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Both TFSAs and RRSPs are accounts that provide Canadian consumers with a chance to save while enjoying investment earnings and unique tax benefits. While a TFSA acts as a more general savings account, an RRSP is used for retirement savings.

Saving is never a bad idea, so here we’ll help you understand the difference between these accounts and how they can play a role in securing your financial future.

Keep reading for a more detailed breakdown of a TFSA vs. RRSP. We’ll cover:

•   What is a TFSA?

•   What is an RRSP?

•   What are the similarities and differences between these two savings vehicles?

•   How can you choose the one that’s best for you?

What Is the TFSA?

A Tax-Free Savings Account (TFSA) is a type of registered tax-advantaged savings account to help Canadians earn money on their savings — tax-free. TFSA accounts were created in 2009 by the Canadian government to encourage eligible citizens to contribute to this type of savings account.

Essentially, a TFSA holds qualified investments that can generate capital gains, interest, and dividends, and they’re tax-free. These accounts can be used to build an emergency fund, to save for a down payment on a home, or even to finance a dream vacation.

A TFSA can contain the following types of investments:

•   Cash

•   Stocks

•   Bonds

•   Mutual funds

It’s possible to withdraw the contributions and earnings generated from dividends, interest, and capital gains without having to pay any taxes. Accountholders don’t even have to report withdrawals as income when it’s time to file taxes.

There is a limit to how much someone can contribute to a TFSA on an annual basis. This limit is referred to as a contribution limit, and every year the Canadian government determines what the contribution limit for that year is. If someone doesn’t meet the contribution limit one year, their remaining allowed contributions can be made up for in following years.

To contribute to a TFSA, an individual must be at least 18 years of age and be a Canadian resident with a valid Social Insurance Number (SIN).

What Is the RRSP?

A Registered Retirement Savings Plan (RRSP) is, as the name indicates, a type of savings plan specifically designed to help boost retirement savings. To obtain one, a Canadian citizen must register with the Canadian federal government for this financial product and can then start saving.

When someone contributes to an RRSP, their contributions are considered to be tax-advantaged. What this means: The funds they contribute to their RRSP are exempt from being taxed the year they make the contribution (which can reduce the total amount of taxes they need to pay for that year). On top of that, the investment income these contributions generate will grow tax-deferred. This means the account holder won’t pay any taxes on the earnings until they withdraw them.

Unlike a TFSA, there isn’t a minimum age requirement to open and contribute to an RRSP. That being said, certain financial institutions may require their customers to be the age of majority in order to contribute. It’s possible to contribute to an RRSP until the year the account holder turns 71 as long as they are a Canadian resident, earned an income, and filed a tax return.

Keep reading for a TFSA vs. RRSP comparison.

Similarities Between a TFSA and an RRSP

How does a TFSA vs. RRSP compare? There are a few similarities between TFSAs and RRSPs that are worth highlighting. Here are the main ways in which they are the same:

•   Only Canadians citizens can contribute

•   Contributions can help reach savings goals

•   Investments can be held in each account type

•   Both accounts offer tax advantages.

Differences Between a TFSA and RRSP

Next, let’s answer this question: What is the difference between an RRSP and a TFSA? Despite the fact that both an RRSP and a TFSA share similar goals (saving money and earning interest on it) and advantages (tax benefits), they have some key differences to be aware of.

•   Intended use. RRSPs are for retirement savings whereas TFSAs can be used to save for any purpose.

•   Age eligibility. To contribute to a TFSA one must be 18 years old, but there isn’t an age requirement to open an RRSP.

•   Contribution limit. The limits are usually set annually and are different for TFSAs and RRSPs. For 2022, the contribution limit for an RRSP is the lesser of either 18% of earned income reported on an individual’s 2020 tax return or the contribution limit, which was $27,830 in 2021. The limit for a TFSA, which also can vary annually, was most recently $6,000.

•   Taxation on withdrawals. While RRSP withdrawals are taxable (but subject to certain exceptions), TFSA withdrawals can be made at any time tax-free.

•   Taxation on contributions. Contributions made to a TFSA aren’t tax-deductible, but RRSP contributions are.

•   Plan maturity. An RRSP matures at the end of the calendar year that the account holder turns 71. TFSAs don’t have age limits for account maturity.

•   Spousal contributions. There is no form of spousal TFSA available, but someone can contribute to a spousal RRSP.

How Do I Choose Between a TFSA and RRSP?

Choosing between a TFSA and an RRSP depends on someone’s unique savings goals and tax preferences. That being said, if someone’s main goal is saving for retirement, they’ll likely find that an RRSP is the right fit for them. When someone contributes to an RRSP, they can defer paying taxes during their peak earning years. Once they retire and make withdrawals (which they will need to pay taxes on), they will ideally have a lower income (and be in a lower tax bracket) and smaller tax liabilities at that point in their life.

If someone wants to be able to use their savings for a variety of different purposes (perhaps including a medium-term goal like a down payment on a home), they may find that a TFSA offers them more flexibility. That said, there’s no reason TFSA savings can’t be used for retirement later on. Contributing to a TFSA is a great option for someone who has already maxed out their RRSP contributions for the year, but who wants to continue saving and enjoying tax benefits.

Recommended: What Tax Bracket Do I Fall Under?

Can I Have Both a TFSA and RRSP?

It is indeed possible to have both an RRSP and TFSA and to contribute to them at the same time. Putting money into both of these financial vehicles can be a great way to save. There are no downsides associated with contributing to both an RRSP and TFSA at the same time if a person can afford to do so.

Can I Have Multiple RRSP and TFSA Accounts?

Yes, it’s possible to have more than one TFSA and RRSP open at the same time, but there’s no real benefit here. The same contribution limits apply. That means that opening more than one version of the same account or plan only leads to having more accounts to manage and incurring more administration and management fees. Just as you don’t want to pay fees on your checking account and other bank accounts, you probably don’t want to burn through cash on fees here.

Should I Prioritize One Over the Other?

Which type of account someone should prioritize depends on their savings goals. Their preferences regarding the unique tax advantages of each account may also come into play. That being said, if someone is focused on saving for retirement, they’ll likely want to make sure they max out their RRSP contributions first.

The Takeaway

Both RRSP and TFSA accounts are great ways for Canadian citizens to save for financial goals like retiring or financing a wedding. Each account has unique advantages and contribution limits. While an RRSP account is designed to help with stashing away cash for retirement, a TFSA account can be used to save for any type of financial need. Whether you choose one or both of these products, you’ll be on a path towards saving and helping to secure your financial future.

Looking to increase your savings efforts? SoFi can help! Open our linked high yield bank account with direct deposit, and you’ll enjoy our no-fee policy and excellent 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

Is it better to invest in TFSA or RRSP?

When it comes to TFSA vs. RRSP, there’s no right answer to whether investing in one is better than the other. Someone focused on saving for retirement may want to prioritize an RRSP, while someone who wants to save for other expenses (like a home or wedding) may find a TFSA more appealing.

Should I max out RRSP or TFSA first?

If someone is focused on saving for retirement, they may want to max out their RRSP first. That being said, this is a personal decision that depends on unique financial goals and tax preferences.

When should you contribute to RRSP vs TFSA?

Typically, the contribution deadline for RRSPs is around March 1st. A Canadian citizen can put funds in a TFSA at any point in a calendar year, and if they don’t max out their account, they will usually be able to contribute the remaining amount in the future.

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Photo credit: iStock/anilakkus

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.

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.

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Many Americans struggle to save money but it’s worth the effort since there are serious downsides to not stashing away cash. These can range from going into debt, facing financial hardship after losing your job, and not being able to achieve your aspirations, like homeownership.

To help you get motivated to put money in the bank, here are twelve dangers of not saving money. They may help you understand why it’s best to put away cash and motivate you to tuck some into a savings account. Not only will you be better prepared for the twists and turns of life, you’ll be better equipped to reach your financial and lifestyle goals.

The Importance of Saving Money

1. Going Into Debt

Without a savings cushion, any expense—from an unexpected car repair to paying for your child’s college education—can put you in debt. In addition, while credit cards and loans are convenient ways to afford more than your bank account, you pay more in the long run because of interest and loan fees.

Since debt often costs more than the actual expense, you can essentially save a considerable amount of money by plumping up your piggy bank.You can try easy ways to save, such as creating a simple budget or automating savings, to put aside a few dollars a month before you can spend it. These moves can ensure that you’ll be using savings instead of debt to pay for your upcoming expenses.

2. Having a Social Life Can Be Nonexistent

Your friends and family are likely on the list of things you enjoy most in life. Being able to afford a dinner out with loved ones can really boost your mood. Heading to a concert with friends can create memories that last a lifetime. But a full social calendar may put you in a sticky financial situation if you haven’t saved anything. From movie dates to happy hours to ball games, these expenses can add up.

No matter your income level, how much money you save each paycheck can make the difference between having a nonexistent social life and a happening one.

3. Life Being More Stressful

According to the Stress in America survey , 65% of respondents say money is a big stressor in their lives, which is the highest percentage since 2015. When you think about it, failing to save can make you feel stuck or overwhelmed. Your personal, financial, and professional life can suffer because a lack of savings has cut off your options.

Achieving your goals, financial and otherwise, may be a struggle without savings to propel you forward. The importance of saving money goes beyond paying an unexpected bill; it can affect your daily quality of life.

4. Not Having the Money for an Emergency

You’ll find many articles, resources, and financial professionals advising you to set aside an emergency fund. Life is expensive and doesn’t always go as planned. So, saving in advance helps you manage life’s unexpected costs.

For example, building an emergency fund might be a better choice than splurging if you get a raise. You’ll thank yourself later when, say, your furnace goes out or you wind up with a major medical bill. Typically, money experts recommend having at least three to six months’ worth of basic expenses salted away in an emergency or rainy day fund.

5. Not Being Able to Celebrate Events

Life is full of amazing milestones like getting married, having a baby, or graduating from college. Unfortunately, celebrating these life events with your family often takes substantial cash. Not being able to recognize these events the way you’d like to is another one of the many dangers of not saving money. The lack of a financial cushion could also lead you to skip, say, a friend’s destination wedding.

Although you could put your celebration on your credit card, you run the risk of going into debt. This will likely cost more over the long run since you have to pay for interest. In other words, you might still be paying it off for years to come.

6. Not Having a Viable Option if You Are Fired

No one plans on getting fired; however, it’s always possible to lose your job unexpectedly. Financial emergencies like this are an important reason to save. Saving can give you security during this kind of a crisis. If you don’t have some cash available, you might have to look into financially downsizing.

This underscores the importance of saving money from your salary when you are employed. You might consider having a small amount automatically transferred from your checking account into savings on payday.

As mentioned above, you should save at least three months of your expenses in an emergency fund. This way, you can have a solid safety net if you get laid off or are temporarily disabled and can’t work for an extended period.

7. Not Having an Inheritance for Your Children

If you’re a parent or plan to be one, you likely want to give your kids a leg up in life. An inheritance can help your children or heirs to build their nest eggs and meet life’s expenses without stress. Having both savings and an estate plan can be a lasting, life-changing gift to those who matter to you most. These assets can serve to eliminate the possibility of financial legal challenges for your family. That said, being unable to leave a legacy is a consequence of not saving money.

8.Not Being Able to Buy a Home

About three-quarters of Americans believe that homeownership is still a core component of the American Dream, according to one recent study . If you don’t save, the dream of homeownership may never become your relativity.

You traditionally need a 20% down payment to qualify for most conventional mortgages. Buying a home also usually involves other expenses, such as closing costs, repairs, moving costs, and more. Not having savings can make it almost impossible to afford the home of your dreams.

9. Not Being Able to Go on Vacation

Without savings, it’s challenging or even sometimes impossible to take time off for some rest. When you don’t set money aside, you can get sucked into the never-ending cycle of living paycheck-to-paycheck. Since you need to work to support yourself, vacations may become less frequent or disappear altogether.

While you may think you can put a vacation on credit, that can perpetuate the “can’t save” situation, because you’ll have debt to wrangle. You could wind up coming home from your getaway to face more bills…ones you may struggle to afford.

10. Not Having Much Financial Freedom

One of the most potent limiting factors in life can be a lack of savings. With a robust bank account to fall back on, you increase your options and flexibility. Moving to a city or state with more opportunity, taking a professional course or college classes, and starting a business can all be possibilities if you’ve saved money.

Of course money can’t solve every problem life throws at you. However, it is a powerful tool that allows you to access opportunities. Remembering this can help you get serious about saving money.

11. Not Being Able to Invest

Investing your money is a superpowered version of saving. For example, if you begin saving $100 at age 25, you will save $12,000 more by age 65 than someone who starts putting $100 away at age 35.

If you save or invest, you can capitalize on compound interest and/or compounding returns. This means your gains are reinvested, so your money can grow faster over time. Consider that an incentive to start saving as early as possible. For example, if you receive a 7% annual rate of return and begin contributing $100 toward saving at age 25, you will amass $120,000 more by age 65 than someone who began contributing at age 35.

If you are Investing your savings vs. keeping them in an insured bank or credit union, you may get higher returns, but this can also mean taking on risk. To balance those forces, educate yourself with an investing guide or seek professional advice.

12. Not Being Able to Help Others

When someone is in financial need, lending money can help them get back on their feet. Whether it’s through providing a micro-loan, donating to a charity, or contributing to a scholarship, you can make a difference in the lives of others no matter how much you give.

But, if you don’t have savings, you may not be able to afford a helping hand.

Why Saving Money Is Very Important

Since money touches almost every area of your life, saving it for what matters most can be essential. Reining in your spending habits can be hard, no doubt, but the payoff quite literally is being able to afford your needs and your goals.

​​Online Banking With SoFi

Affording an enjoyable, stress-free life doesn’t just happen; it requires saving. While this can be difficult in the moment (saying no to splurges, for instance), it can set you up for years of financial wellness. Whether you want to be able to celebrate big moments with friends, start your own business, own a home, or take a major vacation, saving money can help put you on the right path.

Here’s one way to save smarter: with a SoFi bank account. When you use our mobile banking app with direct deposit, you’ll earn a stellar APY and pay zero account fees. Those two moves can help your money grow faster.

Better banking is here with SoFi, NerdWallet’s 2024 winner for Best Checking Account Overall. Enjoy up to 4.60% APY on SoFi Checking and Savings.

FAQ

Can I get by without saving money?

While it’s possible to get by without savings, there may come a day when you run into an unexpected expense that causes financial hardship. If you live paycheck to paycheck without an emergency fund, an unforeseen cost could set you back and make it challenging to recover.

Is debt inevitable if you do not save?

Without savings to fall back on, it’s quite possible to go into debt when unforeseen expenses arise. Contributing to a savings account, even a small amount monthly, can make unexpected costs more manageable so you can sidestep debt.

When is the best time to start saving?

It’s best to start saving now to give yourself time to build a cushion. Remember, everyone has to start somewhere. Even if you can only save $20 per month, your future self will likely thank you.

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Photo credit: iStock/nicoletaionescu

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.

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.

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.

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Do you feel like your spending is out of control? It’s a common experience. It can be easy to blow your budget when you succumb to the allure of some shiny new thing (like the latest mobile phone), have an unexpected expense (a car repair, for instance), or say yes to a weekend away with friends when you don’t really have the cash. Whether you’re struggling to stick to a budget or want to be more organized with your money, there’s never a wrong time to get your finances back on track.

Many of us can respond quickly in the one-off, urgent money crisis. It’s akin to going on a crash diet prior to a big event. But if you are regularly feeling strapped for cash and as if you can’t get your money act together, it’s time for a fresh look.

Making permanent lifestyle changes requires time, dedication, and training in new skills. By applying this perspective to budgeting, you’ll be able to diagnose the problems and practice new habits. That can help show you how you can get back on track financially.

Here, you’ll learn:

•   Why it’s so difficult to stick to a budget?

•   Why you typically go off your budget?

•   Ways to stick to a budget.

Why Is It So Hard to Stick to Money Goals?

Even when we create a monthly budget with the best intentions, we might get off track along the way. Life can be expensive! Whether it’s an emergency medical bill or a seemingly irresistible sale, obstacles pop up with regularity for anyone trying to control their finances.

Additionally, establishing new habits is always a challenge. For example, discipline is vital to eat out less or reduce other expenses. It’s easy to slip back into something familiar and comfortable, even if it hurts your wallet.

Remember, too, that everyone is dealing with a pandemic and inflation. The average American household is spending more on necessities like food and fuel. That takes a bite out of your budget. And, as pandemic restrictions lift, many of us want to get back to doing things like going to concerts and traveling. Those can be pricey to begin with, and inflation just intensifies how such expenses can impact your budget.

Recommended: How to Protect Your Money from Inflation

Common Reasons Why People Break Their Budget

Many factors can cause a budget to go sideways. Here are some other common reasons why people break their budgets.

•   An unexpected bill, like a car repair or emergency room bill

•   The budget felt too stringent and was abandoned after one splurge purchase

•   Your income fluctuate too much for a budget to account for, whether that’s because you are a freelance worker or were laid off recently

•   The temptation of a sale, peer pressure, or shopping to satisfy one’s emotions

Tips for Recovering and Getting Back on Track With Your Finances

Even folks who closely track their spending go over their budget now and then. It happens, but diverging from your budget isn’t the main issue — how you recover is more important. So, if you’re wondering how to start getting your finances back on track, these strategies can help speed up the process.

Evaluating and Pinpointing the Damages

You’re not alone if you get to the end of the month wondering where all your money went. When faced with unexpected expenses, most families will experience financial hardship. According to the Federal Reserve, roughly 35% of Americans would struggle to pay $400 in unexpected expenses. That means many of us don’t have emergency funds in place, or at least not adequate ones.

Overspending can mount quickly, putting any budget out of balance. A few additions to the grocery cart, a few extra visits to the coffee shop, or a home repair can wreak havoc on the most carefully planned budget.

For this reason, looking at recent bills and credit card statements can help identify where you spent your money. For example, dinner with your friends at your favorite (and somewhat pricey) restaurant or back-to-school shopping for your children may have thrown off your spending plan. Identifying budget lapses can help you plan for or avoid them in the future.

Adjusting Your Budget Numbers and Goals

Conventional budgeting advises that you look at your expenses at the end of each month. However, reviewing your account balances and statements once a week is more advantageous for keeping track of money coming in and going out. A weekly check-in allows you the time to change course and maintain your budget, even if the first week of the month didn’t do your budget any favors.

You might have zero experience with budgeting, and that’s okay. However, creating a budget for beginners is an excellent way to start working on getting your finances on track. Watching your cash flow can help you tweak your budget to better suit real life.

Being Kind to Yourself

Don’t beat yourself up if you make your budget with the best intentions and fall woefully short the first month. Progress is more realistic than perfection. Moreover, someone trying to build a new skill rarely gets it right the first time.

Cut yourself some slack if you’re months into following a budget and realize you overindulged this week. Your budget is there as a guide, so update it if you see the need and realign your spending the following month. Practice some financial selfcare and get back on track.

Finding a Financial Accountability Partner

Reaching out for help is an effective way to stay disciplined. A financial coach or financial therapist can play a positive role in modifying your spending habits. In addition, spending issues may be rooted in an unhealthy relationship with money. Finding someone who provides accountability and encouragement can be a real support as you learn smarter cash management. It can be the difference between managing your finances successfully and giving up just when you start to get serious.

Even seasoned budgeters can benefit from professional help. Those with budgeting down pat can work with a financial advisor to create a financial plan and achieve their goals, whether that’s building up an even bigger emergency fund or investing for retirement.

Recommended: Are you financially healthy? Take this 2 minute quiz.💊

Identifying a Budgeting Method for Your Needs

Another strategy to get back on track financially is to pinpoint a budgeting method. There is no one-size-fits-all budgeting solution since everyone has a unique financial situation and personality type. So, here are a few common methods to explore.

•   50/30/20 budget. The 50/30/20 budgeting rule requires budgeters to spend 50% of their income on needs (mortgage, insurance, and car payments), 30% on wants (entertainment, shopping, and personal care items), 20% on savings (investments and emergency fund contributions).

•   Envelope budget. With this method, you divide your spending categories into cash envelopes with a certain amount of cash in each. When the envelope runs out, you can no longer spend in the category until the next month or else you can take money from another envelope.

•   Zero-sum budget. This method requires that you give each dollar you have coming in a job or specific purpose. Therefore, at the end of the month, you will have zero dollars left over.

•   Paying yourself first. With this method, you pay yourself first before you pay other expenses. So, if you plan on saving 20% of your income, you put that away before using the rest of your income as you wish.

•   Line item budget. Usually, when people think of budgeting, a line item budget is the technique that comes to mind. With this method, you place your income and expenses on an Excel spreadsheet to track all the money you have coming in and going out. You learn and adjust as you go.

The Takeaway

If only sticking to a budget were a straightforward and effortless process. But the truth is, many of us lose our focus, have fun spending our hard-earned money, or encounter emergencies and blow our budgets. However, you can get back on track. You may need to diligently track your spending, keep a positive perspective, employ some new strategies, and connect with experts for additional ideas. But by investing some time and energy, you can learn how to get your finances back on track.

A SoFi bank account can help you streamline your budgeting efforts. Not only does our Checking and Savings offer automatic saving features, you’ll also enjoy features that can help your money grow faster. For instance, sign up with direct deposit and you’ll enjoy a fantastic APY and pay no account fees.

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 is the easiest way to track finances?

Budgeting apps that track your spending can help you understand your finances down to the last detail. For example, you can integrate your credit and debit cards, bank accounts, and investment accounts into one app that provides spending alerts and expense reports.

How can I straighten out my finances?

Some solutions for getting your finances straightened out include making and following a realistic budget, regularly checking your credit reports and scores, and automating transfers to savings and investment accounts. This way, you can begin building good monthly spending habits.

How can I grow financially?

Some strategies for growing your money include using cash instead of credit, avoiding debt, paying bills on time, and eating more meals at home. Look for a financial institution that pays high interest and doesn’t charge fees (it’s likely to be an online bank). Then, apply your savings to investment accounts such as an IRA or employer-sponsored 401(k), which will grow your money over time.

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Photo credit: iStock/Eoneren

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.

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Niche banks offer financial products and services that are targeted toward a particular niche or audience, whether they are Native Americans, the LGBTQ+ community, or entrepreneurs. The objective of niche banking, also referred to as affinity banking or vertical banking, is to better meet the needs of a specific group of customers.

You might choose to open accounts with a niche bank if you’re looking for a banking experience that reflects your lifestyle. These banks typically operate on a smaller scale than larger commercial banks and can offer highly personalized services.

Understanding how niche banks work can help you to decide if using one is right for you. Here, you can learn:

•   What is a niche bank?

•   How does a niche bank work?

•   What do niche banks offer?

•   What are the pros and cons of a niche bank?

What Is a Niche Bank?

A niche bank is a bank that focuses on a certain market or audience, such as people in a certain profession or with a shared background. It offers products and services that are designed to meet the specific needs of that audience. Niche banks are alternatives to traditional banks. They clearly understand who they want to help and they tailor their banking approach to serving their target market.

Niche banks may have branches or they may be online-only. They can be insured by the Federal Deposit Insurance Corporation (FDIC) in the same way that other banks are. Again, the main difference between a niche bank and any other bank is where it concentrates its efforts and how it focuses its services. For instance:

•   Murphy Bank, which has branches in Fresno and San Luis Obispo, CA, is an FDIC-insured institution that primarily services farmers, small business owners, and mobile home owners. It can help them to obtain loans for the purchase of equipment or property.

•   Laurel Road focuses on customers who are healthcare and business professionals managing a sizable amount of student loan debt.

How Do Niche Banks Work?

Niche banks work much the same as other banks, in terms of how transactions are processed and the kinds of products and services they offer. Where they diverge from other banks lies in the audience they are established to serve.

As mentioned, Murphy Bank operates primarily as a lender to help farmers, small business owners, and mobile home owners in the Fresno and San Luis Obispo areas. The bank also offers certificate of deposit accounts.

Other niche banks, meanwhile, can serve an entirely different population. For example, niche banks may offer services to customers based on their:

•   Geographic location

•   Military affiliation

•   Racial, ethnic, or gender identity

•   Religious affiliation

•   Sexual orientation

•   Occupation

•   Disability status

•   Immigrant status

Here’s one perspective on the value of niche banks: An estimated 5.4 million households or 7.1 million Americans are unbanked, meaning they have no bank account, according to the Federal Trade Commission (FTC). Twenty-nine percent of the unbanked said they didn’t have enough money to open an account, while 16% said they didn’t trust banks enough to open an account. Niche banking can help fill gaps that may exist in traditional banking by catering to a smaller group of people. In this way, they may contribute to shrinking the ranks of the unbanked.

How Do Niche Banks Meet the Needs of Customers?

Niche banks can meet the needs of their customers in a number of ways. That can include offering specialized products or honing their services to fit a particular needs. Here are some of the ways in which niche banks help the people who use them.

Financial Wellness Tools for Those With Financial Struggles

Financial wellness or wellbeing has several components. Two to consider: freedom of choice in how you manage money and a sense of security that you’re making good decisions with your finances. Niche banks can recognize that financial wellness looks different for everyone. They likely know that what may not be a struggle for one segment of the population is for another.

Niche banking institutions can offer specific tools to help their customers overcome obstacles to achieving wellness. For example, that might include a mobile banking app for people with disabilities that’s specifically designed to help them manage Supplemental Security Income (SSI) or disability income benefits.

Recommended: Is Mobile Banking Safe?

Tax Management Tools for Those With Financial Struggles

Niche banks can also offer tools to help make income tracking and tax filing easier for certain customers. For instance, freelancers, gig workers, and entrepreneurs can get a boost from the niche bank Lili. When income is irregular because you’re working as an independent contractor or you’re a sole proprietor, having built-in banking tools like expense tracking can make doing taxes less stressful.

Lending for Native American Tribal Members

Certain niche banks exclusively serve Native American populations with the goal of helping them to finance their personal or business goals. That can be very beneficial for someone who may not know how to apply for a home loan or how to get a business bank account so they can apply for a business loan. These banks can review the borrower’s financial situation and needs to help them find the right personal or business loan option.

Banking for Immigrants

Immigrants often face numerous financial hurdles, including opening a bank account. Undocumented individuals who have an Individual Taxpayer Identification Number (ITIN) can open a bank account in the U.S. However, a lack of familiarity with banking regulations or a language barrier could be barriers to access. Niche banks can offer solutions to those issues in the form of bilingual banking, Shariah-compliant bank accounts, and other services that reflect the unique financial needs of immigrants.

Banking for Freelance Workers

The number of freelancers is growing. There are approximately 59 million freelance workers in the U.S. and they collectively contribute $1.3 trillion to the economy. Niche banks understand that freelancers may face certain challenges with things like billing customers and getting paid. So they can offer banking tools that can make managing those challenges easier. For example, you might be able to send invoices through your mobile banking app, track ones that have been paid, and see those deposits in your checking account.

Why Are Niche Banks Gaining Steam?

The rise of niche banking may be attributed to a few things. For one thing, people may be increasingly tired of paying high banking fees, such as monthly maintenance fees, overdraft fees, non-sufficient funds fees, and excess withdrawal fees. The expense of keeping your money at a traditional bank can really add up. That’s how banks make profit.

Niche banks that operate as online-only institutions can offer a fee-friendly alternative. Generally speaking, online banks tend to be less expensive for their customers because the bank isn’t passing on high overhead costs. Online banks may also offer better interest rates to savers.

Another reason for niche banks’ growth may simply be the desire for a more personalized banking experience. A major bank may not understand the types of financial challenges a customer faces on a daily basis. Niche banks pride themselves on being able to understand those challenges, whether it’s Greenwood, for the Black and Latino customers, or Ando, which is dedicated to sustainability for eco-conscious clients. Working with a niche bank can help you feel more connected to the institution itself and to your money.

Advantages of a Niche Bank

Niche banks have their pros and cons like any other type of bank. If you’re interested in what’s good about niche banking, here are some of the main advantages.

Niche Banks Know What You Need

Niche banking is all about figuring out what the members of a specific population need most from their bank. When you open an account with a niche bank you can be fairly certain that the bank has studied the most common challenges its customers face and understands what kind of solutions are needed.

They’re Technologically-Inclined

Once upon a time, you might have gone to a branch to do your banking. But thanks to online and mobile banking apps, you can probably manage your money from just about anywhere. Niche banks typically recognize that customers want tech tools that can make keeping track of their finances easier. They often deliver them in the form of user-friendly apps and features, making it fast and simple to pay bills, transfer funds between bank accounts, and more.

They’re Not One-Size-Fits-All

Niche banking aims to encompass a wide variety of customers, which means it can be easier to find the right banking option for you. You’re not necessarily limited to banking in your geographic location. Instead, you may open accounts online based on factors like gender identity, ethnic background, or disability status. And as more niche banks open, they will likely serve an even more audience segments.

Disadvantages of a Niche Bank

There’s a lot to like about niche banks but there are some potential drawbacks. If you’re considering a niche bank, here are a few things to keep in mind.

Products and Services May Be Limited

While some niche banks offer the same products and services you’d find at any other bank (say, checking accounts, savings accounts, credit cards, and loans), not all of them have a full spectrum of services. Murphy Bank, for instance, does not offer checking accounts or money market accounts. So in some instances, a niche bank may not be an all-in-one-banking solution.

Finding the Right Bank May Be Difficult

Having multiple niche banks to choose among can be a good thing, as it allows you to find the best banking option for you. That said, the process can be a challenge if you find that no single niche bank meets all of your needs. Perhaps you are both Black and an entrepreneur, and are considering niche banks that speak to each facet of your identity. It may be hard to know which financial institution will best suit your needs.

Recommended: Can I Have More Than One Bank Account?

The Takeaway

Niche banking offers a personalized perspective, serving the specific needs of certain consumers. For instance, some niche banks are designed to uplift the disabled; others are there to understand and serve the needs of Native Americans. For some account holders, switching to a niche bank will allow for a more personalized, satisfying experience. Account holders can enjoy services and an outlook that really meshes with their identity and aspirations.

If you’re looking for ways to bank smarter, see what SoFi offers. While we aren’t an affinity bank, we do understand what our customers want. Namely, high interest, no fees, and convenience. So when you open our high yield bank account with direct deposit, you’ll enjoy a competitive APY and no fees. Plus, eligible account holders can get paid up to two days early. Those are good reasons to open a SoFi bank account online.

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 is vertical banking?

Vertical banking is banking that targets a specific vertical or segment of the population. It’s the same thing as niche banking or affinity banking.

Are niche banks a fad or a long-term option?

Whether niche banks will stick around for the long haul is anyone’s guess. The increasing number of niche bank offerings suggests that banking customers are looking for alternatives beyond the traditional big banks, regional banks, and credit unions.

What is niche market strategy?

Niche market strategy is all about targeting a specific niche to sell products or services. Banks can apply a niche market strategy to narrow down the area of the population they’d like to serve.

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Photo credit: iStock/Bearinmind

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.

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.

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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Shared branch credit unions allow members to access banking products and services at other credit union branches that belong to a wider network. Joining a shared branch credit union can make managing your financial accounts more convenient if you live, work, or study in an area where your home credit union doesn’t have branches.

The types of transactions that can be carried out via shared branching are typically the same as those allowed by the home branch. There are, however, a few things you may not be able to do, so here’s a closer look.

Read on to learn:

•   What is shared branch credit union and how does it work?

•   What can members do at a shared branch?

•   What can’t members do a shared branch?

•   Pros and cons of shared branching.

What Is Shared Branching?

Shared branching is the practice of allowing members of one credit union to carry out financial activities at branches of other credit unions that are all located within the same branch network.

Here’s one example: The Co-Op Shared Branch managed by Co-Op Solutions, for example, offers access to more than 5,600 shared branches in the U.S. and over 30,000 surcharge-free ATMs. This shared branching network includes credit unions in all 50 states. This can be very convenient in terms of being able to bank at a variety of locations.

As long as your home credit union, meaning the credit union where you maintain your accounts, is part of a shared branching network, then you can access your accounts at other credit unions within the network. You don’t need to be a member of multiple credit unions to benefit from this sharing system.

Shared branching is a significant departure from traditional banking. If you have checking and savings accounts at Chase Bank, for example, you likely wouldn’t be able to walk into a Bank of America and conduct business.

How Can I Use a Shared Branch?

To use a shared branch credit union, you first have to determine whether your home credit union belongs to a sharing network. Co-Op Solutions, for instance, simplifies this process. It offers a shared branch and ATM locator tool that you can use to find shared credit union branches near you.

Once you find a shared branch, you can visit in-person to manage your accounts. You’ll need to bring a form of photo identification to verify your identity. You may also need to provide your phone number and the last four digits of your Social Security number. And of course, you’ll need the name and account number for your home credit union.

Generally, you can use a shared branch credit union much the same as your home credit union. That means you can use the ATM to make withdrawals or check account balances. If you need to make a deposit or complete other transactions, you can do those through a teller either inside the branch or at the drive-thru.

What Can Members Do at a Shared Branch?

For the most part, shared branch credit unions allow you to carry out the same range of transactions as you would at your home branch. If you’re not sure what a particular shared branch credit union allows, you may be able to find a list of services on the credit union’s website.

Here are some of the most important transactions you can complete via shared branching.

Deposits and Withdrawals

Credit union members can deposit funds to their accounts and make withdrawals through a shared branch credit union. That’s convenient if you need to deposit cash or withdraw money from your accounts. You may also choose to make deposits in-person if you’re concerned about mobile deposit processing times. (And if you’re wondering, “Is mobile deposit safe?”, the answer is yes.)

Transfer Money Between Accounts

Shared branching also allows members to move money between accounts. For example, you may want to shift some of your savings to checking or to a money market account at your credit union.

Can you move money from one bank to another via shared branching? Yes, if you have accounts at more than one credit union. If you need to transfer money from your credit union to a financial institution that’s not part of a shared branch network, then you’ll need to link the external account to schedule an ACH transfer or wire transfer.

If you need to send funds overseas, keep in mind that not all credit unions participate in the SWIFT banking system, which is used to facilitate international wire transfers.

Make Loan Payments

Credit union members can make payments to auto loans, personal loans, mortgages, and other loans through shared branches. You’ll need the loan number to make your payment. Being able to pay through a shared branch credit union could help you to avoid missed due dates.

What Can Members Not Do at a Shared Branch?

While shared branch credit unions allow for flexibility, there are some things members cannot do. If you belong to a shared branch credit union network, here are some of the things that are typically prohibited.

Open a Bank Account

If you’re visiting a co-op shared branch credit union, you can’t open a new account with your home credit union. Instead, you’d need to go to one of your home credit union’s branches or visit the credit union’s website to open the accounts. Of course, you could ask how to open a business bank account or personal bank account options at the shared branch if you’re interested in being a member of that credit union.

Access Deposited Funds Immediately

Just like banks, credit unions process transactions according to a set schedule. When you deposit money at a shared branch credit union, you can’t expect to be able to withdraw it right away. The deposit hold time or processing time can vary by the credit union. You may be able to expedite processing if the credit union allows it, but you may pay a fee for that.

Withdraw an Unlimited Amount of Money

Shared branch credit unions can impose limits on the amount of money members can withdraw each day. For example, members of the Co-Op Solutions Shared Branch Network limit members to $500 per day in withdrawals when accessing funds at shared branches. That limit may be higher or lower than the limit imposed by your home credit union.

Open an Individual Retirement Account

Individual Retirement Accounts (IRAs) offer a tax-advantaged way to save money for retirement. Credit unions can offer IRAs to savers, though you typically cannot open one through a shared branch. Instead, you’ll need to go to your home credit union to open an IRA either in-person or online.

Benefits of Shared Branching

If you prefer credit unions to traditional banks, then belonging to a shared branch credit union can offer some advantages. Remember, you don’t have to do anything special to enjoy the benefits of shared branching, other than belonging to a credit union that’s part of a sharing network. You don’t have to open multiple bank accounts to have privileges at more locations.

Convenience

Shared branch credit unions make it convenient to access your money wherever you are, as long as there’s a shared branch location nearby. So whether you’re traveling for business, taking a family vacation, or planning a move, you don’t have to worry about leaving your credit union accounts behind.

Flexibility

Doing business at a shared branch credit union allows for flexibility since you can do most of the things you’d be able to do at your home branch. Again, the main things you wouldn’t be able to do include opening new checking or savings accounts, opening an IRA, or applying for a loan. You’d only be able to do those things if you also choose to become a member of the shared branch credit union.

Avoid Fees

How do banks make revenue? By charging fees for the services they provide. Being part of a shared credit union may help you avoid some fees. If you use a shared-branch credit-union ATM network while you’re traveling, you may be able to avoid out-of-network ATM surcharges. While shared branch credit unions may charge fees for certain services, others may be provided free of charge.

Drawbacks of Shared Branching

While shared branching does have some advantages, there are some potential downsides to consider. Here are some of the main cons of using shared branch credit unions.

Availability

Credit unions are not obligated to join a shared branch network. If your home credit union isn’t part of a sharing network, then you’ll be limited to using only that credit union’s branches. That could make managing your accounts more challenging if you regularly travel for business, school, or pleasure.

(However, many people today are used to banking without bricks-and-mortar locations, which is a key difference between online banking versus traditional banking. This availability issue may not be a big concern to some who do their money management online or via an app.)

Withdrawal Limits

As mentioned, credit unions that are part of the Co-Op Solutions network can limit you to cash withdrawals of $500 per day. If you need to withdraw a larger amount in cash, you’d need to find a branch of your credit union to do so, assuming your credit union has a higher daily cash withdrawal limit.

Use Limitations

Shared branch credit unions can be used to do quite a few things but they’re not all-encompassing. There are some transactions that you’ll only be able to do at your credit union’s branch or via the credit union’s website or mobile app.

The Takeaway

Deciding where to keep your money matters. Shared branch credit unions can make banking easier. With shared branches, you don’t have to be limited to a certain geographic area when managing bank accounts in person or via ATM. You can avoid fees by being part of a large network of connected credit unions. While there are some drawbacks, the benefits of convenience and cheaper banking costs can be very appealing to some consumers.

Of course, there’s a lot to be said for online banking and its associated benefits. You can also save money on fees, earn higher interest rates on deposit accounts, and be able to complete many transactions via an app.

SoFi, for example, offers online banking with competitive rates and no fees when you sign up with direct deposit. You can access your money fee-free at more than 55,000 Allpoint network ATMs too.

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

Should I join a credit union or a bank branch?

It depends on your needs. Joining a credit union could make sense if you’re looking for lower interest rates on loans and fewer fees, provided you meet the credit union’s requirements to join. If you do choose to join a credit union for those benefits, you can still open an account at a traditional or online bank and enjoy the benefits those offer.

Is it good to be part of a credit union?

Credit union membership can offer certain perks that you may not always get at a bank. For example, credit unions may charge lower interest rates for loans while offering higher interest rates on deposit accounts. You may also be able to get access to discount programs and other special incentives for being a member.

Can I withdraw money from any bank branch?

You can withdraw money from any branch of your bank, either by seeing a teller or using the ATM to access your accounts. However, you wouldn’t be able to walk into a branch of Bank A to withdraw cash from accounts held at Bank B.

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Photo credit: iStock/Marco VDM

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

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

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

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

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

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.

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