Terminology Archives | Page 16 of 75

Q: What Is Tax Loss Harvesting?

The way tax loss harvesting—also known as tax loss selling—works is that an investor will sell off assets that have dropped in value as a way to offset the capital gains taxes they owe on the profits of investments that they’ve sold. Tax loss harvesting can even be used to offset as much as $3,000 in non-investment income. But to do so, an investor has to deduct their losses against capital gains first, before they can apply it to their ordinary income.

Feb

2024

Guide to Tax-Loss Harvesting

By MP Dunleavey | Investing, Terminology | Comments Off

Tax-loss harvesting enables investors to use investment losses to help reduce the tax impact of investment gains, thus potentially lowering the amount of taxes owed. While a tax loss strategy – sometimes called tax loss selling — is often used to offset short-term capital gains (which are taxed at a higher federal tax rate), tax-loss harvesting can also be used to offset long-term capital gains.

Of course, as with anything having to do with investing and taxes, tax-loss harvesting is not simple. In order to carry out a tax-loss harvesting strategy, investors must adhere to specific IRS rules and restrictions. Here’s what you need to know.

Table of Contents

What Is Tax-Loss Harvesting?
How Tax-Loss Harvesting Works
Tax-Loss Harvesting Example
Considerations Before Using Tax-Loss Harvesting
How to Use Tax-Loss Harvesting to Lower Your Tax Bill
How Much Can You Write Off on Your Taxes?
Benefits and Drawbacks of Tax-Loss Harvesting
Creating a Tax-Loss Harvesting Strategy

What Is Tax-Loss Harvesting?

Tax-loss harvesting is a strategy that enables an investor to sell assets that have dropped in value as a way to offset the capital gains tax they may owe on the profits of other investments they’ve sold. For example, if an investor sells a security for a $25,000 gain, and sells another security at a $10,000 loss, the loss could be applied so that the investor would only see a capital gain of $15,000 ($25,000 – $10,000).

This can be a valuable tax strategy for investors because you owe capital gains taxes on any profits you make from selling investments, like stocks, bonds, properties, cars, or businesses. The tax only hits when you profit from the sale and realize a profit, not for simply owning an appreciated asset.

💡 Quick Tip: If you’re opening a brokerage account for the first time, consider starting with an amount of money you’re prepared to lose. Investing always includes the risk of loss, and until you’ve gained some experience, it’s probably wise to start small.

How Tax-Loss Harvesting Works

In order to understand how tax-loss harvesting works, you first have to understand the system of capital gains taxes.

Capital Gains and Tax-Loss Harvesting

As far as the IRS is concerned, capital gains are either short term or long term:

• Short-term capital gains and losses are from the sale of an investment that an investor has held for one year or less.

• Long-term capital gains and losses are those recognized on investments sold after one year.

Understanding Short-Term Capital Gains Rates

The one-year mark is crucial, because the IRS taxes short-term investments at the investor’s much-higher marginal or ordinary income tax rate. There are seven ordinary tax brackets: 10%, 12%, 22%, 24%, 32%, 35%, and 37%.

For high earners, gains can be taxed as much as 37%, plus a potential 3.8% net investment income tax (NIIT), also known as the Medicare tax. That means the taxes on those quick gains can be as high as 40.8% — and that’s before state and local taxes are factored in.

Understanding Long-Term Capital Gains Rates

Meanwhile, the long-term capital gains taxes for an individual are simpler and lower. These rates fall into three brackets, according to the IRS: 0%, 15%, and 20%. Here are the rates for tax year 2023, per the IRS.

The following table breaks down the long-term capital-gains tax rates for the 2023 tax year (for taxes that are filed in 2024) by income and filing status.

Capital Gains Tax Rate	Income – Single	Married, filing separately	Head of household	Married, filing jointly
0%	Up to $44,625	Up to $44,625	Up to $59,750	Up to $89,250
15%	$44,626 – $492,300	$44,626 – $276,900	$59,751 – $523,050	$89,251 – $553,850
20%	More than $492,300	More than $276,900	More than $523,050	More than $553,850

Source: Internal Revenue Service

So if you’re an individual filer, you won’t pay capital gains if your total taxable income is $44,625 or less. But if your income is between $44,626 to $492,300, your investment gains would be subject to a 15% capital gains rate. The rate is 20% for single filers with incomes over $492,300.

As with all tax laws, don’t forget the fine print. As noted above, the additional 3.8% NIIT may apply to single individuals with a modified adjusted gross income (MAGI) of $200,000 or married couples with a MAGI of at least $250,000.

Also, long-term capital gains from sales of collectibles (e.g, coins, antiques, fine art) are taxed at a maximum of 28% rate. This is separate from regular capital gains tax, not in addition to it.

Short-term gains on collectibles are taxed at the ordinary income tax rate, as above.

Rules of Tax-Loss Harvesting

The upshot is that investors selling off profitable investments can face a stiff tax bill on those gains. That’s typically when investors (or their advisors) start to look at what else is in their portfolios. Inevitably, there are likely to be a handful of other assets such as stocks, bonds, real estate, or different types of investments that lost value for one reason or another.

While tax-loss harvesting is typically done at the end of the year, investors can use this strategy any time, as long as they follow the rule that long-term losses apply to long-term gains first, and short-term losses to short-term gains first.

Bear in mind that although a capital loss technically happens whenever an asset loses value, it’s considered an “unrealized loss” in that it doesn’t exist in the eyes of the IRS until an investor actually sells the asset and realizes the loss.

The loss at the time of the sale can be used to count against any capital gains made in a calendar year. Given the high taxes associated with short-term capital gains, it’s a strategy that has many investors selling out of losing positions at the end of the year.

Tax-Loss Harvesting Example

If you’re wondering how tax-loss harvesting works, here’s an example. Let’s say an investor is in the top income tax bracket for capital gains. If they sell investments and realize a long-term capital gain, they would be subject to the top 20% tax rate; short-term capital gains would be taxed at their marginal income tax rate of 37%.

Now, let’s imagine they have the following long- and short-term gains and losses, from securities they sold and those they haven’t:

Securities sold:

• Stock A, held for over a year: Sold, with a long-term gain of $175,000

• Mutual Fund A, held for less than a year: Sold, with a short-term gain of $125,000

Securities not sold:

• Mutual Fund B: an unrealized long-term gain of $200,000

• Stock B: an unrealized long-term loss of $150,000

• Mutual Fund C: an unrealized short-term loss of $80,000

The potential tax liability from selling Stock A and Mutual Fund A, without tax-loss harvesting, would look like this:

• Tax without harvesting = ($175,000 x 20%) + ($125,000 x 37%) = $35,000 + $46,250 = $81,250

But if the investor harvested losses by selling Stock B and Mutual Fund C (remember: long-term losses apply to long-term gains and short term losses to short term gains first), the tax picture would change considerably:

• Tax with harvesting = (($175,000 – $150,000) x 20%) + (($125,000 – $80,000) x 37%) = $5,000 + $16,650 = $21,650

Note how the tax-loss harvesting strategy not only reduces the investor’s tax bill, but potentially frees up some money to be reinvested in similar securities (restrictions may apply there; see information on the wash sale rule below).

💡 Quick Tip: It’s smart to invest in a range of assets so that you’re not overly reliant on any one company or market to do well. For example, by investing in different sectors you can add diversification to your portfolio, which may help mitigate some risk factors over time.

Considerations Before Using Tax-Loss Harvesting

As with any investment strategy, it makes sense to think through a decision to sell just for the sake of the tax benefit because there can be other ramifications in terms of your long-term financial plan.

The Wash Sale Rule

For example, if an investor sells losing stocks or other securities they still believe in, or that still play an important role in their overall financial plan, then they may find themselves in a bind. That’s because a tax regulation called the wash sale rule prohibits investors from receiving the benefit of the tax loss if they buy back the same investment too soon after selling it.

Under the IRS wash sale rule, investors must wait 30 days before buying a security or another asset that’s “substantially identical” to the one they just sold. If they do buy an investment that’s the same or substantially identical, then they can’t claim the tax loss.

For an investment that’s seen losses, that 30-day moratorium could mean missing out on growth — and the risk of buying it again later for a higher price.

Matching Losses With Gains

A point that bears repeating: Investors must also be careful which securities they sell. Under IRS rules, like goes with like. So, long-term losses must be applied to long-term gains first, and the same goes for short-term losses and short-term gains. After that, any remaining net loss can be applied to either type of gain.

How to Use Net Losses

The difference between capital gains and capital losses is called a net capital gain. If losses exceed gains, that’s a net capital loss.

• If an investor has an overall net capital loss for the year, they can deduct up to $3,000 against other kinds of income — including their salary and interest income.

• Any excess net capital loss can be carried over to subsequent years and deducted against capital gains, and up to $3,000 of other kinds of income — depending on the circumstances.

• For those who are married filing separately, the annual net capital loss deduction limit is only $1,500.

How to Use Tax-Loss Harvesting to Lower Your Tax Bill

When an investor has a diversified portfolio, every year will likely bring investments that thrive and others that lose money, so there can be a number of different ways to use tax-loss harvesting to lower your tax bill. The most common way, addressed above, is to apply capital losses to capital gains, thereby reducing the amount of tax owed. Here are some other strategies:

Tax-Loss Harvesting When the Market Is Down

For investors looking to invest when the market is down, capital losses can be easy to find. In those cases, some investors can use tax-loss harvesting to diminish the pain of losing money. But over long periods of time, the stock markets have generally gone up. Thus, the opportunity cost of selling out of depressed investments can turn out to be greater than the tax benefit.

It also bears remembering that many trades come with trading fees and other administrative costs, all of which should be factored in before selling stocks to improve one’s tax position at the end of the year.

Tax-Loss Harvesting for Liquidity

There are years when investors need access to capital. It may be for the purchase of a dream home, to invest in a business, or because of unforeseen circumstances. When an investor wants to cash out of the markets, the benefits of tax-loss harvesting can really shine.

In this instance, an investor could face bigger capital-gains taxes, so it makes sense to be strategic about which investments — winners and losers — to sell by year’s end, and minimize any tax burden.

Tax-Loss Harvesting to Rebalance a Portfolio

The potential benefits of maintaining a diversified portfolio are widely known. And to keep that portfolio properly diversified in line with their goals and risk tolerance, investors may want to rebalance their portfolio on a regular basis.

That’s partly because different investments have different returns and losses over time. As a result, an investor could end up with more tech stocks and fewer energy stocks, for example, or more government bonds than small-cap stocks than they intended.

Other possible reasons for rebalancing are if an investor’s goals change, or if they’re drawing closer to one of their long-term goals and want to take on less risk.

That’s why investors check their investments on a regular basis and do a tune-up, selling some stocks and buying others to stay in line with the original plan. This tune-up, or rebalancing, is an opportunity to do some tax-loss harvesting.

How Much Can You Write Off on Your Taxes?

If capital losses exceed capital gains, under IRS rules investors can then deduct a portion of the net losses from their ordinary income to reduce their personal tax liability. Investors can deduct the lesser of $3,000 ($1,500 if married filing separately), or the total net loss shown on line 21 of Schedule D (Form 1040).

In addition, any capital losses over $3,000 can be carried forward to future tax years, where investors can use capital losses to reduce future capital gains. This is known as a tax loss carryforward. So in effect, you can carry forward tax losses indefinitely.

To figure out how to record a tax loss carryforward, you can use the Capital Loss Carryover Worksheet found on the IRS’ Instructions for Schedule D (Form 1040).

Benefits and Drawbacks of Tax-Loss Harvesting

While tax-loss harvesting can offer investors some advantages, it comes with some potential downsides as well.

Benefits of Tax-Loss Harvesting

Obviously the main point of tax-loss harvesting is to reduce the amount of capital gains tax on profits after you sell a security.

Another potential benefit is being able to literally cut some of your losses, when you sell underperforming securities.

Tax-loss harvesting, when done with an eye toward an investor’s portfolio as a whole, can help with balancing or rebalancing (or perhaps resetting) their asset allocation.

As noted above, investors often sell off assets when they need cash. Using a tax-loss harvesting strategy can help do so in a tax-efficient way.

Drawbacks of Tax-Loss Harvesting

While selling underperforming assets may make sense, it’s important to vet these choices as you don’t want to miss out on the gains that might come if the asset bounces back.

Another of the potential risks of tax-loss harvesting is that if it’s done carelessly it can leave a portfolio imbalanced. It might be wise to replace the securities sold with similar ones, in order to maintain the risk-return profile. (Just don’t run afoul of the wash-sale rule.)

Last, it’s possible to incur excessive trading fees that can make a tax-loss harvesting strategy less efficient.

Pros of Tax-Loss Harvesting	Cons of Tax-Loss Harvesting
Can lower capital gains taxes	Investor might lose out if the security rebounds
Can help with rebalancing a portfolio	If done incorrectly, can leave a portfolio imbalanced
Can make a liquidity event more tax efficient	Selling assets can add to transaction fees

Creating a Tax-Loss Harvesting Strategy

Interested investors may want to create their own tax-loss harvesting strategy, given the appeal of a lower tax bill. An effective tax-loss harvesting strategy requires a great deal of skill and planning.

It’s important to take into account current capital gains rates, both short and long term. Investors would be wise to also weigh their current asset allocation before they attempt to harvest losses that could leave their portfolios imbalanced.

All in all, any strategy should reflect your long-term goals and aims. While saving money on taxes is important, it’s not the only rationale to rely on for any investment strategy.

The Takeaway

Tax loss harvesting, or selling off underperforming stocks and then potentially getting a tax reduction for the loss, can be a helpful part of a tax-efficient investing strategy.

There are many reasons an investor might want to do tax-loss harvesting, including when the market is down, when they need liquidity, or when they are rebalancing their portfolio. It’s an individual decision, with many considerations for each investor — including what their ultimate financial goals might be.

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Invest with as little as $5 with a SoFi Active Investing account.

FAQ

Is tax-loss harvesting really worth it?

When done carefully, with an eye toward tax efficiency as well as other longer-term goals, tax-loss harvesting can help investors save money that they can invest for the long term.

Does tax-loss harvesting reduce taxable income?

Yes. The point of tax-loss harvesting is to reduce income from investment gains (profits). But also when net losses exceed gains, the strategy can reduce your taxable income by $3,000 per year.

Can you write off 100% of investment losses?

It depends. Investment losses can be used to offset a commensurate amount in gains, thereby lowering your potential capital gains tax bill. If there are still net losses that cannot be applied to gains, up to $3,000 per year can be applied to reduce your ordinary income. Net loss amounts in excess of $3,000 would have to be carried forward to future tax years.

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Feb

2024

Overweight Stock, Explained

By AJ Smith | Growing Wealth, invest, Investing, Terminology | Comments Off

When a financial analyst rates a stock as overweight, it means that the analyst believes an overweight stock will likely outperform other stocks in its industry over the next six to 12 months. Conversely, if they describe a stock as underweight, they believe that it will perform poorly in the future.

It may be helpful to think of these terms as pointers: as if an industry specialist were saying, “You might want to overweight Stock X in your portfolio” or “maybe you should under-weight Stock Y.” These ratings are typically the result of factors in the news or pertaining to a specific company’s prospects. But the terms “overweight” and “underweight” also refer to a stock’s weighting in a relevant index or benchmark.

What Is an Overweight Stock?

As noted, an overweight stock is one that analysts believe will outperform others in its sector or market segment in the near future. Similarly, overweight stock is a moniker that may also describe a specific security’s weighting in a portfolio, and one that analysts think investors should buy more of – so, its meaning can be contextual in certain situations.

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Types of Ratings and Where They Came From

To understand stock ratings related to weight, it’s important to know that market indexes assign a weight to the investments they track to be sure that the index accurately reflects the performance of that market sector.

For example, the S&P 500® tracks 500 large-cap U.S. companies. The companies in the index — called the constituents — are weighted by market capitalization. A company’s market cap is calculated by multiplying the current share price by the total number of outstanding shares.

Companies in that index are weighted based on the proportion of the overall index their market cap represents. Other indexes may use a different weighting system. The Dow Jones Industrial Average, for example, tracks 30 blue chip companies and weights them based on stock price. Companies with a higher share price are given more weight than those with lower prices.

Because of these different weighting systems, it’s important to understand that an overweight to a particular stock with regards to one index may not be the same when it comes to another.

Overweight Stocks

When an analyst rates Stock X as overweight, it’s generally a positive sign. First, they believe Stock X is likely to outperform its benchmark index, or even the market as a whole, depending on market conditions, so investors should consider holding more of the stock.

Bear in mind that an “overweight stock” rating doesn’t necessarily mean that stock is a juggernaut. In a down market, being overweight could simply mean the company might not lose as much ground as its peers, or it might grow less slowly than its peers.

Underweight Stocks

When an analyst rates Stock Y as underweight, the analyst believes that Stock Y is likely to underperform its benchmark, and investors should consider holding less of this stock.

Equal Weight Stocks

When an analyst gives an equal weight rating to a stock, that simply means it’s in line with the overall benchmark. Again, when considering these ratings it’s important to keep in mind the overall context of the market, and what these ratings mean to analysts.

Example of an Overweight Stock

A very simple example of an overweight stock could be when a stock, Stock X, is selling for $50, but experts and analysts think it’s undervalued and should trade for $75, it could be overweight.

Further, an overweight stock rating can be taken in two ways: First, that the stock will outperform its benchmark index and second that investors may want to take advantage of the increase in price.

When an analyst indicates their belief that a stock will appreciate, they may also state a potential time frame and price target for the stock. So, if Stock X is trading at $75 per share, and the company releases new earnings data that’s positive, an analyst might rate the stock as overweight, with a price target of $100 per share in the coming year.

💡 Quick Tip: Investment fees are assessed in different ways, including trading costs, account management fees, and possibly broker commissions. When you set up an investment account, be sure to get the exact breakdown of your “all-in costs” so you know what you’re paying.

The Downside of Weighting Stocks

One critique of this rating system is that no analyst, of course, can recommend how many shares investors should buy. It’s simply not possible for analysts to know whether Investor A’s portfolio might benefit from an additional 100 shares of Stock X, while Investor B might want to buy 1,000 shares of Stock X.

As a result, it’s incumbent on individual investor’s themselves to keep an eye on how relevant an overweight stock rating might be for their specific allocation. Buying more of Stock X could, in theory, create an imbalance and reduce a portfolio’s overall diversification. So while an overweight stock might be a good thing, an overweight portfolio usually is not.

How Can Investors Interpret Overweight Stocks?

At first glance, the terms overweight and underweight may seem more or less synonymous with “buy” and “sell” — in that case, why don’t analysts use these more straightforward terms?

In fact, the terms overweight and underweight do have a slightly different connotation than simply to buy or sell a security. Rather, the terms suggest a recommendation that a portfolio hold more or less of a particular position than an index or other benchmarks would suggest.

It may mean acquiring more, or selling some, of a particular investment. But it wouldn’t necessarily mean buying something new or selling all of a position. For example, if your portfolio has an allocation to tech stocks, and an analyst recommends overweighting one of those stocks, you may want to buy more of that company. Or you may not need more growth in your tech holdings, so you might look for an overweight stock.

Also, analysts aren’t always comfortable giving specific directions to buy or sell certain securities. The terms overweight and underweight are more like offering guidance: “Here’s what I think of Stock X or Stock Y. I’ll let the investor take it from here.”

In many cases an overweight or underweight recommendation might not be very useful for investors. For example, if an analyst recommends an overweight to a certain commodity but an investor’s portfolio doesn’t hold any commodities, this information may not have much bearing on their situation.

Can a Portfolio Be Considered Overweight?

Overweight can refer to a portfolio that holds more of a stock or other investments than it theoretically should. For individual investors, this might mean that more of a portfolio is allocated to stock than the investor intended.

For example, say an investor has a portfolio allocation in which 70% of its allocation is held in stock and 30% is held in bonds. If the stock market goes up, the proportion of the portfolio held in stock may grow beyond the 70% mark. At that point, the portfolio may be described as overweight in stocks, and an investor may want to rebalance to bring it in line with their initial allocation plan.

It may come as no surprise that the opposite of an overweight allocation is an underweight allocation. For example, if the stock allocation in the portfolio above fell below 70%, that allocation could be described as underweight in stocks.

The term can also apply in a narrower sense. For example, a stock portfolio could hold too much stock in one company, sector, or geographical region. In each case the holding could be described as overweight.

Professional fund managers may also use overweight to describe portfolios they work with that are off track with their index, including mutual funds, exchange-traded funds, and index funds. From time to time, a fund may get out of line with its benchmark index by holding more or less of an investment that index tracks.

For example, say an index fund is built to track the S&P 500. To track the index, fund managers will usually attempt to hold every stock in the index. Additionally, they will try to match the proportion of each individual company their fund holds to the index as well. So if stock A represents 5% of the original index, the fund will also hold 5% of stock A.

Some funds have a little bit of wiggle room in terms of how far they can stray from the index. Some might be allowed to hold more or less stocks if they think the stocks will outperform or underperform. When they hold more than the index, the managers are taking an overweight position. And when they hold less than the index, the managers are taking an underweight position.

The Takeaway

Overweight stocks are those that may be undervalued by the market. When an analyst gives a stock an overweight rating, broadly speaking it could be a good thing. If the analyst is correct, and the stock is indeed poised to perform better than its benchmark — maybe even better than the market as a whole — investors may want to buy that stock.

But the necessary caveat is that it all depends on context — the context of the market, and the context of an investor’s portfolio overall. You don’t want to buy a stock that could throw your allocation off, and make your portfolio overweight in a way that’s not ideal.

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

Is overweight stock good?

An overweight stock can be good for investors looking for a relative deal, but it may not be a good thing if the investor already owns shares of the stock.

What is the difference between overweight and outperform stocks?

Outperform stocks and overweight stocks are similar, and the terms are often used interchangeably. But generally, “outperform” may describe a stock that’s undervalued or expected to offer solid returns in the future, but perhaps perform not quite as well as an “overweight” stock.

What is the difference between buy and overweight?

On an analysts’ rating system, “buy” and “overweight” stocks are rated differently, with “buy” being a higher rating – though both ratings are positive.

SoFi Invest®

INVESTMENTS ARE NOT FDIC INSURED • ARE NOT BANK GUARANTEED • MAY LOSE VALUE

SoFi Invest encompasses two distinct companies, with various products and services offered to investors as described below: Individual customer accounts may be subject to the terms applicable to one or more of these platforms.
1) Automated Investing and advisory services are provided by SoFi Wealth LLC, an SEC-registered investment adviser (“SoFi Wealth“). Brokerage services are provided to SoFi Wealth LLC by SoFi Securities LLC.
2) Active Investing and brokerage services are provided by SoFi Securities LLC, Member FINRA (www.finra.org)/SIPC(www.sipc.org). Clearing and custody of all securities are provided by APEX Clearing Corporation.
For additional disclosures related to the SoFi Invest platforms described above please visit SoFi.com/legal.
Neither the Investment Advisor Representatives of SoFi Wealth, nor the Registered Representatives of SoFi Securities are compensated for the sale of any product or service sold through any SoFi Invest platform.

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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Feb

2024

What Is Shrinkflation?

By Jamie Cattanach | money, Money & Life, Terminology | Comments Off

Shrinkflation is the practice of reducing the size or amount of a product in a given package while maintaining the same sticker price. You know when you buy a box of cereal only to realize that it’s slightly smaller than you’re used to — even though you paid the same amount as before? That’s shrinkflation.

Companies may practice shrinkflation to combat rising back-end costs and maintain or increase profit margins. This can help them stay afloat when faced with growing competition or rising costs. But it’s no fun for the consumer (that’s you) — if you’re wise enough to pick up on it, that is.

Below, learn what you need to know about shrinkflation and how to deal with it.

Why Does Shrinkflation Happen?

First, let’s take a step backwards. Why is it called “shrinkflation” anyway?

When companies shrink their products and thereby inflate the price, that’s shrinkflation. For instance, perhaps you notice that the 14-ounce bag of pretzels you used to buy is now 12 ounces…while the price has stayed the same or risen.

Once you understand how it works, it’s pretty easy to understand why companies shrinkflate their products, as sneaky a tactic as it is. By offering less of their product at the same or a higher price, companies can increase their profit margins.

This, in turn, can help them battle rising production costs, competition from other companies, or simply drive more profits — which, in the end, is the main goal of every for-profit company.

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Examples of Shrinkflation

To avoid implicating any specific brand, let’s use an imaginary example to demonstrate how shrinkflation works and how you might notice it as a consumer.

• Say you’re at the grocery store, and you’re about to buy your favorite bottle of pomegranate juice. It’s a little pricey, but you love the taste — and besides, it’s good for you.

• You pick up the bottle, expecting to pay $8 for your typical 16 ounces. The bottle looks the same and costs the same, but it feels different in your hand. You go ahead and purchase it.

• When you get home, you notice that the almost-empty bottle in your fridge is just a little bit bigger than the new bottle. When you look closely, you notice the new bottle actually has 14.5 ounces, not 16.

You’ve just been shrinkflated.

Is Shrinkflation Temporary?

Unfortunately, most financial experts say shrinkflation is here to stay, even if the economy rebounds and regular inflation decreases. In the world of making money, more is always better, and shrinkflation can help companies do just that: make more money with the same amount of work and less material.

And because shrinkflation usually happens gradually, many consumers don’t even recognize it’s happening. Instead, they just slowly see their grocery bills and household expenses increase. If companies were transparent and sold the same amount of product at a higher price, you’d likely notice — and perhaps balk — while you were putting the item in your shopping cart.

With shrinkflation, companies can get a financial boost without (hopefully) triggering any consumer pushback. But careful, observant shoppers may still pick up on this sneaky business tactic.

Is Shrinkflation Illegal?

Shrinkflation is currently legal, and companies are not required to announce changes in sizes or packing. Nor do companies typically say that new, smaller sizes are the same as before when they shrinkflate products (if they did, that would likely be considered deceptive).

Consumer advocates are, as you might guess, not usually fans of the practice. And, according to a 2023 study from YouGov, Americans are catching on — and they’re not happy about this practice. In that survey, 73% of respondents said they were concerned about shrinkflation and 41% were very concerned. It’s possible that a consumer group or an individual consumer might someday file a suit and possibly prove the practice is unethical.

Recommended: The Inflation Reduction Act, Explained

Tips for Noticing Shrinkflation

Want to be aware of whether or not you’ve been shrinkflated?

Given how expensive the cost of living is in general today in many parts of the United States, plenty of shoppers don’t want to fall victim to inflation of any kind, including the shrinky one discussed here.

Follow these tips to help you stay ahead of shrinkflation.

1. Pay Attention to Your Receipts

Although plenty of us forego paper receipts entirely, keeping them can actually be very instructive, particularly when it comes to avoiding shrinkflation. Keeping and comparing receipts, especially for products you buy often, may help tip you off to shrinkflation more quickly than you’d otherwise notice on your own. (Plus, you may get a better picture of how much you actually spend on groceries, as opposed to how much you expect to.)

2. Make a Price-inclusive Grocery List

If you’re really serious about beating the shrinkflation machine, grab that receipt you kept and make your next grocery list — with the approximate price you paid next to each item. That way, you’ll notice shrinkflation before it even happens as you’re about to put the item in your cart.

You can update this on a monthly basis or so to stay abreast of any shrinkflation moves, should companies roll out new, smaller-sized products for the same or a higher price.

3. Pay Attention to Price-per-unit When Shopping

When it comes down to it, price per unit or per-ounce of a product is the best way to understand what a product really costs. When items are shrinkflated, their price per unit or ounce goes up.

Many stores even list price-per-ounce information on the shelf or in an online listing, or you can also do your own quick division. If you see that, say, your favorite orange juice brand now comes in a smaller bottle for more money, you can decide whether to pay up or find another option. This may help you spend less on food.

💡 Quick Tip: Your money deserves a higher rate. You earned it! Consider opening a high-yield checking account online and earn 0.50% APY.

Should You Buy Shrinkflated Products?

From a consumer’s point of view, shrinkflation can feel just plain bad. Nobody likes to feel like they’re being deceived.

But only you can decide whether or not the juice is worth the squeeze, so to speak, when it comes to buying from a company that employs this tactic.

• If you really, really love that brand of pomegranate juice, you may just put up with it… and adjust your budget accordingly.

• If you strongly feel that this tactic is deceptive and it’s taking a substantial chunk out of your checking account, it may be time to find brands that don’t engage in this practice.

• You might decide to buy generic brands, or to shop at a warehouse or wholesale club store, like Costco or Big Sam’s. There, you may benefit from economies of scale—and stock up on your favorite items before their prices go up.

The Takeaway

Shrinkflation is the practice of consumer goods being sold in smaller packages than in the past for the same or a higher price. In other words, your money goes less far. While shrinkflation can be a bummer, it doesn’t have to destroy your finances. By being a vigilant shopper and/or adjusting your budget, you can continue to enjoy products that have been shrinkflated. You can also make sure that your money is working as hard as possible for you by selecting a banking partner that offers favorable terms.

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

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

FAQ

Why is shrinkflation allowed?

Shrinkflation is allowed because it hasn’t been proven deceptive or illegal. There isn’t a law saying companies must disclose packaging changes, nor are manufacturers or marketers claiming they are selling the same size as before. Perhaps if a lawsuit is filed and the outcome favors consumers, this could change.

What is a real life example of shrinkflation?

A common example of shrinkflation is the size of tuna cans, which have steadily gotten smaller over time — even as the price of each can has remained the same or increased.

How do you beat shrinkflation?

By paying attention to how much you spend on products and the amount of product you get each time you buy, you can stay ahead of sneaky tactics like shrinkflation. You can then decide if you want to buy that brand, a different one, or look into shopping at warehouse club stores.

Photo credit: iStock/AlexSecret

SoFi® Checking and Savings is offered through SoFi Bank, N.A. ©2023 SoFi Bank, N.A. All rights reserved. Member FDIC. Equal Housing Lender.
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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 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.

As an alternative to direct deposit, 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.

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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Feb

2024

4 Types of Wills Explained: Which One Is Right for You?

By Anna Davies | Life & Career, Terminology | Comments Off

Not all wills are alike; there are actually four main kinds and one of them is right for you. Sure, writing a will can be an easy task to put off until “someday.” But what if the worst were to happen before “someday?” That could mean a complicated and emotionally draining legal process for your loved ones. Creating a will not only can provide peace of mind for your loved ones after you die, but it can also provide peace of mind for you right now.

The simple definition of a will is a document that states your final wishes. This alone was sufficient a century ago, when many people had limited property to pass down. But in the modern era, when “property” encompasses everything from the contents of your long-forgotten storage unit to the crypto you decided to buy on a whim, a simple will may not encompass your complex life.

Not only that, but a will is a document that only takes effect after you die. But what if you were medically unable to make decisions? Modern end-of-life documents encompass your wishes if you were medically or otherwise unable to make decisions on your own. Among these documents is one that also has the world “will” in its name.

4 Kinds of Wills

As you begin estate planning, you’ll likely come across four common types of wills. These are:

• A simple will

• A joint will

• A testamentary trust will

• A living will

Let’s look at each type of will more closely.

What Is a Simple Will?

Like the name, a simple will may be the type of will that pops into your mind when you hear the word “will.” This will can:

• State how you want your property bequeathed upon death

• Provide guardianship specifications for minors

Upon death, a simple will is likely to go through a legal process known as probate to divide assets. Sometimes, in the case of high-net worth individuals, probate can be expensive. (For those with complex situations and a positive net worth, a trust can help handle those what-ifs. It can transfer assets out of your estate and into the trust, which can be advantageous in terms of taxes.) But in many situations, a simple will can provide peace of mind for people in good health. Later, these individuals may want to take on more complex estate planning, but a will provides a good foundation when it comes to making sure guardians are named and property is divided according to your wishes.

A simple will can be created through online templates, and the cost can be zero dollars to several hundred dollars. More expensive online options may come with support from an attorney who can help answer simple questions. Once created, a will then needs to be made legal according to state laws. This may include signing the will in front of witnesses. You may also want to have it notarized. Having a hard copy of the will, as well as people who know how to access it in case of your death, can ensure the will is found in a timely manner if you were to die.

💡 Quick Tip: We all know it’s good to have a will in place, but who has the time? These days, you can create a complete and customized estate plan online in as little as 15 minutes.

What Is a Joint Will?

A joint will functions in much the same way as a simple will, except it is a will created by two people, usually who are married to each other. It merges their wishes into a single legal document. In many cases, this kind of will dictates that property will be left entirely to the surviving partner. Here’s the catch, though: Upon death, property will be distributed in the manner dictated by the will — the surviving person does not have the ability or authority to make changes to what the will says once the initial spouse has died.

This can sound streamlined, especially if couples were planning to leave everything to each other anyway. But this type of will can cause headaches. For example, if the surviving spouse has more children or gets remarried, it can be almost impossible to provide for additional people not named in the initial, joint will.

There could be problems even if the surviving spouse does not remarry. For example, if the marital home is considered an asset to be given to the couple’s children upon the death of both of the will’s creators, it may be impossible for the surviving spouse to sell a home to downsize.

One alternative that may suit married couples is to create two individual wills. This may provide a greater degree of flexibility and better achieve the desired effect without ruling out all of life’s what-ifs.

What Is a Testamentary Trust Will?

A testamentary trust will is usually part of big-picture estate planning. It is a document that creates a trust that goes into effect when you die. This trust can outline how certain types of property will be divided. A testamentary trust can have certain stipulations (for example, someone only inherits X piece of property when they reach Y age). This can also be used for people with minors or dependents to help ensure that wishes are followed.

What’s more, a testamentary trust can also help provide for pets. Because a pet can’t own property, naming your “fur baby” within a will can set up a legal headache. But a testamentary trust can ensure that your pet will be provided for according to your wishes.

It’s worth noting that a testamentary trust will go through the probate process, and it may not have the same tax benefits for recipients as other types of trusts. Weighing the pros and cons of different trust options can be helpful before settling on the best one for your situation.

What Is a Living Will?

This is a hard topic to think about, but what if you were in an accident and were knocked unconscious? What if you were undergoing treatment for a serious medical condition and couldn’t fully grasp the options offered to you? There’s a way to put a trusted relative or friend in the decision-making role. A living will, which is also known as an advance directive, specifies your wishes if you were medically incapacitated or unable to make or communicate decisions about your medical care. It also stipulates who your healthcare proxy, also known as a medical power of attorney, would be to make medical decisions on your behalf.

If you are creating a living will, you may also want to create a power of attorney document as well. This designates a person, who may or may not be the same person as your healthcare proxy, who has the right to make financial decisions on your behalf. Having a living will can cover unexpected situations that may occur before death and can be an integral part of end of life planning.

💡 Quick Tip: It’s recommended that you update your will every 3-5 years, and after any major life event. With online estate planning, changes can be made in just a few minutes — no attorney required.

The Takeaway

While end of life planning can be a challenging or sad endeavor, it’s an important step in making sure your assets are directed where you want them to go and that other important wishes are executed as you want. There are four main types of wills to help you legally record your plans. You’ll have options; more than one may suit your needs. And you can decide to use online services or work in person with an attorney.

In either case, making a will can give you peace of mind right now — and help smooth things along for your loved ones in the future during a difficult time.

When you want to make things easier on your loved ones in the future, SoFi can help. We partnered with Trust & Will, the leading online estate planning platform, to give our members 15% off their trust, will, or guardianship. The forms are fast, secure, and easy to use.

Create a complete and customized estate plan in as little as 15 minutes.

Photo credit: iStock/LaylaBird

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Tax Information: This article provides general background information only and is not intended to serve as legal or tax advice or as a substitute for legal counsel. You should consult your own attorney and/or tax advisor if you have a question requiring legal or tax advice.

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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Feb

2024

Tax Credits vs Tax Deductions: What’s the Difference?

By Timothy Moore | Family Finances, money, Terminology | Comments Off

Tax credits and tax deductions work differently, with deductions lowering your taxable income and credits actually reducing the taxes you owe.

To be a little more specific, deductions can decrease the amount of income you have to pay taxes on, which can lower your final bill. Tax credits are a dollar-for-dollar reduction in what you owe — and might even get you a bigger tax refund.

It’s possible you may be able to claim both deductions and credits. Read on to understand more about how both options work.

What Are Tax Credits?

Tax credits represent a dollar-for-dollar reduction in your overall tax burden. They directly lower the tax amount you owe to Uncle Sam.

For example, if you owe $1,500 in taxes but qualify for a $500 tax credit, your total tax bill will decrease by $500, meaning you’ll only have to pay $1,000.

💡 Quick Tip: Help your money earn more money! Opening a bank account online often gets you higher-than-average rates.

How Do Tax Credits Work?

When filing your taxes, you can use IRS resources, tax software, or a certified accountant to research tax credits for which you may be eligible. If it’s your first time filing taxes, these resources can be especially helpful.

Even if you don’t owe anything in taxes, it’s worth looking into tax credits. Why? Because some tax credits are refundable, meaning the government might owe you money:

• Refundable tax credits allow your tax liability to go below zero. For example, if you owe $100 in taxes but receive a $500 refundable tax credit, the government will actually owe you $400.

• Nonrefundable tax credits do not work that way, unfortunately. If you qualify for a nonrefundable tax credit, the best it can do is eliminate your tax liability (meaning you owe nothing). But even if the credit is large enough to wipe out what you owe and there’s still money left over, you don’t get to pocket that extra money.

Tax credits are not for everyone. Each credit has specific requirements to qualify.

And if you’re wondering what happens if you miss the tax deadline, tax credits would still apply for the year that you’re filing your taxes.

Common Tax Credits

Your tax software or accountant should know the full list of tax credits to look out for, and the IRS website features the whole list. (You can also learn important information from an online tax help center.)

Before diving into your taxes, however, it’s a good idea to note some of the most common tax credits for which you may qualify:

• Earned Income Tax Credit: Commonly called by its initials (EITC), this refundable tax credit is for low- to moderate-income workers. The amount you might qualify for and your eligibility can vary depending on whether you have dependents and/or have a disability.

• American Opportunity Tax Credit: This education tax credit is partially refundable. Students (or parents claiming a student as a dependent) can claim this tax credit for the first four years of higher education. It’s $2,500 per eligible student, but once your tax bill hits zero, you can earn 40% of whatever remains (up to $1,000) as a tax refund.

• Child Tax Credit: Even if a child isn’t enrolled in higher education, parents have access to a handy tax credit. The Child Tax Credit is a refundable tax credit for parents (with dependent children) who meet income requirements.

• Child and Dependent Care Credit: Parents have access to yet another potential tax credit, this time for those who pay for babysitters or daycare. The credit amount depends on such factors as your income, child care costs, and number of children requiring care.

You can use tools on the IRS website to discover if you qualify for these and other tax credits.

What Are Tax Deductions?

Tax deductions are another way to reduce your tax burden, but they work differently. While a tax credit discounts your final tax bill after all the calculations, a tax deduction reduces the amount of income eligible for taxes.

The more deductions you have, the less money you have to pay taxes on. This can result in a lower overall tax bill, but it cannot result in a tax refund.

Recommended: What Triggers an IRS Audit?

How Do Tax Deductions Work?

Let’s look at an example to understand how tax deductions reduce what you owe:

If you made $100,000 in a given year, you would owe 24% in federal taxes based on your marginal tax bracket. But if you have $10,000 in tax deductions, you would lower your taxable income to $90,000, which puts you at both a lower base to calculate taxes ($90K vs. $100K), and you would be in the 22% tax bracket, which this year is capped at $95,375 for single filers.

As you can see, when calculating how much a tax deduction will save you, it’s important to know which tax bracket you’re in — your tax bracket represents the percentage at which your income could be taxed. In general, the more money you make, the higher the tax rate.

Common Tax Deductions

Nearly every tax filer is eligible for the standard deduction. Without inputting any information accounting for business expenses, medical costs, charitable contributions, student loan interest payments, and other eligible deductions, you can simply subtract the standard deduction amount from your taxable income.

For the 2023 tax year (which will be filed in April of 2024), the standard deduction is:

• $13,850 for single taxpayers (and married, filing separately)

• $27,700 for married taxpayers filing jointly

• $20,800 for heads of household.

Many people choose to take the standard deduction, but if you qualify for various deductions that would amount to more than the standard deduction, it’s worth itemizing your deductions.

Working with a personal accountant or tax preparation software may be your best bet for determining which deductions you qualify for. Here are some of the most common types of deductions:

• State and local taxes

• Business expenses (if you are self-employed)

• Mortgage interest

• Property taxes

• Qualifying medical expenses

• Charitable contributions

• Student loan interest.

You can explore even more tax deductions on the IRS website.

If you run your own business, it’s wise to look into common tax deductions for freelancers.

Pros and Cons of Tax Credits

Tax credits are largely a good thing, as they reduce your overall tax burden. But they also have some drawbacks. Here’s a closer look at the pros and cons:

Pros

First, consider these upsides of tax credits:

• Reduces your tax bill

• May result in a refund

• Often designed for moderate- to low-income families.

Cons

Next, the potential downsides of tax credits:

• Strict eligibility requirements

• Can delay your refund when you claim them.

Recommended: How to File for a Tax Extension

Pros and Cons of Tax Deductions

Similarly, tax deductions serve a useful purpose in filing taxes, but they also have their own set of pros and cons.

Pros

Here are the potential advantages of tax deductions:

• Reduces your tax bill

• The standard deduction is easy to claim

• Useful for self-employed individuals with business expenses.

Cons

Also be aware of the possible downsides:

• Lots of paperwork (itemized deductions)

• Weighing the standard vs. itemized deduction can be complicated

• Won’t generate a refund.

Tax Credits vs Deductions: What’s the Difference?

Let’s break down the differences between tax credits and tax deductions in chart form:

Tax Credits	Tax Deductions
Dollar-for-dollar reduction in your total tax bill	Reduction in how much income you have to pay taxes on
Can result in a tax refund	Can only reduce taxable income; cannot result in tax refund
Must claim specific credits for which you qualify	Can take the standard deduction or itemize your deductions
Only available to filers who meet specific criteria	Available to most filers as standard deduction

While nearly everyone can qualify for the standard deduction, tax credits can actually be the more effective way to lower your tax bill. But the best part? You can utilize both tax strategies when you file.

Tips for Using Tax Credits and Deductions

Preparing to file your taxes? Here are some tips for using tax credits and deductions:

• Research eligibility requirements online: The IRS website has useful tools to help determine if you qualify for specific tax credits and deductions.

• Gather all your paperwork: Taxes require a lot of forms, documents, and receipts. When claiming credits and deductions, it’s important to have the paperwork (whether printed or digital) to prove your eligibility.

• Consider using tax software or an accountant: Taxes can be overwhelming. If your situation is complex (maybe you are confused by, say, your payroll deductions), you may benefit from tax software (TurboTax, H&R Block, and TaxSlayer are popular brands) or a tax professional.

The Takeaway

Tax credits and tax deductions can both lower your overall tax burden. Tax credits reduce what you owe dollar-for-dollar, while tax deductions reduce the amount of income you owe taxes on. If you’re eligible, you can take advantage of both tax strategies when you file.

While you are getting your taxes organized, don’t overlook the value of a banking partner that makes it easy to manage your finances.

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

Between a tax deduction and tax credit, which lowers your bill more?

A tax credit lowers your tax bill dollar-for-dollar and may even result in a refund. A tax deduction only reduces the amount of money you owe taxes on. For example, a $1,000 tax credit takes $1,000 off your tax bill. A $1,000 tax deduction reduces your taxable income by $1,000; the actual reduction in tax depends on your tax bracket.

Do more people utilize tax credits or tax deductions?

Most tax filers can claim the standard deduction, but not everyone qualifies for tax credits. So it is more likely that you’ll use a tax deduction on your tax return than a tax credit. That said, it is possible to use both credits and deductions to lower your tax bill.

Can I claim both deductions and tax credits?

Yes, you can claim both tax deductions and tax credits on your tax return, as long as you qualify for the deductions and credits you claim.

Photo credit: iStock/Jinli Guo

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 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.

As an alternative to direct deposit, 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.

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Tax Information: This article provides general background information only and is not intended to serve as legal or tax advice or as a substitute for legal counsel. You should consult your own attorney and/or tax advisor if you have a question requiring legal or tax advice.

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.

SOBK0224009

Guide to Tax-Loss Harvesting

What Is Tax-Loss Harvesting?

How Tax-Loss Harvesting Works

Capital Gains and Tax-Loss Harvesting

Understanding Short-Term Capital Gains Rates

Understanding Long-Term Capital Gains Rates

Rules of Tax-Loss Harvesting

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Tax-Loss Harvesting Example

Considerations Before Using Tax-Loss Harvesting

The Wash Sale Rule

Matching Losses With Gains

How to Use Net Losses

How to Use Tax-Loss Harvesting to Lower Your Tax Bill

Tax-Loss Harvesting When the Market Is Down

Tax-Loss Harvesting for Liquidity

Tax-Loss Harvesting to Rebalance a Portfolio

How Much Can You Write Off on Your Taxes?

Benefits and Drawbacks of Tax-Loss Harvesting

Benefits of Tax-Loss Harvesting

Drawbacks of Tax-Loss Harvesting

Creating a Tax-Loss Harvesting Strategy

The Takeaway

FAQ

Is tax-loss harvesting really worth it?

Does tax-loss harvesting reduce taxable income?

Can you write off 100% of investment losses?

Overweight Stock, Explained

What Is an Overweight Stock?

Types of Ratings and Where They Came From

Overweight Stocks

Underweight Stocks

Equal Weight Stocks

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Example of an Overweight Stock

The Downside of Weighting Stocks

How Can Investors Interpret Overweight Stocks?

Can a Portfolio Be Considered Overweight?

The Takeaway

FAQ

Is overweight stock good?

What is the difference between overweight and outperform stocks?

What is the difference between buy and overweight?

What Is Shrinkflation?

Why Does Shrinkflation Happen?

Examples of Shrinkflation

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Is Shrinkflation Temporary?

Is Shrinkflation Illegal?

Tips for Noticing Shrinkflation

1. Pay Attention to Your Receipts

2. Make a Price-inclusive Grocery List

3. Pay Attention to Price-per-unit When Shopping

Should You Buy Shrinkflated Products?

The Takeaway

FAQ

Why is shrinkflation allowed?

What is a real life example of shrinkflation?

How do you beat shrinkflation?

4 Types of Wills Explained: Which One Is Right for You?

4 Kinds of Wills

What Is a Simple Will?

What Is a Joint Will?

What Is a Testamentary Trust Will?

What Is a Living Will?

The Takeaway

Tax Credits vs Tax Deductions: What’s the Difference?

What Are Tax Credits?

How Do Tax Credits Work?

Common Tax Credits

What Are Tax Deductions?

How Do Tax Deductions Work?

Common Tax Deductions

Pros and Cons of Tax Credits

Pros

Cons

Pros and Cons of Tax Deductions

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