How Do You Open a Business Checking Account?

How Do You Open a Business Checking Account?

Opening a business checking account isn’t much different from opening a personal account, but it’s an important step when it comes to running your business. A business account can help you keep your personal finances separate from your professional transactions. This, in turn, can make growing your credibility and completing your taxes easier, among other benefits.

The requirements to open a business checking account tend to vary, depending on the financial institution and other factors like your location and business entity. But, in most cases, it’s generally a straightforward process to start one.

Let’s take a closer look at:

•   What a business checking account is

•   How it works

•   How to open a business checking account.

What Is a Business Checking Account?

If you have a personal checking account, you may wonder, “What is a business checking account anyway? Do I really need a separate account?” Let’s get those questions answered. A business checking account is similar to a personal checking account in that you have flexibility in your day-to-day banking. Depending on the type of account, you may be offered features such as unlimited transactions, a debit or ATM card, and check-writing capabilities.

In some cases, you may even be able to earn interest. But, and this is important, business checking accounts are meant to house a company’s funds. Therefore, there may be different features and requirements to maintain the account. Check with a few banks to get acquainted with the details.

Now, for that second question — “Do I need a separate business account?” — the answer is probably “yes” if you own a business. Even a brand new, currently part-time endeavor may need a small business account. In terms of a business vs. personal checking account, you want to keep that biz income separate for tax purposes and to gain legitimacy for your enterprise. Also, if you need to be paying employees or vendors, a business account is the way to go, so as not to get those kinds of transactions mixed up with, say, your home-loan payments and other personal expenses.

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How Does a Business Checking Account Work?

Business checking accounts are quite similar to personal checking, but they typically have different limitations, fees, and balance requirements. For instance, business checking accounts may come with higher bank fees, especially if your business deals with a large amount of transactions. In that same vein, there may also be higher minimum balance requirements to waive monthly fees or to earn interest.

That’s not to say they aren’t budget-friendly options. Many online business checking accounts are being offered to smaller businesses or sole proprietors, though they may not offer interest earnings.

You can use a business checking account to conduct transactions such as bill paying, receiving funds, and writing checks. In many cases, you may even be able to order debit cards for you and your employees to withdraw money and make purchases. The primary account holder (such as the business owner) can set ATM withdrawal limits and spending limits for employee cards.

Can Anyone Open a Business Checking Account?

Almost anyone can open an bank account as long as they have the right type of documentation. In general, you’ll need to prove that you own a business. Now, what if you’re a sole proprietor or an independent contractor (say, a gig worker)? Even if you don’t have the usual kind of paperwork, you may still be able to open a business checking account. However, you’ll probably need to speak with the bank to see how you can do so.

What You Need to Open a Business Checking Account

The types of documentation you’ll need to provide depends on the bank at which you’re opening a business bank account and also on your legal business entity. Typically, sole proprietors will only need to provide their personal information, whereas LLCs and corporations will need documentation about the company and details from each of the majority owners.

Here’s a list of what kind of identification and documentation you’ll most likely need to provide to start your account. This applies whether you are heading to a bricks-and-mortar branch or opening an online business checking account:

•   Personal information: Financial institutions will require some form of government-issued photo ID such as a driver’s license or passport. If you have multiple business owners, then banks may require personal details of each owner.

•   Employer Identification Number (EIN): Every business should have an EIN, though sole proprietors and single-member LLCs may be able to submit their Social Security number in their application.

•   Business details: You’ll need to provide your business name, address, and, if applicable, your DBA (doing business as) name. In many cases, you’ll also need to disclose the industry your business falls under.

•   Documentation: Depending on your business entity, you’ll have to provide your business name registration certificate, business license, articles of organization, partnership agreement, and operating agreements.

•   Opening deposit: To finalize your business account opening, you may be required to deposit a certain amount of money. Check with your financial institution to determine what that amount would be.

Do I Need Revenue to Open a Business Bank Account?

Most banks don’t require you to be earning revenue in order to open a business checking account. That means if you’re starting a business, you don’t need to wait until you earn a certain income to open that account. So it can be a smart move to put opening your business checking as one of the first items on your to-do list when you start your enterprise. As long as you have the required documentation needed, you should be able to open an account.

Benefits of a Business Checking Account

Opening a business checking account comes with a myriad of benefits, including:

•   Liability protection: If you use a personal checking account for business purposes and have legal issues, it’s more likely that a court will have the right to go after your personal assets. That’s because it doesn’t look like you’re operating a separate business. Opening a business account generally shields you from this potential issue, especially if you’re registered as an LLC or corporation.

•   Tax simplification: Having a business checking account allows you to completely separate your personal and business finances. That way, it can help you include all the transactions you need to file your taxes accurately and efficiently. Plus, it’ll be easier to scrutinize your expenses to see whether you can identify further deductions.

•   Credibility: Your business may be taken more seriously if you used a business checking account. Your clients or vendors may be more likely to trust you if your payments or checks are coming from an account with your business name on it. These types of accounts also help when you decide to apply for small business financing or credit card. In other words, establishing your business could show business credit bureaus you’re serious enough of an entity to create a credit report for your company.

•   Potential future growth: Having a business checking account can help prevent any potential hiccups down the road, such as having to find ways to make payroll for your employees.

Things to Consider When Choosing a Business Checking Account

Many banks offer different business checking accounts suited to a variety of needs, so it’s important to look at the following features when making your decision. There’s probably an account available that fits your needs just about perfectly:

•   Fees: Most business checking accounts charge monthly maintenance fees. You may be able to have them waived, but you’ll need to meet certain requirements such as maintaining a certain balance.

•   Interest rates: In general, interest rates for business checking accounts are lower when compared to savings or money market accounts. However, you may still be able to earn a small return on your deposits. Assuming the fees may be higher for interest-bearing accounts, do some calculations to determine whether the APY makes it worth paying them.

•   Transaction limits: Business checking accounts tend to come with deposit and withdrawal limits per month. If you go over a certain limit, you may be required to pay an additional fee.

•   Bundled services: Some business checking accounts may offer unlimited employee debit cards, dispense free checks, or waive fees if you sign up for a business credit card or merchant services.

Do You Need a Business Checking Account?

Getting a business checking account is a smart move for anyone looking to launch and grow their business. Even if you’re the only employee (and plan to be for a long time), having this type of account still makes sense.

However, if you’re running a side business, are a gig worker, and don’t intend on venturing away from your full-time job, it might not be necessary. As long as you keep meticulous records to ensure you know what your business transactions are, you may be able to get away with only having a personal account. Note the use of the word “may.” If your business grows or just keeps chugging along for a number of years, you may at a later date regret not having gotten a separate business account. It can simplify and clarify your finances.

The Takeaway

If you’ve started or are running your own biz, it’s a smart idea to open a separate account to differentiate your business and your personal transactions. Applying is typically quite straightforward, involving presenting identification and other business documents. In return, you’ll get the flexibility, legitimacy, and services you need to conduct business professionally. Plus, you’ll keep your enterprise separate from your personal finances and avoid confusion.

If you’re looking to rev up your personal banking, however, give SoFi a look. Open linked Checking and Savings with direct deposit, and you’ll have access to your paycheck up to two days early, you won’t pay any account fees (including no overdraft fees) and you’ll earn a super-competitive 1.50% APY.

Let SoFi help you bank much better.

FAQ

What is the difference between a personal and business checking account?

Both types of accounts are similar, except business checking accounts are meant for corporations and business owners, and they feature services that cater to professional needs.

What is the purpose of a business checking account?

The purpose of a business checking account is to facilitate banking for businesses with needs like paying vendors and employees and paying for supplies. It also separates personal and business assets for liability purposes. What’s more, a business account provides a company with more legitimacy.

What makes an account a business account?

Business accounts are designed for professional needs, which may mean many more transactions than a personal account typically engages in, as well as ways to pay employees and vendors. They may have merchant services too, which incorporate credit and debit card payments.


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 1.50% annual percentage yield (APY) interest on all account balances in their Checking and Savings accounts (including Vaults). Members without direct deposit will earn 0.90% APY on all account balances in Checking and Savings (including Vaults). Interest rates are variable and subject to change at any time. Rate of 1.50% APY is current as of 06/28/2022. 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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All You Need to Know About Variable-Rate Certificates of Deposit (CD)?

All You Need to Know About Variable-Rate Certificates of Deposit (CD)?

A variable-rate certificate of deposit (CD) is a financial product that locks up your money for a set period of time (or term) and has a fluctuating interest rate. This varying rate of return is what sets it apart from traditional CDs, which pay a fixed rate, so you know exactly how much money your money will earn.

When interest rates are high, a variable-rate CD can help pump up your returns, but the opposite holds true, too. Depending on your financial goals, style, and comfort level, a variable-rate CD may be a good option for you.

Let’s take a closer look. We’ll dig into:

•   What a variable-rate CD is

•   What to know if you are considering investing in one

•   Pros and cons of a variable-rate CD

What Is a Variable-Rate Certificate of Deposit?

Let’s start by answering the question, “What is a variable-rate CD?” A variable-rate certificate of deposit, or CD, is a financial product that you can purchase from a banking institution, broker, or credit union. All types of CDs are a savings account that have fixed investing terms. That means they hold your money for a certain amount of time, be it six months or several years.

You pick a term that suits you best. During that time, your money earns interest, but you are not supposed to withdraw any funds or you are likely to be assessed a penalty fee. When the term ends, your CD is said to have matured, and you may withdraw the funds plus interest or roll them over into a new CD. Usually the total amount of interest is also received at the end of the investment term.

Traditional CDs pay a consistent rate of interest that you are informed of at the start of the term. In the case of variable-rate CDs, however, the interest rate fluctuates throughout the term. This means, you, the investor can potentially earn more on your deposit when interest rates go up. As you might guess, the opposite is also true: You could earn less if interest rates go down. Several market factors influence interest rates. These include the prime rate, treasury bills, a market index, and the consumer price index (CPI); we’ll go into those more in a moment.

One last note: Yes, CDs are insured. Certificates of deposit are time deposits protected by the Federal Deposit Insurance Corporation (FDIC). If the bank holding the CD were to fail, you’d be insured up to $250,000.

Recommended: How Can I Invest in CDs?

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Special Considerations of a Variable-Rate CD

The info above gives you an overview of how variable-rate certificates of deposit work. Beyond those broad strokes, there are a few key things to consider when looking into investing in variable-rate CDs. This type of CD is generally most profitable if purchased when interest rates are low, because it’s more likely that the interest rate will increase during the investment term. For this reason, there is a higher demand for these CDs when interest rates are low.

About those interest rates: There are four main factors that influence them. These are:

•   Consumer Price Index (CPI): The federal government uses the Consumer Price Index to calculate changes in the amount that consumers pay for certain products and services. Whatever the current CPI is can affect how interest rates fluctuate.

•   Market Index Levels: Another factor that affects interest rates is the performance of investment portfolios, such as major market indices. Some indices that are often analyzed include the S&P 500, the Dow Jones Industrial Average, and the Nasdaq Composite Index.

•   Prime Rate: The prime rate is the interest rate that banks charge customers who have the highest credit ratings. These customers are the least likely to default on loans, so they get the best interest rates.

•   Treasury Bill Yields: The U.S. Treasury sells Treasury bonds in order to raise money, and they also pay interest on those bonds. The interest rate associated with Treasury bonds depends on the amount and time period of the bond.

Now that you have a little more insight onto the factors that determine a CD’s variable rate, let’s look at the big picture. It’s worth noting that, during times of high inflation, CDs may not be your best option. If inflation surges, even a variable-rate CD may not be able to keep pace. At the end of your term, you may find that your investment has lost ground versus inflation.

Another factor to consider before you lock in on a variable-rate CD is the fee for early withdrawals. Some variable-rate CDs have higher fees than others. If there’s a good chance you may end up withdrawing funds early, before a CD’s maturity date, you should check those penalties and make sure they aren’t too steep.

Recommended: How Can I Buy a Bond?

Pros of a Variable-Rate CD

All CDs are known to be very safe investments since they are federally insured up to $250,000. In addition to that security, there are several benefits to investing in variable-rate CDs. Let’s take a closer look:

High Yield on Investments

Variable-rate CDs are secure, insured accounts that can provide a higher rate of return than other types of savings accounts. For instance, when you buy a fixed-rate CD, you might miss out on the opportunity to earn a higher interest rate if the market ticks upward. Variable-rate CDs, however, can respond to market conditions. If you buy a variable-rate CD when interest rates are low, you can potentially earn more as rates increase.

Profitable When Interest Rates Are Low

When interest rates are low, demand for variable-rate CDs increases, as does the profit potential. That’s because it is more likely that interest rates will increase after you purchase one. The interest rate can tick upwards and earn you more money on your money.

Lower Withdrawal Fee

Generally, variable-rate CDs come with lower penalties on early withdrawals than other types of CDs.

Cons of a Variable-Rate CD

While there are several reasons variable-rate CDs make good investments, they do come with a few downsides to consider before you invest.

Low Interest Rates

Although a variable-rate CD provides the opportunity to snag higher interest rates, it also creates a significant risk of earning a lower rate if market rates go down. If you buy a variable-rate CD when interest rates are low with the hopes that they will increase, there is no guarantee that this will happen. This means they will continue to earn a low interest rate for some or all of the duration of the CD term. In this case, you’re stuck! You may have lost out on the possibility of earning a higher return elsewhere.

Paying Extra for “Bump-Up” Feature

Although interest rates can increase or decrease with most variable-rate CDs, there are some kinds that have a “bump-up” feature. This allows for a one-time rate boost (or possibly a few rate hikes) during the CD’s term, but you may well have to pay extra for this “bump-up.” This is because the initial interest rates is typically lower than it would be on a fixed-rate CD.

Inflation Can Outpace Your Rate and Wipe Away Profit

There is a chance that inflation will increase during the term of a variable-rate CD. If this happens, inflation could end up being higher than the interest rate you’re earning. Let’s spell out what that means: Your earnings would be canceled out.

Variable-Rate CD: Real World Example

All this talk of varying interest rates can be hard to get a handle on without a concrete example. So let’s consider a CD that has a three-year term and a guaranteed repayment of the principal deposit. The starting rate is based on the prime rate, which is 4% at press time. During the term of the investment, let’s suppose that the prime rate drops from 4% down to 2%. To determine the amount of interest you’d receive, you’d take the difference between the initial prime rate and the final prime rate, which is 2%. So at the end of the term the investor would receive their initial deposit plus 2% interest. That’s half what it was when you started. Obviously, you, the CD account owner, would be happier if the reverse were true, which it could be!

What Happens if I Redeem a CD Before It Matures?

Most CDs have fees for early withdrawal; these typically involve losing interest that’s been earned, and occasionally a bit of the principal. (Generally speaking, you don’t receive earned interest until a CD matures). However, some variable-rate CDs do offer early withdrawals with no penalties for fees. These CDs usually have a lower interest rate, so you are paying for this flexibility.

The Takeaway

If you’re looking for safe, reliable, and flexible financial securities, you may want to consider adding variable-rate CDs to your portfolio. CDs provide choices in terms of how long money is invested and can provide strong returns. But, that said, they do come with some risks. It’s important to understand the factors that affect interest rates when considering buying variable-rate CDs. Time things right, and you could earn a healthy return on your investment. But if rates don’t head in a positive direction, you may not even be able to keep up with inflation.

CDs aren’t the only game in town for earning interest. Come take a look at the turbocharged 1.50% APY you can earn when you open SoFi’s online banking platform with direct deposit. And these accounts have no overdraft or account fees to gnaw away at your money, either. They’re a great way to help your money grow.

Start banking better with SoFi today.

FAQ

Are variable-rate CDs issued by the government?

Variable-rate CDs are not issued by the government, but the FDIC insures them up to $250,000. They are issued by FDIC-insured financial institutions.

What determines the rate on a variable-rate CD?

Several factors affect the interest rate of variable-rate CDs. These include the prime rate, market indices, treasury bills, and the consumer price index.

Do CDs have fixed interest rates?

Many CDs have fixed interest rates, but variable-rate CDs have interest rates that fluctuate throughout their term.


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 1.50% annual percentage yield (APY) interest on all account balances in their Checking and Savings accounts (including Vaults). Members without direct deposit will earn 0.90% APY on all account balances in Checking and Savings (including Vaults). Interest rates are variable and subject to change at any time. Rate of 1.50% APY is current as of 06/28/2022. 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.
Any SoFi member who receives $1,000 or more in qualifying direct deposits into their SoFi Money account over the preceding 30 days will be eligible for Overdraft Coverage. Overdraft coverage only applies to SoFi Money accounts and is currently unavailable for Samsung Money by SoFi accounts. Members with a prior history of non-repayment of negative balances for SoFi Money are also ineligible for Overdraft Coverage.

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Opening a Foreign Currency Bank Account Online

Opening a Foreign Currency Bank Account Online

A foreign currency bank account is typically a bank account that processes transactions made in currencies other than U.S. dollars. Businesses may use foreign currency bank accounts to conduct international transactions and support operations in other countries. It can be a major convenience because of its flexibility with currencies.

Individuals may also consider funding a bank account with foreign currency in certain situations, which we’ll cover in more detail in a moment. Read on to learn:

•   What a foreign currency account is

•   How to open a foreign currency account

•   The pros and cons of a foreign currency account

•   The fees associated with this kind of bank account.

What Is a Foreign Currency Account?

A foreign currency bank account is an account that’s designed to hold money denominated in foreign currencies. It may also be referred to as a multicurrency or borderless account. It is a simpler way to deal with regular deposits of foreign currencies.

The types of currencies accepted for deposit or used for withdrawals can be determined by the bank. Some of the currencies your bank may process include:

•   Australian dollars (AUD)

•   Canadian dollars (CAD)

•   Euros (EUR)

•   Great Britain pound sterling (GBP)

•   Japanese yen (JPY)

As mentioned, foreign currency accounts can be opened for business or personal reasons. Businesses that operate globally may require these accounts in order to send payments to vendors or receive payments from international clients.

You might open a foreign currency account for yourself, as an individual, in a few different circumstances. Perhaps you live or are working abroad, Or maybe you regularly make payments overseas or need to send money to friends and family internationally.

Depending on the financial institution, you may be able to open a bank account with foreign currency in order to:

•   Make deposits and withdrawals, similar to the way you might use a typical checking account, more conveniently

•   Earn interest on deposits

A foreign currency bank account that’s set up as a savings account might follow typical savings account rules. For example, the bank may limit you to six withdrawals from the account per month (though these regulations have largely been loosened since the COVID-19 pandemic). If that limit applies and you exceed it, the bank may impose an excess withdrawal fee. Keep in mind that any fees assessed for a foreign currency account may be processed in U.S. dollars.

Foreign currency accounts at FDIC member banks enjoy FDIC protection, up to the established limit. The FDIC insures banking customers up to $250,000 per depositor, per financial institution, per account ownership type. This may well reassure you about the safety of your funds.

One thing to note is that foreign currency bank accounts aren’t used for forex trading. If you’re interested in trading foreign currency as an investment, you’d need to open a separate brokerage account for that. There are a number of online brokerages that offer the option to trade forex alongside other investments, such as stocks and exchange-traded funds (ETFs).

Ready for a Better Banking Experience?

Open a SoFi Checking and Savings Account and start earning 1.50% APY on your cash!


Typical Requirements to Apply for a Foreign Currency Bank Account

If you’re interested in how to open a foreign currency bank account, it’s important to know what documents you’ll need. That way, you can gather the necessary materials and speed through the application process. The specifics can vary from bank to bank but generally, you must:

•   Be of minimum age to open an account, typically 18 or 19

•   Have a valid, government-issued form of identification

•   Provide identifying information, including your name, address, date of birth and Social Security number

•   Meet minimum-deposit requirements

•   Provide proof of income and employment

The requirements aren’t that different from those for a foreigner opening an account in the U.S. Whether you can apply for a foreign currency bank account online or not will depend on the bank. Some banks do allow you to start the application online, while others require you to open an account over the phone or in-person at a branch. Check with yours to learn the exact protocol.

You may also need to already have at least one other account open with the bank before you can apply for a foreign currency account. If the bank imposes this requirement, you may also need to maintain a specific minimum balance in that account to qualify.

Pros of Foreign Currency Account

If you’re curious about foreign currency accounts, it may well be because you are tangled in some red tape as you try to bank in, say, both U.S. dollars and euros. A foreign currency bank account can help meet certain money management needs, like toggling back and forth between two kinds of currency. Let’s explore the pros of foreign currency accounts.

•   When you deposit funds into your account, you can hold it as multiple currencies, including leftover foreign currency from travel, in one place. You don’t have to exchange foreign currency before you can use it.

•   Being able to switch among different currencies could allow you to leverage the most favorable exchange rates.

•   You may be able to earn interest on your balances.

•   Multicurrency bank accounts can be used for personal or business purposes.

•   Sending payments or money in foreign currencies can be more convenient.

A foreign currency account could also come in handy if you travel. You can use a linked debit card to make purchases or withdraw cash in each country you visit, without having to get traveler’s checks from your bank.

So how do traveler’s checks work? If you’ve never used them, you might not know that these are paper financial instruments that can be used the same way you would a paper check or cash. Thanks to the convenience of credit cards and debit cards, however, travelers don’t need to rely on them as much to make payments when visiting destinations outside the U.S.

Cons of Foreign Currency Account

While a foreign currency bank account might be appropriate in some situations, there are a few drawbacks to consider. Specifically:

•   Your bank can charge you fees the same as you might pay for any other account.

•   Interest rates and APYs may be low.

•   Initial deposit requirements or minimum balance requirements may be on the higher end.

•   Changing currency rates can affect the value of the money in your account.

Another drawback of foreign currency accounts is that not all banks offer them. And some banks may only offer these accounts for businesses, not individuals.

What Are the Fees Associated With a Foreign Currency Account?

Foreign currency accounts can have fees the same as any other type of bank account. Depending on the bank, some of the fees you might pay include:

•   Monthly maintenance fees

•   Excess withdrawal fees (for savings accounts)

•   Overdraft fees

•   Foreign transaction fees

•   Currency conversion fees

When comparing foreign-currency bank accounts, take time to review the details thoroughly. It’s important to understand which currencies you can hold, which fees you might pay, and whether you’re required to maintain a minimum balance in the account. Once you’ve scoped those details out, see if the benefits of this kind of account will outweigh the fees. It could wind up being a good way to simplify your banking life if your financial life requires frequent foreign transactions.

The Takeaway

Foreign currency accounts can simplify money management if you regularly send or receive money in currencies other than U.S. dollars. Opening one of these multicurrency bank accounts is not that different from opening any other type of account. It can be a major convenience if your daily life involves receiving and/or sending funds overseas — and a good way to take control of your international financial life.

If you’re looking for checking and savings accounts for your everyday finances, try banking with SoFi. Our high yield bank accounts, when opened with direct deposit, offer you all kinds of terrific perks, like a hyper-competitive 1.50% APY and access to your paycheck up to two days early. You’ll also pay zero account fees.

Start banking better with SoFi today.

FAQ

Can you open an account in foreign currency?

Generally, you can open a foreign currency bank account if your bank offers this kind of account and if you meet eligibility requirements. Foreign currency accounts may require higher minimum deposits than other types of bank accounts, which could make them better suited to high net-worth individuals.

Which US banks offer foreign currency accounts?

Some of the U.S. banks that offer foreign currency accounts at press time include Citi, Citizens Bank, HSBC, PNC Bank, and TIAA Bank. You can contact your current bank to find out if foreign currency accounts are available.

Should I open a foreign currency account?

Opening a foreign currency account could make sense if you regularly deal with banking transactions in foreign currencies. A multicurrency bank account could offer convenience and potentially save time when you need to send or receive money internationally.


SoFi members with direct deposit can earn up to 1.50% annual percentage yield (APY) interest on all account balances in their Checking and Savings accounts (including Vaults). Members without direct deposit will earn 0.90% APY on all account balances in Checking and Savings (including Vaults). Interest rates are variable and subject to change at any time. Rate of 1.50% APY is current as of 06/28/2022. 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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What Is a Lifeline Checking Account and How Does It Work?

What Is a Lifeline Checking Account and How Does It Work?

A lifeline checking account is a basic bank account that features minimal fees and other cost-cutting elements, making it more accessible to first-time bank-account holders and those at lower income levels. These accounts can be, as the name indicates, a lifeline for those who are seeking firmer financial footing.

For example, a lifeline checking account may have no monthly maintenance fee, no minimum balance requirement, and no minimum opening-deposit requirement — or be at the lowest possible level in each of these categories. However, there are sometimes trade-offs to these sorts of accounts.

Let’s take a closer look at this important category of banking products and explore:

•   What is a lifeline account

•   How these accounts work

•   The pros and cons of lifeline accounts.

What Is a Lifeline Account?

First, it’s time to establish a lifeline checking account’s definition: A lifeline checking account is a bank account designed specifically for underbanked and low-income customers. Basically, it’s an account that’s as generous as possible to its account holders, often featuring zero account fees. These accounts typically also offer additional consumer protections such as free overdraft coverage and waived ATM fees.

Having access to a bank account is such an important step towards financial wellness. Without one, safely saving significant amounts of money and paying bills can become much more difficult. Recognizing this, some jurisdictions have laws in place requiring banks to offer low-cost accounts to consumers. For example, New York passed a law in 1994 requiring banks in the state to offer lifeline checking accounts to any customers who might want them.

Furthermore, the increase in digital-first and online banks has increased the public’s access to low-cost banking products. Online banks don’t have the same kind of costly overhead as banks that operate brick-and-mortar branches. For that reason, they’re more easily able to offer accounts with minimal fees. That means more affordable, accessible banking for more customers. Quite the win-win.

Recommended: How to Avoid Monthly Account Fees

How Do Lifeline Accounts Work?

Lifeline checking accounts work a lot like any checking account does. You open the account, deposit money into it, and then use those funds to pay bills and make day-to-day purchases. You can do so by using bank transfers, a debit card, or cash you withdraw from the bank or an ATM.

There is a main difference between lifeline and other accounts. Many typical checking accounts assess monthly maintenance fees or require a certain minimum balance to be maintained. These requirements may be waived in a lifeline account (or, if they’re still in place, the dollar amounts will be very low).

Of course, bank accounts with higher fee structures do sometimes come with additional benefits that may make the fees worthwhile to certain customers. For example, with a lifeline checking account, you may not be able to use paper checks — or head into a physical bank to interact with a live teller. Still, for those whose choices are limited by financial circumstances, lifeline checking accounts can be… well, a lifeline. They’re also useful for anybody who’s hoping to minimize the amount they spend on banking.

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Examples of Lifeline Checking Accounts

Lifeline checking accounts, or low-cost accounts that serve as lifeline checking accounts, are offered by many different financial institutions, including big box banks, regional credit unions, and online banks.

For example, at press time, BankFinancial offered a Lifeline Checking account that features overdraft protection services, free in-network ATM transactions, and a $0 minimum balance requirement. It charged a $5 monthly maintenance fee — which is still pretty minimal in the world of brick-and-mortar banks. Wells Fargo’s lowest-cost checking account also assessed a $5 monthly service fee, though this cost is waived for account-holders between ages 13 and 24. The minimum opening deposit was $25, and there was no required minimum balance.

Pros and Cons of a Lifeline Checking Account

Like any other financial product — or anything in life, really — there are both pros and cons to keep in mind when you’re considering a lifeline checking account.

Pros:

•   Low costs make these accounts more accessible to a wide range of consumers

•   Lifeline checking accounts can help any money-savvy account holder save more of their money

Cons:

•   Lifeline checking accounts may come without features considered “basic” by many, such as paper checks

•   Many lifeline accounts are offered by online banks, which don’t give account holders the option to bank in person

The pros of lifeline accounts are certainly valuable. Being able to pay lower fees and keep more of your cash is a tremendous help to those who are just starting their banking lives or who are earning a lower income. Think about the other banking products that can make a real difference when money is tight, like personal loans with no fees, no-interest credit cards, and overdraft coverage. Lifeline accounts can similarly play an important role when a person has limited cash.

But only you know what kind of banking products are right for you. To help you decide, here’s how the benefits and downsides of lifeline accounts stack up side by side:

Pros

Cons

Accessible to those who need a low-cost option May not include “basic” features, such as checks
Offer savings to all money-savvy customers Tend to be offered by online banks, so no in-person support

How Can I Qualify for a Lifeline Checking Account?

Let’s say you’re ready to open a no fee bank account. Here’s some good news: In general, qualifying for a lifeline checking account is pretty easy. You’ll just need to provide your proof of residence and other identifying and demographic information, and provide whatever minimum opening deposit is required, if there is one.

That said, some banks will look into your banking background before allowing you to open an account. For instance, they may use ChexSystems, which is a reporting agency that consolidates information about consumers’ banking behaviors. It’s kind of like a credit report, but for your interactions with banks. A poor ChexSystems record can make it impossible to qualify even for some low-cost accounts. However, there are still second-chance checking accounts out there that can provide the banking products you need while your ChexSystem record improves.

What Can I Do If I Cannot Find a Lifeline Account?

Fortunately, with the proliferation of online banking, lifeline-like checking accounts are pretty much everywhere — all it takes is a few mouse clicks to search for one. It’s always a good idea to verify the validity of any online bank accounts you find, however, and to ensure that the accounts are FDIC-insured. That means you don’t have to worry about losing your hard-earned money if the bank goes out of business or loses revenue.

The Takeaway

Lifeline checking accounts are low-cost accounts that make it possible for people with lower incomes or are new account seekers to get the checking capabilities they need. These accounts often feature no or low feed and minimal beginning balances. The downside is that they may skip some banking basics, like paper checks. Fortunately, in our increasingly online world, this isn’t a deal-breaker. It may well be a trade-off that’s worthwhile to secure the convenience of a checking account.

When it comes to deciding which checking account to choose, take a look at what SoFi offers. Our Checking and Savings accounts, when opened with direct deposit, gives you terrific banking benefits with no fees — no monthly, minimum-balance, or overdraft fees. And we offer up to 1.50% APY on your balance. Talk about a lifeline!

Check out SoFi banking today.

FAQ

Are there benefits for lifeline checking accounts?

Along with their low fees, some lifeline checking accounts do come with extra benefits such as free overdraft protection or ATM fee waivers.

Can I open a checking account with no money?

Yes! Although it’s not true of all lifeline checking accounts, many come with a $0 opening deposit minimum, which means you can start the account even if you don’t have any cash on hand right now.

Which banks are best for low income?

Whether your income is low or high, looking for a minimal fee structure is the best way to save money — in banking and beyond. Typically, online banks offer lower fees and higher interest rates than bricks-and-mortar financial institutions.


SoFi members with direct deposit can earn up to 1.50% annual percentage yield (APY) interest on all account balances in their Checking and Savings accounts (including Vaults). Members without direct deposit will earn 0.90% APY on all account balances in Checking and Savings (including Vaults). Interest rates are variable and subject to change at any time. Rate of 1.50% APY is current as of 06/28/2022. 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.
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.

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What 'Do Not Convert to ACH' Means on a Check

What ‘Do Not Convert to ACH’ Means on a Check

Checks seem a pretty mundane bit of banking, but if you’ve ever received one that says, “Do not convert to ACH” on it, you may wonder what’s going on. Is the check valid? Is it some kind of scam?

Let us help you out. Here, we’ll take a closer look at this situation and what to do with that check. We’ll consider:

•   What ACH, check conversion, and check conversion by ACH mean

•   What it means when a check says “Do not convert to ACH”

•   What happens when you cash a check that has those five little words on it

Now, it’s time to dive in.

ACH System 101

ACH stands for Automated Clearing House, which is an electronic system that transfers funds throughout the United States. This network allows individuals and businesses to move money from one financial institution to another. ACH transfers fuel so many of the transactions that make our financial world go around. Every time you set up automatic bill pay or receive your paycheck by direct deposit or write an eCheck, that’s ACH at work. Apps such as PayPal and Venmo also use the ACH network to send and receive money.

All money that flows through the ACH network is transferred electronically and uses bank-level encryption. In other words, transfers are safe and secure. They protect sensitive information such as your bank account number and a financial institution’s name from thieves.

How Does ACH Work?

ACH transfers are initiated by either making a withdrawal or deposit into an account. You can send money to another account on a one-time basis — such as through an ACH debit to a utilities company or transferring money to a friend for your share of a restaurant meal — or opt into recurring payments. For example, some companies allow you to make automatic payments, such as for subscription services. In either case, you give permission for the receiver to initiate a withdrawal from your account.

Now, let’s consider the flipside: You could receive money; that is, get an ACH credit. This happens when people receive a direct deposit of their paycheck or Social Security.

Once you or someone else initiates a transfer, the request will be processed first by your financial institution. You’re probably curious about how long an ACH transfer takes. Once the ACH transfer request is received, the financial institution will complete the request no later than the next business day. You may be able to expedite the request, as well as schedule a transfer for a future date.

Typically, ACH transfers are faster than other types of transactions, though a potential downside is that it’s only available for transfers within the U.S. (That’s one of the distinctions between an ACH vs. wire transfer, incidentally; the latter has global reach.)

What Is Check Conversion?

Check conversion refers to the process of transforming a check payment into an electronic payment. This usually happens at one of these three points:

•   Point of Purchase (POP), meaning when a purchase is made, say, at a store

•   Accounts Receivable Conversion (ARC), when a business receives a check by mail and then processes it electronically

•   Back Office Conversion (BOC), or when a check is processed electronically after acceptance at, say, the office of a retail location

What Does Conversion to ACH Mean?

Now that you know the different junctures at which conversion may be started, let’s get down to the nitty gritty of just what the “conversion to ACH” process means. Simply put, it describes the fact that a paper check will be converted to a payment that’s processed through the ACH network. In other words, even though a paper check was written and used as payment, it will become an electronic ACH transfer.

Recommended: How to Cash a Check with No Fees

Why Might a Check Be Converted to ACH?

The main reason why a check may be converted is to save time and money when processing payments. Plus, converting a check payment to ACH could be more efficient, as it can help financial institutions detect potential fraud earlier, make fewer mistakes, and even result in fewer returned payments. The service of ACH transfers is typically free to consumers.

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Can a Check Be Converted to ACH?

While some may think that checks and ACH are separate entities, in truth, a check can be converted to ACH in many cases. (Unless, that is, the check itself says “do not convert to ACH.”) When converted, processing typically moves swiftly and securely; there’s no check to get lost or be forged, for instance.

Here’s how the conversion usually happens: When the check gets deposited in a checking account, the payment details are captured from the check. Then, the check itself will be stored securely by the financial institution — unless you have the physical check and are making a mobile deposit. If the check is converted in person, then the original check will be voided and given back to the payer.

If the check was converted for ACH, it will typically appear on a bank statement as a direct payment (or withdrawal) in the same section as ATM withdrawals or other forms of electronic payments. It could also appear as a check payment — some banks include a scanned image of the check or include the payment details.

Recommended: How Much are the Average ATM Fees?

What Does It Mean When a Check Says ‘Do Not Convert to ACH’?

When a check says “do not convert to ACH,” it means that the payer does not want to make a payment electronically. Instead, the payment needs to be processed manually from one financial institution to another through the check collection system.

More specifically, it means the financial institution will contact the other financial institution to request the funds, which is then delivered through a local clearinghouse exchange or other form organization like the Federal Reserve Bank.

What Is the Benefit to the Drawee if a Check Says ‘Do Not Convert to ACH’?

Checks that say “Do not convert to ACH” may sometimes be printed when a payer is issuing multiple checks; for example, if a class action suit is being paid out. In this case, perhaps the check issuer does not want the much faster electronic processing of their checks. Perhaps it suits them to have a slower payment process.

What Is the Difference Between ACH and a Check?

The difference between ACH and check payments is the network in which they’re processed. ACH payments are processed electronically through the ACH network, whereas non-converted paper checks are processed through a manual process. In many cases, ACH transfers are processed faster than paper checks, though most checks can be processed within one business day, though you may have to wait for it to clear.

The Takeaway

When it comes to getting paid, the ability to convert a check to or use the ACH network is most likely the most efficient way. That’s because this electronic payment system allows financial institutions to process transactions more quickly and securely compared to paper checks.

Unfortunately, there’s not much you can do if the check you receive says “Do not convert to ACH,” however rare they may be. It’s unlikely that you will receive one in today’s world, but if you do, deposit it and allow the extra time required for it to transform into available cash.

Most of us love the conveniences of banking today, and if you want to make a good thing even better, why not bank with SoFi? Sign up for a new bank account with direct deposit, and you’ll be able to access your paycheck up to two days early. Other benefits: a super-competitive 1.50% APY and no account fees at all. That means you keep more of your money, and it grows faster!

Bank smarter with Sofi.

FAQ

Can an ACH payment be declined?

Yes, an ACH payment may be declined or rejected for a few reasons, the most common one being that the payer doesn’t have enough funds in their account for the transfer. Other reasons include the account was closed by the time the transfer took place, the funds have been frozen, or the payer has stopped the payment request.

What does “ineligible for conversion” mean on a check?

If a check says “ineligible for conversion,” it means the check can’t be converted to an ACH payment. This may be due to the paper the check was printed on. The payee needs to either cash or deposit the actual check at a local branch.

Why would a bank reject a check?

There are several reasons a bank would reject a check, including:

•   You don’t have an account at the bank where you want to cash the check

•   You don’t have proper identification to show to the bank

•   The amount may be too large for the financial institution to process

•   The check is void (for example, the check is old and the payment is no longer valid)

•   The signature on the check doesn’t match what the bank has on file


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. ©2022 SoFi Bank, N.A. All rights reserved. Member FDIC. Equal Housing Lender.
SoFi members with direct deposit can earn up to 1.50% annual percentage yield (APY) interest on all account balances in their Checking and Savings accounts (including Vaults). Members without direct deposit will earn 0.90% APY on all account balances in Checking and Savings (including Vaults). Interest rates are variable and subject to change at any time. Rate of 1.50% APY is current as of 06/28/2022. Additional information can be found at http://www.sofi.com/legal/banking-rate-sheet

Photo credit: iStock/fizkes
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