Differences Between Time Deposits and Demand Deposits

Differences Between Time Deposits and Demand Deposits

A demand deposit account is a type of bank account that allows you to withdraw money “on demand,” without having to provide advance notice beforehand. Time deposit accounts only allow you to withdraw funds once the account reaches maturity.

Banks and credit unions typically offer both demand deposit and time deposit accounts, though you might know them better as checking and savings accounts (demand deposit accounts) and certificates of deposit, or CDs (a time deposit account).

These two types of accounts are designed to meet different financial goals. Understanding the difference between demand deposits vs. time deposits can help you decide where to put your money.

What Are Time Deposits?

Time deposit accounts are savings accounts that require you to keep your money in the account for a set time frame. They can also be called term deposit accounts or term deposits since the bank can specify the term that the money must stay in place.

If you’d like to withdraw money before the term ends, the bank may allow that. However, they will likely charge you a penalty fee. They may also require you to give them a certain amount of advance, either in writing, in-person, or over the phone. Once you open a time deposit account, you typically can’t add any additional funds at a later date.

How a Time Deposit Works

A time deposit works by effectively “locking in” your money for a set time period or term. During this term, your money can earn interest at a rate specified by the bank.

A certificate of deposit account is the most common type of a time deposit or term deposit account. Banks often offer CDs with varying maturity terms, which can range anywhere from one month to five years or more.

While your money is in the CD, it earns interest. Once the CD matures, you can do one of two things:

•   Roll the principal and interest earned into a new CD with different terms

•   Withdraw the principal and interest earned

If you take money out of the CD before it matures, the bank will likely impose an early withdrawal penalty. This penalty usually involves forfeiting some of the interest earned. The size of the penalty can vary depending on how early you withdraw the money and the length of the CD.

What Are Demand Deposits?

With a demand deposit account, you are allowed to put money into the account or take money out of the account when you want and without giving any advance notice. Demand deposit accounts include checking accounts, savings accounts, and money market accounts.

The money in a demand deposit account is generally considered to be liquid, or ready cash, and you can withdraw any amount (including the entire balance) at any time without paying a penalty. However, some banks may charge a fee if you exceed a certain number of withdrawals from a savings account within one month.

How a Demand Deposit Works

Demand deposit accounts work by allowing you convenient, flexible access to your money. The most common example of a demand deposit account is a checking account. With a checking account, you can deposit money, then access it by:

•   Using a debit card to make purchases online or in stores

•   Withdrawing cash at ATMs or through a teller

•   Scheduling online bill payments

•   Linking it to mobile payment apps

A trade off for this easy access to your money is that demand deposit accounts typically don’t pay high rates of interest, and checking accounts generally don’t pay any interest at all. While you can sometimes find an interest-bearing checking account, checking account interest rates tend to be on the lower side.

There are other types of interest-bearing accounts that fall under the demand deposit umbrella. They include: traditional savings accounts, high-yield savings accounts, money market accounts, and kids’ savings accounts.

Recommended: How Do Calculate Interest on a Savings Account?

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Federal Insurance for Demand and Time Deposits

The Federal Deposit Insurance Corporation (FDIC) provides insurance coverage for member banks, which is passed on to account holders. The FDIC insures both demand and time deposit accounts, including:

•   Checking accounts

•   Savings accounts

•   Money market accounts

•   CD accounts

The standard FDIC coverage limit is $250,000 per depositor, per account ownership type, per financial institution. The National Credit Union Administration (NCUA) offers similar coverage for time and demand deposit accounts held at member credit unions.

Demand Deposit Pros

When comparing demand deposit vs. time deposit accounts, it helps to understand the pros and cons of each type of account.

Here are some of main benefits of demand deposit accounts:

•   They give you access to your money without being required to give the bank advance notice.

•   They offer multiple ways to manage and access money, including online and mobile banking, automated clearing house (ACH) transfers, direct deposit, ATM banking, and branch banking.

•   There is the potential to earn interest on balances and, in some cases, rewards on purchases.

Demand Deposit Cons

While demand deposit accounts can make managing money and growing savings convenient, there are some potential downsides to keep in mind. These include:

•   There may be monthly fees or other fees.

•   Since interest rates can vary, you may need to shop around to find the best rate.

•   Banks may limit the number of withdrawals you’re allowed each month.

Time Deposit Pros

Time deposit accounts can be a great place to keep your savings — if you understand how they work. Here are some of the advantages of opening a time deposit account:

•   They offer a guaranteed rate of interest, so there’s very little risk of losing money.

•   They typically offer a higher interest rate than you can get on a demand deposit account.

•   There are generally no fees if you leave the money in the account until maturity.

Time Deposit Cons

Opening a time deposit account could make sense if you want a place to park your money for several months to years and earn a higher rate of interest. But it’s important to keep these cons in mind:

•   You may pay an early withdrawal penalty if you need to take any or all of the money out prior to maturity.

•   There is often a minimum deposit required.

•   Most time deposit accounts do not allow you to make additional deposits once the account is open.

How to Choose Between a Demand and Time Deposit Account

Demand deposit vs. time deposit: which one should you pick? The answer will depend on your financial needs and goals.

You might choose a demand deposit account if you:

•   Want convenient access to your money via a debit or ATM card, online banking, mobile banking, or at a branch

•   Want to be able to earn some interest on your savings while still having easy access to the money

•   Don’t mind the possibility of paying checking or savings account fees

A time deposit account, on the other hand, may be more appropriate if you:

•   Want to earn a higher interest rate than you can get on a standard checking or savings account at a bank

•   Have a sum of money you don’t need to touch for the immediate future

One good solution is to have a mix of demand deposit accounts and time deposits. This might include a checking account (for paying bills and everyday spending), a savings account (to hold your emergency fund), and one or more CD accounts to fund your longer-term goals. Just be sure to pay attention to minimum balance requirements and fees for each account you open.

When choosing between different types of savings accounts and CDs, you’ll also want to consider the interest rate and the annual percentage yield (APY). The difference between the interest rate vs. APY is that the APY tells you the total amount of interest you earn on the account over one year. While it’s based on the interest rate, the APY also takes into account the compounding interest (when interest accrues on previously accrued interest) to give you the most accurate idea of what you’ll earn in a year.

APY, however, is not to be confused with annual percentage yield, or APR, which refers to what you can owe in interest charges on a loan.

Recommended: Fixed vs. Variable Rate Loans

The Takeaway

There are two key differences between demand deposit and time deposit accounts: how easily you can access the money in the account and how much interest the account earns.

Demand deposit accounts (which include checking accounts, savings accounts and money market accounts) allow you to withdraw money from the account at any time, whereas time deposit accounts (such as CDs) require you to deposit your money for a specific length of time. While demand deposit accounts offer more flexibility, they typically offer lower interest rates than time deposit accounts.

To get the benefits of both worlds, you may want to open an online bank account with SoFi. You’ll be able to easily access your money with mobile banking and our network of 55,000+ fee-free ATMs, and with direct deposit also earning competitive interest with our 2.00% APY. Plus, you won’t pay any monthly fees or other account fees.


What is the difference between demand deposit and time deposit?

The key difference between demand deposit vs. time deposit is access. With demand deposit accounts, you generally access your money at any time without paying a penalty or giving the bank any advance notice. With time deposit accounts, you generally can’t withdraw money until the account reaches maturity.

Which type of deposits with the banks are called demand deposits?

Demand deposit accounts include checking accounts, savings accounts, and money market accounts. Checking accounts can allow you to use a debit card, pay bills online, and manage money through online and mobile banking. Savings accounts are used to hold money you don’t plan to spend right away and may offer interest. Money market accounts combine features of both checking and savings accounts.

Why are demand deposits considered money?

Demand deposit accounts hold money that you can withdraw whenever you want. You can use this account to get cash, pay bills, make purchases, or complete other financial transactions.

Photo credit: iStock/FG Trade

SoFi® Checking and Savings is offered through SoFi Bank, N.A. ©2022 SoFi Bank, N.A. All rights reserved. Member FDIC. Equal Housing Lender.
SoFi members with direct deposit can earn up to 2.00% annual percentage yield (APY) interest on all account balances in their Checking and Savings accounts (including Vaults). Members without direct deposit will earn 1.00% APY on all account balances in Checking and Savings (including Vaults). Interest rates are variable and subject to change at any time. Rate of 2.00% APY is current as of 08/12/2022. Additional information can be found at http://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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How Are Local Small Banks Different From Large Banks?

How Are Local Small Banks Different From Large Banks?

When comparing small banks vs. large banks, some differences are immediately apparent, such as geographic footprint, assets, and the range of products and services they provide. Small banks may offer more personalized customer service and products, while big banks may offer a more comprehensive banking experience, with an array of deposit accounts, loans, insurance, and wealth management.

So which is better, a small bank or a large bank? While the answer will depend to a large degree on your own particular needs and goals, it’s important to know what each option offers. Here’s a closer look, including:

•   The different types of small banks

•   How small banks vs. large banks compare

•   The pros and cons of small local banks

•   Tips for choosing a bank.

Types of Small Banks

What exactly is a small bank? According to the FDIC’s definition, small banks are banks with assets of less than $1.384 billion for either of the two calendar years prior to December 31, 2022. That might not seem all that small, but it’s a fraction of the trillions of dollars in assets that some larger banks maintain.

Small banks can also be defined as commercial banks of modest size. So what is a commercial bank? Simply, it’s a bank that accepts deposits, offers savings accounts, and makes loans to customers.

When thinking about or considering whether to do business at a small bank, it can be helpful to know the most common types. These include:

•   Community banks, a financial institution that accepts deposits and lends funds while serving a small geographic area.

•   Regional banks, which are larger than a community bank and may take deposits from throughout their state.

•   Savings and loan associations, which are financial institutions that are primarily focused on helping customers get residential mortgages.

•   Niche banks, which are banks that focus on a particular audience, such as medical professionals or the LGBTQ+ community.

•   Mutual savings banks, a kind of credit union that originally served low-income communities and focused on providing mortgages.

•   Community Development Financial Institution (CDFI) banks. Many people may wonder what is a CDFI? These are financial institutions that aim to create economic opportunity for individuals and small businesses, quality affordable housing, and essential community services.

•   Online banks, also known as Internet banking, which provide services online rather than via bricks-and-mortar branches.

•   Neobanks, which are fintech businesses that operate in similar ways to an online bank. They may partner with FDIC member banks or other financial institutions to offer accounts and banking services through an app or online. The main difference between fintech vs. banks lies in how they offer services to customers, i.e. online-only or online and in-person at branches.

You may notice that some of the organizations mentioned above are defined as thrifts or credit unions. When comparing credit unions vs. banks, the main difference to note is how they operate. Credit unions operate on a membership-basis; there are usually specific requirements you need to meet to join. A credit union is member-owned while a bank is not. Both can offer deposit accounts and loans, though credit unions return profits back to members in the form of higher rates for savers and lower rates for borrowers.

Ready for a Better Banking Experience?

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How Small Banks Differ From Large Banks

When looking at big banks vs. small banks, there are a number of things that set them apart beyond the scope of their assets. Understanding the main differences can help if you’re on the fence about whether to open an account at a large bank or bank locally instead.

Here are some of the most notable ways big banks and small banks differ.

Big Banks

Small Local Banks

Can offer a wide range of financial products and services, including deposit accounts, loans, credit cards, insurance, business banking, and wealth management May have a narrower range of products and services; may offer products and services that serve the local community or a specific population
Usually have a sizable ATM network, as well as numerous branch locations Typically have a smaller ATM network and fewer branches
May charge higher fees for ATMs and other services and offer lower interest rates on deposit accounts May charge fewer and/or lower fees and offer more competitive rates on deposit accounts and loans
Service is often standardized and designed to fit all customers Service may be more personalized
May use the latest technology, with an emphasis on mobile and online banking May be slower to pick up on and adopt the latest tech trends

Benefits of Locally Banking

Why bank local? Opening accounts at a smaller bricks-and-mortar bank or credit union has its advantages over choosing a larger bank or even an online bank in some instances.

Whether it makes sense for you to consider small local banks can depend on your needs and how you’re most comfortable when it comes to managing your money. To help you make your decision, here are some benefits of banking locally.

More Personal Connection With Customers

One of the main reasons why some people prefer small banks is the level of customer service. When you walk into a branch at a large bank with thousands of customers, the odds that a teller is going to know may be slim. If you bank locally, on the other hand, you may have a better chance of building a rapport with your bank and its employees. You’ll likely see the same people each time you visit. For some people, this connection and recognition can be a major advantage.

Bank Fees Are Often Lower at Smaller Institutions

Banking fees can take a bite out of your deposits. Some of the most common banking fees include monthly maintenance fees, overdraft fees, non-sufficient funds fees, and excess withdrawal fees for savings accounts. Switching from a large bank to a small bank could save you money if your new bank charges fewer fees.

Often Gives Back & Benefits the Local Community

Small banks can often be community-oriented, which is another benefit of banking locally. Some of the ways small banks can give back include donating money to local charities, funding initiatives to address issues like poverty, hunger, and homelessness, and encouraging employees to participate in the local community as volunteers. They may also offer financial literacy education and other programs to help their clients thrive.

Lower Employee Turnover

Employees may come and go at big banks, but at smaller banks, this may be a less common occurrence. Again, that’s a good thing for building positive relationships with tellers, loan officers, and other bank employees. If you need to get a mortgage, for example, working with a loan officer who knows you and your family and understands the finer points of your financial situation could make the process and possibly the approval easier.

Often Offer Many of the Same Services as Larger Banks

Just because a local bank is small doesn’t mean it’s lacking in terms of the products and services offered. For example, you can visit a local bank or credit union to open a checking account or savings account, apply for an auto loan, or even get a mortgage. Niche banks can offer more specialized services. For example, they may focus exclusively on making loans to local business owners or offer products geared to underserved communities.

Convenience of Being Close to Home

One basic but very valuable benefit of banking locally is proximity. If you’ve got a local bank in your neighborhood, then popping in to make a deposit or conduct other business is likely to be very convenient. And many small banks offer mobile banking access so you don’t have to leave home to manage your accounts.

Drawbacks of Banking Locally

While opting for a small bank has its advantages, there can be some potential downsides to consider. These may be deal-breakers for some people; it depends on how you like to manage your money. Here are some of the main drawbacks to consider with banking locally.

Much More Limited Number of Services Than Larger Banks

As mentioned, local banks may deliver the basics, but you could miss out on some of the other services that large banks typically offer. If you bank locally and need wealth management services or a small business loan, for example, you may need to look elsewhere.

Often Limited to Your State

Many small banks do business in just one state. That can be limiting if you need to access funds while you’re away from home. It may also make opening and managing accounts more difficult if your life takes you across state lines on a regular basis. Access may become an issue.

Limited Number of Branches Per State

In addition to only operating in one state, it’s possible that a local bank may have just a handful of branches. That may be fine if you live in a smaller town and rarely venture far from home. But if you’re traveling to the other side of the state and need to withdraw cash, you may need to use another bank’s ATM, which could wind up triggering a fee.

Limited Technology, Including Fewer ATMs

Smaller banks may have smaller ATM networks than larger banks, which could add a wrinkle if you need to withdraw cash on the go. And smaller banks may also lag behind larger behinds in terms of the features included with online and mobile banking. There are pros and cons to online banking, of course, but many people are finding it helps them take care of routine tasks quickly and easily.

Lack of Large Funds Limits Local Banks to Small Businesses

Small and large banks rely on deposits from customers to fund loans to other customers, including small businesses. When a local bank has fewer assets and thus less money on deposit to lend, it can be harder for small businesses to qualify for a loan.

Less Available Banking Hours

While big banks may offer 24/7 customer service, you’re less likely to have that benefit at a smaller bank. That could be a problem if you need to get in touch with customer service after normal business hours or on the weekend.

Tips for Choosing a Bank

There are a number of things to consider when picking a bank to make sure you find the right fit. If you’re hunting for a new bank, here are some of the most important questions to ask:

•   What kind of banking products and services do I need? And what kind of banking products and services are offered?

•   Do I feel comfortable and safe banking online-only, or will I need branch banking services from time to time?

•   How much can I expect to pay in fees for an account?

•   What kind of interest rates do deposit accounts earn?

•   Is there a minimum deposit requirement or a minimum balance requirement?

•   How large is the ATM network? Are there any fee refunds for using out-of-network or foreign ATMs?

•   When is customer support available and how can I reach them?

•   Are online and mobile banking access available?

•   Will a teller or bank officer be available if I need to consult with someone, person to person?

•   Does the bank support the community in any way?

Whether you’re considering a big bank or a small bank, check to see if it’s FDIC-insured. FDIC (or Federal Deposit Insurance Corporation) insurance covers deposits up to $250,000 per depositor, per account type, per bank in the rare event of a bank failure.

Banking With SoFi

Switching to a new bank can seem a little daunting, but it can be worthwhile if you’re not 100% thrilled with your current banking situation. Choosing a small bank over a large bank could be a good fit if you want banking services with a personal feel. If you crave more product offerings or the latest tech bells and whistles, however, a large bank could be a better fit. It’s all about figuring out what matters most to you and understanding what different financial institutions offer. With that knowledge, you can find the right fit.

Banking online is a great alternative if you don’t necessarily need bricks-and-mortar branches. Online banks, like SoFi, can offer some rewarding options. For instance, when you open a high yield bank account at SoFi with direct deposit, you won’t pay any of the usual fees, plus you’ll earn a super competitive 2.00% APY. That means your money can grow faster.

Open a bank account online with SoFi today.


How is a small bank different from a large bank?

Small banks can differ from large banks in a number of ways, including assets, products and services offered, geographic footprint, and cost. The most common metric used to measure bank size involves assessing its assets according to FDIC guidelines.

Should I switch to a local bank?

Switching to a local bank could make sense if you want to bank close to home and enjoy having a personal relationship with the bank’s staff. When comparing local banks, consider the types of accounts and services offered, the fees you’ll pay, how you’ll be able to access your money, and customer support.

What is an advantage of local community banks?

Local community banks can offer numerous advantages, starting with personalized service. A local bank may be less costly than a larger bank and have lower employee turnover. You can also bank closer to home and may find that the financial institution offers special products and programs tailored to the local community.

Photo credit: iStock/Drazen_

SoFi members with direct deposit can earn up to 2.00% annual percentage yield (APY) interest on all account balances in their Checking and Savings accounts (including Vaults). Members without direct deposit will earn 1.00% APY on all account balances in Checking and Savings (including Vaults). Interest rates are variable and subject to change at any time. Rate of 2.00% APY is current as of 08/12/2022. Additional information can be found at http://www.sofi.com/legal/banking-rate-sheet
SoFi® Checking and Savings is offered through SoFi Bank, N.A. ©2022 SoFi Bank, N.A. All rights reserved. Member FDIC. Equal Housing Lender.
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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Guide to Postdated Checks

Guide to Postdated Checks

If a check writer doesn’t want the payee to be able to cash it immediately, they may choose to “postdate” it: On the date line they will simply write in a future date. This can be helpful if someone needs to deliver a check before they have the funds necessary for the check to clear in their account.

What is a postdated check? Keep reading to learn more about how this payment process works.

What Is a Postdated Check?

What does it mean to postdate a check? When someone writes a postdated check, they write a future date on the check instead of the date the check was actually written. A payer might do this so a check can’t be deposited until that later date (when they’ll have the funds available in their bank account). This can come in handy when someone wants to mail a check to pay a bill before the due date, but knows their paycheck won’t be deposited into their account until a later date.

Writing a postdated check involves the same process as writing a normal check, except the current date isn’t used.

Are Postdated Checks Legal?

Usually, postdated checks are legal in the U.S., but it’s worth verifying the rules in the state where the check writer lives. Note that these guidelines may not cover cashier’s checks or traveler’s checks, which have their own rules and limitations.

Word to the wise: Postdating is sometimes used for fraudulent purposes, so think twice before agreeing to accept a postdated check, especially from someone you don’t know well.

Recommended: How to Verify a Check Before Depositing

Can You Cash a Postdated Check?

Generally, the payee has to wait to cash a postdated check until the date specified on the check arrives. That being said, some financial institutions may cash a check prior to that date.

If a payer wants to guarantee that a check won’t be cashed until a certain date, they can make a formal post-dating request with their bank. The bank may charge a fee to do this.

Even if a bank or credit union is willing to cash a postdated check before the date written on the check, the payee may be better off waiting to cash it. The odds are that the payer added a postdate because at the time they didn’t have the funds available in their account to cover the check.

If the payee cashes it too soon, the check may bounce and cause problems for both parties. If the payee is eager to cash the check earlier, they may want to consult the payer on whether or not it’s safe to do so.

Recommended: How to Sign Over a Check to Someone Else

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Alternatives to Postdated Checks

Check writers who want to buy some time until a deposit to their account clears have other options besides postdated checks.

Online and Automatic Bill Payments

One option for making future payments without having to postdate a check is to go digital: The payer can go online to schedule a bill to be paid on the exact date of their choosing. As a bonus, there’s no need to order checks or manage a checkbook with this payment method.

At your request, some businesses — including mortgage, utility, and credit card companies — can change the due date of your monthly bill to one of your choosing. For instance, if you get paid on the first of the month, you can request that the due date of your rent or mortgage payment always be 3 days later. That way, you can set up automated bill pay without worrying about your transaction clearing.

Payment Plans

Before you consider postdating a check to avoid overdrawing your checking account, ask if the business will offer you a payment plan. Some companies will allow individuals to make smaller, incremental payments over time rather than one big payment. Make sure to find out first if the payment plan involves a fee or interest.

Banking With SoFi

SoFi Checking and Savings makes banking online super convenient. There are no overdraft fees, minimum balance fees, or other monthly fees. And members have fee-free access to more than 55,000 ATMs within the Allpoint® Network.

Learn more about the perks of a SoFi Checking and Savings account


Is postdating a check illegal?

No, it’s generally not illegal to postdate a check. That said, it’s a good idea to learn about the laws governing postdating checks in your area. Postdating a check can be considered a crime if the payer’s account does not have the required funds to process the check and if they intended to defraud the payee when they issued the postdated check.

Can you deposit a postdated check?

Some banks accept postdated checks if they are dated and signed. However, since postdated checks are often used when the payer is waiting for funds to clear in their account, you may be better off just waiting for the date on the check.

What is postdating a payment?

Postdating a payment refers to postdating a check. When someone postdates a check, that signals that they don’t want the payee to cash the check until that date. Some banks or credit unions still allow payees to cash postdated checks if they are signed by the payer. So if someone really doesn’t want a check to cash before a certain date, they should ask their bank about issuing a formal post-dating notice (which may incur a fee).

Photo credit: iStock/AndreyPopov

SoFi® Checking and Savings is offered through SoFi Bank, N.A. ©2022 SoFi Bank, N.A. All rights reserved. Member FDIC. Equal Housing Lender.

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Understanding How P2P Lending Works

Understanding How P2P Lending Works

Sometimes you need a loan for a venture that a traditional bank might not approve. In these instances, a peer-to-peer (P2P) loan might be what you’re looking for. Peer-to-peer lending, also known as social lending, rose out of the 2008 financial crisis. When banks stopped lending money as freely as they had in the past, potential borrowers had fewer loan options. At the same time, low interest rates meant lower returns from savings accounts or CDs.

Enter P2P lending sites. P2P lenders essentially cut out the middleman (banks and traditional lenders) and created a space for borrowers and investors to do business. Since then, the concept of lending person-to-person has taken off, with the rise of a number of peer-to-peer lending platforms.

Wondering if a P2P loan is right for you? Or if investing in P2P lending is a smart way to diversify your portfolio? Let’s take a look at some of the pros and cons.

What Is Peer-to-Peer (P2P) Lending?

P2P lending links up people who want to borrow money with individual investors who want to lend money. P2P lending sites like Lending Club, Prosper, and Upstart — three of the largest P2P lenders — provide low-cost platforms where borrowers can request loans and investors can bid on them.

Most of the personal loans offered on P2P platforms range from $1,000 to $40,000 and have repayment periods of approximately 36 months. Interest rates can vary widely, from around 6% to 36%, depending on factors including the purpose of a loan and the individual’s credit history and perceived risk.

The lending platforms make money from serving as the intermediary in this process. In exchange for keeping records and transferring funds between parties, they charge a fee — typically a 1% annual fee — to the investors lending the money. Some platforms also charge origination or closing fees to the borrowers, which typically range from 1% to 5% of the loan amount.

In addition to personal loans, many P2P platforms may also offer small business, medical, and education loans as well.

Is Peer-to-Peer Lending Safe?

The bulk of the risk of peer-to-peer lending falls onto investors. It’s possible that borrowers will default on their loans, and that risk increases if the investor opts to lend to those with lower credit ratings. If the loan were to go into default, the investor may not get paid back.

Further, peer-to-peer lending is an investment opportunity, and returns are never guaranteed when investing. There is the risk that investors could lose some or all of the amount they invest. Unlike deposit accounts with a traditional bank or credit union, P2P investments are not FDIC-insured.

How Does Peer-to-Peer (P2P) Lending Work?

The basic P2P lending process works like this: A borrower first goes through a quick soft credit pull with the P2P lending platform of their choice to determine initial eligibility. If eligible to continue, the lender likely will conduct a hard credit pull and then assign a borrower a “loan grade,” which will help lenders or investors assess how much of a risk lending to them might be.

The borrower can then make a listing for their loan, including the interest rate they’re willing to pay. With most P2P lending platforms, the borrower has an opportunity to make a case for themselves; they can provide an introduction and describe why they need the loan. A compelling, creative listing might have more luck grabbing a lender’s attention and trust.

Next, lenders can bid on the listing with the amount they can lend and the interest rate they’d be willing to offer. After the listing has ended, the qualified bids are combined into a single loan and that amount is deposited into the borrower’s bank account.

Peer-to-Peer (P2P) Lending Examples

With the rise of P2P lending, there are now a number of lending platforms to choose from. Here are some examples of popular peer-to-peer lending sites:

•   LendingClub: LendingClub offers loans of up to $40,000 that can be used for a variety of purposes, including paying down high-interest debt or funding a home improvement project. Borrowers can receive funding in as little as 24 hours upon loan approval.

•   Prosper: Prosper can provide loans in amounts anywhere from $2,000 up to $40,000. Loan terms are three or five years, and funding can happen in as little as one business day.

•   Upstart: Upstart can offer borrowers loans of up to $50,000, with loan terms of either three or five years. It’s possible to check your rate in minutes, and most loans are funded within one business day after signing.

Peer-to-Peer (P2P) Lending for Bad Credit

It is possible to get a peer-to-peer loan with a bad credit score (meaning a FICO score below 580). However, those with lower credit scores will almost certainly pay higher interest rates.

Additionally, those with bad credit may have more limited options in lenders, though there are peer-to-peer lending for bad credit options. Many platforms have minimum credit score requirements, which tend to be in the range of fair (580-669) to good (670-739). For instance, Prosper, one of the major P2P lending platforms, requires a minimum score of 680.

If you have bad credit and are seeking a P2P loan, you might first work to improve your credit score before applying. Or, you could consider getting a cosigner, which can increase your odds of getting approved and securing a better rate if you’re finding it hard to get a personal loan.

Peer-to-Peer (P2P) Lenders Fees

Peer-to-peer lending platforms can charge fees to both borrowers and investors. Which fees apply and the amount of these fees can vary from lender to lender.

A common fee that borrowers may encounter is an origination fee, which is typically a percentage of the loan amount. Other fees that borrowers may face include late fees, returned payment fees, and fees for requesting paper copies of records.

Investors, meanwhile, may owe an investor service fee. This is generally a percentage of the amount of loan payments they receive.

Pros of Peer-to-Peer (P2P) Lending

There are upsides to peer-to-peer lending for both borrowers and investors. However, the benefits will differ for both parties involved.

Pros of P2P Loans for Borrowers

•   Easier eligibility: The biggest advantage for a borrower getting a personal loan peer-to-peer is being eligible for a loan they might not have been able to get from a traditional lender.

•   Faster approval and competitive rates: P2P lenders might approve your loan faster and offer a more competitive rate than a traditional lender would.

•   Possible to pay off credit card debt: One way that people are using P2P loans is to crush their credit card debt. People with high credit card balances could be paying up to 20% APR or higher in interest charges. If they can wipe it out with a P2P loan at a lower interest rate, it can save them a lot of money.

•   Option to finance upcoming expenses: Those who are facing a lot of upcoming expenses might find it more cost-effective to take out a P2P loan rather than put those expenses on a high-interest credit card.

Pros of P2P Loans for Investors

•   Promising alternative investment opportunity: Some see P2P lending as a promising alternative investment. When you lend money P2P, you can earn income on the returns as the borrower repays you. Those interest rates can be a few percentage points higher than what you might earn by keeping your money in a savings account or a CD. While there is some risk involved, some investors see it as less volatile than investing in the stock market.

•   Option to spread out risk: P2P lenders also offer many options in terms of the types of risk investors want to take on. Additionally, there are ways you can spread the amount you’re lending over multiple loans with different risk levels.

•   Sense of community: For borrowers and investors, the sense of community on these sites is a welcome alternative to other forms of lending and investing. Borrowers can tell their stories and investors can help give their borrowers a happy ending to those stories.

Cons of Peer-to-Peer (P2P) Lending

Though there are upsides to peer-to-peer lending, there are certainly problems as well. These include:

•   Risk for investors: The biggest disadvantage of P2P lending is risk. Since P2P loans are unsecured, there’s no guarantee an investor will get their money back. The borrowers on a P2P site might be there because traditional banks already declined their application. This means investors might need to do extra legwork on their end to evaluate how much risk they can take on.

•   Potentially higher rates for borrowers: For borrowers, while P2P lenders might approve a loan that a traditional bank wouldn’t, they might offer it with a much higher interest rate. In these cases, it could be wiser to search for alternatives rather than accepting a loan with a costly interest rate.

•   Effort and personal exposure for borrowers: There can be a lot of effort and personal exposure involved for the borrower. Borrowers have to make their case, and their financial story and risk grade will be posted for all to see. While we’re used to sharing a lot of our lives online, sharing financial information might feel like too much for some borrowers.

•   Relatively new industry with evolving regulations: Then there’s the risk of P2P lending itself. The concept is still relatively new, and the decision on how best to regulate and report on the industry is still very much a work in progress. Some lending platforms have already hit growing pains as well. As regulations around the industry change and investors are tempted elsewhere, the concept could lose steam, putting lending platforms in danger of closing.

Peer-to-Peer (P2P) Loans vs Bank Loans

When it comes to P2P loans compared to bank loans, the biggest difference is who is funding the loan. Whereas bank loans are funded by financial institutions, peer-to-peer loans are funded by individuals or groups of individuals.

Further, bank loans tend to have more stringent qualification requirements in comparison to P2P loans. This is why those with lower credit scores or thinner credit histories may turn to peer-to-peer lending after being denied by traditional lenders. In turn, default rates also tend to be higher with peer-to-peer lending.

The Takeaway

Peer-to-peer lending takes out the middleman, allowing borrowers and investors to do business. For borrowers, P2P loans can offer an opportunity to secure financing they may be struggling to access through traditional lenders. And for investors, P2P loans can offer an investing opportunity and a sense of community, as they’ll see where their money is going. However, there are drawbacks to consider before getting a peer-to-peer loan, namely the risk involved for investors.

Whether you’re getting a P2P loan or a loan from a traditional lender, it’s important to shop around to find the most competitive terms available to you. SoFi makes it easy to compare personal loan rates, and you can then apply online in just one minute.

Check out SoFi personal loans today to learn more!


Is peer-to-peer lending safe?

There are certainly risks involved in peer-to-peer lending, particularly for investors. For one, borrowers could default on their loan, resulting in investors losing their money. Additionally, there’s no guarantee of returns when investing.

What is peer-to-peer lending?

Peer-to-peer lending is a type of lending wherein individual investors loan money directly to individual borrowers, effectively cutting out banks or other traditional financial institutions as the middlemen. This can allow borrowers who may have been denied by more traditional lenders to access funds, and provide investors with a shot at earning returns.

What is an example of peer-to-peer lending?

Some popular P2P lending sites include Lending Club, Prosper, Upstart, and Funding Circle. Borrowers can use peer-to-peer loans for a variety of purposes, such as home improvement, debt consolidation, small business costs, and major expenses like medical bills or car repairs.

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 or products mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third-party trademarks referenced herein are property of their respective owners.
Checking Your Rates: To check the rates and terms you may qualify for, SoFi conducts a soft credit pull that will not affect your credit score. However, if you choose a product and continue your application, we will request your full credit report from one or more consumer reporting agencies, which is considered a hard credit pull and may affect your credit.
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SoFi loans are originated by SoFi Bank, N.A., NMLS #696891 (Member FDIC), and by SoFi Lending Corp. NMLS #1121636 , a lender licensed by the Department of Financial Protection and Innovation under the California Financing Law (License # 6054612) and by other states. For additional product-specific legal and licensing information, see SoFi.com/legal. Equal Housing Lender.


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31 Places to Find Black Friday and Cyber Monday Deals

31 Places to Find Black Friday and Cyber Monday Deals

Black Friday and Cyber Monday are some of the best times to find deals on all the products you love. Whether you’re purchasing something you’ve wanted for a long time or you’re buying a gift for a loved one, you can surely find a sale that will be suitable to your needs.

This year, Black Friday is on November 26, 2021, and Cyber Monday is on Monday, November 29, 2021. In 2020, on Thanksgiving weekend, 186.4 million shoppers in the U.S. bought something, spending an average of $311.75.

Black Friday Deals

Whether you plan to spend a few hundred bucks like most people or use the opportunity to make larger purchases, here are some places you will be able to find great deals for Black Friday and Cyber Monday this year.

1. Amazon

Amazon generally starts showing Black Friday deals during the month of November. Typically, you’re going to get the best sales on the most in-demand items on Black Friday weekend itself, though. Look out for weekend deals on Nintendo Switch, Macbooks, and iPads. Unlike on Prime Day, on Black Friday weekend, anyone can access great deals on products.

2. Target

Target is your go-to brick-and-mortar stop for, well, just about everything you need. Don’t miss out on their Black Friday and Cyber Monday deals this year. The retailer is known for holding sales on toys, home, clothing, electronics, and more. Typically, Target will price match, so you can always look up a price on a site like Amazon or Best Buy and then show it to a Target associate to snag the same deal.

3. Macy’s

Macy’s is already gearing up for Black Friday. If you need to buy some clothes, jewelry, home goods, or gifts for friends and family, then make sure you check out Macy’s sales. You can start shopping on November 23, but take a sneak peak at deals leading up to the day on their website. Make sure you use your Macy’s card to score up to 5% back on your purchases.

4. Walmart

Walmart is notorious for being inexpensive, and on Black Friday weekend, you can score some bigger deals. Walmart.com is already showcasing some of the store’s upcoming sales on electronics, clothing, auto supplies, toys, beauty, kitchen appliances, and much more.

5. Bed Bath & Beyond

Are you moving soon? Do you need to purchase a registry gift for a friend or family member? Are you looking to replace some appliances in your home? Then check out Bed Bath & Beyond’s 2021 Black Friday deals. The store has started rolling out some of their deals and, in 2020, you could get 25% off your entire purchase in store and online with curbside and in-store pickup.

6. The Home Depot

If you’re looking to dive into some DIY projects or need new decorations for the holiday season, then check out The Home Depot during Black Friday weekend. In 2020, the store featured deals on giant, pre-lit Christmas decorations, up to 40% off on select appliances, and $79 artificial Christmas trees.

7. Lowe’s

Another place to get some DIY Black Friday deals is Lowe’s. You can gain access to deep discounts on home improvement essentials and tools, along with decorations for the holidays. In 2020, shoppers could purchase a 46-in-9 wood-top steel mobile workbench for $298 and buy a DeWalt 5-tool 20-volt max cordless combo kit for $279, discounted from $549.

8. JCPenney

Need some new clothes for the entire family? Then check out JCPenney’s Black Friday 2021 sales. So far, they’re offering up to 75% off fine jewelry and up to 40% off Levi’s. You may also be able to snag additional deals if you use your JCPenney credit card to make your purchase.

9. Best Buy

If you want to buy electronics this holiday season, then Best Buy is your best bet. The 2021 deals are set to start rolling out on November 19th. In 2020, you could buy a 65” class and larger 4K smart TV for as low as $249.99. You could also score deals on Apple Watches and other electronics brands you love.

10. Kohl’s

For Black Friday and Cyber Monday deals on clothing, accessories, shoes, home goods, electronics, and more, then look into Kohl’s. Deals will start rolling out on November 21st. If you are enrolled in their rewards program, you may be able to score some Kohl’s Cash and get even more of a discount on your purchases.

11. Overstock

Black Friday has already started at Overstock.com. Expect to find deep discounts on things like mattresses, furniture, and other home necessities. If you join the Club O rewards program, then you can earn up to 40% off on your purchases as well.

12. Chewy

Do you have pets at home? Then don’t forget them this Black Friday and Cyber Monday. Check out Chewy’s Black Friday deals, which included sales on animal apparel, pet toys, dog food and treats, cat food and litter, and flea medicine in the past.

13. Petco

If you prefer to shop in store for your pet supplies, then check out Petco’s 2021 Black Friday deals. According to the store, Black Friday is a four-day event, and you can snag deals online and in the store. There are also pre- and post-Black Friday sales, so make sure you stay on top of the deals by subscribing to Petco’s mailing list.

14. eBay

Whether you need a TV, laptop, video game, toys, or kitchen appliances, you can find what you’re looking for on eBay.com during Black Friday and Cyber Monday.

15. Claire’s

Is there a special teenage girl in your life who may want some new jewelry for the holidays? Then go to Claire’s at the mall or shop their store online. To get more off your purchase, you can sign up for their rewards program and earn points as well as receive 20% off your next purchase.

16. DSW

If you’re looking for shoes this holiday season, head on over to DSW or DSW.com. If you join the VIP club for free, then you’ll earn 20% off on a purchase, then 5% back in rewards on every purchase after that. You’ll also receive free shipping on anything, which can save you big bucks.

17. Nordstrom

Nordstrom features sales on Black Friday and Cyber Monday in store and online. So if you’re looking for clothing, shoes, or accessories for your whole family, then mark your calendar to access deals on Friday, November 26 and Monday, November 29 this year.

18. Forever 21

If you’re a fan of Forever 21, then get ready for their Black Friday deals. Though the sales aren’t yet out for 2021, during the last sale, you could snag 30% to 60% off nearly everything and get an extra 50% off sale items online.

18. Gymboree

Looking to stock up on clothes for the kids during Black Friday? Gymboree has got you covered. In the past, they offered 50% to 60% off everything in the store. You could get t-shirts for $8, PJs starting at $12, and leggings for only $8.

20. Lids

If you want to purchase some sports apparel, like hats, then make sure you check out Lids’ Black Friday and Cyber Monday deals. You can shop online or in the store at the mall to score deals on hats, jerseys, t-shirts, and more. Then, wear your favorite team apparel when watching sports games with your friends.


Need some fabrics and crafts? Looking to DIY some scarves or hats this winter? JOANN has got you covered with their Black Friday sale. Though the deals for 2021 aren’t out yet, in 2020, you could get up to 70% the entire stock of flannels, sewing machines starting at $69, and 50% to 70% off holiday decor.

22. Lululemon

Do you want to purchase some athletic wear during Black Friday 2021? Lululemon might be the place to check out. In the past, they discounted Wunder Under leggings, outerwear, and sports bras. This year’s deals have not yet been announced, so make sure you go to their website for updates.

23. Office Depot

If you’re looking for deals on everything for your office, then go to Office Depot on Black Friday. This year, deals include up to 40% off on desks, 60% off on office chairs, and up to 50% off print services.

24. Walgreens

Need to print some photos for the holiday season? Then head to Walgreens, which offered 40% off photo gifts and puzzles and 60% off canvas prints in 2020. The store also featured deals on kids’ toys, with buy one get one free sales on Crayola supplies and buy one get one free on playing cards as well.

25. Mattress Firm

While Mattress Firm hasn’t yet announced their Black Friday deals for 2021, if you sign up for their email list, you can save $50 on your first order of $499+. Mattress Firm features all your favorite mattress brands, from Tempur-Pedic to Serta, Beautyrest, Sleepys, Sealy, and more.

26. Harry & David

If you want to send someone a gift but don’t know what they’d like, then Harry & David gifts are the perfect solution. Get a gift basket full of fruit or candy for a loved one on sale on Black Friday. Their 2021 deals aren’t out yet, but chances are you’ll be able to score buy one get one 50% off and up to 30% off select items if the sales are anything like last year.

27. Pottery Barn

Want to add some new furniture to your home? Pottery Barn features classic and contemporary items on sale on Black Friday. Check out the website for Black Friday deals closer to November 26.

28. ProFlowers

If you’re looking to send someone special flowers for the holidays, then go to ProFlowers for some Black Friday deals. If you sign up for emails, you could receive 20% off your order.

29. Sur La Table

Sur La Table is the destination for upscale, professional cookware. They are running their 2021 Black Friday deals, and so far, shoppers can get up to 55% off.

30. ULTA

Purchase everything you need to look and feel beautiful at ULTA during Black Friday and Cyber Monday 2021. In 2020, the store was giving out free gifts with a perfume purchase of $60 or more, plus 50% off on the ULTA Beauty Collection and 50% off fragrance sampler kits.

31. Wine.com

You know you’re going to need to chill out and relax with a nice glass of wine after doing all your Black Friday and Cyber Monday shopping (and hosting the relatives for Thanksgiving). Make sure you check out Wine.com for Cyber Monday deals. New customers can save $20 on a $100 order, and you’ll save 25% or more on November 29. Start shopping for your favorite brand of red or white wines now.

The Takeaway

Black Friday is all about the thrill of a great deal. Survey the stores or items you’re most interested in purchasing to see what the best deals on those specific items are. And while the holidays can be a tempting time to spend freely, setting some guidelines, like a holiday-specific budget could help you keep your spending in line.

With an online bank account with SoFi, you can unlock even more potential earnings and save money at the same time. Plus, you can avoid account fees: SoFi Checking and Savings doesn’t charge any overdraft, minimum balance, or monthly fees. Once your money arrives at our partner banks, it is FDIC insured up to $1.5 million.

To access these benefits and more, make sure you sign up for SoFi Checking and Savings now.

Photo credit: iStock/CarlosDavid.org

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