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We work hard for our money, so it’s a nice change of pace when our money works hard for us, which is what a tiered-rate savings account can do.

Putting cash into any kind of savings account can help money grow, not only by keeping it separate from where we do our spending but by earning interest. One option that can be pretty appealing is a tiered-rate savings account. The interest rate that a tiered-rate savings account earns usually grows as the amount of savings increases — which can make stashing away cash even more motivating.

Learn more here, including:

•   What is a tiered interest rate?

•   How do tiered-rate savings accounts work?

•   What are the pros and cons of tiered-rate savings accounts?

•   What are alternatives to tiered-rate savings accounts?

What Is a Tiered-Rate Savings Account?

A tiered-rate account is a savings account that has more than one potential interest rate that can be applied. Usually, the interest rate for a savings account doesn’t vary depending on the amount in the account, though it may change based on prevailing market conditions. (However, since the point of savings vs. checking accounts is to earn some interest, a fixed rate can be perfectly fine).

The way these tiered-rate accounts generally work is that as someone’s savings grow, so does their interest rate. Interest rates are offered on a tiered scale with the largest balances getting the highest interest rates. The interest rates offered by these accounts are known as tiered interest rates or escalating interest rates.

The point of this financial product is to encourage customers to save more money as they work towards earning the highest possible interest rate. It also helps keep account holders loyal to their current bank if they are wondering, “Do I need long-term savings?” With a tiered-rate account, the answer may be yes since customers are rewarding for their continued saving.

How Do Tiered-Rate Savings Accounts Work?

Here’s a closer look at how a tiered interest rate and tiered interest-rate accounts work. As briefly noted above, with a tiered-rate account, the higher someone’s balance is, the higher their interest rate is likely to be. That means, as their balance grows, their interest rate has the potential to rise. This can make a person’s savings grow more quickly.

Tiered-rate accounts offer account holders different “tiered” interest rates that correspond with different account balances. For example, if Acme Bank offers a tiered-rate savings account they may give a 0.01% interest rate for savings account amounts ranging from $10,000 to $25,000. For savings ranging from $25,000 to $100,000 they may up that interest rate to 0.02%.

Tiered-rate savings accounts tend to have a minimum balance threshold in order to open an account for the first time. Typically, a minimum daily balance must also be maintained. These accounts may also require that their holders make a minimum amount of monthly transactions (which could involve deposits or transferring money to another account). This transaction minimum may exist to ensure that the bank earns enough from transaction fees to profit even when paying out a higher interest rate.

Characteristics of Tiered-Rate Accounts

The following characteristics are typically associated with tiered-rate accounts:

•   Interest rates rise as account balances grow

•   Minimum initial deposit and ongoing balance requirements

•   Minimum monthly transaction requirements

Pros of Tiered-Rate Savings Accounts

These are a few advantages typically associated with tiered-rate savings accounts.

Opportunity to Earn Higher Interest Rate on Savings

Tiered-rate savings accounts tend to offer higher interest rates than normal savings accounts do — especially for motivated savers who work to increase their account balances. (Incidentally, as you think about opening a new account, you may wonder whether opening a savings account affects your credit score. It typically does not; banks don’t usually pull a credit report in order to approve you.)

Potential for Money to Increase Quicker

Because interest rates can be higher with tiered-rate savings accounts, it’s possible for savings held in these accounts to grow faster than with other accounts (as long as the account holder doesn’t remove money from the account, that is). Thanks to compound interest, your money will make more money.

Recommended: How Does Compounding Interest Grow Your Money?

Cons of Tiered-Rate Savings Accounts

As to be expected, there are also some disadvantages associated with tiered-rate savings accounts that are worth keeping in mind.

Putting Money Elsewhere Can Be Better to Build Wealth

Yes, a tiered-rate account does offer the opportunity to earn interest on savings and to grow those savings. However, the interest rates offered by these types of accounts tend to deliver a lower return vs. other investments (such as investing in the stock market). While investing in stocks is riskier than earning interest in an insured savings account, consumers can potentially see much greater growth that way. This can be helpful when saving for long-term goals like retirement.

Need a Larger Account Balance for the Highest Rates

To secure the best interest rates through a tiered-rate savings account, consumers may need a very large sum of money held in their savings account. If someone doesn’t have that amount of money, they may find that a standard savings account actually performs better for them. They might also research which common bank account bonuses they could snag by opening one of these regular accounts.

Here at a glance is a chart comparing the pros and cons of tiered-rate accounts:

Pros of Tiered-Rate Accounts	Cons of Tiered-Rate Accounts
Opportunity to earn higher interest rates on savings	Putting money elsewhere can be better to build wealth
Potential for money to increase more quickly	Need a larger account balance for the highest rates

Alternatives to Tiered-Rate Savings Accounts

If someone is looking to earn money on their savings, there are a few different vehicles they can consider for earning interest on their funds.

•   High-yield savings accounts: High-yield savings accounts are similar to standard savings accounts, but they earn much higher interest rates. More often than not, high-yield savings accounts are found through online banks. These financial institutions can save big since they don’t have to finance bricks-and-mortar branch locations; they can pass along the savings to their customers in the form of higher interest rates, lower fees, and/or special bonuses.

•   Money market accounts: Money market accounts are typically insured by the Federal Deposit Insurance Corporation (FDIC) or National Credit Union Administration (NCUA) like a savings account, so they are very secure. They tend to have a higher APY than a normal savings account. There is, however, a potential downside: Money markets may have significantly higher minimum deposit and balance requirements, and they can also have withdrawal limits much like some savings accounts do.

•   Certificate of deposit: Certificates of deposit vs. savings accounts can be a wise choice for some consumers. Also known as CDs, certificates of deposit are time or term deposits, meaning the money stays in the account for a specific period of time (typically six months to a few years, though longer and shorter products are available). If you withdraw the funds before what is known as the maturity date, or the end of the term, you will likely pay a penalty fee. Because of the commitment to keep your money on deposit for a set length of time, CDs may offer higher interest rates than savings accounts and money market accounts.

The Takeaway

If someone has a chunk of money available to set aside, they may find that a tiered-rate savings account can be a good option. It offers them a way to earn a higher rate as they sock away more cash. If, however, someone is just starting their savings journey, a standard savings account with a single interest rate may work more in their favor. In all situations, the aspiring account holder needs to balance such variables as interest rate, minimum deposit and balance requirements, and account fees. By evaluating those factors, the right savings vehicle should come into focus.

Want to earn more interest on your savings? Check out what SoFi offers with Checking and Savings. When you open an online bank account with direct deposit, SoFi offers a competitive APY right off the bat, charges no account fees, and gives you access to a network of 55,000+ fee-free ATMs, all of which can help your money grow. Another perk: SoFi recently announced that deposits may be insured up to $2 million through participation in the SoFi Insured Deposit Program¹.

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 tiered APY?

Tiered-rate accounts offer account holders different “tiered” interest rates (which can be expressed as an APY, or annual percentage yield). The amount an account holder has on deposit will qualify them for a certain interest rate “tier” or level. Typically, the more money on deposit, the higher your rate.

What is tiering in banking?

Tiering in banking refers to tiered-savings accounts, which provide account holders with different interest rates based on their savings account’s balance. Usually, the higher someone’s account balance is, the higher their interest rate is.

Is a tiered interest rate good?

A tiered interest-rate structure tends to benefit savers who have high account balances since the more money you have on deposit, the higher your interest rate. If someone has a smaller amount of savings, a standard or high-yield savings account with a single interest rate may be more advantageous to them.

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¹SoFi Bank is a member FDIC and does not provide more than $250,000 of FDIC insurance per legal category of account ownership, as described in the FDIC’s regulations. Any additional FDIC insurance is provided by banks in the SoFi Insured Deposit Program. Deposits may be insured up to $2M through participation in the program. See full terms at SoFi.com/banking/fdic/terms. See list of participating banks at SoFi.com/banking/fdic/receivingbanks.

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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If someone is applying for disability benefits, they may be relieved to learn, yes, you can have a savings account on Social Security disability. While there are certain financial factors that can disqualify someone from Social Security eligibility, having a savings account is not one of those factors.

But of course, there are some subtleties to be aware of with any benefits matter, so let’s take a closer look. Here, we’ll share:

•   A better understanding of how Social Security works

•   The difference between SSDI (Social Security Disability Insurance) and SSI (Supplemental Security Income)

•   Who’s eligible for Social Security disability benefits

•   What the guidelines are for having a savings account while receiving benefits

•   What can lead to disqualification for benefits.

Let’s learn more about this important topic.

What Is Social Security?

First, let’s take a closer look at how Social Security works. There’s a reason the Social Security program is so well known: It has been providing financial support to Americans for many decades. Social Security benefits are designed to help maintain the basic well-being and protection of the American people. These benefits have been around since the 1930’s in response to the economic crisis caused by the Great Depression. Today, one in five Americans currently receive some form of Social Security benefits — one third of those are disabled, dependents, or survivors of deceased workers. More than 10 million Americans are either disabled workers or their dependents.

Can I Get Social Security Disability Insurance or Supplemental Security Income with a Savings Account?

So, can you have a savings account on Social Security disability? You may be thinking you can’t have that kind of asset if you want to qualify. Well, we have good news here. It is indeed possible to receive Social Security Disability Insurance (SSDI) or supplemental security income if you have a checking or a savings account. Even better, it doesn’t matter how much money is held in that account. There are other program requirements that must be met to qualify for SSDI, but how much money someone has or doesn’t have in the bank isn’t one of them.

Eligibility for SSDI

In order to be eligible for SSDI benefits, the individual must have worked in a job or jobs that were covered by Social Security and have a current medical condition that meets Social Security’s definition of disability. Generally, this program can benefit those who are unable to work for a year or more due to a disability. It provides monthly benefits until the individual is able to work again on a regular basis. If someone reaches full retirement age while receiving SSDI benefits, those benefits will automatically convert to retirement benefits maintaining the same amount of financial support.

Eligibility for SSI

Here’s a bit more about the Supplemental Security Income (SSI) program and who is eligible for SSI benefits. It is a federal support program that receives funding from general tax revenue, not Social Security taxes. This program provides financial support to help recipients cover basic needs such as clothing, shelter, and food.
This program provides aid to aged (65 or older), blind, and disabled people who have little or no income (or limited resources). To qualify, participants must be a U.S. citizen or national, or qualify as one of certain categories of noncitizens.

What You Have to Tell SS about Your Assets if You Want Benefits

Can you have a savings account on SSI or SSDI? There are certain assets (in this case, they’re known as resources) that must be disclosed in order to qualify for benefits through the SSI program. However, there aren’t any such limits in place for the SSDI program.

What the value of someone’s resources is (aka their financial assets) helps determine if they are eligible for Social Security benefits. If a recipient has more resources than allowed by the limit at the beginning of the month (when resources are counted), they won’t receive benefits for that month. They can be eligible again the next month if they use up or sell enough resources to fall below the limit.

Eligible resources can include:

•   Cash

•   Bank accounts (checking account, regular savings account, growth savings account; whatever you have)

•   Stocks, mutual funds, and U.S. savings bonds

•   Land

•   Life insurance

•   Personal property

•   Vehicles

•   Anything that can be changed to cash (and can be used for food and shelter)

•   Deemed resources

The term “deemed resources” refers to the resources of a spouse, parent, parent’s spouse, sponsor of a noncitizen, or sponsor’s spouse of the Social Security benefits applicant. A certain amount of these deemed resources are subtracted from the overall limit. For example, if a child under 18 lives with only one parent, $2,000 worth of deemed resources won’t count towards the limit. If they live with two parents, that amount rises to $3,000.

Recommended: What are the Different Types of Savings Accounts?

How Much Can I Have in My Savings Account and Receive SSI or SSDI?

For the SSI program, the total resource limit (which includes what’s in a checking account) can not be more than $2,000 for an individual or $3,000 for a couple. Again, there are no asset limits when it comes to the SSDI program. If someone is applying for the SSDI program, they can surpass that $3,000 limit, and it won’t matter as it doesn’t apply to them.

SSA Exceptions and Programs

Not every asset someone owns will count towards the SSI resource limit (remember, there is no such limit for the SSDI program). For the SSI program, there are some exceptions regarding what counts as a resource. The following assets aren’t taken into consideration:

•   The home the applicant lives in and the land they live on

•   One vehicle—regardless of value—if the applicant or a member of their

•   household use it for transportation

•   Household goods and personal effects

•   Life insurance policies (with a combined face value of $1,500 or less)

•   Burial spaces for them or their immediate family

•   Burial funds for them and their spouse (each valued at $1,500 or less)

•   Property they or their spouse use in a trade or business or to do their job

•   If blind or disabled, any money they set aside under a Plan to Achieve Self-Support

•   Up to $100,000 of funds in an Achieving a Better Life Experience account established through a State ABLE program

The Takeaway

When applying for Social Security benefits, having a savings account may or may not impact your eligibility. It depends on which program they are applying for. It is possible to have a savings account while receiving SSDI benefits. It’s also possible to have a savings account while receiving SSI, but there are limits regarding how much the value of the applicant’s assets (including what’s in their savings accounts) can be worth to qualify for support.

If you happen to be in the market for a savings account, take a look at what SoFi has to offer. When you sign up for our linked online bank account, with direct deposit you’ll earn a super competitive APY so your money grows faster. And you won’t pay any of the usual bank 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

Does Social Security look at your bank account?

That depends. If someone is applying for Supplemental Social Security Income (SSI) benefits, their personal assets are taken into consideration when it comes to eligibility. With Social Security Disability Insurance (SSDI), applicant assets aren’t taken into consideration.

Does money in the bank affect Social Security disability?

No, money in the bank doesn’t affect Social Security disability benefits. There is a $2,000 to $3,000 limit (varies by household) for the SSI program, but the SSDI program does not take personal assets into account when determining eligibility.

How much money can I have in my account on disability?

Personal assets aren’t taken into account, including savings, when applying for the SSDI program. If you’re wondering if you can have a savings account on Social Security disability, the answer is yes. A savings account is allowed.

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Photo credit: iStock/MicroStockHub

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.

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The main difference between retail vs. corporate banking lies in what type of services they provide and to whom. Retail banking is consumer-focused while corporate banking, also referred to as business banking, is designed to meet the needs of businesses.

Banks can offer both retail and business banking services to attract both types of clients. Understanding how each one works makes it easier to distinguish between retail vs. corporate banking. Here, learn more about:

•   What retail banking is.

•   Services offered under retail banking.

•   What corporate banking is.

•   Services offered under corporate banking.

•   Key differences of retail vs. corporate banking.

What Is Retail Banking?

Retail banking refers to banking services and products offered to retail customers, meaning individuals and families. Retail banking can also be referred to as consumer banking or personal banking. The kinds of products and services offered by retail banks are designed for personal money management (think checking and savings accounts, checkbooks, debit cards, and more). Individuals who work in these financial institutions are called retail bankers.

In the U.S., the Office of the Comptroller of the Currency (OCC) is responsible for overseeing banks at the national level. Banks with assets in excess of $10 billion are also regulated by the Consumer Financial Protection Bureau (CFPB). In addition to federal regulation, retail banks can also be subject to regulation and oversight at the state level. These organizations help ensure that services are being provided in keeping with the law and that charges are not excessive.

Recommended: How Do Retail Banks Make Money?

Services Offered Under Retail Banking

Retail banks typically offer products and services that are designed to help everyday people manage their finances. This is the key distinguishing factor between retail vs. business banking. For example, some of the services retail banks may offer include:

•   Deposit account services: Retail banks can allow consumers to open checking accounts, savings accounts, money market accounts, and other deposit accounts to hold their money safely and securely.

•   Mortgage lending: Homeowners often require a loan to purchase a home, and many retail banks provide mortgages to qualified borrowers.

•   Secured and unsecured loans: In addition to home loans, retail banks can issue other types of loans, including auto loans, personal loans, home equity loans, and lines of credit.

•   Credit cards: Credit cards offer convenience for making purchases; many of them also offer rewards to entice consumers to sign up for a card and use it regularly. Retail banks can issue credit cards to creditworthy customers.

•   Certificates of deposit: Certificates of deposit (or CD accounts) are special types of deposit accounts that allow you to earn interest on your money for a set term, or up until its maturity date.

Banks may also offer insurance, investment services, or wealth management services to their retail clients. Private banking may also be available for higher net-worth customers.

Retail banks usually make money by accruing interest on the money they lend via loans and other vehicles. They can also charge various fees for banking services, including overdraft fees, loan origination fees, and checking account fees. Some retail banks have physical branches, while others operate exclusively online.

What Is Corporate Banking?

Corporate banking is the branch of banking that offers its services and products to business entities. That includes large corporations as well as small and medium-sized business operations. Corporate banks may also serve government agencies and entities. While services may include deposit accounts, these banks also probably offer credit and asset management, lines of credit, payment processing, and tools that facilitate international trade.

Just like retail banks, corporate banks can and do charge fees for the various services they provide. Banking services can be directed toward a corporate audience in general or be tailored to target the needs of specific industries, such as healthcare or companies that operate in the tech space.

Recommended: When would I Need a Business Bank Account?

Services Offered Under Corporate Banking

The services offered by corporate banks are designed to suit the needs of businesses large and small. The kinds of services a corporate bank can offer include:

•   Deposit account: Business banking can include many of the same deposit options as retail banking, such as checking accounts, savings accounts, and money market accounts.

•   Debt financing: Corporate banks can offer debt financing options to startups and established businesses that need capital to fund expansion projects and growth.

•   Trade lines of credit: Trade financing can make it easier for businesses to cover day-to-day operating expenses. Examples of trade financing that corporate banks may offer include merchant cash advances, purchase order financing, and accounts receivable processing.

•   Payments processing: Corporate banks can act as payment processors to help businesses complete financial transactions when providing products or services to their customers.

•   Treasury management: Treasury management services can help businesses keep cash flowing steadily and smoothly.

•   Global banking: Businesses that are interested in expanding into foreign markets may rely on business banking services to reach their goal.

Corporate banks can also connect their customers with investment banking services. So what is an investment banker? Investment bankers help to link parties in financial markets. So a private company that’s interested in going public through an IPO, for example, may seek out an investment banker to act as an intermediary between itself and prospective investors.

Key Differences Between Retail and Corporate Banking

Retail and corporate banking both have the same goal: serving the needs of their customers. But the way they achieve this goal differs. Here are some of the most noteworthy differences to consider when comparing retail banking vs. business banking.

Business Model

Retail banking’s business model is built around meeting the needs of retail banking clients. Banks that operate in the retail space are primarily concerned with three things: deposits, money management, and consumer credit.

Corporate banks, on the other hand, base their business models around products and services that are utilized by business entities. That includes offering business bank accounts, providing avenues for securing capital, and offering financial advice.

Customer Base

Retail banks are geared toward consumers who rely on financial products like personal checking accounts, savings accounts, or unsecured loans. A retail bank can offer accounts to different types of consumers, including specialized accounts for kids, teens, students, or seniors. But generally, they’re consumer-facing and work with everyday people to help them manage their money.

That’s a stark difference between retail vs. corporate banking: The latter is business-centric. For example, a corporate bank may offer services to companies with a valuation in the millions. Or it may cater to smaller businesses that need help with things like payment processing or cash flow management. Some business banks may serve companies both large and small.

Processing Costs

As mentioned, both retail and corporate banks can charge fees for the services they provide. These fees are designed to make up for the bank’s own handling costs for processing transactions. Both types of banks can also charge interest on loans, lines of credit, and credit cards. These are ways that banks earn money.

So which is more expensive, retail banking vs. corporate banking? In general, retail banks tend to have lower handling costs which means lower fees for consumers. Corporate banks, on the other hand, typically have higher processing costs which means their clients pay more for their products and services.

Value of Transactions

Since retail banks serve your typical consumers, the average value of transactions processed tends to be lower compared to that of corporate banks. A corporate bank, for example, might process a transaction valued at several million dollars for a single customer. Someone who’s adding money to their personal checking account, meanwhile, may be depositing a few hundred or few thousand dollars.

Profitability

Here’s one more key difference between business banking vs. retail banking: Business banking tends to generate more profits. That’s because corporate banks typically deal in higher value transactions than retail banks.

This doesn’t mean corporate banks are a bad deal for businesses, however. Small business loan rates, for example, can be quite competitive compared to what a consumer might pay for a personal loan at a retail bank.

The Takeaway

The difference between retail vs. business banking is quite straightforward: Retail banking serves individual customer’s needs, while corporate banking helps companies of all sizes, as well as non-profits and other organizations, manage their financial lives.

For most people, retail banking is a good choice to manage and optimize your financial wellness. You can open an online bank account to pay bills, deposit your paychecks, transfer money to savings, and make purchases or withdrawals using your debit card. At SoFi, we make that process even more rewarding. If you open Checking and Savings with direct deposit, you’ll earn a competitive APY, pay no account fees, and have access to your paycheck up to two days early.

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 corporate banking better than retail?

Corporate banking is not necessarily better than retail banking; they’re simply designed to serve different audiences. Corporate banking is usually a wise choice for a business entity, while retail banking is designed to serve individuals with their personal banking needs.

Is a current account retail or corporate?

Current accounts can be offered by retail and corporate banks. Generally speaking, a current account is a bank account that allows you to make deposits and withdrawals. A checking account, either personal or business, is an example of a current account.

Why do banks focus on retail banking?

Banks focus on retail banking because there’s a need for it among consumers; almost every adult might be interested in, say, a checking account, a debit card, and a credit card. The demand for retail banking also allows banks to generate revenue by charging fees for deposit accounts and interest on loans and lines of credit. That said, corporate banking also serves an important need and generates income for banks as well.

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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.

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.

Photo credit: iStock/https://www.fotogestoeber.de
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Check kiting is the illegal act of writing bad checks using bank accounts with insufficient funds. Common variants include retail check kiting, securities-based kiting, and embezzling corporations. Consumers and business owners should know about this fraudulent practice to protect themselves.

While mistakenly writing a bad check is often not a serious issue, there can be harsh penalties, including prison time, for intentionally engaging in check kiting. Knowing how to avoid this scam can save people time and money. As the financial world grows more digital and mobile, this age-old illegal practice remains a risk.

•   Here, you will learn:

•   What is check kiting?

•   What are examples of check kiting?

•   What are the consequences of check kiting?

•   How can I avoid check kiting scams?

What Is Check Kiting?

Check kiting is the illegal practice of writing bad checks on accounts with insufficient funds. While credit cards and mobile payment methods grow more common, checkbooks are still used today, so kiting remains an issue. This fraudulent activity seeks to take advantage of what’s known as the bank’s float period. What’s a float period? It’s the time it takes a financial institution to determine if an account has funds to clear the check. If the funds are there, then the amount is cleared and made available for the payee to use. Nefarious individuals engage in check kiting to essentially swipe money from a bank by pulling cash from accounts that do not have enough funds to cover the checks.

Kiting is not only done through banks and checking accounts, but also with retailers and even individual companies. Retail kiting is performed by cashing a check on an account with insufficient funds to purchase goods and services. There are other variations that financial con artists attempt to pull off, too; more details on these are below.

How Does Check Kiting Work?

Banks and credit unions likely know the answer to “What is kiting?” but business owners and retailers might wonder about this practice. Kiting is the illegal practice of obtaining credit and cash from accounts and other financial instruments. One example of kiting happens when a scammer writes a bad check or uses securities to gain leverage while skirting regulations.

Real-Life Examples of Kiting

Perhaps the most common kiting example is within the banking world. Knowing what is kiting in banking terms and how to cash a check can help you avoid falling victim to this type of financial scam. That, in turn, can help you steer clear of run-ins with the law and falling victim to this type of financial scam. (It can also be wise to be cautious when signing over a check to another. That can potentially cause problems as well.)

There are simple and complex check kiting examples. With a checking account, a grifter might write a check for $100 on an account that only has a $20 available balance, then deposit that check in a separate account. The $100 is then quickly withdrawn from the second account, leaving the first account overdrawn. In this case, the individual took advantage of the bank’s clearing window to steal money.

Variants of Check Kiting

There are other examples of this malicious practice in the business world. Individuals looking to harm the banking, retail, and corporate world are often highly creative in their practices to swindle cash. Below are a few variants of check kiting to watch out for; also protect yourself by making sure that the financial institution where you hold your bank account has top-notch fraud protection to help keep your cash safe from scammers’ activities.

Circular Check Kiting

Circular check kiting is among the most common forms of kiting. A financial con artist will use multiple bank accounts, maybe even at different banks, to illegally take advantage of the bank account float period. As described above, the scammer will pull real cash from non-existent money. While cashing checks without a bank account is a legal practice, doing so with no funds backing it up is kiting.

Circular kiting works by writing fraudulent checks on real accounts to gain unauthorized credit. The fraudster makes a deposit with a check they know will bounce, but quickly withdraws real cash, getting money in hand and leaving the banks with overdrawn accounts. With circular check kiting, the individual might get extra creative and use different names or even several identities to hide their actions.

Retail-Based Check Kiting

Retail-based check kiting happens when an unscrupulous person uses other types of businesses to swindle cash. It may involve the simple yet illegal act of writing bad checks around town. A financial huckster might seek to purchase goods and services by writing a check on an account with insufficient funds. The con artist takes or receives the products, but then the check bounces and the money never makes it back to the retailer.

Another dubious method involves requesting cash back on a bad check at the register. A second check may be used to cover the first check to stay ahead of the bank float period. This can facilitate a series of illegal retail acts. If a retailer becomes aware of this scam, they can try to issue a stop payment on the check. This might help prevent illegal activity, but it’s no guarantee.

Kiting With Securities

Kiting is also a problem in the investing world. Firms illegally use the Securities and Exchange Commission’s (SEC) settlement window to keep a short position in the market without actually purchasing the securities. (Selling short means an investor anticipates that a stock’s price will drop and they can buy low and make a profit.) The SEC’s three-day settlement period requires timely delivery of transactions and securities. If an individual exploits settlement delays in order to transfer unavailable funds, they are engaging in kiting. A trading company that does not receive securities within the three-day period is required to buy shares in the market.

Corporate Check Kiting

Corporate check kiting typically happens when a company doesn’t have the usual limits on deposits. Large sums can be put in an account. Deceitful managers or owners of a firm might take advantage of this; they might deposit bad checks and then immediately spend the cash, before it’s clear that the check won’t clear.

Consequences of Check Kiting

Obviously, check kiting, like other forms of bank fraud, can cause financial loss and a considerable amount of stress, anger, and frustration. There are a range of consequences to the illegal activity of check kiting. Penalties for this type of financial fraud vary depending on how severe the case is:

•   Banks might restrict someone’s account features in small cases.

•   Larger scams can result in misdemeanor or even felony charges.

•   Fines and prison sentences can happen after a severe crime.

Avoid Check Kiting Scams

While there is no sure way to avoid becoming a victim of malicious illegal financial activity, there are steps you can take to reduce your chances. These include:

•   Know how to identify a fraudulent check and a check’s expiration date

•   Be aware of customers and individuals with whom you do business. Take steps to verify that checks are good.

•   Avoid wiring funds to people you do not know.

•   Use a voided check’s information to verify the account is real.

Also be cautious about scam scenarios in which someone sends you a check that overpays you and then requests that you quickly return the difference to them. You could wind up the victim of fraud.

Banking With SoFi

Keeping your account safe is SoFi’s priority. Open a new bank account with direct deposit to earn a competitive APY and pay no fees, all while being backed by many account security features. You’ll be protected by chip card technology, two-factor authentication, and suspicious activity monitoring. You can have all this, along with FDIC insurance protection, by opening an account today.

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 is check kiting illegal?

Check kiting is illegal because it fraudulently uses financial products to gain unauthorized additional credit. It typically employs checks for which there are insufficient funds (that is, checks that will bounce rather than clear). Another practice involves unlawfully embezzling money from a bank or business.

Why is it called kiting?

The term “kiting” is thought to come from the nineteenth-century practice of bond issuance that had no real financial backing. It was said that the only thing keeping the bonds afloat was “air” and nothing else. “Check kiting” grew in prevalence during the 1920s, perhaps as retail banking became more common.

What is cash kiting?

Cash kiting takes advantage of banks through the use of two separate accounts. A fraudster might write a check on one account for more than its available balance and deposit it in the other account. The individual takes advantage of the bank float period, which is the processing time for funds to clear. During cash kiting, both accounts appear to have more funds than they truly do. The fraudster can profit from drawing cash from the accounts when it’s not really available, but the bank doesn’t know that yet.

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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.

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.

This article is not intended to be legal advice. Please consult an attorney for advice.

Photo credit: iStock/MicroStockHub
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Everyone likes to win big. So what if saving money could make it possible to win more money? That actually is possible, thanks to prize-linked savings accounts that combine a normal savings account with a lottery-esque opportunity to win prize money.

Keep reading to learn:

•   How prize-linked savings accounts work.

•   The pros and cons of prize-linked savings accounts.

•   How to open a prize-linked savings account.

•   Alternatives to prize-linked savings accounts.

What Is a Prize-Linked Savings Account?

A prized-linked savings account is essentially a standard account, but it gives account holders the opportunity to win prizes. In addition to their presence in the U.S., they’re more common in other countries, including Germany, Argentina, and Japan.

The way that prize-linked savings accounts work is they allow account holders to enter raffles to earn cash prizes. If you have one of these prize accounts, how would you enter? By making deposits into a savings account, CD, or savings bond. Currently, these types of accounts are offered by financial institutions such as credit unions in 34 different states.

These savings accounts earn a nominal amount of interest and aren’t a solid replacement for a traditional savings account in the long run. However, they can be good for short-term savings. They’re designed to encourage people with low- or moderate-income levels to save more, which is a great thing.

Recommended: Checking Accounts vs. Savings Accounts: Key Differences to Know

Types of Prize-Linked Savings Accounts

To make it easier to understand how prize-linked savings accounts work, let’s look at a few real-life examples of these savings accounts that are available domestically.

Save to Win

The Save to Win pilot project allows credit unions to hold savings promotion raffles. (Banks or other financial institutions weren’t allowed to operate lotteries under this program.) Since 2009, Save to Win has awarded more than $1.4 million in prizes to more than 14,000 members in four states.

Lucky Savers

Since 2015, Lucky Savers has motivated New Yorkers to save by rewarding smart savings habits. This program was exclusive to credit unions and was formatted as a 12-month share certificate with unlimited deposit capabilities. Opening this account only required a $25 initial deposit. Then, for every $25 in month-over-month balance increase, account holders earned one entry into monthly and quarterly prize drawings.

WINcentive

WINcentive® Savings is another credit union-exclusive program. This program in Minnesota offers prize drawing entries for every $25 an account holder saves for up to four entries each month. Prize drawings occur monthly, quarterly, and annually. In 2012 alone, $100,000 in cash prizes were awarded to account holders.

Are Prize-Linked Savings Accounts (PLSAs) Legal?

Prize-linked savings accounts are legal in some states that have enacted legislation to allow these types of accounts. In response to concerns surrounding prize-linked savings programs, Congress passed the American Savings Promotion Act which authorizes banks and thrifts (a financial institution specializing in savings accounts and mortgages) to conduct savings promotion raffles. It also excludes these raffles from the prohibition against financial institutions dealing in lotteries.

Pros of Opening a Prize-Linked Savings Account

Depending on your circumstances and financial goals, a prize account can offer a number of advantages. The pros of these savings accounts are:

•   Prize-linked savings accounts can incentivize individuals to save more money. Programs have found the amount of savers and savings amounts increase when there is a prize incentive.

•   It’s possible to win money that can help offset monthly expenses or can be large enough to be the equivalent of a small lottery prize.

•   It’s possible to win prize money without any of the normal risks that come with gambling or buying lottery tickets. The account holder gets to keep their savings whether they win a prize or not.

Cons of Opening a Prize-Linked Savings Account

Along with the benefits, there are disadvantages to prize-linked savings accounts. These include:

•   Prize-linked savings accounts earn little to no interest. The chance of winning money may not be worth forgoing a better interest rate with traditional or high-interest savings accounts.

•   Winning any prize money at all is not guaranteed and not predictable, like a steady stream of interest earnings is.

•   These prize-linked savings accounts are often cheaper for financial institutions to offer than traditional savings accounts with higher interest rates. For this reason, they might not promote what better savings options an account holder might have.

Opening a Prize-Linked Savings Account

If you want to open a prize-linked savings account, these are the steps you’ll generally take.

1.    Find a bank or credit union that offers prize-linked savings accounts. These accounts aren’t available in all states and are more commonly found at credit unions.

2.    Apply to open a prize-linked savings account. The applicant will usually need to provide two forms of identification during the application process.

3.    Make a deposit. Most prize-linked savings accounts have small initial minimum-deposit requirements.

Are There Taxes on PLSAs?

There are tax requirements surrounding prize-linked savings account winnings. Sure, you can go and spend money from your savings account that’s been plumped up thanks to a cash prize. However, anyone who wins money from one of these accounts should be prepared to pay taxes on their winnings according to state and federal laws.

Alternatives to a Prize-Linked Savings Account

Because there’s no guarantee that you will win any money with a prize-linked savings account, you may want to consider these other savings options that can offer a more guaranteed return.

•   High-yield savings accounts. High-yield savings accounts are simply normal savings accounts with high interest rates. Usually, high-yield savings accounts are found at online banks. Because online banks don’t have to spend a ton of money on brick-and-mortar banking locations, they are able to offer higher interest rates, lower fees, or other bank account bonuses. High-yield savings accounts allow consumers to take advantage of compound interest.

•   Money market account. Money market accounts tend to have a higher APY that normal savings accounts do, but they may have similar withdrawal limits to savings accounts. Check with your financial institution to see if there is a cap on the number of withdrawals you can make per month.

•   Certificate of deposit. A certificate of deposit (CD) has a minimum deposit requirement. It also has a set timeframe during which you can’t withdraw your money from the CD without having to pay a penalty fee. Usually, CDs have higher interest rates than both savings accounts and money market accounts.

The Takeaway

The potential to win prize money through a prize-linked savings account can make saving more appealing for some consumers. That being said, these accounts tend to have much lower interest rates than normal savings accounts, and there is no guarantee the account holder will ever win any money. Before opening one, carefully consider if a prize-linked savings account can meet your needs or if you would be better off with a different financial vehicle.

Want to find a way to earn more on savings? Bank smarter with SoFi, and watch your money grow. Our high-yield bank account offers a competitive APY when you open an account with direct deposit. Other great perks: No account or overdraft fees, plus access to your paycheck up to two days early.

Watch your money make more money with SoFi.

FAQ

Are prize-linked savings accounts legal?

Yes, prize-linked savings accounts are legal in 34 states. Congress passed the American Savings Promotion Act in 2014, which authorizes banks and thrift banks to conduct savings promotion raffles.

Is a lottery account safe?

Lottery accounts are a safe way to save money. There is no actual gambling involved with a prize-linked savings account. Account holders get to keep all of their savings whether or not they win prize money.

How do I open a lottery account?

The process of opening a prize-linked savings account is the same as opening a normal savings account. Once someone finds a bank or credit union that offers this type of savings account, they will apply and provide all of the information and identifying documentation required during the application process. Then they will make an initial deposit.

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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.

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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