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If you’re in the business of importing and exporting, buying and selling, a revolving letter of credit can smooth transactions for you. Your work is likely full of some risky situations. For example, how does an exporter know that their buyers will make good on their promise to pay?

A revolving letter of credit can help. When it’s in place, it can allow buyers and sellers to be more confident in their business arrangements. It can help by ensuring that payments are made on time.

It sounds like a win-win, doesn’t it? Here, we’ll look at the specifics of revolving letters of credit. We’ll dive into:

•   What is a revolving letter of credit

•   How a revolving letter of credit works

•   The different types of revolving letters of credit

•   Limitations of revolving letters of credit

•   The pros and cons of a revolving letter of credit

What Is a Revolving Letter of Credit?

When you hear the phrase “revolving credit,” it may sound familiar from personal finance tools you’ve used, such as credit cards and equity lines of credits. These revolving credit accounts have a credit limit, which represents the maximum amount that an individual or business can spend. The individual or company can draw on the account up to the limit. Then, as they pay back the amount they owe, the amount of credit will rise back to its original value.

A balance can be paid off in full at the end of a billing cycle, or an individual may choose to carry it over into the next month, otherwise known as “revolving” the balance.

A revolving letter of credit is a bit less common, and they don’t function in exactly the same way. In fact, you can think of them as a tool for your business. They are specifically used to facilitate the regular shipments of goods or the delivery of services between buyers and sellers. They are most common in international trade, in which the buyer and seller are operating in two different places and/or regulatory environments.

Recommended: What is a Credit Card and How Does it Work?

How Does a Revolving Letter of Credit Work?

So now that you have a general idea of what a revolving letter of credit is, let’s look into how it works. The revolving line of credit is typically only issued once for a given period of time. This prevents buyers and sellers from needing to open a new line of credit every time they wish to make a transaction, which is very convenient.

The letter of credit is a guarantee from the buyer’s bank that payment will be made once the exporter ships the ordered goods and presents documentation as proof.

Because letters of credit tend to be labor-intensive and relatively expensive, they may only be recommended in higher-risk situations. “Such as?” you ask. Here’s an example:

You might get one of these letters of credit when dealing with a new trade relation or when extended payment terms are requested.

In order to receive a revolving letter of credit, having good credit is important. In fact, you may be limited if you have bad credit. If you have poor credit, there are ways you can build your credit which may be worth pursuing.

Start by checking your credit scores, and monitoring your scores regularly to ensure there are no mistakes on your credit report. Be aware that credit scores may be different at each of the three major credit reporting bureaus (Equifax, Experian, and TransUnion), and your credit score is updated regularly. A couple of cornerstones of a good credit score: Always make bill payments on time, and pay down debts.

Recommended: What is Considered a Bad Credit Score Range?

Now that you know how a revolving letter of credit works, let’s move ahead. Next, let’s consider the steps required when applying for a letter of credit, as well as how the transaction facilitated by the letter works:

1.    The importer and exporter complete a sales agreement, and the importer applies to their bank for a letter of credit.

2.    The importer’s bank drafts the letter of credit, and the exporter’s bank approves it and sends it to the exporter.

3.    The exporter ships the goods the importer has agreed to buy and sends documentation to their own bank.

4.    The exporter’s bank checks over these documents to make sure they are correct. If they are, the exporter’s bank submits the documents to the importer’s bank.

5.    The importer’s bank then sends payment to the exporter’s bank, and the importer can claim the goods.

With a revolving letter of credit, steps three through five can happen over and over again in a given period of time, without a new letter of credit being drawn up.

Types of Revolving Letters of Credit

There isn’t just one template for revolving letters of credit. There are a variety of ways they can be written, in order to best suit a person’s or a business’ needs. Revolving letters of credit can be subdivided into two main categories, one based on value and the other based on time.

Time-Based Revolving Letter of Credit

Some revolving letters of credit are based on time. This means a specific payment amount can be drawn down over a set time period. For example, an importer could have a revolving letter of credit worth $120,000 drawn to cover a six-month period. During that time, payments of $20,000 could be made to an exporter each month. At the end of the six-month period, the revolving letter of credit expires.

Cumulative Revolving Letter of Credit

The time-based resolving letter of credit can be subdivided again into two different subcategories: cumulative and non-cumulative revolving letters of credit. If the revolving letter of credit is cumulative, then previously unused limits can be shifted ahead and used in subsequent time periods. In the example above, if the exporter doesn’t ship any goods in the second month, then it could ship $40,000 worth of goods in month three.

This type of set-up provides the seller with a certain amount of flexibility. However, it can be riskier for the buyer who isn’t receiving goods regularly.

Non-Cumulative Revolving Letter of Credit

The other sort of time-based revolving letter of credit is non-cumulative. This means that previous unused amounts of credit cannot be rolled over into a subsequent month. So, if the exporter in the example above doesn’t ship any goods in the second month, only $20,000 worth of goods can be shipped in each of the subsequent months.

This set-up is less risky for the buyer, because it locks the seller into shipping goods within a narrower time period and under more specific conditions. If the seller doesn’t supply the promised goods within a certain period, they cannot carry that over into a subsequent period.

Value-Based Revolving Letter of Credit

Now, for the other main variety: The value-based revolving letter of credit is much like its time-based counterpart. The biggest difference is payment from the buyer is only released when they receive goods worth a certain value.

Say, for example, a revolving letter of credit is issued for $120,000 over six months for goods worth $20,000 each month. The exporter can only ship and receive payment for goods worth $20,000 each month. If, for example, they are only able to produce $15,000 worth of goods in one month, they cannot ship the goods to the seller, and the seller won’t provide payment. In this case, the value is very specific, and it really matters.

Advantages of Revolving Letters of Credit

So why issue a letter of revolving credit? There are a number of benefits. Here are some of the most important ways it can help you run your business:

•   It saves time and money.

•   Because it is revolving, the letter of credit does not need to be reissued for each transaction during a set period.

•   It helps facilitate regular trade between a buyer and a seller and can help keep your bank account healthy.

•   It can help build trust between buyers and sellers.

•   It can incentivize sellers to manufacture a consistent level of goods, especially for non-cumulative and value-based letters.

•   It can provide flexibility in terms of the types of agreements buyers and sellers can enter into.

Disadvantages of a Revolving Letter of Credit

Despite the advantages listed above, there are some limitations and drawbacks to consider:

•   Letters of credit tend to be limited to one supplier only.

•   They don’t apply to one-time transactions.

•   Changes, such as changes to tax law, customs rules, or product design may require amendments to the agreement.

•   Bank fees may make revolving letters of credit costly, especially for applicants.

The Takeaway

If you run an importing business and you’re buying goods from overseas — especially from an exporter that represents a new business relationship — a revolving letter of credit can make things easier. It can remove some of the risk of the transactions as you build trust with this new supplier. Of course, if you’re an exporter, the same applies.

That said, it’s important to consider the limitations of using a letter of credit, in particular the cost, and weigh that against the benefits. No two people or businesses have the same financial situations and needs, so exploring how these letters of credit might fit with your goals is vital.

Yes, money situations do vary dramatically, but most of us will agree that higher interest and fewer fees is a good way to bank. That’s exactly what SoFi offers for your personal accounts. Open a new bank account online with direct deposit, and you won’t pay any of the usual account fees. What’s more, you’ll earn a terrific APY.

Better banking is here with SoFi, NerdWallet’s 2024 winner for Best Checking Account Overall. Enjoy up to 4.60% APY on SoFi Checking and Savings.

FAQ

When should a revolving letter of credit be used?

You may want to consider using a revolving letter of credit to minimize risk when engaged in importing and exporting or certain other kinds of buying and selling. It’s especially useful when a relationship with a seller is new or you wish to have more control over how many goods you’re buying over a set period of time.

Who issues the revolving letter of credit?

The revolving letter of credit is issued by the buyer’s bank.

What is an irrevocable revolving letter of credit?

An irrevocable revolving letter of credit cannot be changed unless all parties involved agree to the modifications of the contract.

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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.

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

SoFi Relay offers users the ability to connect both SoFi accounts and external accounts using Plaid, Inc.’s service. When you use the service to connect an account, you authorize SoFi to obtain account information from any external accounts as set forth in SoFi’s Terms of Use. Based on your consent SoFi will also automatically provide some financial data received from the credit bureau for your visibility, without the need of you connecting additional accounts. SoFi assumes no responsibility for the timeliness, accuracy, deletion, non-delivery or failure to store any user data, loss of user data, communications, or personalization settings. You shall confirm the accuracy of Plaid data through sources independent of SoFi. The credit score is a VantageScore® based on TransUnion® (the “Processing Agent”) data.

Disclaimer: Many factors affect your credit scores and the interest rates you may receive. SoFi is not a Credit Repair Organization as defined under federal or state law, including the Credit Repair Organizations Act. SoFi does not provide “credit repair” services or advice or assistance regarding “rebuilding” or “improving” your credit record, credit history, or credit rating. For details, see the FTC’s website .

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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Most of us crave convenience when it comes to banking today, so it’s good news that mobile deposits typically only take a day to clear. After all, we live in a very fast-paced world with movies on demand and groceries ordered and dropped off within minutes. We expect a lot these days, and most of the time, mobile deposits deliver. But that also may explain why people can get frustrated when it takes a bit of time for their mobile deposits to clear.

The answer to the question, “How long does it take a mobile deposit to clear?” is usually around one business day. If you are experiencing delays, there could be an easy explanation for why that’s happening. Read on to learn more about how mobile deposits work, why delays happen, and how to avoid them.

Can You Deposit a Check Online?

Nowadays there’s no need to drive to the bank or hunt down an in-network ATM to deposit a check, as many banks and credit unions make it possible to deposit a check online using a smartphone. Typically, the process is pretty fast and straightforward. All someone has to do is endorse the back of their check, open the mobile app, log in, and take a picture of the front and back of the check.

Each banking app will have a slightly different process in place for uploading checks, but most are easy and fast.

When are funds available after mobile deposit? Let’s discuss.

How Long Does a Mobile Check Take to Deposit?

So, exactly how long does a mobile deposit take? Once the account holder uploads their check to the mobile app, it may only take a matter of minutes. That’s just about as fast as depositing cash. Or it can take a few days for the bank to verify the check. The amount of the check can impact this timeline, as can the rules and processes each bank has surrounding mobile deposits. All of that being said, generally consumers can expect mobile deposits to take a business day to complete.

What Factors Might Cause Mobile Deposit Delays?

As briefly noted, certain delays can slow down the mobile deposit process. Knowing how to avoid these delays with future deposits can help speed up the timeline.

Here’s a few factors that can slow down deposits (or stop them all together if not fixed):

•   Not endorsing a check before depositing it. Before cashing a check by using a mobile app, it’s vital to always endorse the check before taking the photo of it or the bank won’t be able to accept it. Alongside a signature, it’s also common to need to include a bank account number on the back of the check or to write “for mobile deposit only” under the signature.

•   Forgetting to get both payee signatures. If a check has two people listed on it, both of them will need to endorse the check with their signatures for it to be eligible for a deposit.

•   Uploading blurry images. A steady hand comes in handy as banks need a clear image to complete a mobile deposit. It helps to take a photo of the check on a plain, dark background and in good lighting so the picture is very crisp and clear.

•   Adding mismatched amounts. In addition to uploading a photo of the check, the mobile app will require the user to manually enter the check amount. That amount needs to match the amount on the check exactly, or your deposit may be delayed.

•   Not indicating a payee. The check uploader needs to make sure their name is on the Paid to the Order of line. If this section is blank or doesn’t say the correct name, the check won’t be deposited. Take some time to review that the entire check is filled out correctly.

•   Making a duplicate deposit. Trying to deposit the same check twice to your bank account can cause confusion. If someone uploads a check for the first time and receives a duplicate error message, they can contact their bank to work through the issue.

Benefits of Mobile Banking

The option to enjoy mobile check deposits is just one of the many benefits associated with mobile banking. Here are a few other advantages worth keeping in mind.

1. Convenience

Mobile banking is super convenient. It’s possible to conduct a lot, if not all, of the banking business we used to do in-person at a branch or ATM from the comfort of our own homes or while on the go. It’s possible to review account balances, transfer funds between bank accounts, and deposit checks using mobile banking.

2. Timesaving

Not having to find time to drive or walk to a bank (which can be so hard to pull off on busy days) during their operating hours can be a major boost to productivity. A 30- to 60-minute round trip to the bank can now be replaced by simply logging onto a mobile bank account on a computer or smartphone. Most mobile banking activities can be completed in just a few minutes.

3. Accessibility

All anyone needs to participate in mobile banking is a smartphone and a WiFi or data connection. That means they can take care of their banking from almost anywhere. Of course, you do want a secure, not public, connection when managing financial matters to avoid banking scams.

4. Easy to Manage Finances

Mobile banking features can make it simple and speedy to stay on top of transactions, fraud alerts, and budgeting goals.

Alternatives to Checks

If someone doesn’t like to make payments or receive money via check, they have a few other options at their disposal that work well with mobile banking.

•   Automated Clearing House (ACH) and Electronic Funds Transfer (EFT). Both an ACH and EFT are easy electronic ways to transfer funds from one financial institution to another via computer-based systems with intervention from bank staff members.

•   Credit and debit cards. When it comes to making payments, credit cards and debit cards are a simple option when someone doesn’t have cash on hand or wants to shop online.

•   Digital wallets. Also known as e-wallets or mobile wallets, digital wallets make digital payments easy and secure. All someone needs is access to a smartphone or computer to make a payment.

The Takeaway

Across the board, mobile banking is a modern and convenient financial tool for consumers. Being able to deposit checks from home or while traveling instead of having to find a branch location or ATM is one huge perk of mobile banking.

So how long does a mobile deposit take? Mobile deposits can clear in just a few minutes, but it’s best to expect about one business day. And by following a couple of quick checkpoints, you can avoid any hitches that could cause a delay. Because in today’s impatient world, there’s no need to wait much to get access to your money.

In fact, banking with SoFi includes all the usual conveniences, plus access to your paycheck up to two days early. How’s that for fast? When you sign up for our online bank account with direct deposit, that early access is one great benefit, along with a super-competitive APY and none of the usual bank fees.

Bank smarter and faster with SoFi.

FAQ

Are mobile check deposits available immediately?

When are mobile deposits available? In some cases, a mobile check deposit can be available within just a few minutes of uploading the check into the mobile banking app. However, it usually takes around one business day for deposits to go through. Following instructions from the bank carefully regarding uploads can speed up the deposit timeline.

How long does it take for a mobile deposit to go in?

Some consumers may wonder, how long does it take a mobile deposit to clear? It usually takes a business day for a mobile deposit to show up in a bank account, but if all goes well and no delays occur, a mobile deposit may appear within just a few minutes.

Why is my mobile deposit taking so long?

Mobile deposit delays can be caused by a variety of factors such as using a blurry photo of the check, entering information incorrectly, or not endorsing the check properly. Double-check all key details before submitting the deposit to speed up the timeline.

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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.

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When it comes to managing your financial life, among the most important hubs are your bank accounts, but sometimes opening one can involve a minimum deposit. These accounts allow you to deposit funds, pay bills, transfer money, and save for everything from an emergency fund to the down payment on a house. Many financial entities may require a minimum deposit—an initial amount of money—in order to get started.

Fortunately, there are banks, credit unions, and other financial institutions that don’t require a minimum opening deposit so you can stash and spend your money even if you’re low on cash. Others may require one, sometimes in exchange for additional premium services.

It’s important to understand what a minimum deposit is, how it works, and how to open a bank account to get the most out of your money. We’ll explore those topics here.

What Is a Minimum Deposit?

A minimum deposit is the amount of money you need to open a bank account with a financial institution. It can also refer to the minimum balance you must maintain in order to receive certain perks or avoid fees.

Whether you’re starting a new checking or savings account, you’ll probably notice that some financial institutions may require a minimum opening deposit. But banks are competing for your business, so many financial institutions will waive minimum deposit requirements in order to entice first-time customers. Accounts that ask for a higher opening deposit tend to provide extra services.

Recommended: How Much Money is Required to Open a Checking Account?

How Do Minimum Deposits Work?

If you’re wondering why minimum deposits exist, let’s explain how they work. Some financial institutions need minimum deposits and balances to help pay for overhead expenses, such as administrative fees or direct deposit services. Having minimum deposits and balances helps banks and credit unions ensure that they are taking in enough money to lend to other customers. They also stand to profit from fees if account requirements aren’t met.

You might consider a minimum opening deposit as an entry fee into the world of checking and savings. Maintaining a required minimum amount allows you to stay in game, avoid fees, and keep the benefits outlined in your account agreement.

You may wonder if the opposite scenario applies: Is there a maximum limit to an initial opening deposit? That’s not usually the case. In fact, the bigger your opening deposit, the more benefits you may get. You may qualify for a better annual percentage yield (APY) when you deposit and maintain a higher amount of money in your account.

Still, it’s worth noting that you may be able to get perks even without a minimum opening deposit. Even with zero down or $25, banks and credit unions may offer a network of fee-free ATMs, incentives for using direct deposit, no minimum balance fees, and overdraft coverage.

Recommended: How to Set Up a Direct Deposit

Real World Example of a Minimum Deposit

Let’s say you want to open your first-ever checking or savings account. To do so, a bank may ask you for a minimum deposit. This could cost anywhere from $25 to $100 to open a standard checking account. Let’s say it’s $100 to open the account, and there is a minimum monthly balance of $100 as well in order to avoid fees. You would open the account with $100 in cash or via a transfer or check. Then, you would have to be sure that, as you are paying bills, you don’t dip below that $100 mark if you want to dodge account charges. So you would either need to meticulously balance your checkbook or use online alerts to warn you about when your funds were sliding down close to $100.

While $100 may be a common enough number for standard bank accounts, on the higher end, some premium accounts require significantly higher minimum deposits. There are investment accounts that require five-figure opening deposits. But these accounts typically include benefits such as oversight from a financial advisor who can help with estate and retirement planning.

Types of Minimum Balance Requirements

When researching checking and savings accounts, keep in mind that there are typically two types of minimum balance requirements. Let’s clarify those terms, since they can sometimes be used interchangeably and cause confusion. They are:

Minimum Opening Deposits

When applying for a new checking or savings account, many credit unions and banks will ask you for an opening deposit. To pay this, you can use a check or money order, a debit card, or transfer money from an outside banking institution or an account at the same bank. Some financial entities require no minimum opening deposits at all.

Minimum Monthly Deposits

Some banks and credit unions may waive service fees and award higher interest rates if you make a minimum monthly deposit, say $500 or more, through qualifying direct deposits into your account. The amount required differs among financial institutions and types of accounts.

Be aware that some accounts might charge a fee if you slip below a minimum monthly balance. If you sign up for one of these accounts and want to avoid those charges, you need to take note of when your funds will be available. If you do opt for one of these accounts, you can often set up alerts on your bank’s app to let you know when your funds are slipping below a certain threshold.

Opening a New Account

Starting a new checking or savings account isn’t rocket science. Banks and other financial entities want to make the process as simple as possible in order to attract new customers. Nowadays, you don’t have to physically go into a bank to open a new account. With online banking services available, sometimes all it takes is a few clicks to get your account up and running.

Besides the minimum deposit requirement, there are a few steps to take to prepare for opening a new account.

Choose the Right Account

There are different kinds of checking and savings accounts. Which one you pick depends on your goals, lifestyle, and the perks you want out of the account. Consider these options before making your choice:

•   Checking accounts. This is the place to store your money for everyday spending. You’ll be able to access it via a debit card, mobile banking services, and checks. Typically, these accounts offer no or very low interest, but high-yield checking accounts can give you a better rate. You’re most likely to find more competitive rates at online banks vs bricks and mortar ones.

•   Savings accounts. If you are looking for a place to store your cash and make it grow, a savings account with a competitive interest rate can be a solid choice. With a high-yield savings account, you could potentially earn up to ten times more than the interest on a standard savings or checking account.

Some banks and financial services offer the best of both worlds — linked checking and savings accounts which can give you added convenience and other benefits.

When choosing any kind of account, be mindful about convenient perks and pesky fees. Here are some things to consider as you evaluate how accounts stack up and which one is right for you:

•   The minimum deposit required

•   Monthly service fees

•   Overdraft fees

•   Out-of-network ATM fees (Tip: Choose a bank with ATMs close to your home and places you frequently go)

•   Online banking services, including a mobile app for check deposits, online bill payments, and direct deposit features

•   The annual percentage yield (APY)

•   Cash-back debit card services

Gather Documents

To open a new checking, savings, or even other investment accounts, most financial institutions require at least two forms of government-issued IDs, including:

•   A valid passport, driver’s license, or other government-issued photo IDs

•   Social security card or individual taxpayer identification number

•   Birth certificate

•   Utility bill with your current address

•   Student accounts may require a student ID or school acceptance letter as proof of enrollment

Confirm Eligibility

Make sure you meet the bank or credit union’s age and eligibility requirements. You usually need to be at least 18 years old to open a traditional checking or savings account. If you are a student or under 18, a parent may have to be involved in the process. Check the guidelines before you begin.

Fill Out the Application

Once you’ve found the right account and gathered the required documents, you are ready to fill out the application. This can be done in-person at a bank or credit union, or online from the comfort of your home.
The application form is likely to be straightforward. You’ll provide your basic personal and contact information, indicate what type of account you want, and upload or provide proof of identification. If you open an account online, this can all be done in minutes.

Recommended: How to Open a New Bank Account Online

Deposit the Minimum

After you’ve entered all your information on the new account application, the final step is to make the minimum opening deposit. If no minimum deposit is required, you can fund your new account with as little or as much money as you wish. If you do need to make a deposit, this can be done via cash or a check if applying in person. Otherwise, you can link your new account to an existing one and transfer in some funds. That’s it; you’re done! You’ll be all set with your new account.

The Takeaway

A required minimum deposit is only one factor to consider when choosing a new checking, savings, or other type of account. And not every financial institution requires one; in some cases, you can get started with no money at all. However, besides a minimum deposit, there are other things to consider — the type of account, fees, annual percentage yields (APYs), and types of banking services offered. In the end, choose the one that provides the most functionality for your lifestyle and growth for your money.

While you’re shopping for an account, take a look at what SoFi offers. When you open our linked Checking and Savings with direct deposit, there’s no minimum deposit and no minimum monthly balance or other account fees. You’ll earn a competitive APY that outpaces the national average for checking accounts by a longshot!

Better banking is here with SoFi, NerdWallet’s 2024 winner for Best Checking Account Overall. Enjoy up to 4.60% APY on SoFi Checking and Savings.

FAQ

Is there a minimum amount you can deposit in a bank?

Some banks and credit unions may require a minimum deposit of $25 to $100 in order to open a checking or savings account. Beyond that, there’s no minimum amount necessary to deposit per week or month, but some accounts may require a daily minimum requirement to avoid fees or closing the account.

What is the minimum requirement for a savings account?

Some basic savings accounts may require a minimum deposit between $25 to $100. They may also require you to maintain a minimum daily or monthly balance — between $300 to $500 . But some savings accounts have no minimum deposit or minimum balance requirements. It can pay to shop around.

Which banks don’t require a minimum balance?

Financial institutions that don’t require a minimum balance to start a checking account as of press time include: Capital One 360 Free Checking, Ally Interest Checking, Alliant Credit Union High-Rate Checking, and SoFi Checking and Savings.

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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.

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

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