What Happens if a Check Bounces? Tips on What to Do Next

Bounced Check: What Happens if a Check Bounces?

Bounced checks are sometimes referred to as rubber checks because, instead of going through, they “bounce” back to the payer’s bank unpaid. No money is transferred, and the person who was expecting to be paid doesn’t receive their funds. The payer will typically get hit with fees and could also face other negative consequences. The recipient of a bounced check may also get hit with a fee.

Understanding what happens when a check bounces, who gets charged, and how to manage the situation can help you navigate this common financial issue.

Key Points

•   When a check bounces, that means it can’t be processed or paid.

•   Bounced checks can occur due to insufficient funds, errors in writing the check, closed accounts, stop payment orders, old checks, or fraud.

•   Bounced checks can result in fees for both the check writer and the recipient.

•   Bounced checks typically do not directly impact credit scores but can lead to missed and late payments (which may impact credit).

•   There are steps you can take to address a bounced check, whether you wrote it or received it.

What Is a Bounced Check?

A bounced check, also known as a nonsufficient funds (NSF) check, is a check that cannot be processed typically because the payer’s checking account does not have enough funds to cover the payment. When a check is deposited, the recipient’s bank requests the funds from the payer’s bank. If the payer’s account lacks sufficient funds, the payer’s bank returns the check unpaid, causing it to bounce.

Here’s a look at some other reasons why a check might bounce.

•   Account closure: If the account has been closed before the check is deposited, it will bounce.

•   Incorrect information: Errors in writing the check, such as a mismatch between numbers and words for the check amount, can lead to a bounced check. That’s why it’s important to know how to properly fill out a check.

•   Stale date: A check can bounce if it’s not cashed or deposited within six months of the date the check was written.

•   Stop payment order: A stop payment order can be requested by the payer if they want to prevent it from being deposited. This might happen if they believe the check got lost or they no longer wish to pay for a service.

•   Fraudulent activity: Checks written on accounts that do not belong to the payer, or those involved in fraudulent activity, will also bounce.

What Fees Come With Bounced Checks?

Both the payer and the payee can incur fees when a check bounces. Here’s a look at the fees that can result and who gets charged.

Nonsufficient funds (NSF) fee: If you write a check you don’t have sufficient funds to cover, your bank will typically charge an NSF fee. The average NSF fee is around $20.

Merchant fee: If the bounced check was written to a business, that business may also add on some charges. Many states allow merchants to charge customers up to $40 for the work of handling a bad check.

Overdraft fee: In some cases, a bank covers the check amount despite insufficient funds. This is known as an overdraft. The check won’t bounce, but you’ll likely get hit with an overdraft fee, which can run around $27.

Late payment fees: If the bounced check was intended for a bill payment, such as a credit card bill, you may also get hit with a late payment fee from the biller.

Returned check fee: If you’re on the receiving end of a bounced check, your bank may charge you a returned check fee for processing a bounced check. In addition, you might assume the check cleared and end up spending money you don’t actually have. This can result in overdrafting your own account and fees.

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What Happens if My Check Bounces?

You might accidentally end up bouncing a check if you write a check without looking into your account balance first, or if a check you wrote to someone doesn’t get cashed for a few months and you no longer have sufficient funds in your account to cover it.

When your check bounces, you will likely get hit with bank fees. But there are some other negative consequences that can follow as well. Here are some to keep in mind.

Outstanding Debt

When a check bounces, the payee doesn’t receive the promised funds. This means you still have an outstanding bill. For example, if your rent check bounces, the landlord doesn’t receive your payment. This means you have an outstanding debt to your landlord until you can pay the rent.

Potential Harm to Your Banking Reputation

Banks report consumer banking behavior to ChexSystems, an agency that collects and shares information about a person’s banking history with financial institutions. If you have a history of bounced checks (or other problems like unpaid fees and forced account closures), your ChexSystems report will reflect that. A blemished report could make it hard for you to open a new bank account in the future.

Risk of Account Closure

If you bounce enough checks, your bank could freeze or close your account. If you’re having trouble managing your checking account, it’s a good idea to reach out to a bank representative and explain your situation. The bank may be willing to work with you if they see you are actively trying to resolve the problem.

Recommended: 3 Reasons Why You Have a Frozen Bank Account

Legal Consequences

It’s illegal to knowingly write bad checks. If you write checks and you’re aware that you don’t have enough money to cover them, you could be charged with a misdemeanor or even a felony, depending on the amount and quantity of unpaid transactions.

What Should I Do if My Check Bounces?

If you discover that your check has bounced, it’s crucial to act quickly to mitigate the consequences. Here are key steps to follow.

1.    Contact the payee. You’ll want to reach out to the payee as quickly as possible, explain the situation, and express your intention to resolve the issue. This can help maintain goodwill and prevent further actions.

2.    Pay up quickly. Whether you add funds to your account and write a new check or find a different way to make the payment, making good on what you owe can help prevent the bounced check from turning into an outstanding debt. While a bounced check doesn’t get reported to the credit bureaus, if it leads to a missed or late payment, it could potentially impact your credit.

3.    Request a fee waiver. It can be worthwhile to ask your bank if they can waive the NSF fee, especially if it’s your first offense or due to an unexpected situation.

4.    Monitor your account. You’ll want to keep a close eye on your account balance and transactions to avoid future bounced checks.

What Should I Do if I Receive a Bounced Check?

If you receive a bounced check, you’ll want to contact the payer promptly. Inform them that the check has bounced and request immediate payment via an alternative method.

If the payer assures you that funds are now available, you can attempt to redeposit the check. If possible, you might opt to cash the check at the issuer’s bank so that if it bounces again, you won’t get hit with another NSF charge by your bank.

If you’re having trouble getting a response from the check issuer, you might next want to send them a “bad check” demand letter. This is a formal request for payment that you send to the issuer by certified mail. It’s a good idea to include as many details as possible in the letter.

If the payer continues to be unresponsive or unwilling to pay, you may need to take legal action. Typically this involves suing the check issuer for the money owed in small claims court.

Preventing a Check From Bouncing

Preventing bounced checks involves careful financial management and awareness. These safeguards can help.

•   Monitor your account. It’s important to regularly check your account balance and transactions to ensure you have sufficient funds. You can use your bank’s app or a budgeting app to keep track of exactly what’s going in and out of your account.

•   Set up alerts. Many banks offer account alerts via text or email for low balances or large transactions. Utilizing these alerts can automate the process of checking your balance and can help you stay informed.

•   Consider overdraft protection. This service can cover transactions when your account lacks sufficient funds, typically for a fee. Your bank might also allow you link your checking account to your savings account or line of credit at the same bank. When there’s not enough cash in your checking account to cover a transaction, money will automatically be transferred from the linked account. Before you use this option, though, you’ll want to check to see whether your bank charges a fee for the service.

•   Maintain a buffer balance. Though you might prefer to keep most of your cash in a high-yield savings account to benefit from the interest, it’s a good idea to keep a financial buffer in your checking account to cover unexpected expenses and avoid overdrafts.

•   Don’t accept payment by personal check. To avoid receiving a bad check, you may want to request payment by a cashier’s check, certified check, or money order, which come with more guarantees than a personal check.

Recommended: Avoiding Overdraft Fees: Top 10 Practical Tips

The Takeaway

Bounced checks can lead to expensive fees and even make it difficult to open new checking and savings accounts. However, you can avoid them with a little planning and attention to detail. Key measures include keeping a close eye on your account balance, setting up account alerts, and implementing safeguards like overdraft protection and linked accounts. If you’re in the market for a new checking account, you might also want to look for a bank that doesn’t charge overdraft fees.

Interested in opening an online bank account? When you sign up for a SoFi Checking and Savings account with direct deposit, you’ll get a competitive annual percentage yield (APY), pay zero account fees, and enjoy an array of rewards, such as access to the Allpoint Network of 55,000+ fee-free ATMs globally. Qualifying accounts can even access their 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

Who gets charged for a bounced check?

Unfortunately, both the check writer and the recipient often have to pay a fee if a check bounces. The person who wrote the check may have to pay a nonsufficient funds (NSF) fee and potentially a merchant fee. The recipient of the bounced check may be charged a returned check fee.

Can you get in trouble for depositing a check that bounces?

Depositing a bounced check does not typically result in trouble for the depositor, but it can lead to inconvenience and fees. Your bank may charge a returned check fee for the failed deposit. If you repeatedly try to deposit known bad checks or are involved in fraudulent activities, however, you could face legal consequences.

How long does it take for a bad check to bounce?

The time it takes for a check to bounce can vary, but it generally takes a few days to a week. When a check is deposited, the payee’s bank will submit it to the payer’s bank for verification. If the payer’s bank identifies insufficient funds or other issues, the check will be returned unpaid. This process typically takes two to five business days, but it can take longer depending on the banks involved and the specific circumstances.

Do bounced checks affect my credit score?

Bounced checks do not directly impact your credit score, as they are not typically reported to credit bureaus. However, the consequences of a bounced check can indirectly affect your credit. If the bounced check leads to unpaid bills, collections, or legal action, these events can be reported to the consumer credit bureaus and negatively impact your credit.


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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 recurring deposit of regular income to an account holder’s SoFi Checking or Savings account, including payroll, pension, or government benefit 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, or are non-recurring in nature (e.g., IRS tax refunds), do not constitute Direct Deposit activity. There is no minimum Direct Deposit amount required to qualify for the stated interest rate.

As an alternative to direct deposit, 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.

*Awards or rankings from NerdWallet are not indicative of future success or results. This award and its ratings are independently determined and awarded by their respective publications.

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Guide to Callable Certificates of Deposit (CDs)

Guide to Callable Certificates of Deposit (CDs)

A callable CD is a certificate of deposit that pays interest like a regular CD, but can be “called” or redeemed by the issuing bank before the maturity date, limiting the return for the investor.

Regular CDs are designed so that investors get back their principal, plus a fixed amount of interest, when the CD matures. But those who own callable CDs may not get the interest they expected if the bank calls the CD early.

Callable CD interest rates tend to be higher because of this potential risk.

What Is a Callable CD?

A callable CD, like a callable bond, means that the bank has the power to terminate the CD before the maturity date. This may happen if there is a drop in interest rates.

For example, if an investor opens a bank account and buys a 2-year callable CD, the bank could close it out as soon as six months after it’s opened, or any time after that, generally at six-month intervals; it depends on the terms of the CD. The investor would then get back their principal and the amount of interest earned up to that point.

It’s important to note that only the issuer has the ability to call the CD early. The investor must leave their money in the CD until it’s called or reaches maturity, or they will likely face an early withdrawal penalty.

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How Does a Callable CD Work?

Callable CDs are similar to regular CDs, which are time-deposit accounts offered by banks, credit unions, and brokerages. These accounts provide a fixed interest rate on the funds the account holder has deposited for a specific term (usually a few months to a few years).

Callable CDs generally offer higher interest rates. But unlike a regular CD, a callable CD has a “call” feature which allows the financial institution to decide whether it wants to stop paying the account holder the higher interest rate. This typically occurs when interest rates begin to drop. At that point, the issuer can close out the CD and return the funds to the investor, plus any interest earned up to that point.

The bank typically offers a premium interest rate to account holders in exchange for the risk that the CD might be called.

Recommended: APY vs. Interest Rate: What’s the Difference?

Callable CD Example

Let’s say an account holder decides to deposit $10,000 into a callable CD that has a three-year maturity with a 5.00% interest rate. The bank, however, decides to call the CD after a year because interest rates dropped, and the bank can now offer CDs at a 4.00% interest rate.

In this case, the account holder would get their $10,000 back along with the interest accrued prior to the bank’s redemption of the CD. That would be about $500 versus more than $1,500 the investor might have earned if they had been able to hold the CD to maturity.

Are Callable CDs FDIC Insured?

Callable CDs, like most types of CDs, are insured up to $250,000 by the Federal Deposit Insurance Corporation (FDIC) or the National Credit Union Association (NCUA) if the CD is issued by a credit union. If there is a bank failure, federal deposit insurance protects the money held in a callable CD up to that amount.

If the CD was issued by a brokerage, which is generally known as a brokered CD, the CD is not technically FDIC-insured. However, the brokerage’s underlying purchase of the CD from a bank typically is FDIC-insured (though it’s a good idea to check to make sure before you open a brokered CD).

Maturity Date vs Callable Date

The maturity date is when the certificate of deposit reaches maturity and the investor can redeem the CD for the principal plus interest accrued during the length of the CD. They can choose to take the earnings or renew the CD.

The callable date is the earliest date at which the CD issuer can close the CD. The first callable date can generally be as soon as six months after the CD was opened, and can typically occur any time after that, at six-month intervals (for example, one year, 18 months, two years, and so on).

Be sure to read the terms of any CD, but especially callable CDs, as the callable date can vary. For example, you could buy a callable CD with a 5-year maturity date and a one-year callable date (the earliest date the issuer can call the CD). That means, at the very least, your money would earn a year’s worth of interest.

Pros of Callable CDs

There are several advantages that may come with opening a callable CD.

•   Callable CDs typically pay higher interest rates compared to regular CDs. Since account holders are taking on the risk of the bank redeeming the callable CD prior to its maturity, the account holder gets a higher interest rate in exchange for taking on this risk.

•   Like most CDs, callable CDs are generally considered lower-risk investments. If the bank decides to terminate the CD before its term, you will typically still receive the original deposit amount as well as the interest that accumulated until that time.

•   In the event of a bank failure, your money is federally insured up to $250,000.

Cons of Callable CDs

While there are positives to callable CDs, these saving vehicles can have some downsides.

•   If the account holder needs access to capital and has to withdraw their money prior to the callable CD’s date of maturity, they are subject to early withdrawal penalties which can eat up some or all of the interest earned.

•   In the event that interest rates decline, there is a possibility that the bank could call the CD early, in which case the account holder would not receive the same return they would have if the callable CD were to finish its full term.

Where to Open a Callable CD

You can open a callable CD with a bank or credit union, or with some brokerages. The financial institution should be FDIC-insured or National Credit Union Administration-insured so your money is protected.

With a brokered CD, the CD should be insured through the bank the brokerage purchased the CD from, but be sure to check that this is the case before opening the CD.

The Takeaway

If you are looking for investments that are generally lower risk, provide predictable returns, and are protected by federal insurance, callable certificates of deposits might fit the bill. Callable CDs could build your savings by paying a higher fixed interest rate for a specific period of time. However, the account holder takes the risk that the bank might exercise the call option, and close the account before the CD matures.

If you’re interested in earning a higher rate on your savings, you may want to consider other savings vehicles as well, such as a high-yield savings account with a competitive APY that’s higher than the rate offered by traditional savings accounts. Explore the options to choose what best suits your needs.

Interested in opening an online bank account? When you sign up for a SoFi Checking and Savings account with direct deposit, you’ll get a competitive annual percentage yield (APY), pay zero account fees, and enjoy an array of rewards, such as access to the Allpoint Network of 55,000+ fee-free ATMs globally. Qualifying accounts can even access their 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

What is a callable vs a non-callable CD?

Callable CDs are certificates of deposits that pay interest for a specified term like a traditional CD does, but the callable CD rate tends to be higher because the bank can redeem the CD before it reaches maturity. A regular CD does not have a call feature.

Why would a bank call a CD?

Usually, a bank would call a CD in the event of falling interest rates. The bank redeems the CD because with a drop in rates, it can then pay lower rates to its CD holders.

Can you lose money on a callable CD?

Generally, you cannot lose money on a callable CD, but you might get less of a return than you’d hoped. In the event that the CD is called, the account holder receives the principal along with interest that was accumulated up to that point in time, instead of receiving the return for the full term of the CD.


Photo credit: iStock/hallojulie

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

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

SoFi® 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.


4.60% APY
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 recurring deposit of regular income to an account holder’s SoFi Checking or Savings account, including payroll, pension, or government benefit 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, or are non-recurring in nature (e.g., IRS tax refunds), do not constitute Direct Deposit activity. There is no minimum Direct Deposit amount required to qualify for the stated interest rate.

As an alternative to direct deposit, 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.


*Awards or rankings from NerdWallet are not indicative of future success or results. This award and its ratings are independently determined and awarded by their respective publications.

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Guide to Banker's Acceptance (BA)

Banker’s Acceptance (BA): Definition, How It Works, Uses

A banker’s acceptance (or BA) is a financial instrument used to guarantee large future transactions, often in the import/export markets. As a debt instrument, it can function as an investment, commonly traded between large banks and institutional investors on the secondary market. It can trade at a discount to par like U.S. Treasury bills in money markets.

BAs play a key role in facilitating international trade and in broader fixed-income markets. While you may not own an individual banker’s acceptance in your checking account, these instruments help promote sound and liquid markets.

What Is Banker’s Acceptance?

A banker’s acceptance (which you may see written as bankers acceptance) is a short-term form of payment guaranteed by a bank; it is often used for international trade transactions.

Banks often make money on the spread between the buy and sell price on a fixed-income asset or through fees and commissions. BAs commonly have a maturity of between 30 and 180 days and trade at a discount to par. Functioning like a post-dated check, they are seen as a relatively safe method of payment for large transactions. BAs are considered short-term debt instruments.

Here are some more details about banker’s acceptance and how these instruments work.

•   The BA is issued and priced based on the creditworthiness of the issuing bank. An investment banker earns a commission for making the transaction.

•   Only customers with a strong credit history can access the BA market. These entities are often corporations involved in international trading (import/export) markets.

•   A banker’s acceptance can also be highly marketable and liquid, allowing money to transfer from one bank to another.

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Open a SoFi Checking and Savings Account with direct deposit and get up to a $300 cash bonus. Plus, get up to 4.60% APY on your cash!


💡 Quick Tip: Help your money earn more money! Opening a bank account online often gets you higher-than-average rates.

How Banker’s Acceptance Works

A banker’s acceptance is considered a time draft. A business can request one from a bank as a way of gaining enhanced security while conducting a deal. The bank essentially promises to pay the firm that is exporting goods a particular amount of money on a certain date. When it does this, it takes funds out of the importer’s bank account.

Typically, the term of a banker’s acceptance is between 30 and 180 days.

Who Issues Banker’s Acceptance?

Not all banks offer BAs. Businesses with a good relationship with a large bank can obtain a banker’s acceptance. It can be an appealing product for an institution entering a large-value transaction. Like signing a check over to someone, the account holder must have enough cash to execute the transaction.

More than a simple checking account transaction, though, obtaining a BA typically requires an amount of credit to be detailed. There are usually fees involved in obtaining a BA, too.

Who Buys Banker’s Acceptances?

Banker’s acceptances are traded by banks and securities dealers on a secondary market, similar to how debt instruments are traded. They are available for a discount on its face value. The exact value may vary with the rating of the bank that has promised payment on the banker’s acceptance.

How Banker’s Acceptance Is Used

Here’s more detail on how banker’s acceptances can be used.

Checks

Think of a banker’s acceptance as a certified check. It’s a relatively safe way to do a transaction. The money owed is guaranteed on a specific date listed on the BA bill. Credit analysis is usually done to verify the creditworthiness of the issuer, so it’s a bit different than how a bank will verify a check before you deposit it.

BAs are frequently used to facilitate the international trading of goods. A buyer of imported products can issue a BA with a payment date after a shipment is scheduled to be delivered. The seller exporting can then take payment before finalizing the shipment. The exporter in this case can hold the BA to maturity or sell it on the secondary market. Unlike a check, the BA is backed by the guarantee of the bank, not an individual.

Investments

Aside from the import/export market, bankers’ acceptances are used commonly in the investment world. Buyers might purchase a BA and hold it to maturity to effectively earn a rate of return on short-term money. Since BAs are seen as very low-risk products, they are used as a cash-like security.

Still, retail consumers usually won’t be able to purchase a BA in an online or traditional retail bank. The purchase is, as noted above, only available to certain financial entities.

Recommended: What Are Some Safe Types of Investments?

Pros and Cons of Banker’s Acceptance

There are a number of positive aspects of bankers’ acceptances to consider.

Pros

First, the upsides of BAs:

Provides Seller Assurances Against Default

Backed by the guarantee of a bank, a banker’s acceptance is regarded as a high-quality fixed-income security that is often liquid and highly marketable. For importers and exporters, financial transactions can be made to facilitate international trading of goods without the risk that one party goes bust.

Buyer Does Not Have to Prepay for Goods

A banker’s acceptance works like a promissory note so the buyer does not have to prepay. Liability can immediately transfer from the issuer of the banker’s acceptance to the bank. The payment is likely debited only on the due date.

Enhances Confidence in the Deal

Part of the process of issuing a banker’s acceptance is usually having a good credit standing and a relationship with a major bank. Since high-risk customers might not be considered, there is strong confidence in BAs traded. There would be no need for the exporting company to worry about default risk; that lies with the banker. While individual investors often do not engage in BA trading, there are important traditional banking alternatives that feature financial solutions to help facilitate transactions.

Cons

While there are many positive aspects of bankers’ acceptances, there are still some risks for those involved in the transaction and trading of BAs. Consider the following:

Bank May Require Buyer to Post Collateral to Hedge Risk

Collateral is sometimes required for a deal to happen. Collateral provides a backstop should the importer be unable to pay. It can reduce risks to the bank and expedite the deal. Think of it like seller concessions to get a deal done, though collateral is generally not used when buying and selling a home.

Buyer May Default

With a banker’s acceptance, the bank accepts default risk, which can be a downside. The issuing bank typically must honor the payment terms even if the account holder, perhaps an importing/exporting corporation, does not have the cash on the payment date. Not all banks choose to be in this market due to the risk that the buyer could default.

Potential Liquidity Risk

Liquidity risk means an individual or financial institution cannot meet its debt obligations in the short term. Investors may not encounter liquidity risk with a banker’s acceptance instrument, but the issuing bank could have liquidity risk from the importer who must pay. This may be a key consideration for a bank issuing a BA. The secondary market for banker’s acceptance products remains highly liquid.

Pros of BAs

Cons of BAs

Provides assurance vs. default Bank may require collateral
Buyer doesn’t need to prepay for goods Buyer may default
Enhances confidence that deal will work Potential liquidity risk

The Takeaway

A banker’s acceptance is a debt instrument that plays a key role in well-functioning capital markets. BAs help facilitate international trade through bank guarantees. Knowing about this important fixed-income product type can help individuals understand financial markets and institutions.

When it’s time to take a look at your personal banking partner, it can pay to shop around for the right fit.

Interested in opening an online bank account? When you sign up for a SoFi Checking and Savings account with direct deposit, you’ll get a competitive annual percentage yield (APY), pay zero account fees, and enjoy an array of rewards, such as access to the Allpoint Network of 55,000+ fee-free ATMs globally. Qualifying accounts can even access their 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

What is the difference between a letter of credit and a banker’s acceptance?

A letter of credit is a financial instrument that a bank issues for a buyer (the bank client) guaranteeing that a seller will be paid. A banker’s acceptance, on the other hand, guarantees that the bank will pay for a future transaction, rather than the individual account holder.

What is a banker’s acceptance in a real-life example?

An example of a banker’s acceptance would be that, on April 1st, the Acme Bank sends a BA to Back-to-School Supplies, saying it will make funds available on June 1st for a shipment of goods for their client. On June 1st, the school supply company will be able to withdraw those funds.

How safe are banker’s acceptances?

Banker’s acceptances are a relatively safe transaction for all involved, but the exact degree will vary with the creditworthiness of the bank guaranteeing the funds.

Is a banker’s acceptance a short-term investment?

Banker’s acceptances are considered a short-term investment or debt instrument. They are usually traded at a discount, and they are seen as similar to Treasury bills.

Is a banker’s acceptance a loan?

A banker’s acceptance isn’t a loan. It’s a short-term debt instrument, typically with a maturity date of 30 to 180 days.


Photo credit: iStock/Deagreez

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 recurring deposit of regular income to an account holder’s SoFi Checking or Savings account, including payroll, pension, or government benefit 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, or are non-recurring in nature (e.g., IRS tax refunds), do not constitute Direct Deposit activity. There is no minimum Direct Deposit amount required to qualify for the stated interest rate.

As an alternative to direct deposit, 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.


*Awards or rankings from NerdWallet are not indicative of future success or results. This award and its ratings are independently determined and awarded by their respective publications.

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 Term Deposits

Guide to Term Deposits

A term deposit, also known as a certificate of deposit (CD) or time deposit, is a low-risk, interest-bearing savings account. In most cases, term deposit holders place their funds into an account with a bank or financial institution and agree not to withdraw the funds until the maturity date (the end of the term). The funds can earn interest calculated based on the amount deposited and the term.

This guide explains what a term deposit is in more detail, including the pros and cons of term accounts.

What Is a Term Deposit or Time Deposit?

Time deposit, term deposit, or certificate of deposit (CD) are all words that refer to a particular kind of deposit account. It’s an amount of money paid into a savings account with a bank or other financial institution. The principal can earn interest over a period that can vary from a month to years. There is usually a minimum amount for the deposit, and the earned interest and principal are paid when the term ends.

One factor to consider is that the account holder usually agrees not to withdraw the funds before the term is over. However, if they do, the bank will likely charge a penalty. Yes, that’s a downside, but consider the overall picture: Term deposits typically offer higher interest rates than other savings accounts where the account holder can withdraw money at any time without penalties.

Compared to stocks and other alternative investments, term deposits are considered low-risk (they’re typically insured by the FDIC or NCUA) for up to $250,000 per account holder, per account ownership category (say, single, joint, or trust), per insured institution. For these reasons, the returns tend to be conservative vs. higher risk ways to grow your funds.

💡 Quick Tip: Tired of paying pointless bank fees? When you open a bank account online you often avoid excess charges.

How Does a Bank Use Term Deposits?

Banks and financial institutions can make money through financing. For example, they likely earn a profit by issuing home, car, and personal loans and charging interest on those financial products. Thus, banks are often in need of capital to fund the loans. Term deposits can provide locked-in capital for lending institutions.

Here’s how many bank accounts work:

•   When a customer places funds in a term deposit, it’s similar to a loan to the bank. The bank will hold the funds for a set time and can use them to invest elsewhere to make a return.

•   Say the bank gives the initial depositor a return of 2.00% for the use of funds in a term deposit. The bank can then use the money on deposit for a loan to a customer, charging a 6.00% interest rate for a net margin of 4.00%. Term deposits can help keep their financial operation running.

Banks want to maximize their net interest margin (net return) by offering lower interest for term deposits and charging high interest rates for loans. However, borrowers may choose a lender with the lowest interest rate, while CD account holders probably seek the highest rate of return. This dynamic keeps banks competitive.

Recommended: Understanding the Different Types of Bank Accounts

How Interest Rates Affect Term Deposits

Term deposits and saving accounts in general tend to be popular when interest rates are high. That’s because account holders can earn a high return just by stashing their money with a financial institution. When market interest rates are low, though, people are more inclined to borrow money and spend on items like homes and cars. They may know they’ll pay less interest on loans, keeping their monthly costs in check. This can stimulate the economy.

When interest rates are low (as checking account interest rates typically are), the demand for term deposits usually decreases because there are alternative investments that pay a higher return. For example, stocks, real estate, or precious metals might seem more appealing, although these are also higher risk.

The interest rate paid on a term deposit usually depends on the amount deposited and the time until maturity. A larger deposit may earn higher interest, and a deposit for a longer period of time (says, a few years vs. a few months) may also reap higher rewards.

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Types of Term Deposits

There are two main types of term deposits: fixed deposits and recurring deposits. Here’s a closer look.

Fixed Deposits

Fixed deposits are a one-time deposit into a savings account. The funds cannot be accessed until the maturity date, and interest is paid only on maturity.

Recurring Deposits

With a recurring deposit, the account holder deposits a set amount in regular intervals until the maturity date. For example, the account holder might deposit $100 monthly for five months. Each deposit will earn less interest than the previous installment because the bank holds it for a shorter period.

In addition to these two types, you may see banks promoting different kinds of CDs, whether they vary by term length or by features (such as a penalty-free CD, meaning you aren’t charged if you withdraw funds early).

Opening a Term Deposit

To open a term deposit account, search online for the best interest rates, keeping in mind how much you want to deposit, how often, and for how long. Most banks will ask you to fill in an online application. Make sure you read and agree to the terms of the agreement. For example, check the penalties that apply if you decide to withdraw your funds early as well as the minimum amount required to earn a certain interest rate.

Closing a Term Deposit

A term deposit may close for two reasons — either the account reaches maturity or the account holder decides to end the term early. Each bank or financial institution will have different policies regarding the penalties imposed for breaking a term deposit. Read the fine print or ask a bank representative for full details.

When time deposit accounts mature, some banks automatically renew them (you may hear this worded as “rolled over” into a new account) at the current interest rate. It would be your choice to let that move ahead or indicate to the bank that you prefer to withdraw your money.

If you want to close a term deposit before the maturity date, contact your bank, and find out what you need to do and the penalties. The penalty will depend on the amount saved, the interest rate, and the term. The fee may involve the loss of some or all of interest earned. In very rare cases, your CD could lose value in this way.

Term Deposits and Inflation

Term deposits may not keep up with inflation. That is, if you lock into an account and interest rates rise over time, your money won’t earn more. You will likely still earn the same amount promised when you funded the account. Also, once tax is deducted from the interest income, returns on a fixed deposit may fall below the rate of inflation. So, while term deposits are safe investments, the interest earned can wind up being negligible. You might investigate whether high-yield accounts or stocks, for instance, are a better option.

Term Deposit Pros

What are the advantages of a term deposit versus regular high-yield savings account and other investments? Here are some important benefits:

•   Term deposit accounts are low-risk.

•   CDs or time deposits usually pay a fixed rate of return higher than regular savings accounts.

•   The funds in a CD or deposit account are typically FDIC-insured.

•   Opening several accounts with different maturity dates can allow the account holder to withdraw funds at intervals over time, accessing money without paying any penalties. This system is called laddering.

•   Minimum deposit amounts are often low.

Term Deposit Cons

There are a few important disadvantages of term deposit accounts to note, including:

•   Term deposits can offer lower returns than other, riskier investments.

•   Term deposits and CDs usually have fixed interest rates that do not keep up with inflation.

•   Account holders likely do not have access to funds for the length of the term.

•   Account holders will usually pay a penalty to access funds before the maturity date.

•   A term deposit could be locked in at a low interest rate at a time when interest rates are rising.

Examples of Bank Term Deposits

Here’s an example of how time deposits can shape up. Currently, Bank of America offers a Featured CD account: A 13-month Featured CD with a deposit of more than $1,000 but less than $10,000 pays 4.75% APY.

At Chase, a 9-month CD with a deposit of more than $1,000 but less than $10,000 pays 4.25% APY. If you have $100,000 or more to deposit, the APY rises to 4.75%.

Recommended: How Do You Calculate Interest on a Savings Account?

The Takeaway

Term deposits, time deposits, or CDs are conservative ways to save. Account holders place a minimum amount of money into a bank account for a set term at a fixed interest rate. The principal and interest earned can be withdrawn at maturity or rolled over into another account. If funds are withdrawn early, however, a penalty will likely be assessed.

While these accounts typically have a low interest rate, they may earn more than standard bank accounts. What’s more, their low-risk status can help some people reach their financial goals.

Interested in opening an online bank account? When you sign up for a SoFi Checking and Savings account with direct deposit, you’ll get a competitive annual percentage yield (APY), pay zero account fees, and enjoy an array of rewards, such as access to the Allpoint Network of 55,000+ fee-free ATMs globally. Qualifying accounts can even access their 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

Can you lose money in a term deposit?

Most term deposits or CDs are FDIC-insured, which means your money is safe should the bank fail. However, if you withdraw funds early, you may have to pay a penalty. In a worst-case scenario, this could mean that you receive less money than you originally invested.

Are term deposits and fixed deposits the same?

There is usually no difference between a term deposit and a fixed deposit. They both describe low-risk, interest-bearing savings accounts with maturity dates.

Do you pay tax on term deposits?

With the exception of CDs put in an IRA, any earnings on term deposits or CDs are usually subject to federal and state income taxes. The percentage depends on your overall income and tax bracket. If penalties are paid due to early withdrawal of funds, these can probably be deducted from taxes if the CD or term deposit was purchased through a tax-advantaged individual retirement account (IRA) or 401(k).


Photo credit: iStock/Olga Trofimova

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 recurring deposit of regular income to an account holder’s SoFi Checking or Savings account, including payroll, pension, or government benefit 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, or are non-recurring in nature (e.g., IRS tax refunds), do not constitute Direct Deposit activity. There is no minimum Direct Deposit amount required to qualify for the stated interest rate.

As an alternative to direct deposit, 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.


*Awards or rankings from NerdWallet are not indicative of future success or results. This award and its ratings are independently determined and awarded by their respective publications.

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

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

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

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Tips for Voiding a Check

Tips for Voiding a Check

If you’re asked to void a check, which often happens when you’re setting up direct deposit, you might not be sure how to do it. Checks are being used less often these days, and as a result, people may be unfamiliar with the way they work.

Fortunately, the process of voiding a check for direct deposit or for any reason is pretty simple.

Definition of a Voided Check

First of all, what is a voided check? When you write the word “VOID” on a blank check, it becomes a voided check meaning it cannot be used to draw money out of your account. This type of check is not used for deposit or cashing purposes.

Instead, the voided check can be used to set up direct deposit or bill pay. Establishing direct deposit or online bill pay eliminates the hassle of going to the bank to make payments or deposit your paycheck. It also automates your transactions to speed delivery and help you keep tabs on the money going in and out of your account.

Recommended: Can I Use Checks with an Old Address?

How Do You Void a Check?

To void a check, all you need is a blank check and a pen. Here’s how to complete the process:

•   Take a blank check from your checkbook.

•   Grab a blue or black pen.

•   Write “VOID” in large letters across the face of the check. However, be sure not to cover the account numbers at the bottom. You could also write “VOID” in smaller letters on the payee line, amount line, in the amount box, and on the signature line, if you prefer.

•   Write down the check number, recipient, and date in your checkbook and note that the check was voided so you don’t get confused by a skipped check when you balance your checkbook.

Reasons for Voiding a Check

There are practical uses for voiding a check including setting up direct payments or deposits, and automatic bill payments. Providing a voided check is a convenient way to share your banking information for such purposes. After all, copying your banking information (routing and account number) by hand leaves you vulnerable to mistakes.

Here are the top reasons to void a check:

•   Set up direct deposit with your employer for wages, salary, or expense reimbursement. Employers often let workers set up direct deposit instead of receiving a physical paycheck, and a voided check speeds the process.

•   Set up direct deposit for government benefits. Unemployment benefits and Social Security payments may be delivered by direct deposit instead of a mailed check. This way, both parties can enjoy the increased security of a digital transaction.

•   Establish automatic bill pay for loans, utility bills, or other payments. You may have the option to set up automatic payments for bills such as an auto loan or mortgage. Setting up auto-pay helps ensure you don’t miss a payment.

•   Void checks with mistakes. If you are writing a check from your checking account and make a mistake, you can write “VOID” across it, so no one uses or deposits it.

Get up to $300 when you bank with SoFi.

Open a SoFi Checking and Savings Account with direct deposit and get up to a $300 cash bonus. Plus, get up to 4.60% APY on your cash!


Voided vs Canceled Check

You may wonder what the difference between a voided and a canceled check is. When you make a void check, you are canceling a physical check you have in your possession. If you’ve lost a check (especially a blank one) or have sent out a check in error, that’s a different situation. You can contact your bank about stopping payment on the check.

When banks and credit unions talk about canceled checks, however, they are likely referring to ones that have already been used to transfer funds. The work of these checks is done, so to speak, so they are considered canceled.

The differences between a voided check and a canceled check are:

•   You can void a check yourself. To cancel a check, however, a bank or credit union has already been involved.

•   Voiding is quick and free. If you seek to cancel a check by stopping payment, it will involve time to speak to your bank, and there may be a fee charged to stop payment.

What to Expect After Voiding a Check

After you submit your voided check with the required paperwork for direct deposit, it may take a few days to complete the setup process. Typically, employers will establish the direct deposit within one or two paycheck cycles.

This is also true for government benefits like Social Security. Once direct deposit is established, you’ll know exactly when deposits will hit your account.

With direct deposit, you can use the money in your account immediately since there’s no temporary hold on deposits.

With auto-pay, funds are withdrawn from your account based on a bill’s due date. Some businesses give you a choice of dates to submit payment.

What if You Don’t Have Checks?

If you don’t have any checks, the first step to getting a checkbook is to open a new bank account. Many banks will give you pre-printed “starter checks” to use until your personalized ones arrive.

If you already have a checking account but no checks, you can contact your bank or credit union about ordering checks. They can usually be ordered online, via a mobile app, over the phone, or in person.

Alternatives to a Voided Check

Aside from a voided check, you have other options to establish autopay or direct deposit. Here are some alternatives:

•   Direct deposit form. Some employers may let you use a direct deposit form without a voided check. In this case, ensure you complete your bank information correctly.

•   Preview a check. Some financial institutions let you “preview” your checks on your bank or credit union’s website before you order them online. If your financial insulation allows this, you might be able to print out the preview and write “VOID” across it.

•   Enter bank information online. Depending on how your employer sets up direct deposit, you might have the option to connect directly to your bank account through your company’s payroll website. Just enter your bank information instead of supplying a voided paper check.

•   Request a counter check at a bank branch. You may have the option to request a “counter check” at your local bank branch. You can use this specially printed check containing your bank information for your voided check. Some banks charge a fee for this service.

The Takeaway

Knowing how to void a check is a good skill to have, and it’s part of becoming a savvy financial consumer. When you write “VOID” on a check, it becomes a voided check you can use to set up auto-pay or direct deposit. Voided checks are not available for deposit or cashing.

Once you submit your forms and voided check, employers can usually establish direct deposit within a few days. Another option is to request a “counter check” from your bank branch and void that check, though some banks may charge a fee for this service.

Interested in opening an online bank account? When you sign up for a SoFi Checking and Savings account with direct deposit, you’ll get a competitive annual percentage yield (APY), pay zero account fees, and enjoy an array of rewards, such as access to the Allpoint Network of 55,000+ fee-free ATMs globally. Qualifying accounts can even access their 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

How do I void a blank check?

To void a blank check, take a blue or black pen and write “VOID” across the face of the check. You could also write “VOID” in the payee line, amount line, amount box, and the signature line.

How do I void a check for direct deposit?

You void a check for direct deposit by writing “VOID” across the face of the check with a blue or black pen. Or you could fill that in on the payee line, amount line, amount box, or the signature line.

How do I void a check I’ve already sent?

You can’t void a check you have already sent. You’ll have to cancel the check. To do this, first make sure the check hasn’t cleared yet. Then, make sure you have your account number, check number, dollar amount, and date you wrote on the check. Contact your bank or credit union to stop payment. This action may require a fee.


Photo credit: iStock/AsiaVision

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

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

SoFi® 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.


4.60% APY
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 recurring deposit of regular income to an account holder’s SoFi Checking or Savings account, including payroll, pension, or government benefit 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, or are non-recurring in nature (e.g., IRS tax refunds), do not constitute Direct Deposit activity. There is no minimum Direct Deposit amount required to qualify for the stated interest rate.

As an alternative to direct deposit, 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.


*Awards or rankings from NerdWallet are not indicative of future success or results. This award and its ratings are independently determined and awarded by their respective publications.

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