Not typically. Merchants generally have to pay a small processing fee for accepting eChecks but this cost is not usually passed on to the consumer.

Can you reverse an eCheck?

Yes, but you have to act quickly. To reverse an eCheck, you generally want to notify your bank as soon as you know you need the payment halted, ideally within the same day. Once the payment clears, your bank may not be able to reverse the process.

Photo credit: iStock/kazuma seki

SoFi members with direct deposit activity can earn 4.20% annual percentage yield (APY) on savings balances (including Vaults) and 0.50% APY on checking balances. Direct Deposit means a recurring deposit of regular income to an account holder’s SoFi Checking or Savings account, including payroll, pension, or government benefit payments (e.g., Social Security), made by the account holder’s employer, payroll or benefits provider or government agency (“Direct Deposit”) via the Automated Clearing House (“ACH”) Network during a 30-day Evaluation Period (as defined below). Deposits that are not from an employer or government agency, including but not limited to check deposits, peer-to-peer transfers (e.g., transfers from PayPal, Venmo, etc.), merchant transactions (e.g., transactions from PayPal, Stripe, Square, etc.), and bank ACH funds transfers and wire transfers from external accounts, or are non-recurring in nature (e.g., IRS tax refunds), do not constitute Direct Deposit activity. There is no minimum Direct Deposit amount required to qualify for the stated interest rate. SoFi members with direct deposit are eligible for other SoFi Plus benefits.

As an alternative to direct deposit, SoFi members with Qualifying Deposits can earn 4.20% APY on savings balances (including Vaults) and 0.50% APY on checking balances. Qualifying Deposits means one or more deposits that, in the aggregate, are equal to or greater than $5,000 to an account holder’s SoFi Checking and Savings account (“Qualifying Deposits”) during a 30-day Evaluation Period (as defined below). Qualifying Deposits only include those deposits from the following eligible sources: (i) ACH transfers, (ii) inbound wire transfers, (iii) peer-to-peer transfers (i.e., external transfers from PayPal, Venmo, etc. and internal peer-to-peer transfers from a SoFi account belonging to another account holder), (iv) check deposits, (v) instant funding to your SoFi Bank Debit Card, (vi) push payments to your SoFi Bank Debit Card, and (vii) cash deposits. Qualifying Deposits do not include: (i) transfers between an account holder’s Checking account, Savings account, and/or Vaults; (ii) interest payments; (iii) bonuses issued by SoFi Bank or its affiliates; or (iv) credits, reversals, and refunds from SoFi Bank, N.A. (“SoFi Bank”) or from a merchant. SoFi members with Qualifying Deposits are not eligible for other SoFi Plus benefits.

SoFi Bank shall, in its sole discretion, assess each account holder’s Direct Deposit activity and Qualifying Deposits throughout each 30-Day Evaluation Period to determine the applicability of rates and may request additional documentation for verification of eligibility. The 30-Day Evaluation Period refers to the “Start Date” and “End Date” set forth on the APY Details page of your account, which comprises a period of 30 calendar days (the “30-Day Evaluation Period”). You can access the APY Details page at any time by logging into your SoFi account on the SoFi mobile app or SoFi website and selecting either (i) Banking > Savings > Current APY or (ii) Banking > Checking > Current APY. Upon receiving a Direct Deposit or $5,000 in Qualifying Deposits to your account, you will begin earning 4.20% 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 10/31/2024. 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. ©2024 SoFi Bank, N.A. All rights reserved. Member FDIC. Equal Housing Lender.
The SoFi Bank Debit Mastercard® is issued by SoFi Bank, N.A., pursuant to license by Mastercard International Incorporated and can be used everywhere Mastercard is accepted. Mastercard is a registered trademark, and the circles design is a trademark of Mastercard International Incorporated.

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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2024
What Would Happen if I Deposited $10,000 Into My Bank Account?

What Would Happen if I Deposited $10,000 Into My Bank Account?

By | Budgeting & Goals, Financial Independence, money | Comments Off on What Would Happen if I Deposited $10,000 Into My Bank Account?

A cash deposit of more than $10,000 into your bank account requires special handling. Your bank must report the deposit to the federal government. That’s because the IRS requires banks and businesses to file Form 8300 and a Currency Transaction Report, if they receive cash payments over $10,000. Depositing more than $10,000 will not result in immediate questioning from authorities, however. The report is done simply to help prevent fraud and money laundering. You have nothing to lose sleep over so long as you are not doing anything illegal.

Key Points

•   Banks are required to report when customers deposit more than $10,000 in cash at once.

•   A Currency Transaction Report must be filled out and sent to the IRS and FinCEN.

•   The Bank Secrecy Act of 1970 and the Patriot Act of 2001 dictate that banks keep records of deposits over $10,000 to help prevent financial crime.

•   Structuring a deposit is when an individual splits up several deposits so that a single deposit of more than $10,000 cash does not happen.

•   Penalties for not filing Form 8300 or filing a fraudulent form include fines and possible prison sentences.

Are Financial Institutions Required to Report Large Deposits?

Banks and credit unions are required to report when a customer deposits cash over $10k. Maximum deposit limits vary by bank, but in this case, anything above $10,000 (even a penny more) is the amount to know.
The Bank Secrecy Act and the Patriot Act dictate that financial institutions create a paper trail of financial activity that could be suspicious. The reasoning is that law enforcement authorities can better control money laundering activities and tax evasion by having a record of these larger deposits. Other malicious activities like terrorism, drug trading, and broad financial crimes might be prevented.

Do You Have to Report Large Deposits?

You might have to report large deposits to your bank account if you own a business. (Performing a small direct deposit typically does not need to be reported.) The IRS rules also apply to financial activities performed by a business or individual involved in the business. You must complete IRS Form 8300 to report any transaction or even a series of related transactions that total $10,000.

About that “series of related transactions” part: Transactions are considered related when they take place within 24 hours of each other or if the person or business simply suspects they are related.

What Is IRS Form 8300?

IRS Form 8300 is used to help regulators prevent financial crime. The form is separate from other banking guidelines like funds availability rules. It is sent to the IRS and the Financial Crimes Enforcement Network (FinCEN). The form is used to report cash payments over $10,000 received in a trade or business.

On IRS Form 8300 , you must identify the individual from whom the cash was received and the person on whose behalf the transaction was conducted. In addition, you need to include a description of the transaction and method of payment. Additional disclosure of information may spell out the business that received the cash and whether multiple parties were involved.

What Happens When Deposits Are Reported?

A paper trail of potentially suspicious deposits is created after Form 8300 is transmitted to the IRS. Depositing cash at an ATM or with a bank teller, so long as it is below the $10K threshold, will usually not be reported. Law enforcement agencies can use the paper trail for future investigations if conditions warrant it.

To understand this in a bit more detail, know that first, when a cash deposit of more than $10,000 is reported, you are identified through your Social Security number (SSN) and other personal information.

What Is the Bank Secrecy Act?

The Bank Secrecy Act of 1970, mentioned above, may sound somewhat intimidating. What it actually does is require that banks keep records of each customer who deposits more than $10,000 in cash at one time in a single account. The paper trail is sent to various law enforcement groups to track where the money moves to. The Bank Secrecy Act includes civil and criminal penalties for entities not complying with the requirements.

Moreover, the 2001 Patriot Act made the Bank Secrecy Act broader; it can now better detect activity related to terrorism. Again, this is nothing to be concerned about as long as you aren’t engaged in any illegal activities like bank fraud.

Get up to $300 when you bank with SoFi.

No account or overdraft fees. No minimum balance.

Up to 4.20% APY on savings balances.

Up to 2-day-early paycheck.

Up to $2M of additional
FDIC insurance.


Reporting the Deposit

There are several steps involved in reporting a cash deposit over $10,000, whether the deposit is made to a standard or premium checking account or a savings account. There is likely nothing to be concerned about if you are just going about your daily business and not involved in illegal activity.

Banks Must Verify ID and Other Important Information

The Currency Transaction Report is used to verify a depositor’s information. The SSN, name, and address are provided to the FinCEN.

Banks Will Review All Cash Transactions

Financial institutions go through all their channels when a suspicious deposit over $10,000 is made. A series of several smaller amounts that add up to a deposit of more than $10,000 is also treated as a large deposit. Cash put into an account at a teller window or through an ATM can be linked and considered a structured deposit (more on that below). These are much more serious potential events than everyday banking activities, such as making a small cash deposit or ATM withdrawal.

Banks Will Determine If You Are Structuring Deposits

Structuring a deposit is when an individual splits up several deposits so that a single deposit of more than $10,000 cash does not happen. Someone might do this to avoid the bank having to file a Currency Transaction Report to FinCEN and resulting in a paper trail. This suspicious activity raises red flags as it suggests someone is intentionally trying to fly under the regulators’ radar. If a bank determines someone is structuring, then that activity might face additional scrutiny.

All Information Will Go Into a Currency Transaction Report

The personal information and deposit details mentioned earlier go into a Currency Transaction Report within 15 days of the transaction being considered. Reports are kept on file at the bank for five years, too. Once again, however, most people need not be too concerned with this, provided your banking is legal. Rather, it may be better to focus on account basics, like savings account withdrawal fees, not the ramifications of pernicious illegal activity, as long as they are following all the laws.

Penalties for Non-Compliance

You may wonder what happens if an individual tries to skirt the protocols described above. Here are details:

•   Civil penalties for not filing Form 8300 include fines of $250 per return. If this is considered to be intentional disregard, the fine can be the greater of $25,000 or the amount of cash received in the transaction up to $100,000.

•   Criminal penalties for not filing Form 8300 or filing a fraudulent form include a monetary fine of up to $100,000 for individuals and $500,000 for businesses. Prison sentences of up to five years are also a possible penalty for non-compliance.

Are There Any Exemptions to Consider?

A bank can file for an exemption if one of its business customers routinely deposits over $10k. It’s important to know that some businesses cannot get an exemption. For example, law firms, pawn dealers, accounting firms, and trade unions are some corporation types for which the IRS will not grant an exemption.

The Takeaway

You don’t have anything to worry about if you deposit more than $10,000 in cash to your checking account or your savings account, assuming you are doing nothing wrong. A large deposit is simply reported by a bank to regulators to track possible suspicious activity. Businesses must also file IRS Form 8300 within a specific time frame after a $10,000 cash payment.

Structuring deposits (breaking up funds into smaller amounts for deposit, so as to avoid filing a form 8300) is another no-no. Since there are significant penalties for attempting to skirt the law, it’s wise to not attempt such moves.

No matter how much you are (lawfully) depositing, it’s wise to make sure you have the bank account best suited to your needs and financial situation. For instance, you could look for a high-yield bank account and/or an account that has no or low account fees. Explore the options to see what may be right.

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 4.20% APY on SoFi Checking and Savings.

FAQ

How much money can I deposit in the bank without being reported?

A deposit over $10,000 is the amount to consider; amounts under that threshold may not have to be reported. There’s a catch, though: If a customer makes several small cash payments or deposits within a 12-month window, filing Form 8300 might have to be done should the payments or deposits exceed $10,000. These are known as “structured” deposits and can raise red flags if not reported.

How often can you deposit $10,000?

You can deposit more than $10,000 whenever you’d like, but just be aware that the receiving financial institution is required to report those funds to the IRS. If you are a business owner and depositing over $10k in cash is a frequent practice, the bank can file an exemption after the first large deposit to avoid filling out future reports to the IRS.

How do you explain a large deposit?

Depositing over $10k only results in an IRS form being filed by the bank. You often won’t have to do anything to explain it unless you are suspected of fraud or money laundering. The money is deposited like any other amount would be.

Photo credit: iStock/TARIK KIZILKAYA

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.

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

4.20% APY
SoFi members with direct deposit activity can earn 4.20% annual percentage yield (APY) on savings balances (including Vaults) and 0.50% APY on checking balances. Direct Deposit means a recurring deposit of regular income to an account holder’s SoFi Checking or Savings account, including payroll, pension, or government benefit payments (e.g., Social Security), made by the account holder’s employer, payroll or benefits provider or government agency (“Direct Deposit”) via the Automated Clearing House (“ACH”) Network during a 30-day Evaluation Period (as defined below). Deposits that are not from an employer or government agency, including but not limited to check deposits, peer-to-peer transfers (e.g., transfers from PayPal, Venmo, etc.), merchant transactions (e.g., transactions from PayPal, Stripe, Square, etc.), and bank ACH funds transfers and wire transfers from external accounts, or are non-recurring in nature (e.g., IRS tax refunds), do not constitute Direct Deposit activity. There is no minimum Direct Deposit amount required to qualify for the stated interest rate. SoFi members with direct deposit are eligible for other SoFi Plus benefits.

As an alternative to direct deposit, SoFi members with Qualifying Deposits can earn 4.20% APY on savings balances (including Vaults) and 0.50% APY on checking balances. Qualifying Deposits means one or more deposits that, in the aggregate, are equal to or greater than $5,000 to an account holder’s SoFi Checking and Savings account (“Qualifying Deposits”) during a 30-day Evaluation Period (as defined below). Qualifying Deposits only include those deposits from the following eligible sources: (i) ACH transfers, (ii) inbound wire transfers, (iii) peer-to-peer transfers (i.e., external transfers from PayPal, Venmo, etc. and internal peer-to-peer transfers from a SoFi account belonging to another account holder), (iv) check deposits, (v) instant funding to your SoFi Bank Debit Card, (vi) push payments to your SoFi Bank Debit Card, and (vii) cash deposits. Qualifying Deposits do not include: (i) transfers between an account holder’s Checking account, Savings account, and/or Vaults; (ii) interest payments; (iii) bonuses issued by SoFi Bank or its affiliates; or (iv) credits, reversals, and refunds from SoFi Bank, N.A. (“SoFi Bank”) or from a merchant. SoFi members with Qualifying Deposits are not eligible for other SoFi Plus benefits.

SoFi Bank shall, in its sole discretion, assess each account holder’s Direct Deposit activity and Qualifying Deposits throughout each 30-Day Evaluation Period to determine the applicability of rates and may request additional documentation for verification of eligibility. The 30-Day Evaluation Period refers to the “Start Date” and “End Date” set forth on the APY Details page of your account, which comprises a period of 30 calendar days (the “30-Day Evaluation Period”). You can access the APY Details page at any time by logging into your SoFi account on the SoFi mobile app or SoFi website and selecting either (i) Banking > Savings > Current APY or (ii) Banking > Checking > Current APY. Upon receiving a Direct Deposit or $5,000 in Qualifying Deposits to your account, you will begin earning 4.20% 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 10/31/2024. There is no minimum balance requirement. Additional information can be found at https://www.sofi.com/legal/banking-rate-sheet.

This article is not intended to be legal advice. Please consult an attorney for advice.

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.

*Awards or rankings from NerdWallet are not indicative of future success or results. This award and its ratings are independently determined and awarded by their respective publications.

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