What You Need to Know About Share Secured Loans

What You Need to Know About Share Secured Loans

There are at least 11 different types of personal loans out there, but one you may not have heard of yet is the share secured loan.

An accessible option for those who might not qualify for a traditional unsecured personal loan, a share secured loan uses the funds in your interest-bearing savings account as collateral — which means you can pay for a big expense without wiping out your entire savings.

Here are the basics about share secured loans — how they work, the benefits, allowed uses, requirements, and more.

Key Points

•   Share secured loans use savings account funds as collateral, enabling funding of expenses without depleting savings.

•   They assist in credit building, beneficial for those with limited credit history.

•   These loans offer lower interest rates compared to unsecured loans due to reduced lender risk.

•   Eligibility requires funds in an interest-bearing savings account, which are held during the loan term.

•   While advantageous, they entail interest costs and the risk of losing savings if not repaid.

What Is a Share Secured Loan?

A share secured loan, which may also be known as a savings-secured loan, cash-secured loan, or a passbook loan, is a type of personal loan.

However, unlike many other types of personal loans, these loans are — as their name implies — secured: The bank or other lending institution uses the money in your savings account, Certificate of Deposit (CD), or money market account as collateral to lower their risk level when offering the loan. This can make qualification less onerous for the applicant.

In addition to making it easier to qualify for a loan, share secured loans also allow you to fund an expensive purchase or cost without depleting your savings. They can also help you build credit, which is particularly important if your existing credit history or credit score could use some work.

Of course, like all other loans, share secured loans do come with costs and limitations of their own, and it’s worth thinking carefully before going into any kind of debt.

Recommended: What Is a Certificate of Deposit?

How Does a Share Secured Loan Work?

In order to take out a share secured loan, you must first have money saved in an interest-bearing savings account. Your savings account balance will be used as collateral. Money invested in the stock market cannot be used as collateral for this kind of loan, since it isn’t FDIC- or NCUA-insured and is at some amount of risk.

Banks that offer share secured loans will cap the loan at some percentage of the amount of money you have in your account, usually between about 80% to 100% of those funds. They may also list a loan minimum.

When you apply for the loan, the money in your savings account will be put on hold and made inaccessible to you, and the loan funds will be issued to you as a check or directly deposited into your checking account.

You’ll then be responsible for paying the loan back in fixed monthly installments over a term that may last as long as 15 years, and which will include an interest rate of about 1% to 3% more than your savings account earns. For example, if you secured the loan with a money market account that earns 2.00% APY, your loan interest rate might be 3.00% to 5.00%. Typically, share secured loans come with lower APRs than unsecured loans, since they’re less risky for lenders.

Once the loan is paid off, you’ll regain access to the funds in your savings account, which will still have been earning interest the entire time.

Benefits of a Share Secured Loan

It may seem a bit strange to borrow money you already have, which is pretty much how a share secured loan works. But there are certain benefits to this approach if you need to pay down an expensive bill or fund a costly project up front.

Cost

Of the different types of personal loans that are available, share secured loans have some of the lowest interest rates — precisely because the bank has your money as collateral if you don’t repay the loan.

Still, even if the loan interest rate is only a few percentage points over the amount of money you earn in interest on your savings account, you’ll pay more than you would if you were able to use cash to fund your expense.

Eligibility Requirements

One of the biggest benefits to share secured loans is their relatively lenient eligibility requirements. Since they are secured, lenders consider them less risky.

If your credit score is on the low end of the range, you may not qualify for other types of personal loans, and if you do qualify, their interest rates may be high (as in the case of a payday loan or pawnshop loan). A cash-secured loan offers an accessible and relatively inexpensive alternative.

Flexible Repayment Options

With a share secured loan, you can often choose a repayment term that suits your needs and financial plans. Many lenders offer terms within the 36- to 60-month range.

Credit Building

Finally, one of the most important benefits of share secured loans is their power to help you improve or build your credit, which can help you qualify for other types of loans in the future. Credit building and credit improvement are two of the best reasons to seriously consider a share secured loan to fund an expense you might otherwise be able to pay for in cash.

Are Share Secured Loans a Bad Idea?

There are some risks to using your existing funds as collateral to go into debt. Namely, if you fail to pay back the loan, the lender can seize the funds in your savings account — and you’ll still be responsible for repaying the loan, which can have a negative effect on your credit score.

Additionally, even a low-cost loan isn’t free, and depending on the loan amount and its term, you may end up spending a significant amount of cash on interest over time.

That said, there are times when a share secured loan may make sense:

•   You’re a first-time borrower. A share secured loan offers you access to credit without requiring you to have a lengthy credit history.

•   Your credit is poor. By making consistent payments on the loan, you can rebuild and repair your credit.

•   You need help paying for an emergency expense. A share secured loan helps you cover unexpected bills without depleting your savings.

Common Uses of a Share Secured Loan

Share secured loans are used for a wide variety of reasons and share many of the common uses of a personal loan.

For example, a borrower might use a share secured loan to cover an unexpected medical bill or car repair payment. Share secured loans can also be used to cover moving expenses, home improvement costs, or even debt consolidation to pay off other forms of high-interest loans, like credit cards, which could help you get back on track financially.

Who Is a Share Secured Loan Best For?

While it’s important to consider all your options before going into any form of debt, a share secured loan might be an attractive choice for borrowers who already have a substantial amount of cash in savings but might not have the liquidity to pay for a large expense comfortably.

Additionally, if you have a poor or fair credit score, a share secured loan may help you qualify for the funding you need while also building up your credit score over time.

Qualifying for a Share Secured Loan

The good news about qualifying for a share secured loan is that so long as you have the money in your account saved up, this financial product is very accessible. Many share secured loans are available for borrowers with poor credit or even no credit history — though it’s always a good idea to shop around and compare rates and terms available from different lenders.

Share Secure Loans: Alternative Loan Options

While share secured loans can be a good option for certain borrowers, there are other alternatives worth considering as well:

•   A secured credit card works in a similar way to a share secured loan. You’ll only be able to use as much cash as you put on the card, and it can help you build credit.

•   If you don’t have substantial savings built up quite yet, a credit-builder loan might work for your needs, though it’s likely to come at a higher interest rate since there’s no collateral involved.

•   A guarantor loan, on which someone cosigns with you and agrees to repay the debt if you default, may make it possible for you to qualify for better terms than you otherwise would with poor to fair credit.

Other Types of Secured Loans

Share secured loans are far from the only type of secured loans out there. Any loan that involves some form of collateral is considered a secured loan. Some of the most common forms of debt fall into this category, such as:

•   Mortgages, which utilize the home and property as collateral.

•   Auto loans, which utilize the vehicle as collateral.

•   Secured credit cards, as mentioned above, which require cash collateral.

Recommended: Using Collateral on a Personal Loan

The Takeaway: Is a Personal Loan Right for You?

Share secured loans are a secured type of personal loan that can be used for a wide variety of expenses. Share secured loans are available for low-credit borrowers, so long as they have substantial cash savings — but there are other options available, too.

Think twice before turning to high-interest credit cards. Consider a SoFi personal loan instead. SoFi offers competitive fixed rates and same-day funding. See your rate in minutes.


SoFi’s Personal Loan was named NerdWallet’s 2024 winner for Best Personal Loan overall.

FAQ

Are share secured loans a bad idea?

Share secured loans are not an inherently bad idea, but they can cost the borrower more in interest than if they had paid cash for the purchase.

Why would someone take out a share secured loan?

The reasons people take out a share secured loan are much the same as reasons for taking out a personal loan: medical expenses, moving costs, home repairs and improvements, and more.

How do share secured loans work?

The borrower uses funds in their interest-bearing savings account as collateral to secure the share secured loan. If they fail to repay the loan, the lender can seize the savings account as repayment on the loan.


Photo credit: iStock/Julia_Sudnitskaya

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What Is Historical Volatility & How Do You Use It?

A Guide to Historical Volatility


Editor's Note: Options are not suitable for all investors. Options involve risks, including substantial risk of loss and the possibility an investor may lose the entire amount invested in a short period of time. Please see the Characteristics and Risks of Standardized Options.

Historical volatility (HV) measures the range of returns on a market index or security over a given time period. When an asset’s historical volatility is going up, that means its price is moving further away from its average (in either direction) more quickly than usual.

A stock’s historical volatility is commonly expressed as one standard deviation using daily returns, and it’s one factor that investors often look at to gauge the risk of a potential investment. An asset’s historical volatility is different from its implied volatility. Read on to learn what historical volatility is, how historical volatility works, and how to calculate historical volatility.

Key Points

•   Historical volatility measures deviations from a stock’s average price over a period of time.

•   The historical volatility of a stock is typically calculated using the standard deviation of daily returns.

•   Historical volatility is expressed as a percentage, but differs from forward-looking implied volatility.

•   High historical volatility suggests larger price swings, while low volatility indicates smaller movements.

•   Traders may use historical volatility alongside implied volatility — which indicates the expected future volatility of an option’s underlying asset — to inform their trading strategy or assess a security’s riskiness.

What Is Historical Volatility?

Historical volatility measures how much the price of a stock or index goes up and down over a certain period. Investors calculate historical volatility by measuring how much an asset’s price deviates from its average price during a certain time period. Historical volatility typically looks at daily returns, but some investors use it to look at intraday price changes.

Analysts can use any number of trading days when calculating historical volatility, but options traders typically focus on a time period between 10 and 180 days to balance capturing short-term fluctuations with longer-term trends. Options traders may use historical volatility and implied volatility when analyzing trading ideas.

Historical volatility is typically expressed as a percentage that reflects the standard deviation from the average price, based on past price behavior. But there are also other methods they can use to determine an asset’s historical volatility. For example, unstable daily price changes often result in high historical volatility readings.

How Historical Volatility Works

Historical volatility, expressed as a percentage, tracks how much a stock’s price fluctuates in relation to its average price during a certain period. This is usually calculated using the standard deviation of past price returns, which is then demonstrated as an annualized figure.

When a stock sees large daily price swings compared to its history, it will typically have a historical volatility reading. Historical volatility does not measure direction; it simply indicates the deviation from an average.

When a stock’s historical volatility is rising or above average, it means daily price changes are larger than normal. When it is lower than average, a stock or index has been relatively calm.

How Historical Volatility is Calculated

The historical volatility formula is typically a standard deviation measurement. It typically takes a stock’s daily price changes and averages them over a period. There are several steps to calculating historical volatility:

1.    Collect historical prices.

2.    Calculate the average price over the chosen period.

3.    Find the difference between each day’s price change and the average price.

4.    Square those differences.

5.    Find the sum of those squared differences (this finds the squared deviations).

6.    Divide the sum by the total number of prices (this finds the variance).

7.    Calculate the square root of the variance.

You can then calculate the annualized volatility of a stock in two ways:

•   Daily returns: multiply the standard deviation by the square root of 252 (the approximate number of trading days per year)

•   Monthly returns: multiply the standard deviation by the square root of 12 (the number of months per year)

Working through the historical volatility formula can be a lengthy process, but most brokerage platforms will automatically calculate it for you. Many brokers even offer historical volatility charts. With a historical volatility chart, you can easily compare changes through time.

For example, if a stock reacted sharply to an earnings release, its historical volatility charts may show a jump right after the earnings date, while implied volatility might drop sharply as the market makes adjustments to its expectations following the earnings results. Implied volatility measures market expectations of price fluctuations for a certain asset in the future, which is reflected in how its options are priced.

How to Use Historical Volatility

Traders may use historical volatility when analyzing a stock, fund, or index to get a sense of its riskiness. High or low historical volatility stocks are not inherently bullish or bearish. Day traders might seek high historical volatility stocks as candidates for high-profit trading opportunities (but they also come with high loss potential).

Traders sometimes use historical volatility to help set stop-loss levels, which are predetermined prices at which a trade will automatically close to limit losses. For example, a day trader might use three times a stock’s daily average range – a measure of historical volatility – to set a stop price. This is known as volatility ratio trading.

You can also use historical volatility to help determine whether a stock’s options are expensive to help determine an options trading strategy. If implied volatility is extremely high when compared to a stock’s historical volatility, traders may decide that options on the stock are undervalued and suitable as an investment.

Historical volatility can help traders understand the potential range of price movements, which may inform their risk management strategies and decisions about position sizing or exit points.

Recommended: Increase your buying power with a margin loan.

Historical vs Implied Volatility

Like historical volatility, implied volatility measures fluctuations in an underlying stock or index over a period of time, but there are key differences between the two indicators. Implied volatility is a forward-looking indicator of a stock’s future volatility.

The higher the historical volatility, the more risk-prone the security has been in the past. Implied volatility, on the other hand, uses option pricing to arrive at a calculation and estimate of future volatility. If implied volatility is significantly less than a stock’s historical volatility, traders typically anticipate a relatively stable period of trading, and vice versa.

Typically, when implied volatility is low, options tend to also be priced lower, which may make them more appealing to buyers who seek to capitalize on potential future price movements. Sometimes investors will use a graph to determine how an option’s implied volatility changes relative to its strike price, using a volatility smile.

Historical Volatility

Implied Volatility

Measures past price data to gauge volatility on a security. Uses forward-looking option-pricing data to gauge expected future volatility on a security.
Higher historical volatility often leads to higher options pricing and higher implied volatility. Imminent news, like a company earnings report or a key economic data point, may drive implied volatility higher on a stock or index.
May inform traders’ risk management strategies and decisions about position sizing or exit points. Traders may use implied volatility to find stocks expected to exhibit the biggest price swings.

The Takeaway

Historical volatility can be a useful indicator for both institutional and retail investors looking to monitor the level and frequency of a stock or index’s price fluctuations. It measures a security’s dispersion of returns over a defined period. Implied volatility is a similar tool, but it is forward-looking and uses option pricing to arrive at its output.

Investors who are ready to try their hand at options trading despite the risks involved, might consider checking out SoFi’s options trading platform offered through SoFi Securities, LLC. The platform’s user-friendly design allows investors to buy put and call options through the mobile app or web platform, and get important metrics like breakeven percentage, maximum profit/loss, and more with the click of a button.

Plus, SoFi offers educational resources — including a step-by-step in-app guide — to help you learn more about options trading. Trading options involves high-risk strategies, and should be undertaken by experienced investors. Currently, investors can not sell options on SoFi Active Invest®.

Explore SoFi’s user-friendly options trading platform.

FAQ

What is considered a good number for historical volatility?

It depends. Although one stock might have a high historical volatility reading, perhaps above 100%, another steady stock might have a low figure around 20%. The key is to understand the securities you trade. Historical volatility can be an indicator of a stock’s volatility, but unforeseen risks can make future volatility drastically different than the historical trend.

What is a historical volatility ratio?

The historical volatility ratio compares short-term and long-term historical volatility as a percentage of the price of a financial asset. You can interpret the historical volatility ratio by looking at short versus long historical volatility. If short volatility on a stock drops below a threshold percentage of its long volatility, a trader might think there will be a jump in future volatility soon.

This is similar to analyzing volatility skew in options. It is important to remember that the interpretation and technical rules of historical volatility can be subjective by traders.

How is historical volatility calculated?

Historical volatility calculations require finding the average deviation from the average price of an asset over a particular time. An asset’s standard deviation is often used. Historical volatility is usually stated as one standard deviation of historical daily returns.

Many trading platforms automatically calculate historical volatility, so you may not have to do the calculations manually.


Photo credit: iStock/Eva-Katalin

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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.
For a full listing of the fees associated with Sofi Invest please view our fee schedule.

Options involve risks, including substantial risk of loss and the possibility an investor may lose the entire amount invested in a short period of time. Before an investor begins trading options they should familiarize themselves with the Characteristics and Risks of Standardized Options . Tax considerations with options transactions are unique, investors should consult with their tax advisor to understand the impact to their taxes.
Disclaimer: The projections or other information regarding the likelihood of various investment outcomes are hypothetical in nature, do not reflect actual investment results, and are not guarantees of future results.
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.

Claw Promotion: Customer must fund their Active Invest account with at least $50 within 30 days of opening the account. Probability of customer receiving $1,000 is 0.028%. See full terms and conditions.

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What Does It Mean to Be Unbanked?

The term “unbanked” applies to an individual or household that doesn’t use a bank or credit union for financial services. An unbanked adult has no checking or savings account, relying instead on alternative financial services to pay for life’s expenses.

While the urge to store cash under a mattress may be strong for some, being unbanked can be both expensive and impractical. The benefits of using a financial institution may well outweigh those of the alternatives. However, many people encounter obstacles when trying to access a bank or credit union. Read on for a closer look at why people become unbanked, pros and cons of being unbanked, as well as how to open a bank account, even if you’ve had problems with bank accounts in the past.

Key Points

•   Unbanked individuals often rely on cash, prepaid debit cards, money orders, and check-cashing services instead of traditional banking.

•   High fees and no interest on savings make being unbanked costly.

•   Lack of funds, distrust of banks, and logistical challenges are common reasons for being unbanked.

•   Eliminating banking fees and offering second chance accounts are initiatives to assist the unbanked.

•   Educational outreach programs are designed to improve financial literacy among unbanked and underbanked populations.

What Does Unbanked Mean?

First, it’s important to give a definition of “unbanked.” If a person is unbanked, that means they are not served by a bank or similar financial institution. If you are over the age of 18 and have no checking account or savings account, you are considered to be an unbanked adult.

You may wonder, how do unbanked adults conduct financial transactions? How do they go about cashing checks and paying bills without a bank account?

Many unbanked individuals deal in cash, whether by their preference or due to their circumstances. In order to conduct everyday financial transactions, they may use cash, check-cashing services, prepaid debit cards, and/or money orders.

Why Do People Become Unbanked?

People become unbanked for various reasons. These can include:

•   Lack of money to meet minimum balance requirements at financial institutions

•   Lack of the credentials needed to open bank accounts (say, a Social Security number)

•   An underlying distrust of financial institutions

•   A desire to avoid any fees involved in opening a checking or savings account, or the penalties for incurring a negative bank account balance

•   Inability to open an account due to having a previous account closed by a bank or credit union

•   Living too far away from a brick-and-mortar banking location or being unable to drive or take transportation to a financial institution

•   Lacking a computer, a wifi connection, and/or the tech skills to open an account online.

How Many People are Unbanked in the U.S.?

The United States has a considerable number of unbanked adults. According to the Federal Reserve, 6% adults were “unbanked” in 2022 (their most recent statistic). While that’s a significant number, it’s worth noting that other nations have much larger percentages of unbanked people. The countries with the highest percentage include Morocco, Mexico, Vietnam, Egypt, and the Philippines, all with unbanked populations of 60% or more.

What Are the Types of People Who Are Unbanked?

According to most recently available data from the Federal Reserve, the unbanked population tends to fall into the following demographics:

•   Low-income: Families making below $25,000/year are more likely to be unbanked than those who earn more.

•   Less-educated: A higher percentage of the unbanked never graduated from high school

•   Non-white: Blacks and Hispanics make up the majority of the unbanked

•   Women: More females are unbanked than males, possibly because some women don’t view themselves as in charge of household finances, with someone else in the family managing the bank account

•   Young people: They tend to be unbanked more often than older adults, possibly because they are college students, without jobs, and lack the financial means or the know-how to open an account. (It’s worth noting that some institutions offer college student bank accounts, which are specially designed to help students begin banking. These can be a useful option.)

What Is the Difference Between Unbanked and Underbanked?

You may also have heard the term underbanked as well as unbanked. An underbanked person typically does have a checking and savings account with an FDIC-insured institution, but regularly relies on alternative financial services. Despite having traditional accounts, they may still utilize check-cashing services, money orders, and short-term payday loans.

The Federal Reserve estimates that 13% of adults in the United States are underbanked. As with the unbanked population, this could be due to a lack of access to banking services, a lack of financial or technical resources to open and maintain an account, a distrust of financial institutions, or having had a previous account closed.

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Initiatives to Help the Unbanked

Being unbanked can make it a challenge for a person to manage their money and build wealth. Fortunately, government programs and some financial entities are working to solve this issue. They are developing new ways to provide incentives and encourage unbanked individuals to choose traditional banking options. These include:

•   Eliminating banking fees. Getting rid of minimum balance requirements, monthly account fees, and other financial deterrents can encourage low-income individuals to open an account.

•   Developing user-friendly apps and online platforms. Online banking via a computer or phone app can help make it easier for people who don’t have a convenient banking branch or have physical challenges.

•   Second chance accounts. Some banks may offer a second chance checking account. When opening this type of account, the bank is willing to overlook bad credit, previously unpaid overdraft fees, or past forced account closures. The account will likely have some limitations, but it can be an on-ramp to a standard checking account.

•   Bringing back postal banking. Decades ago, an individual could perform basic banking transactions at their local post office — cashing checks, bill payment processing, sending money to other branches, and issuing modest loans. There is a movement to bring back these services, and some post offices are already offering to cash payroll checks and have the amount put on a debit card for a small fee.

•   Educational outreach. Many banks and nonprofit organizations offer financial literacy programs, including workshops and videos, to educate unbanked and underbanked individuals about basic financial concepts, such as how to balance your bank account, budgeting, saving, and credit.

Why Is Being Unbanked a Problem?

Being unbanked can be a problem for a few reasons. For example:

•   It can be complicated and time-consuming to conduct banking transactions without having standard bank accounts.

•   Being unbanked can be expensive as well. A person may have to pay high fees for check cashing and other services from predatory businesses. Plus, an unbanked individual won’t earn any interest on your money.

•   It can be risky to carry cash versus safely keeping it with a bank or credit union.

•   Unbanked people may struggle to build wealth and have a solid credit and banking history.

Pros of Being Unbanked

Being unbanked could be seen as a positive for some people. The upsides include:

•   Not having to deal with the bureaucracy or paperwork of opening and maintaining accounts at banks

•   No checking or savings account fees

•   No overdraft or minimum balance fees

•   No record of one’s finances, if a person wants that kind of privacy.

•   Can be seen as more convenient to use cash vs. using debit cards, ATMs, and bank branches.

Cons of Being Unbanked

As mentioned above, being unbanked can be problematic. Those who don’t have checking and savings account may find that:

•   Using prepaid debit cards, money orders, and similar products to pay bills can be costly (fees) and time-consuming.

•   Carrying and/or keeping cash at home can be risky; what happens if you are robbed?

•   No convenient direct deposit for paychecks. The unbanked may have to utilize a check-cashing or payday loan service, which can charge very high fees or interest rates.

•   No opportunity to build up a banking history or possibly a credit history for future borrowing.

•   No access to safe and convenient money transfers.

•   No opportunity to securely save money for the future.

•   No interest earned on your money.

•   No access to other products and services that banks may offer when you are a customer, such as cashback programs or better mortgage rates.

Opening a Bank Account

There are many reasons people may shy away from opening a bank account. That said, being unbanked has a number of disadvantages. Your money may not be as secure, and it may be more costly and time-consuming to conduct transactions. What’s more, your funds won’t earn interest and grow.

Opening a bank account can be a very simple process. For most people, what you need is:

•   A valid government-issued photo ID

•   A Social Security number or taxpayer ID number

•   Proof of address.

Then, once you’ve selected a financial institution you trust, it can be fairly quick to complete the sign-up process, whether you do so in person or online. What’s more, there are banks that will allow you to open an account without an initial deposit and that don’t have minimum balance requirements either.

For those who have past banking problems, like having had accounts closed before, a second chance account can be a good move. While it may not be a full-fledged standard account (there are typically limitations, such as no overdraft protection), it can be a positive step towards becoming banked.

By the way, if you previously had an account that’s now shuttered, it’s unlikely that you can reopen your closed bank account. It’s usually best to start over with a new account, at your prior financial institution or elsewhere.

The Takeaway

By choice or circumstance, millions of Americans are unbanked. Typically, this means they don’t have a checking or savings account and don’t participate in personal banking. There can definitely be a downside to being unbanked, including factors like spending more time and money to conduct banking transactions and not earning any interest on one’s funds. For many people, becoming a client of a bank or credit union can be a positive step towards improving their money management and gaining wealth.

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 3.80% APY on SoFi Checking and Savings.

FAQ

What does it mean when a person is unbanked?

A person is considered “unbanked” when they don’t have a checking or savings account at a bank or credit union.

What are the needs of the unbanked?

The unbanked need to hold onto cash securely, pay bills, and transfer funds. Without using the traditional banking system, they are likely to spend more time and pay higher fees and interest rates to conduct basic banking transactions.

How do unbanked people get paid?

Unbanked people can receive funds by cash, a money order, a money transfer service for cash pickup, or by receiving a prepaid debit card.


Photo credit: iStock/Deagreez

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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 Eligible Direct Deposit activity can earn 3.80% annual percentage yield (APY) on savings balances (including Vaults) and 0.50% APY on checking balances. Eligible 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 (“Eligible Direct Deposit”) via the Automated Clearing House (“ACH”) Network during a 30-day Evaluation Period (as defined below).

Although we do our best to recognize all Eligible Direct Deposits, a small number of employers, payroll providers, benefits providers, or government agencies do not designate payments as direct deposit. To ensure you're earning 3.80% APY, we encourage you to check your APY Details page the day after your Eligible Direct Deposit arrives. If your APY is not showing as 3.80%, contact us at 855-456-7634 with the details of your Eligible Direct Deposit. As long as SoFi Bank can validate those details, you will start earning 3.80% APY from the date you contact SoFi for the rest of the current 30-day Evaluation Period. You will also be eligible for 3.80% APY on future Eligible Direct Deposits, as long as SoFi Bank can validate them.

Deposits that are not from an employer, payroll, or benefits provider 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 Eligible Direct Deposit activity. There is no minimum Eligible Direct Deposit amount required to qualify for the stated interest rate. SoFi members with Eligible Direct Deposit are eligible for other SoFi Plus benefits.

As an alternative to Direct Deposit, SoFi members with Qualifying Deposits can earn 3.80% 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 Eligible 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 an Eligible Direct Deposit or receipt of $5,000 in Qualifying Deposits to your account, you will begin earning 3.80% 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 Eligible 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 Eligible 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 Eligible 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 Eligible Direct Deposit or Qualifying Deposits until SoFi Bank recognizes Eligible Direct Deposit activity or receives $5,000 in Qualifying Deposits in a subsequent 30-Day Evaluation Period. For the avoidance of doubt, an account holder with both Eligible Direct Deposit activity and Qualifying Deposits will earn the rates earned by account holders with Eligible Direct Deposit.

Separately, SoFi members who enroll in SoFi Plus by paying the SoFi Plus Subscription Fee every 30 days can also earn 3.80% APY on savings balances (including Vaults) and 0.50% APY on checking balances. For additional details, see the SoFi Plus Terms and Conditions at https://www.sofi.com/terms-of-use/#plus.

Members without either Eligible Direct Deposit activity or Qualifying Deposits, as determined by SoFi Bank, during a 30-Day Evaluation Period and, if applicable, the grace period, or who do not enroll in SoFi Plus by paying the SoFi Plus Subscription Fee every 30 days, will earn 1.00% 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 1/24/25. There is no minimum balance requirement. Additional information can be found at http://www.sofi.com/legal/banking-rate-sheet.
*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.

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.

We do not charge any account, service or maintenance fees for SoFi Checking and Savings. We do charge a transaction fee to process each outgoing wire transfer. SoFi does not charge a fee for incoming wire transfers, however the sending bank may charge a fee. Our fee policy is subject to change at any time. See the SoFi Checking & Savings Fee Sheet for details at sofi.com/legal/banking-fees/.

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Guide to New Money vs. Old Money

The key difference between old money and new money is how a person obtained their wealth. Old money represents what may be called generational wealth — money that has been passed on from generation to generation in the form of cash, investments, and property. New money refers to self-made millionaires and billionaires, those who earned their money (or lucked into it, like in the lottery).

Learn more about this construct and why this distinction is made.

Key Points

•   Old money refers to generational wealth passed down through families, while new money refers to self-made wealth.

•   Old money is often associated with traditional investments and long-standing traditions, while new money may spend more lavishly and take riskier investment decisions.

•   Lessons from old and new money include the importance of protecting wealth, analyzing spending, and avoiding stereotypes.

•   Those with old money may face challenges ensuring wealth for future generations.

•   The distinction between old and new money may be relevant to the wealthy class but does not affect the daily lives of most people.

What Is Old Money?

Old money refers to people who have inherited significant generational wealth; their families have been wealthy for several generations.

In the past, old money would have referred to an elite class: the aristocracy or landed gentry. In the U.S., families like the Vanderbilts and Rockefellers represented early examples of old money. Today, old money families include the Waltons (Walmart), the Disneys (The Walt Disney Company), and the Kochs (Koch Industries). Should families like the Kardashians continue to generate and pass down the great wealth they have in their bank accounts or other assets, they could one day be considered old money as well.

Recommended: How to Build Wealth at Any Age

What Is New Money?

New money then refers to people who have recently come into wealth, typically by their own labor or ingenuity.

Common examples of new money include tech moguls and self-made billionaires like Jeff Bezos, Mark Zuckerberg, and Bill Gates. Someone who wins millions of dollars in the lottery or becomes famous from a reality TV series (like the cast of Jersey Shore) would also qualify as new money.

You may sometimes hear the French term “nouveau riche,” which means “newly rich.” This tends to describe people who recently became wealthy and spend lots of money from their checking account in a flashy, ostentatious manner.

Recommended: Building Wealth in Your 30s

Differences Between Old and New Money

So what is the difference between old money and new money? There are quite a few distinctions, but remember that these are all generalizations. Each person who obtains wealth is unique.

Source of Wealth

The most obvious difference between new money and old money is the source of wealth. Old money has been passed down from generation to generation. Each member of old money typically feels a fierce responsibility to protect — and increase — that wealth.

Members of new money have earned that money in their lifetime, whether for building a tech empire, becoming a famous actor, making it to the big leagues as a sports player, or even making money on social media as an influencer. Some new money members might come into money through a financial windfall like winning the lottery or a major lawsuit.

Long-Standing Traditions

Inheriting generational wealth comes with a responsibility: Old money recipients usually must protect the family’s wealth to pass on to future generations. For that reason, those who come from old money may stick to their traditional investments and ways of life. Many inherit their parents’ business and then pass it on to their own children.

Those who are self-made or come into money quickly do not have long-standing traditions to fall back on. They are often the first in their community to make multimillion dollar spending decisions. This can mean a steep learning curve and the need for guidance, which could make them vulnerable to poor advice and unscrupulous hangers-on.

Spending and Investing

How old and new money generally approach wealth management is one of their starkest contrasts.

Though they do live lavishly, members of old money can be more frugal (or calculated) with purchases than you might expect. For members of old money, spending is often more about investing than shopping for pleasure.

People who are a part of new money may feel more entitled to and excited by their funds. They may spend it more lavishly (and publicly). Some might feel that they worked hard to earn their money — and they’d like to enjoy it. They might want to show off their newly achieved status with designer watches or mega mansions.

That’s not to say that members of new money don’t invest. Famous celebrities, athletes, and businesspeople often invest in real estate or buy companies to increase their wealth. Generally speaking, new money might make riskier investment decisions for faster yields. They’re not thinking about generational wealth to protect with tried and true investment methods.

Taken to its extreme, this can have disastrous results. It’s not uncommon to hear stories of people who make a lot of money for the first time and spend it all, leading to bankruptcy and even mental health issues.

Recommended: How to Deposit a Check

Leisure

The stereotypes might be a little tired, but in general, people associate old money with traditional activities like golf, skiing, horseback riding, and polo. On the flip side, members of new money might buy courtside seats to a basketball game, a garage full of shiny new luxury cars, or even a rocketship for a joyride into outer space.

Recommended: Knowing the Difference Between ‘Rich’ and ‘Wealthy’

Social Perception

Interestingly, some of the richest people in the world come from new money. They’re today’s self-made tech giants. Yet some members of old money may consider themselves to be a higher class than the likes of Gates and Bezos.

To generalize, old money often perceive themselves — and are perceived by outsiders — to be more educated and refined.

On the other hand, the public may view members of new money as harder workers and more innovative — clear examples of the American dream.

Old and New Money Lessons

What can one learn from comparing old and new money? Even if you are not wealthy, you can learn some valuable life and financial lessons from considering the difference.

•   It’s hard to protect generational wealth. Old money is very privileged; there’s no denying it. But many families lose their wealth in just a few generations. Old money families do work hard to maintain and grow their wealth for their future generations. They are able to avoid seeing their fortune dwindle.

•   It’s important to analyze your spending. Many people who come into wealth quickly don’t take adequate steps to protect their funds and invest it wisely. Horror stories of lottery winners losing everything should be enough to serve as a reminder that — if a person comes into a large amount of money suddenly — they should take the time with a finance professional to build out their money management goals. Doing so may ensure your wealth grows, rather than runs out.

•   Stereotypes aren’t everything. Reflecting on the differences between old and new money, it’s important to note that these are merely stereotypes, and not everyone fits the bill. Just as one hopes that others don’t judge us before they know us, the discussion of old vs. new money is a reminder not to form assumptions about someone until you get to know them.

Recommended: How to Achieve Financial Discipline

The Takeaway

Old money refers to families who have maintained wealth across several generations. New money, on the other hand, refers to someone who earned their wealth in their lifetime. Key traits typically differentiate old vs. new money, but at the end of the day, both refer to members of an ultra-wealthy class.

No matter how much wealth you have — and whether you inherited or earned it — it’s a good idea to protect it in an FDIC-insured bank account that actively earns interest.

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 3.80% APY on SoFi Checking and Savings.

FAQ

Is it preferable to be from new or old money?

It depends on whom you ask. Old money members often regard themselves as a higher class, but they also have less agency to spend their money on “fun” things, as they have to guard their wealth for future generations. While members of new money might feel freer to spend on things they want, they can be more likely to run out of money if they don’t follow good financial planning.

Does new vs. old money matter?

If you are a member of the wealthy class, the distinction might matter to you. Those with old money might feel it’s superior to new, but those with newly minted wealth may well be proud of their success in building their fortune. However, most people are not considered to be new or old money, and so this shouldn’t affect their daily lives.

How has old vs. new money changed since the terms were first coined?

Old money once referred to the landed gentry in Europe, but in today’s world, it might refer to a few families who struck it big a century or more ago in the U.S. New money is more common nowadays, with the advent of television, sports, and social media as the source of riches.


Photo credit: iStock/South_agency

SoFi® Checking and Savings is offered through SoFi Bank, N.A. ©2025 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 Eligible Direct Deposit activity can earn 3.80% annual percentage yield (APY) on savings balances (including Vaults) and 0.50% APY on checking balances. Eligible 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 (“Eligible Direct Deposit”) via the Automated Clearing House (“ACH”) Network during a 30-day Evaluation Period (as defined below).

Although we do our best to recognize all Eligible Direct Deposits, a small number of employers, payroll providers, benefits providers, or government agencies do not designate payments as direct deposit. To ensure you're earning 3.80% APY, we encourage you to check your APY Details page the day after your Eligible Direct Deposit arrives. If your APY is not showing as 3.80%, contact us at 855-456-7634 with the details of your Eligible Direct Deposit. As long as SoFi Bank can validate those details, you will start earning 3.80% APY from the date you contact SoFi for the rest of the current 30-day Evaluation Period. You will also be eligible for 3.80% APY on future Eligible Direct Deposits, as long as SoFi Bank can validate them.

Deposits that are not from an employer, payroll, or benefits provider 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 Eligible Direct Deposit activity. There is no minimum Eligible Direct Deposit amount required to qualify for the stated interest rate. SoFi members with Eligible Direct Deposit are eligible for other SoFi Plus benefits.

As an alternative to Direct Deposit, SoFi members with Qualifying Deposits can earn 3.80% 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 Eligible 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 an Eligible Direct Deposit or receipt of $5,000 in Qualifying Deposits to your account, you will begin earning 3.80% 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 Eligible 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 Eligible 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 Eligible 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 Eligible Direct Deposit or Qualifying Deposits until SoFi Bank recognizes Eligible Direct Deposit activity or receives $5,000 in Qualifying Deposits in a subsequent 30-Day Evaluation Period. For the avoidance of doubt, an account holder with both Eligible Direct Deposit activity and Qualifying Deposits will earn the rates earned by account holders with Eligible Direct Deposit.

Separately, SoFi members who enroll in SoFi Plus by paying the SoFi Plus Subscription Fee every 30 days can also earn 3.80% APY on savings balances (including Vaults) and 0.50% APY on checking balances. For additional details, see the SoFi Plus Terms and Conditions at https://www.sofi.com/terms-of-use/#plus.

Members without either Eligible Direct Deposit activity or Qualifying Deposits, as determined by SoFi Bank, during a 30-Day Evaluation Period and, if applicable, the grace period, or who do not enroll in SoFi Plus by paying the SoFi Plus Subscription Fee every 30 days, will earn 1.00% 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 1/24/25. There is no minimum balance requirement. Additional information can be found at http://www.sofi.com/legal/banking-rate-sheet.
*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.

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.

This content is provided for informational and educational purposes only and should not be construed as financial advice.

Third Party Trademarks: Certified Financial Planner Board of Standards Inc. (CFP Board) owns the certification marks CFP®, CERTIFIED FINANCIAL PLANNER®, CFP® (with plaque design), and CFP® (with flame design) in the U.S., which it awards to individuals who successfully complete CFP Board's initial and ongoing certification requirements.


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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19 Key Banking Terms to Know

Most of us don’t learn bank terms in school, but knowledge of these concepts is an important part of developing your financial literacy. Becoming familiar with banking vocabulary can help you better understand financial products and might even boost your money-management skills.

Here, you’ll find a glossary of 19 banking terms and definitions to know. Whether you’re opening your very first checking account or diversifying your investments, this bank terminology can enhance your personal finance journey.

Key Points

•  Understanding frequently used banking terms, such as FDIC, APY, and EFT, as well as common types of bank accounts can help you manage your finances.

•  Savings accounts, checking accounts, and money market accounts are key banking products, each offering unique features like interest earnings and transaction capabilities.

•  Certificates of Deposit (CDs) are accounts that may provide higher interest rates for funds committed for a fixed term, with penalties for early withdrawal.

•  Knowing the differences and similarities between common banking terms, such as APY vs. interest rate and EFT vs. ACH, can help you make informed financial decisions.

•  Familiarity with financial terms may help you identify and avoid certain types of banking fees.

19 Banking Terms

Here’s a list of 19 important banking terms and definitions to know:

1. Savings Account

A savings account is a type of bank account that lets you safely store your money. Money in a savings account earns interest and grows over time, thanks to the power of compounding interest.

Savings accounts can be a good place to stash funds for an emergency fund or short-term goals, such as next year’s vacation. You can typically access funds as needed, although some financial institutions may limit how often you can take money out of your savings account.

When shopping for a savings account, know that a high-yield savings account can pay out more interest than a typical savings account. Currently, some HYSAs pay 9x the national savings account interest rate or more.

2. Checking Account

Checking accounts are also a common type of bank account that enable consumers to access and spend their money easily. You can tap funds in your checking account by writing paper checks, using an ATM, swiping or tapping a debit card, entering account information online, or using mobile payment apps. Many checking accounts don’t earn interest, but you may find some that offer a low interest rate, often at online banks.

Checking accounts may come with a variety of fees, so it can be wise to compare charges for at least a few accounts before opening one. You’ll also want to make sure you understand whether there’s a minimum opening deposit or balance requirement.

3. Money Market Account

Another type of bank account is a money market account. These are often structured as a blend of savings and checking accounts. Like a savings account, a money market account usually has a higher interest rate than a checking account (which may or may not earn any interest at all) in exchange for having certain restrictions, such as a limited number of withdrawals that can be made each month. But it may also have some checking account features, like the ability to write checks.

4. Certificate of Deposit (CD)

You can also open a certificate of deposit (CD), a kind of term deposit, at many financial institutions. Here, your money is less liquid (i.e., it’s not as easily available). When you put money in a CD, you agree to a set number of months or years that you won’t access that cash — typically between a few months and several years. In exchange, however, you may receive an interest rate that’s higher than most standard savings accounts. If you do tap your funds before the CD term ends, you will likely be assessed a penalty.

5. Account Number

Your bank account number is a unique string of numbers (usually between eight and 12 digits) that identifies your individual bank account. Every time you open a new bank account, you’ll get a new account number — and you can typically find it on your account statements, on paper checks, and on your bank’s website and in its app when you’re logged in.

Recommended: How to Balance Your Bank Account

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6. Routing Number

While an account number is unique to your individual account, a routing number is unique to your bank. Most banks have a single routing number, though larger banks may have multiple routing numbers, with each number attributed to a specific region.

A routing number (also called an American Bankers Association number, or ABA number) is always nine digits and helps other entities route payments to and from your bank.

By the way, when thinking about routing numbers vs. account numbers, remember that they are important bits of personal information, to be kept confidential. In the wrong hands, they could be used to commit bank fraud.

7. Direct Deposit

Direct deposit is a method wherein a business or government agency can pay you electronically by transferring funds into your bank account. If you receive payment from your employer directly into your bank account, you’re already using direct deposit; more than 95% of American workers get paid this way.

8. Annual Percentage Yield (APY)

Annual percentage yield (APY) refers to how much interest you’ll earn each year from money in a deposit account, like a savings account. Unlike the straight interest rate, however, APY also accounts for compound interest (earning interest on the interest you’ve earned thus far).

9. Credit Union

A bank is one common type of financial institution. But you can also get typical banking services — like deposit accounts and loans — from credit unions. Credit unions are member-owned nonprofits and are typically local, rather than a national network. You may need to qualify to join one, based upon such attributes as where you live or your profession. Depending on your needs, you might choose a credit union vs. a bank to get the best fit for your finances.

10. Federal Deposit Insurance Corporation

Congress created the Federal Deposit Insurance Corporation (FDIC) in 1933 to create a safety net in the event of a bank failure and instill confidence in the U.S. banking system. Today, the FDIC offers insurance typically up to $250,000 per depositor, per account category, per insured institution. Some banks have programs to offer even a higher level of insurance than that. Worth noting: Most but not all banks are FDIC-insured. It’s worthwhile to check that you keep your funds at one that is, to enjoy that protection.

Deposits at credit unions are also typically insured in a similar manner, but by the National Credit Union Association, or NCUA, vs. FDIC insurance.

11. Fintech

Fintech, meaning “financial technology,” refers to companies leveraging new technologies to improve or provide innovative financial services. They may be a chartered online bank or an unchartered neobank, often offering higher interest rates on savings accounts and lower or no fees as a result of their having less overhead than traditional brick and mortar banks. Many fintechs have built their models on younger consumers’ frustrations with the traditional banking experience.

12. Automated Teller Machine (ATM)

You probably know automated teller machines as ATMs, and they’re an important part of banking. An ATM allows you to access certain banking services — like cash withdrawals — on the go. You can find ATMs all over, from inside bank branches to hotels and airports.

Just make sure an ATM is in your bank’s network before using it. If you use an out-of-network ATM, you may incur high ATM fees.

13. Debit Card

A debit card is a form of payment that typically comes with a checking account. You can swipe, tap, or wave the debit card at a point of sale to pay for goods and services with money from your checking account. You can also enter your debit card to pay bills or shop online, or tie your debit card to peer-to-peer transfer apps to send money between friends.

14. Joint Account

A joint bank account allows more than one person to manage the account. That means any account holder can withdraw or deposit money at their discretion. With so much power available to multiple account holders, there are a lot of pros and cons of joint accounts to consider before moving forward, but it can be a good tool for couples or family members who want to merge their finances.

15. Electronic Fund Transfer (EFT)

An electronic fund transfer refers to any type of electric payment where money moves electronically. Examples of EFTs include wiring money, paying with a debit or credit card, sending funds via P2P transfer, receiving direct deposit, and conducting ACH transfers. They are typically quick and secure.

16. ACH Transfer

An ACH transfer is a type of electronic fund transfer. ACH stands for Automated Clearing House, and an ACH transfer simply refers to the electronic movement of money from one bank account to another. That process is regulated by the Automated Clearing House (governed by the National Automated Clearing House Association, or NACHA).

17. Overdraft Fee

If you pay for a transaction with a check or debit card but don’t have enough money in your account to cover the purchase, your payment can be declined or the purchase can still go through, which is called overdrafting. Essentially, your bank may cover the shortfall. Some financial institutions charge you an overdraft fee when this happens. The average fee is currently quite high, over $27. You may be able to link accounts (say, your checking and savings accounts) to provide coverage in the case of overdraft.

18. Emergency Fund

An emergency fund is money set aside in a savings account that you can access in an emergency, such as if you are laid off, need unexpected car repair, or have to pay a high vet bill. The amount of money you need in an emergency fund can vary, but most experts advise working toward saving enough cash to cover three to six months’ worth of basic living expenses. Saving this much can keep you from needing to take out a personal loan or going into credit card debt when unplanned expenses arise.

19. Minimum Account Balance

A minimum account balance, also called minimum daily balance or simply minimum balance, is the amount of money you must keep in your bank account to avoid minimum balance service fees (if your bank charges these). Not all bank accounts require minimum balances, and, of those that do, the amount can vary from one financial institution to the next. The amount may also vary by account type.

Why Understanding Banking Terms Matters

Understanding banking terms — and the concepts and products they describe — can help you pick the right bank for your needs. It can also help build a good foundation of knowledge that can enhance your money management for years to come.

The Takeaway

Knowing basic financial terms, like ACH, EFT, and FDIC, as well as those that describe different types of bank accounts, can build your financial literacy. This, in turn, can help equip you to make well-informed decisions and manage your money better.

Another important aspect of managing your money is partnering with the right bank.

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 3.80% APY on SoFi Checking and Savings.

FAQ

What are basic banking terms?

Some basic banking terms include savings account, checking account, direct deposit, routing number, and electronic fund transfer. If you’re new to banking, it’s a good idea to review a list of common banking terminology to get a better handle on your finances and how to manage them.

What are common banking transactions?

Some common banking transactions include cash withdrawals or deposits at the bank or ATM, mobile check deposits via an app, and direct deposits into and direct debits from a bank account. Individuals can also transfer money from one bank account to another, like from their checking to their savings.

What are banking processes?

Common banking processes include managing customers’ checking and savings accounts, which can include charging fees or paying interest. Banks also often offer loans, which have a range of processes from underwriting to account servicing.


Photo credit: iStock/george tsartsianidis

SoFi® Checking and Savings is offered through SoFi Bank, N.A. ©2025 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.


*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.

SoFi members with Eligible Direct Deposit activity can earn 3.80% annual percentage yield (APY) on savings balances (including Vaults) and 0.50% APY on checking balances. Eligible 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 (“Eligible Direct Deposit”) via the Automated Clearing House (“ACH”) Network during a 30-day Evaluation Period (as defined below).

Although we do our best to recognize all Eligible Direct Deposits, a small number of employers, payroll providers, benefits providers, or government agencies do not designate payments as direct deposit. To ensure you're earning 3.80% APY, we encourage you to check your APY Details page the day after your Eligible Direct Deposit arrives. If your APY is not showing as 3.80%, contact us at 855-456-7634 with the details of your Eligible Direct Deposit. As long as SoFi Bank can validate those details, you will start earning 3.80% APY from the date you contact SoFi for the rest of the current 30-day Evaluation Period. You will also be eligible for 3.80% APY on future Eligible Direct Deposits, as long as SoFi Bank can validate them.

Deposits that are not from an employer, payroll, or benefits provider 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 Eligible Direct Deposit activity. There is no minimum Eligible Direct Deposit amount required to qualify for the stated interest rate. SoFi members with Eligible Direct Deposit are eligible for other SoFi Plus benefits.

As an alternative to Direct Deposit, SoFi members with Qualifying Deposits can earn 3.80% 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 Eligible 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 an Eligible Direct Deposit or receipt of $5,000 in Qualifying Deposits to your account, you will begin earning 3.80% 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 Eligible 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 Eligible 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 Eligible 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 Eligible Direct Deposit or Qualifying Deposits until SoFi Bank recognizes Eligible Direct Deposit activity or receives $5,000 in Qualifying Deposits in a subsequent 30-Day Evaluation Period. For the avoidance of doubt, an account holder with both Eligible Direct Deposit activity and Qualifying Deposits will earn the rates earned by account holders with Eligible Direct Deposit.

Separately, SoFi members who enroll in SoFi Plus by paying the SoFi Plus Subscription Fee every 30 days can also earn 3.80% APY on savings balances (including Vaults) and 0.50% APY on checking balances. For additional details, see the SoFi Plus Terms and Conditions at https://www.sofi.com/terms-of-use/#plus.

Members without either Eligible Direct Deposit activity or Qualifying Deposits, as determined by SoFi Bank, during a 30-Day Evaluation Period and, if applicable, the grace period, or who do not enroll in SoFi Plus by paying the SoFi Plus Subscription Fee every 30 days, will earn 1.00% 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 1/24/25. There is no minimum balance requirement. Additional information can be found at http://www.sofi.com/legal/banking-rate-sheet.

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.

This content is provided for informational and educational purposes only and should not be construed as financial advice.

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