SoFi

While on the campaign trail, not-yet President Joe Biden tweeted , “Additionally, we should forgive a minimum of $10,000/person of federal student loans, as proposed by Senator Warren and colleagues. Young people and other student debt holders bore the brunt of the last crisis. It shouldn’t happen again.”

At a virtual summit on student loan debt, Senate Majority Leader Chuck Schumer Senate called for President Joe Biden to forgive $50,000 in student debt through executive action for all borrowers.

The U.S. Department of Education has said $50,000 student loan cancellation would take care of 36 million individuals’ loans and put a dent in the student loan debt that currently sits at about $1.5 trillion. Student loans represent the second largest portion of household debt after mortgages — more than credit card debt. About 43 million Americans have student loans.

At this point, the White House and Congress have not enacted legislation for $50,000 student loan forgiveness. In this piece, we’ll touch on $50,000 student loan forgiveness, preexisting forgiveness programs, and other ways to pay for school.

Is the $50,000 Student Loan Forgiveness Program Real?

Currently, no widespread federal student loan forgiveness order exists to wipe out student loans. Schumer and Elizabeth Warren, senior United States senator from Massachusetts, believe that one-time student loan forgiveness could relieve students of their debt burden as well as potentially:

•   Reduce wealth gaps, including racial wealth gaps

•   Help those without a degree who have lower lifetime earnings but owe on student loans

•   Economically stimulate the middle class

•   Increase home purchases and stimulate small businesses

•   Help more people save for retirement and start a family

•   Boost the economy

In April of 2021, President Biden asked the U.S. Department of Education to see if his executive authority gives him the ability to order student loan forgiveness without the approval of Congress.

Who Qualifies for $50,000 Student Loan Forgiveness?

Right now, nobody qualifies for $50,000 student loan forgiveness because a blanket forgiveness order hasn’t come from the Biden administration or Congress. That’s not without pressure from progressive Democrats, who have repeatedly asked the president to issue an executive order for $50,000 student loan forgiveness.

Instead, the administration has been focusing on already-established student loan forgiveness programs , including approving $1.5 billion in borrower defense claims and providing $7.1 billion in relief for borrowers eligible for total and permanent disability discharges. This includes $5.8 billion in automatic student loan discharges to 323,000 borrowers and the reinstatement of $1.3 billion in loan discharges for another 41,000 borrowers.

Is the $50,000 Student Loan Forgiveness for Private Lenders?

If a $50,000 student forgiveness legislation came to fruition, the measure would likely only apply to federal student loans. Those with private student loans would still have to continue making their payments unless individual private student loan companies make changes to authorize student loan forgiveness.

An income threshold may also go into effect. In that case, the amount of forgiveness you could hypothetically receive would depend on how much money you make. If you make more than what federal guidelines suggest, you may face restrictions on the $50,000 threshold.

Can the Government Forgive $50,000 in Student Loan Debt?

Warren says that the president has the power to take care of $50,000 of student loan debt with the flick of a pen. However, Biden does not plan to support Warren’s and Schumer’s calls for action, nor does Speaker Nancy Pelosi believe Biden can unilaterally make that call on his own.

In a town hall meeting a few weeks after he took office, a citizen asked about the possibility of $50,000 student loan forgiveness. Biden said in no uncertain terms that he did not support the idea.

Preexisting Forgiveness Programs for $50,000 Student Loan Debt

So, if $50,000 in loan forgiveness isn’t an option, what are the possibilities? Several loan discharge options might be available to you. Loan discharge means you no longer have to repay your loan as long as you meet certain requirements. Let’s walk through Total and Permanent Disability (TPD) Discharge, Closed School Discharge, and Public Service Loan Forgiveness (PSLF). Keep in mind that these forgiveness programs only apply to federal student loans.

Total and Permanent Disability Discharge

A Total and Permanent Disability (TPD) Discharge absolves you of having to repay a few types of federal loans or grants:

•   William D. Ford Federal Direct Loan (Direct Loan) Program loan

•   Federal Family Education Loan (FFEL) Program loan

•   Federal Perkins Loan

•   TEACH Grant service obligation

You must complete and submit a TPD discharge application and documentation from one of these three sources: the U.S. Department of Veterans Affairs (VA), the Social Security Administration (SSA), or a doctor.

Closed School Discharge

Closed School Discharge means that you may be eligible for discharge of your federal student loan if your college or career school closes during or soon after you leave it.

You may qualify for a percent discharge of the following types of loans:

•   William D. Ford Federal Direct Loan (Direct Loan) Program loans

•   Federal Family Education Loan (FFEL) Program loans

•   Federal Perkins Loans

You may qualify if you were enrolled when your school closed or you were on an approved leave of absence during the period when your school closed. You may also qualify if your school closed within 120 days after you withdrew (as long as your loans were first disbursed before July 1, 2020) or your school closed within 180 days after you withdrew (as long as your loans were first disbursed on or after July 1, 2020).

Public Service Loan Forgiveness (PSLF)

The Public Service Loan Forgiveness (PSLF) program forgives the remaining balance on Direct Loans after you have made 120 qualifying monthly payments under a qualifying repayment plan. You must work full-time for a qualifying employer (a U.S. federal, state, local or tribal government, or nonprofit organization) in order to qualify for PSLF.

Other Ways to Pay for School

Let’s explore the various options available to you, rather than waiting for the government to help out with relief that might not come. It may be helpful to know the differences between grants vs. scholarships vs. loans.

Private Student Loans

Just like federal student loans, you can use private student loans to pay for college or career school costs, but they come from a bank, credit union or online lender — not the federal government.

Generally speaking, federal grants and loans should be prioritized before you take on private loans because you’ll usually pay higher interest rates for private student loans. The amount you can borrow depends on the cost of your degree as well as personal financial factors (such as your credit score and income). Private lenders also aren’t required to offer the same borrower protections and benefits as federal lenders — things like income-driven repayment plans or the forgiveness options discussed previously.

Recommended: Private vs. Federal Student Loans

Credit Cards

You can use a credit card to pay for books or other school supplies but your college or university bursar’s office may or may not let you pay for college tuition with a credit card. Speak with the bursar’s office to find out whether it’s possible to pay using a credit card as well as the fees you’ll incur to pay using this method.

Paying for college costs with credit cards carries some added risks. For example, fees from the bursar’s office may outstrip any rewards you earn. It’s also highly likely that you’ll pay more in interest on a credit card than you would with a student loan.

Using a credit card will also disqualify you from the perks of federal student loans — repayment plans, deferment, and the forgiveness programs listed above.

Borrow from Loved Ones

Will a trusted family member or close friend allow you to borrow from them? If so, you could rely on them to lend you money when you need money for school. However, this option can have both positive and negative consequences, the most negative being that you might tarnish your relationship with the individual who loans you the money.

Before you borrow from a loved one, set clear expectations, establish a realistic repayment plan, discuss what happens when you can’t make payments, draw up a formal contract and examine the tax implications for the other party when lending money.

You may also want to suss out the other party’s ability to loan you the money as well. If you think it’ll put the other person in a financial bind, you may want to consider alternative options.

Pay Cash

Do you or your parents have money set aside for you to attend college? This is one of the best ways to pay for college because you don’t have to pay interest on borrowed money. You can tap into money that’s earmarked for college or pull from monthly earnings as well.

The Takeaway

So far, $50,000 student loan forgiveness is not an option available to federal student loan borrowers. There are some options currently available, such as Public Service Loan Forgiveness, which requires borrowers to make 120 qualifying payments while working for an eligible employer — such as one in the nonprofit sector.

If you’re looking for options beyond federal student loans to pay for college, private student loans may be an option to consider. SoFi’s private student loans make paying for your undergraduate or graduate education easier. You can receive up to 100% of school costs, including tuition and food, books, supplies, room and board, and other education expenses for your undergraduate, graduate school, MBA, and/or law school education. Specific undergraduate loans and graduate loans are available from SoFi.

Compare rates for SoFi’s private student loans now.

FAQ

Check out some FAQs for student loan forgiveness $50,000:

Can the President forgive $50,000 student loan debt?

It’s unlikely that President Joe Biden will unilaterally forgive $50,000 of student loan debt for every borrower. In fact, he stated in a town hall in February 2021 that he doesn’t think he “has the authority” to cancel $50,000 per borrower. House Speaker Nancy Pelosi has also flatly stated that he cannot do it, either.

What are ways to pay off $50,000 in student loan debt?

There are many ways to pay off $50,000 in student loan debt, including paying off student loans one month at a time through monthly payments. However, you can also look into loan forgiveness programs like the ones listed above or income-driven repayment plans. You can also put more money toward your student loans by making more than the required monthly payment each month.

You can target specific loan-payoff methods, including the debt avalanche or debt snowball methods. The debt snowball method means you pay off the lowest amount of money you owe. For example, if you have three student loans, worth $1,000, $2,000, and $3,000, you’d pay off the lowest amount first because you can more quickly pay it off.

The debt avalanche method means you pay off the loan with the highest interest rate first.

It’s also important to remember that student loan forgiveness is not completely free. It’ll affect your taxes. Here’s how:

Let’s say that a federal mandate does materialize and cancels $10,000 worth of student loans. The money from the $10,000 student loan forgiveness program would get added to your taxable income, under what’s called Cancellation of Debt (COD) income. You would also receive Form 1099-C.

When you do your taxes, you’d report $10,000 as COD income and you’d owe based on your individual tax bracket. If you’re in the 22% tax bracket, you’ll pay $2,200 in taxes ($10,000 x 22%).

Do private lenders offer $50,000 student loan forgiveness?

No, private student loan lenders do not offer $50,000 student loan forgiveness but you may be able to explore different payment options with your lender. Talk to your private loan lender if you’re having trouble making your monthly payments.

Student loan lenders want to work with you to give you the best possible options for paying off your loans, but don’t expect to receive $50,000 student loan forgiveness automatically from private lenders.

---

SoFi Loan Products
SoFi loans are originated by SoFi Bank, N.A., NMLS #696891 (Member FDIC). For additional product-specific legal and licensing information, see SoFi.com/legal. Equal Housing Lender.

SoFi Private Student Loans
Please borrow responsibly. SoFi Private Student Loans are not a substitute for federal loans, grants, and work-study programs. You should exhaust all your federal student aid options before you consider any private loans, including ours. Read our FAQs. SoFi Private Student Loans are subject to program terms and restrictions, and applicants must meet SoFi’s eligibility and underwriting requirements. See SoFi.com/eligibility-criteria for more information. To view payment examples, click here. SoFi reserves the right to modify eligibility criteria at any time. This information is subject to change.

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.

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.

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

Photo credit: iStock/fizkes
SOPS0122004

Read more

Check kiting is the illegal act of writing bad checks using bank accounts with insufficient funds. Common variants include retail check kiting, securities-based kiting, and embezzling corporations. Consumers and business owners should know about this fraudulent practice to protect themselves.

While mistakenly writing a bad check is often not a serious issue, there can be harsh penalties, including prison time, for intentionally engaging in check kiting. Knowing how to avoid this scam can save people time and money. As the financial world grows more digital and mobile, this age-old illegal practice remains a risk.

•   Here, you will learn:

•   What is check kiting?

•   What are examples of check kiting?

•   What are the consequences of check kiting?

•   How can I avoid check kiting scams?

What Is Check Kiting?

Check kiting is the illegal practice of writing bad checks on accounts with insufficient funds. While credit cards and mobile payment methods grow more common, checkbooks are still used today, so kiting remains an issue. This fraudulent activity seeks to take advantage of what’s known as the bank’s float period. What’s a float period? It’s the time it takes a financial institution to determine if an account has funds to clear the check. If the funds are there, then the amount is cleared and made available for the payee to use. Nefarious individuals engage in check kiting to essentially swipe money from a bank by pulling cash from accounts that do not have enough funds to cover the checks.

Kiting is not only done through banks and checking accounts, but also with retailers and even individual companies. Retail kiting is performed by cashing a check on an account with insufficient funds to purchase goods and services. There are other variations that financial con artists attempt to pull off, too; more details on these are below.

How Does Check Kiting Work?

Banks and credit unions likely know the answer to “What is kiting?” but business owners and retailers might wonder about this practice. Kiting is the illegal practice of obtaining credit and cash from accounts and other financial instruments. One example of kiting happens when a scammer writes a bad check or uses securities to gain leverage while skirting regulations.

Real-Life Examples of Kiting

Perhaps the most common kiting example is within the banking world. Knowing what is kiting in banking terms and how to cash a check can help you avoid falling victim to this type of financial scam. That, in turn, can help you steer clear of run-ins with the law and falling victim to this type of financial scam. (It can also be wise to be cautious when signing over a check to another. That can potentially cause problems as well.)

There are simple and complex check kiting examples. With a checking account, a grifter might write a check for $100 on an account that only has a $20 available balance, then deposit that check in a separate account. The $100 is then quickly withdrawn from the second account, leaving the first account overdrawn. In this case, the individual took advantage of the bank’s clearing window to steal money.

Variants of Check Kiting

There are other examples of this malicious practice in the business world. Individuals looking to harm the banking, retail, and corporate world are often highly creative in their practices to swindle cash. Below are a few variants of check kiting to watch out for; also protect yourself by making sure that the financial institution where you hold your bank account has top-notch fraud protection to help keep your cash safe from scammers’ activities.

Circular Check Kiting

Circular check kiting is among the most common forms of kiting. A financial con artist will use multiple bank accounts, maybe even at different banks, to illegally take advantage of the bank account float period. As described above, the scammer will pull real cash from non-existent money. While cashing checks without a bank account is a legal practice, doing so with no funds backing it up is kiting.

Circular kiting works by writing fraudulent checks on real accounts to gain unauthorized credit. The fraudster makes a deposit with a check they know will bounce, but quickly withdraws real cash, getting money in hand and leaving the banks with overdrawn accounts. With circular check kiting, the individual might get extra creative and use different names or even several identities to hide their actions.

Retail-Based Check Kiting

Retail-based check kiting happens when an unscrupulous person uses other types of businesses to swindle cash. It may involve the simple yet illegal act of writing bad checks around town. A financial huckster might seek to purchase goods and services by writing a check on an account with insufficient funds. The con artist takes or receives the products, but then the check bounces and the money never makes it back to the retailer.

Another dubious method involves requesting cash back on a bad check at the register. A second check may be used to cover the first check to stay ahead of the bank float period. This can facilitate a series of illegal retail acts. If a retailer becomes aware of this scam, they can try to issue a stop payment on the check. This might help prevent illegal activity, but it’s no guarantee.

Kiting With Securities

Kiting is also a problem in the investing world. Firms illegally use the Securities and Exchange Commission’s (SEC) settlement window to keep a short position in the market without actually purchasing the securities. (Selling short means an investor anticipates that a stock’s price will drop and they can buy low and make a profit.) The SEC’s three-day settlement period requires timely delivery of transactions and securities. If an individual exploits settlement delays in order to transfer unavailable funds, they are engaging in kiting. A trading company that does not receive securities within the three-day period is required to buy shares in the market.

Corporate Check Kiting

Corporate check kiting typically happens when a company doesn’t have the usual limits on deposits. Large sums can be put in an account. Deceitful managers or owners of a firm might take advantage of this; they might deposit bad checks and then immediately spend the cash, before it’s clear that the check won’t clear.

Consequences of Check Kiting

Obviously, check kiting, like other forms of bank fraud, can cause financial loss and a considerable amount of stress, anger, and frustration. There are a range of consequences to the illegal activity of check kiting. Penalties for this type of financial fraud vary depending on how severe the case is:

•   Banks might restrict someone’s account features in small cases.

•   Larger scams can result in misdemeanor or even felony charges.

•   Fines and prison sentences can happen after a severe crime.

Avoid Check Kiting Scams

While there is no sure way to avoid becoming a victim of malicious illegal financial activity, there are steps you can take to reduce your chances. These include:

•   Know how to identify a fraudulent check and a check’s expiration date

•   Be aware of customers and individuals with whom you do business. Take steps to verify that checks are good.

•   Avoid wiring funds to people you do not know.

•   Use a voided check’s information to verify the account is real.

Also be cautious about scam scenarios in which someone sends you a check that overpays you and then requests that you quickly return the difference to them. You could wind up the victim of fraud.

Banking With SoFi

Keeping your account safe is SoFi’s priority. Open a new bank account with direct deposit to earn a competitive APY and pay no fees, all while being backed by many account security features. You’ll be protected by chip card technology, two-factor authentication, and suspicious activity monitoring. You can have all this, along with FDIC insurance protection, by opening an account today.

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

Why is check kiting illegal?

Check kiting is illegal because it fraudulently uses financial products to gain unauthorized additional credit. It typically employs checks for which there are insufficient funds (that is, checks that will bounce rather than clear). Another practice involves unlawfully embezzling money from a bank or business.

Why is it called kiting?

The term “kiting” is thought to come from the nineteenth-century practice of bond issuance that had no real financial backing. It was said that the only thing keeping the bonds afloat was “air” and nothing else. “Check kiting” grew in prevalence during the 1920s, perhaps as retail banking became more common.

What is cash kiting?

Cash kiting takes advantage of banks through the use of two separate accounts. A fraudster might write a check on one account for more than its available balance and deposit it in the other account. The individual takes advantage of the bank float period, which is the processing time for funds to clear. During cash kiting, both accounts appear to have more funds than they truly do. The fraudster can profit from drawing cash from the accounts when it’s not really available, but the bank doesn’t know that yet.

---

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.

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

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

This article is not intended to be legal advice. Please consult an attorney for advice.

Photo credit: iStock/MicroStockHub
SOBK0522024

Read more

Everyone likes to win big. So what if saving money could make it possible to win more money? That actually is possible, thanks to prize-linked savings accounts that combine a normal savings account with a lottery-esque opportunity to win prize money.

Keep reading to learn:

•   How prize-linked savings accounts work.

•   The pros and cons of prize-linked savings accounts.

•   How to open a prize-linked savings account.

•   Alternatives to prize-linked savings accounts.

What Is a Prize-Linked Savings Account?

A prized-linked savings account is essentially a standard account, but it gives account holders the opportunity to win prizes. In addition to their presence in the U.S., they’re more common in other countries, including Germany, Argentina, and Japan.

The way that prize-linked savings accounts work is they allow account holders to enter raffles to earn cash prizes. If you have one of these prize accounts, how would you enter? By making deposits into a savings account, CD, or savings bond. Currently, these types of accounts are offered by financial institutions such as credit unions in 34 different states.

These savings accounts earn a nominal amount of interest and aren’t a solid replacement for a traditional savings account in the long run. However, they can be good for short-term savings. They’re designed to encourage people with low- or moderate-income levels to save more, which is a great thing.

Recommended: Checking Accounts vs. Savings Accounts: Key Differences to Know

Types of Prize-Linked Savings Accounts

To make it easier to understand how prize-linked savings accounts work, let’s look at a few real-life examples of these savings accounts that are available domestically.

Save to Win

The Save to Win pilot project allows credit unions to hold savings promotion raffles. (Banks or other financial institutions weren’t allowed to operate lotteries under this program.) Since 2009, Save to Win has awarded more than $1.4 million in prizes to more than 14,000 members in four states.

Lucky Savers

Since 2015, Lucky Savers has motivated New Yorkers to save by rewarding smart savings habits. This program was exclusive to credit unions and was formatted as a 12-month share certificate with unlimited deposit capabilities. Opening this account only required a $25 initial deposit. Then, for every $25 in month-over-month balance increase, account holders earned one entry into monthly and quarterly prize drawings.

WINcentive

WINcentive® Savings is another credit union-exclusive program. This program in Minnesota offers prize drawing entries for every $25 an account holder saves for up to four entries each month. Prize drawings occur monthly, quarterly, and annually. In 2012 alone, $100,000 in cash prizes were awarded to account holders.

Are Prize-Linked Savings Accounts (PLSAs) Legal?

Prize-linked savings accounts are legal in some states that have enacted legislation to allow these types of accounts. In response to concerns surrounding prize-linked savings programs, Congress passed the American Savings Promotion Act which authorizes banks and thrifts (a financial institution specializing in savings accounts and mortgages) to conduct savings promotion raffles. It also excludes these raffles from the prohibition against financial institutions dealing in lotteries.

Pros of Opening a Prize-Linked Savings Account

Depending on your circumstances and financial goals, a prize account can offer a number of advantages. The pros of these savings accounts are:

•   Prize-linked savings accounts can incentivize individuals to save more money. Programs have found the amount of savers and savings amounts increase when there is a prize incentive.

•   It’s possible to win money that can help offset monthly expenses or can be large enough to be the equivalent of a small lottery prize.

•   It’s possible to win prize money without any of the normal risks that come with gambling or buying lottery tickets. The account holder gets to keep their savings whether they win a prize or not.

Cons of Opening a Prize-Linked Savings Account

Along with the benefits, there are disadvantages to prize-linked savings accounts. These include:

•   Prize-linked savings accounts earn little to no interest. The chance of winning money may not be worth forgoing a better interest rate with traditional or high-interest savings accounts.

•   Winning any prize money at all is not guaranteed and not predictable, like a steady stream of interest earnings is.

•   These prize-linked savings accounts are often cheaper for financial institutions to offer than traditional savings accounts with higher interest rates. For this reason, they might not promote what better savings options an account holder might have.

Opening a Prize-Linked Savings Account

If you want to open a prize-linked savings account, these are the steps you’ll generally take.

1.    Find a bank or credit union that offers prize-linked savings accounts. These accounts aren’t available in all states and are more commonly found at credit unions.

2.    Apply to open a prize-linked savings account. The applicant will usually need to provide two forms of identification during the application process.

3.    Make a deposit. Most prize-linked savings accounts have small initial minimum-deposit requirements.

Are There Taxes on PLSAs?

There are tax requirements surrounding prize-linked savings account winnings. Sure, you can go and spend money from your savings account that’s been plumped up thanks to a cash prize. However, anyone who wins money from one of these accounts should be prepared to pay taxes on their winnings according to state and federal laws.

Alternatives to a Prize-Linked Savings Account

Because there’s no guarantee that you will win any money with a prize-linked savings account, you may want to consider these other savings options that can offer a more guaranteed return.

•   High-yield savings accounts. High-yield savings accounts are simply normal savings accounts with high interest rates. Usually, high-yield savings accounts are found at online banks. Because online banks don’t have to spend a ton of money on brick-and-mortar banking locations, they are able to offer higher interest rates, lower fees, or other bank account bonuses. High-yield savings accounts allow consumers to take advantage of compound interest.

•   Money market account. Money market accounts tend to have a higher APY that normal savings accounts do, but they may have similar withdrawal limits to savings accounts. Check with your financial institution to see if there is a cap on the number of withdrawals you can make per month.

•   Certificate of deposit. A certificate of deposit (CD) has a minimum deposit requirement. It also has a set timeframe during which you can’t withdraw your money from the CD without having to pay a penalty fee. Usually, CDs have higher interest rates than both savings accounts and money market accounts.

The Takeaway

The potential to win prize money through a prize-linked savings account can make saving more appealing for some consumers. That being said, these accounts tend to have much lower interest rates than normal savings accounts, and there is no guarantee the account holder will ever win any money. Before opening one, carefully consider if a prize-linked savings account can meet your needs or if you would be better off with a different financial vehicle.

Want to find a way to earn more on savings? Bank smarter with SoFi, and watch your money grow. Our high-yield bank account offers a competitive APY when you open an account with direct deposit. Other great perks: No account or overdraft fees, plus access to your paycheck up to two days early.

Watch your money make more money with SoFi.

FAQ

Are prize-linked savings accounts legal?

Yes, prize-linked savings accounts are legal in 34 states. Congress passed the American Savings Promotion Act in 2014, which authorizes banks and thrift banks to conduct savings promotion raffles.

Is a lottery account safe?

Lottery accounts are a safe way to save money. There is no actual gambling involved with a prize-linked savings account. Account holders get to keep all of their savings whether or not they win prize money.

How do I open a lottery account?

The process of opening a prize-linked savings account is the same as opening a normal savings account. Once someone finds a bank or credit union that offers this type of savings account, they will apply and provide all of the information and identifying documentation required during the application process. Then they will make an initial deposit.

---

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.

Photo credit: iStock/Tevarak
SOBK0522010

Read more

An IRA CD is simply an individual retirement account (IRA), in which the investor has opened one or more certificates of deposit (CDs).

In other words, an IRA CD is a traditional, Roth, or other type of IRA account where the funds are invested at least partly in CDs.

Investing in CDs within an IRA can offer some tax advantages. Keep reading to learn more how an IRA CD works, the pros and cons of using an IRA CD, and whether it might make sense for your retirement plan.

Recommended: What is an IRA and How Does it Work?

What Is an IRA CD?

An IRA CD is an IRA where your money is invested in certificates of deposit. To understand why this might make sense as part of an overall retirement plan, let’s consider the two types of accounts.

How Does a CD Work?

A CD or a certificate of deposit is a type of savings or deposit account that offers a fixed interest rate for locking up your money for a certain period of time, known as the term. An investor deposits funds for the specified terms (usually a few months to a few years), and cannot add to the account or withdraw funds from the account until the CD matures.

In exchange, for keeping your money in a CD, the bank will offer a higher interest rate compared with a traditional savings account. But the chief appeal for retirement-focused investors is that CDs can provide a steady rate of return, versus other securities in a portfolio which may entail more risk.

Recommended: How Investment Risk Factors into a Portfolio

How Does an IRA Work?

An IRA or individual retirement account is a tax-advantaged account designed for retirement planning. There are different IRA types to choose from, such as a traditional IRA, Roth IRA, or SEP IRA. By contributing to this type of account, you can have your money grow tax-free or tax-deferred, depending on the type of IRA you open.

Think of an IRA as a box in which you place your retirement investments. With an IRA, investors have the flexibility to invest in a variety of securities for their portfolio.

For this reason, it might make sense for some investors to include CDs as part of their asset allocation within the IRA.

How Do IRA CDs Work?

If you choose to put your retirement money in an IRA, you have the chance to choose investments that might include stocks, mutual funds, bonds — and also CDs. By investing in CDs within an IRA, you can add to your portfolio’s diversification. Unlike equities, CDs can offer a steady rate of return.

Also by investing in an IRA CD, you no longer have to pay taxes on the interest gains, and the money can grow taxed deferred.

But if you withdraw funds prior to the CD’s maturity date, you will face an early withdrawal penalty. Once the IRA CD matures, you can either renew it or take your money and invest it in the stock market for potentially higher returns.

How much can you contribute to an IRA CD? It depends on the type of IRA account you choose. Traditional and Roth IRAs have contribution limits of $6,000 per year, or if you are 50 or older, the contribution limit is $7,000 per year. The contribution limits for SEP IRAs are typically higher.

If you choose an IRA CD with a bank or credit union backed by the Federal Deposit Insurance Corp., or FDIC, your money in the IRA CD is insured for up to $250,000. This means that if the bank goes under for any reason, your retirement funds are covered up to that amount.

Which CDs Can You Use in an IRA CD?

Opening an IRA CD is only the first step. Next, investors must consider which investments to place in the account.

You can invest in stocks, bonds, and other investments — including CDs. You can choose to put your money in various types of CDs, including short-term CDs, long-term CDs, jumbo CDs.

You can even create a CD ladder within your IRA to help provide steady income.

Pros of IRA CDs

IRA CDs have unique characteristics that can benefit account holders as they think about how to handle their retirement funds:

•   Compared to investing in the stock market where investment returns can be volatile and unpredictable, IRA CDs are low-risk cash investments that guarantee a fixed return.

•   With an IRA CD, there are similar tax benefits that come with a traditional IRA. Investors can enjoy tax benefits such as growing your account with pretax dollars while having your earnings accumulate tax-deferred until you reach retirement.

Cons of IRA CDs

There are some cons associated with IRA CDs to keep in mind:

•   With an IRA CD, you have to keep your money locked away for a period of time that varies depending on the maturity date you choose. During this time, you cannot access your funds in the event you need capital.

•   In the event you decide to withdraw cash prior to the IRA CD’s maturity, you will incur early withdrawal penalties. After age 59 ½ there is no penalty for withdrawing cash.

•   While putting your retirement funds in an IRA CD is a safer and lower-risk option than investing in the stock market, the returns can be quite low. If you are in retirement and are concerned about the stock market’s volatility, an IRA CD could be a safer option than other securities, but if you are many years away from retirement, an IRA CD may not yield enough returns to outpace inflation over time.

Who Should and Should Not Invest in an IRA CD?

IRA CDs are a safe way to invest money for retirement, but are best suited for pre-retirees who are looking to de-risk their investments as they approach retirement age.

However, if you are many years away from retirement, an IRA CD is probably not the best option for you because they are low-risk and low-return retirement saving vehicles. In order to see growth on your investments you may need to take on some risk.

If you decide an IRA CD is the right option for you, you also must determine if you are comfortable with keeping your money stowed away for a period of time. Account holders can choose the length of maturity that best suits them.

Typical Process for Opening an IRA CD

The first step is to open an IRA at a bank, brokerage, or other financial institution. Decide if a traditional, SEP, or Roth IRA is right for you. You can set up the IRA in-person or online. Once you open an IRA account, now you can buy the CD.

Choose the CD that fits your minimum account requirements and length of maturity preference. Typically, the shorter CD maturity, the lower the minimum to open the account. When considering maturity, you also should compare rates. The longer the maturity the higher the rate of return.

The Takeaway

If you’re looking to add diversification to the cash or fixed-income part of your portfolio, you might want to consider opening an IRA CD — which simply means funding a CD account within a traditional, Roth, or SEP IRA. Bear in mind that CDs offer very low interest rates, though, and your money might see more growth if you chose other securities, such as bonds or bond funds.

That said, because CDs are very low risk and you earn a steady rate of return, it might make sense for your retirement plan to give up growth potential in favor of that steady return.

If you’re thinking about how to earn a steady rate of return on your savings, consider an account with SoFi. When you open a high-yield bank account, you pay no SoFi account fees or management fees. With the special “vaults” feature you can separate your savings from your spending, and earn competitive interest on your total balance.

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

FAQ

What is the difference between an IRA CD and a regular CD?

A standard CD is a separate account you open at a bank or credit union. An IRA CD is where the CD is funded within the IRA itself.

With a regular CD you withdraw the funds penalty free when the CD matures. With an IRA CD you can withdraw the funds penalty free starting at age 59 ½, per the rules and restrictions of the IRA.

What happens when an IRA CD matures?

Once your IRA CD matures, you’ll receive the principal plus interest. Then you can either leave the IRA CD as is or renew it. You cannot withdraw the funds from an IRA CD until age 59 ½, as noted above.

Can you lose money in an IRA CD?

It’s unlikely as IRA CDs are low-risk. If you open an IRA CD with a federally insured institution, your funds can be covered up to $250,000.

---

SoFi Invest®
INVESTMENTS ARE NOT FDIC INSURED • ARE NOT BANK GUARANTEED • MAY LOSE VALUE
SoFi Invest encompasses two distinct companies, with various products and services offered to investors as described below: Individual customer accounts may be subject to the terms applicable to one or more of these platforms.
1) Automated Investing and advisory services are provided by SoFi Wealth LLC, an SEC-registered investment adviser (“SoFi Wealth“). Brokerage services are provided to SoFi Wealth LLC by SoFi Securities LLC.
2) Active Investing and brokerage services are provided by SoFi Securities LLC, Member FINRA (www.finra.org)/SIPC(www.sipc.org). Clearing and custody of all securities are provided by APEX Clearing Corporation.
For additional disclosures related to the SoFi Invest platforms described above please visit SoFi.com/legal.
Neither the Investment Advisor Representatives of SoFi Wealth, nor the Registered Representatives of SoFi Securities are compensated for the sale of any product or service sold through any SoFi Invest platform.

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.


Photo credit: iStock/LeszekCzerwonka
SOBK0422002

Read more