Advantages and Disadvantages of Electronic Banking

The Advantages and Disadvantages of Electronic Banking

Electronic banking has its fans for good reason: Convenience. No lines. 24/7 access. And the potential to pay less and earn more.

It’s easy to understand why electronic banking continues to grow in popularity as an alternative to banking at a brick-and-mortar location.

Still, it may not be a good fit for everyone. The lack of face-to-face human connection and the complexity of some tasks are downsides for some people.

So if you’re looking for the right place to stash all or a chunk of your cash, there are advantages and disadvantages to electronic banking you should consider. Here, we’ll illuminate what electronic banking is and its pros and cons, so you can decide if it’s right for you.

What Is Electronic Banking?

Electronic banking (also known as e-banking, online banking, mobile banking, and internet banking) works much like traditional banking — minus most of the physical stuff. Instead of walking into a bank branch and handing the teller a check, cash, and/or deposit slip, customers can handle most of their transactions completely online, using a computer, tablet, or smartphone. You may also have access to a network of ATMs.

There are online-only banks (sometimes called “virtual banks”) that have no branches. And there are conventional banks and credit unions that have an online presence but also maintain brick-and-mortar locations. It’s critical to be clear about which of these you’re dealing with as you review your banking options. Here’s why: There are differences in how they operate that could affect your costs and comfort level. Before you decide where to open an account (or move an account to) to a virtual institution, consider the pros and cons of online banking.

We’ll help you do just that next, with an in-depth look at the advantages vs the disadvantages of electronic banking.

Advantages of Electronic Banking

If you’re tech-savvy enough to open an online bank account (and, really, it doesn’t take much), you’ll likely find it’s a handy and user-friendly way to manage much of your financial life. You can even do it while lying on the couch in your pajamas.

Here are some other pros of banking online:

24/7 Account and Customer Service Access

No more rushing to the bank before it closes or waiting for a weekday to do your banking business. As long as you have an internet connection or access to your cellular network, you should be able to use your account any time of day and any day of the week. And if you need human help, many online banks offer plenty of customer support online and on the phone.

Speed and Efficiency

Remember when the drive-thru lane was the most convenient way to get your banking done? With electronic banking, you can skip the line — inside or outside a bricks-and-mortar location. As long as you have a secure connection, you can log in. Then, you can quickly and efficiently take care of nearly any transaction from the comfort of home. (Or pretty much anywhere you like, as long as you have that nice, safe connection.)

Online Bill Payment

Online banking usually means an online bill-paying option. This can make it easier to organize your bills and make sure they’re paid on time. Instead of randomly writing out checks or phoning in payments, you can set up recurring and individual payments on your bank’s bill-paying portal and track them from there. And you only have to remember one password!

Low Overhead Can Mean Low Fees

Online-only banks have fewer overhead costs (they don’t have to build, maintain, and staff multiple physical locations), and they typically pass those savings on to their account holders. They likely charge lower fees than banks with brick-and-mortar locations (in some cases, even no fees). So if you’re looking at online-only banks vs. conventional banks with online services, you may want to do a fee comparison. There’s a good chance that the totally virtual bank will offer you savings.

Low Overhead Can Yield High Rates

Online-only banks also may pass on their overhead savings by offering higher interest rates. Although rates can fluctuate, and it’s always worth checking to see who’s currently offering the best annual percentage yield (APY). Online-only banks generally have the most competitive rates.

Ability to Easily Monitor Your Account

Regularly monitoring the activity in your financial accounts can help you stay on track in terms of spending and saving. Plus, it can help you spot fraud early. Electronic banking makes reviewing your transactions — whether it’s a direct deposit from work or a payment you made — easier and faster. If you have multiple accounts at one bank (checking and savings, investing, and/or loans), you can review them all at one time. And if your bank offers an app, you can check your accounts on the go — often in real time.

Ability to Easily Transfer Money

With online banking, transferring funds between accounts at the same bank or from bank to bank is a matter of just a few clicks. You usually can use the bank’s website or an app to transfer money. And many banks now offer low-cost or free peer-to-peer (P2P) transfers through Zelle and other vendors.

Convenience

Electronic banking is all about flexibility. You can peek at your balance, deposit a check, transfer funds, and pay bills any time you like. And you can set up alerts to help you stay on top of your finances. Online banking also offers the convenience and safety of going cashless, if you choose, without having to rely on credit cards.

Disadvantages of Electronic Banking

Though online banking continues to improve, it still isn’t perfect. (Then again, what is?) There are some potential issues you might want to consider as you move to electronic banking or are trying to decide whether to park your money at a traditional or virtual bank. These include:

Security

It may seem as though electronic banking would make you more susceptible to fraud. But in today’s world of hacking and security breaches, the reality is that you may be just as vulnerable to identity theft if you have your money in a conventional bank. And your personal vigilance — monitoring accounts and being careful with passwords and public WiFi — is important to keeping your online savings safe.

Still, with a virtual bank you will be doing your financial business in the ether most of the time. So it can be wise to research the security measures a bank has in place before opening an account there. (Do they, for example, have two-factor authentication, fraud alerts, automatic logouts, and a high level of encryption?). You may want to research a bank’s overall reputation and its policies for dealing with fraud to see if it follows requirements set by the Electronic Fund Transfer Act.

One other security step: You can use the FDIC’s BankFind tool to see if deposits are guaranteed by the federal government. This adds a layer of reassurance, as you’ll know whether your funds are protected (up to $250,000 per depositor, per insured bank, for each account ownership category) were your bank ever to fail.

Lack of Direct Contact Between Bank and Customer

If you ask someone who has used an online bank, “What are the advantages and disadvantages of electronic banking?” their biggest complaint might be the lack of personal contact. If you like the idea of working with a “personal banker” — or if it makes you feel happy to say hi to your favorite teller — you might miss visiting a bricks-and-mortar branch. If you have a concern or complaint, you also may find it’s easier to present your paperwork in person than submitting it online. And branch banks still offer some things a virtual bank cannot — including safe deposit boxes. Although online-only banks generally have a reputation for quality customer service, some people still may want or need the services of a local branch.

Technology Issues

Your satisfaction with online-only banking may only be as strong as your internet connection. If your WiFi or the bank’s website is down or your device can’t connect, it may limit your ability to complete an online transaction. (Although you may be able to get your business done over the phone or by using your ATM card.) This can be especially challenging if you’re the sort of person who travels a lot and struggles to find a secure connection.

Complex Transactions

Even if you’re comfortable with most aspects of online banking, there may be times when you have to manage a more complicated transaction. We’re talking about things like dealing with foreign currency, getting a certified check, or having paperwork notarized. Working with an in-person contact may be easier or even necessary in those situations.

Deposits

If you own a business that deals in cash or you’re paid in cash, you may find that making cash deposits at an online-only bank is inefficient. You might have to deposit the cash into a branch bank account and transfer the money to your online account. Or you could buy a money order and upload it to your online bank. And some online banks allow customers to make deposits through cash-accepting ATMs or a third-party retailer. But there’s no way to directly deposit that cash.

The Takeaway

When you’re trying to decide whether to choose traditional vs. online banking, much will depend on your lifestyle and personal preferences. If you’re looking for convenience, higher interest rates, and lower fees, an online-only bank may be the right option for you. However, if you often deal with cash or complicated transactions, or just plain crave some human contact when taking care of financial business, you may still want to have an account at a brick-and-mortar branch bank.

If you’re curious to try out electronic banking and see how convenient and low-cost it can be, why not take a good look at SoFi Checking and Savings? If you sign up with direct deposit, you’ll enjoy a super-competitive 1.50% APY. (That’s 41 times the average checking-account rate.) You’ll also be able to access your paycheck up to two days early, and you won’t have to pay any account fees, like monthly or minimum-balance charges. We’ll even let you skip overdraft fees.

Ready to see how good electronic banking can be? Let SoFi show you the way.

FAQ

How does electronic banking work?

Online banking is much like traditional banking except that it can be done at any time and anywhere — as long as you have a secure internet connection. You can accomplish most banking transactions using electronic banking, including depositing and withdrawing money, transferring money, and paying bills.

What are the disadvantages of electronic banking?

Electronic banking doesn’t have all of the features of traditional banking. For instance, brick-and-mortar banks may offer notary services and safe deposit boxes. Also some account holders may prefer to discuss problems or complex transactions face-to-face with a bank representative. Additionally, It may be difficult — but not impossible — to deposit cash into an online-only bank.

What are the advantages of electronic banking?

Advantages of electronic banking include convenience, speed, and flexibility. You can bank when it suits you. What’s more, online-only banks typically offer higher interest rates and fewer fees because they have lower overhead costs. Choosing a virtual bank can make good financial sense for these reasons.


Photo credit: iStock/MicroStockHub

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.
External Websites: The information and analysis provided through hyperlinks to third-party websites, while believed to be accurate, cannot be guaranteed by SoFi. Links are provided for informational purposes and should not be viewed as an endorsement.
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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Sending & Receiving Money From Someone Without a Bank Account

The Best Options for Sending and Receiving Money From Someone Without a Bank Account

Bank accounts are common, but not everybody has one. In fact, an estimated 5.4% of U.S. households (approximately 7.1 million) were “unbanked” in 2019, according to the FDIC. This means no one in the household had a checking or savings account at a bank or credit union.

For sure, there are advantages to having a bank account. Your money is stashed securely, and you earn interest on it. You can get your payroll check direct-deposited and not have to make a trip to the bank.

But not having a bank account doesn’t mean you can’t send and receive money. If you’re wondering how to send money to someone without a bank account, you have several options. Here, we’ll share them. Read on to learn:

•   Important considerations before choosing a money transfer method

•   What options are available for sending and receiving funds without a bank account

What to Consider Before Choosing a Transfer Method

As with all financial services, you don’t want to rush and just go with the first method available. Each option you review will probably have its pluses and minuses. If you are trying to send or receive money without a bank account, do your research. Consider these important factors as you move toward making your decision.

Reliability

Reputation matters, always — and especially with something as important as money. You want to use services that have been around long enough to have a track record. You can start by asking around in your inner circle to learn what others are using and what their experiences have been. You can read reviews and articles as well (a quick search online should reveal other people’s assessments). Key things to consider are whether money transfers were completed successfully, on time, and without excessive charges. The bottom line: Do a bit of research, as you would if you were choosing a bank.

Transfer Cost

Without a bank account, you may not have the ease of, say, receiving your paycheck via Automated Clearing House (or ACH) or using a debit card. In fact, you may have to spend time and money to send or receive some cash. So read the fine print on the options you are considering to make sure you’re clear on the fee structure. When it comes to transfers, what will you be charged for and what’s free? Will there be certain criteria to meet in order for a transaction to be done without fees? You don’t want any surprises. This information will be essential in helping you decide which provider to select.

Security

Security is critical. When it comes to cash changing hands, you want to feel confident about safety. You don’t want to risk your hard-earned dough getting stuck in the ether somewhere or vanishing entirely. So when you are drilling down and scrutinizing possible providers, look into what layers of protection are in place. See if there is two-step authentication, data encryption, and an adequate privacy policy in place. Fraud and identity theft are rampant these days, so safeguarding financial information is a must.

Options for Sending and Receiving Money Without a Bank Account

With all those factors in mind, let’s dive into specific options and assess what seems best for you. When it’s time to send or receive funds without a bank account involved, you’ll have a few possible paths.

Mobile Wallets

Mobile wallets, or digital wallets, are smartphone apps where you can store your debit and credit cards. Apple Pay, Google Pay, and Samsung Pay are a couple of examples you may have heard of. These services offer a way to pay a friend without cash exchanging hands. Or you might receive funds. These are quick and convenient ways to complete transactions with just a tap or two of your smartphone to use that card in a mobile wallet.

There are often no fees involved, and you may enjoy cashback and other rewards for completing a transaction with your linked card. But be mindful that both the sender and receiver must have the same digital wallet for the transaction to be free. If you have PayPal or Venmo, your recipient needs to have them too in order to do a peer-to-peer or P2P transaction. Also, fees may apply when using extras like expedited transfers or paying by credit card, and mobile wallets in the U.S. are often restricted to transfers within our country.

Let’s also consider another concern; a flip side to all the perks. These mobile wallets can get all sorts of information as you use them — and we truly do mean all sorts. Specifically, your name, mailing and email addresses, mobile number, records of your calls and texts, your contacts and calendar, the unique ID number of your mobile device, account information, websites you visit on your mobile device, your current location, where you shop with your mobile device, and possibly how much you spend, what you buy and what loyalty programs you use. Whew, that’s a lot. Are you comfortable with this? In this era of increasing data-privacy concerns, it may be too much for some people.

Money Orders

Money orders may seem like they’ve gone the way of the dinosaur, but they still serve a purpose. You get one from the post office or stores like CVS and Western Union, among others. They can get the job done, but it’s not the fastest way to send money without a bank account. The recipient will need to show identification to cash it. Prices vary depending on the service you use and how much money is sent, but they can be reasonably priced.

For instance, at the post office, you may pay $1.45 for a money order up to $500 and $1.95 for one that’s more than $500, up to $1,000. By the way, money orders are typically capped at $1,000. You could buy multiple ones if you need to transfer more than that amount.

Credit Cards

If you don’t have a bank account to fund the transfer, know that some money transfer services allow you to pay by credit card. Then, your recipient will be able to pick up cash pretty much instantly. It’s easy and convenient, but it’s likely to be more expensive than other methods. For example, Cash App allows you to use a credit card to send funds, but will charge you 3% of the transaction value, and then the credit card you’ve linked may also charge you interest or fees. This might not be your first choice if you have less pricey options available.

Prepaid Debit Cards

A prepaid debit card is another way to move money when a person doesn’t have a bank account. It shares some features of a credit card, debit card, and gift card. It is a debit card that’s been pre-loaded with money, and you can generally use it at any retailer (online or in person) that accepts credit cards. In fact, prepaid debit cards may be associated with credit card networks; think MasterCard or Visa, for example. This means they can be used anywhere that accepts that kind of plastic.

While prepaid debit cards may sound like an easy solution, keep in mind that they can be riddled with fees. For instance, you might get hit with a fee for card activation, making a purchase, adding money to the card, and/or withdrawing money at an ATM. You’ll want to read the fine print because these fees may make prepaid cards a less attractive option compared to others.

Cash or a Check

Cash is king and can be a super-simple way to send or receive funds, even if you don’t have a bank account. It’s one thing if you can just meet up in person and hand over or be handed (discreetly) a stack of money. But if the two parties involved are in different cities, that changes the equation. You could of course, wrap up cash as securely as possible and mail it, but that is ill-advised. Why tempt fate? Maybe it would arrive safely; maybe not.

Let’s say one person involved in a transaction has a bank account and mails the other a check. A lost check situation can occur, or a check might be stolen. Then what? The check-writer could attempt to stop payment, but the sender might wind up out of the money, and the receiver is still empty-handed. That’s a lose-lose. And what if a check arrives safely by mail, but the recipient is without a bank account? They will have to seek out a place to cash the check, and that will involve a fee.

We’ve highlighted some potential problems, but in some situations, cash or a check might be better than not receiving the money at all. That’s for the two people who need to transfer funds to decide.

Money Transfer Services

Money transfer services can be a godsend. No bank account is required for either the sender or recipient. It’s easy. In addition to in person retail outlets, you can now access money transfer services like Western Union and MoneyGram online. It’s a quick transaction; money can arrive as early as the same day.

You have some flexibility, too, such as sending money transfers to a debit card or a mobile wallet. Pay attention to fees, though, as they vary and depend on the amount you’re sending and more. For example, if you use Western Union in the U.S., Mexico, and Canada to send between $600 and $800 via the Money in Minutes service, there’s a $33.90 fee. If you transfer $50, the fee will be about $5.

The Takeaway

Having a bank account can be a cornerstone of good money management, but there are a number of Americans who don’t have one. If, for whatever reason you are without one, there are still ways to send and receive money. These include digital wallets, money orders, money transfer services, and other options. Some will have fees and security risks, among other downsides, so take your time to explore the safest, most convenient choice for your situation. Because once cash is gone, it can be hard to get it back.

On the topic of protecting your cash, let’s focus on your banking for a moment. How would you like to earn a super-competitive interest rate and pay no fees? That’s what you’ll find at SoFi when you sign up for our Checking and Savings with direct deposit. You’ll enjoy 1.50% APY and you won’t pay monthly, minimum balance, or overdraft fees (on up to $50). So you keep more of your money, which earns more money.

See how SoFi can make your banking so much better.

FAQ

Can I transfer money to someone without a bank account?

Yes, there are a number of options to transfer money if someone doesn’t have a bank account. These include using a money transfer service, prepaid debit card, mobile wallet, or money order.

What is the best way to transfer money to someone without a bank account?

What’s best depends on the two people involved. What are any time constraints, what is cost-effective, and what method is most convenient? Once these and other factors are considered, you can determine the best method, which might be a money transfer service, a mobile-wallet app, a money order, or a prepaid debit card.

How much does it cost to send money without a bank account?

Costs vary depending on the method you use, the amount of money you’re sending, and whether it is being transferred domestically or internationally. While a domestic money order from the U.S. Postal Service will cost $1.95 for an amount between $500 and $1,000, you might wind up paying considerably more for other transactions.


Photo credit: iStock/santypan

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.
External Websites: The information and analysis provided through hyperlinks to third-party websites, while believed to be accurate, cannot be guaranteed by SoFi. Links are provided for informational purposes and should not be viewed as an endorsement.
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Tips on Managing a Checking Account

How to Manage a Checking Account: 7 Tips

Managing a checking account may sound like a tedious task, but please keep reading, because it’s well worth a bit of time to get your financial health on track. Think about it: Your checking account is the main way you control your finances. This account is the starting point for where your money will flow — such as to pay bills or fund your savings or investment accounts — so it’s important you take a proactive approach to managing it.

Here, we’ll share the benefits of keeping your checking account humming along in peak condition. Then we’ll break the how-to’s down into seven simple steps so you can easily adopt these habits to enhance your financial life.

Ready to learn some hints to manage a checking account? Here we go.

Why Is It Important to Have Good Checking Account Management?

Knowing how to manage a checking account effectively will help you with many aspects of your financial life such as meeting your savings goals and protecting your money. If you don’t know where your money goes, how effective will you be when it comes to creating a budget or assessing where you are in your savings goals?

Plus, having good account-management skills will protect you against fraud. For instance, let’s say someone stole your debit card and used it to make purchases. You’d want to detect that ASAP before a bad situation got any worse. If you report any losses within two business days, you’re only on the hook for a maximum of $50 according to Federal laws. Otherwise, you could lose up to $500 if you report it after two business days but within 60. Don’t notice the fraudulent charges till past the 60 business-day limit? You’re on the hook for all fraudulent transactions unfortunately.

To recap, good checking account management will help you:

•   Stay on top of your account balance and activity

•   Allow you to better fund savings goals

•   Avoid fraudulent activity and potential money loss

Now, let’s share the seven steps that answer the question, “How do you manage a checking account?”:

1. Know Your Account Balance

Keeping track of your account balance gives you a clearer picture of where you stand financially. Doing so can help you with tasks such as planning for occasional and unexpected expenses, paying off your student loans on time, as well as simply sticking to your budget. Plus, monitoring your account can help you avoid overdraft fees by preventing your balance from dipping into negative territory. It’s easy to make an online payment or swipe that debit card and forget about it, so figuring out how often to check your balance is a wise idea.

You can log into your account online or through the bank’s mobile app, but other ways to check your balance include:

•   Receiving automated text alerts

•   Speaking to a teller at a branch

•   Calling your bank’s customer service hotline

•   Requesting your checking account balance at an ATM

2. Download Your Bank’s Mobile Banking App

If your bank offers a mobile app, it can be a smart idea to download it. Yes, mobile banking is very secure. By adopting mobile banking, you can easily keep an eye on your checking account. What’s more, you can conduct an array of transactions with just a few clicks, such as paying bills, depositing checks, setting up automated alerts, and transferring money between accounts.

Depending on the mobile app’s features, you may be able to link your debit and credit cards to your account, which makes it easier to purchase and pay for things. There may be other features such as a budgeting section, money management tools, insights into your credit score, and even access to discounts at your favorite retailer.

3. Avoid Paying Extra Fees

Many checking accounts charge monthly maintenance fees, but you may be able to have them waived if you can meet certain requirements. Most commonly, you can skip the monthly fees if you set up direct deposits or maintain a certain account balance.

Let’s drill down on one kind of fee in particular: those overdraft fees. Those charges can really add up, and if they are left unpaid, they can harm your credit score. Take a bit of time to understand how your bank handles overdraft fees — will it waive it if your account is in good standing, will it charge you a fee and process the payment, or will it reject the transaction totally and assess you a fee?

Plenty of banks also offer options such as overdraft protection. Typically, this means they will transfer the overdrawn amount from a linked savings account to your checking account automatically, without any charges. Still, you’ll probably want to set an alert so you’re notified when your checking account reaches a certain balance or hits zero. This way you can quickly remedy the situation.

4. Automate Deposits and Payments

Automation can make your life so much easier. Letting technology assist you with your banking can help you keep on top of tasks such as depositing your paycheck, paying bills, or meeting savings goals. Direct deposit is a great way for your employer to deposit paychecks automatically — in some cases, banks will even give you early paycheck access.

Your bank may have automatic bill payment or transfer tools as well. Consider using these for recurring payments to be made automatically, such as ones for subscription services, auto loans, or your mortgage payments. Doing so can prevent missed payments and may be able to help build your credit score. Also, automatically transferring a certain amount each month into a separate account can help you reach your short- and long-term savings goals.

5. Embrace Potential Earnings

Sure, having a nice big cushion of cash in your checking account can make you feel flush. However, keeping excess cash in your checking account could mean you’re losing out on the opportunity to get more out of your funds. Specifically, that money could be earning you more money! As you balance your bank account, you may find there are better ways to make your money work for you.

For instance, there are plenty of ways to earn interest even if you want your cash to remain more liquid. For instance, high-yield savings accounts linked to your checking account can earn you a bit of extra cash while still being very accessible.

6. Take Advantage of Checking Account Perks

To remain competitive, many banks are starting to offer additional perks with their checking account such as:

•   Identity theft protection and assistance

•   Discounts at shopping and dining retailers

•   Extended warranties on purchases

•   Buyer’s protection

•   Health savings cards

•   Cash back on qualifying debit card purchases

When shopping around for a checking account, consider your financial habits. If you shop frequently at certain retailers, it may be worth taking advantage of an account that offers discounts. Or if you use the ATM frequently, looking for a checking account that reimburses you for third-party ATM fees may be a smart choice.

7. Consider Consolidating

Do you have multiple checking accounts? It’s not uncommon for people to have, say, their main checking account, one that they opened to get some reward or perk, and the one that their parents opened with them in high school. If you can relate, you might benefit from simplifying your finances and consolidating all of them into one main checking account. That way, all you have to do is log into a single checking account and monitor your finances. Why overwhelm yourself with many accounts to check on and keep track of?

The Takeaway

Managing your checking account is an important path to staying on top of your finances. It will help you keep on your budget, avoid unnecessary fees, and reach your financial goals. Plus, with all the tech tools today and the rewards being offered, it can be faster and more profitable than ever.

If you’re in the market for a new checking account, take a look at SoFi Checking and Savings. If you sign up with direct deposit, you’ll earn a hyper-competitive 1.50% APY (that’s 41 times the current average), and you’ll be able to access your paycheck up to two days early. What’s more, you won’t pay any of the usual fees: no minimum-balance, monthly, or overdraft charges up to $50. And we make managing your money super-simple with our suite of tech tools.

Head over to SoFi to see how easy and profitable banking can be.

FAQ

Why is it important to manage your checking account?

It’s important to manage your checking account so that you can see where your money is coming and going. It can help you understand how you can budget better, reach your savings goals, and even detect fraud (such as if someone steals your debit card and makes purchases).

How often should you manage your checking account?

You may not need to log into your checking account everyday. You can take actions like set alerts when your account falls below a certain threshold or set up automatic transfers for recurring payments to help save you time. For many people, checking their bank account once or twice a week works well.


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.
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.

Photo credit: iStock/jroballo
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Automated Clearing House: What Is an ACH Payment?

You’ve probably seen those three letters, ACH, when banking and wondered what an ACH transfer means: Simply stated, ACH transfers move funds electronically from one bank account to another. ACH stands for Automated Clearing House, which is a centralized system — sort of like Grand Central Station for the electronic distributions of funds. It may be how your paycheck magically appears in your bank account via direct deposit, and it may be how you make online payments.

ACH transfers play an important role in banking today, so let’s take a closer look at what ACH is and how it works so you can bank smarter and better. We’ll cover:

•   What ACH transfers are and how they were created

•   The pros and cons of ACH transfers

•   How secure ACH payments are

•   The benefits of automating your banking

What Is an ACH Transfer?

An ACH transfer is a convenient way to move money around, without using checks, credit cards, or other methods. It enables direct deposits from employers and government benefit programs, bill payments, and external fund transfers. What’s more, ACH transfers fuel person-to-person payments. Such providers as PayPal and Venmo use the ACH network.

What Does ACH Mean?

As we mentioned, ACH stands for Automated Clearing House. But it’s not a bricks and mortar location. It is a network that financial institutions use to aggregate transactions for processing. This processing is then typically completed three times a day on every business day.

The ACH network processes bank transfers for both direct deposits and direct payments. Direct deposits usually include:

•   Paychecks

•   Government benefits

•   Tax refunds

•   Expenses that an employer is reimbursing an employee for

•   Annuity payments

•   Interest payments

In terms of direct payments, the ACH network may process:

•   Online bill payments from your bank account

•   Zelle

•   PayPal, Venmo, and other P2P services

How to Find an ACH Routing Number

If you are going to send or receive ACH transfers, you will likely need the following information, including an ACH routing number, on hand to set up your payment:

•   Bank name

•   Bank routing number

•   Account number

•   Type of account (checking or savings)

•   Authorization

Many people struggle to find their bank’s routing number (aka the ACH routing number). It’s a unique, nine-digit code that is assigned to a banking institution. You can find it by looking at your checkbook. Your routing number is the series of nine numerals at the bottom of each check, next to your account number. You can also search online for the name of your bank and then “ACH routing number.” Or check your bank’s online platform.

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Beginnings of the ACH Network

The ACH network began in the late 1960s, when a group of U.S. bankers worried about the increasing number of checks being issued and cashed. They feared that rising numbers of checks would overwhelm the banking system, and they began to explore technological solutions.

To help, they formed a committee called SCOPE, Special Committee on Paperless Entries, to brainstorm solutions. About that same time, the American Bankers Association also began seeking ways to improve the country’s payment system. Here’s a timeline of what happened after that.

•   In 1972, an ACH association formed in California to manage electronic banking transactions, with other regional ACH networks forming soon after that.

•   In 1974, these regional networks formed NACHA (the nonprofit National Automated Clearing House Association) to oversee and administer the ACH network. This organization creates and enforces how this network works, while the Federal Reserve and The Clearing House actually process the transactions.

•   In 1975, the Social Security Administration began testing direct deposit, which led to today’s widespread adoption. Approximately 99% of SSA’s payments are currently completed via direct deposit.

•   In 2001, online and phone payments via ACH became available, a key step forward to accelerating and automating banking transactions.

•   In 2021, ACH total payments topped $29 billion, debits were more than $16 billion, and credits were over $12 billion. The total dollars transferred exceeded $72 trillion, indicating how big a role ACH transfers play in global finance.

Benefits of ACH Transfers

So now you know what ACH transactions are and how they became so popular. Let’s look at their benefits to your daily life and banking.

•   Speed. They are quick and save you time running around with checks and the like. People who get paid through direct deposit don’t need to go to the bank to deposit their checks, which may be especially convenient if they telecommute, are on vacation, or otherwise out of town on payday. Plus, the transactions themselves can be fast. The transfers are typically completed within one day.

•   Convenience. It can be very convenient to have mortgage payments, utility bills, and other payments automatically deducted from a bank account. Or send money to someone via a P2P service. With ACH payments, as we noted, there’s no need to travel to the financial institution to pay the bills or to write a paper check and mail it in. And, when life gets hectic, as long as enough money is in the account to cover the bills, there isn’t even a need to remember to make the payment. It also cuts down on the need to buy stamps for bill paying.

•   Low cost. ACH transfers are typically free. An exception may be when a financial institution charges a nominal fee when someone wants to transfer funds to another bank. However, many times, an automated payment will actually save you money. For example, a bank may offer a lower rate on a mortgage loan or student loan if you set up an automatic ACH funds transfer for your payments.

ACH vs Direct Deposit

As you read about these benefits, you may wonder, “How do things stack up for ACH vs. direct deposits? Are they the same thing?” The answer is: not quite. Direct deposits are a form of ACH transfer, but they are not identical. Here’s a quick example to explain the difference. Your bank may let you take a photo of a check and then deposit it online, without having to visit a bricks and mortar branch or use an ATM. This is an ACH transfer, but it’s not a direct deposit, like your paycheck. Direct deposits technically only happen when a financial institution puts money into an account.

Security of ACH Transfers

You may wonder whether these electronic transactions are secure. An ACH transfer can in fact be more secure than many other payment methods. The reality is that paper checks can always be lost or stolen.

With ACH deposits or payments, you only need to provide bank information once, when the automated transaction is set up. Contrast that with writing a check every month, where bank information is provided each and every time. That makes it clear how ACH transfers can provide a layer of protection against typographical and other errors.

In addition, regulations exist that protect consumers in the rare case of an electronic funds transfer negatively impacting their bank accounts because of fraud or error. This includes transfers between bank accounts, as well as those going into an account (such as payroll direct deposits) or out of that account (for instance, bill payments).

Is an ACH Transfer Safe?

Many people wonder, “Are ACH transfers safe?” To a large part, this may be a worry that comes from fear of a new system when one is used to using checks and other financial vehicles. ACH payments are very safe because they go through a clearing house that has strict rules about confidentiality of information. While not 100% perfect, ACH transfers typically have an extremely low rate of error. For many, this information allays their worries about safety.

Downsides of ACH Transfers

There are a few potential cons when it comes to using ACH transfers. Specifically:

•   Transaction limits. Some banks will limit how much money you can send by ACH transfer in a specific time period, or they might not accept international ACH transfers.

•   Penalties for too many transactions. If you are completing ACH payments from your savings account and that account has a cap on how many withdrawals you can complete per month, you could be penalized. Your financial institution could even turn your savings account into a checking account. Ask your bank so you know their latest guidelines. These rules were, to a large extent, suspended since the COVID-19 pandemic began.

•   Timing matters. Not all banks send ACH transfers at the same time of day — meaning they may have a cut-off time for a transfer to be processed on the next business day. Here’s a scenario: A financial institution has a cutoff time of 2 p.m. in order for the funds transfer to take place the next business day. If money is deposited at 4 p.m. on a Thursday, then that’s past the cutoff for processing on Friday — with the next business day being Monday. This might cause problems for people needing to pay a bill by a certain due date.

ACH Transfers Versus Wire Transfers

When thinking about these kinds of transactions, you may wonder, “What’s the difference between ACH transfers vs. wire transfers?” A wire transfer is another method of electronically transferring funds, which means this system comes with many of the same benefits as ACH transfers bring. But they’re not exactly the same.

First, there is the speed issue. Wire transfers may occur within one business day, with funds often available for use the same day. In many cases, though, a bank employee needs to review this largely automated process, so the funds may not be immediately visible in the recipient’s account — and international wire transfers may take more than a day. If the transfer is urgent, it’s often recommended to send it as soon as possible in the morning.

ACH transfers, meanwhile, are processed in clearinghouses and banks in batches, rather than receiving the individualized treatment given a wire transfer. The ACH system may sometimes provide same-day transfers and is increasingly moving towards this same-day benefit being available more often.

Here’s another crucial difference between the two: Wire transfers are considered to be cleared money, which means that the funds are immediately removed from the sender’s bank account and are immediately available for withdrawal upon arrival at the receiving institution. In general, a wire transfer cannot be reversed. An ACH transfer, though, can be reversed in some situations.

A last but important point: ACH transfers are often free, while wire transfers may involve a fee of $10 to $35 for the person sending it, and the recipient might have to pay a small fee, too.

P2P Transfers and On-Demand Payments

We mentioned before that P2P payments can build upon the ACH network. Let’s share some more info on these. P2P transfers (peer-to-peer transfers) allow people to quickly and easily send money to friends and family through mobile device apps (or online accounts) and a linked account. As just one example, people who use PayPal to send money are using a P2P system.

One benefit of a P2P transfer is transaction speed, with same-day service often available. They are, in general, free when sending to friends and family.

Some services, though, may charge a fee for business transactions or if the P2P account is linked to a credit card rather than a bank account. Traditional P2P transfer services require both parties to have an account with the service, although not all services do.

On-demand payments are payments made in real time. They can be made, as the name implies, on demand. These are instant transfers, ideal when a need is urgent — or just because the receiver wants to have the money in the bank quickly. Many P2P services let you, say, pay friends if you are out for dinner and discover you don’t have cash or your cards with you when the check comes.

Automating Personal Finances

The benefits of ACH transfers are probably obvious by now. When you look at the big picture, you’ll also probably see that automating your finances can streamline personal financial management. It also reduces the stress of meeting bill-paying deadlines.

Having money automatically taken out of your account to pay for goods and services may help to prevent late fees and might even make budget management easier.

Besides having direct deposit for paychecks and paying bills though automatic transfers, this technology may be helpful when building an emergency savings fund. Someone might, for example, have 90% of a paycheck directly deposited into a checking account for bill paying purposes, while putting the other 10% into a savings account designated for emergencies.

Or if that emergency fund has already been established, a percentage of pay might go into accounts for other future expenses, like college funds for children, a down payment on a new house, or a vacation fund. Automatic payments might also be set up to contribute to retirement funds.

Optimal Number of Bank Accounts

On this topic of how many bank accounts you might have, let’s quickly delve a bit deeper. Some people find that having just one account for their funds works just fine. For other people, having separate accounts for spending (aka checking) and saving helps them better organize their finances. In fact, some people have multiple bank accounts. You might have two checking accounts, say, if you are married and want to have a joint account and a personal account with your spouse. Or perhaps you have a checking account, plus a savings account to build cash for, say, a vacation or a new car, as well as an emergency fund savings account. It’s all about what best suits your needs.

A downside of having multiple accounts is that some banks may have minimum balance requirements as well as monthly banking fees. In that case, having multiple accounts may spread funds too thinly.

Clearly defining financial goals may help when making the decision about how many bank accounts are ideal. What’s most important? If it’s a new house, then perhaps a separate account for the down payment, where the balance can be monitored as it rises, can serve as motivation to save even more quickly — and maybe even celebrate milestones on the way to the goal.

No two people have the same financial situation and goals. What’s most important is to create a plan that works for your unique needs.

The Takeaway

You have just learned a lot about how ACH transfers can speed and smooth your financial life, automatically depositing and withdrawing funds so you don’t have to deal with checks, cards, or waiting days and days for money to clear. We’ve also looked at how many accounts are optimal and the big-picture benefits of automating your finances.

Financial technologies are zooming ahead, and taking advantage of ACH transfers is just one way you can improve your money management. Another way is with online banking, and here at SoFi we’d like to introduce you to our mobile banking app as a way to rev up your finances. When you open these linked accounts with direct deposit, you’ll enjoy a whopping 1.50% APY, which happens to be 41 times the current average. And we make our accounts fee-free so you don’t have those charges eating away at your moolah.

Are you ready to bank smarter with SoFi?

3 Great Benefits of Direct Deposit

1. It’s Faster
As opposed to a physical check that can take time to clear, you don’t have to wait days to access a direct deposit. Usually, you can use the money the day it is sent. What’s more, you don’t have to remember to go to the bank or use your app to deposit your check.

2. It’s Like Clockwork
Whether your check comes the first Wednesday of the month or every other Friday, if you sign up for direct deposit, you know when the money will hit your account. This is especially helpful for scheduling the payment of regular bills. No more guessing when you’ll have sufficient funds.

3. It’s Secure
While checks can get lost in the mail – or even stolen, there is no chance of that happening with a direct deposit. Also, if it’s your paycheck, you won’t have to worry about your or your employer’s info ending up in the wrong hands.


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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What Is an Add-On Certificate of Deposit?

Guide to Add-On Certificates of Deposit

A certificate of deposit (CD) can be a good savings vehicle, and an add-on CD can be even better if you crave more flexibility. Traditional CDs are time-deposit accounts that allow you to save money for a set term while earning interest. Typically, when you open a CD, you’re locked in for a period of time.

But add-on CDs offer a convenient twist on that basic principle: They are CDs which permit you to deposit additional funds after the account is opened.

Banks and credit unions can offer add-on CD accounts alongside other types of CDs. Whether it makes sense to open an add-on CD can depend on your financial goals. To help you understand how these accounts work and whether they are right for you, we’ll cover the following:

•  What an add-on CD is

•  How an add-on CD compares to a traditional CD

•  The pros and cons of an add-on CD

What Is an Add-On CD?

CD accounts are designed to help you save money that you can afford to “lock up” for a period of time. Generally, when you open a CD account, you make an initial deposit. That deposit earns interest throughout the CD’s term until it matures, or becomes accessible again. The term can be anywhere from a month to 10 years, but many people opt for a couple or a few years.

Once the CD matures, you can withdraw your initial deposit and the interest earned or roll the entire amount into a new CD. These are generally low-risk investments. There’s virtually zero possibility of losing money since you know the interest rate from the start and the funds are FDIC-insured.

Add-on certificate of deposits, sometimes referred to as add-to CDs, give you the option to make additional deposits to your CD after opening the account. So, for example, you might open an add-on CD with an initial deposit of $500. You might then choose to deposit $100 per month into the CD account for the remainder of the maturity term.

The bank or credit union with which you open the add-on certificate of deposit account might require additional deposits to be made via automatic transfer. There may also be a minimum amount that you’re required to deposit monthly or bimonthly.

How an Add-On CD Works

An add-on certificate of deposit account works much the same as any other CD, with one exception: You can make additional deposits to the account. Opening an account for a CD add-on starts with choosing a CD term. This is the length of time you’ll leave the money in your account.

Choosing the right term for an add-on CD matters for two reasons. First, it can determine how much interest you’ll earn on deposits. The longer the term, the more time your money has for compound interest to accrue. Banks and credit unions may also reward you with a higher interest rate and annual percentage yield (APY) for choosing a longer add-on CD term.

Second, you need to be fairly certain that you won’t need to withdraw money from an add-on CD account before it matures. Banks can impose penalties for early CD withdrawals, which can be equivalent to some or all of the interest earned. The penalties might even take a bite out of your principal.

Once you choose an add-on CD to open, you can complete the application and make the initial deposit. The amount required to open an add-on certificate of deposit accounts can vary from bank to bank. It’s typically less than for a traditional CD; perhaps $100. You can also decide how much you’d like to contribute to your add-on CD each month going forward.

As you make new deposits to your add-on CDs, that amount gets added to the principal and earns interest. You’ll then earn interest on the principal and interest as the CD compounds over time.

Recommended: How Long Does it Take to Open a New Bank Account?

Can You Add Money to a CD Before It Matures?

Generally, you cannot add money to a traditional CD beyond the initial deposit you make when you open the account. Once the CD reaches maturity, your bank may allow you a grace period of 7 to 10 days in which you can make new deposits to the account. You might choose to add money during the grace period if you plan to roll the funds into a new CD account.

Add-on CDs give you more flexibility since you’re not bound by such strict rules for deposits. You can set up additional deposits to your CD to continue growing your balance, based on an amount that fits your budget and savings goals. You could even take investing in CDs a step further and create a CD ladder.

A CD ladder strategy involves opening multiple CDs, add-on or otherwise, with varying maturity terms and interest rates. Rolling maturity dates mean you may not have to worry about triggering early withdrawal penalties if you need cash. Why? Because with the staggered terms, you can always have a CD getting close to its maturity. This means you’re likely to soon have access to your cash. Laddering also allows you to take advantage of interest rate hikes if they occur.

Add-on CD vs. Traditional CD

You might consider add-on CDs and traditional CDs if you’re comparing different types of high-interest accounts. Either type of CD could help you to achieve your short- or long-term savings goals. Before opening an add-on or traditional CD, it helps to know how they compare.

•  Add-on CDs allow you to add money after account opening; traditional CDs do not.

•  Minimum deposit amounts may be lower for add-on certificate of deposits versus traditional CDs.

•  Banks may offer different interest rates for add-on CDs vs. traditional CDs.

•  Different early withdrawal rules and penalties may apply.

When deciding where to open a certificate of deposit account, first consider whether add-on CDs are an option. Then you can look at the interest rates offered and the CD terms available.

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Advantages of Add-On CDs

Opening an add-on certificate of deposit account is something you might consider if you’re looking for something other than a traditional CD or a more flexible financial vehicle. Understanding the benefits of add-on CDs can help you decide if this is the right savings option for you.

Low Minimum Deposit

CDs impose a minimum deposit requirement; otherwise, you’d have no money to earn interest on. These minimums are often around $500 or $1000 or more. Banks may offer lower initial deposits for add-on CD accounts to get you to open them and continue depositing money later. You might find ones in the $100 range. That can be an advantage if you want to save with CDs but you don’t have a large amount of money in your bank account to deposit up front.

Guaranteed Return

If you’re looking for safe investments, it doesn’t get much safer than CDs. Add-on CDs can offer a guaranteed return for your money since you’ll know what the interest rate and APY are before opening the account. You can then use a CD calculator to estimate how much of a return you’ll get for your money over the maturity term.

Flexibility

Perhaps the biggest advantage of add-on CDs is the flexibility they offer. With a traditional CD, you make one deposit and that’s it. You can’t add anything else until the CD matures. An add-on CD, however, gives you the option to continue saving at a pace you can afford.

Disadvantages of Add-On CDs

Add-on CDs have some attractive features but they aren’t necessarily right for everyone. There are few potential drawbacks to keep in mind if you’re debating whether an add-on CD account might fit into your savings plan.

Lower Rates

Banks may offer lower interest rates for add-on CDs and reserve higher rates for traditional CDs with longer terms. When comparing add-on CDs, consider the different rates you might get at traditional banks vs. online banks. An online bank may be the better choice if you’re hoping to get the highest rate possible for add-on CDs. Or check and see what kinds of interest rates are being offered on high-yield savings accounts. You might find you fare better with one of those.

Early Withdrawal Penalties

Add-on CDs allow you to add money on your own terms but there are restrictions on when you can take money back out. Remember, the bank can charge an early withdrawal penalty if you decide to pull money from your CD before maturity. Penalties could cost you some or all of the interest earned.

Guaranteed Return

An add-on CD can offer a guaranteed return but it might not match the return you could by investing your money elsewhere. Trading stocks, exchange-traded funds (ETFs), or IPOs, for example, could yield a better return on your money if you’re comfortable taking more risk.

Example of an Add-on CD

Now that you know the pros and cons of add-on CDs, let’s zoom in on how exactly one might be set up to help you save. Say you want to open a 12-month CD. You find a bank offering add-on CDs with a $100 initial deposit. You open the CD account with $100, then set up an automatic deposit of $100 monthly. Throughout the CD term, you’ll earn an APY of 0.40%.

At the end of the CD term, the bank gives you the option of rolling your initial deposit, monthly deposits, and interest earned into a new add-on CD or cashing it out. Since interest rates have increased during the maturity term, you decide to roll it into a new add-on CD with a 12-month term. You continue making $100 monthly deposits as scheduled, only now you’re earning a 0.55% APY instead. As you can see, you’re bulking up your savings, and the interest is compounding and rising. A win-win situation.

The Takeaway

Add-on CD accounts can help you reach your savings goals while offering more flexibility than other CDs. Before opening an add-on CD, it’s helpful to shop around to see which banks or credit unions offer them and how much interest you might be able to earn. Check into the minimum deposit required, different term lengths, and current interest rates to find the best match for your needs and financial goals.

While shopping for ways to grow your savings, you might want to also consider banking with SoFi. Our online banking platform gives you two kinds of linked accounts – checking and savings. When you sign up with direct deposit, you’ll get access to your paycheck up to two days early, earn a terrific 1.50% APY, and you won’t pay any monthly or minimum balance fees.

Shouldn’t your money work harder for you? At SoFI, it does.

FAQ

What is an add-on CD?

An add-on CD is a certificate of deposit account with more flexibility. It allows you to make additional deposits after the CD has been opened. Banks may impose a minimum deposit requirement, and you may need to automate deposits to add-on CDs.

Can you add additional funds to a CD?

CDs typically do not allow you to make additional deposits once your CD account has been opened. Add-on CDs, however, are designed to allow additional deposits before the CD matures.


Photo credit: iStock/Atstock Productions

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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