SoFi

These days, most of us do all kinds of tasks online. From scheduling a yoga class to booking a dinner reservation to ordering more toothpaste instead of grabbing it from a store, our smartphones and computers make it easy.

Still, there are some folks who don’t feel comfortable conducting their banking online. They worry perhaps that they’ll hit the wrong button and send thousands of dollars speeding off into unknown parts of the ether. Or maybe having a physical bank makes them feel more at ease, is more familiar to them, and they feel like their money is safer.

Those who prefer to do online banking may like the convenience of 24/7 access to their money. They may not have the time or inclination to wait in line or chat with bank tellers.

But is one style of banking better than another? To answer that question, let’s examine some pros and cons of digital banking.

Once we’ve examined these benefits and downsides of online banking, you can make an informed decision about what kind of banking is right for you. Maybe it’s even a combo of the two styles. Then, we’ll talk about how to move your banking to an online-only platform if that’s what suits you.

What Is Online Banking?

Consumers have a few different options when it comes to where they park their money and use it to complete transactions. The traditional options are to use a commercial bank with bricks-and-mortar branches or a credit union. A credit union is a financial co-op that is generally owned and operated by its members (as opposed to being a publicly-traded company).

Most traditional retail banks offer mobile banking as well as the ability to conduct business at a branch. Mobile or online banking in this sense allows you to look up your accounts and complete transactions online (more on the difference between the two terms in a minute). Typically, this means you can transfer funds and even mobile deposit checks.

But these added services are not what we are talking about today; here, we are discussing the use of an online-only or an internet-based bank versus a traditional bank. Online-only banks are a newer alternative to traditional banks. Sign up for a digital bank, and you will do all of your banking operations online. Online banks generally have no physical locations, which can help them to keep overhead costs low. In turn, they typically pass those savings on to you and offer some perks over traditional banks, such as a higher interest rate on savings accounts.

Because not all digital banks are the same, the following list of pros and cons won’t capture every nuance, but hopefully you’ll get an idea of what services are offered. Knowing these details should help you evaluate the benefits of both mobile banking and traditional banking and which one suits you best.

Recommended: Is Mobile Banking Safe?

Pros and Cons of Online Banking Services

If you’re used to turning up at your local bank branch and chatting with the tellers, digital banking may seem like a big shift. Or perhaps you’re a person who is already using mobile banking but you wonder if you’re missing out on any perks. In either case, take a look at what digital banking can offer. Here’s an assessment of the pros and cons of online banking.

Pros of Online Banking

Technology can offer some tremendous conveniences and perks to banking. Consider these pros of online banking:

Higher Interest Rates

As mentioned, banks without bricks-and-mortar locations tend to offer a higher rate of interest on cash savings accounts. Currently, the national interest rate on savings accounts is 0.06%.

This is a mere $.60 per $1,000 over the course of a year. On the other hand, an online bank is likely to pay 1% annual percentage yield (APY) or more, which amounts to $10 for every $1,000. This is obviously a significant improvement.

Recommended: APY vs. Interest Rate: What’s the Difference?

No Minimum Balance

Many traditional banks still require that you maintain a minimum balance or have an established automatic deposit or they will charge you a monthly fee. You may wonder how much money you need to open an account online. Some digital financial institutions do not require a minimum amount of cash be kept in your checking and savings accounts. Your balance in a digital bank account can be just a few dollars, and you still won’t be hit with charges on your statement.

Convenience

Online banks are open 24 hours a day, which some customers find useful for maintaining their finances and making transactions after normal bank hours. All you need is secure access to the internet. If you’re working an 8-to-6 job where you can’t sneak out to meet with a teller, the convenience of banking outside working hours is a gamechanger. Also, as we lead more fluid existences (say, working from home), there’s simply the time savings of being able to bank where you are versus walking or driving to a branch.

ATM Access

Most online banks will be part of an online network of ATMs, such as MoneyPass or Allpoint. There is generally no fee to use the ATMs, and customers can locate them online. If they do not use an ATM network, they will typically offer to refund ATM fees up to a certain number of withdrawals.

Cons of Online Banking

Of course, digital banking isn’t perfect. What is? There are some potential downsides to managing money this way, though many of them depend on your particular personal finance style. Here, some cons of online banking to keep in mind:

No Live Assistance

While most online banks provide a customer service line, they generally do not offer personal bankers. This means that there is no “live” person to help you with your banking needs, such as setting up accounts, applying for loans, getting a notary, or even just someone with whom you can discuss a simple issue or complaint. If you are a person who wants this kind of personal connection, you may not be well-suited to digital banking.

A personal relationship with a banker could come in especially handy in the event that you are trying to secure a loan at the best rate or have a business that you are looking to expand via borrowed funds. This is a person who knows and trusts you and could potentially make a difference in whether or not a bank will issue a loan.

Limited Access

Online banks typically keep their fees low and interest rates higher by offering limited services. They may or may not offer debit or credit cards; you may or may not be able to deposit physical cash, and if you can, there may be limits on how much or how often. Every online bank is different, so do your research on the services they offer.

Limited ATM Access

Although many online banks will have a network of ATMs that customers can access, they may not be as easy to track down as ATMs for the major retail banks. It’s worth spending time to see exactly where a digital bank has allied ATMs near your usual haunts, like your home and office, before signing up.

What Is the Difference Between Mobile Banking and Online Banking?

It’s not uncommon for people to use the terms mobile banking and online banking interchangeably, but there is a difference.

•   Mobile banking refers to the kind of banking you can conduct when you download an app and use it on a cellphone or a tablet.

•   Online banking is the sort of banking you do when you connect via a secure WiFi connection, meaning you might be using a laptop to check your balance or transfer funds.

Both of these are ways that you can manage your money without turning up at a physical bank. Wherever you are, as long as you have a secure internet connection, you can pay bills, move money between your checking and savings accounts, and see how much interest you’ve earned, among other things.

Security of Traditional and Online Banks

There is often a misunderstanding about security at banks. People worry, Will my online account be hacked? Are online savings accounts safe? The truth is, traditional banks are no more or less secure than online-only banks. Any bank that is insured by the FDIC guarantees the same amount of insurance in the event that the bank goes under $250,000, regardless of whether the bank is online or not. Digital banks generally tend to offer similar fraud protection programs as bricks-and-mortar banks.

Security typically has more to do with whether you use your debit card only on protected sites, do not access your banking information on a public computer, and avoid accessing private information while on public Wi-Fi networks. Unfortunately, even people who do everything right and take all of the proper precautions still find themselves the victims of some kind of bank fraud. Sometimes, it can only be attributed to bad luck.

How Do I Open An Online Account?

It all depends on the bank, but these banks generally have made it easier than ever to open up accounts. The process can likely all be done online, so you don’t have to sign and return physical paperwork.

Usually, opening a digital bank account requires two steps: First, you open an account at the new bank. To do this, you will have to answer a series of questions, and you will likely need to provide personal identification information like your Social Security number, date of birth, and more.

Next comes funding the online bank account, which can be done with a check or via a funds transfer. Usually, you are able to pull the assets into the new bank account by linking to an existing account you own. Most of the time, the sign-up process can be done in a matter of minutes, and you’ll be ready to start using your digital bank account.

💡 Recommended: What Do You Need to Open a Bank Account Online?

The Takeaway

Whether you call it online banking, mobile banking, or digital banking, the concept of doing all of your keeping your accounts at an online-only bank offers many rewards. You’re likely to earn higher interest and pay fewer fees, for instance. But for those who like banking in person at a branch and having a relationship with the team there, then it may not suit you. Think carefully about what suits your personal financial style best and will keep you on top of your money matters.

If you do think an online bank might be for you, come see what SoFi offers. When you open a new bank account with direct deposit, you’ll enjoy a terrific APY, none of the usual monthly, minimum-balance, and overdraft fees, plus you’ll be able to access your 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.

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

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

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

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

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

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

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

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

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

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Outstanding checks are common for business owners and individuals. They are simply checks that have not yet been cashed or deposited at a financial institution. Since they are still outstanding, the payor (the entity that issued the check) should keep enough cash in their account so they can pay all outstanding checks. The payee, or recipient, should take steps to deposit outstanding checks as quickly as possible to avoid the risk of their becoming void.

To fully answer the question “What are outstanding checks?” there are more details worth learning. This information can help you better manage your financial life and be a savvier consumer. Read on to find out:

•   How outstanding checks work

•   What to do with old checks

•   What risks are associated with outstanding checks.

What Is an Outstanding Check?

Typically, a payor writes a check to a payee, and the payee deposits the check. Funds are transferred into the payee’s account this way. With today’s technology, checks can be cashed without a fee electronically. If you can access your bank account by app, all it takes is a few clicks on your phone.

But with outstanding checks, things don’t follow this flow. An outstanding check is a check that has been issued but not cashed or deposited. It is considered a liability for the issuer until it is redeemed. If outstanding checks aren’t redeemed, they can become void after a certain timeframe, often six months.

An outstanding check can also mean that a check was deposited at a bank but is still going through the process of clearing. This means it is en route to becoming available funds in the payee’s account, but it’s just not quite there yet.

Until it is deposited, outstanding checks are liabilities on the payor’s balance sheet. Small business owners might wonder, “What does an outstanding check mean?” as well as how to deal with it. It can be a challenge, because enough cash must be kept in the account drawn upon to cover outstanding checks until they are cashed. Outstanding checks can complicate accounting because the assumption is that a check gets issued, deposited, and paid. But if it hasn’t been cashed yet, it can throw off bookkeeping.

How Do Outstanding Checks Work?

Once you write a check or sign a check over to someone, the onus is on them to deposit the check. But sometimes, people don’t make a beeline for the bank or use their banking app right away. How often have you received a check, set it aside on your desk, then nearly forgotten about it? It’s not just you.

Business owners know that outstanding checks might take weeks or months to get cashed. Sometimes, checks wind up hanging around uncashed for a while. Or they even get lost.

Typically, though, check cashing is pretty straightforward. A check is simply a document that authorizes a transfer of money from a payor’s account to a payee’s account. When the payee deposits an outstanding check at a bank, a request to move money is initiated. Funds then move between the two accounts. A bank deposits the cash into the recipient’s account once the bank receives the money from the payor’s account. (Cashing a check without a bank account is more challenging, but you still have options to accomplish this.)

So, what is an outstanding check? It’s when the payee neglects to cash or deposit a check (or the check gets lost). This means the check does not clear and does not show on a month-end bank statement. Outstanding checks are a liability for the payee, but once deposited, they are reconciled against the recipient’s account.

A Check I Wrote to Someone Is Outstanding: Now What?

If you wrote a check that is outstanding for more than a few weeks, there are steps you can take to resolve the situation. First, know that outstanding checks expire, often after six months, but sometimes as quickly as 30 or 60 days. Knowing how to stop payment on a check is useful as well if you wish to void an outstanding check. (More on this below.)

Here are more details on managing outstanding checks.

If the Check Is Less Than Six Months Old

•   Track the value of outstanding checks in your account register.

•   Reach out to the payee and ask what happened to the outstanding check.

If the Check Is Older Than Six Months

•   Reach out to the bank to confirm its policy on old or expired checks

•   Issue a stop payment on the outstanding check.

◦   You might have to visit a branch location to make the request, and there could be a fee involved.

◦   Working with the bank to ensure a stale check gets deposited might require time and effort.

◦   Once voided, be sure to mark the old check as voided in your checkbook. Checkbooks can be useful when tracking old checks.

•   Contact the payee about the situation.

◦   Be sure to tell them that you issued a stop payment on the original check.

◦   Work with them to determine another way to be paid.

Do I Need to Write a New Check?

When dealing with outstanding checks, you may wonder if there’s a limit on how long someone has to cash a check. There often is. Knowing when a check expires is an initial step before deciding whether to write a new check. If a check is outstanding for less than six months, you should not write a new one. Contact the payee to find out more about the situation. That also serves as a friendly reminder to have them deposit it. If more than six months have passed, that check may well be expired and considered void. A new check would have to be written or another method of payment could be used.

If you do write a new check, it may be safest to request that the old one be returned or ask for proof that it’s been voided. Otherwise, in rare cases, you might wind up with both the old (outstanding) and the new check being cashed, which would leave you with a financial loss.

A Check Issued to Me Is Outstanding: Now What?

You should take all reasonable steps to cash or deposit outstanding checks. If you wait too long, the check can go stale, and the money might be then considered “unclaimed property” and wind up being handed over to the state. If it has been more than six months, contact the issuer to resolve the matter. If the sticking point is that you don’t have an account into which you can deposit the check, you can easily open a checking account. It can take just minutes to do so online.

Risks of Outstanding Checks

There are many risks to outstanding checks.

•   One of the major ones is that it bounces by the time an attempt is made to deposit it. This is one of the reasons why knowing what to do if a check bounces is important.

•   You may wind up being charged overdraft fees and non-sufficient funds (NSF) fees if the outstanding check is deposited and then bounces.

•   Outstanding checks also become stale and worthless after a certain period.

•   In business bank accounts, outstanding checks can cause hiccups in accounting if not tracked well.

Reasons Why Checks Aren’t Cashed

There are a number of reasons why checks don’t get cashed and wind up being outstanding:

•   Lack of urgency. A person just doesn’t get around to depositing it.

•   Simply forgetting about them or not keeping tabs on them properly.

•   Loss. Checks can be misplaced or even thrown away.

•   Mail and delivery problems that interfere with the check getting to its recipient (this can involve having an old address on file).

Avoiding Outstanding Checks

While there are many risks with outstanding checks, there are simple steps you can take to avoid them.

•   Keeping a balanced checkbook goes a long way toward preventing a check from being forgotten.

•   Maintaining a tidy desk and filing cabinet for important documents like checks can help you deposit funds promptly.

•   If you wrote the check, calling a payee to remind them that a check is outstanding is a wise tactic.

•   Using online bill pay services can help you dodge the headaches that can come with paper checks.

Banking With SoFi

It’s important to know what an outstanding check is and the potential risks that go along with them. Many checks remain outstanding which can cause risks to both the person holding a check and the entity that issued it. Fortunately, with today’s technology and mobile banking capabilities, it’s easier and faster than ever to deposit checks.

SoFi can help you avoid glitches due to outstanding checks. You can sign-up for real-time mobile alerts that notify you when a check hits your account with our mobile banking app. Banking with SoFi means you have access to paper checks and can make no-cost, peer-to-peer (P2P) money transfers to anyone with a US-based bank account right from your phone. What’s more, when you open your accounts with direct deposit, you can earn a competitive APY.

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

FAQ

Is an outstanding check bad?

Outstanding checks are not bad per se, but it’s generally wise to promptly deposit or cash checks so that they do not expire. Checks that remain outstanding beyond a certain time frame could become void, so if you hold such a check, you might be out of luck if you then wish to deposit it. Also, outstanding checks can make it hard to determine an account’s available balance, which can lead to bounced checks and overdraft charges.

How do you handle an outstanding check?

If you wrote a check and it is still outstanding, you should consider contacting the recipient to confirm they received it. That might give the payee a nudge that they should deposit it. If you possess an outstanding check, it’s good to deposit it as soon as possible to avoid having it go stale.

Is an outstanding check a debit or credit?

A bank’s reconciliation process will subtract the balance of outstanding checks from an account’s balance on a statement. There is no journal entry for this transaction since the checks were recorded when first issued. The bank makes an entry in its general ledger when it voids a check, however. In that case, a debit of cash is entered and a credit back to the issuing account is made to offset the debit. The voided check is removed from the outstanding checks list.

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

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

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

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

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

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

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

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

Photo credit: iStock/Tassii
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Travel insurance has become a popular option for travelers nowadays, especially in the wake of COVID-19. While you can purchase travel insurance through third-party providers (and get specific insurance when booking flights, hotels, and rental cars), you may already have credit card travel insurance at your disposal.

So, should you choose a credit card specifically because it offers travel insurance? Below, we’ll take a closer look at what credit card travel insurance is, how it works, what it covers, and why you might want a credit card with travel insurance ahead of your next adventure.

What Is Travel Insurance?

Travel insurance protects consumers against financial losses when traveling domestically or internationally. It can cover everything from lost luggage to new hotel arrangements because of canceled flights to medical emergencies while on vacation.

Travel insurance can also protect you before your trip. If something changes, like a family emergency, that will keep you from traveling as planned, travel insurance might get you a refund for your expenses.

You can find travel insurance through insurance companies, travel agents, and insurance comparison sites. Your car insurance policy may insure you even in a rental car, and certain hotel booking sites may allow you to make refundable accommodations for a fee. But did you know that your credit card may also already cover portions of your trip?

Recommended: Using Credit Card Rewards to Travel for Less

How Does Credit Card Travel Insurance Work?

Credit card travel insurance is a set of coverages offered by select credit cards to protect you when traveling on qualified trips. How credit card travel insurance works varies by card, however. It’s important to read the fine print of your credit card to understand what may and may not be covered.

The main thing to remember is that you typically need to use the credit card when booking your major travel expenses (airfare, lodging, and transportation) for those costs to be covered should something happen.

Recommended: Tips for Using a Credit Card Responsibly

Types of Travel Covered by Travel Insurance

Each travel credit card will have its own inclusions and exclusions for travel insurance. But generally, credit cards with travel insurance may offer trip protection and coverage for unexpected medical expenses.

Trip Protection

Trip protection covers a wide range of potential insurances your credit card might offer when traveling:

•   Trip cancellation and interruption insurance: If you prepaid for a trip and have to cancel it or are on a trip and need to end it early, your credit card may cover this. Read your credit card’s policy closely to understand how your credit card works and what qualifies as a covered trip cancellation or trip interruption. Unexpected injuries or illness, inclement weather, terrorist action, a change in military orders, and jury duty are examples of reasons a trip may be cancelled or end early — and be covered by credit card travel insurance.

•   Trip delay insurance: If your flight, bus, cruise, or other transportation (called a common carrier) is delayed or canceled and you miss activities or lodgings that you’ve already paid for, your credit card may cover this. In addition, such policies might cover your expenses as you scramble to find new lodging, meals, and transportation.

•   Rental car insurance: Check with your car insurance provider before booking a rental to understand if your coverage extends to rentals. If it does not (or if you do not want to make a claim with your car insurance provider), your credit card might also serve as an insurance option in the event of an accident. Read the fine print carefully; many credit cards require that you decline the insurance from the rental company for the credit card travel insurance to apply. Some credit cards only offer secondary car insurance, meaning they require you to file a claim through your personal car insurance first.

•   Delayed or lost baggage insurance: If an airline loses or damages your baggage, you can make a claim for the (depreciated) contents of the bag. Some credit cards may even cover delayed baggage since it can put a dent in your plans. Just check your policy: You may have to put in a claim with the airline before your travel credit card will step in.

Medical Coverage

Travel insurance through credit cards may cover medical expenses as well, including:

•   Medical insurance: If your health insurance doesn’t cover medical costs incurred abroad, travel medical insurance might cover qualified expenses. Medicare does not cover health costs incurred outside of the U.S., so travel insurance can be helpful for seniors relying on a government health plan.

•   Accident insurance: While we don’t want to assume the worst can happen, this insurance sometimes offered through credit cards offers a payout if you are killed or seriously injured (such as dismemberment or loss of sight, hearing, or speech). This applies while traveling on a common carrier or on a covered trip paid for with the card. In this way, accident insurance can operate like life insurance while traveling.

•   Emergency evacuation: If you fall ill or are injured while traveling and need to be evacuated, including through emergency airlift, this coverage will pay for associated expenses. This also may cover emergency evacuations due to extreme weather or political unrest.

Recommended: Preparing Financially for Travel

Benefits of Credit Card Travel Insurance

Credit cards offering travel insurance have multiple benefits. Not all credit cards offer travel insurance, however, so it’s a good idea for consumers to weigh these benefits against benefits of other credit cards to determine which card is right for them.

Among the benefits of credit card insurance are:

•   Financial security: Travel can be a big expense. When unplanned events cut trips short or leave you stranded, travel insurance can protect the money you have spent.

•   Emergency coverage: Whether you encounter dangerous weather, a terrorist incident, or a medical emergency during travel, having travel insurance can make it easier to deal with crises while on vacation.

•   A sense of comfort: Ultimately, insurance policies can ease consumers’ worries when traveling. Knowing that there is a Plan B when your best-laid travel plans go awry can be comforting, especially when facing an emergency in an unfamiliar place.

Recommended: Does Applying For a Credit Card Hurt Your Credit Score

Picking a Credit Card for Travel Insurance

When looking for a new credit card, you can search specifically for cards that offer travel insurance among ​​different credit card rewards. Note that many of these can have annual fees, so they might only be a good choice if you’re a frequent traveler.

Before applying for a credit card, check your credit score to ensure you can qualify.

If travel insurance is not your top priority for choosing a credit card, you can consider other incentives, like credit card bonuses for new customers or cash back rewards.

Recommended: What is a Charge Card

Filing a Travel Insurance Claim

If you experience an unexpected event, like a delayed flight, during your trip, calling your credit card company to ensure your emergency expenses will be covered can be a smart idea. This might keep you incurring credit card payments for meals or lodging that won’t actually be covered.

Look at the back of your credit card to find the phone number for a benefits administrator. They can help you as you begin your claim process.

As explained previously, certain credit cards may require you to file a claim with another entity before they get involved. For example, a credit card offering secondary auto insurance requires that you file with your personal car insurance company first. Likewise, if an airline loses your luggage, a credit card’s travel insurance policy may stipulate that you file first with the airline.

When you know you will be filing a claim, saving your receipts (and taking photos of them as you go) can be a smart way to stay organized. Filing as soon as you’re home (or even while still traveling) may expedite the process. In fact, some credit card insurance policies might have deadlines for filing claims.

Recommended: When Are Credit Card Payments Due

The Takeaway

Some credit cards include travel insurance among their perks. Insurance coverage can vary, but it might cover delayed flights, trip cancellations, emergency medical expenses, and lost luggage. Travel cards with such coverage often have annual fees, so it’s a good idea for consumers to weigh multiple options when selecting a credit card and insurance policies.

Whether you're looking to build credit, apply for a new credit card, or save money with the cards you have, it's important to understand the options that are best for you. Learn more about credit cards by exploring this credit card guide.

FAQ

How do I know if my trip is covered?

Not every credit card offers travel insurance. Always read the fine print of your credit card before making travel insurance decisions ahead of and during your trip. If the legal jargon is confusing, you can typically contact a benefits administrator for clarification. Look at the back of your credit card to find the number.

What does travel insurance cover?

Every credit card travel insurance policy is different. Common coverages include trip cancellation or interruption, accident and medical, lost luggage, and even rental car insurance. Research your card’s policy ahead of your next vacation.

Will the expenses not charged to my card be covered?

Some credit cards with travel insurance require that you use those cards on travel expenses for the insurance to apply. Others may automatically apply certain types of coverage, like medical coverage, regardless of what card you used to book your trip. Reach out to your card’s benefits administrator before travel if you need help interpreting the travel insurance policy.

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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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Many homebuyers swimming in the pool of new mortgage terminology may wonder how mortgage principal differs from their mortgage payment. Simply put, your mortgage principal is the amount of money you borrowed from your mortgage lender.

Knowing how mortgage principal works and how you can pay it off more quickly than the average homeowner could save you a lot of money over the life of the loan. Here’s how it works and what you need to know about paying off the principal on a mortgage.

Mortgage Principal Definition

Mortgage principal is the original amount that you borrowed to pay for your home. It is not the amount you paid for your home; nor is it the amount of your monthly mortgage payment.

Each month when you make a payment, a portion goes toward the original amount you borrowed, a portion goes toward the interest payment, and some goes into your escrow account, if you have one, to pay for taxes and insurance.

Your mortgage principal balance will change over the life of your loan as you pay it down with your monthly mortgage payment, as well as any extra payments. Your equity will increase while you’re paying down the principal on your mortgage.

Mortgage Principal vs. Mortgage Interest

Your mortgage payment consists of both mortgage principal and interest. Mortgage principal is the amount borrowed. Mortgage interest is the lending charge for borrowing the mortgage principal. Both are included in your monthly mortgage payment, though you likely won’t see a breakdown of how much of your monthly mortgage payment goes to principal vs. interest.

When you start paying down principal, the mortgage amortization schedule will show that most of your payment will go toward interest rather than principal.

Hover your cursor over the amortization chart of this mortgage calculator to get an idea of how a given loan might be amortized over time if no extra payments were made.

Mortgage Principal vs. Total Monthly Payment

Your monthly payment is divided into parts by your mortgage servicer and sent to the correct entities. It includes principal plus interest.

Fees and Expenses Included in the Monthly Payment

Your monthly payment isn’t just made up of principal and interest. Most borrowers are also paying bits of property taxes and homeowners insurance each month, and some pay mortgage insurance. In the industry, this is often referred to as PITI, for principal, interest, taxes, and insurance.

A mortgage statement will break all of this down and show any late fees.

Among the many mortgage questions you might have for a lender, one is whether you’ll need an escrow account for taxes and insurance or whether you can pay those expenses in lump sums on your own when they’re due.

In the world of government home loans, FHA and USDA loans require an escrow account, and lenders usually require one for VA-backed loans.

Conventional mortgages typically require an escrow account if you borrow more than 80% of the property’s value. If you live in a flood zone and are required to have flood insurance, an escrow account may be mandatory.

Does the Monthly Principal Payment Change?

With a fixed-rate mortgage, payments stay the same for the loan term, but the amount that goes to your mortgage principal will change every month. An amortization schedule designates a greater portion of your monthly mortgage payment toward interest in the beginning. Over time, the amount that goes toward your principal will increase and the amount you’re paying toward interest will decrease.

Adjustable-rate mortgages (ARMs) are more complicated. Most are hybrids: They have an initial fixed period that’s followed by an adjustable period. They are also usually based on a 30-year amortization, but most ARM borrowers are interested in the short-term benefit — the initial interest rate discount — not principal reduction.

If you take out an ARM and keep it, you could end up owing more money than you borrowed , even if you make all payments on time.

Understanding mortgages and amortization schedules can be a lot, even for those who aren’t novices.

This Home Loan Help Center offers a wealth of information.

What Happens When Extra Payments Are Made Toward Mortgage Principal?

Making extra payments toward principal will allow you to pay off your mortgage early and will decrease your interest costs, sometimes by an astounding amount.

If you make extra payments, you may want to contact your mortgage servicer or notate the money to make sure it is applied to principal instead of the next month’s payment.

Could you face a prepayment penalty? Conforming mortgages signed on or after Jan. 10, 2014, cannot carry one. Nor can FHA, USDA, or VA loans. If you’re not sure whether your mortgage has a prepayment penalty, check your loan documents or call your lender or mortgage servicer.

Keeping Track of Your Mortgage Principal and Interest

The easiest way to keep track of your mortgage principal and interest is to look at your mortgage statements every month. The mortgage servicer will send you a statement with the amount you paid and how much of your principal was reduced each month. If you have an online account, you can see the numbers there.

How to Pay Off Mortgage Principal

Paying off the mortgage principal is done by making extra payments. Because the amortization schedule is set by the lender, a high percentage of your monthly payment goes toward interest in the early years of your loan.

When you make extra payments or increase the amount you pay each month (even by just a little bit), you’ll start to pay down the principal instead of paying the lender interest.

It pays to thoroughly understand the different types of mortgages that are out there.

And if you’re mortgage hunting, you’ll want to shop for rates and get mortgage pre-approval.

The Takeaway

Knowing exactly how mortgage principal, interest, and amortization schedules work can be a powerful tool that can help you pay off your mortgage principal faster and save you a lot of money on interest in the process.

Ready to dive in on a mortgage loan? You’ll want a competent partner. SoFi is an online mortgage lender that offers competitive fixed rates and a variety of terms. Qualifying first-time homebuyers can put just 3% down.

Find your rate in minutes.

FAQ

What is the mortgage principal amount?

The mortgage principal is the amount you borrow from a mortgage lender that you must pay back. It is not the same as your mortgage payment. Your mortgage payment will include both principal and interest as well as any escrow payments you need to make.

How do you pay off your mortgage principal?

You can pay off your mortgage principal early by paying more than your mortgage payment. Since your mortgage payment is made up of principal and interest, any extra that you pay can be taken directly off the principal. If you never make extra payments, you’ll take the full loan term to pay off your mortgage.

Is it advisable to pay extra principal on a mortgage?

Paying extra on the principal will allow you to build equity, pay off the mortgage faster, and lower your costs on interest. Whether or not you can fit it in your budget or if you believe there is a better use for your money is a personal decision.

What is the difference between mortgage principal and interest?

Mortgage principal is the amount you borrow from a lender; interest is the amount the lender charges you for the principal.

Can the mortgage principal be reduced?

When you make extra payments or pay a lump sum, you can designate the extra amount to be applied to your mortgage principal. This will reduce your mortgage principal and your interest payments over time.

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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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Regulation T, or Reg T for short, is a Federal Reserve Board regulation governing the extension of credit from brokerage firms to investors (also called margin accounts).

In margin trading, Regulation T is used to determine initial margin requirements. An investor who fails to meet the initial margin requirements may be subject to a Reg T call, which is one type of margin call.

Understanding Regulation T and Regulation T calls is important when trading securities on margin. Keep reading to learn more.

What Is Regulation T?

Regulation T is issued by the Federal Reserve Board, pursuant to the 1934 Securities Exchange Act. The purpose of Reg T is to regulate how brokerage firms and broker dealers extend credit to investors in margin trading transactions. Specifically, Regulation T governs initial margin requirements, as well as payment rules that apply to certain types of securities transactions.

Margin trading means an investor borrows money from a brokerage to make investments. This allows the investor to potentially increase their investment without putting up any additional money out of pocket. For example, an investor may be able to put up $10,000 to purchase 100 shares of stock and borrow another $10,000 on margin from their brokerage to double their investment to $20,000.

Regulation T is central to understanding the inner workings of margin accounts. When someone is buying on margin, the assets in their brokerage account serve as collateral for a line of credit from the broker.

The borrowed amount is repaid with interest. Interest rates charged on margin accounts vary according to the brokerage and the amount borrowed.

Trading on margin offers an opportunity to amplify returns, but poses the risk of steeper losses as well.

How Reg T Works

Regulation T works by establishing certain requirements for trading on margin. Specifically, there are three thresholds investors are required to observe when margin buying, one of which is directly determined by Regulation T.

Here’s a closer look at the various requirements to trade on margin:

•   Minimum margin. Minimum margin represents the amount an investor must deposit with their brokerage before opening a margin account. Under FINRA rules, this amount must be $2,000 or 100% of the purchase price of the margin securities, whichever is less. Keep in mind that this is FINRA’s rule; some brokerages may require a higher minimum margin.

•   Initial margin. Initial margin represents the amount an investor is allowed to borrow. Regulation T sets the maximum at 50% of the purchase price of margin securities. Again, though, brokerage firms may require investors to make a larger initial margin deposit.

•   Maintenance margin. Maintenance margin represents the minimum amount of margin equity that must be held in the account at all times. If you don’t know what margin equity is, it’s the value of the securities held in your margin account less the amount you owe to the brokerage firm. FINRA sets the minimum maintenance margin at 25% of the total market value of margin securities though brokerages can establish higher limits.

Regulation T’s main function is to limit the amount of credit a brokerage can extend. It’s also used to regulate prohibited activity in cash accounts, which are separate from margin accounts. For example, an investor cannot use a cash account to buy a stock then sell it before the trade settles under Reg T rules. Here are more details about leveraged trading.

Why Regulation T Exists

Margin trading can be risky and Regulation T is intended to limit an investor’s potential for losses. If an investor were able to borrow an unlimited amount of credit from their brokerage account to trade, they could potentially realize much larger losses over time if their investments fail to pay off.

Regulation T also ensures that investors have some skin in the game, so to speak, by requiring them to use some of their own money to invest. This can be seen as an indirect means of risk management, since an investor who’s using at least some of their own money to trade on margin may be more likely to calculate risk/reward potential and avoid reckless decision-making.

Example of Reg T

Regulation T establishes a 50% baseline for the amount an investor is required to deposit with a brokerage before trading on margin. So, for example, say you want to open a margin account. You make the minimum margin deposit of $2,000, as required by FINRA. You want to purchase 100 shares of stock valued at $100 each, which result in a total purchase price of $10,000.

Under Regulation T, the most you’d be able to borrow from your brokerage to complete the trade is $5,000. You’d have to deposit another $5,000 of your own money into your brokerage account to meet the initial margin requirement. Or, if your brokerage sets the bar higher at 60% initial margin, you’d need to put up $6,000 in order to borrow the remaining $4,000.

Why You Might Receive a Regulation T Call

Understanding the initial margin requirements is important for avoiding a Regulation T margin call. In general, a margin call happens when you fail to meet your brokerage’s requirements for trading in a margin account. Reg T calls occur when you fall short of the initial margin requirements. This can happen, for instance, if you’re trading options on margin or if you have an ACH deposit transaction that’s later reversed.

Regulation T margin calls are problematic because you can’t make any additional trades in your account until you deposit money to meet the 50% initial margin requirement. If you don’t have cash on hand to deposit, then the brokerage can sell off securities in your account until the initial margin requirement is met.

Brokerages don’t always have to ask your permission to do this. They may not have to notify you first that they intend to sell your securities either. So that’s why it’s important to fully understand the Reg T requirements to ensure that your account is always in good standing with regard to initial margin limits.

The Takeaway

Margin trading may be profitable for investors, though it’s important to understand the risks involved. Specifically, investors need to know what could trigger a Regulation T margin call, and what that might mean for their portfolios. Regulation T is used to determine initial margin requirements — i.e. the amount of cash an investor must keep available relative to the amount they’ve borrowed.

An investor who fails to meet the initial margin requirements may be subject to a Reg T call, which is problematic because they are restricted from making additional trades until they deposit the 50% initial margin requirement. If the investor doesn’t have cash on hand to deposit, then the brokerage can sell off securities in the account until the initial margin requirement is met.

Margin trading may increase the potential for gains, but it can also increase the risk of steeper losses. If you’re up for the risk, SoFi offers margin loans. When you open a SoFi Invest brokerage account, using margin can help you increase your buying power, take advantage of more investment opportunities, and potentially increase your returns while borrowing at one of the most competitive rates in the industry.^* Once your account is set up, you can trade stocks and ETFs.

Start Trading on Margin

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*Borrow at 10%. Utilizing a margin loan is generally considered more appropriate for experienced investors as there are additional costs and risks associated. It is possible to lose more than your initial investment when using margin. Please see SoFi.com/wealth/assets/documents/brokerage-margin-disclosure-statement.pdf for detailed disclosure information.
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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.
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