Blue piggy bank with penny

Tips for Creating Better Buying Habits

We’ve all been there. Standing in the checkout line at the grocery store, waiting patiently to check out. Suddenly, you see it—the candy bar of your dreams. So, of course, you add it to your cart.

Then, you see they’ve got that chapstick you like, and the magazine you enjoy reading, and oh yeah, you most certainly need that greeting card just in case someone’s birthday is coming up.

And yet, somehow, at the end of it all, you wonder why your grocery bill was so high this week.

It’s OK to give in every now and then and buy a little treat here or there, but, over time, these buying habits could get someone in trouble. And quickly. That’s why it may be a good idea to start developing better buying habits as early as possible.

Becoming a more prudent shopper and honing in on any potentially troublesome spending habits doesn’t have to be difficult either. All shoppers need to do is follow a few basic life tips and they will be on their way to saving, and making smarter buying choices, in no time flat.

9 Tips for Building Better Guying Habits

Here are nine tips for building better buying habits that can help those interested in becoming more mindful consumers.

1. Having a Financial Goal in Mind

Motivation is a wonderful tool. To kick off new buying habits people may want to think about what their financial aim is and what they want to save money for in the first place.

This could be as small as wanting to save money for a handbag they really want or to save up to go to a fancy restaurant instead of their usual haunt.

Or, it could be something much larger like saving for a vacation, a wedding, a home, or even for retirement somewhere down the line.

Having a financial goal, might make it easier for consumers to prevent an impulse purchase or spend money on something they don’t actually need.

To double down on this habit try writing down any and all financial goals in a notes app, diary, or even on a piece of paper. Then, stick it in a wallet so it’s with you wherever you go.

2. Giving Every Purchase—Big or Small—a Little Time

Sometimes all it takes to reverse a buying decision is to just sit and think about it for a second. Is this magazine really worth the read, or can the articles be found online? Is this new dress really all that great, and will it be worn more than once?

For larger purchases try to employ the “take a walk” method, which is to literally leave a store, go for a walk, and think about the item a bit more. This way, the initial adrenaline rush and excitement wear off just a bit so a consumer can clearly consider the purchase with fewer emotions attached.

Then, come back, look at the item again. If it still elicits butterflies then it could be worth the purchase. If not, that’s great. Confidently walk away.

If anyone is looking to take this habit to the next level, try employing the 30-day rule. Just as the name implies, those looking to purchase anything nonessential must put the product back on the shelf and step away for a full 30 days.

If at the end of that time he or she still wants the product badly enough they can then return and purchase knowing full well it will bring them a little more joy.

Here’s one more trick to try when using the 30-day rule. Over the 30 days, try saving little by little to purchase the item. At the end of the month, if the person decides that product no longer needed, that cash could be put right into savings.

3. Coming Up With a Personal Spending Mantra

If taking a walk just isn’t an option it may be time to come up with a personal spending mantra. Think things like “keep the memory, get rid of the object.” or Marie Kondo’s, “does this spark joy?”

Use Kondo’s phrases, or come up with a unique one to use before making any purchase. By repeating the phrase over and over again it will help determine if that object really deserves to take up space in your life and in your monthly budget.

4. Learning to be a Comparative Shopper

Here’s the really good news about living in 2020: We live in the digital age, where information is just a click away. That means consumers likely never have to settle for the first price tag they see as finding a better deal could require just a quick Google search.

To become great comparative shoppers consumers can start small by investigating prices on their everyday purchases like groceries.

Try looking up a price comparison for milk between high-end grocery stores versus the neighborhood grocer. Then, think about monthly expenses like the internet, cable, telephone bills, and even things like gym memberships or subscriptions.

Can you find a better price for any of these items or negotiate the price down? Go for it and save along the way.

5. Falling in Love With Coupons and Discount Codes Again

Again, consumers simply do not have to settle for the first price tag they see. A better price can likely be found by utilizing the comparison shopping habit above, or by finding a few coupons to use in physical stores and discount codes to use online.

There are a number of coupon websites such as RetailMeNot and The Krazy Coupon Lady that can help shoppers hunt down a few discounts when they need them.

There are even services like Honey , which is a plugin all consumers can add to their internet dashboard that will automatically scour the web for discount codes and plug them right in at checkout.

Long story short, don’t settle for the first price.

6. Maintaining the Things You Already Have

A hole in a sweater, a scratched coffee table, and a tiny crack in a dish can be enough for some people to run out and purchase an entirely new item to replace the old.

However, rather than tossing something just because it’s a little faded it’s time to learn how to give things a new life. Or, find an expert who can.

For example, rather than buying all new shoes just because the tread is a little worn down try bringing them to the local cobbler.

They may be able to replace the thread for a fraction of the price of new shoes. This same idea goes for big-ticket items too.

Consider keeping a maintenance calendar for things like a car’s oil changes, a home’s roof inspections, and more. That way, things will always stay in tip-top shape for longer.

7. Understanding Shopping Triggers

To create better spending habits consumers may have to take a bit of time to self-reflect and discover why they like to spend money in the first place.

Do they suffer from FOMO (fear of missing out) spending and buying things because their friends, family, or favorite influencer is sporting it on social media?

Do they buy things when they are happy, sad, bored, or triggered by something else? It can be important to delve into why a person may be triggered to buy something so they can avoid it in the future.

At the very least, even being aware of the trigger could hopefully help people think twice about a purchase before it is made.

8. Getting in on the Financial Buddy System

Everything’s better with friends—including creating better spending habits. Just look to working out for inspiration.

According to a 2016 study by researchers at the University of Aberdeen, people who work out with a friend are more likely to hit the gym more often than those who choose to work out alone. That lesson can easily be applied to finances too.

Find a trusted friend or family member who can offer real advice when it comes to creating better buying habits.

Make a pact to call one another every time either of you needs a second opinion when it comes to making big purchases, or when you need someone to talk you out of making a silly purchase.

Don’t worry, odds are you’ll return the favor for your financial buddy in no time.

9. Knowing Where Money Is and Where It’s Going

A major part of creating better buying habits is understanding where your money is right now and where it’s going at all times.

Luckily, that’s a fairly easy proposition thanks to products like SoFi Money®. SoFi Money, a mobile-first cash management account, allows users to do just about anything with their cash at all times.

On the app, users can transfer money when they need to pay bills directly online, and track weekly spending right in the app’s integrated dashboard.

In the app, users can create better buying habits by setting up specific budgets and savings goals (see tip number one in case you forgot) using Vaults.

(Not sure where to start on creating a budget? Don’t worry, we’ve got your back on that too.)

SoFi members gain access to SoFi Relay®, where they can track all their incoming and outgoing cash, set up goals, and ensure they aren’t spending above their means.

The best part? SoFi Money comes with no account fees.

Want to create better buying habits? Joining SoFi Money could be a first step to help you get there.

SoFi Money®
SoFi Money is a cash management account, which is a brokerage product, offered by SoFi Securities LLC, member FINRA / SIPC .
Neither SoFi nor its affiliates is a bank.
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.
Third Party Brand Mentions: No brands or products 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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What Is a Fixed-Rate Mortgage?

Buying a house is one of life’s most exciting landmarks—not to mention one of the biggest purchases. With the average U.S. home price sitting at nearly $260,000, that usually means acquiring a fixed-rate or adjustable-rate mortgage, whose definitions are inherent in the names.

Welcome to the wide (and slightly wacky) world of mortgages. Whether a consumer is considering a fixed or adjustable interest rate is a big factor when shopping for lenders and the home loans each offers.

Read on to learn about the differences among mortgages.

Fixed Rated Mortgages Defined

A fixed-rate mortgage is, as its name suggests, a mortgage loan whose interest rate is fixed across the lifetime of the loan. The rate is stated at the time the documents are signed and does not change at any point throughout the loan term (provided that all payments are made in full and on time).

This is in contrast with an adjustable-rate mortgage, whose interest rate can move up or down according to the market. With an ARM, the interest rate is calculated according to the index and margin—the index is a benchmark interest rate based on market conditions at large, and the margin is a number set by the lender when the loan is applied for.

Long story short: A fixed-rate mortgage offers you a predictable interest rate and monthly payment, whereas an adjustable-rate mortgage can shift over the course of the loan term according to external factors.

(It is, however, important to understand that your total monthly housing bill can still change, even with a fixed-rate mortgage, if, for example, your property taxes or homeowners insurance rates change or if you miss several payments.)

Pros and Cons of Fixed-Rate Mortgages

Fixed-rate mortgages are more common among homebuyers because of the predictability they offer. Still, there are both drawbacks and benefits to pursuing this kind of home loan.

Benefits of Fixed-Rate Mortgages

Because homebuyers who take out fixed-rate mortgages will know their rates at the time they sign on the dotted line, these loans provide long-term predictability and stability—which can help people who need to fit their housing expenses into a tight budget.

Fixed-interest mortgages, and other types of fixed-rate loans, shield borrowers from potentially high interest rates if the market fluctuates in such a way that the index significantly rises.

Drawbacks of Fixed-Rate Mortgages

Although fixed-rate mortgages are more predictable over time, they tend to have higher interest rates than ARMs—at least at first. Sometimes an ARM might have a lower interest rate but only for a relatively brief introductory period, after which the rate will be adjusted.

If the index rate falls in the future, homebuyers might end up paying more in interest than they would have with an ARM.

Because the principal balance is generally chipped away at more slowly with a fixed-interest rate mortgage than with an ARM, it can take longer for borrowers to build equity in their home.

Because lenders risk losing money on fixed-interest mortgages if index interest rates go up, these loans can be harder to qualify for than their adjustable-rate counterparts.

Heads-Up on 5-Year ‘Fixed-Rate’ Mortgages

While fixed-rate mortgages generally exist in opposition to adjustable-rate mortgages, some lenders sell what’s called a fixed-rate mortgage—but which is actually an ARM in costume.

Some so-called fixed-rate mortgages with a term of only five years turn into ARMs afterward, so if a true fixed-rate mortgage is what you want, be sure to double-check with the lender that the rate will remain fixed for the entire lifetime of the loan.

When Is a Fixed-Rate Mortgage the Right Choice?

Fixed-rate mortgages offer long-term predictability, which can be a must for those who need budget stability.

Furthermore, fixed interest rates can be beneficial for those who plan to stay in their home for a longer period of time—say, at least seven to 10 years.

That way, homebuyers are less likely to miss out on building equity, as they might if they sold the house after making higher interest payments for a shorter period of time.

Finally, if homebuyers suspect that interest rates are about to rise, a fixed-interest loan can be a good way to protect themselves from those increasing rates over time.

That said, there are some instances in which an ARM may be a better choice. If a homebuyer is planning to sell in a short amount of time, for example, the low introductory interest rate on an adjustable-interest loan could save them money.

Distinctions in Types of Mortgages

Now that we’ve covered fixed-interest mortgages, let’s take a brief look at the other types of mortgages buyers may encounter when they’re shopping for a home loan.

Nitty-Gritty of ARMs

While we’ve referred to ARMs throughout this post, there are other factors to understand about these types of loans when making your decision.

Some ARMs set a cap to limit how high your interest rate can rise, no matter how high the index may go—though this isn’t always the case. Conversely, some ARMs include an interest rate limit on the low end as well, meaning your rates can never go below a certain amount.

An ARM may be easier to qualify for than a fixed-interest mortgage. One reason could be an applicant’s debt-to-income ratio. Someone with a ratio on the high side may be approved based on the lower initial payments of an ARM.

ARMs may also help buyers take advantage of falling index rates without refinancing, as they would have to if they’d taken out a fixed-interest loan.

Conventional Loans vs. Government-Insured Loans

Another important distinction in mortgage types is whether or not the loan is backed by the government.

Conventional loans—those offered by private banks and lenders—are most common, and do not include any kind of government insurance. Government-insured loans, such as Federal Housing Authority or VA loans, are subsidized by the government and may carry more flexible terms and achievable eligibility requirements.

For example, when pursuing a conventional loan from a private lender, the minimum down payment is typically around 5% (and may be higher).

But with FHA loans, applicants may qualify for a 3.5% down payment even with a credit score of 580. (That said, mortgage insurance may be required in both cases, which can significantly increase overall monthly housing expenses.)

Conforming vs. Non-Conforming Loans

Mortgages can also be considered “conforming” or “nonconforming,” depending on whether or not they meet the guidelines established by the Federal Housing Finance Agency (commonly known as Fannie Mae and Freddie Mac). In 2020, the conforming loan limit for one-unit properties was $510,400, or $765,600 in areas deemed “high cost.”

Of course, homes costlier than these limits exist, and it is possible to take out mortgage to buy one. Those loans are considered “nonconforming” and are also sometimes called “jumbo loans.”

Because the loans are so large, eligibility requirements tend to be more stringent, with borrowers needing a down payment of at least 10% and a solid credit score.

A Lender Worth a Look

When you’re in the market for a home, shopping for the right loan is almost as important as shopping for the house itself.

Although there are many mortgage lenders to choose from, including government-insured options, SoFi® offers competitive rates on conventional, fixed-rate mortgages with terms ranging from 10 to 30 years.

SoFi® offers loans with a down payment as low as 10%, and a mortgage loan officer can guide you through what can be a complicated process. Members can rest assured that questions they have will be answered by professionals who are just a phone call away.

Along with offering initial mortgages, SoFi® also helps homeowners who are looking to refinance in order to save money on interest over time or obtain lower monthly payments.

There are no hidden fees.

Ready to learn your rate? Check out SoFi® fixed-interest home loans today.

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SoFi loans are originated by SoFi Lending Corp (dba SoFi), a lender licensed by the Department of Financial Protection and Innovation under the California Financing Law, license # 6054612; NMLS # 1121636 . For additional product-specific legal and licensing information, see

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Terms, conditions, and state restrictions apply. SoFi Home Loans are not available in all states. See for more information.

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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How to Stop Spending Money

When a person is trying to develop healthier habits, recognizing what to do and routinely following through aren’t always the same thing. Figuring out how to stop spending money is no different.

An individual might know that cutting out non-essential expenses can help grow savings. But, many Americans admit they still have trouble setting and sticking to a budget.

Abstractly grasping the importance of something doesn’t necessarily make for a fuller wallet at the end of the month. Some studies show that American adults spend nearly $1,500 per month on things and services they don’t even need, such as buying food from restaurants or shopping online.

On top of that, according to the Federal Reserve , nearly 40% of Americans couldn’t cover an unexpected expense of $400 out of savings alone.

For many individuals, knowing they could be spending less isn’t synonymous with understanding how to stop spending money.

Nearly one in three American workers run out of money before their next payday. And, sticking to a budget is a problem that affects all income brackets—including individuals who make $100,000 or more a year.

Thankfully, there are plenty of strategies that, when regularly adopted, can develop healthier spending habits. Here are six approaches that might help an individual identify how to stop spending money:

Ways to Curb Spending

1. Mapping Out a Budget

When spending money, mindfulness can make an impact. Many individuals do not track spending and, so, aren’t aware where all their money ends up going. Before a person can stop spending money, they may want to map their present spending patterns and essential expenses.

Once these are grasped, a person might begin to sniff out places where spending could be pared down.

A budget is a spending roadmap that can help individuals both to plan and then keep track their most common expenses. But, according to some studies, only two in five Americans use a budget to guide how they spend.

A budget can be an important tool for those hoping to stop spending money. A personal budget, for instance, can help individuals pay closer attention to their cash flow—noticing how much money comes in and where those dollars then get spent. Essentially, a budget is a spending plan that outlines incoming money vs. outgoing funds.

Before mapping out a precise budget, individuals may want to examine their current spending habits. One good place to start is with monthly bank statements or receipts from recent purchases. It could then be helpful to identify essential from non-essential expenses.

Necessary spending might include items, such as housing/rent, groceries, utilities, healthcare costs, and transportation. Non-essential costs, instead, may span items like eating out, leisure travel, and entertainment.

It might sound obvious to state that big-ticket nonessential items, like a pricey vacation or brand new gadget, can drain one’s cash reserves. But, small daily purchases—eating out for lunch every work day, to name just one—can also add up to a much larger spend over the course of each month.

Budgets can serve as financial goal posts or guard rails, encouraging individuals to hold their spending accountable to an already sketched out plan (not just the whims of the moment).

Once a person figures out how much they tend to spend in each expense category, it may be easier to identify places where they could cut back. A monthly budget can allot specific amounts of money for vital expenditures, savings, investing for retirement, or fun activities

For example, an individual might opt to allot $300 a month to nonessential online shopping. In that case, the person could strive to stop spending money online once the budgeted $300 has been used up. Setting a budget may even help some people to change spending habits.

2. Calculating Hourly Earnings

A night out on the town may not seem like a huge splurge in the moment—especially when compared to one’s total earnings for the month. But, that same expense can quickly appear more significant, when a person tabulates how many hours of work are needed to pay for it.

A birthday dinner and drinks with friends that costs $200 would translate to eight hours of work—assuming the person earns $25 per hour. It would take even more hours, if the person makes less per hour.

Whether that spend feels worth it is a personal decision, but determining how much one earns per hour (even if salaried) can provide psychological incentives to stop spending.

So, how can a person figure out their hourly pay? It’s possible to divide after-tax pay by the number of hours worked. If someone gets paid twice a month and works a 40-hour week, they would divide those total earnings by 80 (two weeks times 40 hours).

With that number in mind, an individual can evaluate expenses and whether the hours needed to cover that cost are worth the labor.

While some expenditures will feel worth it, others likely will not.

3. Understanding What Triggers Spending

Whether it’s the prepared food section at the grocery store, the Instagram influencer with the covetable closet of clothes, or that friend who drops big bucks on concert tickets, the human urge to spend can be triggered by emotions.

Shopping sprees, after all, can be motivated by more than marketing. Sometimes, people shop to feel better after a tough day.

Even something as seemingly innocuous as the physical shopping environment—think in-store displays, prominent markdown messaging, and subtler cues like store layout—can trigger people to want to spend. When figuring out how to stop spending money, it can be key to understand which emotional or psychological cues make someone want to spend.

There are a couple ways that getting a grasp on one’s spending triggers may help. For starters, individuals might plan ahead to avoid scenarios that make them more prone to spend. And, when that urge to shell out cash strikes, individuals can then evaluate whether the purchase is really necessary or mainly feels good.

4. Shopping with a Plan

It’s not always easy to avoid spending triggers, especially when they’re tied to a needed expense—like, food shopping or transportation costs.

Still, it may be easier to avoid the temptation to spend by creating a shopping list and sticking to it.

For example, going grocery shopping may be easiest to do right after work. But, that time of day may also coincide with when someone’s at their hungriest. Hungry shoppers, research shows, tend to buy more non-essential items.

Creating a limited list of items to pick up can help shoppers to focus on what they really need—rather than buying out of mere want or tummy grumbles. Some individuals prefer to order groceries online, eliminating altogether the temptation that in-person grocery displays can stir up.

5. Sleeping on It

If purchase regret wasn’t a problem for so many, the decluttering expert Marie Kondo would not have an estimated net worth of $8 million dollars. Buyer’s remorse is real.

According to one U.K. study , nearly one-third of clothing purchases go unworn, and 18% of food and drink goes to waste. With this in mind, here’s one way to cut expenditures: stop spending money on stuff that’s not truly needed.

Taking time to mull over a purchase can be beneficial. With more time to weigh the pros and cons of a spend, an individual can coolly evaluate whether they might treasure the item months down the line or ignore it once the shopping impulse fades.

There’s no set-in-stone time to wait, with some advocating a week to 30 days of wait time for major purchases.

It’s not always easy to cleave actual needs from the fleeting thrill of shopping. Studies show that activities that provide instant gratification, such as impulse shopping, activate feel-good chemicals in the brain. But, if that purchase comes at the expense of a person’s long-term goal to save, buying now could feed deeper regrets later on.

“Sleeping on it” for a few hours (or even days) may reduce the immediate influence of emotion, providing some necessary psychological distance from the initial hunger to buy.

For example, waiting may cause a person to realize that the new pair of jeans could quickly lose their novelty after a few washes.

6. Finding It Cheaper

Of course, it’s not possible or reasonable to expect that anyone would eliminate all non-essential expenses. There are times when individuals may still choose to spend money on a specific purchase. And, once someone’s decided to buy a given item, they may want to price shop to save.

Comparison shopping is a good tactic for reducing spending. A buyer could price out the same offerings at different stores or sites.

Alternately, they might compare similar brands of comparable products, deciding whether the difference in price is justified (or not). It may be possible to find the same (or equivalent) product being sold for less.

It can also be a good idea to keep an eye out for discounted pricing. Certain times of year, such as the holidays or back-to-school season, can bring with them deep sales. Holding off on a bigger purchase until then may lead to additional savings.

When shopping online, some buyers like to search for promo codes to trim what they’ll shell out. Public online marketplaces, such as Craigslist or Nextdoor, often list gently used items (and sometimes new ones) being sold at a significant discount.

Stopping Spending Money Starts with Awareness

Naturally, it’s not possible (or desirable) for people to stop spending money altogether. Still, individuals can adopt habits that may help them shrink superfluous spending.

No matter which strategy fits a person’s financial goals, it can be hard to alter spending habits without having a central place to keep track of income and expenses.

The SoFi Money® app comes with an easy-to-use dashboard, where members can view exactly how their money is spent. A cash management account with SoFi comes with built-in budgeting tools, too—rewarding users when they save and spend.

Ready to look deeper at your spending habits? Learn more about SoFi Money.

SoFi Money®
SoFi Money is a cash management account, which is a brokerage product, offered by SoFi Securities LLC, member FINRA / SIPC .
Neither SoFi nor its affiliates is a bank.
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.
Third Party Brand Mentions: No brands or products 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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Automated Clearing House: What is an ACH Payment?

The term “Automated Clearing House” might sound like it needs an explanation from a financial guru. But most people are already using ACH payments regularly, although they may not be using that term to describe what’s happening.

Simply stated, with an ACH transfer, funds are electronically moved from one bank account to another through the guidance of a centralized system—sort of like Grand Central Station for the electronic distributions of funds.

That centralized system is known as the ACH Network. (What is ACH? The Automated Clearing House.)

Examples of ACH network use includes when employers pay employees through direct deposit, and when people pay their taxes online or send a payment—perhaps the electric bill—to a service provider.

Although the ACH system isn’t always what’s used when these types of transactions take place, it often is.

Questions answered by this post will include:

•   How did the ACH network get started?
•   How does it operate?
•   What are the benefits of using ACH transfers?
•   Are these transfers secure?
•   Are there downfalls to ACH transfers?
•   Are ACH transactions different from wire transfers?
•   What are P2P transfers?
•   What are on-demand transfers?
•   How can these technologies help people automate their finances?
•   How many bank accounts are optimal when automating finances?

Beginnings of the ACH Network

The use of checks to conduct financial transactions has been traced back to when the United States was still a collection of colonies—to 1681 in Boston, when businessmen mortgaged land and needed to make payments. In 1762, in England, the first printed checks were used.

Fast-forward to 1968—in California, this time—when there were so many checks being issued and cashed that a group of bankers didn’t know if the United States had the technology to continue to manage them.

To help, they formed a committee called SCOPE, Special Committee on Paperless Entries, to brainstorm solutions. About that same time, the American Bankers Association also began seeking ways to improve the country’s payment system.

In 1972, an ACH association formed in California to manage electronic banking transactions, with other regional ACH networks forming soon after that.

In 1974, these regional networks formed Nacha to oversee and administer the ACH network. This organization creates and enforces how this network works, while the Federal Reserve and The Clearing House actually process the transactions.

What is an ACH Transfer?

A familiar and often-used example of the ACH network is when an employee signs up for direct deposit at work, having paychecks automatically deposited into a savings or checking account rather than receiving a physical check.

To make that happen, the employee would need to provide the employer with the:

•   Bank name.
•   Bank routing number.
•   Account number.
•   Type of account (checking or savings).
•   Signed authorization.

The employer enters this information into their payroll system. Then when it’s payday, the employer sends an electronic file to the employee’s bank, indicating how much money should be deposited.

Over the years, the ACH network has grown significantly. The U.S. Air Force became the country’s first employer to provide direct deposit for payroll.

Today, nearly 93% of people in the United States get paid that way. In 1975, the Social Security Administration (SSA) began testing this system, and nearly 99% of SSA’s payments are made that way currently.

Starting in 2001, Americans could make ACH payments through the internet and by phone and, in September 2016, the first phase of the same-day ACH program debuted.

By 2018, there were nearly 178 million same-day ACH payments made, with the amount totaling nearly $160 billion—with advances in the system continuing to be made.

Benefits of ACH Transfers

ACH transactions are quick. They’re convenient. People who get paid through direct deposit don’t need to go to the bank to deposit their checks, which may be especially convenient if they telecommute, are on vacation or otherwise out of town on payday, or home because of illness or injury, among other reasons.

It can be equally convenient to have mortgage payments, utility bills, and other payments automatically deducted from a bank account. That way, there’s no need to travel to the financial institution to pay the bills or to write a paper check and mail it in.

And, when life gets hectic, as long as enough money is in the account to cover the bills, there isn’t even a need to remember to make the payment. It also cuts down on the need to buy stamps for bill paying.

ACH payment transfers are typically pretty fast—whether sending or receiving—and, as noted earlier, the technology continues to improve, with speedier funds availability having been mandated in September 2019 .

ACH transfers are typically free. An exception may be when a bank charges a nominal fee when someone wants to transfer funds to another bank.

Many times, an automated payment will save a customer money. For example, a bank may offer a lower rate on a mortgage loan or student loan if an ACH funds transfer is set up.

Also, Nacha is working on what’s called their “Meaningful Modernization” initiative, intended to make ACH transfers even more seamlessly beneficial. More specifically, the goal is to:

•   Improve and simplify user experience.
•   Adopt new technologies for consumer payments.
•   Increase authorization consistency.
•   Reduce administrative tasks.

But what about security? How safe are these transfers?

Security of ACH Transfers

An ACH transfer can in fact be more secure than many other payment methods. The reality is that paper checks can always be lost or stolen.

With ACH deposits or payments, consumers only need to provide bank information once, when the automated transaction is set up. Contrast that with writing a check every month, where bank information is provided each and every time, and it becomes clear how ACH transfers can provide a layer of protection against typographical errors.

In addition, regulations exist that protect consumers when an electronic funds transfer negatively impacts their bank accounts because of fraud or error.

This includes transfers between bank accounts as well as those going into an account (such as with payroll direct deposits) or out of that account (such as with bill payments).

Downfalls of ACH Transfers

When using automatic transfers to pay bills, it’s necessary to ensure that enough money is in the account to cover upcoming bills.

Otherwise, the bills might not get paid and, on top of that, the financial institution could charge non-sufficient funds fees. It might help to sign up for text alerts or another form of notification from the financial institution to know when a deposit has been made or a payment taken out.

Not all banks send ACH transfers at the same time of day—meaning they may have a cutoff time for a transfer to be processed on the next business day. Here’s a scenario: A financial institution has a cutoff time of 2 p.m. in order for the funds transfer to take place the next business day.

If money is deposited at 4 p.m. on a Thursday, then that’s past the cutoff for Friday—with the next business day being Monday. This might cause problems for people needing to pay a bill by a certain due date.

Other potential downfalls of ACH transfers include:

Some financial institutions may place limits on ACH transfer transactions, perhaps having:

•   Daily limits.
•   Weekly and/or monthly limits.
•   Per transaction limits.
•   Bill pay limits.
•   Limits on transfers to other banks.
•   Limits on where money can be sent.

When people decide to switch banks, it may be somewhat of a hassle. That’s because they’ll need to contact each of the locations where ACH transfers are coming in or going out to provide them with the new bank account information. The old account may need to remain open until all of these transfers are using the appropriate (new) account.

ACH Transfers Versus Wire Transfers

A wire transfer is another method of electronically transferring funds, which means this system comes with many of the same benefits. But they’re not exactly the same.

First, there is the speed issue. Wire transfers occur within one business day, with funds often available for use the same day. In many cases, though, a bank employee needs to review this largely automated process, so the funds may not be immediately visible in the recipient’s account—and international wire transfers may take more than a day. If the transfer is urgent, it’s often recommended to send it as soon as possible in the morning.

ACH transfers, meanwhile, are processed in clearinghouses and banks in batches, rather than receiving the individual treatment given a wire transfer (but wire transfers are typically more expensive for the sender). The ACH system may sometimes provide same-day transfers (often for free) and is increasingly moving towards this same-day benefit being available more often.

Here’s another crucial difference between the two: Wire transfers are considered to be cleared money, which means that the funds are immediately removed from the sender’s bank account and are immediately available for withdrawal upon arrival at the receiving institution. In general, a wire transfer cannot be reversed. An ACH transfer, though, can be reversed in some situations.

P2P Transfers and On-Demand Payments

P2P transfers (peer-to-peer transfers) allow people to quickly and easily send money to friends and family through mobile device apps (or online accounts) and a linked account. As just one example, people who use PayPal to send money are using a P2P system.

One benefit of a P2P transfer is transaction speed, with same-day service often available. They are, in general, free when sending to friends and family.

Some services, though, may charge a fee for business transactions or if the P2P account is linked to a credit card rather than a bank account.Traditional P2P transfer services require both parties to have an account with the service, although not all services do.

On-demand payments can be made, as the name implies, on demand. These are instant transfers, ideal when a need is urgent—or just because the receiver wants to have the money in the bank quickly.

Automating Personal Finances

Automatic transfer technology can streamline personal financial management while also reducing the stress of meeting bill-paying deadlines.

Having the money available in an account and automatically taken out may help to prevent late fees and might even make budget management easier.

Besides having direct deposit for paychecks and paying bills though automatic transfers, this technology may be helpful when building an emergency savings fund.

Someone might, for example, have 90% of a paycheck directly deposited into a checking account for bill paying purposes, while putting the other 10% into a savings account designated for emergencies.

Or if that emergency fund has already been established, a percentage of pay might go into accounts for other future expenses, like college funds for children, a down payment on a new house, or a vacation fund. Automatic payments might also be set up to contribute to retirement funds.

Optimal Number of Bank Accounts

Some people find that having just one account for both bills and discretionary funds works just fine. For other people, having separate accounts for those funds helps them organize their finances. A couple might have a joint account for shared expenses and separate, individual accounts for personal spending.

Having separate accounts for bill paying and fun money might make it more obvious how much is left over for splurging, as long as there is enough money in the bill-paying account to cover those amounts when they’re due.

A downside of having multiple accounts is that some banks may have minimum balance requirements. In that case, having multiple accounts may spread funds too thinly.

Clearly defining financial goals may help when making the decision about how many bank accounts are ideal. What’s most important? If it’s a new house, then perhaps a separate account for the down payment, where the balance can be monitored as it rises, can serve as motivation to save even more quickly—and maybe even celebrate milestones on the way to the goal.

No two people have the same financial situation and goals. What’s most important is to create a plan that works for each person’s unique needs.

SoFi Money

SoFi Money® is a cash management account that allows members to save, spend, and earn—all in one product. Members can send money to anyone, anywhere—even if that person doesn’t have a SoFi Money® account. If both parties do have one, then the transfer happens instantly.

SoFi Money® is much more than a P2P transfer service. SoFi members earn competitive interest with no minimum balance and no account fees.

Explore the benefits of SoFi Money today.

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.
SoFi Money®
SoFi Money is a cash management account, which is a brokerage product, offered by SoFi Securities LLC, member FINRA / SIPC .
Neither SoFi nor its affiliates is a bank.
Checking Your Rates: To check the rates and terms you may qualify for, SoFi conducts a soft credit pull that will not affect your credit score. A hard credit pull, which may impact your credit score, is required if you apply for a SoFi product after being pre-qualified.


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How to Set Up Direct Deposit

The majority of U.S. employees use direct deposit, and the benefits of this payment tool is no secret. But for the unindoctrinated, direct deposit might sound like pure magic.

Direct deposit is an electronic transfer of a paycheck right into a payee’s bank account. A direct deposit uses an ACH (or automated clearing house) network, an electronic alternative to paper checks that’s been around since the 1960s .

It happens online, which cuts out the need for a paper paycheck or a trip to the bank.

It’s safe, easy, and painless to set up a direct deposit—so why doesn’t everyone use it? Setting up direct deposit for the first time can seem like a hassle, but understanding what is needed to set it up, and what to expect in the process, makes it easier.

Read on to learn the ins and outs of this process, and how it could be beneficial come payday, and beyond.

Pros and Cons of Direct Deposit

Setting up direct deposit might sound daunting or frustrating, but in reality, after the set-up process, using direct deposit has more benefits than drawbacks for many people. Some benefits of direct deposit include:

•   Convenience. Direct deposit means getting paid on payday whether or not an employee is in the office. A person using direct deposit could be at work, on vacation, or out sick, and their paycheck will still appear in their account.
•   Time-saving. Employees don’t need to head to the bank or ATM or use their banking app to upload a paycheck. Direct deposit is instant, and the payee doesn’t need to do anything on their end.
•   Environmentally friendly. Using direct deposit can help reduce a payee’s carbon footprint on payday since there’s no physical check to print out and no need for a postal service to deliver it.
•   Secure. An automatic direct deposit means no keeping track of a paper paycheck. If an employee has signed the check and for some reason can’t cash it immediately, that could be a scary scenario if the check is lost.
•   More control of the flow of money. Depending on how a person sets up their direct deposit, they can designate where the money goes each payday. That means sending a portion of the deposit directly into savings, or multiple savings accounts for different goals. That could mean saving more in the long run.

All these benefits come from the one-time set-up that comes with filling out a form and learning where to find a few bank account numbers.

But with the benefit of direct deposit comes the drawbacks. If enrolling, employees should consider the following:

•   Security. As when sharing any sensitive account information, people enrolling in direct deposit should understand the risks of sharing their account number and banking information. Share via secure link or in person, if possible.
•   Changing banks. Any time a person changes banks or wants their paychecks deposited into a new account, they’ll have to go through the enrollment process again with their employer.
•   It can be easy to miss errors. Because direct deposits automatically hit bank accounts, people could be less likely to notice errors in paycheck amounts or missing paychecks entirely.

Direct deposit comes with positives as well as a few negatives. Based on financial preferences, it might not be the best fit for everyone.

Information Needed to Set Up Direct Deposit

Most employers offer direct deposit, but the process and requirements might vary from place to place. Employees can expect they’ll need some or all of the following to enroll in direct deposit.

•   Employer’s direct deposit form. Many employers have their own version of a direct deposit form for employees to fill out. If they don’t, employees can request a direct deposit form from their bank or credit union to give to their employer once completed.
•   Bank’s mailing address. Employees will need to provide the mailing address of their bank. This information can be found on a bank statement or on a banking institution’s website. This may not always be needed, but it could be good to have this information on hand if they ask for it.
•   Checking/Savings account number. It’s easy to find a checking or savings account number on a monthly bank statement or in a bank’s online portal. A checking account number will be between 10 and 12 digits long.
•   Bank routing number. A routing number is a nine-digit transfer number that identifies a payee’s bank. Unlike an account number, routing numbers for banking institutions are publicly known and can easily be looked up online through the ABA’s (American Bankers Association) database .
•   Voided personal check. In some instances, an employee might have to provide a voided personal check along with the direct deposit form to verify the account and routing numbers. To void a check, simply write “VOID” in ink across it.

Depending on when a person submits their request, they could start receiving paychecks via direct deposit the next pay period. However, it may take one or two pay periods in some cases.

Employees should check with payroll or HR to confirm when they can expect direct deposit to take effect.

How to Send Direct Deposit Payments

What some may not know is that direct deposit can work the other way, setting up regular payments out of a person’s personal bank account for recurring charges. A person might choose to send direct deposit payments for utilities, mortgage, or rent.

Some people might’ve already sent direct deposit payments without even knowing it. Oftentimes, these transactions are called “automatic payments,” but they use the same mechanics as direct deposit.

The benefit of sending direct deposit payments is its ease. After providing the information once, a payee can rest easy knowing withdrawals are automatic. They don’t have to go into a payment portal each month to settle a bill.

Sending a direct deposit to another bank account is easy, and is often called a bank-to-bank transfer. These transfers are ACH transfers, and often won’t require the same paperwork as an employer’s direct deposit form.

Most banking institutions have online tools where a person can enter another person’s banking account information and send deposits directly.

Typically, this can be done online, but in some instances, a person sending the payment might need to visit a bank branch.

Recurring direct deposits can also be set up for utility bills or mortgages. These are often set up through a person’s utility company or mortgage holder.

All a person needs to do is input their bank account number and routing number into the platform, then confirm the amount deposited each month.

The benefit of sending direct deposit payments is the peace of mind it brings. Payees don’t have to worry about making payments every month, and they won’t run into late payment penalties, because the payments are automatic.

But setting up outgoing direct deposits doesn’t mean you can just forget about it. Those using direct deposits should periodically check on them, confirming that the amount withdrawn every month reflects the correct amounts.

They should also make sure there’s enough money in the account to be withdrawn.

Other Uses for Direct Deposit

Direct deposit isn’t just for payday or recurring bills. It’s also commonly used in the following transactions.

Social Security

Since 2013, electronic direct deposits have been required for people receiving Social Security or Supplemental Security Income . The process of setting up direct deposit for Social Security payments is all online, similar to direct deposits from an employer.

Tax refunds

80% of taxpayers opt to use direct deposit to get their tax refunds faster. The IRS allows taxpayers to enroll in direct deposit for free, and on average, taxpayers get their refund back faster, within 21 days.

Taxpayers can also elect to have the refund deposited in up to three different accounts, including an IRA, making it easier to save on the spot.

Third-party payment apps

Ninety million people use payment apps like PayPal, Venmo, or Cash. But, what most of them probably don’t know is that these tools use direct deposit ACH payments each time someone withdraws from their bank account to make a payment, or deposits cash from the app back into their personal account.

When a person sets up their payment methods on each of these apps, they have the option to connect it directly to their bank account, providing account and routing numbers.

Unemployment benefits

If a person enrolls in unemployment compensation, they can elect to receive the payments through direct deposit into their bank account. Most states allow people to enroll online or send in a form to set up direct deposit of unemployment benefits.

Making Saving Easier With Direct Deposit

While direct deposit won’t make a paycheck any larger, it might make it easier to save. People can’t spend what they can’t see, so sending a portion of direct deposit right into a savings account can make saving automatic.

Direct deposit is also beneficial in the case of multiple checking and savings accounts, and can save the headache of transferring a paycheck manually to different accounts each pay period.

With SoFi Money®, users can easily set up direct deposit to their cash management account and earn interest on all the cash they deposit, plus no account fees.

Direct deposits mean account holders can save more easily, without lifting a finger or cashing a paycheck.

Get started with SoFi Money today and learn how easy handling deposits can be.

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.
Third Party Brand Mentions: No brands or products mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third party trademarks referenced herein are property of their respective owners.
SoFi Money®
SoFi Money is a cash management account, which is a brokerage product, offered by SoFi Securities LLC, member FINRA / SIPC .
Neither SoFi nor its affiliates is a bank.


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