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Every year by April 15, give or take a day, most Americans file their tax returns. Income tax is exactly what it sounds like: Individuals and companies are typically required to pay taxes on their income, or the earnings and profits made during the previous year.

Figuring out the right amount to pay can take some time. When you or your tax preparer fills out your tax forms, you’ll find out if you’ve overpaid your taxes, meaning you’re entitled to a refund, or if you’ve underpaid, which means you’ll owe money to the government.

There are different types of income tax, but the one most people have to file is federal, which is done through the Internal Revenue Service (IRS), a bureau within the U.S. Treasury Department. Depending on where you live, you may also have to pay state or local income taxes as well.

Filing taxes can be confusing and complicated, but read on for a guide that will clarify:

•   What is income tax?

•   What are the different kinds of income tax?

•   How do you know how much you owe in income taxes?

•   How can you lower your taxable income?

What Are Income Taxes?

Income taxes are taxes that are collected by the government on income (aka money) earned by individuals and businesses. This can include salaries, tips, commissions, bonuses, investment income, interest earned, and other sources. Also know that what is an income tax can be assessed by a federal, state, and/or local government Some Americans may only pay federal taxes; others may be liable for those at a federal, state, and local level.

What are income taxes used for once they are collected? Taxes are typically earmarked to pay for public services, provide goods for citizens, and also go toward government needs. Infrastructure is a common use; that means things like building roads, improving education, and the like.

Income taxes may be collected at the federal, state, and local level, depending on where you live.

How Does Income Tax Work?

The amount of income tax you pay depends on how much money you’ve earned in the past year as well as other factors, such as whether you are single or the head of household. First, a bit more about what counts as taxable money:

•   Income that’s taxable includes your earnings from work, rental properties, or money made from stock investments.

•   Certain forms of income that are deemed nontaxable and may not have to be reported on your tax return. Some examples of nontaxable income are child support payments , financial gifts, alimony, and employer-provided health insurance.

The U.S. tax system is progressive, which means the greater your income, the higher your tax rate. The idea behind a progressive system is that people who earn more are able to pay more in taxes. So, depending where you fall income-wise, you’ll be taxed at a different rate.

Currently, there are seven tax brackets, ranging from 10% to 37%. Each bracket corresponds to specific income thresholds and are adjusted each year for inflation.

Tax season revolves around filing Income tax returns each spring. Some details:

•   The typical deadline is April 15, though if that date falls on a weekend or holiday, the date will be moved to the next business day.

•   Those who are self-employed may pay quarterly estimated taxes.

•   You must file your federal income tax return with the IRS, by mail or electronically. In order to file, you must have all the necessary year-end income documents, including those from your employers and financial institutions.

•   The IRS recommends taxpayers file electronically, since it can take six months or more to process a paper return. Electronic files move much more quickly through the system.

When you fill out your tax return and file it with the IRS, you’ll find out if you’ve underpaid and still owe any taxes or if you’ve paid too much and are entitled to a refund. Salaried workers file an IRS Form W-4 with their employer spelling out their tax withholding, or allowances. This indicates how much to set aside from a paycheck for taxes. This number can be changed to help compensate for too much or too little taxes paid out during the previous year.

Quick Money Tip: Direct deposit is the fastest way to get an IRS tax refund. More than 9 out of 10 refunds are issued in less than 21 days using this free service, plus you can track the payment and even split the funds into different bank accounts.

Brief History of How Income Taxes Came to Be

Now that you know what income tax is, here’s a quick look at how it came into being in America. The first federal income tax came about in 1861, as a way to finance the Civil War effort. A year later, Congress passed the Internal Revenue Act which created the Bureau of Internal Revenue, which eventually evolved into today’s IRS. But income tax didn’t have the substantial support after the Civil War and was repealed in 1872.

Federal income tax made a short comeback in 1894, but the next year it was ruled unconstitutional by the Supreme Court. This verdict was based on the grounds it was a direct tax and not apportioned among the states on the basis of population.

In 1909, the 16th amendment to the Constitution was introduced, which would give the government the power to collect taxes without allocating the burden among the states in line with population. It was passed by Congress then, but it still needed to be ratified by 36 states. Ratification of the 16th amendment finally happened in 1913, giving Congress the legal right to impose a federal income tax. This laid the foundation for the tax system as it’s known today.

What Are the Different Types of Income Taxes?

There are three basic types of taxes: taxes on what you buy, taxes on what you own, and taxes on what you earn. Under the umbrella of the latter, or earned income, there’s individual or personal income tax, business income tax, and state and local income taxes. Here’s the differences between them:

•   Individual or personal income tax. This type of tax is imposed on salaries, wages, investments, or any other forms of taxable income a person or household earns. Thanks to deductions, tax credits, and exemptions, most people don’t end up paying taxes on all their income.

•   Business or corporate income tax. This kind of tax is based on business profits, minus the costs involved in doing business. According to the IRS, all businesses except partnerships must file an annual income tax return.

•   State and local income tax. Depending on where you live and work, you may have to pay state and local taxes. Currently, nine states (Alaska, Florida, Nevada, South Dakota, Texas, Tennessee, Washington, Wyoming, and New Hampshire) don’t have a state income tax. Some local governments impose a local income tax on people who live or work in a specific city, town, county, municipality, or school district. Both state and local taxes help pay for a wide range of services like roads, schools , and law enforcement. State and local taxes are generally much lower than federal income tax.

Quick Money Tip: Typically, checking accounts don’t earn interest. However, some accounts will pay you a bit and help your money grow. An online bank account is more likely than brick-and-mortar to offer you the best rates.

How Do I Know How Much I Owe in Income Taxes?

In order to figure out how much income tax you may owe, here are some steps:

•   You’ll want to know your filing status which will determine which tax bracket you fall under. The five filing status choices are single, married filing jointly, married filing separately, head of household, and qualifying widow(er) with dependent child.

•   Once you know how you’re going to file, you’ll need to gather up all your documents detailing your earned income, such as your W-2 and 1099 statements. When you have all of the information about how much money you earned, you can total it up, which amounts to your gross income.

•   The next step in knowing how much you owe in taxes is to calculate your adjusted gross income (AGI). You can do this by taking your total gross income from the year and subtracting any “above the line” adjustments, as they’re known, that you are eligible for. A list of adjustments to income can be found on the Schedule 1, 1040 IRS form and include deductions such as educator expenses, self-employment tax, and student loan interest payments.

Once you’ve got your AGI number, you can then subtract any standard or itemized deductions to get your taxable income amount. Itemized deductions can include charitable donations, paid mortgage interest, property taxes, and unreimbursed medical and dental expenses . An alternative to itemized deductions is the standard deduction option. A standard deduction is a set dollar amount based on your filing status. When you have your taxable income number, you can then pinpoint your tax bracket and determine your tax rate.

Recommended: What Are the Common Types of Payroll Deductions?

Ways to Lower Your Taxable Income

You can reduce your taxable income by taking advantage of any pre-tax savings opportunities available to you. Consider these tips:

•   Take advantage of employer-sponsored retirement plans. Contributions to a 401(k) for example, are made before tax. This removes the contribution amount from your taxable income and can thereby lower the amount of taxes you’ll have to pay for the year. You can also take an individual retirement account (IRA) deduction if you contribute, which can also lower taxes owed.

•   Enroll in a health spending account (HSA) or flexible spending account (FSA) if your company offers them. A health savings account allows pretax contributions to be used for upcoming healthcare costs for employees with high-deductible health insurance plans. If your employer doesn’t offer one, you can open a HSA on your own.

   With a flexible spending account, you’ll need to sign up through your employer. Similar to an HSA, you would make a pretax contribution, but a FSA covers medical and dependent expenses like childcare.

•   Figure out what tax deductions you can claim when you file your return. As previously noted, when it comes to deductions, Uncle Sam allows you to write off a number of expenses, including real estate taxes, certain casualty or theft losses, and donations made to a charitable organization. People who are self-employed can deduct such costs as office supplies, phone and internet costs, and any travel expenses related to work. These deductions can help save you hundreds or even thousands of dollars on your tax bill.

•   Check that your tax withholding is appropriate. As noted above, check your W-4 form, the one you fill out for your employer to let them know how much tax to take out. It may need to be adjusted if you owe a considerable amount of money in April. On the flip side, if you have too much withheld and get a significant refund, you’re basically giving the government an interest-free loan throughout the year. To be sure you’re paying the right amount, be sure your W-4 form is updated if you have a major life change, such as the birth of a child, marriage, divorce, or a significant pay raise.

Recommended: 7 Steps to Prepare for Tax Season

Tips for Filing Income Taxes Correctly

Avoiding mistakes when filing your tax return can help prevent you from missing out on a bigger refund than you claimed, owing more taxes, or triggering a tax audit by the IRS.

Here are some suggestions on how to fill out your tax return when filing whether you’ve done it before or are doing your taxes for the first time:

•   Gather all of your pertinent paperwork and make sure you’re not missing tax forms. You’ll need a W-2 form from each employer, other earning and interest statements, and receipts for any expenses you’re itemizing on your return. Any income and investment interest forms should be mailed or sent electronically to you in January. If you haven’t received them in the mail, you can find and download many of these documents online through your bank, mortgage provider, or payroll company. If you still haven’t received your tax statements or can’t find them online, call the necessary people to get your documents as soon as possible.

•   When filling out your return, make sure your basic information is accurate, such as your name, Social Security number, and filing status. The IRS will also be double-checking your numbers against your tax statement documentation.

•   Take care when disclosing your earned income. Report your financial information exactly as it’s reported to the IRS on forms such as your W-2 and 1099.

•   Sign your tax return. According to the IRS, an unsigned tax return is invalid. If you’re married and filing jointly, in most cases both spouses must sign the form. Filing electronically can help taxpayers avoid submitting an unsigned form by using a digital signature.

•   Consider using a tax preparation software program or having a professional tax preparer do your return. Online software is often fairly straightforward if your situation is pretty simple. However, if your tax return is more involved and complicated, it may be worth it to hire a tax professional. An experienced tax preparer can help ensure your tax return will be filed correctly and on time.

•   Try not to put off filing your taxes until the last minute or you run the risk of missing the tax filing deadline.

•   You can file for a tax extension of six months, but know that any taxes owed are still due on time; it’s the return that can be filed later.

Recommended: 11 Red Flags that Can Trigger a Tax Audit

The Takeaway

Income taxes are a way for the government to collect revenue from citizens and businesses. Besides paying federal income taxes, you may need to also pay state and local taxes. There are ways to lower your taxable income, and doing so can result in paying less when the bill comes due or a bigger refund. Knowing how to file correctly and on time can help prevent any delays in reimbursement checks, late fees, or penalties.

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

FAQ

Can I lower my income taxes?

Yes, there are several ways you can lower your taxable income. Participating in employer-supported programs (such as pre-tax contributions to a 401(k), FSA, and/or HSA), taking deductions, and choosing the right filing status are all ways you can help reduce your income taxes.

How can I determine how much income tax I’m required to pay?

You can start by estimating your taxable income. This involves taking your adjusted gross income, or AGI. which is the total amount you report that’s subject to income tax; typically, it’s earnings such as wages, dividends, and interest from a bank account, for example. Then you would subtract any tax deductions or eligible adjustments from that amount. What’s left is taxable income. You would then calculate the appropriate tax bracket percentage based on your income and filing status to figure out your tax liability.

Does income tax improve your money management?

It can. Being organized with your taxes can prevent you from owing a large sum come Tax Day, missing the filing deadline, and potentially paying any interest and late filing penalties to the IRS. If you’re self-employed, putting aside taxes from your earnings and paying your taxes quarterly can also help prevent a potentially large tax bill. And, of course, getting a hefty tax refund can go towards savings, investments, or paying down debt.

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Photo credit: iStock/Charday Penn

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.

SoFi members with direct deposit activity can earn 4.60% annual percentage yield (APY) on savings balances (including Vaults) and 0.50% APY on checking balances. Direct Deposit means a deposit to an account holder’s SoFi Checking or Savings account, including payroll, pension, or government payments (e.g., Social Security), made by the account holder’s employer, payroll or benefits provider or government agency (“Direct Deposit”) via the Automated Clearing House (“ACH”) Network during a 30-day Evaluation Period (as defined below). Deposits that are not from an employer or government agency, including but not limited to check deposits, peer-to-peer transfers (e.g., transfers from PayPal, Venmo, etc.), merchant transactions (e.g., transactions from PayPal, Stripe, Square, etc.), and bank ACH funds transfers and wire transfers from external accounts, do not constitute Direct Deposit activity. There is no minimum Direct Deposit amount required to qualify for the stated interest rate.

SoFi members with Qualifying Deposits can earn 4.60% APY on savings balances (including Vaults) and 0.50% APY on checking balances. Qualifying Deposits means one or more deposits that, in the aggregate, are equal to or greater than $5,000 to an account holder’s SoFi Checking and Savings account (“Qualifying Deposits”) during a 30-day Evaluation Period (as defined below). Qualifying Deposits only include those deposits from the following eligible sources: (i) ACH transfers, (ii) inbound wire transfers, (iii) peer-to-peer transfers (i.e., external transfers from PayPal, Venmo, etc. and internal peer-to-peer transfers from a SoFi account belonging to another account holder), (iv) check deposits, (v) instant funding to your SoFi Bank Debit Card, (vi) push payments to your SoFi Bank Debit Card, and (vii) cash deposits. Qualifying Deposits do not include: (i) transfers between an account holder’s Checking account, Savings account, and/or Vaults; (ii) interest payments; (iii) bonuses issued by SoFi Bank or its affiliates; or (iv) credits, reversals, and refunds from SoFi Bank, N.A. (“SoFi Bank”) or from a merchant.

SoFi Bank shall, in its sole discretion, assess each account holder’s Direct Deposit activity and Qualifying Deposits throughout each 30-Day Evaluation Period to determine the applicability of rates and may request additional documentation for verification of eligibility. The 30-Day Evaluation Period refers to the “Start Date” and “End Date” set forth on the APY Details page of your account, which comprises a period of 30 calendar days (the “30-Day Evaluation Period”). You can access the APY Details page at any time by logging into your SoFi account on the SoFi mobile app or SoFi website and selecting either (i) Banking > Savings > Current APY or (ii) Banking > Checking > Current APY. Upon receiving a Direct Deposit or $5,000 in Qualifying Deposits to your account, you will begin earning 4.60% APY on savings balances (including Vaults) and 0.50% on checking balances on or before the following calendar day. You will continue to earn these APYs for (i) the remainder of the current 30-Day Evaluation Period and through the end of the subsequent 30-Day Evaluation Period and (ii) any following 30-day Evaluation Periods during which SoFi Bank determines you to have Direct Deposit activity or $5,000 in Qualifying Deposits without interruption.

SoFi Bank reserves the right to grant a grace period to account holders following a change in Direct Deposit activity or Qualifying Deposits activity before adjusting rates. If SoFi Bank grants you a grace period, the dates for such grace period will be reflected on the APY Details page of your account. If SoFi Bank determines that you did not have Direct Deposit activity or $5,000 in Qualifying Deposits during the current 30-day Evaluation Period and, if applicable, the grace period, then you will begin earning the rates earned by account holders without either Direct Deposit or Qualifying Deposits until you have Direct Deposit activity or $5,000 in Qualifying Deposits in a subsequent 30-Day Evaluation Period. For the avoidance of doubt, an account holder with both Direct Deposit activity and Qualifying Deposits will earn the rates earned by account holders with Direct Deposit.

Members without either Direct Deposit activity or Qualifying Deposits, as determined by SoFi Bank, during a 30-Day Evaluation Period and, if applicable, the grace period, will earn 1.20% APY on savings balances (including Vaults) and 0.50% APY on checking balances.

Interest rates are variable and subject to change at any time. These rates are current as of 10/24/2023. There is no minimum balance requirement. Additional information can be found at https://www.sofi.com/legal/banking-rate-sheet.

SoFi® Checking and Savings is offered through SoFi Bank, N.A. ©2023 SoFi Bank, N.A. All rights reserved. Member FDIC. Equal Housing Lender.
The SoFi Bank Debit Mastercard® is issued by SoFi Bank, N.A., pursuant to license by Mastercard International Incorporated and can be used everywhere Mastercard is accepted. Mastercard is a registered trademark, and the circles design is a trademark of Mastercard International Incorporated.

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

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.

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A certificate of deposit (or CD) is considered a type of savings account, but a CD holds your money for a fixed time period in exchange for a higher rate of interest than a standard savings account.

While a savings account allows you to access your cash at any time, you typically purchase a CD for a set period of time during which you can’t withdraw the funds without paying a penalty. Typical CD terms can vary from one month to five years.

While CDs are generally considered cash equivalents from an investing standpoint, and therefore very low risk, they aren’t risk free. Rather, putting your money into a CD provides a balance between growth opportunity and risk management.

Is a Certificate of Deposit Just a Savings Account?

A CD has some similarities to a savings account, but several differences. It’s a financial product designed to help consumers save their money, and because CDs typically pay a fixed rate of interest they can offer savers a predictable return over time.

However, unlike a savings account, CD holders aren’t able to access the funds in their account whenever they feel like it — at least not without paying an early withdrawal penalty, in most cases. CD holders are also not allowed to deposit more money into an existing CD, generally speaking, although they can buy another CD.

In exchange for giving up the ability to freely withdraw the money in a CD, the institution rewards CD holders with higher interest rates than they’d see in a typical savings account.

What Is APY vs Interest Rate?

Note that when you deposit money into an interest-bearing account, you would earn an annual percentage yield or APY on those dollars. The APY is different than the interest rate because it takes compounding into account.

A financial institution may offer simple interest or compound interest. If the latter, then it also matters how often the financial institution compounds that interest, e.g. monthly or quarterly.

The longer the maturity date and the higher the minimum balance, the higher the annual rate. The average APY for a 5-year CD, as of February 1, 2023, is 1.21%. But a CD with a minimum deposit of $10,000 might have an APY as high as 4.0%, given the current high-rate environment.

What Is a Jumbo CD?

A jumbo CD, which typically has a minimum deposit of $100,000 or more, could offer an even higher rate.

Ordinary CDs are insured by the FDIC up to $250,000, as are jumbo CDs — but any amount in a jumbo CD above $250,000 is not FDIC-insured and subject to risk of loss.

Recommended: Different Ways to Earn Interest on Your Money

How Does a Certificate of Deposit Work?

When a customer goes to open a CD they’ll be asked to put down a lump sum, usually with a fairly high minimum deposit amount — perhaps $1,000 or $5,000.

The initial deposit placed in a CD is called the principal, because it is essentially a loan the consumer is offering to the bank. The interest the customer collects is what the bank pays for the privilege of borrowing their money.

Certificates of deposit also carry a “term,” much like a loan does; the term is the amount of time the funds must be left in the CD in order to glean the advertised interest rate.

The term might be as short as a few months or as long as a decade, and generally, longer terms carry higher interest rates. The day the term is over is also known as the CD’s maturity date.

Long story short: When opening a CD, a customer deposits a set amount of money for a set amount of time and agrees to leave it untouched in return for a relatively high fixed interest rate they’ll earn on the principal once the CD matures.

But how high, exactly, are the rates we’re talking about?

Certificate of Deposit Rates

Certificates of deposit are attractive savings options because they usually offer higher rates than the savings accounts, but are also a lower-risk option than, for example, investing in the stock market.

Since funds in CDs are FDIC-insured, account holders can rest with some assurance that their cash won’t simply disappear (as it might when invested in shares of a company).

As of Feb. 1, 2023, the national average rate for a normal savings account is 0.33% APY, whereas the national average rate for a 12-month CD is 1.28% APY. The national average rate for a 60-month CD is about 1.21%% APY. Online banks typically offer higher rates, closer to 4.0%.

But it’s possible to find CDs with even higher rates than that by shopping around.

Certificate of Deposits: Fine Print

There are a few more things it’s important to know about CDs before deciding to open one.

Generally, CDs automatically renew once the term is up, if the account holder doesn’t take the money out. Generally, the bank will roll over the existing CD into a new CD with the same term. (For example, a one-year CD whose funds aren’t collected on the maturity date would be rolled over into a new one-year CD.)

Most financial institutions offer CD holders a grace period, or a fixed amount of days after the maturity date, during which the account holder can decide whether to withdraw the funds, transfer them to a new account or CD, or allow them to roll over.

Finally, but importantly, most CDs are generally subject to an early withdrawal penalty, which is incurred if the money is accessed prior to the maturity date.

Early withdrawal penalties are determined by each financial institution. Depending on the policy, account holders could lose out on interest, or even lose some of their principal deposit.

Recommended: Reasons Why It’s So Hard to Save Money Today

Certificates of Deposit: Pros and Cons

CDs can play an important role in an overall savings strategy because they balance growth and risk management.

But as with any financial product, CDs have both drawbacks and benefits, which should be considered carefully before opening one.

Pros of CDs

•   Because CDs are FDIC-insured, they’re a relatively low risk account. The FDIC insures up to $250,000, which means if an FDIC-insured institution goes out of business, account holders with a CD would receive their principal and interest, up to $250,000.

•   Higher interest rates are available for CDs than for similar savings vehicles, like savings accounts, making it easier to see a higher return on investment.

◦   For savers who are worried about spending down their savings, a CD provides a safe place to place cash, where it’s locked up for a certain period of time.

Cons of CDs

•   Although CDs carry higher interest rates than some other types of savings vehicles they don’t have the same kind of earning potential that stock market investments can have. By investing your money in a CD you’re losing out on potentially much higher market returns (but you’re also protected from market risk).

•   CD holders generally don’t have the ability to withdraw their money at any time, at least without being subject to a penalty. That makes a certificate of deposit a poor choice for certain savings goals, like an emergency fund, which should be readily available.

◦   Savers will owe taxes on the earnings in the account, which effectively lowers the amount you earn. Be sure to take this into consideration shopping around for the best APY.

Where to Open a Certificate of Deposit

Certificates of deposit are available from a wide variety of financial institutions, including national and regional banks, credit unions, and online-only financial institutions.

Shopping around can help ensure consumers find the best rates and most favorable terms for their needs.

That said, there are also some alternatives to opening a certificate of deposit that are worth considering carefully.

Alternatives to Opening a Certificate of Deposit

Although CDs are a great way to earn interest, they’re far from the only high-interest account option out there. Here are a few options to mull over.

High-Yield Checking and Savings Accounts

Although typical savings accounts offer a relatively low interest rate, high-yield checking and savings accounts are available from some banks.

This option helps consumers combine growth potential with the ability to access their money as they need it, and can be a good alternative to CDs for those who aren’t ready to lock away their money for a year or more.

Certain high-yield accounts may offer a higher APY. However, there may be fine print involved requiring that savers meet certain terms in order to maintain that rate, such as making a minimum number of transactions per month or maintaining a minimum account balance.

It’s a good idea to review all the account terms carefully before opening any kind of financial account.

Money Market Deposit Accounts

Money market deposit accounts are another option which, similarly to CDs, tend to offer higher interest rates than your typical savings account does.

And unlike CDs, money market deposit account holders are generally allowed to write checks or process debit transactions against their funds, which are still covered by FDIC insurance.

While money market deposit accounts can earn higher interest rates than traditional savings accounts, there are monthly restrictions on the number of deposits and withdrawals.

Money market deposit accounts might require a high minimum balance in order to avoid monthly fees.

Stock Market Investments

Finally, for consumers focused on growing their money in the long-term, investing in the stock market can provide a lot of potential for growth.

Historically, the S&P 500 — an index tracking 500 of the largest corporations in the U.S. — has seen an average annual return of 13.8% over the last decade.

Of course, an investment account is very different from a savings account or CD in that there is no FDIC insurance on the funds.

Investments in the stock market are vulnerable to market fluctuation, and there’s no guarantee that investments will be safe and make money.

It is important to remember that investments have no guarantee and are subject to potential losses.

That said, many financial professionals and advisors still recommend long-term investing as one of the best ways to grow wealth over time and as a part of an overall plan for long-term financial goals like retirement.

Alternative Account Options

CDs, money market deposit accounts, and even plain-old checking and savings accounts can all be important parts of a sound financial strategy. CDs in particular can be good vehicles to help augment savings for shorter-term financial goals.

For those looking for an alternative option, SoFi Checking and Savings may be a good option to look into. SoFi Checking and Savings® is a high interest bank account where you can spend and save with no account fees (subject to change).

Plus, you’ll earn cash back rewards on spending with recurring $500 monthly deposits.

Learn more about how SoFi Checking and Savings might help you reach your financial goals.

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SoFi® Checking and Savings is offered through SoFi Bank, N.A. ©2023 SoFi Bank, N.A. All rights reserved. Member FDIC. Equal Housing Lender.
The SoFi Bank Debit Mastercard® is issued by SoFi Bank, N.A., pursuant to license by Mastercard International Incorporated and can be used everywhere Mastercard is accepted. Mastercard is a registered trademark, and the circles design is a trademark of Mastercard International Incorporated.

SoFi members with direct deposit activity can earn 4.60% annual percentage yield (APY) on savings balances (including Vaults) and 0.50% APY on checking balances. Direct Deposit means a deposit to an account holder’s SoFi Checking or Savings account, including payroll, pension, or government payments (e.g., Social Security), made by the account holder’s employer, payroll or benefits provider or government agency (“Direct Deposit”) via the Automated Clearing House (“ACH”) Network during a 30-day Evaluation Period (as defined below). Deposits that are not from an employer or government agency, including but not limited to check deposits, peer-to-peer transfers (e.g., transfers from PayPal, Venmo, etc.), merchant transactions (e.g., transactions from PayPal, Stripe, Square, etc.), and bank ACH funds transfers and wire transfers from external accounts, do not constitute Direct Deposit activity. There is no minimum Direct Deposit amount required to qualify for the stated interest rate.

SoFi members with Qualifying Deposits can earn 4.60% APY on savings balances (including Vaults) and 0.50% APY on checking balances. Qualifying Deposits means one or more deposits that, in the aggregate, are equal to or greater than $5,000 to an account holder’s SoFi Checking and Savings account (“Qualifying Deposits”) during a 30-day Evaluation Period (as defined below). Qualifying Deposits only include those deposits from the following eligible sources: (i) ACH transfers, (ii) inbound wire transfers, (iii) peer-to-peer transfers (i.e., external transfers from PayPal, Venmo, etc. and internal peer-to-peer transfers from a SoFi account belonging to another account holder), (iv) check deposits, (v) instant funding to your SoFi Bank Debit Card, (vi) push payments to your SoFi Bank Debit Card, and (vii) cash deposits. Qualifying Deposits do not include: (i) transfers between an account holder’s Checking account, Savings account, and/or Vaults; (ii) interest payments; (iii) bonuses issued by SoFi Bank or its affiliates; or (iv) credits, reversals, and refunds from SoFi Bank, N.A. (“SoFi Bank”) or from a merchant.

SoFi Bank shall, in its sole discretion, assess each account holder’s Direct Deposit activity and Qualifying Deposits throughout each 30-Day Evaluation Period to determine the applicability of rates and may request additional documentation for verification of eligibility. The 30-Day Evaluation Period refers to the “Start Date” and “End Date” set forth on the APY Details page of your account, which comprises a period of 30 calendar days (the “30-Day Evaluation Period”). You can access the APY Details page at any time by logging into your SoFi account on the SoFi mobile app or SoFi website and selecting either (i) Banking > Savings > Current APY or (ii) Banking > Checking > Current APY. Upon receiving a Direct Deposit or $5,000 in Qualifying Deposits to your account, you will begin earning 4.60% APY on savings balances (including Vaults) and 0.50% on checking balances on or before the following calendar day. You will continue to earn these APYs for (i) the remainder of the current 30-Day Evaluation Period and through the end of the subsequent 30-Day Evaluation Period and (ii) any following 30-day Evaluation Periods during which SoFi Bank determines you to have Direct Deposit activity or $5,000 in Qualifying Deposits without interruption.

SoFi Bank reserves the right to grant a grace period to account holders following a change in Direct Deposit activity or Qualifying Deposits activity before adjusting rates. If SoFi Bank grants you a grace period, the dates for such grace period will be reflected on the APY Details page of your account. If SoFi Bank determines that you did not have Direct Deposit activity or $5,000 in Qualifying Deposits during the current 30-day Evaluation Period and, if applicable, the grace period, then you will begin earning the rates earned by account holders without either Direct Deposit or Qualifying Deposits until you have Direct Deposit activity or $5,000 in Qualifying Deposits in a subsequent 30-Day Evaluation Period. For the avoidance of doubt, an account holder with both Direct Deposit activity and Qualifying Deposits will earn the rates earned by account holders with Direct Deposit.

Members without either Direct Deposit activity or Qualifying Deposits, as determined by SoFi Bank, during a 30-Day Evaluation Period and, if applicable, the grace period, will earn 1.20% APY on savings balances (including Vaults) and 0.50% APY on checking balances.

Interest rates are variable and subject to change at any time. These rates are current as of 10/24/2023. There is no minimum balance requirement. Additional information can be found at https://www.sofi.com/legal/banking-rate-sheet.

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

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While revolving credit provides borrowers with flexibility, too much revolving debt can be crippling. With interest rates on the rise, the most vulnerable credit card holders can use some help.

Let’s look at ways of dealing with mounting revolving debt. But first, here’s a primer on revolving credit vs. installment credit.

A Closer Look at Revolving Debt

There are two main categories of debt: revolving and installment. Revolving credit lets you borrow money up to an approved limit, pay it back, and borrow again as needed. The two most common revolving accounts are credit cards and a home equity line of credit.

HELOCs are offered to qualified homeowners who have sufficient equity in their homes. Most have a draw period of 10 years, followed by a repayment period. A less common type of revolving credit is a personal line of credit, usually obtained by an existing customer of a lending institution.

Then there are credit cards, which became part of the American fabric in the 1950s, starting with the cardboard Diners Club card.

You can choose to make credit card minimum payments, pay off the entire balance each month, or pay some amount in between. If you don’t pay off the full balance when it’s due, your balance will accrue interest.

For example, let’s say you have a $10,000 balance on a credit card at 17% interest. If you pay $250 a month, it will take five years to pay off the balance — and you’ll ultimately pay $4,862 in interest. (Ouch.) You can use a credit card interest calculator to see how much interest you’ll pay on any balance.

If you continue to charge more to that credit card while making only minimum monthly payments, it’ll take even longer to pay off the balance.

That’s one of the quiet dangers of revolving debt: If you haven’t reached your limit, you can continue to borrow while you owe money, which adds to your debt and to the amount of interest accruing on it.

Recommended: Credit Card Rules to Live By

What Is Installment Debt?

Installment credit comes in the form of a loan that you pay back in installments every month until the loan is paid off. The loan amount is determined when you’re approved. Think mortgages, auto loans, personal loans, and student loans.

An installment loan may have a fixed or variable interest rate.

Secured and Unsecured Debt

Now is a good time to touch on secured vs. unsecured debt (and why credit card debt is especially pernicious). Mortgages, HELOCs, home equity loans, and auto loans are secured by collateral: the home or car. If you stop making payments, the lender can take the asset.

An unsecured loan does not require the borrower to pledge any collateral. Most personal loans are unsecured. The vast majority of credit cards are unsecured. Student loans are unsecured, and personal lines of credit are usually unsecured.

That means lenders have no asset to seize if the borrower stops paying on unsecured debt. Because of the higher risk to lenders, unsecured credit typically has a higher interest rate than secured credit.

Which leads us to the common credit card trap: The average annual percentage rate (APR) for credit cards accruing interest was 20.40% in late 2022 … and rising. The APR on a credit card includes interest and fees.

Perhaps you can see how “revolvers” — borrowers who carry a balance month to month — can easily get caught in a trap. The average household of credit card revolvers owes nearly $7,500, according to recent data. Some owe much more.

On the flip side, “transactors” use cards for convenience and to gain credit card rewards. They pay off their balances each month.

Recommended: Personal Loan vs Personal Line of Credit

How Revolving Debt Can Affect Your Credit

Both installment and revolving debt influence your score on the credit rating scale, which typically ranges from 300 to 850.

Your credit utilization ratio is a big factor. It’s the amount of revolving credit you’re using divided by the total amount of revolving credit you have available, expressed as a percentage.

Most lenders like to see a credit utilization rate of 30% or lower, which indicates that you live within your means and use credit cards responsibly.

The most important element of a FICO® Score is payment history. It accounts for 35% of your credit score, so even one late payment — a payment overdue by at least 30 days — will damage a credit score.

And unfortunately, late payments stay on a credit report for seven years.

Getting Out of Revolving Debt

Ideally, we’d all avoid interest on credit cards by paying off the balance each month. But if you do carry a balance, you have plenty of company. More than half of Americans carry a balance on active credit card accounts, recent data from the American Bankers Association shows.

If your revolving credit card debt has become unbridled, there are ways to try to corral it.

Debt Consolidation

Consolidating high-interest credit card balances into a lower-rate personal loan will typically save you money. Most personal loans come with a fixed rate, which results in predictable payments, and just one a month.

Installment loans do not affect credit utilization. So using a personal loan to pay off higher-interest revolving debt will lower your credit utilization ratio (a good thing) as long as you keep those credit card accounts open. Yes, closing a credit card can hurt your credit score.

Homeowners using a home equity loan or HELOC to consolidate high-interest credit card debt can substantially lower their monthly payments. However, their home will be on the line, and closing costs may come into play.

Another method, cash-out refinancing, is a good move only when a homeowner can get a better mortgage rate and plans to stay in the home beyond the break-even point on closing costs.

Balance Transfer

A balance transfer card is another way to deal with high-interest debt. Most balance transfer credit cards temporarily offer a lower interest rate or a 0% rate. But they may charge a balance transfer fee of 3% to 5%, and they require vigilance.

Make one late payment on the new card and you’ll usually forfeit the promotional APR and have to pay a sky-high penalty APR. You’ll need to keep track of the day when the promotional rate expires so any balance is not subject to the high rate.

Balance transfer credit cards are simply another form of revolving debt and can restart that cycle. If you find that you’re creating new debt, you might want to learn to spend wisely while still budgeting.

Debt Settlement

A debt settlement company may be able to reduce a pile of unsecured debt. There are many drawbacks to this route, though.

You will usually stop paying creditors, so mounting interest and late fees will cause your balances to balloon. Instead, you’ll make payments to an escrow account held by the debt settlement company. Funding it could take three or four years.

Your credit scores will be damaged, there is no guarantee of a successful outcome, it can be very expensive, and if a portion of your debt is forgiven, it probably will be considered taxable income.

This and bankruptcy options are considered last resorts. If you do go with a debt settlement company, know that those affiliated with the American Fair Credit Council agree to abide by a code of conduct.

Credit Counseling

A credit counseling service might be able to help. The Federal Trade Commission advises looking for a nonprofit program, but it adds that “nonprofit” does not guarantee that services are free, affordable, or even legitimate.

Look into credit counseling organizations affiliated with the National Foundation for Credit Counseling, National Association of Certified Credit Counselors, or Financial Counseling Association of America.

The Department of Justice keeps a list of approved credit counseling agencies. Also check with state and local consumer agencies.

A credit card hardship program addresses temporary setbacks. Not all card companies have one.

Budget Strategies

The fastest ways to pay off debt call for creating a budget to plan how much you will spend and save each month.

With the avalanche method, for example, you pay off your accounts in the order of highest interest rate to lowest. The 50/30/20 budget works for some people: Those are the percentages of net pay allotted toward needs, wants, and savings.

A free app that tracks your spending and offers financial insights could be of great help.

The Takeaway

Revolving credit offers flexibility but can devolve into runaway revolving debt. Credit card debt is especially pernicious, thanks to high interest rates charged to revolving balances. Debt consolidation, one approach to tame mounting revolving debt and the stress that comes with it, aims to lower your monthly payments.

Do you have high-interest credit card balances? You may be able to transfer that debt to a SoFi credit card consolidation loan.

A lower-interest loan will result in a lower monthly payment — and just one payment to keep track of each month. The personal loan is funded fast, has a fixed rate, and comes with no fees required.

Get a rate quote in just 60 seconds.

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SoFi Loan Products
SoFi loans are originated by SoFi Bank, N.A., NMLS #696891 (Member FDIC). For additional product-specific legal and licensing information, see SoFi.com/legal. Equal Housing Lender.

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

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Has this happened to you? You’re thinking about getting a personal loan but haven’t yet applied. Then you get a letter in the mail: “You’re preapproved or prequalified for a personal loan!” What does that mean?

Some lenders use “prequalified” interchangeably with “preapproved,” but they are different. Here, we’ll discuss the distinction, and how to know if you’re a good candidate for a personal loan.

What Does Being Prequalified for a Loan Mean?

Prequalification is sometimes considered the first step in the loan approval process. You can think of it as a less comprehensive version of a preapproval. Prequalification simply means that you fit the general description of a customer typically qualified for a loan.

Based on your general profile, the lender can give you an idea of the size of loan you can qualify for. While prequalification can be done fairly quickly, it does not involve a full analysis of your credit report or verification of the financial information you provide. Because of that, there’s no guarantee that your loan will be approved.

Recommended: What Is a Personal Loan?

What Does Loan Preapproval Mean?

Preapproval is a more in-depth stage of the personal loan approval process. A lender will have accessed your financial history to assess you as a potential customer. Being preapproved means that, based on the information accessed, you most likely will be approved for a loan.

Preapproval allows the lender to show you the size of the loan you might qualify for, and the interest rate and loan terms they’re willing to offer. It’s a step closer to final approval of your loan application. However, this doesn’t automatically translate to being fully approved. For example, a hard credit inquiry can pull in information previously unseen by the lender that was not considered at the preapproval stage.

Does Prequalification or Preapproval Affect Your Credit Score?

Lenders typically prequalify you on the basis of financial information that you provide and perhaps a soft inquiry into your credit history. Soft inquiries don’t affect your credit score, so it’s unlikely that prequalification will either.

Because the prequalification process varies by lender, however, it’s impossible to say for sure that prequalification won’t impact your credit. If it does, the impact will be small and temporary.

Preapprovals are more rigorous than prequalifications, and closer to what you’ll experience when you actually apply for a loan. Preapprovals often involve a hard credit inquiry, which does impact your credit. Again, any effect will be minor.

Recommended: Should You Borrow Money During a Recession?

How Do I Know If I’m a Good Candidate for a Personal Loan?

A personal loan application considers your existing debt and your ability to repay the loan. Your current employment will factor into how well-suited you are to repay the loan, as will your credit score. In most cases, this means you need a good credit score to qualify for an unsecured personal loan at a low interest rate.

Lenders will also consider your “DTI” — the ratio of your income to existing debt — and what kind of monthly payments you can afford.

If you can’t otherwise qualify because of a poor credit score, consider asking a close friend or family member to cosign your personal loan. Adding a cosigner with a good credit score to your application can help you get a lower interest rate on your loan.

Will You Prequalify for a SoFi Personal Loan?

Some nontraditional lenders, like SoFi, look at other parts of a financial package when evaluating a candidate’s personal loan application.

SoFi considers additional factors such as your earning potential and cash flow after expenses. This means that even if you have a shorter credit history (because you just graduated college, for example) you may still qualify for a personal loan based on your education and career.

To find out if you qualify for a SoFi personal loan, first go through the online prequalification process. This requires you to create an account, and input your basic personal information, education, and employment history. It takes only a few minutes, after which SoFi will immediately show you which loan options you prequalify for.

After selecting a preliminary personal loan option, you’ll have to finalize your application by uploading documentation to verify your personal information. This may include pay stubs and bank statements. Once you’re approved, the loan is typically disbursed within a week.

If you’re ready to apply for a personal loan, check out SoFi personal loans today.

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SoFi Loan Products
SoFi loans are originated by SoFi Bank, N.A., NMLS #696891 (Member FDIC). For additional product-specific legal and licensing information, see SoFi.com/legal. Equal Housing Lender.

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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A mobile wallet can be a great way to pay for things as you go through your day without having to carry an actual, potentially cumbersome wallet with you. Instead, an app holds digital versions of your credit, debit, loyalty, and ID cards, allowing you easy access when needed.

But you may wonder which of the mobile wallet options are best, how safe these transactions are, and whether it wouldn’t just be better to slip your debit card in your pocket on most days.

Read on to learn more, including:

•   What is a mobile wallet?

•   How does a mobile wallet work?

•   How do you set up a mobile wallet?

•   What are the pros and cons of a mobile wallet?

What Is a Mobile Wallet?

A mobile wallet is just what it sounds like: It’s a virtual wallet that lives on your mobile device (aka your cell phone). It can store credit cards and charge cards, as well as debit, loyalty, and store card information. This allows you to quickly and easily pay for goods and services with your smartphone, smartwatch, or another mobile device. No more digging through your bag or backpack for your “real” wallet and fishing out the right piece of plastic.

Mobile wallets (sometimes called digital wallets) can go a step further, too. You can also stash insurance cards, ID, coupons, concert tickets, boarding passes, and hotel key card information in them. Some digital wallets also enable you to send money to friends, as well as receive payments.

You may also be able to use your mobile wallet instead of a physical card at some ATMs for contactless withdrawals.

How Does a Mobile Wallet Work?

Here’s how a mobile wallet works:

•   You install the app and type in your personal and payment information, which is securely stored. (Unique identifying numbers are used for your details vs. your actual card or account information.)

•   When you are ready to make a payment with the mobile wallet, a technology called NFC (near-field communication) kicks in. This allows the two devices (your mobile wallet and the vendor’s reader) to communicate. Typically, you will wave your device over the merchant’s terminal or tap your device against it.

•   As the two devices communicate, your transaction will likely go through. Funds will transfer, and you will usually be pinged with a confirmation.

What Is the Best Mobile Wallet App?

The major mobile wallets are:

•   Apple Pay

•   Google Pay

•   Samsung Pay

These may come already installed on mobile devices. Although they differ in layout, these mobile wallet apps have the same basic function that allows you to pay with a phone tap.

Other ways to make payments on the go include mobile wallets you can download from app stores, including wallets from banks and merchants such as PayPal, Walmart, and Starbucks.

Deciding which mobile wallet is best will largely depend upon your own personal needs, which options are compatible with your device, how you like to manage your money, and what your financial goals are. A couple of points to keep in mind:

•   When choosing a mobile wallet app, be aware that a mobile wallet offered by your credit card company may only be accepted at certain retailers.

•   Merchant wallets will typically only work in that merchant’s store or online. For instance, the Starbucks wallet will only work at Starbucks. Enjoy that latte, but don’t expect to buy new boots at the mall with it.

Setting up and Using a Mobile Wallet

Here’s how to set up most of the major mobile wallet apps; it’s usually quite simple:

•   You launch the app (it may be pre-installed on your device), take a photo of your card or enter its information (such as your credit card number), and follow the step-by-step instructions.

•   This process is then repeated for all other cards entered. Generally, even if you load up several credit cards into your mobile wallet, only one of them will be your default payment option. That card will be the one that is used to process a purchase. If you want to use a different card, you may need to change the default card before you make the transaction.

•   Beyond credit and debit cards, the app may also walk you through configuring peer-to-peer payments like Apple Cash or Google Pay fund exchanges. You may also be able to link your PayPal account.

•   You may be able to import retail-store rewards cards, as well as museum or library memberships cards, event tickets, and airline boarding passes. This may involve scanning a QR code or selecting the “add to wallet” button in an email or a text message from the issuer.

•   When you are ready to pay for purchases using your mobile wallet, you’ll want to make sure the merchant accepts mobile money. These businesses can typically be identified through a contactless payment indicator (usually a sideways Wi-Fi symbol).

•   To pay, open your digital wallet app if necessary, hold the phone near the wireless reader or tap your device against the terminal. This will authorize the payment. Your phone’s screen will typically confirm the transaction.

Are Mobile Wallets Safe?

Overall, mobile wallets are considered to be safe. Here’s why:

•   Unlike cash, which can be stolen, and credit cards, which can be copied, the card information you load into a mobile wallet is encrypted. That means that your actual card or account numbers are never shared with the merchant.

•   In order to make a payment, you typically have to unlock your device and also type the passcode or use your fingerprint or face recognition to unlock the mobile wallet. Or you may be able to unlock an iPhone with a double-click of a button and then authenticate with Touch ID or Face ID.These steps may be simple but they add layers of security.

•   In the case of theft, it’s not possible for anyone to use a mobile device to make a payment without providing the required security credentials.

These safeguards actually make mobile wallets more secure than carrying physical credit cards and cash, which can easily be compromised.

Pros and Cons of Using Mobile Wallets

Is a mobile wallet right for you? Here are some key pros and cons you may want to consider.

Mobile Wallet Pros

Here are some of the upsides of using a mobile wallet.

They’re convenient. If you’re out and about without your wallet or bag, you can still make purchases, as well as use your coupons and rewards cards. You may also be able to get cash at an ATM or check a book out of the library, all from your mobile device. What’s more, they’re often allow for a contactless payment, meaning they can be extra quick and easy.

They’re secure. Mobile wallets provide a layer of security you don’t get with cash or using a debit or credit card. Your payment information is saved in one protected, central location. Card numbers are never stored in the app itself but are instead assigned a unique virtual number. This protects your money even if your smartphone is lost or stolen.

They can help you track your spending. A mobile wallet can help you track and better manage your spending. All of your transaction information is stored in the app so it’s easy to see how much you’re spending and where each week. You might even wind up using a credit card more responsibly.

Mobile Wallet Cons

There are also some downsides to mobile wallets to be aware of.

They’re not accepted everywhere. There are still some industries where cash is the only currency accepted. Even in businesses that do take credit, not all of them accept mobile wallets. To accept a mobile wallet, businesses need to have payment readers that take NFC payments, and not all of them have these terminals. This can cause a problem if a mobile wallet is all you have on hand.

Your phone could die. Cell phones often run out of battery life, and if you’re without a charger, that handy mobile wallet will no longer exist. That can put a crimp in your shopping plans or become a major problem if you have important documents such as train passes or concert tickets stored in your mobile wallet.

You may end up overspending. The use of mobile wallets can be similar to that of using a credit card. Because cash isn’t physically leaving your hands, spending can feel less real, which can be a cause of overspending. If you have spending issues, a mobile wallet can make it easy to spend mindlessly and swipe or tap too often.

The Takeaway

A mobile wallet is a digital way to store credit, debit, ID, and gift cards so that purchases can be made using a mobile smart device rather than a physical card.

Mobile wallets can help simplify your financial life. They allow users to make in-store payments without having to carry cash or physical credit cards. They’re easy to use and have hefty safeguards.

However, they aren’t universally accepted. It’s worth your while to determine whether the retailers you frequent accept them to help determine if a mobile wallet is a good option for you.

Looking for more convenient ways to manage your money? With a SoFi Checking and Savings bank account, you can spend and save in one convenient place, earn a competitive annual percentage yield (APY), and pay no account fees. You can also track your weekly spending, pay bills, and send money to friends right from your smartphone using the SoFi app.

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.

4 Tips for Using Your Mobile Wallet

To keep your mobile wallet safe and smooth transactions, keep these tips in mind:

1. Do your research before downloading payment apps. Look for reliable brands/companies, many positive reviews, and a significant number of downloads. Avoid untested apps; they could be a kind of scam and contain spyware or malware.
2. Know how to remotely lock and locate your phone in case it gets lost or stolen. Check your phone’s device manager capabilities before you find yourself in an emergency situation.
3. Always have appropriate locking technology. Carrying around a phone that doesn’t lock means you could be risking loss.
4. Review your credit and debit card statements. Make sure those purchases are yours. While mobile wallets are secure, problems can occasionally arise, and you want to be alert.

FAQ

How many places support mobile wallets?

While there isn’t a precise tally of how many retailers and other businesses support mobile wallets, a recent study found that there are 1.35 billion registered mobile money accounts globally, indicating significant adoption of and acceptance of this technology.

Do mobile wallets support all debit/credit cards?

Each mobile wallet will have its own policies, but most credit cards from major banks are supported by, say, Google Pay. Small business credit cards may also be added, and possibly some debit cards, especially those from established banks. You may find, though, that prepaid cards are not supported.

Will mobile payments replace cash?

According to a 2022 study by GSMA, the global mobile money industry saw a 31% increase in processing transactions, up to $1 trillion in value. While this might indicate that mobile payments are on track to replace cash completely, that may not happen soon or perhaps even ever: Some sources say cash still accounts for 85% of all consumer payments around the world.

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Photo credit: iStock/hiphotos35

SoFi members with direct deposit activity can earn 4.60% annual percentage yield (APY) on savings balances (including Vaults) and 0.50% APY on checking balances. Direct Deposit means a deposit to an account holder’s SoFi Checking or Savings account, including payroll, pension, or government payments (e.g., Social Security), made by the account holder’s employer, payroll or benefits provider or government agency (“Direct Deposit”) via the Automated Clearing House (“ACH”) Network during a 30-day Evaluation Period (as defined below). Deposits that are not from an employer or government agency, including but not limited to check deposits, peer-to-peer transfers (e.g., transfers from PayPal, Venmo, etc.), merchant transactions (e.g., transactions from PayPal, Stripe, Square, etc.), and bank ACH funds transfers and wire transfers from external accounts, do not constitute Direct Deposit activity. There is no minimum Direct Deposit amount required to qualify for the stated interest rate.

SoFi members with Qualifying Deposits can earn 4.60% APY on savings balances (including Vaults) and 0.50% APY on checking balances. Qualifying Deposits means one or more deposits that, in the aggregate, are equal to or greater than $5,000 to an account holder’s SoFi Checking and Savings account (“Qualifying Deposits”) during a 30-day Evaluation Period (as defined below). Qualifying Deposits only include those deposits from the following eligible sources: (i) ACH transfers, (ii) inbound wire transfers, (iii) peer-to-peer transfers (i.e., external transfers from PayPal, Venmo, etc. and internal peer-to-peer transfers from a SoFi account belonging to another account holder), (iv) check deposits, (v) instant funding to your SoFi Bank Debit Card, (vi) push payments to your SoFi Bank Debit Card, and (vii) cash deposits. Qualifying Deposits do not include: (i) transfers between an account holder’s Checking account, Savings account, and/or Vaults; (ii) interest payments; (iii) bonuses issued by SoFi Bank or its affiliates; or (iv) credits, reversals, and refunds from SoFi Bank, N.A. (“SoFi Bank”) or from a merchant.

SoFi Bank shall, in its sole discretion, assess each account holder’s Direct Deposit activity and Qualifying Deposits throughout each 30-Day Evaluation Period to determine the applicability of rates and may request additional documentation for verification of eligibility. The 30-Day Evaluation Period refers to the “Start Date” and “End Date” set forth on the APY Details page of your account, which comprises a period of 30 calendar days (the “30-Day Evaluation Period”). You can access the APY Details page at any time by logging into your SoFi account on the SoFi mobile app or SoFi website and selecting either (i) Banking > Savings > Current APY or (ii) Banking > Checking > Current APY. Upon receiving a Direct Deposit or $5,000 in Qualifying Deposits to your account, you will begin earning 4.60% APY on savings balances (including Vaults) and 0.50% on checking balances on or before the following calendar day. You will continue to earn these APYs for (i) the remainder of the current 30-Day Evaluation Period and through the end of the subsequent 30-Day Evaluation Period and (ii) any following 30-day Evaluation Periods during which SoFi Bank determines you to have Direct Deposit activity or $5,000 in Qualifying Deposits without interruption.

SoFi Bank reserves the right to grant a grace period to account holders following a change in Direct Deposit activity or Qualifying Deposits activity before adjusting rates. If SoFi Bank grants you a grace period, the dates for such grace period will be reflected on the APY Details page of your account. If SoFi Bank determines that you did not have Direct Deposit activity or $5,000 in Qualifying Deposits during the current 30-day Evaluation Period and, if applicable, the grace period, then you will begin earning the rates earned by account holders without either Direct Deposit or Qualifying Deposits until you have Direct Deposit activity or $5,000 in Qualifying Deposits in a subsequent 30-Day Evaluation Period. For the avoidance of doubt, an account holder with both Direct Deposit activity and Qualifying Deposits will earn the rates earned by account holders with Direct Deposit.

Members without either Direct Deposit activity or Qualifying Deposits, as determined by SoFi Bank, during a 30-Day Evaluation Period and, if applicable, the grace period, will earn 1.20% APY on savings balances (including Vaults) and 0.50% APY on checking balances.

Interest rates are variable and subject to change at any time. These rates are current as of 10/24/2023. There is no minimum balance requirement. Additional information can be found at https://www.sofi.com/legal/banking-rate-sheet.

SoFi® Checking and Savings is offered through SoFi Bank, N.A. ©2023 SoFi Bank, N.A. All rights reserved. Member FDIC. Equal Housing Lender.
The SoFi Bank Debit Mastercard® is issued by SoFi Bank, N.A., pursuant to license by Mastercard International Incorporated and can be used everywhere Mastercard is accepted. Mastercard is a registered trademark, and the circles design is a trademark of Mastercard International Incorporated.

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

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

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