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Commercial banks provide financial services for small and large businesses, including checking and savings accounts, loans, lines of credit, letters of credit, underwriting, and payment processing. These services enable businesses to operate in domestic and international markets. What’s more, financing from commercial banks enable businesses to grow and drive the domestic economy.

Commercial banks are focused on supporting business’ financial needs, but they may also offer services to individuals (this is usually called retail banking). Read on to learn more about what’s unique about commercial banking, including:

•   What is commercial banking?

•   How does commercial banking work?

•   What are commercial vs. investment banks?

•   What are commercial vs. retail banks?

•   What are the benefits of commercial banks?

What Is Commercial Banking: A Definition

Commercial banking is defined as a financial institution that is dedicated to serving businesses. This differs from retail banking, which provides personal banking services to individuals. Typically, a commercial bank offers businesses everything from deposit accounts, loans, and lines of credit to merchant services, payment processing, international trade services, and more. In these ways, a commercial bank can be a vital partner in helping a business succeed and grow.

While commercial banks offer a suite of services for medium and large businesses, small and new business owners can also take advantage of their offerings. Sometimes, people starting an enterprise use their personal accounts for banking. It is typically better to seek out commercial banking and open separate accounts for business vs. personal finances. This simplifies record keeping and the payment of taxes, and it also helps keep these two realms separate in case of any legal action.

How Commercial Banking Works

Commercial banks serve small- to large-sized businesses. You may be familiar with their names, as many of them also have retail banking divisions. Three examples of commercial banks in the United States are JPMorgan Chase & Co., Bank of America Corp., and Wells Fargo & Co. All are regulated by the United States Federal Reserve, the Office of the Comptroller of the Currency (OCC) and the Federal Deposit Insurance Corporation (FDIC).

One very important function of commercial banks: providing financing to businesses. Before a commercial bank extends a loan to a business, it assesses the creditworthiness of the borrower by looking at its assets, profitability, and size.

In addition, commercial banks provide an array of services, supporting businesses with transfers from one account to another, lines of credit, lockbox services, payment processing, and foreign exchange services. Here, a closer look at what a commercial bank offers:

Deposit Accounts

Commercial bank deposit accounts function like retail bank checking and savings accounts. They enable businesses to pay suppliers and employees by holding cash and, in some cases, may earn interest on the balance.

There are three main types of deposit accounts: demand, fixed, and savings.

•   Account holders can use demand deposits or current account deposits for business transactions. They typically do not earn interest and are subject to service charges.

•   The bank holds fixed deposits for a specific term. Deposits likely earn interest, and the account holder can make withdrawals.

•   Savings deposits function as both fixed deposit and current accounts. Depositors can withdraw cash from these accounts, but the amount may be limited. Savings accounts earn interest but probably less than a fixed deposit.

Loans

Businesses need capital to thrive. Whether hiring staff, renting office or manufacturing space, or buying materials and supplies, operating a business and growing it takes cash. Commercial banks extend business loans vs. personal loans and charge interest on the loans. That’s one of the key income streams for banks, after all. The bank likely turns a profit on lending, and the business gets the funds it needs to launch their enterprise or to expand or buy real estate or new equipment.

Lines of Credit

Commercial banks usually provide businesses with lines of credit. A line of credit is short-term funding that can help a company manage its obligations while it waits for cash flow to improve. For example, a company may have to wait for receivables’ payment in order to meet this month’s payroll. A line of credit can help bridge that gap.

Letters of Credit

A business may need to request a letter of credit from a commercial bank to show their creditworthiness and to secure goods or services from an overseas trading partner. A letter of credit can serve as a guarantee from the issuing bank of payment for the goods once the letter’s requirements are met. The requirements might include the shipping date and the address the goods should be shipped to. In this way, a commercial bank can smooth international trade and help its clients’ business grow.

Lockbox Services

Lockboxes facilitate faster payments for businesses. Bank customers can send payments to a post office box near the bank, and the bank deposits the payments or funds to the customer’s account. This help expedite the receipt of deposits and subsequent payments from the client to its providers. It can be a very helpful cash flow tool for commercial enterprises.

Payment and Transaction Processing

Commercial banks typically facilitate the payments that businesses receive from their customers through electronic checks, paper checks, and credit card payments. Commercial banks may also provide services such as chargeback management fraud protection. All of these services can help keep a business humming along.

Foreign Exchange

Cross-border payments are complex because of exchange rates and the fact that each country has a different legal system. Commercial banks can provide foreign exchange services so that a company can do business overseas with a minimum of time and effort. This can really streamline operations for a business enterprise so they can focus their attention on other activities.

The Significance of Commercial Banks

Commercial banks play a vital role in the financial life of the U.S. They help support the country’s economy by providing capital and services to businesses. By providing loans, they likely allow businesses to increase production and potentially expand, which boosts the economy, lowers unemployment, and encourages consumer spending. In addition, commercial banks support cross-border trade and transactions (say, by issuing revolving letters of credit) so that businesses can operate in international markets.

Commercial Banking vs Investment Banking

When considering the definition of commercial banking, it can be helpful to compare and contrast it to other kinds of banking. You’ve learned above what commercial banking is all about. Investment banking, on the other hand, is a subset of banking that is focused on creating capital for companies, governments, and other organizations.

While some financial institutions may combine commercial and investment banking, thanks to the Gramm-Leach-Bliley Act of 1999, the two kinds of banking serve different markets. Here’s more detail of what investment banks do:

•   Underwriting

•   Overseeing mergers and acquisitions and initial public offerings (IPOs)

•   Facilitating reorganizations

•   Aiding in the sale of securities

•   Brokering trades for institutions and private investors

Commercial Banks vs Retail Banks

Another important distinction is how commercial banks differ from retail ones. Some banks will offer both sets of services, but here’s what retail banks likely offer in terms of personal banking services:

•   Savings and checking accounts (you can often open these bank accounts online)

•   Mortgages

•   Personal loans

•   Debit cards

•   Certificates of deposit (CDs)

There are also alternatives to traditional banking that can assist with personal finance transactions.

Examples of Commercial Banks

It can be helpful to have specific examples of commercial banks to better understand what they do and how they work. There are three types of commercial banks: public sector banks, private banks, and foreign banks.

•   A public sector bank is one where the government owns a major share. Public banks provide funding for projects that benefit the local public and community, which could include infrastructure projects or affordable housing. The Bank of North Dakota (BND) is the only active public bank in the United States.

•   Most of the banks in the United States are private banks run by individuals or limited partners. Examples are JPMorgan Chase & Co., Bank of America Corp. and Wells Fargo & Co.

•   A foreign bank is any bank headquartered in another country but doing business in the United States. Two examples are Barclays Bank PLC, headquartered in the United Kingdom, and Bank of Bahrain & Kuwait BSC.

Benefits of a Commercial Bank Account

There are several reasons a business should consider opening a commercial bank account.

•   Your clients are likely to feel more confident making payments for services rendered to a business rather than an individual. Simply put, it’s more professional and may be perceived as more trustworthy.

•   Having separate bank accounts for your business and personal transactions can simplify accounting and taxes (business expenses are more easily deducted).

•   If you face legal or financial challenges with your business activity, your personal liability can be limited and protected.

•   Your business can apply for business loans from a commercial bank and finance expansion or costly equipment purchases with favorable lending terms.

•   Business accounts are FDIC-insured in the event the bank fails.

Is My Bank a Commercial Bank?

If your bank provides services to businesses, such as checking accounts, financing, lines of credit, and international trade services, it is likely a commercial bank. A retail bank, on the other hand, will provide services to individuals (joint vs. separate accounts, debit cards, personal loans, and more) and could be a department within a commercial bank.

The Takeaway

Commercial banking differs from retail banking in terms of the clientele it serves. Retail banks provide checking and savings accounts, loans, and other services to individuals to manage their day-to-day finances. Commercial banks, however, help businesses launch, operate, and grow with services like deposit accounts, loans, lines of credit, payment services, and more. They are critical to keeping our economy humming along.

If you are hunting for personal banking services, check out what SoFi offers. Our online bank accounts can help your money grow faster. When you open our Checking and Savings with direct deposit, you’ll earn a competitive APY, pay no account fees, and have access to your paycheck up to two days early.

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

FAQ

What is the difference between commercial banking and retail banking?

Retail and commercial banking serve different clients. Retail banking provides checking and savings accounts, financing, lines of credit, credit cards, and other services to individuals. Commercial banking usually provides checking and savings accounts, financing, underwriting, letters of credit, lines of credit, and other functions to businesses.

Is my money safe in a commercial bank?

Your money is as safe in a commercial bank as it can be. It is protected from loss due to bank failure by federal insurance up to $250,000 for checking and savings accounts, trusts, and IRAs or certificates of deposit, and stock investments.

What role does a commercial bank play in the economy?

Commercial banks support the economy by providing capital and services to organizations. These, in turn, can stimulate the economy by doing business, growing, and employing more workers. Commercial banks also facilitate cross-border payments so that businesses can move into international markets.

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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.

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.

Photo credit: iStock/Passakorn Prothien
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ChexSystems is a nationwide credit reporting system that collects information about closed bank accounts and why they were closed. If you’ve ever had a checking or savings account in your name, it’s possible that you may have a ChexSystems report.

ChexSystems is authorized to operate under the Fair Credit Reporting Act (FCRA). Although it’s different from traditional consumer credit reporting, like the kind done by Equifax, Experian, and TransUnion, they’re both part of having a clean banking and credit record.

If you have a bank account or plan to open one, it’s helpful to understand what goes into a ChexSystems report and why it might matter to you.

How Does a ChexSystems Report Work?

A ChexSystems report is essentially a risk-management tool for any entity that’s checking any individual’s banking and credit history. The information in the report that ChexSystems compiles helps companies gauge whether a customer is creditworthy before granting them an account. It’s based only on closed accounts, not current ones.

For example, say you want to open a new bank account: The bank may request your ChexSystems report to see if you’ve ever had previous bank accounts closed in the past for things like excessive overdrafts, bounced checks, or suspected fraud.

Companies that have a permissible purpose under the FCRA, i.e., banks, credit unions, and other financial institutions, can then request a copy of a consumer’s ChexSystems report.

If the bank sees any kind of negative activity on your ChexSystems report, you may be denied a checking and savings account.

The information in your ChexSystems report can also be used to generate a ChexSystems consumer credit score. This is separate from consumer credit scores generated using the FICO or VantageScore models to help lenders decide who may qualify for a loan.

Recommended: Why is Having a Good Credit Score Important?

What Is In a ChexSystems Report?

Your report will include basic identifying information, such as your name, address, phone number, and date of birth. If you’ve ever had a security freeze in place, that will show up on your ChexSystems report, as will identity theft alerts.

More importantly, your ChexSystems report includes details about your banking history. So what does ChexSystems check for, exactly?

A typical ChexSystems report may include information about:

•   Suspected fraudulent activity

•   Non-sufficient funds (NSF) activity

•   Inquiries (when someone has viewed your ChexSystems report)

•   Check cashing inquiries

•   Returned checks reported by retailers

•   History of checks ordered

•   Checking account closures

ChexSystems only collects negative information for closed accounts. So any open bank accounts you have wouldn’t show up on a ChexSystems report.

How Do I Know If I Have a ChexSystems File?

The easiest way to find out if you have a ChexSystems file is to request a copy of your report. You can get a copy of your ChexSystems report for free once every 12 months under the Fair and Accurate Credit Transaction Act (FACTA), similar to the way you can request a free copy of your credit reports once a year from the three main credit bureaus.

Being denied a bank account could be a tipoff that you have a ChexSystems report with negative information. If you’ve been denied a bank account, you can request a copy of your ChexSystems report to understand the factors behind the bank’s decision. The bank is required to specify the reason for the denial.

How to Get a Copy of Your ChexSystems Report

You can request your report online, by phone, by mail, or by fax. Here are four ways to get in touch with ChexSystems to request your report:

•   You can complete and submit the Consumer Request for Disclosure Form online.

•   You can call 1-800-428-9623 Monday through Friday, 8:00 am to 7:00 pm CST.

•   You can mail a Consumer Request for Disclosure Form to ChexSystems, Inc., Attn: Consumer Relations, PO Box 583399, Minneapolis, MN 55458.

•   Or you can fax a completed Consumer Request for Disclosure Form to 602-659-2197.

ChexSystems also offers options for people with visual or hearing impairments.

You have to be 18 or older to request a ChexSystems report online. If you’re under 18, you have to complete a Score Order Form and request your report by mail, fax, or phone.

If you need to request a ChexSystems report for someone who’s under 18, you’ll have to send the request by mail or fax. You’re required to provide the following documentation:

•   Notarized copy of the minor’s birth certificate

•   Copy of the minor’s Social Security card

•   Copy of your driver’s license or state-issued ID (if you’re the minor’s parent or legal guardian)

•   Proof of address

If you’re not the minor’s parent or your name isn’t on their birth certificate, you’ll also have to provide proof of legal guardianship. That can be a court order or other legal document.

To request a ChexSystems report for anyone else, such as your spouse or an aging parent, you’ll need to provide a notarized Power of Attorney. You’ll also need a notarized written document that’s signed by the person you’re making the request for.

What to Do If You’re Listed in ChexSystems

If you’re listed in ChexSystems, you can request a copy of your report to see what negative information is being reported. You can also look for any information that may be inaccurate or erroneous. If you see information that you believe should not be listed in your ChexSystems file, you can initiate a dispute with ChexSystems. The process is similar to disputing errors on a regular credit report.

However, when the information in your ChexSystems file is correct, there isn’t much you can do to get it removed. Instead, you’ll have to wait for it to fall off your ChexSystems report. ChexSystems can maintain information for up to five years.

Can You Get Yourself Removed From ChexSystems?

It may be possible to get yourself removed from ChexSystems if you’re able to successfully dispute inaccurate information in your file. If you’re denied an account, and ChexSystems determines that the information is correct, then you’ll either have to wait for it to fall off your file, or you can try a different tactic and ask the bank to remove it. Banks are not obligated to do this, however.

If the bank is willing to remove negative information, keep in mind that there may be a financial obligation you need to meet first. For example, if you closed an account with a negative balance, you may need to make a deposit to bring the balance back to zero. If you go this route, be sure to get written confirmation that you’ve paid off anything owed to the bank and that the account is closed to avoid triggering any additional banking fees or charges.

How to Clean Up Your ChexSystems Report

To clean up your ChexSystems report, you’ll first need to get a copy of it if you haven’t done so already. You can then dispute any negative information you find. This may help to improve your ChexSystems profile if you can get the information removed.

As mentioned, you can reach out to the bank and offer to make good on any outstanding obligations. The bank could agree to remove the negative information. Going forward, you can prevent any further negative information from being reported by practicing good banking habits.

You can do that by:

•   Maintaining positive balances across accounts so you don’t land in overdraft

•   Keeping of checks and deposits to avoid bounced checks

•   Protecting your banking information to prevent fraud

•   Reporting any suspected fraud to your bank right away

Those actions won’t erase a negative ChexSystems file. But they can help you to stay on your bank’s good side.

How Does a ChexSystems Report Affect Your Credit Score?

Your ChexSystems report doesn’t affect your consumer credit scores directly. FICO credit scores, for example, are based on how responsibly you manage credit and debt (e.g. how often you pay bills late, how much of your available credit you’re using, and how often a hard credit inquiry shows up on your report).

Those are some of the main factors that affect credit scores.

But financial institutions could take both types of reports into account, when evaluating you for a new loan, checking, or savings account.

What if I have a low credit score? In that case, you might find it harder to get approved for credit. And if you are approved, you may be looking at much higher interest rates. That’s because lenders may view you as being a riskier borrower. The logic is the same with your ChexSystems report and score: Banks and lenders typically give better terms to those with a clean financial bill of health.

What to Do If You’ve Been Denied a Checking Account

If you’ve been denied a checking account because of a negative ChexSystems report, it helps to know what to do next.

•   Request a copy of your ChexSystems report to understand why you were denied.

•   Review your ChexSystems report for any errors or inaccuracies and dispute any errors you find.

•   Ask the bank to reconsider the denial.

•   If the bank is unwilling to reconsider, ask about second chance bank accounts.

Second chance bank accounts are designed for people who have been denied a checking account previously. These accounts may have higher fees or more restrictions than regular bank accounts. But they can help you reestablish a positive banking history if you have a negative ChexSystems report.

The Takeaway

ChexSystems is a nationwide reporting system for closed bank accounts. Qualified institutions may access ChexSystems reports to evaluate individuals who are applying for new checking or savings accounts. Being listed in ChexSystems means you may hit a snag when applying for a new bank account, typically because you have one or more negative incidents on your closed accounts (e.g. overdrafts, fraud, unpaid negative balances).

The good news is, there are banks that don’t penalize you for having a negative ChexSystems report. Also, you can dispute errors on these reports — or fix old mistakes. For example, it’s possible to be proactive and pay off an old, negative balance, and potentially improve your ChexSystems report. Otherwise, you have to wait five years for old information to drop off the report.

If you’re thinking of opening a new bank account, consider the all-in-one online bank account with SoFi — no ChexSystems report required! You’ll pay no management fees with SoFi, and you can earn a great APY when you qualify by setting up direct deposit.

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 you get out of ChexSystems?

It may be possible to get out of ChexSystems if your report includes information that’s inaccurate or reported in error. You’ll need to dispute the information through ChexSystems in order to have it corrected or removed from your file.

How long does a person stay in ChexSystems?

Generally, negative information can stay on a ChexSystems report for up to five years. If you have multiple negative items on your ChexSystems report, the five-year reporting time frame applies separately to each one.

Which banks report to ChexSystems?

ChexSystems doesn’t specify which banks use its reporting system. If you’re unsure whether a bank reports to ChexSystems or reviews ChexSystems reports when you apply for a new account, you can call the bank and ask. You can also ask whether second-chance banking is an option, in case you’re denied a traditional bank account.

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Photo credit: iStock/atakan

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.

Disclaimer: Many factors affect your credit scores and the interest rates you may receive. SoFi is not a Credit Repair Organization as defined under federal or state law, including the Credit Repair Organizations Act. SoFi does not provide “credit repair” services or advice or assistance regarding “rebuilding” or “improving” your credit record, credit history, or credit rating. For details, see the FTC’s website .

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.

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A bank affidavit is a legal document that proves a person’s relationship with a financial institution. An affidavit can also help in matters of financial fraud and with the immigration process. It does this through the use of official signatories and witnesses to assure proper document completion. Typically, banks and embassies are places to find a bank affidavit document.

Bank affidavits can be a vital tool. Keeping your account secure from financial fraud is a growing concern, and the immigration process can be aided by proving an applicant’s financial health. These are common reasons to request a bank account affidavit.

Here, learn more about bank affidavits, including the answers to these questions:

•   What is a bank affidavit?

•   Why is a bank affidavit needed?

•   How can I write a bank affidavit?

•   Where can I get a bank affidavit?

What Is a Bank Affidavit?

A bank affidavit is a legal document that attests to someone’s relationship with a financial institution. A bank or credit union can verify certain aspects of a person’s financial activities with this document. A bank affidavit is commonly used for investigative cases of potentially fraudulent activity or in matters involving an immigration application.

Incidentally, you may also sometimes hear the phrase self-proving affidavit. This is somewhat different; it’s a document that can be created when making a will. It helps prove the validity of a will. While an important legal document, it’s not the same thing as a bank affidavit.

Banking customers might wonder what is a bank affidavit and how it is created. When requesting this legal document, you must appear at a bank and have the affidavit completed and signed by an authorized individual of the bank or credit union. A bank affidavit often requires at least one witness to assure the accuracy and completeness of all required information.

A bank affidavit is often used to protect customers from nefarious individuals seeking to swindle people out of their savings. This document can be used to assert that fraudulent transactions were conducted and are not the responsibility of the bank customer (aka the victims of the crime). Beyond fraud cases, immigration applications sometimes request proof of financial support, and a bank affidavit helps provide that documentation.

How Does a Bank Affidavit Work?

A bank affidavit works by providing official verification of a person’s or business’ financial account holdings and their relationship with a bank or credit union. This is similar to the process used with an affidavit of title in the home-buying process.

According to the Offices of the United States Attorneys, an affidavit is a written statement of facts confirmed by the oath of the party making it. Affidavits must be notarized or administered by an officer of the court with such authority.

A bank affidavit in particular works by attesting to certain financial details of a person or legal entity. Banking representatives are the signatories, while witnesses assure that the details are correct and that the document is completed properly. This process goes a long way in proving the financial standing of the account holder or immigration applicant. These documents can help move matters along through the proper channels, especially in cases of suspected fraud or in the immigration process.

Once completed, the bank affidavit should be securely stored, perhaps in a safe or bank account deposit box. You likely want to be sure that only individuals you trust and who are authorized to view your personal information have access to the document. Also bear in mind that when this sort of legal filing is handled by the court system and other government agencies, they are obligated to keep it confidential. Authorized officials must act in a manner to assure your personal information stays private.

Reasons Why Someone Needs a Bank Affidavit

A bank affidavit is necessary when instances of financial crime are suspected, as well as for immigration purposes. Here’s a closer look.

•   Financial crime: Fraudulent activity is a serious white-collar crime in today’s banking world, and financial institutions must take steps to ensure the safety of customer accounts. It’s worthwhile to bank with a financial institution that uses strict fraud protection and security control measures so that you have the best possible security for your accounts.

   When needing a bank affidavit, a customer requests a legal document from the financial institution that cites the fraudulent transactions. The affidavit often indicates that financial damages as a result of the malicious activity are not the responsibility of the banking customer in a statement of unauthorized debt. The bank affidavit can then be used in a court of law if any further legal action be taken. Moreover, the affidavit is helpful in a situation involving a business that’s being targeted for illegal financial activity.

•   Immigration issues: Immigration applicants seeking to legally prove financial support commonly request a bank affidavit, too. In these instances, a bank affidavit demonstrates that a person can financially support the immigrant. The affidavit is also used to outline the individual’s bank account information and holdings. (People with a poor credit history can also open a second chance checking account to begin improving their financial footing.)

   In the immigration process, a bank affidavit is used to prove that the applicant can financially support themself with monetary savings and with financial help from family and friends. Those who cannot demonstrate a solid financial footing might get turned down due to the possibility that they will wind up needing welfare programs.

How to Write an Affidavit

If you need to write an affidavit, here are the five steps to follow:

1.    Visit a bank or a credit union if you need the affidavit for financial matters. In cases of immigration, you may also travel to a country’s embassy to find blank forms to fill out.

2.    Complete the form to the best of your ability and request assistance from bank representatives or embassy officials for any information you are unsure about. It can be helpful to have the institution fill out the form to avoid mistakes.

3.    After the bank affidavit form is properly filled out and the details are verified for their accuracy, ensure that all necessary signatures are on it and that witnesses attest to the affidavit’s completion.

4.    Create a copy of the legal document and store it in a secure location. This provides a backup should the original get lost, stolen, or damaged.

5.    Immigration applicants can keep a bank affidavit as a receipt to help expedite their process.

Where Can I Get a Bank Affidavit?

You can visit a bank or credit union branch to request a bank affidavit. However, not all locations may have the necessary individuals available to provide the required signatures. It can be worthwhile to check in about this in advance. This legal document is usually available at a nation’s embassy, too.

You must complete the form and sign where indicated. It is sometimes preferable to have the banking or embassy officials fill out the form as much as possible to avoid incorrect details on the document.

The Takeaway

Bank affidavits can be important tools if you are trying to clear up fraudulent activity on your account or if you are working your way through immigration procedures. These forms will need to be carefully filled out, signed, and witnessed, but they play a vital role in certain circumstances. Your financial institution or embassy can partner with you to get this document completed.

If you’re looking for a partner in your everyday financial life, consider opening a new bank account with SoFi. Our Checking and Savings accounts are backed by many security measures. You can rest easy knowing your account is safe and FDIC-insured. Also, when you sign up with direct deposit, you’ll earn a competitive APY, and you won’t pay any account or overdraft fees. What’s more, the online sign-up process is easy and secure.

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

How do I write a bank affidavit?

Visit a bank or an embassy to request a form. You will need signatures from certain officials and likely will need witnesses to the document being completed. It might be easier to have the institution write the bank affidavit for you to prevent any inaccuracies or other errors.

Why do banks ask for an affidavit?

Banks might ask for an affidavit to prove certain details associated with their customers. A common reason a bank affidavit is necessary involves situations where a checking or savings account was used fraudulently. Also, a bank might want the assurance that an immigration applicant has a good financial standing.

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Photo credit: iStock/fizkes

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.

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

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A growth savings account is a savings account that earns a significantly higher rate of interest than a standard saving account. This enhanced interest rate means your money will grow faster, which sounds of course like a good thing.

But are these accounts always a good bet? Important points to consider are:

•   What is a growth savings account?

•   How do growth savings accounts work?

•   The pros and cons of a growth savings account

•   How to open a growth savings account.

What Is a Growth Savings Account?

So, what is a growth savings account? Growth savings accounts are similar to regular savings accounts, except they tend to earn more, even 20 times as much, interest than traditional savings accounts. Depositing money in a growth savings account (which may also be called a high-yield savings account) makes it easier to grow savings safely, while keeping those funds accessible.

You may get the best interest rate on a growth savings account at an online bank or credit union versus a traditional, or bricks-and-mortar, bank. However, even at their best, these savings accounts typically don’t have the very high growth of, say, a well-chosen stock portfolio, the kind that could have you living off investment interest.

How Do Growth Savings Accounts Work?

Growth savings accounts function in a similar manner to regular savings accounts. You open the account, put some funds in, and can continue to add to the money as you like, all the while earning interest. The difference is you’ll earn more interest, thanks to their higher rates. This may make it one of the more appealing places to put your cash, especially when saving for short- or medium-term goals, such as building up an emergency fund or taking a European vacation.

As you shop for a growth savings account, you’ll likely find a broad range of rates. Odds are a traditional bank will offer an interest rate well below 1.00% (perhaps 0.02%) at press time. An online bank with growth savings accounts may offer rates of 1.00% or more.

Worth noting: Any interest earned in a growth savings account or a regular savings account may need to be reported as taxable income.

Also, at some financial institutions, you may be limited to only six withdrawals or transfers a month, as is the case with standard savings accounts. For each following withdrawal, you could face a fee or even have your savings account closed or converted into a checking account. A number of banks have relaxed this rule; check with yours to see if they still cap the number of withdrawals per month.

Pros of a Growth Savings Account

Here are a few examples of advantages that come with opening a growth savings account.

Higher Interest Rates

Because growth savings accounts can offer higher interest rates, the money held in a growth savings account tends to grow faster than money held in traditional savings accounts that earn lower interest rates. When determining what is a good interest rate, also look into minimum balances. You may see that the more money you put on deposit, the higher the rate you earn can be.

Accessible Form of Growth

Keeping money in a savings account is a great way to earn interest. It also means your money stays very accessible, which wouldn’t be the case if you invested in the stock market or opened a certificate of deposit (CD), which should be left untouched for a specific term.

Good Way to Build an Emergency Fund

Because these funds are fairly accessible, a growth savings account is a great place to build an emergency fund. That way, the emergency fund can continue to grow until it might be needed.

Cons of a Growth Savings Account

There are also some downsides to growth savings accounts worth keeping in mind before opening one.

Limited Growth Opportunity

Yes, growth savings accounts do earn more interest than traditional savings accounts. However, when considering your long-term savings options, there may be more strategic investments that can enhance growth. If, for instance, you’re saving for retirement, which is a few decades away, you might take a look at the stock market for growth.

Withdrawal Limits

Growth savings accounts generally provide easier access to funds than keeping money in investments. That said, you may only be able to make six withdrawals or transfers per month, or else you risk running into fees or having your account closed or converted to a checking account. Check, though, with your bank about whether this six-transaction limit still holds true. Many financial institutions have abandoned this guideline over the last couple of years.

Earnings Are Taxable Income

The interest earned in a growth savings account can count as taxable income. Compare this to the growth that occurs in a Roth Individual Retirement Account (IRA). There, you won’t pay any income tax on investment earnings.

Pros of Growth Savings Accounts	Cons of Growth Savings Accounts
Higher interest rates	Accessible form of growth
Good way to build an emergency fund	Limited growth opportunity
Possible withdrawal limits	Earnings are taxable income

Recommended: What is a Roth IRA and How Does it Work?

Choosing a Growth Savings Account

When you’re looking for ways to earn more interest on your money, a growth savings account might be a good option. Shop around to find the best fit for your needs. Here are a few factors to keep in mind when looking for a new growth savings account:

•   Interest rates

•   Minimum balance requirements

•   Fees

•   Account features

•   Mobile app

•   Other product and service offerings

It’s important to note that a lot of growth savings accounts come from online banks that don’t have in-person banking locations. Keep that in mind if you prefer to manage your account in-person.

How to Open a Growth Savings Account

While each banking institution will have its own process, opening a growth savings account typically includes the following steps:

•   Fill out the application. When filling out a growth savings account application, you’ll usually provide details like your name, Social Security number, proof of address (say, from a utility bill), and government-issued photo ID.

•   Choose the account type. There may be different savings account types, such as an individual account or a joint account (to share with a spouse or family member). Select the kind that’s right for your needs.

•   Designate beneficiaries. It’s important to choose a beneficiary for your growth savings account, just as you might select a beneficiary for a 401(k) plan. This is the person who would receive the account’s funds if your were to become incapacitated or pass away.

•   Deposit funds. Some banks require a minimum initial deposit, so you may need to make that deposit to open the account.

•   Create login information. If the growth savings account is set up through an online bank, it will be necessary to create login information such as a username and password for the online account. Be sure to create a complex password with at least one capital letter, numbers, and symbols.

While there may be another step or two in some situations, that’s how to open a bank account.

The Takeaway

Everyone wants to earn more interest on their savings account. Growth savings accounts can do just that vs traditional savings accounts since they tend to have higher interest rates. These accounts can be a good way to increase the funds in your savings faster. They are not, however, for everyone nor for all situations. In some cases, investing can help earn more money on savings and help you achieve long-term financial goals.

If you are looking for a new growth savings account, see what SoFi offers. We’re dedicated to helping you bank smarter. Here’s a great example: When you open a new bank account online with direct deposit, you’ll earn a super competitive 4.60% APY and pay zero account fees. That means your money grows faster and won’t be eroded by miscellaneous charges. You’ll also get access to your paycheck two full days early.

If you are looking for a new growth savings account, see what SoFi offers. We’re dedicated to helping you bank smarter. Here’s a great example: When you open a new bank account online with direct deposit, you’ll earn a competitive APY and pay zero account fees. That means your money can grow faster and won’t be eroded by miscellaneous charges. You’ll also get access to your paycheck two full days early.

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

FAQ

How do growth savings accounts work?

Growth savings accounts function similarly to traditional savings accounts. The only difference between these account types is that growth savings accounts tend to have higher interest rates.

What does “growth account” mean?

A growth account — also known as a high-yield account — offers a higher interest rate than traditional savings accounts. This higher interest rate leads to more growth on deposited funds.

How much interest does a growth savings account earn?

Interest rates change all the time, so it’s hard to nail down an exact number on what to expect with a growth savings account. That being said, growth savings accounts typically offer an annual percentage yield (or APY) of 1.00%, and sometimes even more than 2.00%.

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Photo credit: iStock/Eoneren

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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The annual percentage rate (APR) of your credit card has a big impact on how much it costs you to carry a credit card balance. In some cases — especially if you have a variable interest rate — your APR can change, causing your credit card interest rate to increase or decrease.

Understanding when and how these changes might occur can help you choose the right credit card and control how much you spend on interest. Here’s a look at what can increase your credit card’s APR and some of the factors that could cause it to decrease as well.

What Is Credit Card APR?

A credit card’s APR, or annual percentage rate, is the interest rate you’ll pay on the money you borrow, stated as an annual rate. Your credit card APR will tell you how much a credit card costs you in terms of interest on the balance you carry. However, it won’t tell you anything about other fees and other credit card charges you may incur.

Credit cards will typically have a separate APR for credit card purchase interest charges, balance transfers, and cash advances. The APR you receive when you open a credit card will depend on a benchmark interest rate as well as factors like your creditworthiness, as determined by your credit score.

However, the definition of APR will vary depending on what type of loan product you’re talking about. In contrast to credit cards, the APR on other types of loans is determined by interest rates, the length of the loan, and lender fees.

Recommended: What is a Charge Card

What Can Cause Your Credit Card’s APR to Increase?

If you see your APR spike you may wonder, why did my credit card interest rate go up? Well, there are a number of reasons that credit card APR can increase. Your credit card company can increase your APR on new transactions as long as they give you 45 days’ notice. The company is not allowed to increase your APR during the first year after your account is opened.

Further, there are only certain cases in which your card company can raise rate on existing balances, including when:

•   An introductory rate expires

•   You have a variable rate card and the benchmark interest rate rises

•   You’re 60 days late making your minimum payment

•   You successfully comply with, or fail to meet, the terms of a workout agreement

No matter how the increase occurs, it’s important to realize that your credit card payments increase when your interest rate increases.

Recommended: When Are Credit Card Payments Due

Prime Rate Rises

Your credit card will have either a fixed or variable credit card interest rate. If you have a credit card with a variable rate, that rate is largely based on a benchmark interest rate. The benchmark that many credit card companies use is what’s known as the prime rate. And when the prime rate rises, your APR will rise, too.

What causes the prime rate to rise? An increase could be caused by a change in the federal funds rate, which is the Federal Reserve’s recommendation for what banks should be charging when they make overnight loans to help each other meet federal reserve requirements.

One rule of thumb states that the prime rate is equal to the federal funds rate plus three.

Late Payments

Your credit card interest rate may also increase if you’re 60 or more days behind on paying your credit card minimum. This is what’s known as a penalty APR. Not only may this rate apply to your overdue balance, it may also raise interest payments on future purchases.

End of Introductory APR Offer

Some cards offer 0% APR on purchases or balance transfers for an introductory period. During that time, you won’t pay any interest on balances that you carry from month to month. However, once the introductory period is over, your APR will jump to the regular purchase interest rate, which will apply to any remaining balance on your account.

High Credit Card Balance

If you carry a growing credit card balance from month to month, or you’ve hit your credit limit and are unable to make payments, your card company may decide to raise your APR on new transactions.

Recommended: What is the Average Credit Card Limit

Failure to Meet the Terms of a Workout Agreement

If you had trouble paying off your credit card debt in the past, you may have renegotiated the terms of your agreement, which is known as a workout agreement. When you successfully complete it, your card company may return your APR to what it was prior to the arrangement, which may have temporarily reduced your interest rate. On the other hand, if you fail to comply with the agreement, your card company may also decide to raise rates.

Recommended: Tips for Using a Credit Card Responsibly

Recent Cash Advance

As mentioned above, credit card companies often typically set different APRs for purchases, balance transfers, and cash advances. If you’ve recently taken out a cash advance, you may have triggered the cash advance APR. This APR might be higher than the APR offered to you for regular credit card charges.

What Can Cause Your APR to Decrease?

There aren’t as many triggers that will send your credit card APR back down, but here’s a look at a couple to be aware of.

Prime Rate Falls

Once again, changes in the prime rate have a big impact on your APR. If the prime rate falls, your variable rate may also go down. In fact, taking advantage of tumbling interest rates is one of the biggest advantages of variable rate loans.

Negotiating for a Lower Rate

If you’d rather not sit around waiting for the prime rate to go down (or if it’s on an upward trajectory), one of the best ways to lower your credit card APR is by simply asking. Negotiating for lower rates and fees is one of the important credit card rules to know. (You can also negotiate on other things, such as credit card spending limits.)

You can improve your odds in this negotiation by arming yourself with some key information. First, get familiar with your credit score and make sure that it’s as high as possible. You may boost your score by paying down debts and making sure to correct any errors on your credit report.

Also make sure to highlight your history with the company. Credit cards want to hold on to long-standing customers with a good history of paying their bills on time.

If your credit card company rejects your first attempt at negotiation, don’t be afraid to ask again or to speak to a manager who may have more power to make decisions about your account.

Recommended: Does Applying For a Credit Card Hurt Your Credit Score

The Takeaway

Your APR has a huge impact on how much it will cost you to carry credit card debt. As you choose a credit card, it’s important to shop around for the card that offers the lowest interest rate.

Still, your APR may rise at some point — especially if the prime rate increases or a low introductory offer expires. However, that doesn’t mean you’re stuck with the new rate. You may get some relief if the prime rate falls again, and you can always negotiate with your card company to see if they can lower your rate.

The SoFi Credit Card offers unlimited 2% cash back on all eligible purchases. There are no spending categories or reward caps to worry about.¹

Take advantage of this offer by applying for a SoFi credit card today.

FAQ

How can I lower my APR on my credit card?

You can try to lower the APR on your credit card by negotiating with your lender. Increase your odds of success by ensuring you have a history of paying your bills on time and a strong credit score.

How does the prime rate affect my credit card APR?

If you have a variable APR, when the prime rate rises, so too will your APR. When the prime rate falls, your APR falls as well.

Can the APR on a credit card change?

Yes, the APR on a credit card can change for a variety of reasons. This can include a shift in the prime rate, the expiration of a low introductory offer, or being 60 days late on paying your credit card minimum.

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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.

Disclaimer: Many factors affect your credit scores and the interest rates you may receive. SoFi is not a Credit Repair Organization as defined under federal or state law, including the Credit Repair Organizations Act. SoFi does not provide “credit repair” services or advice or assistance regarding “rebuilding” or “improving” your credit record, credit history, or credit rating. For details, see the FTC’s website .

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¹Members earn 2 rewards points for every dollar spent on purchases. No rewards points will be earned with respect to reversed transactions, returned purchases, or other similar transactions. When you elect to redeem rewards points into your SoFi Checking or Savings account, SoFi Money® account, SoFi Active Invest account, SoFi Credit Card account, or SoFi Personal, Private Student, or Student Loan Refinance, your rewards points will redeem at a rate of 1 cent per every point. For more details please visit the Rewards page. Brokerage and Active investing products offered through SoFi Securities LLC, member FINRA/SIPC. SoFi Securities LLC is an affiliate of SoFi Bank, N.A.

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