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If you have a retirement account or a life insurance policy, you’re probably familiar with the process of naming a beneficiary, but did you know that bank accounts can have beneficiaries as well?

The point of designating beneficiaries is to specify who will inherit your assets when you die. When you open a new bank account, you may have the option to add one or more beneficiaries. You can name a beneficiary for a checking account, savings account, or money market account.

Naming beneficiaries to bank accounts is something you might consider as part of a broader estate plan. Learn more about this here, including:

•   What is a beneficiary?

•   Do bank accounts have beneficiaries?

•   What are the pros and cons of adding a beneficiary to a checking or savings account?

•   How do you add a beneficiary to a bank account?

•   What are POD accounts?

What Is a Beneficiary?

A beneficiary is someone who’s entitled to inherit assets from someone else. The types of assets that can allow you to name someone as beneficiary include:

•   Life insurance policies

•   401(k) plans and similar workplace retirement plans

•   Individual Retirement Accounts (IRAs)

•   Trusts

•   Bank accounts

Primary beneficiaries have first claim to assets. Contingent beneficiaries can be named to inherit assets should the primary beneficiary die or not be able to be located.

Beneficiaries can be a person, organization, or entity. For example, you might name your spouse as the beneficiary of a life insurance policy while naming your favorite charity as beneficiary of a trust you’ve created.

Beneficiaries vs Writing a Will

A will is a legal document that allows you to specify how you’d like your assets to be distributed among your heirs after you pass away. You can also use a will to leave funeral or burial instructions or name a legal guardian for your minor children.

Wills can name beneficiaries who are to receive assets from your estate. State law determines who can and cannot be excluded as a will beneficiary. For example, disinheriting a spouse is usually prohibited but you might be able to exclude your children from your will.

Assets that have a designated beneficiary generally supersede a will. So, if you’ve named your spouse as beneficiary to your 401(k), for example, you wouldn’t be able to leave that asset to someone else in your will.

Should You Add a Beneficiary to Your Bank Account?

Can checking accounts have beneficiaries? Yes. Do you need to add a beneficiary to your bank account? It depends.

Naming a beneficiary for a bank account allows that person to inherit those assets once you pass away without having to go through probate. Probate is a legal process in which a deceased person’s estate is divided up among their heirs. Assets can be divided according to the terms of a will. If there isn’t a will, then state inheritance laws can determine what happens to the deceased’s estate.

Probate can be time-consuming and costly. Adding a beneficiary to a bank account allows them to sidestep all of that. Your beneficiary can collect the money in the account without a lengthy wait. They may need to verify their identity and provide a death certificate, but it’s a much simpler process than probate.

You might choose to add a beneficiary if you want to make sure that they’re able to access those assets right away. Your beneficiary designations for a bank account won’t affect your designations for life insurance policies, retirement accounts, or other assets.

Steps for Adding a Beneficiary to Your Bank Account

Banks typically don’t require or perhaps even request that you add a beneficiary to an account. It’s a good idea to check with your bank first to find out if you can add a beneficiary to a checking account or savings account. If so, the bank should be able to tell you what you’ll need to do next to do so.

Typically, the process works something like this.

1. Decide which accounts will have a beneficiary

The first thing to consider is which accounts to name beneficiaries for. You might have a checking account, savings account, and money market account at the same bank, for instance. Since the accounts are separate, you’d have to decide which ones will have beneficiaries and whether the beneficiary for each one will be the same person.

You’ll need to tell the bank which bank account number or numbers you’re referencing when adding a beneficiary. It’s a good idea to double check the number to make sure you’re giving the right account information.

2. Choose your beneficiaries

Next, you’ll need to decide who will be the beneficiary for your bank accounts. If you’re married, that might be your spouse. If you’re unmarried or widowed, you might choose to name one of your children, another relative, or a close friend.

Keep in mind that you may not be able to name minor children as beneficiaries. If you’d like to ensure that your bank account goes to a minor child, you may need to first choose an adult to act as their custodian should something happen to you. You could then name the custodian as beneficiary on behalf of the children.

3. Update your beneficiary preferences

The actual process for naming a beneficiary to a checking or savings account will vary by bank. At some banks, it may be as simple as logging in to online banking, navigating to your account settings, and entering your beneficiary’s information. That may include their name, address, date of birth, and Social Security number.

Other banks may require you to submit a beneficiary designation form, either online or in person at a branch. Again, you’d need to provide the beneficiary’s identifying information to add them to your account.

Note that adding a beneficiary designation does not grant that person access to your account during your lifetime. They would only be able to access the money in the account upon your death.

Consider Creating a POD Account

A payable on death or POD account is a bank account that has a named beneficiary. That beneficiary is entitled to automatically receive the assets from the account when the original account owner passes away. They do not have access to the account during the primary account owner’s lifetime.

Creating a POD account allows your beneficiaries to bypass probate. You can name one or more beneficiaries for a payable on death account. In terms of how to create a POD account, you’d need to tell your bank that you either want to open a new account for that purpose or convert an existing account.

Keep in mind that if you need to change your beneficiaries later, the bank may require you to close the account and redeposit the money into a new POD account. A POD beneficiary designation will override instructions left in a will. When there are multiple beneficiaries to a payable on death account, assets in the account are split between them equally.

How Marriage Impacts POD Accounts

Marriage can add a wrinkle to your will or estate planning efforts if you’re creating a POD account. If you live in a community property state, your spouse would be entitled to half of the assets in the account, excluding ones you owned before the marriage or ones that you inherited.

Keep in mind that if you named your spouse as beneficiary to a bank account and you end up getting divorced, they would still be entitled to receive assets from the account. You’d need to contact your bank to update your POD beneficiary designations to make sure those assets where you want them to once you pass away.

Alternatives to Adding a Beneficiary to Your Bank Account

Adding one or more beneficiaries isn’t the only option for managing a checking account or savings account. You might also consider setting up a joint account with someone else or specifying how you want your bank accounts to be divided in your will. Setting up a joint bank account might be easier, though there are some pros and cons.

Opening a Joint Bank Account

Opening a joint bank account is something you might consider if you’d like the person you’d otherwise choose as a beneficiary to have access to the account while you’re alive. For example:

•   You might choose to set up a joint account with a spouse if you have a high level of financial trust between you.

•   If you’re unmarried, then you might choose to open a joint bank account with your adult child, a parent, or a sibling.

•   You might be asked to open a joint bank account with someone else if you’re assuming responsibility for managing their finances. For instance, an aging parent might want to set up a joint account so you can help them with managing bills.

Can you open a bank account for someone else? Yes, but only in limited situations. Generally, you can open a bank account for someone else if:

•   They’re a minor child.

•   They’ve granted you power of attorney.

Before opening a joint account, consider the relationship you have with the other person and how much control you’re comfortable allowing them to have. For instance, what if you’d like them to inherit the assets in your bank account but not be able to make withdrawals right now? You may be better off naming them as a beneficiary instead or setting up a POD account.

💡 Recommended: Joint Bank Accounts vs. Separate Bank Accounts in Marriage

The Takeaway

Do checking accounts have beneficiaries? Some of them do or can upon request. Whether you’d like to add a beneficiary to your account can depend on your financial and personal situation. In some cases, a POD or joint account might better suit your needs.

If you’re interested in opening a new bank account, SoFi could be a good option. SoFi’s online Checking and Savings account lets you spend and save in one convenient place. You’ll also earn a competitive annual percentage yield (APY) and pay no account fees, which can help your money grow faster. Plus, you can get paycheck access up to two days early with a qualifying direct deposit.

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 if there is no beneficiary on a bank account?

If there is no beneficiary on a bank account and the account holder dies, the assets in the account will be combined with other assets from the estate during probate. All assets, including bank accounts, would then be distributed according to the terms of a will or, if there is no will, state inheritance laws.

How many beneficiaries can you have on one bank account?

Banks can decide whether to limit the number of beneficiaries you can have on a bank account. When naming multiple beneficiaries, keep in mind that they’ll each be entitled to an equal share of those assets. If you’d rather divide the account up differently, you may want to leave it to your heirs in your will instead.

How does a beneficiary receive their money?

A bank account beneficiary will typically need to verify their identity and the death of the account owner before receiving any money from the account. The bank may cut them an official check for the account balance or transfer the money to their bank account electronically.

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Photo credit: iStock/Alessandro Biascioli

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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Can I Direct Deposit into a Savings Account?

Yes, you can direct deposit into a savings account. And it can be a good idea: Putting direct deposits into a savings account vs. checking account allows you to sock away money without manually transferring cash from your checking to your savings account. As a result, direct deposit can automate your savings strategy and get your money to the right place as soon as your employer pays you.

This can optimize your financial gains and help keep you from overspending out of your checking account. Money sitting in checking can tempt you to go shopping or head out to a pricey restaurant dinner.

Here’s how to set up direct deposit to your savings account and a closer look at the perks you’ll enjoy.

Read on to learn:

•   What is direct deposit?

•   Can direct deposit go into a savings account?

•   How do you set up direct deposits into savings?

Direct Deposits Explained

Direct deposit is how you can receive payments, such as a paycheck, without a physical check, electronic check, or cash. Instead, funds go from the payer directly into your bank account. The electronic processing of your paycheck saves you a trip to the bank and is typically quicker than physical forms of payment.

You probably receive payment via direct deposit, as more than nine out of ten workers in the United States do. This automatic process gets money to your bank account with minimal effort by the employee and a lower cost to the employer. What’s more, you can split your paycheck between your checking and savings accounts to optimize your finances.

How direct deposit works:

•   Your employer uses your bank account number and routing number to set up direct deposit.

•   At the end of every payment period (typically two weeks), your employer’s payroll department communicates with the Automated Clearing House (ACH) network.

•   The ACH receives information and deposits money into your account according to your employer’s instructions.

💡 Recommended: What Happens if a Direct Deposit Goes to a Closed Account?

How to Set Up Direct Deposits Into Your Savings

Whether you recently started a new job or have worked for the same employer for years, you can put direct deposits into a savings account in a similar way to how you direct money into your checking account.

Step 1. Getting a Direct Deposit Form

As a new hire, you usually complete paperwork during your first week of employment, including a form to set up direct deposit. If you’re not new to your workplace, you can request a new form from your HR or payroll department to add or update your direct deposit information. You’ll then fill out the forms with the necessary information, such as Social Security number and account information.

Step 2. Determining How Much to Send to Savings

Next, designate the percentage of your paycheck you’d like to go into your savings account versus your checking account. For example, you may want 20% of your paycheck in your savings account and the rest deposited in checking.

Step 3. Submitting the Form to Your Employer or Bank

Finally, provide the form along with, if requested, a voided check for your checking account and a deposit slip from your savings account. These documents can help your employer verify the deposits will go to the right place.

Is It Better to Direct Deposit to Savings or Checking?

Direct depositing into your different account types isn’t an “either-or” proposition; it may be a “both-and” scenario. In other words, depositing money into both accounts has advantages, so it’s a matter of what amount to deposit. Here are some points to consider:

•   Depositing funds into your checking account allows you to access your money to pay for both essentials, like rent and food, to fun purchases like clothes and entertainment.

•   A direct deposit into a savings account allows you to build up your savings and earn more interest on the cash you don’t touch. You might even have multiple savings accounts for different goals, such as putting money in an emergency fund or towards a down payment on a house.

Therefore, it can be an excellent idea to deposit as much into your savings account as you can afford. You might follow the 50/30/20 budget rule and allocate 20% of your take-home pay towards your savings.

It can be hard to save money today with the rising cost of living, so automating the process can help you be successful in achieving this goal.

In addition, your deposit allocations should ensure your checking account has the minimum balance your bank requires, if any, so you can avoid banking fees.

Difference Between Checking and Savings Accounts

Understanding the difference between checking and savings accounts is critical to deciding how much to deposit to each account. A quick overview of checking accounts:

•   Checking accounts are for spending money. Your bank gives you a debit card linked to your checking account so you can make purchases in person and online with funds from your checking account. You also receive checks you can use to pay for purchases and expenses.

•   Because checking accounts have no transaction limits, they are ideal for regular purchases.

•   You can withdraw cash from your checking account by using your debit card at an ATM; you will also probably be able to deposit cash in an ATM.

•   Many checking accounts don’t pay any interest or perhaps a minimal annual percentage yield (APY).

Savings accounts are quite different:

•   Savings accounts are for stockpiling cash and earning compounding interest on your account balance. For example, a savings account with $5,000 and a 3.00% compounding interest rate will earn over $150 annually. It’s advantageous to put money in a savings account because anything you don’t spend will earn a higher interest rate than your checking account.

•   Savings accounts often have transaction limits, meaning you can only withdraw money from your account several times a month (typically six times a month). As a result, it’s best to deposit money you don’t plan on withdrawing into your savings account.

💡 Recommended: See the complete comparison between checking and savings accounts.

Direct Deposit With SoFi

Direct deposit is an excellent way to grow your savings account. Once you submit your direct deposit information to your employer, you’ll automatically receive payments. You can define the percentage of your paycheck you’d like to go to your checking and savings account every time you’re paid. This way, you can accumulate savings without having to transfer money between accounts or risk spending too much from your checking account.

If you’re looking for a way to bank smarter, now is a great time to check out what SoFi offers. When you open a new online bank account with SoFi, you can receive a direct deposit bonus, plus you’ll earn a competitive APY and pay no account fees, which are all good ways to help your cash grow faster. Plus, you’ll spend and save in one convenient place, because we think banking should be easy.

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

How do I automatically deposit into my savings account?

You can automatically deposit into your savings account by assigning a percentage of your paycheck to your savings account when you set up direct deposit with your employer. In addition, you can update your direct deposit preferences with your employer if you want to start automatically moving money into your savings account.

Can I automatically transfer money from checking to savings?

Most banks offer automated savings for customers. This feature allows you to arrange for your bank to automatically transfer a specific amount from your checking to your savings account every month.

Can I deposit monthly in a savings account?

Direct deposit allows you to contribute a percentage of your paycheck to your savings account. As a result, your savings account will receive a specific amount as often as your employer pays you. If this doesn’t suit you, you can check with your bank about setting up automatic monthly transfers from checking into savings.

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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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Instead of carrying around wads of cash or stuffing your life savings under your floorboards, a savings account gives you a safe place to store your money. Opening a savings account is a great way to start building healthy savings habits to help you save toward your goals, build an emergency fund, or plan for retirement. Plus, many savings accounts are interest-bearing, so you can help your money grow.

Whether this is your first savings account or you’re switching from another financial institution, you’ll learn how to open a savings account and what you need to know before you open one.

4 Steps to Opening a Savings Account

Here are the steps you need to take when you open a savings account.

1. Compare Banks and Accounts

Fees, interest rates, minimum balance requirements, and other benefits like mobile banking can vary by the bank you choose. So, exploring your options before deciding where to open a savings account can help you determine the most suitable savings solution for your needs.

You’ll also want to explore the different saving account options available. For example, looking at high-interest savings accounts might be an attractive option for people wanting to grow their money.

2. Gather Personal Information and Documentation

Next, you’ll want to gather all of the necessary information. Doing this beforehand will streamline the application process. Here’s what you’ll need to open up a savings account:

•   Government-Issued ID, likely with a photograph, such as a passport or driver’s license

•   Date of birth

•   Social Security number

•   Proof of address, such as a utility bill or bank statement

•   Phone number and email address

If you’re opening a joint account, ensure the co-account owner provides the same information and documentation. Remember, requirements vary by bank, so check with your financial institutions to verify the necessary information.

3. Check Eligibility

Credit unions and banks may have eligibility requirements for specific accounts. For example, account holders must be over 18 to open a savings account. Also, some savings accounts may have a minimum balance requirement to open the account. Understanding the requirement beforehand will ensure you’re prepared when completing your application.

4. Complete the Application

Here’s the next step in how to open a savings account: You can complete the application now that you have your personal information. Some brick–and-mortar banks and credit unions may require you to visit a bank branch to open an account, while others let you complete the application online.

If your bank requires a minimum balance deposit, ensure you have the cash in hand or the account to which you want to transfer the money.

Choosing the Right Savings Account for You

Here is a snapshot of how the different savings accounts stack up.

•   Traditional savings account. This type of account is a simple savings option. Usually, basic savings accounts don’t have the highest interest rates, and the bank or credit union may charge a monthly fee.

•   High-yield savings accounts. This type of account usually offers a higher interest rate than traditional savings accounts. While you can find these accounts as brick-and-mortar banks, they are most common with online banks. If you choose to open a savings account with an online bank, you may have to pay fewer fees.

•   Kids’ and student savings account. Just like the name suggests, these accounts are tailored to kids and students so they can start building healthy savings habits. Some of these accounts are interest-bearing. However, there are usually age cut-offs, and there may be parental involvement.

•   Specialized savings accounts. This type of savings account helps you save for a specific goal, like a down payment on a home. However, it’s important to note that this type of account may come with restrictions. For example, if the account is designed to save for the cost of the winter holidays, you might only be able to pull money out once a year, like right before the holidays.

•   Money market account. This type of account lets you earn interest and withdraw up to the bank or credit union’s limits. Usually, the interest rates on money market accounts are higher than those on a traditional savings account.

💡 Learn more about money market accounts.

Understanding Savings Accounts

A savings account is a deposit account that lets you park your cash to save toward short-term goals and savings objectives. For example, you may use your savings account to save money for your dream vacation or to start building an emergency fund. Unlike a checking account, savings accounts are not meant to be used for everyday transactions.

In fact, in the past, Federal Reserve Board Regulation D limited the number of withdrawal transactions you could complete in a month. While restrictions were lifted in April 2020, banks still have the right to limit the number of withdrawals you can take in a month. Examples of withdrawal transactions include overdraft transfers to checking accounts, wire transfers, debit card withdrawals, check withdrawals, and phone or computer transfers.

How Savings Accounts Work

Savings accounts work like this:

•   You open a savings account.

•   You deposit money into the savings account.

•   You earn interest on the balance in the savings account.

•   Then you can continue to accumulate interest as you contribute to your balance.

If you’re using the savings account to save for a specific goal, you’ll likely withdraw funds once you have reached that objective. So, if you’re saving money for a new car, you will take the money out when it’s time to pay for your new ride.

The interest rate and annual percentage yield (APY) attached to a savings account depends on the bank and type of account. The higher the APY, the more interest you’ll earn and your account will grow faster.

For example, let’s say your savings account has a $2,000 balance, you contribute $100 monthly, and have 4.00% APY. At the end of the first year your account balance will be $3,303.73. That’s a little over $100 worth of interest.

Pros and Cons of Opening Up a Savings Account

While savings accounts are a great place to park your money to save for the future, they also have some downsides. Here are the pros and cons of opening a savings account.

Pros of Opening Up a Savings Account	Cons of Opening Up a Savings Account
Interest-bearing	Potential monthly services fees
Access to banking online and in-person	Withdrawal limits
Direct deposit available	Withdrawal limit fees
Insured by either the Federal Deposit Insurance Corporation (FDIC) or the National Credit Union Administration (NCUA) (up to $250,000 per depositor)

Can You Be Denied a Savings Account?

Banks or credit unions may deny you a savings account if you have a track record of misusing bank accounts. Some examples of misuse include:

•   Leaving an account with an unpaid overdraft fee

•   Applying for many accounts in a short amount of time

•   Bouncing checks

•   Misusing debit cards or ATMs.

You may also get denied if you were a victim of fraud.

Once you apply for a bank account, banks use the ChexSystems report, which is a consumer reporting agency for financial institutions, to spot any red flags that demonstrate you wouldn’t be a suitable account holder. If the bank uncovers harmful activities and denies opening an account, it must provide a reason for the denial.

Here’s what to do if you’re denied:

•   Ask the bank to reconsider. It never hurts to ask the bank or credit union to reconsider their decision.

•   Request the ChexSystems report. If the bank or credit union holds firm on their decision, request a copy of the ChexSystems report. All consumers are entitled to a complimentary copy of the report every 12 months. You can visit ChexSystems’ website or call 800-428-9623 to request a report.

•   Review the report for discrepancies or errors. Closely review the ChexSystems report. Look for errors or discrepancies, such as an incorrect Social Security number. If you spot an error, you can contact the reporting agency. Make sure to provide all supporting documentation to validate your claim.

•   Clean up your report. If you didn’t spot any errors, you’d want to start fixing any negative actions in the report. For example, if you have an unpaid overdraft fee, contact the bank and pay it off. Once you resolve any issues, they are removed from the report. On the other hand, if you have unresolved issues lurking, they will remain on your report.

•   Explore second-chance accounts. Some banks offer second-chance bank accounts, which don’t review the ChexSystems report. However, since these accounts cater to those with less than ideal banking backgrounds, they may charge higher fees or have more restrictions. So, look into the account requirements before moving forward with one.

Opening a SoFi Savings Account

So, if you’re wondering should I open a savings account, the answer is likely “yes.” Opening a savings account is a great way to build strong saving habits and earn interest. Then, when you need the money later, you can access your cash effortlessly. Furthermore, opening a savings account is simple; you only need to compare accounts and banks, gather the correct information, and fill out the application.

If you’re looking for a new savings account, see what SoFi offers. When you open an online bank account with SoFi, you get benefits that help simplify money management. Plus, you can grow your money with a competitive APY and no account fees.

SoFi Checking and Savings: Helping you bank better and smarter.

FAQ

What do you need to open a savings account?

You must usually provide personal information like your Social Security number, date of birth, and home address. You will also need supporting documentation like a government-issued ID and a utility bill to prove your address. Additionally, depending on the bank account, you may need to deposit the minimum balance requirement to open the account.

How much money do you need to open a savings account?

Usually you’ll need between $25 and $100 to open a savings account at a bank or credit union. However, once the account is open, the institution may require you to maintain a minimum account balance. So, make sure to check the requirements.

Can you just open a savings account without a checking account?

Yes, you can open a savings account without a checking account at most institutions. However, having both can help you better manage your money since each account has different functionality.

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Photo credit: iStock/AntonioGuillem

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.

Third-Party Brand Mentions: No brands, products, or companies mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third-party trademarks referenced herein are property of their respective owners.

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We won’t sugarcoat it: Music festivals can cost a lot. Weekend passes are often several hundred dollars and don’t include travel expenses and other extras. That doesn’t mean you should skip music festivals altogether. The events are a great way to sample many different artists, meet people, and enjoy time outdoors.

Keep reading to learn more about music festival costs and money-saving moves. You’ll find out:

•   What are the average costs of a music festival?

•   What are the main expenses to consider when going to a music festival?

•   How can attending a music festival be more affordable?

What Is the Average Cost of a Popular Music Festival?

The average cost of music festival tickets — typically for a weekend-long event — ranges from $200 to $600. If travel is required, expenses can shoot up quite quickly: Spending $2000+ in a weekend is not unusual. Transportation and lodging are often premium-priced during a festival, since businesses know they can get top dollar.

Music festival costs also depend on where the festival is located and the type of experience the attendee is looking to have. Camping out will save you money, as will skipping the VIP experience for basic tickets bought at early-bird pricing.

Recommended: Luxury for Less: How to Travel Posh

Main Expenses to Consider When Going to a Music Festival

Because everyone’s music festival experience looks different, costs can vary. That said, these are the common music festival expenses worth planning for.

Tickets

Tickets for a multi-day event can cost hundreds of dollars. For instance, in 2023, general admission to Bonnaroo in Tennessee was $380 and up for four days. And passes for Coachella, in California, began at $540 for three days.

Costs will vary depending on when you buy tickets (they get more expensive closer to the actual performance date), and whether you decide to shell out for the VIP options.

Travel

Don’t forget to budget for travel for out-of-town events. Driving may cost less than flying, and some festivals offer camping passes that can save you money on hotels.

These tips on saving up for a vacation can help you project your travel costs.

Recommended: Let SoFi help you map out your next trip.

Transportation

Even if you live nearby, you may need to pay for a rideshare or shuttle pass to get to the event. At the very least, remember to account for gas and parking.

Lodging

Music festivals attract large crowds and visitors from around the world. That means local hotel and home rental costs can become inflated. Book early to avoid overpaying once pickings are slim.

Meals

Because music festivals have their attendees held somewhat captive for the day or days of the event, the food and drinks for sale there can be quite expensive. Think about what you pay at a concert or in an airport to get a sense of what you might need to pay.

Clothing

Part of the fun for many festival-goers is planning what you’ll wear. Sure, some people are happy in their usual jeans and a T-shirt, but if you want to buy some new clothes or accessories before a music festival — be honest! — add those costs to your budget.

Recommended: What to Do If You Lose Your Wallet While Traveling

Tips for Saving Money on a Music Festival

The price tag for a music festival experience can be steep, but it can also be an amazing and memorable experience. Here are some ways to bring the costs down so you can be part of the fun.

Another way saving money can help you that’s worth mentioning: Do a great job cost-cutting, and maybe you can attend an additional festival.

Project Your Expenses

From tickets to transportation to food, plan out what the day or weekend will entail cost-wise and make a budget. This can be done in a journal, on a piece of paper, or in an app. You can also learn how to make a budget in Excel. If you can plan for this outing months in advance, you can slowly save up for it so your overall budget doesn’t take a major hit.

Once you know the total amount needed, you can divide that by the number of months until it’s time to pay for your expenses. The figure you see is how much you should save monthly to afford the festival.

Take a Pass on VIP Tickets

Music festivals often have different tiers of tickets and offer some sort of VIP experience for a much higher price than the cost of general admission. Skip these overpriced tickets, and spend the money on food or transportation instead.

Buy Tickets Early

Some music festivals offer cheaper tickets for people who book early, so don’t sleep on those good deals. If possible, save up before tickets go on sale to take advantage of early booking deals.

Book Travel Far in Advance

It can be possible to save on travel and lodging by booking those things sooner rather than later as well. (This is a wise move when trying to save money for a trip of any kind.) Once tickets are booked, try to find some travel deals. When flights and hotels get down to the last few available options, prices tend to soar.

BYO Food and Water

If allowed, pack food and lots of water to avoid overspending on food and drinks at the event. Bonus: You’ll spend less time in line and more time enjoying the music. Some music festivals won’t allow attendees to bring in their own food, but most allow water from outside sources. Not overspending on water is a great way to save money and stay hydrated while out in the sun all day.

Volunteer

Some music festivals offer volunteers the chance to trade work for access to the festival. It’s always worth seeing whether such opportunities are available — they may very well be worth the trade-off.

Walk Whenever You Can

If staying nearby, try walking to the event. Parking is often expensive at music festivals, and ride-share prices surge as well due to high demand.

Camp Out

Because it can be hard for the many attendees of music festivals to find affordable lodging nearby, some music festivals are held at campgrounds. Camping is a great way to save a lot of money versus hotel costs, and it can add to the fun of the weekend.

The Takeaway

Music festival costs can vary greatly, but the major ones are undeniably expensive. Planning ahead for these events is one of the best ways to manage costs. By booking early, camping instead of staying at a hotel, and considering volunteer opportunities on-site, you may be able to listen to your fill of music and still have money in the bank.

Need to save up for a music festival or other short-term goal? SoFi has you covered. Open a bank account online with direct deposit, and your SoFi Checking and Savings won’t charge you any account fees, will offer you automatic savings features, and pay you a competitive APY.

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

Why are music festivals so expensive?

Attending music festivals can be expensive. The tickets for weekend-long events are pricey (the organizers have to cover the bands’ fees, the space, set-up, advertising, and more). Plus, if you travel to get there, you have transportation and lodging costs to contend with as well, plus food costs are part of the experience, too.

How much does it cost to hold the festival?

One reason that tickets for music festivals are so expensive is that it can cost a lot of money to host these events. It can cost millions upon millions of dollars to host a music festival — especially when top-tier musical talent is performing; their fees can be steep, in keeping with their stature.

Should I use my emergency fund for a festival?

Emergency funds are a type of savings fund specifically earmarked for unexpected expenses that interrupt daily life, such as a car repair, medical bill, or loss of one’s income. Since a music festival is a planned expense, you should not tap your emergency fund for this. Instead, it’s better to gradually save up for the cost of the festival in advance.

Should you layaway your festival tickets?

Whenever possible, it’s best not to make a purchase using a layaway arrangement, especially for an unnecessary expense like a music festival. While layaways don’t come with interest like credit cards, they do typically charge fees for spreading out the cost of the purchase. It’s best to create a budget for attending a music festival and to save up for festival tickets in advance.

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Photo credit: iStock/urbazon

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.

Third-Party Brand Mentions: No brands, products, or companies mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third-party trademarks referenced herein are property of their respective owners.

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Buying a home is a major responsibility. If you’re unable to continue paying the mortgage on your house, what happens next? You’ve heard of foreclosure, which can result in losing your home and be financially damaging. But there’s another option called a deed in lieu of foreclosure, which may be less stressful than foreclosure, have less of a negative impact on a credit report, and may be faster to complete.

Here’s what you need to know about a deed in lieu of foreclosure, and when it might be an option to consider.

What Is a Deed in Lieu of Foreclosure?

Where a foreclosure may involve the court and a lengthy process, the alternative, a deed in lieu of foreclosure, is fairly simple.

If your lender agrees, you hand over the deed to them and the lender releases the lien on the property. You may be released from any balance you owed on the mortgage (however, there may be exceptions if you owe more than the home is worth).

And while a deed in lieu will appear on your credit report, it doesn’t have as severe an impact as a foreclosure.

The lender might even offer you financial assistance to spruce up the home to make it more sellable.

Recommended: Tips On Buying a Foreclosed Home

Working With the Lender

Your lender may only consider a deed in lieu of foreclosure in certain situations.

For instance, the lender might require that you first put your home on the market as a short sale or explore a loan modification.

If you’re completely unable to pay, start by contacting your lender and asking if a deed in lieu of foreclosure is an option. If it is, you’ll be given an application and asked for documents proving your inability to pay the mortgage. The documents will show your income and expenses, as well as bank account balances.

This process can take 30 days or more.

If your application is approved, you may want a real estate lawyer to review it to help you understand whether you are fully released from the financial obligations tied to the mortgage. For example, if the lender sells the home for less than the remaining mortgage balance, are you responsible for that deficiency?

Once you are comfortable with the title-transferring agreement, you and the lender will sign it, and it will be notarized and recorded in public records.

At this point, you will be notified how long you have to leave the home.

When to Consider a Deed in Lieu

One instance when a deed in lieu may be a good idea is if you owe more on your home than it is worth, as long as the agreement stipulates that you won’t owe the difference between the value of the home and what you owe.

If you are unable to continue paying your mortgage, it’s important to know that a foreclosure will leave a nasty mark on your credit report for seven years and make it difficult or impossible for you to take out another mortgage for years.

A deed in lieu will appear on your credit report, but it may not have the same lasting effect. Your credit score will drop, but long term, it may not affect your ability to take out a loan.

Benefits of a Deed in Lieu

There are advantages for both the borrower and the lender when it comes to a deed in lieu. For both, the big benefit is not having to go through the long and expensive process of foreclosure.

Because a deed in lieu is an agreement between you and the lender and not an order from a court, you may have a little more flexibility in terms of when you vacate the property.

With foreclosure, you are sometimes forced to vacate within days by local law enforcement. With a deed in lieu, you may even be able to work out an arrangement where you rent the property back for a period. The lender gets a little rent money and you have more time to figure out your next move.

In addition, this option is more private than a foreclosure.

From the lender’s perspective, the benefits of a deed in lieu include avoiding litigation and court time.

Drawbacks of a Deed in Lieu

There are disadvantages as well. A deed in lieu will appear on your credit report, even if it’s not as damaging as a foreclosure. Plus, it may still be difficult to get another mortgage in subsequent years.

It may still be difficult to get another mortgage in subsequent years.

If you owe more than your home is worth, you may still be on the hook for the difference between the appraised property value and what you owe.

You may be denied a deed in lieu if there are other liens or tax judgments on the property, or if the home is in bad condition and requires maintenance to sell.

Recommended: Home Affordability Calculator

Being Smart About Your Mortgage

The best thing to do, if at all possible, is to avoid getting into a situation where you can’t afford to pay your mortgage. If you’re having short-term financial issues, talk to your lender immediately to see if there is the possibility of delaying a few months’ payment or setting up a loan modification so you can work to pay off your outstanding debt.

Typically, the lender will want to help you; it’s easier to work out an agreement now than several months down the road, when you haven’t paid your mortgage at all and are facing foreclosure.

If you do end up in a situation where you are unable to continue paying your mortgage and you aren’t offered options, consider a deed in lieu of foreclosure as a faster and easier solution than a foreclosure.

If you’re just starting to consider buying a home, create a budget and calculate how much in mortgage payments you can afford each month. Don’t forget to calculate insurance and interest as well. Make sure that you won’t be stretched thin financially.

Recommended: Mortgage Calculator

The Takeaway

If you can’t pay your mortgage and you’re unable to get a short sale or loan modification approved, a deed in lieu of foreclosure may be the best option. Rather than go through the foreclosure process, a deed in lieu allows a borrower to sign a property over to the lender.

Your credit will take a significant hit, though not as bad as with a foreclosure.

If you’re looking for a home mortgage or a cash-out refinance, SoFi offers a range of competitive and flexible options, with a mortgage loan officer guiding you every step of the way.

SoFi makes the home mortgage process simple.

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SoFi Loan Products
SoFi loans are originated by SoFi Bank, N.A., NMLS #696891 (Member FDIC). For additional product-specific legal and licensing information, see SoFi.com/legal. Equal Housing Lender.

SoFi Mortgages
Terms, conditions, and state restrictions apply. Not all products are available in all states. See SoFi.com/eligibility for more information.

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.

Third-Party Brand Mentions: No brands, products, or companies mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third-party trademarks referenced herein are property of their respective owners.

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