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Approximately 26% of Americans live with a disability that can impact cognition and mobility skills, according to the National Center for Birth Defects and Developmental Disabilities. These disabilities can make it challenging to manage daily tasks or full-time employment, putting a significant strain on finances and possibly making it challenging to make ends meet.

On top of that, according to research from Stony Brook University, the University of Tennessee, the National Disability Institute, and the Oxford Institute of Population Ageing, a household containing an adult with a disability (with limited ability to work) requires 28% more income (or an extra $17,690 annually) to meet the same standard of living as a household without someone with a disability.

Fortunately, various programs are available that provide financial assistance to disabled adults. So, whether you need help with housing costs or healthcare, understanding your options can help you get the assistance you need.

Read on for the details.

How Many People Have Disabilities in the U.S.?

As briefly noted above, about 26% of Americans live with a disability; that means more than one in four people are facing issues with mobility or cognition.

That is a significant number. If you or someone you care about is living with a disability, it’s important to know about the programs that can help access aid.

Types of Help Available for People With Disabilities

When it comes to financial help for the disabled, there are many options. Here are some programs that can assist in this situation.

Healthcare

There are healthcare programs that provide financial help for disabled adults, so medical bills don’t seem so overwhelming. Available programs include:

•   Medicare. Usually, enrolling in Medicare is a program associated with seniors. However, Medicare also offers medical cost assistance for folks with disabilities under 65 years old. If you just began receiving Social Security Disability Insurance (SSDI) benefits, you usually have to wait 24 months before your Medicare coverage kicks in. However, eligible applicants can forgo the waiting period if they meet specific requirements.

•   Medicaid. Medicaid is designed to offset the cost of medical bills for low-income and disabled individuals. To see if you qualify for this federal and state-funded program, you can check with your state’s Medicaid office. Usually, your eligibility depends on your age, income, the number of people in your family, and if you’re disabled.

•   Marketplace health insurance coverage. If you don’t qualify for instant Medicare coverage, you can apply for a low-cost private insurance plan to fill in your coverage gap while you complete the waiting period. In addition, depending on your income and level of need, you may qualify for a “premium tax credit,” which can reduce your monthly premium payment.

Housing

Housing assistance can help you identify an affordable place to live, modify your home for your disability, or help you toward a path to live independently. Housing programs that provide financial help for people with disabilities include:

•   State-run independent living centers. Living independently can be difficult for those with a disability. That’s why states and local municipalities offer independent living centers to help folks develop their skills to live without assistance.

You can also contact your state’s department of human services or disability office to discover programs that assist with home modifications, locating housing, and housing counseling for first-time home-buyers.

•   Housing Choice Vouchers (HCV). Public Housing Agencies (PHA) offer this government-backed housing program to help people with disabilities buy homes and pay housing expenses. However, since every PHA jurisdiction is allowed to decide whether or not HCVs are offered within their jurisdiction, check with your local PHA to see if this program is available in your neck of the woods.

•   Non-Elderly Disabled (NED) Voucher. If you’re not a senior but have a disability, you may qualify for a Non-Elderly Disabled (NED) Voucher. This voucher gives you access to housing communities usually explicitly reserved for seniors.

•   Public housing. Local housing agencies (HA) offer affordable public housing to low-income families or individuals with disabilities. Each local HA determines eligibility based on your income and disability. Nationwide, close to a million families live in public housing units.

•   Low-Income Home Energy Assistance Program (LIHEAP). This government-funded program offers financial help for people with disabilities who have difficulty paying their utility bills. Also, if your utilities are turned off due to unpaid bills, the LIHEAP can provide emergency assistance.

Income and Daily Expenses

If you have a disability, you may also need help paying for basic expenses, such as food and clothing. Here are some programs available that can provide monthly financial assistance for disabled individuals and their families.

•   The Social Security Administration. Through the Social Security Administration (SSA), you may qualify for either Social Security Disability Insurance (SSDI) or Supplemental Security Income (SSI), which both offer financial assistance for people with disabilities. SSDI offers financial support to disabled individuals who have worked and paid Social Security taxes long enough to qualify for assistance (you may be able to have a savings account while on SSDI incidentally). SSI also offers financial support to meet the basic needs (food, clothing, and shelter) of disabled people with limited (or no) income.

Recommended: 9 Common Social Security Myths

•   Supplement Nutrition Assistance Program (SNAP). Also known as the food stamp program, SNAP helps low-income or disabled folks suffering financial hardship save on their grocery bill. This can include using food stamps online. As a disabled adult, you could qualify for increased assistance.

•   Temporary Assistance for Needy Families (TANF). If your SSI benefits haven’t kicked in yet and you’re tight on cash, you may qualify for TANF. This is another government-backed program that offers grants to families in need of immediate financial support. It can be a source of financial assistance for the disabled in the short-term.

•   Veteran disability compensation. If you have a disability that either resulted from or worsened due to service in the military, you could qualify for a government grant or other financial assistance through government disability programs.

Education

If you have a disability but want to achieve a degree, financial assistance for people with disabilities is available. Here are some programs worth exploring.

•   Free Application for Federal Student Aid (FAFSA). To ease the financial burden of higher education costs, you can use the FAFSA to determine if you qualify for a variety of aid programs such as the Federal Supplemental Educational Opportunity, Grant Federal Pell Grant, and Federal Work-Study programs.

•   State and independent education agencies. You can also seek financial support from your state’s department of education or independent agencies around where you live. Remember that eligibility requirements and guidelines will vary by state and organization.

•   Total and Permanent Disability (TPD) Discharge. If you took out federal student loans to pay for higher education costs but can no longer work due to your disability, you could qualify for a TPD discharge. If you’re eligible, the TPD will serve as a disability discharge for student loans, wiping away your student debt.

What’s more, you won’t have to repay your federal loans or meet your TEACH Grant service obligations.

Other Financial Assistance for Disabled Adults

There are other programs that can offer financial assistance for disabled adults. Here are a few other options to consider.

•   Achieving a Better Life Experience (ABLE) savings account. Individuals with disabilities may qualify for an ABLE account, a tax-advantaged saving vehicle. This means account holders are not taxed on the earnings if they use the money within the account to cover qualified disability expenses such as education, housing, or medical costs. You can contribute up to $17,000 per year as an account holder as of 2023.

•   Disability loans. A disability loan is a personal loan that provides financial support for disabled adults while they wait for disability benefits to kick in. Applicants can use this type of loan to cover living costs, medical bills, or any other expense they have pertaining to their disability. Borrowers must meet the lender’s eligibility requirement to qualify. Remember, the disability loan must be repaid according to the lender’s terms and conditions.

•   Disability insurance. Many employers offer disability insurance as part of their compensation package. So, if you become disabled, your disability insurance will pay a portion of your income. Usually, short-term disability insurance supplements your salary for three to six months, while long-term disability can supplement your income from two years until the time when you can retire, depending on the plan and your condition. Plans can pay between 40% and 70% of your salary.

Worth noting: You can buy private disability insurance if you don’t have a plan through your employer.

•   Debt repayment plans.You can consider a debt management plan if your credit card debt is weighing you down. With a debt repayment plan, you work with a credit counseling agency that helps you create a solid repayment plan and can even negotiate with your creditors.

•   Loan forbearance. Some lenders offer forbearance programs if you’re struggling to pay your mortgage, halting your payments for a provisional amount of time. Your lender may also be willing to revamp the terms of your loan to make payments more manageable.

Tips on Applying for Financial Assistance

Applying for disability benefits from the Social Security Administration (SSA) might be a great place to start sourcing financial assistance if you have recently become disabled from a medical disorder.

To determine if your disability meets the eligibility requirements for benefits, you’ll want to complete the Social Security Disability (SSD) application online, via or at your local Social Security office. The application is detailed and requires documentation to support your case. Preparing carefully in advance may help you improve your chance of approval.

Here are some tips to streamline the process.

•   Include detailed responses to all application questions. It’s best to provide as much information on your application as you can. Since the purpose of the application is to prove your disability doesn’t allow you to work, you’ll want to make your answers very detailed. Simply providing “yes” or “no” answers can result in an application denial.

•   Submit ongoing medical records. Your doctor will provide your initial medical records for your application proving your disability. In addition, you should provide any other medical records when you receive them. Medical records can include lab tests, medication paperwork, treatment documents, and more. Whenever you receive a medical record from your medical professional’s office, you could forward it to the SSA. The more supporting documentation you have, the better your chances of qualifying.

•   Partner with a disability lawyer. Disability lawyers are well-versed on SSD applications. Yes, it could be an additional expense, but their expertise could be advantageous when completing the application. It might even increase the odds of benefit approval.

You can expect the entire application process usually takes anywhere between three to six months. However, the SSA may grant you an expedited process if you have a rare condition or aggressive disease.

In addition to benefits from the SSA, other government and non-profit organizations provide financial assistance to disabled adults and their families. If you’re in need, explore all available options starting with the list above. Once you pinpoint several programs to apply for, gather all your documentation (i.e., income documents, medical records, etc.) in advance to streamline the application process. Keep in mind there might be a waiting period before benefits are approved. So, it’s best to apply as soon as you can.

The Takeaway

Having a disability can be emotionally, physically, and financially challenging. The same applies if you care for a person with disabilities, literally or figuratively. Fortunately, plenty of programs are available to help with medical bills, income, housing, education, and much more. These can be available to help with short-term and ongoing needs. By doing some research and outreach, you may be able to get financial assistance to help with your needs.

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

Is there an income limit for these financial assistance options for the disabled?

Income limits vary by the program you’re applying for. For example, the monthly income limit is $1,470 for non-blind disabled SSDI or SSI applicants, and $2,460 for blind SSDI applicants in 2023.

Is there a chance that someone can get denied assistance?

Yes, but it depends on the program. For example, only about 20% to 30% of disability benefits applicants are awarded financial support. Denials can result from a variety of factors, including technical errors and issues with medical information.

What is the criteria for getting financial assistance as a disabled person?

Criteria and eligibility depend on the program. So, before you apply, make sure you understand the requirements of the aid you are hoping to qualify for.

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Photo credit: iStock/Renata Hamuda

SoFi® Checking and Savings is offered through SoFi Bank, N.A. ©2023 SoFi Bank, N.A. All rights reserved. Member FDIC. Equal Housing Lender.
The SoFi Bank Debit Mastercard® is issued by SoFi Bank, N.A., pursuant to license by Mastercard International Incorporated and can be used everywhere Mastercard is accepted. Mastercard is a registered trademark, and the circles design is a trademark of Mastercard International Incorporated.

SoFi members with direct deposit activity can earn 4.60% annual percentage yield (APY) on savings balances (including Vaults) and 0.50% APY on checking balances. Direct Deposit means a deposit to an account holder’s SoFi Checking or Savings account, including payroll, pension, or government payments (e.g., Social Security), made by the account holder’s employer, payroll or benefits provider or government agency (“Direct Deposit”) via the Automated Clearing House (“ACH”) Network during a 30-day Evaluation Period (as defined below). Deposits that are not from an employer or government agency, including but not limited to check deposits, peer-to-peer transfers (e.g., transfers from PayPal, Venmo, etc.), merchant transactions (e.g., transactions from PayPal, Stripe, Square, etc.), and bank ACH funds transfers and wire transfers from external accounts, do not constitute Direct Deposit activity. There is no minimum Direct Deposit amount required to qualify for the stated interest rate.

SoFi members with Qualifying Deposits can earn 4.60% APY on savings balances (including Vaults) and 0.50% APY on checking balances. Qualifying Deposits means one or more deposits that, in the aggregate, are equal to or greater than $5,000 to an account holder’s SoFi Checking and Savings account (“Qualifying Deposits”) during a 30-day Evaluation Period (as defined below). Qualifying Deposits only include those deposits from the following eligible sources: (i) ACH transfers, (ii) inbound wire transfers, (iii) peer-to-peer transfers (i.e., external transfers from PayPal, Venmo, etc. and internal peer-to-peer transfers from a SoFi account belonging to another account holder), (iv) check deposits, (v) instant funding to your SoFi Bank Debit Card, (vi) push payments to your SoFi Bank Debit Card, and (vii) cash deposits. Qualifying Deposits do not include: (i) transfers between an account holder’s Checking account, Savings account, and/or Vaults; (ii) interest payments; (iii) bonuses issued by SoFi Bank or its affiliates; or (iv) credits, reversals, and refunds from SoFi Bank, N.A. (“SoFi Bank”) or from a merchant.

SoFi Bank shall, in its sole discretion, assess each account holder’s Direct Deposit activity and Qualifying Deposits throughout each 30-Day Evaluation Period to determine the applicability of rates and may request additional documentation for verification of eligibility. The 30-Day Evaluation Period refers to the “Start Date” and “End Date” set forth on the APY Details page of your account, which comprises a period of 30 calendar days (the “30-Day Evaluation Period”). You can access the APY Details page at any time by logging into your SoFi account on the SoFi mobile app or SoFi website and selecting either (i) Banking > Savings > Current APY or (ii) Banking > Checking > Current APY. Upon receiving a Direct Deposit or $5,000 in Qualifying Deposits to your account, you will begin earning 4.60% APY on savings balances (including Vaults) and 0.50% on checking balances on or before the following calendar day. You will continue to earn these APYs for (i) the remainder of the current 30-Day Evaluation Period and through the end of the subsequent 30-Day Evaluation Period and (ii) any following 30-day Evaluation Periods during which SoFi Bank determines you to have Direct Deposit activity or $5,000 in Qualifying Deposits without interruption.

SoFi Bank reserves the right to grant a grace period to account holders following a change in Direct Deposit activity or Qualifying Deposits activity before adjusting rates. If SoFi Bank grants you a grace period, the dates for such grace period will be reflected on the APY Details page of your account. If SoFi Bank determines that you did not have Direct Deposit activity or $5,000 in Qualifying Deposits during the current 30-day Evaluation Period and, if applicable, the grace period, then you will begin earning the rates earned by account holders without either Direct Deposit or Qualifying Deposits until you have Direct Deposit activity or $5,000 in Qualifying Deposits in a subsequent 30-Day Evaluation Period. For the avoidance of doubt, an account holder with both Direct Deposit activity and Qualifying Deposits will earn the rates earned by account holders with Direct Deposit.

Members without either Direct Deposit activity or Qualifying Deposits, as determined by SoFi Bank, during a 30-Day Evaluation Period and, if applicable, the grace period, will earn 1.20% APY on savings balances (including Vaults) and 0.50% APY on checking balances.

Interest rates are variable and subject to change at any time. These rates are current as of 10/24/2023. There is no minimum balance requirement. Additional information can be found at https://www.sofi.com/legal/banking-rate-sheet.

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

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

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.

SOBK1122014

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A bank deposit is money that you give a financial institution like a bank or credit union to keep safely in an account. You can make bank deposits via cash, checks, online transfers, or direct deposit. The type of deposit you make will determine when you can withdraw funds.

You can make a deposit into a checking or savings account, among others. Some of these accounts may pay interest for the privilege of having your cash on deposit.

Understanding how bank deposits work and the pros and cons of each type of deposit can help you better manage your money. Here’s what you need to know.

What Are Bank Deposits?

The bank deposit definition is when you put money into a bank account. Your bank deposits can go into various accounts such as savings, checking, money market accounts, or certificates of deposits (CDs).

Depositing your money into a bank account can help you accomplish two things:

•   It can keep your money safe.

•   It can help your money grow.

Bank deposits are insured by the Federal Deposit Insurance Corporation (FDIC) (up to $250,000 per depositor, per ownership category, per financial institution, and in some cases even more). That means your money is a whole lot safer in a bank account than under your mattress.

The other thing you can accomplish by depositing your money is helping it grow. Because many financial institutions offer interest-bearing bank accounts, you can capitalize on compounding interest by not withdrawing funds and also consistently adding to your balance over time.

How Do Bank Deposits Work?

The type of deposit you make dictates the process.

For example, when you deposit a check, the bank sends a digital image of the check to the payer’s financial institution. While large banks usually communicate directly to clear checks, other banks work through a clearinghouse or a third-party intermediary to verify checks. The clearinghouse organizes all the deposits coming in and out of a specific bank and ensures all deposits are put in and taken out of the correct accounts.

If the payer’s account doesn’t have enough funds to process the check, it will bounce and be returned unpaid. If you have already taken out the funds from the check, you will have to pay the total balance back, usually plus a fee.

Direct deposits, on the other hand, work a little differently. Since direct deposits are scheduled payments, the payer’s or employer’s bank will credit the account before sending the direct deposit. This way, the payer’s bank can ensure the account has enough money to cover the transaction.

Once the funds are deposited, you can access the sum the next business day.

How Long Do Bank Deposits Take to Process?

Process times vary by the financial institution and how the deposit is made. However, federal law limits the time it takes for a bank deposit to process.

•   For example, if you deposit checks totaling $225 or less, the bank must let you access the funds the next business day. So, if you deposited checks on a Monday, you should be able to access your money on Tuesday. However, if there’s a bank holiday, transactions may be delayed.

•   If you deposit a check(s) totaling more than $225 you will have access to the first $225 the next business day. Then, you will have access to the remaining deposit the following business day.

•   When you deposit a check from another account from that financial institution, a government check, or a certified check in person at a bank branch, you should have access to the money the next business day.

Keep in mind some banks and credit unions apply cut-off times, which dictate the end of the day. So, if you deposit after the cut-off time, you may have to wait an extra business day before accessing the deposit.

Also, other types of deposits have different processing time. For example, wire transfers, and ACH deposits may take between one and five business days to process.

Here are a few reasons why it can take longer for your deposit to process:

•   You’re depositing money into a new account

•   You made an ATM deposit to an ATM outside the financial institution’s network

•   If you have a deposited check that was returned unpaid

•   Your deposits exceed $5,525

•   You’ve overdrawn your account too many times.

Recommended: Causes of Overspending

2 Types of Bank Deposits

There are two primary types of bank deposits: demand deposits and time deposits. Here’s a breakdown of each.

Demand Deposits

Demand deposits consist of money you put into the bank that you can take out when you need cash. Demand deposit accounts usually have minimal interest rates (or no interest), but they give you more freedom to withdraw money when needed. These types of deposits can be made to three types of accounts, including:

•   Checking accounts. This type of account is meant for everyday transactions. You can deposit and withdraw money as often as you want. Usually, checking accounts have checks and debit cards linked to them so you can access your money when you’re on the go.

•   Savings accounts. This type of account is designed to help you sock your money away for short-term or long-term goals. Since the different types of savings accounts are meant for savings, some banks apply withdrawal limits, limiting the number of monthly withdrawal transactions that can occur in an account.

Savings accounts may also have interest rates higher than checking accounts. This is especially true if you deposit funds at an online vs. traditional bank.

•   Money market accounts. This type of account combines the features of a savings account with those of a checking account. Money market accounts let you earn interest like a savings account. They can also provide a debit card and checks so you can withdraw funds.

Time Deposits

A time deposit is when you put money into a deposit account with a fixed rate and term, like certificates of deposit (CDs). You can only take money out of a time deposit account once the term expires. (You may have to pay a penalty if you take money out of the account beforehand. But whether you get a penalty or not depends on the type of account and the financial institution.)

For example, let’s say you deposit $5,000 in a CD that earns 5% interest for one year. Then, after one year, you can withdraw $5,250.00, which includes your deposit and interest earned.

You can think of banks as using time deposit accounts to borrow money from depositors. In exchange for borrowing money for a certain amount of time, the bank usually gives the depositor a fixed interest rate, typically higher than traditional savings accounts. At the end of the term, the depositor can take out the money in the account or renew the time deposit for another term.

Recommended: What Is an Electronic Check (E-Check)?

What Are Mobile Deposits?

Many banks and credit unions now offer mobile banking, giving you access to banking services no matter where you are. You can make mobile check deposits from your phone as part of mobile banking. So, instead of driving to an ATM or local bank branch, you can deposit it on your mobile device.

All you have to do is:

•   Download the bank’s mobile banking app.

•   Log into your account.

•   Choose the account you want to deposit the check into.

•   Endorse the back of the check.

•   Enter the amount of the check.

•   Snap a photo of the front and back of the check.

•   Review the deposit information, and then hit deposit.

Remember, though, there can be limits on the amount and type of checks you can deposit on your mobile app. For example, some banks prohibit depositing third-party checks, money orders, traveler’s checks, and foreign checks. So, verify the rules with your bank or credit union.

Also, if you deposit a check using the mobile app, keep the paper check until the check clears. This way, you’ll have a backup if it doesn’t go through or there is an error.

Open a Bank Account Today

Are you looking for a home for your money? If so, see what SoFi has to offer. With a SoFi bank account, you will spend and save in one convenient place. Plus, you’ll earn a competitive annual percentage yield (APY) and pay no account fees, both of which can help your money grow.

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

What are the 2 types of bank deposits?

Demand deposits and time deposits are the two types of bank deposits. A demand deposit references deposits made into an account such as a checking or saving account where you can withdraw. A time deposit, on the other hand, refers to a deposit made to an account with a fixed interest rate and set terms, like certificates of deposits.

What happens if you deposit more than $10,000 in the bank?

When you deposit $10,000 or more into a financial institution, federal law requires them to report the deposit to the federal government. The federal government requires this alert to help prevent money laundering and fraud.

Does deposit mean payment?

Yes, deposits can mean an initial payment towards a product or service. It can also mean putting something of value away for safekeeping, like when you make a bank deposit to a bank.

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Photo credit: iStock/AlexSecret
SoFi® Checking and Savings is offered through SoFi Bank, N.A. ©2023 SoFi Bank, N.A. All rights reserved. Member FDIC. Equal Housing Lender.
The SoFi Bank Debit Mastercard® is issued by SoFi Bank, N.A., pursuant to license by Mastercard International Incorporated and can be used everywhere Mastercard is accepted. Mastercard is a registered trademark, and the circles design is a trademark of Mastercard International Incorporated.

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.

SoFi members with direct deposit activity can earn 4.60% annual percentage yield (APY) on savings balances (including Vaults) and 0.50% APY on checking balances. Direct Deposit means a deposit to an account holder’s SoFi Checking or Savings account, including payroll, pension, or government payments (e.g., Social Security), made by the account holder’s employer, payroll or benefits provider or government agency (“Direct Deposit”) via the Automated Clearing House (“ACH”) Network during a 30-day Evaluation Period (as defined below). Deposits that are not from an employer or government agency, including but not limited to check deposits, peer-to-peer transfers (e.g., transfers from PayPal, Venmo, etc.), merchant transactions (e.g., transactions from PayPal, Stripe, Square, etc.), and bank ACH funds transfers and wire transfers from external accounts, do not constitute Direct Deposit activity. There is no minimum Direct Deposit amount required to qualify for the stated interest rate.

SoFi members with Qualifying Deposits can earn 4.60% APY on savings balances (including Vaults) and 0.50% APY on checking balances. Qualifying Deposits means one or more deposits that, in the aggregate, are equal to or greater than $5,000 to an account holder’s SoFi Checking and Savings account (“Qualifying Deposits”) during a 30-day Evaluation Period (as defined below). Qualifying Deposits only include those deposits from the following eligible sources: (i) ACH transfers, (ii) inbound wire transfers, (iii) peer-to-peer transfers (i.e., external transfers from PayPal, Venmo, etc. and internal peer-to-peer transfers from a SoFi account belonging to another account holder), (iv) check deposits, (v) instant funding to your SoFi Bank Debit Card, (vi) push payments to your SoFi Bank Debit Card, and (vii) cash deposits. Qualifying Deposits do not include: (i) transfers between an account holder’s Checking account, Savings account, and/or Vaults; (ii) interest payments; (iii) bonuses issued by SoFi Bank or its affiliates; or (iv) credits, reversals, and refunds from SoFi Bank, N.A. (“SoFi Bank”) or from a merchant.

SoFi Bank shall, in its sole discretion, assess each account holder’s Direct Deposit activity and Qualifying Deposits throughout each 30-Day Evaluation Period to determine the applicability of rates and may request additional documentation for verification of eligibility. The 30-Day Evaluation Period refers to the “Start Date” and “End Date” set forth on the APY Details page of your account, which comprises a period of 30 calendar days (the “30-Day Evaluation Period”). You can access the APY Details page at any time by logging into your SoFi account on the SoFi mobile app or SoFi website and selecting either (i) Banking > Savings > Current APY or (ii) Banking > Checking > Current APY. Upon receiving a Direct Deposit or $5,000 in Qualifying Deposits to your account, you will begin earning 4.60% APY on savings balances (including Vaults) and 0.50% on checking balances on or before the following calendar day. You will continue to earn these APYs for (i) the remainder of the current 30-Day Evaluation Period and through the end of the subsequent 30-Day Evaluation Period and (ii) any following 30-day Evaluation Periods during which SoFi Bank determines you to have Direct Deposit activity or $5,000 in Qualifying Deposits without interruption.

SoFi Bank reserves the right to grant a grace period to account holders following a change in Direct Deposit activity or Qualifying Deposits activity before adjusting rates. If SoFi Bank grants you a grace period, the dates for such grace period will be reflected on the APY Details page of your account. If SoFi Bank determines that you did not have Direct Deposit activity or $5,000 in Qualifying Deposits during the current 30-day Evaluation Period and, if applicable, the grace period, then you will begin earning the rates earned by account holders without either Direct Deposit or Qualifying Deposits until you have Direct Deposit activity or $5,000 in Qualifying Deposits in a subsequent 30-Day Evaluation Period. For the avoidance of doubt, an account holder with both Direct Deposit activity and Qualifying Deposits will earn the rates earned by account holders with Direct Deposit.

Members without either Direct Deposit activity or Qualifying Deposits, as determined by SoFi Bank, during a 30-Day Evaluation Period and, if applicable, the grace period, will earn 1.20% APY on savings balances (including Vaults) and 0.50% APY on checking balances.

Interest rates are variable and subject to change at any time. These rates are current as of 10/24/2023. There is no minimum balance requirement. Additional information can be found at https://www.sofi.com/legal/banking-rate-sheet.

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Junk bonds are a type of corporate bond that carry a higher degree of risk and generally have lower credit ratings. The bond issuers are more likely to default, making junk bonds speculative investments.

So why would investors buy a junk bond? For one simple reason: They have the potential to produce bigger returns compared to other bond options.

Junk bonds aren’t necessarily right for every investor, because they are so risky. Understanding how junk bonds work can help you decide if they belong in your investment portfolio.

How Do Junk Bonds Work?

Bonds are a form of debt. When a corporation or government entity issues a bond, they’re doing so for the purposes of raising capital. Investors buy the bonds, providing the capital, and in return, they expect to get paid that money back along with interest.

There’s an implied agreement between the investor and the bond issuer that the latter will make interest payments on time, but in addition, bonds can be secured or unsecured. Treasury bonds, for example, are unsecured bonds that are backed by the full faith and credit of the U.S. government.

Junk bonds, also referred to as high-yield bonds, represent a category of bonds that fall below investment-grade. In simple terms, this means there’s a greater risk that the bond issuer could default or fail to follow through on their promise to repay investors. Whether a bond is considered to be investment-grade or not depends on its credit ratings.

Credit Ratings and Junk Bonds

Bond credit ratings are issued by a number of organizations. These agencies determine which bonds are considered to be investment-grade and which are non-investment grade or speculative-grade.

In the United States, the majority of bond credit ratings are issued by three agencies, on an ABCD scale:

•   Moody’s Investors Services

•   Standard & Poor’s Global Ratings

•   Fitch Ratings

Bonds with a rating of BBB or higher (Baa on the Moody’s scale) are categorized as investment-grade. This means that in the eyes of the rating agency, default risk is low or in other words, investors are reasonably likely to get their money back from the bond issuer.

When bonds fall below the BBB rating range (Ba for Moody’s), they’re considered to be junk bonds. The further the rating drops, the riskier and more speculative the bond becomes. Here’s how junk bond credit ratings compare.

	Moody’s	S&P Ratings	Fitch Ratings
High Risk	Ba or B	BB or B	BB or B
Highest Risk	Caa, Ca or C	CCC, CC or C	CCC
In Default	C	D	DDD, DD or D

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

Why Do Investors Like Junk Bonds?

The riskier an investment is, the more potential it has to deliver higher returns. That lies at the heart of why some investors might prefer junk bonds over investment-grade bonds. Junk bonds can have varying maturities like other types of bonds. Typically, these are longer term bonds, with maturities lasting in the five- to 10-year range.

Investing in junk bonds could yield returns on the same level as stocks but with less volatility. That’s because you’re getting the promise of a fixed interest payment, rather than depending on which way the market swings on any given day to determine returns. If the bond issuer undergoes a financial turnaround and its credit rating improves, that can reduce the level of risk associated with its bonds.

Junk bonds can be attractive to investors in low interest rate environments as well. That’s because unlike other bonds, they’re less sensitive to interest-rate movements. Bond issuers may be highly motivated to raise capital so they can offer higher rates to attract investors. Investor risk may also be reduced when the economy is growing, since that can be conducive to improvements in the financial health of bond issuers.

Recommended: How Do Corporate Bonds Work?

Examples of Junk Bonds

Companies that issue junk bonds tend to be newer companies or established ones that may be struggling financially following bankruptcy. For instance, one company that has junk bond ratings in 2023 is Coinbase (NASDAQ:COIN), a cryptocurrency exchange. Because of the speculative and high-risk nature of crypto trading, the company has a junk bond rating. In early 2023, Coinbase’s junk bonds were downgraded even further by Moody’s and Standard & Poor’s Global Ratings.

Advantages and Disadvantages of Junk Bonds

Investing in junk bonds has both pros and cons, just like other investments.

On the advantages side, investors have potential to earn higher yields from junk bonds than other types of bonds. There’s less volatility to contend with compared to stocks, and fixed interest payments could provide a steady source of income. Depending on the credit rating of the bond issuer, it’s possible that a junk bond could actually be less risky compared to a stock.

On the other hand, junk bond investing is speculative, so an investor has to be willing to accept the possibility of losses — specifically, default risk and the likelihood of the bond issuer missing an interest payment. In the worst-case scenario, the company could go bankrupt, meaning an investor may not get their initial investment back, much less the interest. One also has to consider the time component, since junk bonds are not designed to be held for the shorter term.

Junk Bond Advantages	Junk Bond Disadvantages
Investors could earn interest rates above what investment-grade bonds are paying.	Default risk is typically higher with junk bonds vs. investment-grade bonds.
Compared to stocks, junk bonds are less susceptible to volatility and may be less risky overall.	If the bond issuer goes bankrupt, the investment could end up being a total loss.
Fixed interest payments may provide a consistent stream of income for investors.	They’re not suited to short-term investing given the duration of junk bonds and pricing fluctuations.

How to Invest in Junk Bonds

If you’re considering investing in junk bonds, opening a brokerage account is a good place to start. If you already have an investment account, you can move on to purchasing junk bonds. There are a few different ways you can do this:

•   Purchase individual junk bonds, if your brokerage offers them.

•   Buy a junk bond mutual fund.

•   Invest in a junk bond exchange-traded fund (ETF).

Buying individual junk bonds can be risky, as it concentrates investment dollars in a single security. Higher minimum investments may limit the number of junk bonds an investor is able to purchase.

Investing in junk bond funds or ETFs instead may make it easier to spread out your investment dollars while spreading out risk. Junk bond funds and ETFs can offer exposure to a basket of junk securities which can help with diversification and risk management.

When comparing junk bond funds or ETFs, consider the underlying credit ratings for each security that’s represented. This can tell you whether the fund mostly holds high risk, higher risk or in default bond offerings. Also consider the expense ratios involved and the maturity terms so you’re choosing a fund that fits both your budget and timeline for investing.


💡 Quick Tip: How to manage potential risk factors in a self-directed investment account? Doing your research and employing strategies like dollar-cost averaging and diversification may help mitigate financial risk when trading stocks.

Are Junk Bonds a Good Investment?

Should you buy junk bonds? The answer depends largely on your personal risk tolerance. Junk bonds may be a good investment for investors who are comfortable taking more risk for a shot at higher returns. On the other hand, you may choose to steer clear of them if you’re looking for fixed-income investments that are on the safer side.

What’s important to consider before investing is the entire makeup of your portfolio as a whole and your financial goals. If you’re interested in junk bonds, think about how much of your portfolio you’re comfortable dedicating to them and how that could affect your overall risk profile.

The Takeaway

Investing in bonds can add a fixed-income element to an investor’s portfolio, which may be helpful for diversification. Alongside stocks, bonds may help you devise a more well-rounded investment strategy as you work toward your financial goals.

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

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

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Photo credit: iStock/fizkes

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Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

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