Guide to Bank Reserves

Bank reserves refer to the amount of funds a financial institution must have on-hand at any given time. These reserves are a percentage of its total deposits set aside to fulfill withdrawal requests, and comply with regulations and can also provide a layer of trust for account holders.

Bank reserves act as assurance to depositors that there is always a certain amount of cash on deposit, so the scenario mentioned above doesn’t happen. No one wants to ever withdraw some cash and be left empty-handed. As a consumer with a bank account, it can be important to understand the role bank reserves play in the financial system and the economy.

What Are Bank Reserves?

Bank reserves are the minimum deposits held by a financial institution. The central bank of each country decides what these minimum amounts must be. For example, in the United States, the Federal Reserve determines all bank reserve requirements for U.S. financial institutions. In India, as you might guess, the Reserve Bank of India determines the bank reserves for that country’s financial institutions.

The bank reserve requirements are in place to ensure the financial institution has enough cash to meet financial obligations such as consumer withdrawals. It also ensures that financial institutions can weather historical market volatility (that is, economic ups and downs).

Bank reserve requirements are typically a percentage of the total bank deposit amounts determined by the Federal Reserve Board of Governors. Financial institutions can hold their cash reserves in a vault on their property, with the regional Federal Reserve Bank, or a combination of both. This way, the financial insulation will have enough accessible funds to support their operational needs while letting the remaining reserves earn interest at a Federal Reserve Bank.

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How Do Bank Reserves Work?

Bank reserves work to ensure that a certain amount of cash, or percentage of overall deposits, is kept in a financial institution’s vault.

Suppose you need to withdraw $5,000 to purchase a new car. You understand savings account withdrawal limits at your bank and the amount you need is within the guidelines, so you head to your local branch. When you arrive, you’re told they don’t have enough money in their vault to meet your request.

This is what life could be like without bank reserves. The thought of not being able to withdraw your own money might be upsetting, worrisome, and deeply inconvenient. To prevent this kind of situation is exactly why banks must have a certain percentage of cash on hand.

In addition to ensuring consumers have access to their money, bank reserves may also aid in keeping the economy functioning efficiently. For example, suppose a bank has $10 million in deposits, and the Federal Reserve requires 3% liquidity. In this case, the bank will need to keep $300,000 in its vault, but it can lend the remaining $9.7 million to other consumers via loans or mortgages. Consumers can use this money to buy homes and cars or even send their children to college. The interest on those loans is a way that the bank earns money and stays in business.

Bank reserves are vital in helping the economy control money supply, interest rates, and the implementation of what is known as monetary policy. When the reserve requirements change, it says a lot about the economy’s direction. For example, when reserve requirements are low, banks have more opportunity to lend since more capital is at their disposal. Thus, when the money supply is plentiful, interest rates decrease. Conversely, when reserve requirements are high, less money circulates, and interest rates rise.

During inflationary periods, the Federal Reserve may increase reserved requirements to ensure the economy doesn’t combust. Essentially, by decreasing the money supply and increasing interest rates, it can slow down the rate of investments.

Recommended: Understanding Fractional Reserve Banking

Types of Bank Reserves

There are two types of bank reserves: required reserves and excess reserves. The required reserves are the percentage of deposits the institution must have in cash holdings and deposit balances to abide by the regulations of the Federal Reserve. Excess reserves are the amount over the required reserve amount that the institution holds.

Excess reserves can provide a larger safety net for the financial institution and enhance liquidity. It can also contribute to a higher credit rating for institutions. On the other hand, excess reserves can also result in losing the opportunity to invest the funds to yield higher returns. In other words, since the extra money is sitting in cash, it will not generate the same returns it might yield by lending or investing in the market.

Recommended: What Is Quantitative Easing?

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History of Bank Reserves

Reserve requirements first came about in 1863 during the passing of the National Bank Act. This act intended to create a national banking system and currency so money could flow easily throughout the country. At this time, banks had to hold at least 25% reserves of both loans and deposits. Bank reserves were necessary to ensure financial institutions had liquidity and money could continue circulating freely throughout the nation.

But despite the efforts to establish a robust banking system, banking troubles continued. After the panic of 1907, the government intervened, and in 1913, Congress passed the Federal Reserve Act to address banking turmoil. The central bank was created to balance competing interests and foster a healthy banking system.

Initially, the Federal Reserve acted as a last resort and a liquidity grantor when the banks faced trouble. During the 1920s, the Federal Reserve’s role expanded to playing a proactive role in the economy by influencing the credit conditions of the nation.

After the Great Depression, a landmark in the history of U.S. recessions and depressions, the Banking Act of 1935 was passed to reform the structure of the Federal Reserve once again. As part of this act, the Federal Open Market Committee (FOMC) was born to oversee all monetary policy.

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How the 2008 Crisis Impacted Bank Reserves

Prior to the global financial crisis of 2008, financial institutions didn’t earn interest on excess reserves held at a Federal Reserve Bank. However, after October 2008, the Federal Reserve was granted the right to pay interest to banks with excess reserves. This encourages banks to keep more of their reserves. The Board of Governors establishes the interest on reserve balances (IORB rate). As of July 2024, the IORB was 5.4%.

Then, after the recession subsided in 2009, the Federal Reserve turned its attention to reform to avoid similar economic disasters in the future.

Recommended: Federal Reserve Interest Rates, Explained

How Much Money Do Banks Need to Keep in Reserve?

Reserve requirements vary depending on the size of the financial institution. As of July 2024, reserve requirements are 0%, where they’ve been since early 2020 and the onset of the COVID-19 pandemic.

Prior to this revision, banks with between $16.9 to $127.5 million in deposits were required to have 3% in reserves, whereas banks over this amount had to have at least 10% in bank reserves.

Recommended: Investing During a Recession

What Is Liquidity Cover Ratio (LCR)?

Bank reserve requirements aside, financial institutions want to ensure they have enough liquidity to satisfy the short-term financial obligations if an economic crisis occurs. This way, they know they will be able to weather a crisis and not face complete bankruptcy. Therefore, financial institutions use the Liquidity Coverage Ratio (LCR) to prevent financial devastation resulting from a crisis.

The LCR helps financial institutions decide how much money they should have based on their assets and liabilities. To calculate the LCR, banks use the following formula:

(Liquid Assets / Total Cash Outflows) X 100 = LCR

Liquid assets can include cash and liquid assets that convert to cash within five business days. Cash flows include interbank loans, deposits, and 90-day maturity bonds.

The minimum LCR should be 100% or 1:1, though this can be hard to achieve. If the LCR is noticeably lower than this amount, the bank may have liquidity concerns and put the bank’s assets at risk.

The Takeaway

Financial institutions must have a certain amount of cash on hand, referred to as bank reserves. These assets are usually kept in a vault on the bank’s property or with a regional Federal Reserve Bank. These cash reserves ensure financial institutions can support consumer withdrawals and withstand a financial crisis.

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FAQ

Are bank reserves assets or liabilities?

Bank reserves are considered an asset since they’re an item the bank owns. Other bank assets can include loans and securities.

How are bank reserves calculated?

Bank reserve requirements are calculated as a percentage of the institution’s deposits. So, if the reserve requirement is 3% for banks with $10 million in deposits, the bank would have to hold $300,000 in its reserves.

Where do banks keep their reserves?

Financial institutions usually keep a certain amount of their cash reserves in a vault to meet operational needs. The remaining amount may be kept at Federal Reserve Banks so the balance can generate interest.


Photo credit: iStock/Diy13

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 recurring deposit of regular income to an account holder’s SoFi Checking or Savings account, including payroll, pension, or government benefit 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, or are non-recurring in nature (e.g., IRS tax refunds), do not constitute Direct Deposit activity. There is no minimum Direct Deposit amount required to qualify for the stated interest rate.

As an alternative to direct deposit, 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.


*Awards or rankings from NerdWallet are not indicative of future success or results. This award and its ratings are independently determined and awarded by their respective publications.

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How to Pay for College Without Federal Loans

How to Pay for College Without Federal Loans

It’s not a secret that the cost of attending college is more expensive than most people can afford to pay for in cash. Many students turn to federal student loans to help pay for college. But what can someone do if they’ve already tapped out their federal student loan resources or don’t want to take on any federal loans?

Thankfully, there are a variety of resources available to help students pay for their education. From scholarships to savings, continue reading for 14 ways to make college tuition more affordable. It may even be possible to figure out how to pay for college without loans.

14 Ways to Make College Tuition More Affordable

The key to figuring out how to pay for college without loans or financial aid is to make the overall cost of college a lot less expensive. Here are a few ways someone can make the cost of college more affordable.

1. Apply for FAFSA

It’s always a good idea to apply for federal financial aid — even if you don’t think you’ll qualify. That’s because the Free Application for Federal Student Aid (FAFSA®), is absolutely free to fill out. This form helps determine the type and amount of aid a student qualifies for. While it’s not a guarantee that students will get financial aid granted to them, it’s worth applying to try to lower the overall cost of pursuing higher education.

Federal financial aid includes both need-based aid, like Direct Subsidized Loans or Pell Grants and non-need based aid, like Direct Unsubsidized Loans. After submitting the FAFSA, schools will use the information to determine your financial aid package. This will detail the aid you qualify to receive for the school year. The FAFSA must be completed annually.

Sometimes, federal financial aid isn’t enough to allow a student to pay for the full cost of college. Keep reading for ways to lower the costs of attending college in the event you don’t receive enough financial aid to make it easy to pay for school.

2. Qualify for Merit Scholarships

Because scholarship funds don’t need to be paid back, they can be a valuable tool to help pay for school. While there are need-based scholarship opportunities, there are also merit-based scholarships that focus on giving money to students that meet or exceed certain standards set by the person or organization issuing the scholarship. These can include such factors as academic excellence, musical talent, or athletic ability.

Merit scholarships may be available from your college or university. Contact your school’s financial aid office for information on scholarships available at your academic institution.

3. Apply for Private Scholarships

While colleges often offer scholarship opportunities, so do private companies, nonprofits, and other organizations such as religious groups. Both school-based and private scholarship opportunities are worth looking into. You can find information on private scholarships from both your school’s financial aid office and by searching online databases, like Scholarships.com, that aggregate information on available scholarships.


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4. Apply for ROTC Scholarships

If someone is considering joining the military, they may be able to receive up to 100% in tuition assistance if they do so. College’s may have ROTC (Reserve Officers’ Training Corps) programs that make it possible to qualify for scholarships before joining the military — unlike the GI Bill which gives education money to those already enrolled in the military.

5. Attend a Community College

Attending a community college before transferring to a four-year university is another option to cut tuition costs. Some community colleges even offer tuition-free programs. Not to mention, when attending a local community college, it may be easier to remain living at home with mom and dad which can cut down living expenses massively.

6. Earn College Credit in High School for Free

Some community colleges partner with local school districts to give high school students the opportunity to take college classes for free which allows them to earn college credits in high school. Taking advantage of free college classes while in high school can make the cost of attending college later cheaper — especially if the student can graduate early as a result. Advanced placement (AP) classes in high school can have a similar benefit.

7. Ask for Family Donations

While there’s no guarantee that a family will be able or willing to help pay for someone to go to college, it can be worth asking grandparents and other close family members for assistance (in addition to parents, as you might assume). Together, their contributions may help lighten the overall load of attending college.

8. Consider Private Student Loans

If someone wants to take out loans but didn’t receive enough federal student loans to fully cover their education and living expenses while in college, they can apply for private student loans to help make up the difference. Unlike federal student loans which are awarded based on the FAFSA, private student loans are awarded from individual lenders and require their own application.

Because private student loans can be more expensive than federal loans, it may be a good idea to exhaust any potential federal options before applying for private student loans. In addition, it’s important to recognize that private student loans don’t offer the benefits that federal student loans can, such as forgiveness. In addition, with loans, a longer term loan can mean paying more in interest over the life of the loan.

9. Choose an Affordable School

Usually, attending an in-state public school is more affordable than attending an out-of-state public school. Additionally, private universities tend to cost more to attend than public universities. If a student can go to an in-state public university, that is likely the most affordable route they can pursue. Especially if they attend community college first to get some general education classes out of the way.

While public schools are generally more affordable than private institutions, financial aid packages can potentially even the playing field. When evaluating colleges, be sure to factor in the actual costs after any scholarships or grants and other aid.

10. Work During School

It can be challenging, but if a student can work part-time while enrolled in college, they can pay some if not all of their way as they go. If they took out loans, they may be able to use their earnings to start paying them down early so they can avoid paying interest after they graduate.

11. Budget for College With Parent’s 529 Plan

If a student’s parents set up a 529 plan (which is a tax-advantaged investment account that can be used to pay for qualifying educational costs), they can budget out those savings to see how much of their education they can pay for; a budgeting app could help with this.

Some students may not have the benefit of parents who can support their education in this way. Students figuring out how to pay for college without their parents’ help may want to focus on finding an affordable school, filling out the FAFSA, applying for private scholarships, working while in college, and using student loans wisely.

12. Complete College Earlier Than Four Years

If a student hustles, even shaving off one semester of college can save them a decent chunk of change in tuition, fees, and room and board. If they can take an extra class each semester, they may be able to graduate early and save a lot of money. Another path is to try to complete college credit-worthy classes in high school, as noted above.

13. Live Off Campus and Commute

As convenient as living on a college campus is, it can also be expensive. The cheapest living option is to live at home with parents if that’s possible and commute to school. If a student does need to live on their own, renting an apartment or a room in a house off campus may still be more affordable than living on campus. Price the different options to see which is most affordable and in line with your budget.

Recommended: Does Net Worth Include Home Equity

14. Opt for a Payment Plan

Some colleges offer tuition payment plans that distribute costs over several months. These don’t necessarily reduce expenses but can make it easier to pay for tuition by spreading payments out instead of expecting one upfront lump sum payment. This can be an especially good option for students working to pay for school.

The Takeaway

Paying for college is a big endeavor, but one that can be made easier if a student takes certain steps to reduce the overall costs of college. Figuring out how to pay for college without loans is challenging, but starting by applying for scholarships and financial aid can help.

To make it easier to reach major financial goals, including paying for college, SoFi can help you budget well.

Take control of your finances with SoFi. With our financial insights and credit score monitoring tools, you can view all of your accounts in one convenient dashboard. From there, you can see your various balances, spending breakdowns, and credit score. Plus you can easily set up budgets and discover valuable financial insights — all at no cost.

See exactly how your money comes and goes at a glance.

FAQ

What can I do if my parents won’t pay for college?

Students can apply for financial aid by filling out the Free Application for Federal Student Aid (FAFSA), look for scholarships, take out federal or private student loans, or work their way through school. It may be challenging, but students do have options outside of their parents for financing higher education.

How can I pay for college by myself?

If someone needs to pay for college on their own, they’ll want to fill out the FAFSA each year to see how much financial aid they qualify for and how much federal student loan coverage they can get. If they need more money to pay for school, they may consider applying for private student loans and/or scholarships, as well as working part-time during college.

Is Sallie Mae a federal loan?

Sallie Mae student loans are no longer federal student loans. They are a kind of private student loan.


Photo credit: iStock/AntonioSolano

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*Terms and conditions apply. This offer is only available to new SoFi users without existing SoFi accounts. It is non-transferable. One offer per person. To receive the rewards points offer, you must successfully complete setting up Credit Score Monitoring. Rewards points may only be redeemed towards active SoFi accounts, such as your SoFi Checking or Savings account, subject to program terms that may be found here: SoFi Member Rewards Terms and Conditions. SoFi reserves the right to modify or discontinue this offer at any time without notice.

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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Business Check vs. Personal Check: What's The Difference?

Guide to Business Checks vs Personal Checks

While business checks and personal checks may seem like the same thing, there are actually some important differences. Sure, all checks can be used to pay bills or cover other expenses using funds in a linked checking account. But the main difference between a personal check and a business check is the source of funds. Personal checks are drawn on personal accounts; business checks are drawn on business checking accounts.

Learn more about how these checks work and how they differ.

What Is a Business Check?

A business check is a check that’s written from a business checking account. Banks and credit unions can offer business checking accounts to sole proprietors, limited liability companies (LLCs), and other kinds of businesses that need a safe, secure place to keep their money. Business checks are often one of the features included with these accounts.

Business bank accounts can also offer a debit card for making purchases or cash withdrawals. They typically allow for ACH transfers of funds to pay bills or vendors. But there are some instances where it could make sense — or even be necessary — to use business checks instead. For example, you may need to write or print paper checks to cover payroll for employees.

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How Does a Business Check Work?

When someone opens a business bank account, the bank may give them a set of business checks and a checkbook. If you are wondering what a checkbook is, they are simply a small folder or book that contains your checks and a check register, which is where you’ll write down deposits and credits for your account. Check registers can help you balance your checkbook.

To use a business check, you’d simply make the check out to the payee, then fill in the required information. That includes the date and amount of the check, as well as a signature. Business checks typically have a memo line where you can record what the check is being used for.

The payee can then take that business check to their bank to deposit it or cash it. The amount written on the check is then deducted from the business checking account on which the check is drawn. When the check is deposited, it typically takes two days to clear (or for the funds to become available).

What Does a Business Check Look Like?

Business checks look much like personal checks, in terms of the type of information they include. On the front of a business check, you should see the following:

•  Business name and address

•  Check number (in the upper right hand corner)

•  Payee name (where it says Pay to the Order of)

•  Date

•  Dollar amount, in numbers

•  Dollar amount, in words

•  Payer’s signature

•  Memo line

•  The bank’s routing number

•  The account number

•  Bank’s name and address

Business checks may also include room to include the business logo or a watermark.

There may be an attached transaction stub on the left hand side of the check. You can use this stub to record the details of the transaction, including the date the check was written, the amount, and to whom it was paid.

Business checks can be hand-written like personal checks, or they can be filled digitally and printed out.

What Is a Personal Check?

A personal check, on the other hand, is a check that’s drawn against a personal checking account. Most but not all checking accounts offer checks and check-writing; some even offer free starter checks to new customers.

Personal checks are paid using personal funds. So you might write a personal check to repay a friend you borrowed money from, for example, or to pay your rent. Likewise, you could receive a personal check made out to you that you could deposit into your bank account or cash it. In terms of where to cash personal checks without a bank account, the options include check cashing services, supermarkets, and convenience stores.

Personal checks are not the same as other types of checks, including certified checks and traveler’s checks. (If you’re unfamiliar with how to use traveler’s checks, these are paper certificates that can help you pay for things overseas without having to exchange hard currencies.)

How Do Personal Checks Work?

Personal checks work by allowing individuals to pay bills or make other payments to individuals, businesses, and other organizations. When you open a checking account, the bank may give you paper checks with your name and account number printed on them. You can then use these checks to make payments.

When someone receives a personal check and deposits it in their account, their bank requests the transfer of funds from the bank on which the check was drawn. These transfers are processed electronically. Processing times can vary, though it typically takes a couple of business days for a check to clear.

If someone writes a personal check and doesn’t have sufficient funds in their account to cover it, that check will bounce. When a check you write bounces, it may be returned unpaid or your bank may cover the amount for you but they can charge overdraft or non-sufficient funds (NSF) fees for that convenience.

Bounced checks typically don’t show up on consumer credit reports or affect credit scores, though banks may report them to ChexSystems. A consumer credit reporting agency, ChexSystems collects information about closed checking and savings accounts.

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Can I Use a Personal Check for a Business Account?

Personal accounts and business accounts are separate banking products. That being said, you could use personal checks to pay for business expenses. For example, you could write out a personal check to pay a business lease or make payments to a business loan. And you could use funds in a business account to pay for personal expenses.

If you feel you must use personal checks for a business account or business checks for personal expenses, proceed with caution. Many personal checking account agreements specifically prohibit using this kind of account for business purposes. Familiarize yourself with your account guidelines. This should only happen in very limited circumstances and not as a regular practice.

What’s more, mixing your accounts this way can complicate matters when it comes time to pay your taxes and figure out personal vs. business deductions. If you ever need to review your business or personal account (say, for legal reasons or an audit), it can be hard to remember which funds were used where.

Using Business Checks vs. Personal Checks

When you need to write a business check vs. personal check can depend on the circumstances. For instance, some of the most common uses for business checks include:

•  Employee payroll

•  Federal and state tax payments

•  Making payments to vendors

•  Paying operating costs, such as rent or utilities

•  Repaying a business loan

•  Making any large purchases that are necessary for the business.

Personal checks can be used to meet a different set of needs. Examples of when you might write a personal check include:

•  Paying utility bills, rent, or the mortgage

•  Buying groceries

•  Repaying personal debts

•  Making payments to loans

•  Covering school-related expenses if you have kids (like lunch money or PTA fundraisers)

•  Paying college tuition

•  Covering doctor bills.

Whether you need business checks or personal checks, it helps to know where to order checks safely. You can get checks online from check-printing companies or order them through your bank.

Recommended: How Do I Sign Over a Check to Someone?

Differences Between a Business and Personal Check

Whether you’re using business checks or personal checks, one thing is true: They can be a dependable, convenient way to move money. They provide an alternative to using a debit card, credit card, ACH transfer, or wire transfer. But if you’re still wondering how business checks are different from personal checks, here are a few other noteworthy distinctions.

Size of the Check

Personal checks are usually somewhere around 6″ x 2″ x 3″ in size. Business checks, on the other hand, might or might not be larger in size. For example, they may be 8″ x 2″ x 3″ instead. The larger size allows for easier printing and more room for writing out checks by hand.

Security of the Check

Check fraud can threaten a business’s bottom line. For that reason, many check printers include built-in security measures to minimize the chances of a business check being stolen or otherwise used fraudulently. Those measures can include holographic features, thermochromatic ink, and chemically sensitive paper. These features all help to verify a check’s authenticity.

How Much Each Check Costs

As mentioned, banks can sometimes offer starter checks for free when you open a new checking account. This benefit may not be included with business checking accounts, which means you might need to buy checks yourself. The amount you pay can depend on the type of check, any added features you choose to include, and the number of checks printed. You might pay three cents per check or a quarter or more per personal check, depending on where you order from, the features you want, and how quickly you want them printed and delivered.

Business checks range in cost, but many online retailers charge 20 to 30 cents each.

There can be other charges associated with checks. For example, you may also pay separate fees when purchasing cashier’s checks for a business or personal account. Cashier’s checks are drawn against the bank’s account, not yours, though a cashier’s check looks very much like a personal or business check.

Check Conversion Protection

Check conversion is a process in which paper checks are converted to electronic ACH debits. Both consumer and business checks can be converted in this way. Converted checks usually clear faster, but it’s possible that you may not want this for checks written from a business account. In that case, you could order business checks that include an optional Auxiliary On-Us field to exclude them from conversion.

Why to Consider Having Separate Checks

Using one bank account for business and personal expenses might seem simpler and less stressful, since you’re moving money in and out of the same place. However, as noted above, which kind of check to use is not typically a matter of personal choice. Personal checking accounts usually have restrictions against use for business purposes.

What’s more, establishing a business account has other benefits:

•  Writing checks with your business name can add credibility to your venture, since it looks more professional.

•  A business account helps you keep track of business finances and expense reporting for tax purposes.

•  Establishing a business checking account could make it easier to get approved for business loans or lines of credit if you have a good banking history.

•  Having separate business and personal checking accounts can provide an added protection against creditor lawsuits. Depending on how your business is structured, money in a personal checking account may be safe from collection efforts if you’re sued by a creditor.

The Takeaway

Business checks and personal checks serve similar functions; they both transfer funds from one account to another. However, they do have some important differences, and you typically cannot use a personal check for business purposes.

For your personal bank accounts, see what SoFi offers.

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


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

Can you cash a business check?

You can cash a business check if your bank allows it. You’ll need to endorse the check properly and show proof of identification to cash it, the same as you would with any other type of check.

What should be on a business check?

A business check should include the business name and address, the payee’s name, the amount of the check, the date, and the payer’s signature. The check will likely be pre-printed with the bank’s name and address, a routing number and account number, as well as a check number. A business check may also include a memo line to record the purpose of the check.

Do checks need to say LLC?

Checks do not need to say LLC unless your business is structured as an LLC. If your business operates as a sole proprietor, partnership, S corporation, or anything other than an LLC, then you wouldn’t need to include that designation.


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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 recurring deposit of regular income to an account holder’s SoFi Checking or Savings account, including payroll, pension, or government benefit 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, or are non-recurring in nature (e.g., IRS tax refunds), do not constitute Direct Deposit activity. There is no minimum Direct Deposit amount required to qualify for the stated interest rate.

As an alternative to direct deposit, 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.


*Awards or rankings from NerdWallet are not indicative of future success or results. This award and its ratings are independently determined and awarded by their respective publications.

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.

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

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The Differences Between Grants, Scholarships, and Loans

Grants, scholarships, and student loans can all help you pay for your education. But there are key differences between the three — namely, how they award funds and whether you need to repay those funds. Grants and student loans often depend on financial eligibility and need, while scholarships tend to be merit-based. And while both grants and scholarships don’t need to be repaid, student loans do.

Here’s a breakdown of how student loans and grants vs. scholarships work, as well as some of their key differences.

What Is a Student Loan?

A student loan is money borrowed for educational expenses that has to be paid back (usually with interest). You can take out a loan from a bank, an online lender, a college or university, or the state or federal government. If you’re wondering about grants vs. loans, both are based on financial need, but what sets them apart is that grants don’t need to be repaid and student loans do.

So, how do student loans work? Loan terms for college can vary based on a few different factors: whether they’re federal (offered by the government) or private (offered by a financial institution), whether you choose fixed or variable interest rates, how long it takes to pay the loan back, and how much can be borrowed. Loans offered to you could be based on your credit score or the personal financial information you supply on the Free Application for Federal Student Aid (FAFSA®).

How to Apply for Student Loans

To determine your eligibility for a student loan from the federal government, you must fill out the FAFSA. States and colleges may use information from your FAFSA to determine state and school-specific aid, as will some private financial aid providers.

To fill out the FAFSA form, you’ll need a few pieces of information, including:

•   Your Social Security number or alien registration number (if you are not a U.S. citizen)

•   Your driver’s license number (if you have one)

•   Federal income tax returns, W-2s, and other records of money earned

•   Bank statements and records

•   Records of untaxed income (if applicable)

•   Information on account balances, investments, and assets

•   FSA ID for electronic signature (this is your username and password needed to access and submit your FAFSA online)

If you are applying as a dependent student, you will need all of the above information from your parent(s) as well.

What Is the Difference Between Unsubsidized and Subsidized Loans?

There are two primary types of federal student loans: subsidized loans and unsubsidized loans. The main difference between unsubsidized and subsidized loans is how the interest accumulates through the life of the loan.

Unsubsidized loans are available to undergraduate and graduate students, regardless of any financial need. An unsubsidized loan starts accruing interest as soon as the loan is dispersed. That means if you accept an unsubsidized loan during your freshman year of college, the loan will accumulate interest throughout the rest of your time in school.

You are responsible for starting to pay back an unsubsidized loan six months from when you graduate or if you drop below half-time enrollment. Because of the interest capitalizing on your unsubsidized loan from the day it’s disbursed, your loan balance will likely be more than what you originally borrowed if you don’t make interest payments while you’re in school.

A subsidized loan, on the other hand, is a need-based loan available to undergraduate students on which interest accumulates only after you begin repayment. The government will pay the interest while you’re in school at least half-time or until you graduate and for the first six months after, as well as during a period of deferment.

Like unsubsidized loans, repayment for a subsidized loan typically occurs after a six-month grace period from when you graduate or drop below half-time enrollment. You are responsible for paying back the total outstanding balance, plus interest. There are plenty of ways to pay off federal loans, from the standard 10-year repayment plan to income-based repayment plans.

Pros and Cons of Loans

Pros of student loans include:

•   Access to education: Enables students to attend college who otherwise might not be able to afford it.

•   Flexible repayment options: Federal student loans offer flexible repayment options, including income-based repayment plans.

•   Credit building: Paying back student loans on time each month can help establish and build credit history.

•   Fixed interest rates: Federal student loans (and some private student loans) offer fixed interest rates, making monthly payments predictable each month.

Cons of student loans include:

•   Debt burden: Student loans increase debt load and debt-to-income ratio, which can lead to financial strain and/or make it hard to qualify for other loans in the future.

•   Interest accumulation: Interest starts accumulating immediately on unsubsidized loans and private loans. This increases the overall amount that needs to be repaid.

•   Stress and anxiety: Debt of any kind, including student loans, can cause significant stress and anxiety, which could impact your overall well-being.

What Is a College Grant?

A grant can be beneficial to students because it is financial aid that does not have to be repaid. That’s one main difference between a grant vs. a loan. Grants may be obtained directly from your university, the federal government, state government, or a private or nonprofit organization. It is important to note that you may be required to meet certain financial eligibility criteria, depending on the grant.

When it comes to a grant vs. a scholarship, grants are typically awarded based on need, not on academic achievement or merit. Scholarships are based on merit.

One popular type of college grant is the Pell Grant. Pell Grants are given to undergraduate students with significant financial need, which means they are typically awarded to low-income students.

Do You Have to Pay Back Grants?

In most cases, you do not need to pay back grants as long as you maintain eligibility. If, for example, you decide to drop out of school, you might be required to pay back certain grants.

You might also need to pay back grants if you withdraw early from a program in which the grant was awarded, or if you did not meet a service obligation, as is required for the Teacher Education Assistance for College and Higher Education (TEACH) Grant, for example.

How to Apply for Grants

To apply for grants, start by researching and identifying grants for which you qualify, focusing on those specific to your field of study, background, or needs. Visit the official websites of grant providers, such as federal and state governments, educational institutions, and private organizations, and carefully review their eligibility requirements and application deadlines. Prepare all necessary documents, which may include academic transcripts, letters of recommendation, a personal statement, and financial information.

Also, you’ll need to fill out the FAFSA if you are in the United States, as it is often required for federal and state grants.

Pros and Cons of Grants

Pros of grants include:

•   No repayment required: Grants are essentially free money that does not need to be repaid, making them highly beneficial for students.

•   Financial relief: Provide significant financial assistance, reducing the amount of student loans needed and easing the financial burden of education.

•   Encourages academic excellence: Some grants are merit-based, encouraging students to maintain high academic performance.

Cons of grants include:

•   Highly competitive: Grants are often limited in number and highly sought after, making them difficult to obtain.

•   Strict eligibility requirements: Many grants have specific criteria that must be met, which can exclude a significant number of applicants.

What Is a Scholarship?

Scholarships are a great way to finance higher education, simply because there are thousands of available scholarships based on financial need or merit. That’s the main difference between scholarship and grant: Scholarships are often merit-based. Scholarships can come from a variety of sources and typically do not need to be repaid.

How to Apply for Scholarships

It can be easy to feel overwhelmed with the amount of time it takes to hunt for scholarships — here are a few tips to help you find scholarships to apply for:

•   Start by combing scholarship databases for any scholarship that may align with your interests or background. Don’t be afraid to tell people you know that you are looking for scholarships either — your best friend or neighbor may have heard of a scholarship you could be eligible for.

•   Take a look at your academic achievements. Have you maintained a certain GPA or did you make the Dean’s List? There could be a scholarship for that. List out your community involvements and start researching whether your softball league, for example, offers scholarships.

•   Make a list of all the things that make you who you are. List out your heritage and things that your family members have been involved with over time. Perhaps your grandmother belongs to the National Corvette Club or your grandfather was a veteran, both of which could present scholarship opportunities.

Once you have your list, it helps to stay organized by adhering to deadlines and application requirements. Stick to what feels doable so you can knock out several applications in a row. Scholarship application formats vary from essay writing to creating a video to simply filling out a form.

Important documents you might need when applying for scholarships include birth certificates, SAT/ACT scores, academic transcripts, certifications, or ID cards. Be sure you have those handy prior to hitting search engines and applying for the next available scholarship you find.

Pros and Cons of Scholarships

Pros of scholarships include:

•   No repayment needed: Scholarships provide financial assistance that does not need to be repaid, reducing the overall cost of education.

•   Merit recognition: Often awarded based on academic, athletic, or other achievements, recognizing and rewarding students for their talents and hard work.

•   Boosts resume: Being awarded a scholarship can enhance a student’s resume, showcasing their achievements and dedication.

•   Encourages academic excellence: Incentivizes students to maintain high academic standards and strive for excellence in their endeavors.

Cons of scholarships include:

•   Highly competitive: Scholarships can be very competitive, with many applicants vying for a limited number of awards.

•   Strict criteria to qualify: Strict eligibility criteria may exclude many students from qualifying for certain scholarships.

Grants vs Scholarships vs Loans

Now that you have a grasp on all three forms of financial aid, let’s examine the main difference between scholarships, grants, and student loans.

What Is the Difference Between a Loan and a Grant?

Here’s what makes grants vs. loans different: A student loan — whether it is unsubsidized or subsidized, federal or private — must be repaid with interest. A grant typically does not need to be repaid as long as you maintain eligibility requirements.

What Is the Difference Between a Grant and a Scholarship?

When looking at a grant vs. scholarship, the primary difference between the two is that a grant is typically need-based while a scholarship is usually merit-based. You might receive a scholarship for a number of things, such as high academic achievement, organization or club involvement, or ancestry. A grant is typically awarded based on financial need and can be specific to certain degrees, students, and programs.

How Is a Student Loan Different from a Scholarship?

A student loan is different from a scholarship primarily in that a student loan must be repaid and a scholarship does not need to be repaid. Scholarships can come from a variety of sources, including nonprofit organizations, private companies, universities and colleges, and professional and social organizations. Student loans may come from private lenders, federal or state governments, or colleges and universities.

The two types of student loans are federal student loans and private student loans. Federal student loans should be utilized first, as they typically come with better interest rates and borrower protections, such as income-driven repayment plans and student loan deferment. Private student loans can help fill in the gaps between federal loans, grants, and scholarships.

When we say no fees we mean it.
No origination fees, late fees, & insufficient fund
fees when you take out a student loan with SoFi.


The Takeaway

With a good understanding of scholarships vs. grants vs. student loans under your belt, you can better determine which form of financial aid is right for your situation. Remember that you don’t necessarily have to choose just one.

Once you’ve maximized the money you can get from grants or scholarships that you likely won’t have to pay back, you may consider bridging the remaining gap by taking out a student loan.

If you’ve exhausted all federal student aid options, no-fee private student loans from SoFi can help you pay for school. The online application process is easy, and you can see rates and terms in just minutes. Repayment plans are flexible, so you can find an option that works for your financial plan and budget.

Cover up to 100% of school-certified costs including tuition, books, supplies, room and board, and transportation with a private student loan from SoFi.


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.


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.


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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What Are Intermediary Banks? What Do They Do?

An intermediary bank is a bank that acts as a go-between, connecting two different banks as transactions are processed. Smaller banks require intermediary banks or correspondent banks to facilitate transactions with other banks, while larger banks may have enough connections to serve as their own intermediaries.

Intermediary banks are commonly used for international wire transfers and handling multiple types of currencies. Generally, retail bank customers do not have to worry about finding intermediary banks — instead, they work behind the scenes with the banks themselves. Read on to learn more about these important financial institutions.

What Is an Intermediary Bank?

An intermediary bank is a third-party bank that helps facilitate transfers and transactions between two other banks. Often, intermediary banks are dealing with international transactions such as wire transfers between different countries. If you are sending money to others abroad, your bank may end up using an intermediary bank.

You may not be aware of how the intermediary banks work behind the scenes, but it’s important to note that you may be charged additional bank fees for the work that intermediary banks are doing.

💡 Quick Tip: Want to save more, spend smarter? Let your bank manage the basics. It’s surprisingly easy, and secure, when you open an online bank account.

How Do Intermediary Banks Work

If you are doing a bank account transfer, especially to an account in a different country than the one where your own bank is located, it is likely that an intermediary bank will be involved. During a monetary transfer between accounts at different banks, an intermediary bank works in between the sender’s checking or savings account and the account at the receiving bank.

Here’s how the transaction might work:

•   A person with an account at Bank A wants to send money to another person, a client with an account at Bank B.

•   However, Bank A doesn’t have an account or banking relationship with Bank B.

•   Bank A and Bank B do, however, each have an account with Bank C.

•   Funds can be funneled through Bank C, the intermediary bank, to make the transaction successful.

Intermediary Bank Example

Intermediary banks are like an international travel hub through which transfers flow. They are especially important for fund transfers made via the SWIFT (Society for Worldwide Interbank Telecommunications) network.

Here’s a simple example to show how intermediary banks usually work.

•   Say that John is an importer-exporter based in the United States who banks at the Acme Bank. He needs to make a payment to Angela, a supplier of his based in Germany, who banks with Big Bank.

•   He gives Angela’s bank’s information to his bank to make the transfer. If Acme Bank does not have an account at or a relationship directly with Big Bank (Angela’s bank), it will use an intermediary bank called Central Bank. This intermediary bank will have accounts at both Acme Bank, John’s bank in the United States, as well as Big Bank, Angela’s bank in Germany.

•   Central Bank can transfer the money between the two banks. It will likely charge a fee for its role in the transaction. The transaction will be completed by the three banks working together.

Recommended: How Retail Banking Works

When Is an Intermediary Bank Required?

Any time that money is being transferred between two banks that do not have an existing relationship, an intermediary bank is usually involved. Whether you have a single account or a joint bank account, when you transfer money to a user at a different bank (especially internationally), an intermediary bank will generally be required.

This is likely to occur as a commercial banking transaction. In other words, the use of an intermediary bank is not something the consumer has to initiate.

The Need for Intermediary Banks

Intermediary banks are important as part of the global financial system. Since banks generally do not have accounts with every single bank around the world, there is a need for intermediary banks to help facilitate monetary transfers.

The good news is that you typically do not have to worry about finding an intermediary bank yourself. Instead, the banks themselves have intermediary banks that they use to move money between other banks.

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When Will an Intermediary Bank Be Involved in a Transaction?

An intermediary bank will usually be involved whenever there is a need to transfer money between accounts at two separate banks. If the sending bank does not have its own account with the receiving bank, it will usually use an intermediary bank.

Even if a business thought it could get around the need for intermediary banks (and save money; see more on fees below) by opening multiple bank accounts, its main bank would still probably use an intermediary bank at some point to transfer funds on its behalf.

Difference Between Intermediary and Correspondent Banks

When considering how bank transfers work, you may hear two different terms: intermediary banks and correspondent banks. Depending on which part of the world you’re in, there may or may not be a difference between the terms “intermediary bank” and “correspondent bank.”

•   In some countries, the terms correspondent banks and intermediary banks are used interchangeably.

•   In the U.S. as well as in a few other countries, correspondent banks are often ones that handle multiple types of currencies.

•   Intermediary banks may be smaller banks that only typically handle transactions in one currency.

What Are Some Typical Intermediary Bank Fees?

Because intermediary banks typically do not work directly with consumers, they also do not regularly post a breakdown of the fees they charge. Instead, you can look at your own bank’s fees for financial transactions such as domestic wire transfers or international wire transfers.

The wire transfer fees and other charges that you pay for these transactions generally include the fees that your bank pays to the intermediary bank it uses. These bank fees can range anywhere from $15 to $50 or more.

Recommended: How Do Banks Make Money?

Who Pays for Intermediary Bank Fees?

Intermediary bank fees are paid in different ways, depending on the specific transaction. Let’s say Person A is sending money to Person B. There are three ways the fees may be handled, depending on what the parties involved agree upon:

•   “OUR” is the code used when the sender will pay all fees. The fee for an international transfer can be as high as $70.

•   “SHA” is the code indicating shared costs. Person A will likely pay their bank charges (perhaps $15 to $30 on a typical transaction) and then Person B pays the rest: their bank’s and the intermediary bank’s charges.

•   “BEN” indicates that Person B, the recipient of the funds, will pay all charges.

The Takeaway

If a bank customer wants to send money to someone at a different bank and the two banks involved are not connected, an intermediary bank typically plays a role. Intermediary banks work to help facilitate monetary transactions such as domestic and especially international wire transfers. You, as a consumer, usually do not have to hire your own intermediary bank. However, your bank will likely pass along any intermediary bank fees if you initiate a transaction that requires one.

International money transfers are likely just one aspect of the services you use with your bank.

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


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 an example of an intermediary bank?

An intermediary bank is one that moves funds between other banks. They do not typically work directly with consumers, so you likely neither need to know their names nor contact them. For instance, Bank of America might offer this service, or it might be provided by a foreign bank with which you are not familiar.

Why do you need an intermediary bank?

Intermediary banks are usually used when someone needs to send money to a person with an account at a different bank. An intermediary bank can serve as a middleman and facilitate the transaction. One common example is sending a wire transfer, especially internationally.

How do you find an intermediary bank?

In most cases, you will not need to find your own intermediary bank. The bank you use will have its own intermediary bank that it collaborates with as needed.


Photo credit: iStock/MicroStockHub

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 recurring deposit of regular income to an account holder’s SoFi Checking or Savings account, including payroll, pension, or government benefit 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, or are non-recurring in nature (e.g., IRS tax refunds), do not constitute Direct Deposit activity. There is no minimum Direct Deposit amount required to qualify for the stated interest rate.

As an alternative to direct deposit, 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.


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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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