SoFi

If you feel as if you aren’t clear about where your money goes or why you aren’t saving as much as you’d like (or why your credit card debt isn’t going away), you might benefit from some financial discipline. While the word “discipline” can sound harsh, it’s really just a way of saying that you have found money-management habits that lead to success. It’s not about saying you can never buy concert tickets or new shoes again.

Having financial discipline can help you take control of your money, gain independence, and save for your big-picture as well as short-term goals.

This guide shares seven essential ways to achieve financial discipline and enjoy its rewards.

What Is the Meaning of Financial Discipline?

Financial discipline is the act of setting specific monetary (spending and saving) goals and measuring oneself against how well they are achieved. Once that financial discipline is established, a person can take further steps to becoming financially independent.

Financial independence means having enough money to pay one’s living expenses without being dependent on people or a particular employer. It provides a financial runway that’s flexible enough for a person to make decisions based on short- and long-term needs instead of the immediate state of their finances.

How Can Financial Problems Be Improved?

Financial problems can bring about a level of stress that might be difficult to shake. Sitting and worrying won’t necessarily change the state of a person’s finances, but putting together a financial plan is a tangible step in the right direction.

By confronting their current financial realities and committing to practicing money discipline, a person who’s struggling with stressful financial problems can improve their overall outlook and make progress toward a more stable financial future.

7 Steps For Achieving Financial Discipline

There are many paths to financial discipline, but these seven steps can help you create the habits that help you take control of your money and your financial destiny.

1. Getting Clear About Financial Goals

It could be difficult to get disciplined about money without embarking on a vital first step: setting financial goals. Writing down specific short-term, mid-term and long-term financial goals can help whittle things down even further and illuminate a plan for how to proceed.

Here are some common examples of financial goals (though real goals will vary depending on a person’s individual priorities and plans). They range from short-term money goals to longer-term ones:

Short-term Financial Goals

•   Paying off credit cards and charge cards

•   Paying off student loan debt

•   Setting a spending limit for the month

•   Setting up an emergency fund

•   Saving a certain amount each month

Mid-term Financial Goals

•   Saving money for a trip abroad

•   Setting aside funds for a major gift

•   Putting away money to buy a big ticket item like a boat or car

•   Saving up for an important home renovation

Long-term Financial Goals

•   Setting aside money for retirement

•   Saving for a dependent’s future college tuition

•   Putting away money for a down payment on a house

•   Investing in stocks and bonds for future returns

2. Creating a Convenient Budget

Building a monthly budget isn’t necessarily at the top of everyone’s bucket list, but seeing spending habits and current expenses in black and white can make it easier to get a handle on overall finances. Whether it’s written out by hand, using an online spreadsheet, or finding software that helps turn financial data into a trackable budget, there are many ways to build a budget.

Once someone finds a system that works, they can better understand how much money they’re making versus how much they’re spending, saving, and possibly investing. The transparency that comes with creating a budget can bring them closer to becoming financially disciplined.

3. Paying Down Existing Debt

Debt comes in many forms — from student loan debt to car loans, medical payments, mortgages and credit card debt. It might seem fairly obvious, but paying down debt as a step toward financial discipline can make it easier to start the subsequent steps like saving money, making investments and planning for a brighter financial future. Adding the debt paydown directly into the budget ensures it’s consistently covered each month.

4. Opening a High-Yield Savings Account

There’s no specific answer to “How much money should I have in savings?” However, it is important to get started and contribute regularly. Even if it’s as little as $20 a month, setting something aside for savings in spite of one’s current debt-to-income ratio ensures some funds will start to add up. By opening up a savings account and setting up a recurring deposit, a pivotal piece of financial discipline can practically go on autopilot.

Of the different types of savings accounts, the specific kind you choose can make a big difference. According to the FDIC, the national average interest rate on savings accounts as of August 21, 2023, was 0.43% annual percentage yield, or APY. In the case of certain high-yield accounts, however, interest rates can reach 4.00% APY or higher (these are typically found at online banks).

By putting money into a high-yield savings account, it’s simple to earn even more money just by setting funds aside in the first place.

5. Establishing an Emergency Fund

More than one in five Americans have no emergency savings; about 30% of people do have some money set aside for a rainy day, but not enough to cover three months’ worth of basic expenses. That means these individuals would likely have to take on credit card debt, a personal loan, or ask family or friends for financial help if they, say, lost their job or had unexpected bills to pay.

Establishing an emergency fund isn’t just a step along the path to financial independence, it’s a way to weather unforeseen expenses without having to worry about day-to-day expenses being paid for or financial goals being met.

Most money experts advise socking away enough to cover three to six months’ worth of living expenses. You might want to automate your savings to help you reach this goal.

6. Cutting Back on Spending

Despite the best of intentions, overspending happens. Whether it’s a pileup of holiday gift purchases, a particularly eventful summer, or a lavish trip overseas, spending more than what you earn is bound to occur from time to time. If it happens constantly, that’s another story.

Cutting down on spending is a tangible way to practice sound money discipline. There’s no one-size-fits-all approach to doing so, but by building a budget, hunting for bargains, creating ironclad shopping lists, using promo codes and coupons, and thoroughly tracking spending, it can be easier to cut back and get one step further to financial independence.

7. Seeking Sound Investment Strategies

If you’re searching for a head start to financial independence, familiarizing yourself with a wide variety of investment accounts and strategies can help get you on the map. Depending on your individual financial situation, weighing the risks and benefits of certain account types, penalties, fees, and the ability to access funds can help you select the right investment strategy.

By researching different markets and understanding your personal risk tolerance, you can select an approach to investing that directly aligns with your current and future financial goals.

Focusing on Financial Planning

The term “financial planning” might feel more like a unicorn you only get to meet when you’re floating high on a cloud of financial independence, but it’s actually another sound step along the way. These days, financial planning isn’t designated for the already-wealthy, it’s becoming accessible and essential for people at every stage of life. In fact, in the age of digital transformation, financial planning can even be automated.

The Takeaway

Financial discipline or money discipline is the act of setting specific financial goals and tracking their achievement. By practicing financial discipline, you can create a budget, build up savings and an emergency fund, hit your money goals, and make progress toward a more stable financial future.

Finding the right financial institution to suit your needs can be another important step. Doing so can help you track your saving and spending and budget better, as well earn interest on the money you keep stashed away.

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

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

Photo credit: iStock/shih-wei

---

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.

SOBK0923009

Read more

Most people hit financial challenges at some point. Perhaps it’s a bout of overspending, the feeling that you can’t get out from under your credit card debt, or the fact that your budget just won’t balance.

Facing these kinds of situations doesn’t mean that financial security can’t be yours, nor that your money goals are unattainable. Rather, it means that you may need to focus on your finances, reprioritize, and adopt some new habits to get on track.

Here, you’ll learn about five of the most common and vexing money challenges you may encounter, as well as some smart solutions that can help you take control of your finances.

1. Monthly Spending Exceeds Income

Many people struggle with the fact that their monthly outflow (or spending) outpaces their monthly inflow (or take-home income). The imbalance can cause you to rely on credit cards, and make it nearly impossible to save for the future, or even for a rainy day.

To help get your cash flow into balance, you may want to set up a basic budget. While a budget may sound restrictive, it can actually simplify your finances and make it easier to make everyday spending decisions.

A good way to start is to go through the last few months of financial statements and receipts, then tally up your average monthly income (after taxes) and average monthly spending. You may also want to break down expenses by categories, and then group categories into necessary and unnecessary spending.

It can also be helpful to actually ​track your spending for a month, taking note of every latte and lunch out (or by using an app that tracks expenses). Although you may think you know where your money is going, when people tally up all their purchases for a month, they are often surprised to notice that their spending doesn’t always match up with what they thought their priorities were.

Once you see where your money is really going each month, you can then look at your budget critically and search for areas where you can cut back. For example, you might decide you’ll eat out less often, pack your lunch a few days a week, save on a streaming service you rarely watch (buh-bye), or find a cheaper cell phone provider.

You may also want to think about ways you may be able to grow your income, such as negotiating a higher salary, looking for a new (higher-paying) job, or taking on a low-cost side hustle.

2. Not Having a Financial Cushion

Life can be unpredictable, and unforeseen events, like a loss of income, car breakdown, or visit to the ER, can quickly put you into a hole if you don’t have any emergency savings at your disposal.

Ideally, an emergency fund will have enough cash to cover three- to six months’ worth of living expenses, but even a reserve of $1,000 can save you from having to rely on credit cards or take out a personal loan to handle an unexpected expense.

To start building a buffer, you may want to consider dedicating part of your monthly budget to emergency savings. It can be a good idea to keep this fund in an account that earns more interest than a standard savings account, but still allows you easy access to your money, such as a high-yield savings account, money market account, online savings account, or a checking and savings account.

Even contributions of $50 a month can add up quickly, creating a cushion that can come in handy when a rainy day hits.

3. Carrying a Credit Card Balance Every Month

Credit cards can be both a useful financial tool and an incredibly slippery slope. High-interest rates make the price of the charged items significantly more expensive. And, depending on credit makes it more likely that you’ll spend more than you earn.

As you re-evaluate your budget and work to reduce expenses, you may also want to find a way to pay more than the minimum on your credit card balances. If you have multiple cards, you might try the avalanche method of paying off debt. This involves paying the minimum on all your balances, but putting extra towards the balance with the highest interest rate. Once that’s paid off, you put your extra money towards the debt with the next highest balance, and so on.

Another approach is the snowball method. Here, you pay the minimum on all your debts, but put extra money towards the smallest balance. Once, that’s paid off, you put your extra money towards the next-highest balance, and so on.

Alternatively, you may want to consider consolidating your credit card debt by paying off all your balances with a personal loan. You would then only have one balance to keep up with, ideally with a lower interest rate.

4. Being Weighed Down by Student Loan Debt

Having a large amount of student debt can demand payments that limit your ability to buy a home or increase your savings. While it can be tempting to put off payment, that only results in paying more interest over time.

Instead, you may want to consider paying more each month in order to get out from under student debt faster. Whether it’s paying $20 or $100 more each month, every bit over the minimum payment helps to make a dent in your debt.

You may also want to put any lump sum of cash you receive, such as a tax refund or bonus, towards your student loan debt. When you make extra payments, however, it’s a good idea to make sure that you select the option for the funds to be applied toward your loan principal (otherwise it may go towards interest).

Another option you may want to consider is refinancing your student loans. This means trading in your current loan(s) for one brand new loan through a private lender. The goal with refinancing is to get a lower interest rate while also having the ability to change your loan term (such as cutting the timeline in half). This can be a good option if you have good credit and are currently paying a high interest rate on your student loans. Just be aware that refinancing federal student loans can mean you are not eligible for forgiveness, so think carefully about your decision.

Recommended: 6 Strategies to Pay off Student Loans Quickly

5. Not Saving Enough for Retirement

Retirement saving can be critical if you want to have financial freedom in your future. And even if retirement seems like a long way off, it can be much easier to amass a comfortable nest egg when you start saving and investing early.

Thanks to the magic of compounding interest (when the interest you earn also earns interest), even putting a little bit of money into a retirement fund each month can help you build wealth over time.

If you aren’t maximizing contributions to a 401k, you may want to consider putting as much tax-deferred money as possible into these accounts. If your employer offers matching funds, it can be a good idea to take full advantage of this perk (which is essentially free money).

If you don’t have access to a 401k, or you are able to put any additional money aside to secure your retirement, you may want to consider opening an IRA (keeping in mind that there are annual limits to retirement contributions).

Taking advantage of these savings vehicles can lower your tax burden this year and earn interest for your golden years.

The Takeaway

Dealing with financial challenges is never fun. But many of us have to do it at one time or another during our lives.

Whether you’re living paycheck to paycheck and can’t ever seem to save or you’re trying to bounce back after a financial mistake, there is typically a way to resolve the problem.

It may be as simple as tracking your expenses for a month and setting up a monthly budget. Or, you may need to set up a manageable debt repayment plan to regain control of your finances. And, it’s perfectly fine if your first steps are small.

One small, simple step that may help you keep better track of your finances is to find the right banking partner.

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

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

---

Photo credit: iStock/iamnoonmai

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.

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.

SOBK0923002

Read more

When you deposit money into your bank account, you can’t always use the money right away. Your financial institution may put a hold on a portion of your funds as they process them and make sure they clear. Whether or not all your cash is available can depend on a variety of factors, such as the form of the deposit (say, electronic or a check); the amount of money involved; and when and where the deposit was made (in person? After business hours?). Your money might be ready to use almost immediately, or it could take a few days or even longer.

Federal regulations determine how long banks can take to make deposits available to their clients. And banks and credit unions may have their own internal guidelines as well about processing deposits. It can be a good move to check with your financial institution about their guidelines for clearing deposits so you don’t wind up accidentally overdrawing your account.

That said, here are some important guidelines about when banks typically make funds available to help you manage your money even better.

Why Do Banks Put a Hold on Deposits?

Banks hold deposits to protect themselves, as well as their customers, from losing money. If a check you deposit bounces or some other complication arises, the bank will have an opportunity to fix the problem before you have the opportunity to spend the funds.

While a delay in being able to access your own money may seem like a nuisance, holds can actually help protect you from fraud and fees.

If your bank allows you to spend funds from a check that later bounces, you would have to repay the bank the amount that they gave you, and likely also get hit with a hefty overdraft fee. This is the case regardless of who is at fault.

How Long Can a Bank Hold a Deposit?

The amount of time it takes for funds to become available can depend on a number of factors, including how long you’ve held your account, your financial history, the type of deposit (e.g., cash, check, direct deposit), and the amount of the deposit.

•   Generally, a bank or credit union has until at least the next business day (a business day is a weekday that is not a holiday) to make most deposits available.

•   Electronic deposits are typically available on the same day. So, one way to make sure your paycheck is available to you quickly is to sign up for direct deposit.

•   Cash deposits may clear immediately or the next business day.

•   The longest a bank can hold funds is usually five business days for money deposited at an ATM of a different bank.

•   While each bank or credit union has its own rules as to when it will let you access the money you deposit, federal law establishes the maximum length of time a bank or credit union can make you wait.

The amount of money deposited can also matter. Here are the rules set by the Federal Reserve.

• Direct Deposit: Day of Deposit

• Wire Transfer: Next Business Day

• First $225 of any non-”next-day” check deposited: Next Business Day

• Cash*: Next Business Day

• U.S. Treasury Check: Next Business Day

• U.S. Postal Service Money Order*: Next Business Day

• State or Local Government Check*: Next Business Day

• Casher’s, Certified, or Teller’s Check*: Next Business Day

• Checks and Money Orders Drawn on Another Account at the Same Financial Institution: Next Business Day

• Federal Reserve Bank and Federal Home Loan Bank Checks*: Next Business Day

• Any Other Checks or Non-U.S. Postal Service Money Orders: Second Business Day After the Day of Deposit

• Deposits of Items Noted by “*” at an ATM Owned by the Customer’s Financial Institutions: Second Business Day After the Day of Deposit

• Deposits Made at an ATM Not Owned by the Customer’s Financial Institution: Fifth Business Day After the Day of Deposit

* Deposited in person

You may want to keep in mind that the hold times listed above are the maximum allowed. It’s possible that your funds will be available sooner.

You can typically find specifics about your bank’s funds availability policy in the account agreement you received when you opened your account, or you can ask the bank for a copy of their holding policies.

Understanding Cut-Off Times

When you deposit a check, you may think you did it “today.” However, you may have missed the cut-off for starting the deposit process on that calendar day.

If you make a deposit after the cut-off time, your financial institution can treat your deposit as if it was made on the next business day. If the deposit was made late in the day on a Friday, it could actually take three or more days for the money to show up in your account.

By law, a bank or credit union’s cut-off time for receiving deposits is generally no earlier than 2:00 p.m. at physical locations and no earlier than noon at an ATM or elsewhere. Sometimes banks have later deposit times for mobile deposits (made via the bank’s phone app), such as 5 pm.

Deposits That May Take Longer to Become Available

There are certain circumstances under which banks are allowed to hold deposited funds for longer than the times listed above.

When these exceptions apply, there isn’t always a clearly defined limit to the amount of time the bank can hold funds. The bank can generally hold funds for a “reasonable” amount of time.

Exceptions to standard holding times include:

Large Deposits

If a customer deposits more than $5,000, the bank will typically need to make the first $5,000 of the funds available on the second business day, but they are allowed to put a longer hold on the remaining amount.

Redeposited Checks

If a check bounces and then is redeposited, banks may hold the funds for longer than one business day. (You may want to be cautious about accepting future checks from a person or business that has already bounced a check.)

Accounts That Have Been Repeatedly Overdrawn

If a customer has a history of overdrawing their account, the bank may go beyond charging overdraft fees and also hold funds for more time before making them available for use.

Repeatedly overdrawn means that the account has had a negative balance on at least six business days within the past six months, or the account was $5,000 overdrawn more than twice within the past six months. (One note: If you are in this situation, you may want to consider the pros and cons of overdraft protection.)

Reasonable Doubt

If a customer deposits a check that seems suspicious, the bank may hold funds for a longer period of time. A check may seem suspicious if it’s postdated or it’s more than 60 days old. (Typically, how long a check is good for is about 6 months, but it may cause concern after two months has passed.)

New Bank Accounts

If you recently opened a bank account and your account is less than 30 days old, you may experience hold times of up to nine days. Official checks and electronic payments, however, may be partially available the next day.

Emergency Conditions

If there is a communications outage, a natural disaster, or another circumstance that impedes normal bank functions, banks can hold funds until they are able to provide the funds.

The Takeaway

When you deposit a check, you naturally expect the money to show up in your bank account. But there may be a delay between the time you deposit money and the time that those funds are actually available for you to spend.

Banks generally make funds available on the business day after you make a deposit, but there are exceptions.

Direct deposits are typically available sooner, and some checks, such as those larger than $5,000 or older than 60 days, can take longer to clear.

Knowing your financial institution’s policies about holding times can help ensure that you’re able to pay your bills on time, have access to cash when you need it, and don’t get hit with overdraft fees.

Leveraging Technology

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

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

---

Photo credit: iStock/solidcolours

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.

SOBK0923003

Read more

If you are thinking about getting a car, you likely are deciding between buying or leasing. And if leasing seems like the right option for your finances and lifestyle, then you probably want to know what is needed to seal that deal.

Leasing a car typically requires both some cash and a solid credit score. If you have a high credit score, you may snag the best possible (meaning lowest) interest rate. If your credit history is not solid, then you may face higher rates or have difficulty getting approved.

Here, you can learn about:

•  What are car lease requirements?

•  Can you lease a car with a credit score under 680?

•  Can you build your credit?

•  Can leasing help or hurt your credit score?

What Are Car Lease Requirements?

It’s a good idea to know your credit score before you start shopping around; your credit score is an important factor influencing the final lease amount. If you have poor credit and only have $300 a month to spend on the lease and insurance, a lot of that amount might be going to the higher interest rate a lender could potentially offer you.

If, on the other hand, you have good credit and $300 a month to spend on the lease and insurance, you may be able to lease a better quality car. Here’s why: Not as much money will be going to interest payments. (It’s always a good idea to weigh the pros and cons of leasing vs. buying a car before pulling the trigger on either financial decision.)

A couple of points to consider:

•  When you’re wondering, “Do you need good credit to lease a car,” the answer is typically yes. Having good credit may make it easier to lease a car because a leasing company may not see you as financially risky as someone who has poor credit. Not all leasing companies will necessarily approve a car lease for someone who has a low credit score.

•  You might also need to prove that you have a job with a certain income when you’re leasing a car, show recent bank statements, or that you have a cosigner with a good credit history.

What Credit Score Do You Need to Lease a Car?

As you may know, credit scores typically go from 300 to 850, with five credit score ranges:

•  Poor credit score, 300-579

•  Fair credit score, 580-669

•  Good credit score, 670-739

•  Very good credit score, 740-799

•  Exceptional credit score, 800-850.

That said, what credit score do you need to lease a car? The average credit score of people who leased cars in late 2022 was 736 — generally at the high end of the good credit score range. If you have excellent credit, the upfront costs of leasing a car might be lower than if your credit isn’t so great.

Typically, leasing a car might require the first month’s payment, a security deposit, taxes, registration, and an acquisition fee. Someone whose credit score is in the low 600s might need to put money down on the lease in addition. Keep reading to find out more about how different credit scores affect leasing a car.

Leasing With a Credit Score Above 680

The credit score to lease a car and get favorable rates is one that’s considered a “prime” or “good” credit score, meaning between 670 and 739, or higher. Having good credit typically makes it more justifiable for lenders to approve you for the lease because it’s less of a risk to them.

Just as with any type of financing, applicants who have good credit may be offered lower interest rates on auto leases. Having an above-average credit score could give you more negotiating power over the rates and terms of the car lease.

Leasing With a Credit Score Lower Than 680

Having a lower credit score means you’ll likely have difficulty finding a company willing to lease to you or you’ll pay more to lease a car. Leasing companies may see you as a risk-based on your credit history. You might find that having a trustworthy cosigner on the lease could help you get a lower interest rate or better terms than if you’re applying on your own.

If your credit score is lower than 680, you might want to work on building it before leasing a car so you get a better deal. A good place to start is by checking your credit report which you can do for free once a year at Annual Credit Report.

It’s important to check your report for accuracy — if there are any errors, contact the credit bureau that issued the report. Factors that affect your credit score are your payment history, length of your credit history, how much you owe compared to how much available credit you have, types of credit you have, and any new applications for credit that show up on your credit report. (You’ll learn more about these below.)

Building Your Credit Before Leasing

There are several ways to build your credit before leasing a car. Two of the most important to consider:

•  Pay down debt. This will lower your credit utilization ratio or rate, meaning the percentage of your credit limit you are using. The lower that ratio (preferably no more than 10%), the better your credit can look.

•  Pay on time. Be meticulous about paying your bills on time or even early. Just one or two late payments can cause your credit score to dip.

Can Leasing a Car Build Credit?

Any time you apply for credit, you have the opportunity to build your credit. A car lease is credit, just as a car loan would be credit.

How you manage your lease payments affects your credit report just as a loan would. Making regular, on-time monthly payments will affect your credit in a positive way. In other words, yes, leasing a car can help build your credit.

Can Leasing a Car Affect Your Credit Score?

As just mentioned, paying a car lease on time can be a positive thing. However, missing payments or being late with payments will hurt your credit and may negatively affect your credit score.

You may also see a small drop in your credit score when the lease begins because your credit report will show a new account is open. You may see a similar small drop when the lease is terminated because the account is closed. Both of these credit events — opening and closing a credit account — can affect your credit score.

If you’re shopping around at different leasing companies over the course of a few weeks and apply for leases at those places, there will be inquiries into your credit history by the leasing companies. However, those multiple inquiries may show up as just one query on your credit report and minimally affect your credit score.

Recommended: Should You Buy a New or Used Car?

5 Things That Impact Your Credit Score

Here are factors that can influence your score:

1. Your Payment History

The single biggest factor in your credit score is your payment history, which can boil down to making payments on time, month after month. That can help build your credit score. Paying late or not at all can trigger your score to drop.

2. The Amount Owed

It can reflect positively on your credit score if you have a low credit utilization rate or ratio. This means that you are using little of your credit limit. Using 10% or less of your credit limit can benefit your score; using 30% or more can have a negative impact.

3. The Length of Your Credit History

Having a longer credit history and having managed lines of credit well for years can benefit your credit score. It shows that you can successfully borrow and pay back money.

4. Your Credit Mix

Having more than one kind of credit account can show that you manage borrowed funds well. For instance, it could be helpful if you have handled both installment debt (student loans and car loans are examples of this) and revolving accounts (such as credit cards) well.

5. New Credit

If you apply for a number of new lines of credit and have what are known as hard credit pulls vs. soft pulls done as part of this, your credit score could suffer. It can look as if you are applying for new debt and could then wind up financially overextended.

The Takeaway

It’s important you know your credit score to lease a car before you go car shopping. Checking your credit reports in advance will uncover any surprises before you’re at the dealership. Knowing your credit score and working to build it as much as possible before applying for a car lease may help you save money on your car lease and give you more negotiating power.

The less you have to spend on interest and fees, the farther your money can go while leasing. Successfully managing leases, loans, and credit in general is part of good financial habits. Having the right banking partner can also enhance how well you handle your cash.

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

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

FAQ

Can you lease a car with a 600 credit score?

You may wonder what does your credit score have to be to lease a car. While it’s not impossible to lease a car with a 600 credit score, it will likely take more time and energy to find an offer. You will also probably pay a higher interest rate than those with a higher credit score (680+), meaning you will pay more over the long term.

Does leasing a car hurt your credit?

When you apply for a car lease and the leasing company pulls your credit file, you may see a dip in your credit score in the short term. After that, whether the lease hurts your credit depends on how well you manage the account. If you pay late or miss payments, your credit score could suffer.

Is it better to lease or finance a car?

Whether it’s better to lease or finance a car will depend on your particular financial situation and aspirations. When you finance a car, you can eventually own it outright. It’s similar to buying a home with a mortgage. Leasing, on the other hand, is similar to renting. You never own the car or have it as an asset, but then again, you might like “trading up” every few years.

Photo credit: iStock/dusanpetkovic

---

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.

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 .

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.

SOBK0723046

Read more

The volume-weighted average price indicator (VWAP) is a short-term trend indicator used on intraday charts. It measures the average price of a stock weighted by trading volume and price, and shows up as a single line.

Professionals and retail traders alike can use the VWAP as a benchmark to aid their trading strategies by using this indicator to identify liquidity points, or as part of a broader trend confirmation strategy.

VWAP also helps determine the target price for a particular asset, helping traders determine when to enter or exit a position. VWAP restarts at the opening of each new trading session, and is thus considered a single-day indicator.

What Is Volume-Weighted Average Price (VWAP)?

The volume-weighted average price (VWAP) is a technical indicator that shows a security’s average price during a specific trading period, adjusted for trading volume. In effect, it’s a measure of demand for that security.

It’s similar to the moving average indicator (MA), but because VWAP factors in trading volume, it’s a clearer indicator of the security’s value.

VWAP is calculated as the total amount traded for every transaction (price x volume) and divided by the total number of shares traded.

💡 Quick Tip: Before opening an investment account, know your investment objectives, time horizon, and risk tolerance. These fundamentals will help keep your strategy on track and with the aim of meeting your goals.

Why Is VWAP Important?

VWAP is important to traders and financial institutions for a few reasons. They can use the VWAP in combination with different trading strategies because it helps determine whether an asset is over- or underpriced based on the current market.

VWAP also helps identify a target price for the security so traders can aim for the best exit or entry points, depending on the strategy they’re using.

This benefits day traders, but also comes into play during corporate acquisitions, or big institutional trades.

Accuracy

One reason traders use VWAP is because it removes some of the static around a security’s price movement, and thus this indicator can provide a more realistic view of a security’s price throughout the day.

Trend Confirmation

Traders can also use the volume-weighted average price to gauge the strength and momentum of a price trend or reversal. When a price is over the VWAP, it might be considered overvalued. When it’s below the VWAP it may be undervalued. Thus it’s possible to determine support and resistance levels using the VWAP.

Simplicity

In many ways VWAP is a quick and easy way to interpret a security’s price and trend, and decide whether to make a trade.

Recommended: Using Technical Analysis to Research Stocks

How Is VWAP Used in Trading?

As a trend indicator, VWAP adds more context to a moving average (MA). Since a moving average does not take volume into account, it could potentially be misleading when relatively big price changes happen on low volume, or if relatively small price changes happen despite large volume.

In addition, moving averages aren’t always helpful for short-term traders, because MA’s require longer time frames to provide good information. The VWAP is made to be a short-term indicator, as it involves one data point for each “tick,” or time period of a selected chart (each minute on a 1-minute chart, for example).
There are several ways that investors use the VWAP when trading.

Institutional Investors

Large institutional investors and algorithm-based traders use the VWAP to make sure they don’t move the market too much when entering into large positions. Buying too many shares too quickly could create price jumps, making it more expensive to buy a security.

Instead, some institutions try to buy when prices fall below the VWAP, and either sell or pause purchases when prices rise above the VWAP, in an attempt to keep prices near their average.

Retail Traders

Retail investors use the VWAP as a tool to confirm trends. As noted above, the VWAP indicator is similar to a simple moving average with one key difference — VWAP includes trading volume, as the name implies. Why does this matter?

Moving averages (MA) simply calculate average closing prices for a given security over a particular period (e.g., 9-day MA, 50-day MA, 200-day MA, etc.). Adding volume to an indicator helps confirm the potential strength of a trend.

Recommended: Institutional vs Retail Investors: What’s the Difference?

How to Calculate VWAP

VWAP is a ratio that indicates the relationship between an asset’s price and its volume. When used as a technical indicator on a chart, the computer automatically calculates VWAP and displays it as a single line.
Investors can also calculate VWAP manually. The two main pieces of the equation include:

•   Typical price + volume

•   Cumulative volume

The formula for calculating VWAP equals the typical price (the average of the low price, the high price, and the closing price of the stock for a given day) multiplied by the number of shares traded in a given day, divided by the total number of shares traded (cumulative volume).

Calculated daily, VWAP begins when the markets open and ends each day when the markets close.

Calculating a 30-Day VWAP

The 30-day VWAP is equivalent to the average of the daily VWAP over a 30-day period. So, to calculate the 30-day VWAP, you would have to add up the daily closing VWAP for each day, then divide the total by 30.

How Do You Read a VWAP Chart?

As with most technical indicators, there are many different ways to interpret the VWAP. Some of the most common ways to use this indicator for price signals include establishing support and resistance, indicating a trend being overextended, or using VWAP in combination with a different indicator.

Support and Resistance

This might be one of the simplest and most objective ways to read a chart using VWAP. One method for reading a VWAP chart is to use the line as an indicator for short-term support and resistance levels. If prices break beneath support, this could indicate further weakness ahead. If prices break above resistance, this could indicate more bullish momentum is yet to come.

Support and resistance are commonly measured using historic points of price strength or weakness, but this becomes more difficult when time frames are very short. Traders may use a volume-weighted indicator like the VWAP to predict short-term moves.

Trend Overextended

When looking at the VWAP indicator on a short-term chart, there could be times when price action goes very far beyond the VWAP line.

If price quickly goes too far above the line on heavy volume, this could indicate that the security has become overbought, and traders might go short. If price quickly falls far below the line, this could indicate that the security has become oversold, and traders might go long.

Of course, there is a subjective component involved in determining the exact definition of “overextended.” Typically, however, investors assume that price tends to return to the VWAP line or close to it, so when prices go too far beyond this line one way or the other, they could eventually snap back.

Recommended: Understanding Stock Volatility

VWAP Plus MACD

As they do with many technical indicators, investors often use the VWAP indicator in conjunction with other data points.

Technical analysis can become more effective when using multiple indicators together. By confirming a trend in multiple ways, investors can feel more confident in their projections.

As an example, some traders like to look at the VWAP while also looking at the Moving Average Convergence Divergence (MACD).

If the MACD lines see a bullish crossover around the same time that prices become overextended to the downside beneath the VWAP line, this could indicate a buying opportunity. If the MACD shows a bearish crossover as prices stretch far above the VWAP line, this could indicate a good time to close out a trade or establish a short position.

Limitations of VWAP

The VWAP is useful for day traders because it’s based on that day’s trading data; it’s more difficult to use the VWAP over the course of many days, as that can distort the data.

VWAP is also a lagging indicator, so while it captures recent price changes, it’s less useful as a predictive measure.

Is VWAP Good for Swing Trading?

It’s impossible to explore the role of VWAP in trading without addressing swing trading with this indicator.

The VWAP tends to work well for short-term trading like day trading and short- to medium-term trading like swing trading, in which investors hold a position for anywhere from a few days to a few weeks.

Using the VWAP on a daily basis could potentially help swing traders determine whether to continue to hold their position. If a short-term chart consistently shows prices beneath the VWAP, this fact could combine with other information to help the trader decide when to sell.

A Cumulative Indicator

It’s important to note that VWAP is what’s known as a cumulative indicator, meaning the number of data points grows higher as the day goes on. There will be one data point for each measurement of time on a given chart, and as the day passes, these points accumulate.

A 5-minute chart would have 12 data points one hour after the market opens, 36 after 3 hours, and 84 by the time the market closes. For this reason, VWAP lags the price and the lag increases as time goes on.

The Takeaway

The volume-weighted average price (VWAP) is essentially a trading benchmark that captures the average intraday price of a given security, factoring in volume. It’s considered a technical indicator, and it’s important because it gives traders pricing insight into a security’s trend and value, making it most helpful for intraday analysis. It’s one data point among many that traders might use when devising their investment strategy.

Ready to invest in your goals? It’s easy to get started when you open an investment account with SoFi Invest. You can invest in stocks, exchange-traded funds (ETFs), mutual funds, alternative funds, and more. SoFi doesn’t charge commissions, but other fees apply (full fee disclosure here).

Invest with as little as $5 with a SoFi Active Investing account.

FAQ

What is the difference between the volume-weighted average price and a simple moving average (SMA)?

The simple moving average or SMA just shows the average price of a security over a period of time. The volume-weighted average price, or VWAP, factors in the asset’s trading volume over the course of the day as well, thus giving investors more information about demand and price trends.

How do you use VWAP in day trading?

Day traders often use VWAP to determine the target price of an asset, the better to determine the entry and exit points for trades, based on their current strategy, whether long or short.

What is the difference between Anchored VWAP vs VWAP?

Traditional VWAP always starts with the opening price of the day (VWAP is primarily used as an intraday metric), whereas anchored VWAP allows the trader to specify a certain price bar where they want their calculation to start.

---

Photo credit: iStock/Pheelings Media

SoFi Invest®
INVESTMENTS ARE NOT FDIC INSURED • ARE NOT BANK GUARANTEED • MAY LOSE VALUE
SoFi Invest encompasses two distinct companies, with various products and services offered to investors as described below: Individual customer accounts may be subject to the terms applicable to one or more of these platforms.
1) Automated Investing and advisory services are provided by SoFi Wealth LLC, an SEC-registered investment adviser (“SoFi Wealth“). Brokerage services are provided to SoFi Wealth LLC by SoFi Securities LLC.
2) Active Investing and brokerage services are provided by SoFi Securities LLC, Member FINRA (www.finra.org)/SIPC(www.sipc.org). Clearing and custody of all securities are provided by APEX Clearing Corporation.
For additional disclosures related to the SoFi Invest platforms described above please visit SoFi.com/legal.
Neither the Investment Advisor Representatives of SoFi Wealth, nor the Registered Representatives of SoFi Securities are compensated for the sale of any product or service sold through any SoFi Invest platform.

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.

SOIN0922045

Read more