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

FAQ

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.

About the author

Rebecca Lake

Rebecca Lake has been a finance writer for nearly a decade, specializing in personal finance, investing, and small business. She is a contributor at Forbes Advisor, SmartAsset, Investopedia, The Balance, MyBankTracker, MoneyRates and CreditCards.com. Read full bio.

Photo credit: iStock/alfexe
SOBK0124030

Hedge funds are pooled investment vehicles that use complex investment strategies to try and generate above-average returns. Investing in hedge funds can be risky, but rewarding if the fund meets or exceeds performance expectations.

Compared to traditional mutual funds or exchange-traded funds, hedge funds typically have more barriers to entry for investors. If you’re interested in how to invest in a hedge fund, it’s helpful to understand who these funds are designed for, and the minimum requirements.

What Exactly Is a Hedge Fund?

A hedge fund is a private investment vehicle that accepts funds from multiple investors. The hedge fund manager directs the investment strategy to attempt to generate the best possible returns for investors.

Hedge funds can hold a variety of investments, including alternative investments. Depending on the fund’s strategy and investment objectives, a hedge fund may offer exposure to:

•   Stocks

•   Derivatives

•   Foreign currencies

•   Real estate

•   Commodities

•   Fixed income investments

Fund managers may utilize a range of strategies to manage fund assets. Examples of hedge fund strategies include equity long, equity short, and market neutral (basically, strategies that take different time frames into consideration, as well as prevailing market conditions), which may be chosen in anticipation of or to hedge against anticipated market movements. The strategy or strategies employed can influence the fund’s risk/reward profile. Greater risk can bring greater rewards, but it also raises the possibility of losing money.

Getting Started in Hedge Fund Investments

Getting started in hedge fund investing isn’t exactly straightforward — it’s not the same as firing up an investment account and buying stocks online.

Hedge funds are generally viewed as high-risk investments and as a result, the Securities and Exchange Commission (SEC) regulates who can directly invest in them. Access to hedge investment funds is limited to institutional investors, pension funds, and accredited investors. However, it’s possible for unaccredited investors to gain exposure to hedge funds in their portfolio through certain mutual funds or ETFs.

Under SEC guidelines, you’re an accredited investor if you have:

•   Net worth >$1 million, excluding the value of your primary residence, and

•   Annual income over $200,000 individually or $300,000 with a spouse or partner in each of the prior two years, with the same income expected for current and future years

Financial professionals with Series 7, Series 65, or Series 82 securities licenses also qualify as accredited investors.

Aside from those requirements, you must be able to meet the minimum investment requirements for a hedge fund. The amount you’ll need will vary by fund, but a typical investment minimum may range anywhere from $100,000 to $2 million.

Maximizing Potential for Returns and Managing Risks

The key to making money with hedge funds while minimizing risk generally lies in two things: Market trends and the fund manager. Like other investments, hedge funds are influenced by things like changing interest rates and volatility, and hedge fund managers need to do their best to contend with those risks to try and maximize returns for investors.

Managing risk, of course, starts with doing your research. Specifically, it’s important to understand what the fund invests in, the strategies the fund manager employs, and the fund’s track record. Helpful questions to ask include:

•   How is fund performance determined?

•   Does the fund use leverage or speculative strategies?

•   Does the fund manager have any conflicts of interest?

•   How are the fund’s assets valued?

•   How are fund assets safeguarded?

It may also be wise to consider the costs, as hedge funds can charge higher fees than traditional mutual funds or ETFs. An investor might pay an asset management fee of 1%-2%, as well as a higher performance fee of 20%, which is intended to motivate the hedge fund manager to generate better returns.

Note that hedge funds are generally not liquid assets and you may be required to leave your capital in the fund for a certain period. There may be limits on when you can redeem your shares, so it’s important to consider how much money you’re comfortable putting into these investments.

Regulatory and Legal Aspects

Due to their complexity, hedge funds and hedge fund investments are subject to federal regulation. Some of the laws and regulations governing hedge funds include:

•   Securities Act of 1933

•   Securities Exchange Act of 1934

•   Investment Company Act of 1940

•   Dodd-Frank Wall Street Reform and Consumer Protection Act of 20106

The SEC regulates hedge funds to ensure that they act within the scope of the law concerning registration, investment offerings, and investor protections. Hedge funds that trade in commodities or futures may also be subject to regulation from the Commodity Futures Trading Commission (CFTC).

Hedge funds are required to file Form ADV with the SEC. This document includes relevant details about the fund’s assets, its investment strategies, and potential conflicts of interest. You have the right to review a hedge fund’s Form ADV before investing to learn more about it.

Evolving Trends in Hedge Funds

Hedge funds are not static, as new trends emerge and older ones fade away. Some of the most significant trends to watch right now, according to the CAIA Association, include:

•   Slower growth as the hedge fund industry reaches maturity

•   Increased focus on long/short equity strategies, private debt, and private credit

•   Gradual reduction in hedge fund fees

Demand for hedge funds may slow, too, should the U.S. economy enter a recession. If you’re all interested in how to invest in hedge fund markets now, or in the future, it’s worth watching these and other trends to see how this investment space will develop.

The Takeaway

Hedge funds can help you build a diversified portfolio, with the potential to generate returns. If you’re interested in how to invest in hedge funds, you’ll first need to determine whether you’re an accredited investor. If not, consider other avenues for accessing these and other types of alternative investments, such as through investing in mutual funds or ETFs. You can quickly start investing online in funds that offer exposure to venture capital, real estate, and other alternatives.

Ready to expand your portfolio's growth potential? Alternative investments, traditionally available to high-net-worth individuals, are accessible to everyday investors on SoFi's easy-to-use platform. Investments in commodities, real estate, venture capital, and more are now within reach. Alternative investments can be high risk, so it's important to consider your portfolio goals and risk tolerance to determine if they're right for you.

FAQ

What are the requirements to invest in hedge funds as an individual?

Is it possible to start investing in hedge funds with a small capital?

What are the key benefits of investing in hedge funds?

About the author

Rebecca Lake

Rebecca Lake has been a finance writer for nearly a decade, specializing in personal finance, investing, and small business. She is a contributor at Forbes Advisor, SmartAsset, Investopedia, The Balance, MyBankTracker, MoneyRates and CreditCards.com. Read full bio.