What Is the MOASS and When Will It Happen?

What Is the MOASS?

Before 2021 many investors didn’t know about the Mother of All Short Squeezes, also known as MOASS. But the GameStop stock saga early in the year changed that. That scenario saw a rag-tag band of day traders take on the hedge fund giants, with a short-sale “squeeze” that greatly impacted some of those giants.

The episode shined a much-needed light on investors, short-sales, trading squeeze strategies, and digital trading on a massive scale, all of which fell under the MOASS umbrella in 2021.

Short Squeeze Basics

A short squeeze is an orchestrated effort to drive up shares of a stock that’s being heavily shorted. MOASS, Mother of All Short Squeezes, is a trading strategy in which a high volume of buyers drive up shares of stocks that were being “shorted” by other investors.

A short squeeze trading strategy needs two components to work – a short seller or, more preferably, several short sellers on one side and a group of disciplined contrarian investors who unroll a short squeeze and buy shares of the stock being shorted.

How the MOASS Works

In a short squeeze, short sellers aim to drive a stock’s price downward and profit when the stock regains momentum and rises in value. Short sellers are usually organized institutional investors with enough assets to move a stock in a preferred direction, and they sometimes use dark pools to make their bets.

They do so by borrowing shares of a stock that they believe will decline in value. Then, when the stock price falls, a short seller buys the stock at the reduced price and sells at a profit when the stock rises in value.

If the short seller makes the right call, they simply return the borrowed stock and keep the money earned between the price when the short sale was triggered and the stock price sold at a profit. If the short seller makes the wrong call, the investors must buy the stock at a price significantly higher than expected, thereby negating any potential for a profit.

As short sellers wind up leaving their share positions when they execute a buy order on the stock, those short-squeeze buy positions get noticed by other investors, who also jump in to purchase the stock. That, in turn, drives the stock’s price even higher, since there are fewer shares of the stocks available to purchase.

Recommended: Understanding Low Float Stocks

Short-sellers, highly alarmed by the rising share price, also issue buy orders on the stock to exit the short sale strategy and reduce their investment risk, which completes the cycle and puts the short squeeze in full effect. This can result in the short sales losing money and the MOASS trader making a profit on the rising stock price.

GameStop: The Prime Example of MOASS

A good example of MOASS in action is the GameStop saga in early 2021. At the time, several hedge fund firms had “shorted” GameStop stock, which essentially meant betting the share price of the stock would decline. That didn’t happen with GameStop shares.

Instead, a group of day traders hanging out on a Reddit investing platform called Wallstreetbets banded together and started buying up shares of GameStop stock. The gambit worked, with GameStop shares skyrocketing from $19 per share to around $350 per share. The retail investors had successfully “squeezed” the short sellers, causing several hedge funds to lose hundreds of millions of dollars on their short positions on GameStop.

If the short squeeze works, the share price will continue to rise and the short investors, many of whom have fixed deadlines built into their short sales positions, will have to sell their shares and cut their losses, thereby driving the stock price even higher. That rewards the short squeeze investor, who profits from the rising share price, especially as other buyers enter the fray and drive the share price up even higher.

Recommended: Pros and Cons of Momentum Trading

Once victory was declared with the GameStop short squeeze, the Reddit traders turned their attention to other stocks where short selling activity was particularly high. That group included AMC Entertainment Holdings, Koss Corporation, and Blackberry Ltd., which all saw share volumes rise after the MOASS traders entered the fray.

Thus, a series of short squeezes that target more and more short sellers is really what MOSS is all about – squeezing enough short-sellers to achieve critical mass in the trading markets, and making huge profits in the process.

MOASS Trading Tips

Investors who want to participate in the next short squeeze effort should be careful. So-called “meme” stock trading can be fraught with risk, especially if you’re left holding the bag after other short-squeezers sell out of their positions before you do.

Take these risk considerations with you before participating in a mass short squeeze play.

Buy Minimally to Limit Losses

While the adrenaline level can be high when participating in a short squeeze trading event, tamp down emotions by limiting the amount of money you invest in a GameStop-type situation. It may be relatively boring to do so, but your money is likely better in a well-researched fund that has a good management team and a history of solid portfolio performance results.

As the old gambling adage says, never risk money you can’t afford to lose. That goes double when chasing the thrill of a MOASS scenario.

Expect to Lose Money

Chances are good that you’ll lose money at some point with a short squeeze play.

Nothing is guaranteed in the stock market and that’s especially the case as short-sellers have learned their lesson after the GameStop fiasco, and grow more cautious about their investing habits. MOASS trading patterns can be something of a roller coaster ride for investors, and the odds that your ride will dip along the way are high. That can translate into days or even weeks of your short-squeeze buying strategy where your investment returns are written in red ink.

MOASS Tip: Have a Plan to Sell Quickly

Short squeeze investing isn’t exactly an orderly process and you need to put your interest first ahead of other MOASS investors. Why? Because volatility can be high and prices can swing at a moment’s notice when trading MOASS-themed stocks. Additionally, nobody really has any idea how high a price can go with a short squeeze in play, and nobody really knows if a stock will rise higher at all.

That’s why it’s a good idea to have a fixed “sell price” in mind when engaging in a short squeeze situation – a stop loss order to automatically sell the stock at a specific price can be a good idea in this scenario.

If you buy a targeted MOASS stock at $50 and it goes to $70, there’s no way of knowing if the stock will go any higher – it might and it might not. Worse, the price could slide back to $30 when buyers lose interest in the stock.

Having a good investment exit strategy in a short squeeze scenario, can help minimize investment losses and capitalize on a stock increase when and if it happens.

The Takeaway

Short squeeze trading strategies can bring a great deal of portfolio-shaking volatility to the investment table, and there are plenty of heavily shorted stocks that could be the next MOASS, but it’s impossible to know which one could trigger a squeeze. That means MOASS may not be the best strategy for long-term investors or those with an aversion to risk. Short squeeze takes a significant amount of discipline, patience, and attention on the part of the investors, with continual risk in play until the squeeze is played out.

If you’re ready to try your hand at investing, one way to get started is by opening an account on the SoFi Invest® brokerage platform. You can use it to buy stocks and exchange-traded funds right from the SoFi app.

Photo credit: iStock/PeopleImages


SoFi Invest®
The information provided is not meant to provide investment or financial advice. Investment decisions should be based on an individual’s specific financial needs, goals and risk profile. SoFi can’t guarantee future financial performance. Advisory services offered through SoFi Wealth, LLC. SoFi Securities, LLC, member FINRA / SIPC . SoFi Invest refers to the three investment and trading platforms operated by Social Finance, Inc. and its affiliates (described below). Individual customer accounts may be subject to the terms applicable to one or more of the platforms below.
1) Automated Investing—The Automated Investing platform is owned by SoFi Wealth LLC, an SEC Registered Investment Advisor (“Sofi Wealth“). Brokerage services are provided to SoFi Wealth LLC by SoFi Securities LLC, an affiliated SEC registered broker dealer and member FINRA/SIPC, (“Sofi Securities).
2) Active Investing—The Active Investing platform is owned by SoFi Securities LLC. Clearing and custody of all securities are provided by APEX Clearing Corporation.
3) Cryptocurrency is offered by SoFi Digital Assets, LLC, a FinCEN registered Money Service Business.
For additional disclosures related to the SoFi Invest platforms described above, including state licensure of Sofi Digital Assets, LLC, please visit www.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. Information related to lending products contained herein should not be construed as an offer or pre-qualification for any loan product offered by SoFi Lending Corp and/or its affiliates.
SOIN0621279

Read more
What Are Over-the-Counter (OTC) Stocks?

What Are Over-the-Counter (OTC) Stocks?

Over-the-counter stocks are not traded on a public exchange like the New York Stock Exchange (NYSE) or Nasdaq. Instead, these stocks are traded through a broker-dealer network.

In addition to stocks, the over-the-counter (OTC) market can also include other types of securities. The Financial Industry Regulatory Authority regulates broker-dealers that engage in OTC trading.

What is an OTC stock, exactly? There are different reasons why a stock or other security may trade over the counter rather than being listed on a public exchange. Trading OTC stocks can be rewarding, but also potentially risky for investors.

Before dipping into the OTC market, it’s important to understand the meaning of OTC stocks, and where these securities might fit into your portfolio.

What is OTC Stock?

In order to grasp OTC stock trading and how it works, it helps to have a clear understanding of public stock exchanges.

A stock exchange — like NYSE or Nasdaq — is a regulated environment in which buyers and sellers can trade shares of publicly listed companies. Before a stock can be listed on an exchange for public trading, it first has to meet the guidelines established by that exchange (for example, a company that wants to be listed on the Nasdaq must meet the Nasdaq listing requirements).

Companies may opt to trade shares in the over-the-counter market (meaning, they trade through a broker-dealer) if they’re unable to meet the listing requirements of a public exchange. OTC trading may also appeal to companies that were previously traded on an exchange but have since been delisted.

Recommended: What Are Stock Delistings and Why Do They Occur?

Also, stocks that are traded on an exchange are called listed stocks; those that trade OTC are often called unlisted stocks.

What Kind of Securities Trade on the Over-the-Counter Market?

OTC trading tends to focus on equities, i.e. stocks. In fact, it’s even common to see penny stocks being traded over the counter. The Securities and Exchange Commission (SEC) generally defines penny stocks as stocks that trade for less than $5 per share. Penny stocks can also be referred to as micro-cap stocks. A micro-cap stock has a market capitalization of less than $250 million or $300 million, versus $10 billion or more for large-cap stocks. (Market capitalization is a measure of valuation, based on the number of shares outstanding multiplied by the share price.)

But stocks don’t make up the entirety of OTC trading activity. Other types of investments that can be traded OTC include:

Derivatives

• Corporate bonds

• Government securities

Foreign currency (forex)

• Commodities

Cryptocurrency can also be traded over the counter. Over-the-counter crypto trading has gained popularity because it offers traders liquidity as well as anonymity.

Recommended: What is Cryptocurrency? The Fundamentals of Crypto

Altogether, there are an estimated 10,000-plus securities that trade on the over-the-counter market. These can include small and micro-cap companies, large-cap American Depositary Receipts (ADRs), and foreign ordinaries (international stocks that are not available on US exchanges). Companies that trade over the counter may report to the SEC, though not all of them do.

So Where Are OTC Securities Traded, Exactly?

In the US, the majority of over-the-counter trading takes place on networks operated by OTC Markets Group. This company runs the largest OTC trading marketplace and quote system in the country (the other is the OTC Bulletin Board or OTCBB). While companies that trade their stocks on major exchanges must formally apply and meet listing standards, companies quoted on the OTCBB or OTC Markets do not have to apply for listing or meet any minimum financial standards.

OTC Markets Group organizes OTC stocks and securities into three distinct markets:

• OTCQX

• OTCQB

• Pink Sheets

OTCQX

OTCQX is the first and highest tier and is reserved for companies that provide the most detail to OTC Markets Group for listing. Companies listed here must be up-to-date with regard to regulatory disclosure requirements and maintain accurate financial records. Penny stocks, shell corporations, and companies that are engaged in a bankruptcy filing are excluded from this grouping. It’s common to find stocks from foreign companies (e.g. foreign ordinaries) listed here.

OTCQB

The middle tier is designed for companies that are still in the early to middle stages of growth and development. These companies must have audited financials and meet a minimum bid price of $0.01. They must also be up-to-date on current regulatory reporting requirements and not be in bankruptcy.

Pink Sheets

The Pink Sheets or Pink Open Market has no minimum financial standard that companies are required to meet, nor do they have reporting or SEC registration requirements. These are only required if the company is listed on a Qualified Foreign Exchange. Be forewarned: OTC Markets Group specifies that the Pink Market is designed for professional and sophisticated investors who have a high risk tolerance for trading companies about which little information is available.

Pros and Cons of OTC Trading

Investing can be risky in general, but the risks may be heightened with trading OTC stocks. But trading higher risk stocks could result in bigger rewards if they’re able to produce above-average returns.

When considering OTC stocks, it’s important to understand how the positives and potential negatives may balance out. It’s also helpful to consider your personal risk tolerance and investment goals to determine whether it makes sense to join the over-the-counter market.

OTC Stock Trading Pros OTC Stock Trading Cons
Over-the-counter trading may be suitable for investors who are interested in early stage companies that have yet to go public via an IPO. Micro-cap stocks and nano-cap stocks that trade over the counter may lack a demonstrated track record of positive performance.
Investing in penny stocks can allow you to take larger positions in companies. Taking a larger position in a penny stock could amplify losses if its price declines.
May appeal to active traders who are more interested in current pricing trends than fundamentals. Limited information can make it difficult to assess a company’s financials and accurately estimate its value.
Trading cryptocurrency on an OTC exchange could help minimize hacking or security risks. OTC securities are subject to less regulation than stocks listed on a public exchange, which may increase the possibility of fraudulent activity.
OTC trading makes it possible to invest in foreign companies or companies that may be excluded from being listed on a public exchange. OTC stocks may be more illiquid than stocks traded on a public exchange, making it more difficult to change your position.

The Takeaway

Why would you want to trade stocks over the counter? Since OTC stocks trade outside of traditional exchanges like the NYSE or Nasdaq, the OTC market gives you access to different types of securities, including penny stocks, international stocks, derivatives, corporate bonds, and even cryptocurrency. If you’re interested in OTC trading, the first step is to consider how much risk you’re willing to take on and how much money you’re willing to invest. Having a baseline for both can help you to manage risk and minimize your potential for losses.

Either way, you can still get started by investing online. With SoFi Invest, for example, you can trade stocks, ETFs, and cryptocurrency. SoFi members also have access to IPO trading, if you’d like to invest in up-and-coming companies as they go public. It’s easy to get started with SoFi Invest and trade with minimal fees.

Photo credit: iStock/JohnnyGreig


SoFi Invest®
The information provided is not meant to provide investment or financial advice. Investment decisions should be based on an individual’s specific financial needs, goals and risk profile. SoFi can’t guarantee future financial performance. Advisory services offered through SoFi Wealth, LLC. SoFi Securities, LLC, member FINRA / SIPC . SoFi Invest refers to the three investment and trading platforms operated by Social Finance, Inc. and its affiliates (described below). Individual customer accounts may be subject to the terms applicable to one or more of the platforms below.
1) Automated Investing—The Automated Investing platform is owned by SoFi Wealth LLC, an SEC Registered Investment Advisor (“Sofi Wealth“). Brokerage services are provided to SoFi Wealth LLC by SoFi Securities LLC, an affiliated SEC registered broker dealer and member FINRA/SIPC, (“Sofi Securities).
2) Active Investing—The Active Investing platform is owned by SoFi Securities LLC. Clearing and custody of all securities are provided by APEX Clearing Corporation.
3) Cryptocurrency is offered by SoFi Digital Assets, LLC, a FinCEN registered Money Service Business.
For additional disclosures related to the SoFi Invest platforms described above, including state licensure of Sofi Digital Assets, LLC, please visit www.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. Information related to lending products contained herein should not be construed as an offer or pre-qualification for any loan product offered by SoFi Lending Corp and/or its affiliates.
Crypto: Bitcoin and other cryptocurrencies aren’t endorsed or guaranteed by any government, are volatile, and involve a high degree of risk. Consumer protection and securities laws don’t regulate cryptocurrencies to the same degree as traditional brokerage and investment products. Research and knowledge are essential prerequisites before engaging with any cryptocurrency. US regulators, including FINRA , the SEC , and the CFPB , have issued public advisories concerning digital asset risk. Cryptocurrency purchases should not be made with funds drawn from financial products including student loans, personal loans, mortgage refinancing, savings, retirement funds or traditional investments. Limitations apply to trading certain crypto assets and may not be available to residents of all states.
Third Party Brand Mentions: No brands or products mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third party trademarks referenced herein are property of their respective owners.
SOIN0721289

Read more
piggy banks pink and yellow background

How to Transfer Money From One Bank to Another

There may be times when you want to transfer money from one bank to another. Maybe you’ve opened a high-yield savings account at a new bank and want to set up regular transfers from your existing checking account.

Or, perhaps you want to send money to someone else, such as a friend or family member, which also requires a bank-to-bank transfer.

If you’re transferring money to an account that you also own, using your bank’s online transfer service can be a simple solution. If you’re sending funds to someone else’s bank account, your options include writing a check, using a peer-to-peer payment service or app, or making a wire transfer.

Here’s a look at different ways to transfer money from one bank account to another, and which method is best for each situation.

Making an Online Transfer From One Bank Account to Another

Setting up external transfers from your bank account to an account you own at a different financial institution can seem confusing. But once you know the steps, it can actually be simple to execute. The process typically involves:

1. Linking the Two Accounts

If you want to transfer money from bank A to bank B, you’ll want to log into bank A’s account, then choose the option to “add an account,” “link account,” or “add external account.” You can often find these options, or something similar, in your bank’s “customer service” or “transfers” menu.

2. Adding the Information for the Other Bank

Bank A will likely ask for the routing number (a nine-digit number) and account number (eight to 12 digits) for bank B. You can find these numbers on a check, typically along the bottom (the routing number comes first, followed by the account number, then the check number). If you don’t have checks, you can also find the bank’s routing number on their website, and your account number on your monthly statement.

3. Verifying You Own the Second Account

To prove that account B belongs to you, bank A make ask you to input the username and password you use for bank B. Another way bank A may verify the account is to make a small deposit (maybe a few cents) and ask you to confirm the amounts, a process that might take a day or two to complete.

4. Setting Up the Transfer

Once the account is confirmed, you can choose an amount you want to transfer from bank A to Bank B and the date you want it to occur. You can also choose to make it a one-time transfer or a recurring transfer (such as once a month). You can then select the option to submit your request.

These steps will work whether you are transferring funds to a brick-and-mortar bank or to an online-only financial institution.

Transferred funds typically arrive at their destination in two or three business days. The timing will depend on which banks you use and whether you are moving money internationally or domestically.

While transferring money between linked bank accounts at different institutions is often free, you might be limited in the amount you can transfer each time. It can be a good idea to check your financial institutions rules for bank-to-bank transfer limits.

Other Ways to Transfer Money From One Bank to Another

Online bank-to-bank transfers are typically only an option if you are the owner of both accounts.

If you want to transfer money from your bank account to someone else’s bank account, you will likely need to find an alternative bank transfer solution. Below are some other ways to transfer money from one bank account to another.

Writing a Check

It may seem old-fashioned, but writing a check is still a useful way to make a bank-to-bank funds transfer. When you write a check, you are authorizing your bank to transfer funds to the recipient.

You can also make a check out to yourself by entering your own name as the payee. This can be a good option if you are closing out a checking account and want to transfer the remaining funds into a new account. If you take advantage of mobile deposit, you can write a check from one account and deposit it into a different account without ever leaving home.

You may want to keep in mind, however, that writing a check is not an instant money transfer. It can take a few business days for a check to clear and be available in the new account.

Also, if there aren’t sufficient funds in the account to cover the check, it will “bounce” and the payment won’t go through. You may also be charged a fee. To avoid this glitch, you’ll want to make sure you have sufficient in your account before writing a check.

Recommended: How To Open a Free Checking Account

Peer-to-Peer Transfer

Whether you’re reimbursing your roommate for the monthly rent or splitting dinner with a friend, a peer-to-peer (P2P) money transfer service or app can be a good solution.

Services like Venmo and Paypal are easy to use, and once your bank account is linked in the app, you can quickly type in a dollar amount, select the recipient, and hit “Send.”

These services are typically free if you fund the payment from your bank account. There may be a fee, however, if you fund a transfer with a debit card or credit card. Many banks offer free or inexpensive P2P transfers through Zelle or a similar vendor.

Payment apps may limit the amount you can transfer in a day or within a week, and some do not allow international transactions. Before using a P2P service, It can be a good idea to familiarize yourself with the company’s fees, timing, and limitations.

Wire Transfer

If you need to send a considerable amount of money to someone quickly and/or the recipient is located overseas, you may want to consider a wire transfer.

A wire transfer is one of the fastest and most secure ways to transfer money electronically from one person to another. It can be done through a bank or a nonbank wire transfer company, such as TransferWise or Western Union. You can make a wire transfer either in person, over the phone, or online.

If you are making a wire transfer to another bank in the U.S., the funds may be available within one business day or even a few hours. Sending money to a bank in another country may take more time to process.

There is usually a fee involved in making a wire transfer. Also, since wire transfers are not reversible, you’ll want to make sure you are sending money to the correct recipient and not a scam artist.

To make a wire transfer, you’ll likely need to have the recipient’s bank name, routing number, and account number.

There May be Limits on How Many Transfers You Can Make

You can typically make as many transfers into a savings account as you would like, but there may be some limitations when it comes to taking money out of a savings account.

Online withdrawals from savings accounts are governed by the Federal Reserve’s Regulation D . The federal government has temporarily suspended its Regulation D limits on the number of withdrawals allowed from a savings account each month due to the 2020 pandemic. However, some banks are still enforcing the limit of six withdrawals per month and will charge an excessive withdrawal fee for each transaction over the limit.

It can be a good idea to check your financial institution’s rules before you try to transfer money from a savings account into a different account. Transfers count as one of the kinds of withdrawals that may be limited.

The Takeaway

There are multiple ways to transfer money from one bank to another. The best option will depend on where you are sending the money, and whether or not you own both accounts.

If you do own both bank accounts, one of the simplest options is to log on to your account and set up an online transfer to an external account. This will also enable you to regularly transfer money to that account.

If you often send small amounts to other people, you may want to use an app like Venmo to make the transfer. However, if you need to move large amounts of money to someone else’s account and/or the recipient is overseas, you may want to go with a wire transfer.

If speed isn’t a concern, writing a check is a simple, old-school way to make a bank-to-bank transfer.

Looking for Something Different?

When you open a SoFi Money® cash management account, you can use the app to quickly transfer money to another person’s account. If the recipient is also a SoFi Money account holder, they’ll get access to that money immediately.

Find out how easy it is to send and receive funds with SoFi Money.


SoFi Money®
SoFi Money is a cash management account, which is a brokerage product, offered by SoFi Securities LLC, member FINRA / SIPC .
Neither SoFi nor its affiliates is a bank. SoFi Money Debit Card issued by The Bancorp Bank. SoFi has partnered with Allpoint to provide consumers with ATM access at any of the 55,000+ ATMs within the Allpoint network. Consumers will not be charged a fee when using an in-network ATM, however, third party fees incurred when using out-of-network ATMs are not subject to reimbursement. SoFi’s ATM policies are subject to change at our discretion at any time.
Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.
External Websites: The information and analysis provided through hyperlinks to third party websites, while believed to be accurate, cannot be guaranteed by SoFi. Links are provided for informational purposes and should not be viewed as an endorsement.

SOMN19103

Read more
couple having coffee

Is A Joint Bank Account Right For You?

If you’ve recently gotten married or moved in with your mate, you may wonder whether it makes sense to combine your funds in a shared account, or to continue keeping your finances separate.

Opening a joint checking account can make it much easier for a couple to pay, plan, and track household and other shared expenses. The trade-off to that convenience, however, is giving up some of your financial privacy and independence.

To help you decide if opening a joint account makes sense for your situation, read on. We’ve got all the pros and cons, plus tips on how to open a joint account, along with some alternatives to consider.

How Does a Joint Account Work?

A joint account functions just like an individual account, except that more than one person has access to it.

Everyone named on a joint account has the power to manage it, which includes everything from deposits to withdrawals.

Any account holder can also close the account at any time. And, all owners of a joint account are jointly liable for any debts incurred in relation to the account.

Two or more people can own a joint account–and, they don’t have to be a married couple or even live at the same address.

You can open a joint account with an aging parent who needs assistance with paying bills and managing their money. You can also open a joint account with a teenage child, friend, roommate, sibling, or business partner.

Recommended: How to Combine Bank Accounts

Benefits of Having a Joint Bank Account

Here are some of the pros of opening a joint account.

•  Ease of paying bills. When you’re sharing expenses, such as rent/mortgage payments, utilities, insurance and streaming services, it can be a lot simpler to write one check (or make one online payment), rather than splitting bills between two bank accounts. A shared account can simplify and streamline your financial life.

•  Transparency. With a joint checking account, there can’t be any secrets about what’s coming in and in and what’s going out, since you both have access to your online account. This can help a newly married couple understand each other’s spending habits and talk more openly about money.

•  A sense of togetherness. Opening a joint bank account signals trust and a sense of being on the same team. Instead of “your money” and “my money,” it’s “our money.”

•  Easier budgeting. When all household and entertainment expenses are coming out of the same account, it can be much easier to keep track of spending and stick to a monthly budget. A joint account can help give a couple a clear financial picture.

•  Banking perks. Your combined resources might allow you to open an account where a certain minimum balance is required to keep it free from fees. Or, you might get a higher interest rate or other rewards by pooling your funds. Also, in a joint bank account, each account holder is insured by the FDIC, which means the total insurance on the account is higher than it is in an individual account.

•  Fewer legal hoops. Equal access to the account can come in handy during illness or another type of crisis. If one account holder gets sick, for example, the other can access funds and pay medical and other bills. If one partner passes away, the other partner will retain access to the funds in a joint account without having to deal with a complicated legal process.

Challenges of Having a Joint Bank Account

Despite the myriad advantages of opening a joint account, there are some potential downsides to a shared account, which include:

•  Lack of privacy. Since both account holders can see everything that goes in and comes out of the account, your partner will know exactly what you’re earning and how much you are spending each month.

•  Potential for arguments. While a joint account can prevent arguments by making it easier to keep track of bills and spending, there is also the potential for it to lead to disagreements if one partner has a very different spending style than the other.

•  No individual protection. As joint owners of the account, you are both responsible for everything that happens. So if your partner overdraws the account, you will both be on the hook for paying back that debt and covering any fees that are charged as a result. If one account holder lets debts go unpaid, creditors can, in some cases, go after money in the joint account.

•  It can complicate a break-up. If you and your partner end up parting ways, you’ll have the added stress of deciding how to divide up the bank account. Each account owner has the right to withdraw money and close the account without the consent of the other.

•  Reduced benefits eligibility. If you open a joint account with a college student, the joint funds will count towards their assets, possibly reducing their eligibility for financial aid. The same goes for an elderly co-owner who may rely on Medicaid long-term care.

How to Open a Joint Bank Account

If you decide opening a joint account makes sense for your situation, the process is similar to opening an individual account. You can check your bank’s website to find out if you need to go in person, call, or just fill out forms online to start your joint account.

Typically, you have the option to open any kind of account as a joint account, except you’ll select “joint account” when you fill out your application or, after you fill in one person’s information, you can choose to add a co-applicant.

Whether you open your joint account online or in person, you’ll likely both need to provide the bank with personal information, including address, date of birth, and social security numbers, and also provide photo identification. You may also need information for the accounts you plan to use to fund your new account.

Another way to open a joint account is to add one partner to the other partner’s existing account. In this case, you’ll only need personal information for the partner being added.

Before signing on the dotted line, it can be a good idea to make sure you and the co-owner know the terms of the joint account. You will also need to make decisions together about how you want this account set up, managed, and monitored.

Alternatives to a Joint Bank Account

If you’re not keen on opening a joint bank account, but do need some type of money management system, here are some alternatives you may want to consider.

•  Adding an authorized user to an existing individual bank account. An authorized user has access to the account, but they’re not an owner. You still have full control, which means you can remove them from the account at any time.

•  Joint bank account, plus separate accounts. This allows couples to streamline payment for shared expenses, but also gives each partner some freedom to spend on themselves without having to explain or feel guilty about their expenditures.

•  View-only account. A view-only account gives another person the opportunity to view transactions, but they don’t have the power to manage the account.

•  Joint credit card. A joint credit card allows both you and your partner to use it. If your partner isn’t responsible with the card, however, it can affect both of your credit scores.

The Takeaway

One of the main pros of opening a joint checking account as a couple is that it can simplify paying for shared expenses. Having a joint account can also provide a couple with a clear financial picture, and make it easier for them to track spending and stick to a budget. A joint account also fosters openness and teamwork.

On the downside, sharing every penny can sometimes lead to tension and disagreements, especially if partners have different spending habits and personalities. And, if your partner isn’t responsible with money, you can end up paying for their mistakes.

If you decide to open a joint account, communication can be key. It can be a good idea to lay out expectations with the other account holder and also have regular open and honest discussions about money.

Looking for Something Different?

For couples who are ready to integrate their finances, SoFi Money® makes it easy to create a joint account that gives couples shared access to their money.

When you open a SoFi Money cash management account, you’ll have the option to add a joint account holder. Your partner will then receive an application and, once they fill it out, you can simply approve them as a joint owner of the account from your SoFi account dashboard.

Whether you opt for two individual or one joint account, you and partner won’t pay any account fees, monthly fees, or other common fees.

Learn more about opening a joint cash management account with SoFi Money.



SoFi Money®
SoFi Money is a cash management account, which is a brokerage product, offered by SoFi Securities LLC, member FINRA / SIPC .
Neither SoFi nor its affiliates is a bank. SoFi Money Debit Card issued by The Bancorp Bank. SoFi has partnered with Allpoint to provide consumers with ATM access at any of the 55,000+ ATMs within the Allpoint network. Consumers will not be charged a fee when using an in-network ATM, however, third party fees incurred when using out-of-network ATMs are not subject to reimbursement. SoFi’s ATM policies are subject to change at our discretion at any time.
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.
SOMN18107

Read more
401(k) Vesting: What Does Vested Balance Mean?

401(k) Vesting: What Does Vested Balance Mean?

Your 401k vested balance refers to how much of your contributions you own and would if you left your company. Contributions that employees make to their 401(k) accounts are always 100% vested; they own them outright.

However, this is not always true of the money employers put into their employees’ accounts, including matching funds. Those contributions may only belong to an employee after they’ve worked for the company for a certain amount of time, the company’s vesting period.

If you were to leave your job before reaching that milestone, you could forfeit some or all of the employer-contributed money in your account. The amount that you get to keep is the “vested balance.” Other qualified defined contribution plans, such as 401(a) or 403(b) plans may also be subject to vesting schedules.

Here’s a deeper look at what being vested means and the effect it can have on your retirement savings.

401(k) Contributions Basics

Before you can understand vesting, it’s important to know how 401(k) contributions work. A 401(k) is an employer-sponsored retirement plan that allows employees to make elective deferrals of part of their salary on a pre-tax basis (they can choose how much of their salary to contribute from each pay period).

As of 2021, employees can contribute up to $19,500 annually in their 401(k) accounts, with an extra $6,500 in catch-up contributions allowed for those who are age 50 or older. Employees can then invest their contributions, often choosing from a menu of funds or other investments offered by their employer.

The IRS also allows employers to contribute to their employees’ plans. Often these contributions come in the form of a 401(k) match. For example, an employer might offer matching contributions of 3% or 6% if an employee chooses to defer 6% of their salary.

In 2021, the total contributions that an employee and employer can make to a 401(k) cannot exceed 100% of the employee’s salary or $57,000, ($63,500 including catch-up contributions,) whichever is less.

Employer contributions are a way for businesses to encourage their employees to save for retirement. They’re also an important benefit that job seekers look for when searching for new jobs.

Recommended: What Exactly is a 401(k)?

What Is Vested Balance?

The vested balance is the amount of money that belongs to you and cannot be taken back by an employer when you leave your job—even if you are fired.

Contributions that you make to your 401(k) are automatically 100% vested. Vesting of employer contributions typically occurs according to a set timeframe known as a vesting schedule. When employer contributions to a 401(k) become vested, it means that money is now fully yours.

Being fully vested means that when you leave the company, those employer contributions will remain in your account. It also means that you can decide to roll over your balance to a new account, start making withdrawals, or take out a loan against the account, if your plan allows it. However, keeping a vested 401k invested and letting it grow over time may be one of the best ways to save for retirement.

You’ll owe taxes on withdrawals made before age 59 ½, and they may be subject to early withdrawal penalties, plus you’ll miss out on future growth of those earnings.

Whether a company contribution is vested will depend on what type of contribution it is. Contributions known as safe harbor matches are immediately 100% vested. Employers may make these matching contributions only for employees who themselves make elective deferrals to their account. Or they can make contributions on behalf of all employees whether or not those employees make contributions themselves.

Matching contributions that do not fall under the safe harbor provision and profit sharing contributions may both be subject to a vesting schedule. While contributions to traditional and Roth 401(k)s may be subject to vesting rules, that is not the case with SIMPLE 401(K)s. All contributions to these accounts are fully vested when they are made.

Recommended: How Much Should I Put Towards My 401(k)?

How Do I Know if I Am Fully Vested in my 401(k)?

If you’re not sure whether or when you will be fully vested, you can check their plan’s vesting schedule, usually via your online benefits portal.

Immediate Vesting

Immediate vesting is the simplest form of vesting schedule. Employees own 100% of contributions right away.

Cliff Vesting

Under a cliff vesting schedule, employer contributions are typically fully vested after three years of service. Federal law requires that 401(k) plans using a cliff vesting schedule wait no longer than three years for funds to be fully vested. A year of service is usually defined as 1,000 hours of work over a 12-month period.

Graded Vesting

Graded vesting is a bit more complicated. A percentage of contributions vest over the course of a set period of time, and employees gain gradual ownership of their funds. Eventually they will own 100% of the money in their account.
For example, a hypothetical six-year graded vesting schedule might look like this:

Years of Service

Percent Vested

1 0%
2 20%
3 40%
4 60%
5 80%
6 100%

All employees must be fully vested by the time they reach retirement age under the plan or if the company decides to terminate the plan.

Why Do Employers Use Vesting?

Offering 401(k) matching contributions is a benefit that employers may use to attract talented employees. More than three-quarters of companies who have a retirement plan offer some sort of employer match on contributions.

After hiring employees, the vesting schedule may help companies retain their best workers, encouraging them to stay with the company over the long term. Hiring and training new employees is a costly process for businesses. Withholding employer retirement contributions is a way to incentivize employees to stay at least as long as it takes for them to be fully vested.

You may want to take vesting schedules into account before getting a new job. If you’re only one year away from being 100% vested, you may decide it’s worth waiting the extra time before leaving the company for another opportunity. But the decision is a personal one: For example, if a potential new position offers a much higher salary, you might do your own math and decide that the gains from the higher salary overshadow the losses from leaving a percentage of unvested funds on the table.

What Happens If I Leave My Job Before I’m Fully Vested?

If you leave your job before being fully vested, you forfeit any unvested portion of their 401(k). The amount of money you’d lose depends on your vesting schedule, the amount of the contributions, and their performance. For example, if your employer uses cliff vesting after three years and you leave the company before then, you won’t receive any of the money your employer has contributed to their plan.

If, on the other hand, your employer uses a graded vesting schedule, you will receive any portion of the employer’s contributions that have vested by the time they leave. For example, if you are 20% vested each year over the course of six years, and you leave the company shortly after year three, they’ll keep 40% of the employer’s contributions.

Other Common Types of Vesting

Aside from 401(k)s, employers may offer other forms of compensation that also follow vesting schedules, such as pensions and stock options. These tend to work a little bit differently than vested contributions, but both pensions and stock options may vest immediately or by following a cliff or graded vesting schedule.

Stock Option Vesting

Stock options give employees the right to buy company stock at a set price and at a later date, regardless of the stock’s current value. The idea is that between the time an employee is hired and their stock options vest, the stock price will have risen. The employee can then buy the stock and sell it to make a profit.

Pension Vesting

With pensions, vesting schedules determine when an employee is eligible to receive their full benefit.

How Do I Find Out More About Vesting?

There are a few ways to find out more about vesting and your own 401(k) vested balance. This information typically appears in the 401(k) summary plan description and/or the annual benefits statement.

Generally, the plan administrator or human resources department of a company can also explain the company’s vesting schedule in detail, and even pinpoint exactly you are in your vesting schedule. Understanding this information can help you understand the actual value of your account.

The Takeaway

While any employee contributions to 401(k) plans are immediately fully vested, the same is not always true of employer contributions. The employee may gain access to employer contributions slowly over time, or all at once after they’ve been employed by the company for a number of years.

Understanding vesting and your 401(k)’s vesting schedule is one more piece of information that can help you plan for your financial future. A 401(k) and other retirement accounts can be important components of a retirement savings plan. Knowing when you are fully vested in a 401(k) can help you understand how much money might be available to you when you retire.

There are many ways to save for retirement, including opening a traditional or Roth IRA. To get started with those, you can open an online retirement account on the SoFi Invest® platform. With SoFi, members can build a diversified portfolio and get advice from financial planners at no additional cost.

Find out more about investing with SoFi today.



SoFi Invest®
The information provided is not meant to provide investment or financial advice. Investment decisions should be based on an individual’s specific financial needs, goals and risk profile. SoFi can’t guarantee future financial performance. Advisory services offered through SoFi Wealth, LLC. SoFi Securities, LLC, member FINRA / SIPC . SoFi Invest refers to the three investment and trading platforms operated by Social Finance, Inc. and its affiliates (described below). Individual customer accounts may be subject to the terms applicable to one or more of the platforms below.
1) Automated Investing—The Automated Investing platform is owned by SoFi Wealth LLC, an SEC Registered Investment Advisor (“Sofi Wealth“). Brokerage services are provided to SoFi Wealth LLC by SoFi Securities LLC, an affiliated SEC registered broker dealer and member FINRA/SIPC, (“Sofi Securities).
2) Active Investing—The Active Investing platform is owned by SoFi Securities LLC. Clearing and custody of all securities are provided by APEX Clearing Corporation.
3) Cryptocurrency is offered by SoFi Digital Assets, LLC, a FinCEN registered Money Service Business.
For additional disclosures related to the SoFi Invest platforms described above, including state licensure of Sofi Digital Assets, LLC, please visit www.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. Information related to lending products contained herein should not be construed as an offer or pre-qualification for any loan product offered by SoFi Lending Corp and/or its affiliates.

SOIN20184

Read more
TLS 1.2 Encrypted
Equal Housing Lender