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You may wonder if it’s possible to open a bank account for someone who is in prison. The answer is, yes, it may be possible to start a bank account for a prisoner, provided it’s allowed by the Department of Corrections in the state where the individual is incarcerated. (Worth noting: It may also be a challenge to find a bank that offers this kind of account.)

Opening an account can be a positive step. Being imprisoned can limit someone’s ability to pay bills, grow savings, and generally manage their finances. Opening accounts for inmates at external banks can help them to earn interest on savings while saving money on fees. And it can potentially make their reentry into society easier upon release.

While inmates may have access to prison accounts, those can come with high fees, and they typically don’t pay interest. A prison account is a special type of account that allows an inmate to store funds which can be used to pay for hygiene items and other necessities while they’re incarcerated. It doesn’t impact their lives when released.

So, let’s take a closer look at this topic:

•   Whether it’s legal to open a bank account while in prison

•   How to apply for a bank account while in prison

•   What documentation is required to start an account

•   What kinds of accounts are available, including whether joint accounts are a possibility

Let’s start learning about accounts for inmates.

Is It Legal to Open a Bank Account While in Prison?

It’s legal to open a bank account while in prison, unless state law or correctional facility policy specifically prohibits it. The best way to find out whether opening accounts for inmates is allowed is to check with the Department of Corrections in the state where the person is incarcerated.

In Texas, for example, the Department of Criminal Justice encourages inmates to open accounts at an external bank of their choice. They can then link this bank account to their prison account. This can be used to replenish their account for items bought while in prison. Excess funds in their prison account can also be transferred to their external bank account.

The state of New York, on the other hand, prohibits inmates from opening outside bank accounts. Specifically, prisoners are not allowed to open:

•   Checking accounts

•   Savings accounts

•   Stock accounts

•   Mutual fund accounts

•   Money market accounts

•   Certificate of deposit (CD) accounts

•   “In trust for” accounts

Inmates in New York are also barred from receiving distributions from any U.S. savings bonds they might own. Prisoners who enter the system with existing checking accounts or other bank accounts are required to close them.

So, if you are thinking of opening a savings account for an inmate, whether or not you can will depend on where they’re imprisoned. If you’re able to open some kind of savings account for an inmate, the next challenge may be finding a bank that will allow you to do so. Let’s look at that issue in a bit more detail next.

Why Banks Might Refuse to Help Prisoners

Not all banks are willing to open accounts for prisoners. Financial institutions can establish their own policies for when opening accounts for inmates is or isn’t allowed. If you’re trying to figure out how to open a bank account for an inmate and you’re hitting a brick wall with banks, it could be due to one of the following:

•   The bank requires a valid ID for the inmate, which you don’t have.

•   You have not been granted power of attorney (POA) for the inmate.

•   The inmate has a negative ChexSystems report (which is a reporting system for the banking industry) or previous issues with managing a bank account.

•   The bank is concerned that funds deposited to the account might be seized by a government entity.

•   The bank is concerned that the account may be used to conduct illegal activity.

It’s also possible that banks may be worried about running afoul of any rules or regulations established by their state’s Department of Corrections or Criminal Justice. In that scenario, it may be easier for the bank to simply not offer accounts for inmates to avoid any issues.

Applying for a Basic Bank Account for an Inmate

Let’s say that it is legal in the inmate’s state for them to hold a bank account, and you have found a financial institution that is willing to open an account. The next step would be to begin the account.

Keep in mind that opening accounts for inmates isn’t exactly the same as opening a checking account or savings account for yourself. In terms of how to open a savings account for an inmate, there may be one of three possibilities you can pursue. Again, the options you’re able to choose from could depend on what’s allowed by the inmate’s correctional facility and/or state.

Option 1: Specific Prison/Bank Arrangement

Correctional facilities may allow inmates to have outside bank accounts if they open them at an approved financial institution. For example, in Wisconsin inmates are allowed to open interest-bearing accounts at a bank that’s approved by the Department of Corrections.

If you’re trying to open a bank account for an inmate, you could check with the Department of Corrections or Criminal Justice to find out which banks are approved. The Department of Corrections should also be able to tell you what restrictions or requirements apply when opening accounts for inmates.

Recommended: How Much Money Do You Need to Open a Bank Account?

Option 2: Applying to Bank of Choice

While some correctional facilities require inmates to open external accounts at approved banks, others give you some leeway in deciding where to bank. As noted, Texas encourages prisoners to open accounts at the bank of their choice if they like.

If you’re trying to open a savings account for an inmate, the hard part may be finding a bank that will allow you to do so. You can start by checking at your current bank to see if it’s an option. If not, you can then try contacting other banks in the area to see which ones offer inmate accounts.

Recommended: How Many Bank Accounts Should You Have?

Option 3: Wait Until Release

Though not ideal, an inmate could simply wait until they’re released to open a savings account. This may be easier said than done, however, if the inmate isn’t able to meet the bank’s requirements for account opening.

What kind of requirements exactly? That could mean providing a valid ID and proof of address. And again, something like a negative ChexSystems report could lead the inmate to be denied a bank account. Unpaid balances or suspected fraud are other red flags that may result in an application for a new bank account being rejected.

Can Prisoners Be a Part of a Joint Bank Account?

You might be wondering how to open a joint bank account with an inmate or if it’s even possible. Whether a prisoner can open a joint bank account with someone else can depend on the bank’s policies. If you’re opening a joint bank account and the bank requires you to do so in person, for example, you may need to provide documentation showing why the joint account owner cannot be present.

Required documentation can include having power of attorney granting you legal authority to act on behalf of the inmate. The rules for establishing power of attorney and the scope of powers granted can vary from state to state.

If the bank allows you to open joint accounts online, then you may not be asked for this document. You will, however, likely need to provide the following for a joint account:

•   The inmate’s name

•   Their date of birth and Social Security number

•   A current address, phone number, and email address

If you’re missing any of those pieces of information, you may not be able to proceed with opening a joint account online. You could call the bank to ask how you can finish the account setup if you run into issues.

Keep in mind that managing a joint bank account — one shared with an inmate before they’re incarcerated — may be handled differently. As mentioned, New York requires inmates to close existing accounts before entering prison. But other correctional systems may allow those accounts to remain open.

If you have a joint account with an inmate, it’s important to note whether any court orders exist or are likely to be filed that would allow for seizure of account assets for repayment of a nondischargeable debt, such as back child support, past due tax bills, and federal student loans. Keep in mind that co-borrowers for joint loans are equally responsible for shared debts, even if one person is incarcerated.

Required Documents to Open a Bank Account

Banks typically have a standard list of documents they require to open a bank account. The list can include:

•   Valid government-issued ID

•   Proof of address

•   Social Security number

•   Birth certificate when other forms of ID are unavailable

Opening bank accounts for inmates can require additional documentation if the bank needs a power of attorney form. An attorney can help you complete a power of attorney for an inmate, which may require a visit to the correctional facility if state law prohibits digital signatures. State law can also dictate whether a power of attorney for an inmate needs to be notarized in order to be legally valid.

Types of Bank Accounts for a Prisoner

The types of bank accounts you can open for a prisoner will generally be governed by Department of Corrections policy. But if you’re able to open a bank account for an inmate, you might be able to choose from these options:

•   Checking accounts

•   Savings accounts

•   Money market accounts

•   Certificate of deposit accounts

These options may also be available once an inmate is released. If a former inmate is having trouble getting a regular checking account after release, they might consider second chance checking or a prepaid debit card instead. These can be easier to access and provide support for day-to-day banking in a way that can be very helpful.

•   Second chance checking is designed for people who have been denied a checking account in the past. Usually offered at online or smaller, local banks, these accounts can help people to develop good banking habits so they can upgrade to regular checking later. They may not offer the full array of bells and whistles, and they may involve higher fees.

•   Prepaid debit cards, meanwhile, allow you to load funds onto the card, which you can then use to pay bills, make purchases, or withdraw cash at ATMs. A prepaid debit card is not a bank account but it can provide a formerly incarcerated person with a way to manage their money until they can get an account at a bank.

The Takeaway

Having a bank account can be a positive experience for inmates, but opening a bank account for a prisoner can be quite challenging. Not all states allow inmates to start accounts, and not all banks are willing to have prisoners as customers.

Whether you’re opening accounts for inmates while they’re incarcerated or after they’re released, choosing the right place to bank matters. Specifically, it’s important to find a bank that offers the best combination of features and benefits for inmates and former inmates and makes it possible for you to open that account before the prisoner is released.

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 an incarcerated person open a bank account?

Whether an incarcerated person can open a bank account will depend on the policies set by the Department of Corrections in their state. Some correctional facilities allow inmates to have external bank accounts, while others limit inmates to having prison accounts only.

Can ex-prisoners have a bank account?

Yes, ex-prisoners can open bank accounts. However, their banking options may be limited if they have a negative ChexSystems report. Former inmates may consider second chance checking accounts if they’re unable to meet the requirements for a regular checking account.

How much money can a federal inmate have in their account?

The Bureau of Prisons (BOP) does not specify an upper limit on how much money a federal inmate can have in their prison account. Inmates can receive funds at a BOP-managed facility, which are deposited into their commissary accounts, by MoneyGram, Western Union, or U.S. Postal Service.

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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.

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A dividend is when a company periodically gives its shareholders a payment in cash, additional shares of stock, or property. The size of that dividend payment depends on the company’s dividend yield and how many shares you own.

Not all companies pay dividends, but many investors look to buy stock in companies that pay them as a way to generate regular income in addition to stock price appreciation. A dividend investing strategy is one way many investors look to make money from stocks and build wealth.

What Is a Dividend?

A dividend payment is a portion of a company’s earnings paid out to the shareholders. For every share of stock an investor owns, they get paid an amount of the company’s profits.

The total amount an investor receives in a dividend payment is based on the number of shares they own. For example, if a stock pays a quarterly dividend of $1 per share and the investor owns 50 shares, they would receive a dividend of $50 each quarter.

Companies can pay out dividends in cash, called a cash dividend, or additional stock, known as a stock dividend.

Generally, dividend payouts happen on a fixed schedule. Most dividend-paying companies will pay out their dividends quarterly. However, some companies pay out dividends annually, semi-annually (twice a year), or monthly.

Occasionally, companies will pay out dividends at random times, possibly due to a windfall in cash from a business unit sale. These payouts are known as special dividends or extra dividends.

A company is not required to pay out a dividend. There are no established rules for dividends; it’s entirely up to the company to decide if and when they pay them. Some companies pay dividends regularly, and others never do.

Even if companies pay dividends regularly, they are not always guaranteed. A company can skip or delay dividend payments as needed. For example, a company may withhold a dividend if they had a quarter with negative profits. However, such a move may spook the market, resulting in a drop in share price as investors sell the struggling company.

Types of Dividends

As noted, the most common types of dividends are cash dividends and stock dividends.

Cash dividends are dividends paid out in the form of cash to shareholders. Cash dividends are the most common form of dividend. Stock dividends are, likewise, more or less what they sound like: Dividends paid out in the form of additional stock. Generally, shareholders receive additional common stock.

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How Are Dividends Paid Out?

There are four critical dates investors need to keep in mind to determine when dividends are paid and see if they qualify to receive a dividend payment.

•   Declaration Date: The day when a company’s board of directors announces the next dividend payment. The company will inform investors of the date of record and the payable date on the declaration date. The company will notify shareholders of upcoming dividend payments by a press release on the declaration day.

•   Date of Record: The date of record, also known as the record date, is when a company will review its books to determine who its shareholders are and who will be entitled to a dividend payment.

•   Ex-dividend date: The ex-dividend date, typically set one business day before the record date, is an important date for investors. Before the ex-dividend date, investors who own the stock will receive the upcoming dividend payment. However, if you were to buy a stock on or after an ex-dividend date, you are not eligible to receive the future dividend payment.

•   Payable date: This is when the company pays the dividend to shareholders.

Example of Dividend Pay Out

Shareholders who own dividend-paying stocks would calculate their payout using a dividend payout ratio. Effectively, that’s the percentage of the company’s profits that are paid out to shareholders, which is determined by the company.

The formula is as follows: Dividend payout ratio = Dividends paid / net income

As an example, assume a company reported net income of $100,000 and paid out $20,000 in dividends. In this case, the dividend payout ratio would be 20%. Shareholders would either receive a cash payout in their brokerage account, or see their total share holdings increase after the payout.

Why Do Investors Buy Dividend Stocks?

As mentioned, dividend payments and stock price appreciation make up a stock’s total return. But beyond being an integral part of total stock market returns, dividend-paying stocks present unique opportunities for investors in the following ways.

Passive Dividend Income

Many investors look to buy stock in companies that pay dividends to generate a regular passive dividend income. They may be doing this to replace a salary — e.g., in retirement — or supplement their current income. Investors who are following an income-producing strategy tend to favor dividend-paying stocks, government and corporate bonds, and real estate investment trusts (REITs).

Dividend Reinvestment Plans

A dividend reinvestment plan (DRIP) allows investors to reinvest the money earned from dividend payments into more shares, or fractional shares, of that stock. A DRIP can help investors take advantage of compounding returns as they benefit from a growing share price, additional shares of stock, and regular dividend payments. The periodic payments from dividend stocks can be useful when utilizing a dividend reinvestment plan.

Dividend Tax Advantages

Another reason that investors may target dividend stocks is that they may receive favorable tax treatment depending on their financial situation, how long they’ve held the stock, and what kind of account holds the stock.

There are two types of dividends for tax purposes: ordinary and qualified. Ordinary dividends are taxable as ordinary income at your regular income tax rate. However, a dividend is eligible for the lower capital gains tax rate if it meets specific criteria to be a qualified dividend. These criteria are as follows:

•   It must be paid by a U.S. corporation or a qualified foreign corporation.

•   The dividends are not the type listed by the IRS under dividends that are not qualified dividends.

•   You must have held the stock for more than 60 days in the 121-day period that begins 60 days before the ex-dividend date.

Investors can take advantage of the favorable tax treatments of qualified dividends when paying taxes on stocks.

How to Evaluate Dividend Stocks

Evaluating dividend stocks requires some research, like evaluating other types of stocks. There’s analysis to be done, but investors will also want to take special care to look at prospective dividend yields and other variables related to dividends.

In all, investors would likely begin by digging through a stock’s financial reports and earnings data, and then looking at its dividend yield.

Analysis

As noted, investors may want to start their stock evaluations by looking at the data available, including balance sheets, cash flow statements, quarterly and annual earnings reports, and more. They can also crunch some numbers to get a sense of a company’s overall financial performance.

Dividend Yield

A dividend yield is a financial ratio that shows how much a company pays out in dividends relative to its share price. The dividend yield can be a valuable indicator to compare stocks that trade for different dollar amounts and with varying dividend payments.

Here’s how to calculate the dividend yield for a stock:

Dividend Yield = Annual Dividend Per Share ÷ Price Per Share

To use the dividend yield to compare two different stocks, consider two companies that pay a similar $4 annual dividend. A stock of Company A costs $95 per share, and a stock of Company B costs $165.

Using the formula above, we can see that Company A has a higher dividend yield than Company B. Company A has a dividend yield of 4.2% ($4 annual dividend ÷ $95 per share = 4.2%). Company B has a yield of 2.4% ($4 annual dividend ÷ $165 per share = 2.4%).

If investors are looking to invest in a company with a relatively high dividend yield, they may invest in Company A.

While this formula helps compare dividend yields, there may be other factors to consider when deciding on the suitable investment. There are many reasons a company could have a high or low dividend yield, and some insight into dividend yields is necessary for further analysis.

Tax Implication of Dividends

Dividends do, generally, trigger a tax liability for investors. There may be some special considerations at play, so if you have a lot of dividends, it may be beneficial to consult with a financial professional to get a sense of your overall tax liabilities.

But in a broad sense, regular dividends are taxed like ordinary income if they’re reinvested. If an investor receives stock dividends, though, that’s typically not taxable until the investor sells the holdings later on. Further, qualified dividends are usually taxed at lower rates that apply to capital gains – but there may be some variables involved that can change that.

Investors who do receive dividends should receive a tax form, a 1099-DIV, from the payor of the dividends if the annual payout is at least $10.

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The Takeaway

Dividends are a way that companies compensate shareholders just for owning the stock, usually in the form of a cash payment. Many investors look to dividend-paying stocks to take advantage of the regular income the payments provide and the stock price appreciation in total returns.

Additionally, dividend-paying companies can be seen as stable companies, while growth companies, where value comes from stock price appreciation, may be riskier. If your investment risk tolerance is low, investing in dividend-paying companies may be worthwhile.

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For a limited time, opening and funding an Active Invest account gives you the opportunity to get up to $1,000 in the stock of your choice.

FAQ

Are dividends free money?

In a way, dividends may seem or feel like free money, but in another sense, they’re more like a reward for shareholders for owning a portion of a company.

Where do my dividends go?

Depending on the type of dividend, they’re usually distributed into an investor’s brokerage account in the form of cash or additional stock. The specifics depend on the type of account that dividend-paying stocks are held in, among other things.

How do I know if a stock pays dividends?

Investors can look at the details of stocks through their brokerage or government regulators’ websites. The information isn’t hard to find, typically, and some brokerages allow investors to search specifically for dividend-paying stocks, too.

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