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A charge-off occurs when you don’t pay your credit card’s minimum monthly payment or your installment debt like an auto loan or personal loan. If a creditor decides that a debt is unlikely to be paid after a certain period of time, they may count it as a loss. Then it becomes what is known as a charge-off to the account.

And what happens after that? It’s not a “free money” situation for you. Quite the opposite: A charge-off on your credit report is a negative entry that can stick for a while and cause concern for future lenders.

Here, you’ll learn what exactly a charge-off is in more detail, how it affects your credit, and what steps, if any, you can take to resolve the situation.

What Is a Charge-Off?

When a credit card or installment debt goes unpaid for 120 to 180 days and the lender determines that the debt is unlikely to be paid off, the outstanding balance may be counted as a loss, and the account closed.

But a charge-off doesn’t mean the debt ceases to exist and that the borrower no longer needs to pay it off. Instead, typically the lender either hires a debt collector to pursue the money it’s owed or sells the debt to a collection agency.

Though the lender will take a hit on the money owed — the debt collector will either take a share of any funds recovered, or the bank may sell off the debt entirely to the collector at a reduced rate — the story isn’t over for the borrower.

How To See If You Have a Charge-Off

Under federal law, a debt collector must send a debt validation notice within five days of first contacting you. The notice will include details about the outstanding debt, including verification that the notice is from a debt collector, the name of the creditor, the amount owed (including any fees or interest), your rights, and how to dispute the debt, and other information.

A charge-off will also be noted on your credit report. The original creditor may close your account and report the payment status as “collection” or “charge-off,” both negative marks on a credit report.

You can get a free copy of your credit report from each credit bureau via AnnualCreditReport.com. It’s a good idea to check your credit report regularly to make sure all information is up-to-date and correct. Requesting a credit report from one of the three credit-reporting bureaus every few months allows you to check your credit report three times per year. For example, you could check your Experian® report in January, your TransUnion® report in May, and your Equifax® report in September.

What Happens When You Have a Charge-Off?

After you’re notified of the charge-off, a good first step is verifying the debt is actually yours and the charge-off is valid. You can dispute the posting with the credit bureaus and contact the creditor or debt collection agency with proof that the debt was paid if that’s the case. (Any common credit reporting errors can be brought to the attention of the reporting agency, including invalid charge-offs.)

If you do owe the debt, you have a few options:

•   You could pay it, including working out a repayment plan with the creditor and attempting to come to a settlement for an amount less than the original debt.

•   Doing nothing at all is another option. The collection of debts is subject to a statute of limitations that prevents creditors from pursuing unpaid bills after a certain period of time (the time limit varies from state to state, but is typically between three and six years).

Once that statute of limitations is up, a debt collector can no longer seek court action to force repayment, but the Federal Trade Commission points out that under certain circumstances, the clock can be reset.

Again, though, simply running out the clock on a charge-off does not mean there are no consequences for the cardholder. Read on to learn more about this important aspect of charge-offs.

How Does a Charge-Off Affect Credit Rating?

To understand the implications of a credit card charge-off, it’s worth thinking about how you’re approved for a credit card or loan.

•   Individuals have credit scores, which help credit card companies, lenders, and other institutions determine the risk of making payments. Credit scores are one factor among many used to evaluate an individual’s application for a car loan or mortgage — even an application for an apartment rental or new cell phone account.

•   Some lenders have minimum required credit scores for personal loans, so a person’s credit score not only helps to determine whether they will be approved but also the interest rate they will pay and other terms.

•   A credit score is a snapshot of a consumer’s financial history: their record of bill payments, how much credit they are using, and other such details.

•   Building credit scores takes time, reflecting years of credit habits. As such, any past credit card charge-offs are reflected in a person’s credit score and on their credit report. This can lead to a bad credit score and will let future prospective lenders know they have a history of delinquent or unpaid bills.

The Process of a Charge-Off

While parameters for a charge-off vary from lender to lender, here’s what typically happens:

•   After an individual does not pay at least their credit card minimum payment for six consecutive months, the account becomes delinquent. After the first month of delinquency, the credit account is moved from the “Accounts in Good Standing” section of their report to “Negative Items” or “Negative Accounts,” along with the outstanding balance.

•   If the credit card company decides to charge off the debt at 180 days, this is then noted on the person’s credit report as a charge-off.

•   Even with a charge-off, the outstanding balance will remain on one’s credit report (noted as a charge-off), unless it is sold to a collection agency. In that case, the balance reverts to zero but the charge-off remains.

Consequences of a Charge-Off

A charge-off stays on a person’s credit report for seven years from the first delinquent payment date, usually, even if they pay off their debt in full or the statute of limitations runs out. In fact, once consumers have a charge-off on their record, it can be difficult to have it reversed.

Among the consequences of having a charge-off on a credit report: It could result in higher interest rates on future lending products, or even being turned down for a credit card or loan.

There are a few scenarios where cardholders might be able to have a charge-off taken off their credit report. If an individual can prove that the charge-off was inaccurate, they can apply to have it removed under the Fair Credit Reporting Act. It can also be helpful to reach out to the creditor directly to try to reach a resolution.

It may be possible to have the charge-off removed as part of a debt settlement agreement or on a goodwill basis in the event of personal hardship or an honest mistake — though there are no guarantees.

What You Can Do About a Charge-Off

Paying off the charge-off or collection may reduce the negative impact on a credit score. It may also be wise to contact the lender to discuss a payment settlement, which may also reduce the credit impact.

If a credit card account is charged off, it may continue to accrue interest until it is paid. Once the balance is finally paid off in full, it will be noted on the individual’s credit card report.

A credit card charge-off on a credit report can make anyone’s financial life more difficult, so prevention may be the best bet.

Contacting the creditor to arrange a payment plan could be an option to keep a charge-off from being reported on your credit report. Switching to a lower-interest credit card or consolidating debt with a credit card consolidation loan may be steps to consider for managing debts before a charge-off affects a credit report. (A debt consolidation loan is a kind of personal loan, which can offer a lower interest rate than credit cards.)

Developing habits for using a credit card responsibly by setting a budget and ensuring that there’s enough money on hand to cover necessary and discretionary purchases, keeping a close eye on credit card statements, and adhering to payment schedules is a good way to successfully manage your finances. Even if you can’t afford to pay the balance due in full, it’s a good idea to pay at least the minimum on time.

Disputing a Charge-Off

If you’ve determined that the charge-off is not accurate — whether the debt doesn’t belong to you, the amount is incorrect, or the statute of limitations has passed — you can begin the dispute process.

You can begin by filing a formal dispute with the credit reporting bureau. You can mail a dispute form to each bureau or use their online dispute filing process at the following links:

•   Equifax

•   Experian

•   TransUnion

Each credit bureau has its own process for handling disputes, but generally, you can expect a reply within about 30 days. You’ll be able to check the status of your dispute online after setting up an account with the credit bureau.

The credit bureau will begin by contacting the creditor, e.g., the credit card issuer or the lender, requesting them to check their records. If the information that was reported was incorrect, your credit report will be corrected, while any correct information will remain on your report.

After a dispute is completed, the credit bureau will update your credit report with the final outcome, whether that’s deleting the disputed item or leaving it on your credit report because it was found to be a valid debt.

Paying Off a Charge-Off

If the charged-off debt is yours, you are legally responsible for paying it. You have some options for doing so.

•   If the original creditor has not sold the debt to a collector, you can work directly with them to pay the debt. If the debt has been sold to a collections agency, you’ll be working with the agency instead of the original creditor.

•   In either case, you can make a payment plan to pay down the debt, or you could also try to negotiate a settlement for less than the amount owed if you’re able to pay some amount in full.

•   A paid debt will be reported as “paid collection” on a credit report, and a settled debt will be reported as a “settled charge-off.”

•   After the debt is paid in full, asking for a final payment letter is the way to have proof that the debt is no longer outstanding.

A debt being charged off and a debt being sent to collections are related, but different. Here’s a comparison:

The Takeaway

A credit card charge-off may remain on a credit report for years and have a negative impact on your credit score. Preventing a charge-off by developing responsible spending habits, consolidating debt, or trying to arrange a payment plan may be the best bet.

If you are struggling with debt, a debt consolidation loan might help. It’s a personal loan used to consolidate multiple high-interest debts into one with a lower interest rate or with more manageable monthly payments.

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

FAQ

Is paying off charge-offs a good idea?

It can be a good idea, depending on the age of the debt. If the debt is old and beyond the statute of limitations for collection, making a payment on the debt could restart the clock on a time-barred debt.

What is a charge-off vs collection?

A charge-off happens when a creditor deems it unlikely that a debt will be paid. Collections are the next step in the process, whether the original creditor attempts to collect the debt or the debt is sold to a debt collection agency.

How does a charge off affect your credit score?

A charge-off is a negative entry on your credit report which could lower your credit score. It can affect your ability to qualify for future loans, your rental options, and even car insurance rates.

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SOPL-Q425-032

At certain moments in your life, you may wonder if hiring a personal accountant would be a good move. Perhaps you started a side hustle or launched a business and are confused about taxes. Or maybe you need help sorting out an inheritance.

There are many different types of accountants offering varied services. Here’s how to determine if you need a personal accountant, and if so, how to find the best one for your specific situation.

What Type of Accountant Do I Need?

The term “accountant” is sometimes used as a catch-all phrase to refer to any professional who deals with financial transactions or taxes, but there are different types of accountants. For instance, there are bookkeepers, accountants, and Certified Public Accountants (CPAs), to name a few, and they all have different skill sets and varying limits on what they can and can’t do. Choosing the right professional could help you achieve financial security, whether you’re running a business or investing money for your future.

•   A CPA is certified to do everything a general accountant or bookkeeper can do, along with one important addition — government permission to file taxes on a client’s behalf and represent them in case of a tax audit.

Becoming a licensed CPA requires passing the Uniform CPA Exam and completing continuing education hours each year in order to maintain their certification. CPA fees can range anywhere from approximately $33 to $500 an hour, with between $150 and $275 being a likely amount.

•   An accountant without CPA certification cannot sign tax returns on behalf of a client, but they can prepare them. An accountant also can record and report detailed financial transactions and provide analysis.

Most accountants hold an undergrad degree — although it doesn’t necessarily have to be in accounting — and many pursue additional certifications such as Certified Management Accountant (CMA) and Chartered Accountant (CA) . Like CPAs, their hourly rates can vary widely depending on location and expertise.

•   A bookkeeper is someone who can help keep your books if you’re running a business. Their responsibilities can include paying bills, keeping track of account balances, recording transactions and providing reports throughout the year.

Bookkeepers aren’t required to hold an accounting degree, but some organizations and businesses do offer certification, including a Certified Public Bookkeeper (CPB) certification, which means the bookkeeper has passed an advanced skills exam and is required to take continuing education.

Bookkeepers might also handle payroll and other business taxes, although they aren’t allowed to sign tax returns or provide audit representation. Bookkeeper fees can vary widely.

What Financial Issues Can a Personal Accountant Handle?

Accountants can be experts in money-management topics across the board, including taxes and helping navigate complicated financial situations.

Beyond that, how an accountant can help depends on your individual financial needs. Here are some details on which type of accountant is best for specific needs.

For Independent Contractors and Solo Entrepreneurs

There are many benefits to being an entrepreneur. But finances can get complicated for independent contractors and solo entrepreneurs, from managing invoices to tracking inventory to keeping one eye on the big business picture. In short, an accountant can assist with most things money-related so that the business owner can focus on the business.

Although a non-certified accountant can’t file your taxes on your behalf, they can help you with business issues like tracking your deductions, including payroll deductions; calculating estimated tax payments; and ensuring that you reap the most benefit from your tax deductions (which include hiring an accountant). An accountant is also more likely to be on top of the latest changes in the tax law.

Another way an accountant could help independent contractors is by handling all the organizational factors that come with running a business. Tasks such as invoicing, tracking sales, and tracking receipts, can feel overwhelming to someone who’s never taken business classes.

For Small Businesses

For businesses with more than one employee, an accountant with small business expertise can help with everything from determining the right business structure to filing taxes.

If you’re just starting out as a small business owner, an accountant could help with the financial segments of your business plan. During day-to-day operations, a good accountant can help with everything from opening a business bank account to payroll to providing guidance regarding government regulations or any changes in tax law.

And if you hire a CPA, they can even file business taxes on your behalf.

Recommended: Savings Calculator

For Individuals

If you have a lot of financial issues to handle, a personal accountant can help you manage them.

Perhaps the biggest reason an individual might hire an accountant is to help with taxes, especially if they’re facing complicated tax situations like receiving an inheritance, filing taxes for rental property, or navigating capital gains taxes.

But even for everyday life, a personal accountant can help turn your personal finance knowledge into action. It’s one thing to understand that you need to cut spending, but it’s another thing to actually put that knowledge into practice.

The same goes for paying down debt. An accountant can help keep you on track to repay what you owe. Professional guidance can also help you, say, determine how much of your earnings to automatically shift into a high-yield savings account.

Recommended: How Many Bank Accounts Should I Have?

The Takeaway

A personal accountant may be helpful if you’re an entrepreneur or you have a lot of personal financial issues to deal with. However, if going the DIY accounting route is more your style, you could enroll in a course to learn more about money management, do research online, or use a money-management app. Whichever method you choose, make sure you feel comfortable with the decisions you’re making for your money — and your future.

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

FAQ

Is it worth it to get a personal accountant?

That will depend on your personal situation. If you have very straightforward finances and taxes and are well–versed in money management, you may not need one. But if you are self-employed, have your own business, have a complex tax situation, or would like financial management advice, getting a personal accountant could be a wise move.

How much should tax preparation cost?

The cost of tax preparation will vary with location and the complexity of your tax filing. In terms of averages, the cost typically ranges from $170 to $250 for basic services.

Do I need a personal accountant?

Whether you need a personal accountant depends on your personal and financial situation. Working with a personal accountant can be valuable if you could use support filing your taxes, taking care of small business finances, and better managing your money.

SoFi Checking and Savings is offered through SoFi Bank, N.A. Member FDIC. 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.

Annual percentage yield (APY) is variable and subject to change at any time. Rates are current as of 12/23/25. There is no minimum balance requirement. Fees may reduce earnings. Additional rates and information can be found at https://www.sofi.com/legal/banking-rate-sheet

Eligible Direct Deposit means a recurring deposit of regular income to an account holder’s SoFi Checking or Savings account, including payroll, pension, or government benefit payments (e.g., Social Security), made by the account holder’s employer, payroll or benefits provider or government agency (“Eligible Direct Deposit”) via the Automated Clearing House (“ACH”) Network every 31 calendar days.

Although we do our best to recognize all Eligible Direct Deposits, a small number of employers, payroll providers, benefits providers, or government agencies do not designate payments as direct deposit. To ensure you're earning the APY for account holders with Eligible Direct Deposit, we encourage you to check your APY Details page the day after your Eligible Direct Deposit posts to your SoFi account. If your APY is not showing as the APY for account holders with Eligible Direct Deposit, contact us at 855-456-7634 with the details of your Eligible Direct Deposit. As long as SoFi Bank can validate those details, you will start earning the APY for account holders with Eligible Direct Deposit from the date you contact SoFi for the next 31 calendar days. You will also be eligible for the APY for account holders with Eligible Direct Deposit on future Eligible Direct Deposits, as long as SoFi Bank can validate them.

Deposits that are not from an employer, payroll, or benefits provider or government agency, including but not limited to check deposits, peer-to-peer transfers (e.g., transfers from PayPal, Venmo, Wise, etc.), merchant transactions (e.g., transactions from PayPal, Stripe, Square, etc.), and bank ACH funds transfers and wire transfers from external accounts, or are non-recurring in nature (e.g., IRS tax refunds), do not constitute Eligible Direct Deposit activity. There is no minimum Eligible Direct Deposit amount required to qualify for the stated interest rate. SoFi Bank shall, in its sole discretion, assess each account holder's Eligible Direct Deposit activity to determine the applicability of rates and may request additional documentation for verification of eligibility.

See additional details at https://www.sofi.com/legal/banking-rate-sheet.
*Awards or rankings from NerdWallet are not indicative of future success or results. This award and its ratings are independently determined and awarded by their respective publications.

We do not charge any account, service or maintenance fees for SoFi Checking and Savings. We do charge a transaction fee to process each outgoing wire transfer. SoFi does not charge a fee for incoming wire transfers, however the sending bank may charge a fee. Our fee policy is subject to change at any time. See the SoFi Bank Fee Sheet for details at sofi.com/legal/banking-fees/.
^Early access to direct deposit funds is based on the timing in which we receive notice of impending payment from the Federal Reserve, which is typically up to two days before the scheduled payment date, but may vary.

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.

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

Third Party Trademarks: Certified Financial Planner Board of Standards Center for Financial Planning, Inc. owns and licenses the certification marks CFP®, CERTIFIED FINANCIAL PLANNER®

SOBNK-Q425-010

Financial literacy is a way of saying that you have a good working knowledge of the basics of managing money and using it to reach your goals. It typically means you understand budgeting; you know how different financial products can help you protect and grow your cash; and you are aware of how the financial climate (from inflation to interest rates) can impact your personal situation.

Building financial literacy is a valuable move because it helps you achieve goals like saving for the down payment on a house, affording your kid’s college costs, and being prepared for retirement.

Read on to take a financial literacy quiz, learn more about financial literacy, and find out how to build it.

Why Financial Literacy Is Important

Higher levels of financial literacy have been consistently linked to responsible money management. This can help consumers:

•   Avoid high-cost debt

•   Plan for financial goals

•   Avoid defaulting on mortgages

•   Build an emergency savings fund

•   Earn higher interest on investments

Boosting your financial literacy can be a great way to be confident that you have the information and insight you need to manage your finances well, today and tomorrow.

Are You Financially Literate?

If you feel as if you are not fully financially literate, it might be a case of not having focused on this aspect of your life. After all, financial literacy isn’t usually a part of the curriculum in high school or college.

Also, age plays a factor in financial literacy. The younger you are, the less money know-how you are likely to have. One recent study found that Gen Z (born between 1997 and 2012) had less financial savvy than Millennials, Gen X, and Boomers. Which could be understandable: The younger a person is, the less likely it can be that they’ve gone mortgage shopping, waded deeply into retirement planning, or researched health insurance.

Typically, financial literacy based on such key components of this type of knowledge as:

•   Knowing how to create a budget so that you’re aware of and accountable for where your money is going

•   Understanding how interest works when you save and invest, as well as how it works when you borrow, including the concept of compound interest

•   Saving, whether that means for emergencies (perhaps stashed in a high-yield savings account) or for a specific goal, such as a big-ticket item or even a house

•   Knowing the facts about credit card debt, managing your debt well, and avoiding the credit card debt roller-coaster

•   Protecting your identity and otherwise using practices to safeguard your funds

•   Investing wisely, and understanding how the average stock market return

Financial Literacy Quiz

Educating Yourself

If you’ve taken our quiz, the financial literacy questions will likely have helped you to pinpoint if you need to bolster your understanding of money matters.

Financial topics can be challenging, but fortunately, there are plenty of resources to help you increase your knowledge. Your bank may have a library of information as well as tools and calculators to help you do some number crunching and give you a better picture of your finances.

Your local library and book retailers, as well as financial magazines and websites, probably have plenty of information too. It can be a smart move to veer towards those publications that are well-regarded vs. following, say, an influencer without credentials but a lot of lofty promises on social media.

Podcasts, newsletters, and continuing-ed classes are other options. It can also make good sense to find a financial planner, who can walk you through your own unique challenges and opportunities.

Government Resources for Building Financial Literacy

There are also government resources, including those available at the Financial Literacy and Education Commission (FLEC), connected to the Treasury Department. This commission was founded to boost literacy.

Another government site, one created by FLEC, is dedicated to financial education: MyMoney.gov . This site provides practical information about each of what they call the five building blocks for money management (MyMoney Five), which are:

•   Earn: Understand your pay and benefits to make the most out of what you earn.

•   Save and Invest: Start as soon as you can to save for future goals, even if you need to begin by saving small amounts.

•   Protect: Create an emergency savings fund, choose the right insurance for your needs, and otherwise take precautions to protect your finances.

•   Spend: Shop around and compare prices and products to get a good value on purchases, especially with larger ones.

•   Borrow: Borrowing allows you to make essential purchases and also helps you to build credit, so it makes sense to understand how to borrow in the smartest way possible for your situation.

You can also access the government resource known as Federal Reserve Education , which provides resources for educators and students alike, while also empowering consumers to boost their understanding of banking. Topics include central banking and monetary policy, economics/macroeconomics, our government’s role in money regulation, personal finances, and more.

Here’s one more financial literacy resource from the federal government: FDIC’s Money Smart . This program provides resources to help people learn how to improve their financial management skills, from computer-based educational games to podcasts that focus on saving and borrowing.

The Takeaway

Building financial literacy can be done in a number of ways. Accessing government educational websites and diving into books, magazines, and podcasts from trusted sources can help build your money know-how. Also, look for a banking partner that provides educational resources.

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

FAQ

What is financial literacy?

Financial literacy means having the knowledge and the skills to manage your personal finances effectively.

Why is financial literacy important?

Financial literacy can play an important role in your money management. It can reduce financial stress and help you build wealth, avoid debt, navigate emergencies, and encourage greater confidence in money matters.

How can I improve financial literacy?

There are several ways to improve financial literacy. You might review government websites on the topic, listen to podcasts or read books from well–regarded experts, and see what resources your bank provides. Budgeting well, avoiding debt, and understanding investing can be important components of your financial savvy.

SoFi Checking and Savings is offered through SoFi Bank, N.A. Member FDIC. 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.

Annual percentage yield (APY) is variable and subject to change at any time. Rates are current as of 12/23/25. There is no minimum balance requirement. Fees may reduce earnings. Additional rates and information can be found at https://www.sofi.com/legal/banking-rate-sheet

Eligible Direct Deposit means a recurring deposit of regular income to an account holder’s SoFi Checking or Savings account, including payroll, pension, or government benefit payments (e.g., Social Security), made by the account holder’s employer, payroll or benefits provider or government agency (“Eligible Direct Deposit”) via the Automated Clearing House (“ACH”) Network every 31 calendar days.

Although we do our best to recognize all Eligible Direct Deposits, a small number of employers, payroll providers, benefits providers, or government agencies do not designate payments as direct deposit. To ensure you're earning the APY for account holders with Eligible Direct Deposit, we encourage you to check your APY Details page the day after your Eligible Direct Deposit posts to your SoFi account. If your APY is not showing as the APY for account holders with Eligible Direct Deposit, contact us at 855-456-7634 with the details of your Eligible Direct Deposit. As long as SoFi Bank can validate those details, you will start earning the APY for account holders with Eligible Direct Deposit from the date you contact SoFi for the next 31 calendar days. You will also be eligible for the APY for account holders with Eligible Direct Deposit on future Eligible Direct Deposits, as long as SoFi Bank can validate them.

Deposits that are not from an employer, payroll, or benefits provider or government agency, including but not limited to check deposits, peer-to-peer transfers (e.g., transfers from PayPal, Venmo, Wise, etc.), merchant transactions (e.g., transactions from PayPal, Stripe, Square, etc.), and bank ACH funds transfers and wire transfers from external accounts, or are non-recurring in nature (e.g., IRS tax refunds), do not constitute Eligible Direct Deposit activity. There is no minimum Eligible Direct Deposit amount required to qualify for the stated interest rate. SoFi Bank shall, in its sole discretion, assess each account holder's Eligible Direct Deposit activity to determine the applicability of rates and may request additional documentation for verification of eligibility.

See additional details at https://www.sofi.com/legal/banking-rate-sheet.
*Awards or rankings from NerdWallet are not indicative of future success or results. This award and its ratings are independently determined and awarded by their respective publications.

We do not charge any account, service or maintenance fees for SoFi Checking and Savings. We do charge a transaction fee to process each outgoing wire transfer. SoFi does not charge a fee for incoming wire transfers, however the sending bank may charge a fee. Our fee policy is subject to change at any time. See the SoFi Bank Fee Sheet for details at sofi.com/legal/banking-fees/.
^Early access to direct deposit funds is based on the timing in which we receive notice of impending payment from the Federal Reserve, which is typically up to two days before the scheduled payment date, but may vary.

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.

SOBNK-Q425-026

If you’ve ever sat down to pay bills only to discover you’ve run out of checks, you may be relieved to know you can use counter checks. Counter checks are temporary checks printed at your bank that can help you make payments in a pinch.

Even in our era of autopay and P2P apps, checks are still a popular way for many to transfer funds.

What Is a Counter Check?

Counter checks, also called temporary or starter checks, are a set of plain, printed checks from your bank that include your account information and the bank’s routing number. They can be used like personal checks. (In terms of how long a check is good for, these are typically valid for six months, like standard checks.)

Counter checks may not have the personalization that a set of pre-printed checks would have. You may need to fill out your personal information normally found at the top left of a check (such as your address) on a set of lines instead.

Typically, you can get counter checks while waiting for your pre-printed checkbook to arrive in the mail. This might occur when you open a new bank account or simply run out of your usual checks. Counter checks can be useful for paying merchants who don’t accept electronic payments, mobile app payments, or debit cards.

How Do Counter Checks Work?

You may get some counter checks when you first open your account; otherwise, you must request them from your bank. Here’s what you’ll do:

1.    Request counter checks from your bank (typically).

2.    Bring and show your ID.

3.    Wait a short time as the bank prints them.

4.    Pay a small fee, usually around $3 for a sheet of three checks.

5.    Use them just as you would a personal check. Just be sure to ask the recipient if they’re willing to accept a counter check before you fill it out. Some merchants are not comfortable accepting these non-standard checks.

When Would Someone Use a Counter Check?

Counter checks are useful in a few situations. If you need to pay someone with a check ASAP and you’re out of personal checks, then a bank counter check may be your best option. Or, if you recently opened a new checking account but haven’t yet received your printed checks in the mail, a counter check can enable you to pay a bill that’s due. Compared with a cashier’s check or a money order (learn more about these options below), they’re usually less expensive, too.

However, there’s an issue to note: Not all merchants, individuals, and organizations will accept a counter check in place of a standard check. Because a counter check does not have as much information printed on it as a typical check, some may reject it, skeptical that it is valid. It’s important to note this when planning to write a counter check. You may want to check first with the intended recipient to make sure it won’t be returned.

How Does a Counter Check Differ From a Cashier’s Check?

A counter check shouldn’t be confused with a cashier’s check. They’re both issued by your bank, but they work very differently. A cashier’s check is a special check that is actually drawn on the bank’s funds vs. your account’s funds.

Here’s a quick comparison of a certified check vs. cashier’s check.

Tips for Getting a Counter Check

If you know how to order checks, you are probably aware that the process can take a couple of weeks to get personal checks. Getting some temporary counter checks can be faster, but you’ll need to get them from your bank. If you feel you need them urgently, it may be wise to visit a branch in person. Be sure to bring your ID with you. They may be printed on the spot for you.

Writing a Counter Check

Writing a counter check is nearly the same as writing a personal check. The only difference is you may need to fill out some personal information if your bank hasn’t printed it on the check. This generally includes your name and address, though a merchant may also request your driver’s license number when you pay with a counter check.

To write the check, you’ll want to:

1.    Write the date in the upper right hand corner.

2.    In the “Pay to the order of” line, write the name of the recipient of the check.

3.    Write the amount of the transaction in numerical form in the box to the right.

4.    Write out the amount in words (say, “two hundred dollars”) on the line below it.

5.    Include a memo in the bottom left corner, if you like, noting what the check is paying for.

6.    Sign the check in the bottom right corner.

All of these elements are necessary in order for a check to be valid.

Recommended: How to Make Money Fast

Pros and Cons of Counter Checks

While counter checks can serve as a temporary solution while you wait for your checks to arrive, it’s not a perfect solution. There are some advantages, as well as drawbacks to consider.

Recommended: How to Determine If a Check Is Real

Alternatives to Counter Checks

You have other options for paying bills if you’re out of checks. Here are a few of the methods available to transfer funds.

•   Online bill pay. A quick and easy way to send payment is to set up online bill pay through your bank. It’s usually free and incredibly convenient. You can add vendors to pay and then automate monthly payments for things like car payments, mortgages, student loans, and more.

   Typically, your bank can pay merchants and organizations electronically, but if there’s a company that doesn’t accept electronic payments, you may have to do online payments manually or mail a check. In some situations, an online bill pay service may be able to write and mail the check for you.

•   Money order. A money order is like a pre-paid check. You’ll pay the amount that you’re sending, plus a fee (typically just a couple or a few dollars), and you get a check issued by a third-party provider. You can often get money orders at a variety of locations, such as the post office, your bank, your grocery store and your favorite retail stores.

•   Cashier’s check. A cashier’s check is a check you can buy from the bank where they guarantee the funds. The bank writes a check to any third party; you, in turn, pay the financial institution the amount of the payment, plus the fee for the cashier’s check (which may be in the range of $10-$20). It’s considered a safe way to make a large payment.

•   Certified check. A certified check is a check you get from your bank that guarantees the funds from your personal account. This kind of check signals to the recipient that the cash has been earmarked from the payer’s personal account. It can add a level of security and comfort for the payee.

•   Mobile app payment services. There are a host of peer-to-peer or P2P payment options that make paying someone very convenient. Some of the most popular apps include Venmo, Cash App, PayPal, Google Pay, and others.

•   Pay over the phone. Some merchants will take a payment over the phone. You can provide your bank’s routing number and your account number, and they may be able to process a payment over the phone. You may also be able to use a debit card for payment.

The Takeaway

Counter checks are a useful tool if you run out of your standard checks or have recently opened a new checking account. These checks are quickly available, but they are usually not printed with all of the standard information, and not all merchants and organizations will accept them. Still, they may allow you to pay some pressing bills when other means are not available.

FAQ

Is a counter check the same as a personal check?

A counter check can be equivalent to a personal check, and it may be presented as legal tender like a personal check. The main difference is that a counter check is likely to lack the more detailed identifying information that’s pre-printed on a personal check.

Can I pay someone with a counter check?

Not all merchants take counter checks. Because they look temporary and are typically not numbered, businesses may not accept payment via counter check. If you need to pay bills with a counter check, make sure the recipient is willing to accept it before you fill it out and send it.

How long is a counter check good for?

Like a personal check, a counter check is typically good for around six months.

Photo credit: iStock/RyanJLane

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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SOBNK-Q425-011

The Black-Scholes option pricing model is a mathematical formula used to calculate the theoretical price of an option. It’s a commonly-used formula for determining the price of contracts, and as such, can be useful for investors in the options market to know.

But there are some important things to know about it, such as the fact that the model only applies to European-style options.

What Is the Black-Scholes Model?

As mentioned, the Black-Scholes model is one of the most commonly used formulas for pricing options contracts. The model, also known as the Black-Scholes formula, allows investors to estimate the value of options they’re considering trading.

The formula takes into account several important factors affecting options in an attempt to arrive at a theoretical price for the derivative. The Black-Scholes options pricing model only applies to European options.

💡 Quick Tip: How do you decide if a certain trading platform or app is right for you? Ideally, the investment platform you choose offers the features that you need for your investment goals or strategy, e.g., an easy-to-use interface, data analysis, educational tools.

The History of the Black-Scholes Model

The Black-Scholes model gets its name from Myron Scholes and Fischer Black, who created the model in 1973. The model is sometimes called the Black-Scholes-Merton model, as Robert Merton also contributed to the model’s development. These three researchers were affiliated with the Massachusetts Institute of Technology (MIT) and University of Chicago.

The model functions as a differential equation that requires five inputs:

•  The option’s strike price

•  The amount of time until the option expires

•  The price of its underlying stock

•  Interest rates

•  Volatility

Modern computing power has made it easier to use this formula and made it more popular among those interested in stock options trading.

The model is designed for European options, since American options allow contract holders to exercise at any time between the time of purchase and the expiration date. By contrast, European options may be priced differently and only allow the owner to exercise the option on the expiration date. So, while European options only offer a single opportunity to exercise, American option traders may choose any of the days up until and on expiration to exercise the option.

Recommended: American vs European Options: What’s the Difference?

What Does the Black-Scholes Model Tell?

The main goal of the Black-Scholes model is to estimate the theoretical price of a European-style contract, giving options traders a benchmark to compare against market prices. To this end, the model goes deeper than simply looking at the fact that the price of a call option may increase when its underlying stock price rises and incorporates the impact of stock volatility.

The model looks at several variables, each of which may impact the value of that option. Greater volatility, for example, could increase the option’s theoretical value since it may have a higher chance of seeing larger price moves. Similarly, more time to expiration may increase the model’s estimate of the option ending in the money, and may lower the present value of the exercise price. Interest rates also influence the price of the option, as higher rates can make the option more expensive by decreasing the present value of the exercise price.

The Black-Scholes Formula

The Black-Scholes formula estimates the theoretical value of a call option or put option using inputs such as current stock price, time to expiration, volatility, and interest rates. It expresses the value of a call option by taking the current stock prices multiplied by a probability factor (d1) and subtracting the discounted exercise payment times a second probability factor (d2).

Explaining in exact detail what d1 and d2 represent can be complex. They are part of the mathematical process used to estimate option prices in the market, and are often debated.

💡 Quick Tip: If you’re an experienced investor and bullish about a stock, buying call options (rather than the stock itself) can allow you to take the same position, with less cash outlay. It is possible to lose money trading options, if the price moves against you.

Why Is the Black-Scholes Model Important?

The Black-Scholes option pricing model is so impactful that it once won the Nobel Prize in economics. Some consider it a foundational idea in financial history.

Some traders use the Black-Scholes model to estimate theoretical values of European options. Since its creation, many scholars have elaborated on and improved this formula. The model is widely recognized as a landmark in mathematical finance.

Some analysts argue that the model has contributed to greater pricing efficiency of options and stock markets. While designed for European options, the Black-Scholes model can still offer insights into how theoretical option values respond to changes in core pricing factors, which may help inform investors’ overall options trading strategies.

Some traders use the model hedge against portfolio risk, which they believe may improve overall market efficiency. However, others assert that the model has increased volatility in the markets, as more investors constantly try to fine tune their trades according to the formula.

How Accurate Is the Black-Scholes Model?

Some studies have shown the Black-Scholes model to be effective at estimating theoretical options prices. This doesn’t mean the formula has no flaws, however.

The model tends to underestimate the value of deep in-the-money calls and overestimate calls that are deeply out of the money.

That means the model might assign an artificially low value to options that are significantly in the money, while it may overvalue options that are significantly out of the money. Options tied to stocks yielding a high dividend may also get mispriced by the model.

Recommended: How Do Dividends Work?

Assumptions of the Black-Scholes Model

There are also a few assumptions made by the model that can limit its real-world accuracy. Some of these include:

•  The assumption that volatility and the risk-free rate remain constant over the option’s life

•  The assumption that stock prices move continuously and without sudden jumps

•  The assumption that a stock doesn’t pay dividends during the option’s life

Such assumptions are necessary to simplify the model, even though they may negatively impact results. Relying on assumptions makes the model mathematically tractable, as only so many variables can reasonably be calculated.

Over the years, quantitative researchers have expanded on the original models to address limitations introduced by its assumptions.

This leads to another flaw of the Black-Scholes model: unlike other inputs in the model, volatility must be an estimate rather than an objective fact. Interest rates and the amount of time left until the option expires are concrete numbers, while volatility has no fixed numerical value.

The best a financial analyst can do is estimate volatility using something like the formula for variance. Variance is a measurement of the variability of an asset, or how much its price changes from time to time. One common measurement of volatility is the standard deviation, which is calculated as the square root of variance.

The Takeaway

The Black-Scholes option-pricing model is among the most influential mathematical formulas in modern financial history, and it may be one of the most accurate ways to determine the theoretical value of a European call option. It’s a complicated formula that has some drawbacks that traders should be aware of, but it’s a useful tool for European options traders.

Given the Black-Scholes model’s complexity, it’s likely that many investors may never apply it directly in their trading decisions. That doesn’t mean it isn’t important to know or understand, of course, but many investors may not get much practical use out of it unless they delve deeper into options trading.

SoFi’s options trading platform offers qualified investors the flexibility to pursue income generation, manage risk, and use advanced trading strategies. Investors may buy put and call options or sell covered calls and cash-secured puts to speculate on the price movements of stocks, all through a simple, intuitive interface.

With SoFi Invest® online options trading, there are no contract fees and no commissions. Plus, SoFi offers educational support — including in-app coaching resources, real-time pricing, and other tools to help you make informed decisions, based on your tolerance for risk.

FAQ

What is an example of the Black-Scholes method?

An example would be using the Black-Scholes formula to estimate the theoretical value of a European call option on a stock trading at $100, with a $105 strike price, 30 days to expiration, 20% volatility, and a 5% risk-free rate. The model would help determine the option’s theoretical worth under these conditions.

What is the 5 step method of Black-Scholes?

The five steps typically include: identifying the input values (stock price, strike price, time to expiration, volatility, and risk-free rate), calculating d1 and d2 (which are probability factors), finding the cumulative normal distribution values of d1 and d2, plugging the values into the Black-Scholes formula, and interpreting the result as the option’s theoretical price.

Is Black-Scholes still used?

Yes, the Black-Scholes model remains widely used as a foundational pricing tool for European options. Many traders and financial institutions still use it, though modifications or alternative models may be applied in complex or non-standard scenarios.

Why are Black-Scholes so important?

The Black-Scholes model helped transform how options are priced by offering a standardized, mathematically grounded method. Some argue that it has helped to improve market efficiency and risk management and pave the way for the modern derivatives market.

Photo credit: iStock/akinbostanci