SoFi

Most people hit financial challenges at some point. Perhaps it’s a bout of overspending, the feeling that you can’t get out from under your credit card debt, or the fact that your budget just won’t balance.

Facing these kinds of situations doesn’t mean that financial security can’t be yours, nor that your money goals are unattainable. Rather, it means that you may need to focus on your finances, reprioritize, and adopt some new habits to get on track.

Here, you’ll learn about five of the most common and vexing money challenges you may encounter, as well as some smart solutions that can help you take control of your finances.

1. Monthly Spending Exceeds Income

Many people struggle with the fact that their monthly outflow (or spending) outpaces their monthly inflow (or take-home income). The imbalance can cause you to rely on credit cards, and make it nearly impossible to save for the future, or even for a rainy day.

To help get your cash flow into balance, you may want to set up a basic budget. While a budget may sound restrictive, it can actually simplify your finances and make it easier to make everyday spending decisions.

A good way to start is to go through the last few months of financial statements and receipts, then tally up your average monthly income (after taxes) and average monthly spending. You may also want to break down expenses by categories, and then group categories into necessary and unnecessary spending.

It can also be helpful to actually ​track your spending for a month, taking note of every latte and lunch out (or by using an app that tracks expenses). Although you may think you know where your money is going, when people tally up all their purchases for a month, they are often surprised to notice that their spending doesn’t always match up with what they thought their priorities were.

Once you see where your money is really going each month, you can then look at your budget critically and search for areas where you can cut back. For example, you might decide you’ll eat out less often, pack your lunch a few days a week, save on a streaming service you rarely watch (buh-bye), or find a cheaper cell phone provider.

You may also want to think about ways you may be able to grow your income, such as negotiating a higher salary, looking for a new (higher-paying) job, or taking on a low-cost side hustle.

2. Not Having a Financial Cushion

Life can be unpredictable, and unforeseen events, like a loss of income, car breakdown, or visit to the ER, can quickly put you into a hole if you don’t have any emergency savings at your disposal.

Ideally, an emergency fund will have enough cash to cover three- to six months’ worth of living expenses, but even a reserve of $1,000 can save you from having to rely on credit cards or take out a personal loan to handle an unexpected expense.

To start building a buffer, you may want to consider dedicating part of your monthly budget to emergency savings. It can be a good idea to keep this fund in an account that earns more interest than a standard savings account, but still allows you easy access to your money, such as a high-yield savings account, money market account, online savings account, or a checking and savings account.

Even contributions of $50 a month can add up quickly, creating a cushion that can come in handy when a rainy day hits.

3. Carrying a Credit Card Balance Every Month

Credit cards can be both a useful financial tool and an incredibly slippery slope. High-interest rates make the price of the charged items significantly more expensive. And, depending on credit makes it more likely that you’ll spend more than you earn.

As you re-evaluate your budget and work to reduce expenses, you may also want to find a way to pay more than the minimum on your credit card balances. If you have multiple cards, you might try the avalanche method of paying off debt. This involves paying the minimum on all your balances, but putting extra towards the balance with the highest interest rate. Once that’s paid off, you put your extra money towards the debt with the next highest balance, and so on.

Another approach is the snowball method. Here, you pay the minimum on all your debts, but put extra money towards the smallest balance. Once, that’s paid off, you put your extra money towards the next-highest balance, and so on.

Alternatively, you may want to consider consolidating your credit card debt by paying off all your balances with a personal loan. You would then only have one balance to keep up with, ideally with a lower interest rate.

4. Being Weighed Down by Student Loan Debt

Having a large amount of student debt can demand payments that limit your ability to buy a home or increase your savings. While it can be tempting to put off payment, that only results in paying more interest over time.

Instead, you may want to consider paying more each month in order to get out from under student debt faster. Whether it’s paying $20 or $100 more each month, every bit over the minimum payment helps to make a dent in your debt.

You may also want to put any lump sum of cash you receive, such as a tax refund or bonus, towards your student loan debt. When you make extra payments, however, it’s a good idea to make sure that you select the option for the funds to be applied toward your loan principal (otherwise it may go towards interest).

Another option you may want to consider is refinancing your student loans. This means trading in your current loan(s) for one brand new loan through a private lender. The goal with refinancing is to get a lower interest rate while also having the ability to change your loan term (such as cutting the timeline in half). This can be a good option if you have good credit and are currently paying a high interest rate on your student loans. Just be aware that refinancing federal student loans can mean you are not eligible for forgiveness, so think carefully about your decision.

Recommended: 6 Strategies to Pay off Student Loans Quickly

5. Not Saving Enough for Retirement

Retirement saving can be critical if you want to have financial freedom in your future. And even if retirement seems like a long way off, it can be much easier to amass a comfortable nest egg when you start saving and investing early.

Thanks to the magic of compounding interest (when the interest you earn also earns interest), even putting a little bit of money into a retirement fund each month can help you build wealth over time.

If you aren’t maximizing contributions to a 401k, you may want to consider putting as much tax-deferred money as possible into these accounts. If your employer offers matching funds, it can be a good idea to take full advantage of this perk (which is essentially free money).

If you don’t have access to a 401k, or you are able to put any additional money aside to secure your retirement, you may want to consider opening an IRA (keeping in mind that there are annual limits to retirement contributions).

Taking advantage of these savings vehicles can lower your tax burden this year and earn interest for your golden years.

The Takeaway

Dealing with financial challenges is never fun. But many of us have to do it at one time or another during our lives.

Whether you’re living paycheck to paycheck and can’t ever seem to save or you’re trying to bounce back after a financial mistake, there is typically a way to resolve the problem.

It may be as simple as tracking your expenses for a month and setting up a monthly budget. Or, you may need to set up a manageable debt repayment plan to regain control of your finances. And, it’s perfectly fine if your first steps are small.

One small, simple step that may help you keep better track of your finances is to find the right banking partner.

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

Photo credit: iStock/iamnoonmai

SoFi® Checking and Savings is offered through SoFi Bank, N.A. ©2023 SoFi Bank, N.A. All rights reserved. Member FDIC. Equal Housing Lender.
The SoFi Bank Debit Mastercard® is issued by SoFi Bank, N.A., pursuant to license by Mastercard International Incorporated and can be used everywhere Mastercard is accepted. Mastercard is a registered trademark, and the circles design is a trademark of Mastercard International Incorporated.

SoFi members with direct deposit activity can earn 4.60% annual percentage yield (APY) on savings balances (including Vaults) and 0.50% APY on checking balances. Direct Deposit means a deposit to an account holder’s SoFi Checking or Savings account, including payroll, pension, or government payments (e.g., Social Security), made by the account holder’s employer, payroll or benefits provider or government agency (“Direct Deposit”) via the Automated Clearing House (“ACH”) Network during a 30-day Evaluation Period (as defined below). Deposits that are not from an employer or government agency, including but not limited to check deposits, peer-to-peer transfers (e.g., transfers from PayPal, Venmo, etc.), merchant transactions (e.g., transactions from PayPal, Stripe, Square, etc.), and bank ACH funds transfers and wire transfers from external accounts, do not constitute Direct Deposit activity. There is no minimum Direct Deposit amount required to qualify for the stated interest rate.

SoFi members with Qualifying Deposits can earn 4.60% APY on savings balances (including Vaults) and 0.50% APY on checking balances. Qualifying Deposits means one or more deposits that, in the aggregate, are equal to or greater than $5,000 to an account holder’s SoFi Checking and Savings account (“Qualifying Deposits”) during a 30-day Evaluation Period (as defined below). Qualifying Deposits only include those deposits from the following eligible sources: (i) ACH transfers, (ii) inbound wire transfers, (iii) peer-to-peer transfers (i.e., external transfers from PayPal, Venmo, etc. and internal peer-to-peer transfers from a SoFi account belonging to another account holder), (iv) check deposits, (v) instant funding to your SoFi Bank Debit Card, (vi) push payments to your SoFi Bank Debit Card, and (vii) cash deposits. Qualifying Deposits do not include: (i) transfers between an account holder’s Checking account, Savings account, and/or Vaults; (ii) interest payments; (iii) bonuses issued by SoFi Bank or its affiliates; or (iv) credits, reversals, and refunds from SoFi Bank, N.A. (“SoFi Bank”) or from a merchant.

SoFi Bank shall, in its sole discretion, assess each account holder’s Direct Deposit activity and Qualifying Deposits throughout each 30-Day Evaluation Period to determine the applicability of rates and may request additional documentation for verification of eligibility. The 30-Day Evaluation Period refers to the “Start Date” and “End Date” set forth on the APY Details page of your account, which comprises a period of 30 calendar days (the “30-Day Evaluation Period”). You can access the APY Details page at any time by logging into your SoFi account on the SoFi mobile app or SoFi website and selecting either (i) Banking > Savings > Current APY or (ii) Banking > Checking > Current APY. Upon receiving a Direct Deposit or $5,000 in Qualifying Deposits to your account, you will begin earning 4.60% APY on savings balances (including Vaults) and 0.50% on checking balances on or before the following calendar day. You will continue to earn these APYs for (i) the remainder of the current 30-Day Evaluation Period and through the end of the subsequent 30-Day Evaluation Period and (ii) any following 30-day Evaluation Periods during which SoFi Bank determines you to have Direct Deposit activity or $5,000 in Qualifying Deposits without interruption.

SoFi Bank reserves the right to grant a grace period to account holders following a change in Direct Deposit activity or Qualifying Deposits activity before adjusting rates. If SoFi Bank grants you a grace period, the dates for such grace period will be reflected on the APY Details page of your account. If SoFi Bank determines that you did not have Direct Deposit activity or $5,000 in Qualifying Deposits during the current 30-day Evaluation Period and, if applicable, the grace period, then you will begin earning the rates earned by account holders without either Direct Deposit or Qualifying Deposits until you have Direct Deposit activity or $5,000 in Qualifying Deposits in a subsequent 30-Day Evaluation Period. For the avoidance of doubt, an account holder with both Direct Deposit activity and Qualifying Deposits will earn the rates earned by account holders with Direct Deposit.

Members without either Direct Deposit activity or Qualifying Deposits, as determined by SoFi Bank, during a 30-Day Evaluation Period and, if applicable, the grace period, will earn 1.20% APY on savings balances (including Vaults) and 0.50% APY on checking balances.

Interest rates are variable and subject to change at any time. These rates are current as of 10/24/2023. There is no minimum balance requirement. Additional information can be found at https://www.sofi.com/legal/banking-rate-sheet.

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

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

SOBK0923002

When you deposit money into your bank account, you can’t always use the money right away. Your financial institution may put a hold on a portion of your funds as they process them and make sure they clear. Whether or not all your cash is available can depend on a variety of factors, such as the form of the deposit (say, electronic or a check); the amount of money involved; and when and where the deposit was made (in person? After business hours?). Your money might be ready to use almost immediately, or it could take a few days or even longer.

Federal regulations determine how long banks can take to make deposits available to their clients. And banks and credit unions may have their own internal guidelines as well about processing deposits. It can be a good move to check with your financial institution about their guidelines for clearing deposits so you don’t wind up accidentally overdrawing your account.

That said, here are some important guidelines about when banks typically make funds available to help you manage your money even better.

Why Do Banks Put a Hold on Deposits?

Banks hold deposits to protect themselves, as well as their customers, from losing money. If a check you deposit bounces or some other complication arises, the bank will have an opportunity to fix the problem before you have the opportunity to spend the funds.

While a delay in being able to access your own money may seem like a nuisance, holds can actually help protect you from fraud and fees.

If your bank allows you to spend funds from a check that later bounces, you would have to repay the bank the amount that they gave you, and likely also get hit with a hefty overdraft fee. This is the case regardless of who is at fault.

How Long Can a Bank Hold a Deposit?

The amount of time it takes for funds to become available can depend on a number of factors, including how long you’ve held your account, your financial history, the type of deposit (e.g., cash, check, direct deposit), and the amount of the deposit.

•   Generally, a bank or credit union has until at least the next business day (a business day is a weekday that is not a holiday) to make most deposits available.

•   Electronic deposits are typically available on the same day. So, one way to make sure your paycheck is available to you quickly is to sign up for direct deposit.

•   Cash deposits may clear immediately or the next business day.

•   The longest a bank can hold funds is usually five business days for money deposited at an ATM of a different bank.

•   While each bank or credit union has its own rules as to when it will let you access the money you deposit, federal law establishes the maximum length of time a bank or credit union can make you wait.

The amount of money deposited can also matter. Here are the rules set by the Federal Reserve.

• Direct Deposit: Day of Deposit

• Wire Transfer: Next Business Day

• First $225 of any non-”next-day” check deposited: Next Business Day

• Cash*: Next Business Day

• U.S. Treasury Check: Next Business Day

• U.S. Postal Service Money Order*: Next Business Day

• State or Local Government Check*: Next Business Day

• Casher’s, Certified, or Teller’s Check*: Next Business Day

• Checks and Money Orders Drawn on Another Account at the Same Financial Institution: Next Business Day

• Federal Reserve Bank and Federal Home Loan Bank Checks*: Next Business Day

• Any Other Checks or Non-U.S. Postal Service Money Orders: Second Business Day After the Day of Deposit

• Deposits of Items Noted by “*” at an ATM Owned by the Customer’s Financial Institutions: Second Business Day After the Day of Deposit

• Deposits Made at an ATM Not Owned by the Customer’s Financial Institution: Fifth Business Day After the Day of Deposit

* Deposited in person

You may want to keep in mind that the hold times listed above are the maximum allowed. It’s possible that your funds will be available sooner.

You can typically find specifics about your bank’s funds availability policy in the account agreement you received when you opened your account, or you can ask the bank for a copy of their holding policies.

Understanding Cut-Off Times

When you deposit a check, you may think you did it “today.” However, you may have missed the cut-off for starting the deposit process on that calendar day.

If you make a deposit after the cut-off time, your financial institution can treat your deposit as if it was made on the next business day. If the deposit was made late in the day on a Friday, it could actually take three or more days for the money to show up in your account.

By law, a bank or credit union’s cut-off time for receiving deposits is generally no earlier than 2:00 p.m. at physical locations and no earlier than noon at an ATM or elsewhere. Sometimes banks have later deposit times for mobile deposits (made via the bank’s phone app), such as 5 pm.

Deposits That May Take Longer to Become Available

There are certain circumstances under which banks are allowed to hold deposited funds for longer than the times listed above.

When these exceptions apply, there isn’t always a clearly defined limit to the amount of time the bank can hold funds. The bank can generally hold funds for a “reasonable” amount of time.

Exceptions to standard holding times include:

Large Deposits

If a customer deposits more than $5,000, the bank will typically need to make the first $5,000 of the funds available on the second business day, but they are allowed to put a longer hold on the remaining amount.

Redeposited Checks

If a check bounces and then is redeposited, banks may hold the funds for longer than one business day. (You may want to be cautious about accepting future checks from a person or business that has already bounced a check.)

Accounts That Have Been Repeatedly Overdrawn

If a customer has a history of overdrawing their account, the bank may go beyond charging overdraft fees and also hold funds for more time before making them available for use.

Repeatedly overdrawn means that the account has had a negative balance on at least six business days within the past six months, or the account was $5,000 overdrawn more than twice within the past six months. (One note: If you are in this situation, you may want to consider the pros and cons of overdraft protection.)

Reasonable Doubt

If a customer deposits a check that seems suspicious, the bank may hold funds for a longer period of time. A check may seem suspicious if it’s postdated or it’s more than 60 days old. (Typically, how long a check is good for is about 6 months, but it may cause concern after two months has passed.)

New Bank Accounts

If you recently opened a bank account and your account is less than 30 days old, you may experience hold times of up to nine days. Official checks and electronic payments, however, may be partially available the next day.

Emergency Conditions

If there is a communications outage, a natural disaster, or another circumstance that impedes normal bank functions, banks can hold funds until they are able to provide the funds.

The Takeaway

When you deposit a check, you naturally expect the money to show up in your bank account. But there may be a delay between the time you deposit money and the time that those funds are actually available for you to spend.

Banks generally make funds available on the business day after you make a deposit, but there are exceptions.

Direct deposits are typically available sooner, and some checks, such as those larger than $5,000 or older than 60 days, can take longer to clear.

Knowing your financial institution’s policies about holding times can help ensure that you’re able to pay your bills on time, have access to cash when you need it, and don’t get hit with overdraft fees.

Leveraging Technology

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

Photo credit: iStock/solidcolours

SoFi® Checking and Savings is offered through SoFi Bank, N.A. ©2023 SoFi Bank, N.A. All rights reserved. Member FDIC. Equal Housing Lender.
The SoFi Bank Debit Mastercard® is issued by SoFi Bank, N.A., pursuant to license by Mastercard International Incorporated and can be used everywhere Mastercard is accepted. Mastercard is a registered trademark, and the circles design is a trademark of Mastercard International Incorporated.

SoFi members with direct deposit activity can earn 4.60% annual percentage yield (APY) on savings balances (including Vaults) and 0.50% APY on checking balances. Direct Deposit means a deposit to an account holder’s SoFi Checking or Savings account, including payroll, pension, or government payments (e.g., Social Security), made by the account holder’s employer, payroll or benefits provider or government agency (“Direct Deposit”) via the Automated Clearing House (“ACH”) Network during a 30-day Evaluation Period (as defined below). Deposits that are not from an employer or government agency, including but not limited to check deposits, peer-to-peer transfers (e.g., transfers from PayPal, Venmo, etc.), merchant transactions (e.g., transactions from PayPal, Stripe, Square, etc.), and bank ACH funds transfers and wire transfers from external accounts, do not constitute Direct Deposit activity. There is no minimum Direct Deposit amount required to qualify for the stated interest rate.

SoFi members with Qualifying Deposits can earn 4.60% APY on savings balances (including Vaults) and 0.50% APY on checking balances. Qualifying Deposits means one or more deposits that, in the aggregate, are equal to or greater than $5,000 to an account holder’s SoFi Checking and Savings account (“Qualifying Deposits”) during a 30-day Evaluation Period (as defined below). Qualifying Deposits only include those deposits from the following eligible sources: (i) ACH transfers, (ii) inbound wire transfers, (iii) peer-to-peer transfers (i.e., external transfers from PayPal, Venmo, etc. and internal peer-to-peer transfers from a SoFi account belonging to another account holder), (iv) check deposits, (v) instant funding to your SoFi Bank Debit Card, (vi) push payments to your SoFi Bank Debit Card, and (vii) cash deposits. Qualifying Deposits do not include: (i) transfers between an account holder’s Checking account, Savings account, and/or Vaults; (ii) interest payments; (iii) bonuses issued by SoFi Bank or its affiliates; or (iv) credits, reversals, and refunds from SoFi Bank, N.A. (“SoFi Bank”) or from a merchant.

SoFi Bank shall, in its sole discretion, assess each account holder’s Direct Deposit activity and Qualifying Deposits throughout each 30-Day Evaluation Period to determine the applicability of rates and may request additional documentation for verification of eligibility. The 30-Day Evaluation Period refers to the “Start Date” and “End Date” set forth on the APY Details page of your account, which comprises a period of 30 calendar days (the “30-Day Evaluation Period”). You can access the APY Details page at any time by logging into your SoFi account on the SoFi mobile app or SoFi website and selecting either (i) Banking > Savings > Current APY or (ii) Banking > Checking > Current APY. Upon receiving a Direct Deposit or $5,000 in Qualifying Deposits to your account, you will begin earning 4.60% APY on savings balances (including Vaults) and 0.50% on checking balances on or before the following calendar day. You will continue to earn these APYs for (i) the remainder of the current 30-Day Evaluation Period and through the end of the subsequent 30-Day Evaluation Period and (ii) any following 30-day Evaluation Periods during which SoFi Bank determines you to have Direct Deposit activity or $5,000 in Qualifying Deposits without interruption.

SoFi Bank reserves the right to grant a grace period to account holders following a change in Direct Deposit activity or Qualifying Deposits activity before adjusting rates. If SoFi Bank grants you a grace period, the dates for such grace period will be reflected on the APY Details page of your account. If SoFi Bank determines that you did not have Direct Deposit activity or $5,000 in Qualifying Deposits during the current 30-day Evaluation Period and, if applicable, the grace period, then you will begin earning the rates earned by account holders without either Direct Deposit or Qualifying Deposits until you have Direct Deposit activity or $5,000 in Qualifying Deposits in a subsequent 30-Day Evaluation Period. For the avoidance of doubt, an account holder with both Direct Deposit activity and Qualifying Deposits will earn the rates earned by account holders with Direct Deposit.

Members without either Direct Deposit activity or Qualifying Deposits, as determined by SoFi Bank, during a 30-Day Evaluation Period and, if applicable, the grace period, will earn 1.20% APY on savings balances (including Vaults) and 0.50% APY on checking balances.

Interest rates are variable and subject to change at any time. These rates are current as of 10/24/2023. There is no minimum balance requirement. Additional information can be found at https://www.sofi.com/legal/banking-rate-sheet.

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

SOBK0923003

There are plenty of ways to stow your money for future use, and two popular options are savings accounts and money market accounts. These financial products have similarities, such as both being interest-earning, insured ways to stash cash for future needs. However, one may better suit your particular situation better than another.

If you’re wondering how to pick between a money market or savings account, you’re in the right place. Here, you’ll get the intel you need, including:

•  What is a savings account?

•  What is a money market account?

•  What are the differences between a savings and a money market account?

•  When should you use a money market vs. a savings account?

•  What are the risks for savings and money market accounts?

What Is a Money Market Account?

A money market account is a type of deposit account offered by banks and credit unions. These accounts can also be referred to as money market deposit accounts, money market savings accounts, or by their acronym, MMAs.

So how does a money market account work?

•  Money market accounts allow you to deposit money and earn interest on those deposits.

•  The interest rate and annual percentage yield (APY) earned can depend on the bank and the terms of the account.

•  If you need to withdraw money from a money market account, you will probably find quite a lot of flexibility. You may be able to do it via ACH transfer, debit card, check, or ATM withdrawal.

While Federal Reserve rules limiting you to six withdrawals per month from a money market account have been suspended, banks can still impose withdrawal limits. If you exceed the allowed number of withdrawals, your bank can charge an excess withdrawal fee for each transaction over the limit. It can be wise to check with your bank about their policies.

Worth noting: If you are wondering about a money market account vs. a money market fund, know that the latter is a type of mutual fund. Since it’s an investment, it is neither insured by the FDIC nor is it backed by the U.S. government.

What Is a Savings Account?

A savings account is also a deposit account that can be used to hold money you don’t plan to spend right away. Banks and credit unions can pay interest to savers, though there can be a significant difference in rates from one financial institution to the next. Online search tools will quickly and conveniently show you some options.

Can you spend money from a savings account? Technically, a savings account is meant for funds you’ll eventually spend. For example, you might open a savings account to hold money for an emergency fund or for a wedding you’re planning. But you typically can’t spend freely from a savings account the way you would a checking account.

Access may be somewhat limited. Savings accounts usually don’t come with a debit card, ATM card, or checks. If you need to take money from savings, you will probably either transfer funds using your financial institution’s website or an app, by phone, or by visiting a branch if your account is held at a traditional bank. And again, banks can limit the number of withdrawals you’re allowed to make per month.

3 Main Differences Between Money Market vs. Savings Account

Both money market and savings accounts are interest-bearing deposit account options. We’ve just noted another similarity: They can both be subject to monthly withdrawal limits. But now, let’s take a closer look at the differences between money market vs. savings accounts. This intel may help you decide which kind of account best suits your particular needs.

1. Access and Flexibility

A money market account can offer an advantage over a savings account when it comes to how you can access your money. Depending on the bank, your options for making deposits and withdrawals might include:

•  Debit card

•  ATM card

•  Paper checks

•  Electronic transfers

•  Remote deposit capture (for mobile check deposit)

•  Teller withdrawals/deposits

Access to a savings account, on the other hand, is usually limited to electronic, ATM, or teller transactions.

With online banks, ACH transfers to and from a linked account at an external bank, wire transfers, mobile check deposit, or mailed paper checks may be your only option for making deposits or withdrawals. Some online banks enable you to make withdrawals from certain ATM networks, however, which adds to their convenience.

2. Account Opening

A number of banks allow you to open both money market and savings accounts online — a nice convenience. However, there may be differences in the minimum deposit requirement. Generally, money market accounts tend to require a higher minimum deposit to open.

So instead of being able to open a new account with a minimal amount (even no money), which may be the case with a savings account, you might need $100, $1,000, or more instead. Again, how much cash you’ll need to open a money market account vs. savings acct can depend on the bank.

3. Interest and Fees

Money market accounts and savings accounts can also differ when it comes to the interest you can earn and the fees you might pay. If you put a regular savings account vs. money market account from an online bank side by side, for example, the regular savings account is more likely to offer a lower rate and APY, or annual percentage yield. In addition, it’s more likely to charge a monthly maintenance fee.

An online money market account, on the other hand, may have no monthly maintenance fee at all and may offer considerably higher interest rates vs. traditional banks.

Additionally, money market accounts often offer tiered rates, meaning the more you have on deposit, the higher the rate you may qualify for.

Similarities Between Money Market and Savings Accounts

Here’s a closer look at ways in which savings and money market accounts are similar.

Earning Interest

Both money market accounts and savings accounts pay you interest. When you keep money at a financial institution, they use some of it for other aspects of their business, such as loans to other customers. For the privilege of using some of your funds this way, they pay you interest. Usually, this interest rate will vary with economic factors.

Being Insured

Money market and savings accounts are both likely to be insured by the Federal Deposit Insurance Corporation (FDIC) or NCUA, the National Credit Union Administration. Typically, accounts are insured for $250,000 per depositor, per financial institution, per ownership category.

Offering Accessibility and Liquidity

Unlike time deposits (such as certificates of deposit, or CDs), savings and money market accounts allow you to withdraw funds at will vs. waiting for the maturation date. However, there may be limits on how many outbound transactions you can make per month, depending upon the institution.

When You Should Use a Savings Account

A savings account could be a good fit in several scenarios:

•  One good reason to use a savings account is if you want a safe place to set aside money for future expenses. Maybe you are gathering funds to landscape your yard next spring. Or perhaps you just want to be prepared and several months’ worth of living expenses stashed away in case of emergency (which is a very good idea).

•  You might opt for a savings account vs. money market account if you don’t necessarily need a debit card, ATM card, or checks to access funds.

•  Where you decide to open a savings account can depend on your needs and personal banking preferences. Online banks may appeal to you if you’re looking for long-term savings account options that pay the best interest rates and charge the fewest fees.

On the other hand, you might choose a regular savings account at a brick-and-mortar bank instead if you want to be able to get cash at a teller or drive-thru in a pinch. It’s your call.

When You Should Use a Money Market Account

Money market accounts definitely have their appeal, too. They are attractive if you need a low-risk option to put cash away for a rainy day or until you’re ready to spend it on a planned expense. For example, you might consider opening a money market account if you’re saving toward any of these goals:

•  Down payment on a home

•  New (or used) car

•  Vacation

•  Wedding

•  Education expenses

•  Home renovations or repairs

In any of those scenarios, a money market account could offer convenience if you need to write a check or use your debit card to pay for something. If you’re upgrading your kitchen, for example, you could write a check to your contractor from your money market account.

Here’s an overview of the pros and cons of savings vs. money market accounts:

Potential Risks of Using a Money Market or Savings Account

Ready to take a look at the potential downsides of having a money market or savings account? In general, you don’t have too much to worry about. Money market accounts and savings accounts are both quite low-risk since these products can be FDIC-insured.

FDIC insurance applies in the rare event that a bank fails. In that case, as noted above, protection extends up to $250,000 per depositor, per account ownership category, per insured financial institution.

That said, there are some potential drawbacks to these accounts. Being aware of the risks is of course a good idea as you choose the best type of savings account.

Money Market Account

Here are some of the main risks associated with money market accounts:

•  Monthly maintenance fees may apply if your balance falls below the required minimum.

•  Interest rates are not fixed, so you’re not guaranteed to earn a higher APY.

•  Additional withdrawals from a money market account may trigger fees.

•  There aren’t tax benefits for saving this way.

Savings Account

Consider these risks before opening a savings account:

•  Interest rates may be well below what you could get with a money market account (though typically online banks offer a higher APY than traditional ones).

•  Accessing cash in an emergency may be difficult if you don’t have an ATM card and/or your money is at an online bank without an extensive ATM network.

•  You may be penalized for withdrawals over and above your limit.

•  You won’t enjoy tax benefits for saving with this kind of account.

Recommended: Ways to Earn Interest on Your Money

Opening a SoFi Savings Account

Money market accounts and savings accounts can both offer ways to earn interest on your money while safely stowing it away. Whether you’ll benefit more from a money market account vs. savings account can depend on how much you plan to keep in the account, the interest rate and APY you’re hoping to earn, and how you’d like to be able to access your money. Those fine points can make the difference between growing your money in a way that’s frustrating or fabulous.

On the topic of fabulous: Finding the right banking partner for your funds can enhance your money management.

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

FAQ

Is a money market better than a savings account?

A money market account might be better than a savings account for people who want to be able to make purchases from the account using a debit card, write checks against their balances, or withdraw cash at an ATM. When comparing money market vs. savings accounts, it’s important to compare the accessibility, fees, interest rates, and other features.

Can you lose your money in a money market account?

Money market accounts are some of the safest places to keep your money. Even if your bank fails, which happens rarely, you’d still be protected by FDIC coverage up to the applicable limit.

Do you get taxed on money market accounts?

Interest earned in a money market account is considered to be taxable by the IRS. If your money market account earns interest for the year, your bank will send you a Form 1099-INT to report interest income. The bank will also send a copy of this form to the IRS on your behalf.

What is the downside of a money market account?

A money market account may have a higher opening deposit and ongoing minimum balance requirement vs. a savings account. Also, it may have limits on the number of withdrawals you can make.

Is a money market account safer than a savings account?

Both money market accounts and savings accounts are typically insured by either the FDIC or NCUA, depending on your financial institution, for $250,000 per depositor, per account ownership category, per insured institution.

Photo credit: iStock/akinbostanci

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SoFi members with direct deposit activity can earn 4.60% annual percentage yield (APY) on savings balances (including Vaults) and 0.50% APY on checking balances. Direct Deposit means a deposit to an account holder’s SoFi Checking or Savings account, including payroll, pension, or government payments (e.g., Social Security), made by the account holder’s employer, payroll or benefits provider or government agency (“Direct Deposit”) via the Automated Clearing House (“ACH”) Network during a 30-day Evaluation Period (as defined below). Deposits that are not from an employer or government agency, including but not limited to check deposits, peer-to-peer transfers (e.g., transfers from PayPal, Venmo, etc.), merchant transactions (e.g., transactions from PayPal, Stripe, Square, etc.), and bank ACH funds transfers and wire transfers from external accounts, do not constitute Direct Deposit activity. There is no minimum Direct Deposit amount required to qualify for the stated interest rate.

SoFi members with Qualifying Deposits can earn 4.60% APY on savings balances (including Vaults) and 0.50% APY on checking balances. Qualifying Deposits means one or more deposits that, in the aggregate, are equal to or greater than $5,000 to an account holder’s SoFi Checking and Savings account (“Qualifying Deposits”) during a 30-day Evaluation Period (as defined below). Qualifying Deposits only include those deposits from the following eligible sources: (i) ACH transfers, (ii) inbound wire transfers, (iii) peer-to-peer transfers (i.e., external transfers from PayPal, Venmo, etc. and internal peer-to-peer transfers from a SoFi account belonging to another account holder), (iv) check deposits, (v) instant funding to your SoFi Bank Debit Card, (vi) push payments to your SoFi Bank Debit Card, and (vii) cash deposits. Qualifying Deposits do not include: (i) transfers between an account holder’s Checking account, Savings account, and/or Vaults; (ii) interest payments; (iii) bonuses issued by SoFi Bank or its affiliates; or (iv) credits, reversals, and refunds from SoFi Bank, N.A. (“SoFi Bank”) or from a merchant.

SoFi Bank shall, in its sole discretion, assess each account holder’s Direct Deposit activity and Qualifying Deposits throughout each 30-Day Evaluation Period to determine the applicability of rates and may request additional documentation for verification of eligibility. The 30-Day Evaluation Period refers to the “Start Date” and “End Date” set forth on the APY Details page of your account, which comprises a period of 30 calendar days (the “30-Day Evaluation Period”). You can access the APY Details page at any time by logging into your SoFi account on the SoFi mobile app or SoFi website and selecting either (i) Banking > Savings > Current APY or (ii) Banking > Checking > Current APY. Upon receiving a Direct Deposit or $5,000 in Qualifying Deposits to your account, you will begin earning 4.60% APY on savings balances (including Vaults) and 0.50% on checking balances on or before the following calendar day. You will continue to earn these APYs for (i) the remainder of the current 30-Day Evaluation Period and through the end of the subsequent 30-Day Evaluation Period and (ii) any following 30-day Evaluation Periods during which SoFi Bank determines you to have Direct Deposit activity or $5,000 in Qualifying Deposits without interruption.

SoFi Bank reserves the right to grant a grace period to account holders following a change in Direct Deposit activity or Qualifying Deposits activity before adjusting rates. If SoFi Bank grants you a grace period, the dates for such grace period will be reflected on the APY Details page of your account. If SoFi Bank determines that you did not have Direct Deposit activity or $5,000 in Qualifying Deposits during the current 30-day Evaluation Period and, if applicable, the grace period, then you will begin earning the rates earned by account holders without either Direct Deposit or Qualifying Deposits until you have Direct Deposit activity or $5,000 in Qualifying Deposits in a subsequent 30-Day Evaluation Period. For the avoidance of doubt, an account holder with both Direct Deposit activity and Qualifying Deposits will earn the rates earned by account holders with Direct Deposit.

Members without either Direct Deposit activity or Qualifying Deposits, as determined by SoFi Bank, during a 30-Day Evaluation Period and, if applicable, the grace period, will earn 1.20% APY on savings balances (including Vaults) and 0.50% APY on checking balances.

Interest rates are variable and subject to change at any time. These rates are current as of 10/24/2023. There is no minimum balance requirement. Additional information can be found at https://www.sofi.com/legal/banking-rate-sheet.

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.

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

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