Dec
12
2024
What Is the IPO Process?

What Is the IPO Process?

By | Growing Wealth, invest, Investing | Comments Off on What Is the IPO Process?

Before a private company can make its shares available to the public for investment, it must go through the initial public offering (IPO) process. The IPO process is time-consuming, expensive, and it can take months or even years for a privately held company to reach the stage where it can be listed and traded on a public exchange.

An IPO marks the first time individuals other than angel investors or venture capitalists can make investments in a company. Once the initial public offering process is complete, traders can buy or sell shares in the company through a public exchange like the New York Stock Exchange or Nasdaq.

There are different reasons a company may choose to do an IPO, but it’s often used as a means of raising capital. The initial public offer process can also help raise visibility around a particular company’s brand, helping to fuel growth. It means that ownership of the company is transitioning from founders and a few early investors to a much larger group of individuals and organizations.

From an investor standpoint, getting in on the ground floor of a new initial public offering might be appealing if the company you think has the potential to take off. If you’re interested in how to buy IPO stock, this primer explains how the IPO process works step by step.

Key Points

•   An initial public offering (IPO) is the process a private company goes through to make its shares available to the public for investment.

•   Companies may choose to do an IPO to raise capital and increase visibility around their brand.

•   Prior to an IPO, a company must select an underwriter to conduct due diligence and sign necessary contracts.

•   The SEC must review and approve all documents before the company can launch its IPO.

•   After the launch, the underwriter may take direct action to stabilize the share price during the 25-day “quiet period”.

A Quick Refresher on IPOs

Again, IPO stands for initial public offering. If a company launches an IPO, it means that it’s only had private investors, such as angel investors, up to that point but it’s now ready to let other investors purchase shares. Under federal securities laws, this can’t happen until the company is properly registered with the Securities and Exchange Commission (SEC).

An IPO can help companies raise capital as an alternative to other methods, such as crowdfunding, which also involves raising funds from a pool of investors. But unlike an IPO, it doesn’t involve the buying or selling of shares in a company.

💡 Quick Tip: Access to IPO shares before they trade on public exchanges has usually been available only to large institutional investors. That’s changing now, and some brokerages offer pre-listing IPO investing to qualified investors.

How Does the IPO Process Work?

At a glance, the initial public offering process seems relatively simple: A private company makes its shares available to the public for the first time, hence why it’s often referred to as “going public.”

But the initial public offering process is more detailed and complex than that. There are specific steps that have to take place to ensure that an IPO is completed in accordance with SEC regulations. The company, either on its own or while working with analysts and investors, must value the company and set an initial public offer.

After completing due diligence, the company can move forward with an IPO announcement and choose an IPO launch date. Investors can then review the IPO prospectus to determine whether they want to invest or not.

The entire IPO process can take six months to a year or even longer to complete. Aside from being time-consuming, it can also be costly, so companies must have some degree of certainty that the IPO will succeed before undertaking it.

7 Steps of the IPO Process

The IPO process takes time, and it’s important for all parties involved that the appropriate steps be followed. If something is missed or overlooked, that could put the success of a company’s initial public offering in jeopardy. Here are the steps they must go through:

1. Choosing an Underwriter

Before starting any of the other IPO process steps, a company first has to connect with a reputable IPO underwriter or group of underwriters. Again, these are investment banks that are registered with the SEC to offer underwriting services.

When choosing an underwriter, companies can consider a variety of factors, including:

•   Reputation

•   IPO track record

•   Research quality

•   Industry expertise

•   Distribution (i.e. what type of investors the bank will be able to distribute the initial public offering to)

Companies may also weigh any prior relationship they have with a particular investment bank or banks when deciding which one(s) to use for underwriting.

2. Due Diligence

During the due diligence phase, the IPO underwriting team will conduct background research into the company and its upper management. This ensures that there are no surprises prior to or during the IPO launch that could affect share pricing.

At this step in the IPO process, the underwriter and the company will sign necessary contracts specifying the scope of services provided. The contract can take several structures:

•   Firm Commitment: In this type of arrangement, the underwriter agrees to purchase the IPO and resell shares to the public. This guarantees that the company receives an agreed-upon amount of money.

•   Best Efforts: With this type of agreement, the underwriter assents to selling shares to the best of its ability, though there’s no guarantee that all shares will sell.

•   All or None: In an all or none or agreement, all shares of the IPO must be sold or the offering is canceled.

In some cases, a group or syndicate of underwriters can come together to oversee the IPO process and manage risk. Each bank in the syndicate can sign a contract with the company to sell part of the IPO.

The underwriters will also initiate the registration process with the SEC and complete supporting documents for the IPO. These might include:

•   Engagement Letter: An engagement letter typically includes a clause stating what expenses the company will reimburse to the underwriter as well as the spread that’s used to pay the underwriter’s fees, typically 7% of proceeds.

•   Letter of Intent: This letter outlines the underwriter’s commitment or obligations to the issuing company, the company’s statement of commitment to cooperate with the underwriter and an agreement to provide the underwriter with a 15% over allotment option.

•   Underwriting Agreement: The underwriting agreement binds the underwriter to purchase shares from the issuing company at a specified price.

•   Red Herring Document: A red herring document contains some of the same information about the IPO that’s included in the IPO prospectus, excluding the price and number of shares being offered.

•   S-1 Registration Statement: This is the document that’s submitted to the SEC to register the IPO and it must include relevant information about the company that must be included in the prospectus, as well as additional details that are not made available to the public.

3. SEC Review and Road Show

At this stage of the initial public offering process, the SEC will review all of the documents submitted for the registration. Meanwhile, the company and its underwriting team will prepare for the road show.

This road show is effectively a marketing strategy in which the underwriters attempt to gauge interest in the IPO from institutional investors. This can help underwriters to set the IPO price and determine what number of shares to offer.


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4. IPO Pricing

Once the SEC has approved the IPO, the next critical step is choosing an initial share price. In terms of how an IPO price is set, this can depend on a number of factors, including:

•   Company valuation

•   Anticipated demand for shares among investors

•   Road show outcomes

•   Market conditions

•   How much capital the company hopes to raise

•   The company’s reputation

Pricing is important because it can determine the success or failure of an IPO. Price an initial public offer too high and it may scare off investors; price it too low and the company may not reach its target goal for capital raised once shares go on the market.

5. Launch

Once an IPO has the SEC’s approval and the number and price of shares has been set, all that’s left to do is launch. The company or underwriters typically announce ahead of time when an IPO is set to list so interested investors can ready themselves to buy shares on that date.

6. Stabilization

Stabilization refers to the underwriter taking direct action to stabilize share prices once the IPO launches. This is something underwriters can do during the 25-day window after an initial public offering hits the market, otherwise known as the quiet period.

In essence, the underwriter can execute trades during this period in an effort to influence pricing in favor of the company. Any SEC restrictions against price manipulation are temporarily suspended during this time.

SEC rules do, however, still apply to investors who owned shares before the company went public. Specifically, they’re required to observe the IPO lock-up period rule. This rule prevents them from selling any shares they own in the company for a set time period after the IPO, typically 90 to 180 days. This keeps those investors from dumping their shares prematurely which could affect share prices.

7. Transition to Market Competition

After the initial 25-day period following an IPO launch, the underwriters take their hands off the wheel. Rather than relying on the prospectus to determine valuations, shareholders turn their attention to market movements instead. The underwriter can continue acting in an advisory role but at this point, they can no longer do anything to influence pricing.

What Parties Participate in the IPO Process?

It takes a team to successfully launch an IPO, and each member has a distinct role in the initial public offer process. The company is the star player around which the team revolves around, with senior management typically taking the lead.

But an IPO also requires assistance from other professionals. Understanding who is involved and what they do can help with navigating the steps of the IPO process.

Investment Banks

One role of an investment banker, also called underwriters, is to effectively oversee and manage the initial public offer process. The underwriting team is responsible for performing some of the most important IPO steps, including:

•   Preparing IPO documentation

•   Conducting necessary due diligence

•   Preparing marketing materials for distribution to investors

•   Overseeing the sale of company stock through the IPO

The investment banks serving as underwriters can also help with determining the appropriate valuation of a business as part of the IPO process.

Securities and Exchange Commission (SEC)

Companies must register with the SEC before launching an initial public offering. The SEC must review and accept all documentation the company submits in reference to the IPO prior to shares being sold to the public.

Attorneys and Accountants

Attorneys and accountants work alongside underwriters during the initial public offer process to prepare the required documentation. Legal counsel may draft documents and manage the SEC filing, while accountants may prepare the financial statements that accompany the SEC registration paperwork.

Stock Exchange

Going public with an IPO means choosing an exchange through which traders can buy and sell stock. In the United States, this typically means the New York Stock Exchange (NYSE) or the Nasdaq.

Recommended: What Are the Different Stock Exchanges?

Investors

These include both those who put money into the company prior to its going public, such as venture capitalists, and those who anticipate trading shares once the IPO launches.

Both institutional investors, such as hedge funds or mutual funds, and individual retail investors who are interested in owning shares, may participate in an IPO.

Buying IPO shares may seem desirable, and there has been a lot of hype in the media about IPO stock. But it’s important to remember that IPO stocks are typically high risk, and investors can also lose money. That’s why many brokerages require that investors meet certain standards in order to be qualified to trade IPO shares.

The Takeaway

The process of taking a company public can be exciting, but it’s also a rigorous transition that requires a fledgling company to meet a series of criteria and pass through several stages before actually making its debut on a public exchange.

This process helps to ensure that the company has sound fundamentals, and is ready for public shareholder investment. Investing in IPOs has gotten a reputation as a way to make money quickly; it’s also a way investors can rapidly lose their investment, as IPOs are traditionally volatile. In addition, not all investors may qualify to trade IPO shares; check with your brokerage.

Whether you’re curious about exploring IPOs, or interested in traditional stocks and exchange-traded funds (ETFs), you can get started by opening an account on the SoFi Invest® brokerage platform. On SoFi Invest, eligible SoFi members have the opportunity to trade IPO shares, and there are no account minimums for those with an Active Investing account. As with any investment, it's wise to consider your overall portfolio goals in order to assess whether IPO investing is right for you, given the risks of volatility and loss.

For a limited time, opening and funding an Active Invest account gives you the opportunity to get up to $1,000 in the stock of your choice.

About the author

Rebecca Lake

Rebecca Lake

Rebecca Lake has been a finance writer for nearly a decade, specializing in personal finance, investing, and small business. She is a contributor at Forbes Advisor, SmartAsset, Investopedia, The Balance, MyBankTracker, MoneyRates and CreditCards.com. Read full bio.

Explore the IPO Series:

What Is an Initial Public Offering (IPO)?

What Are IPO Proceeds?

IPO vs Acquisition: Advantages and Disadvantages

How Are IPO Prices Set?

What Is an IPO Underwriter and What Do They Do?

What Is an IPO Roadshow?

How Many Companies IPO Per Year? 2023 Trends

What Is a Quiet Period?

What Is IPO Subscription Status?

Navigating the IPO Lock-up Period

What Is IPO Due Diligence?

How to Find Upcoming IPO Stocks Before Listing Day

What Is an IPO Pop?

What to Do With Company Stock If Your Company Goes Public

IPO Book-Building Process Explained

Hot Issues (IPOs): What You Need to Know

What Is Pre-IPO Placement?

Do IPOs Offer Dividends?

Testing the Waters: What It Means in an IPO

Testing the Waters: What It Means in an IPO

Shorting an IPO: When Can You Do It?

Guide to the Dual-Track Process for IPOs

What Is Gross Spread?

IPO Oversubscription: Definition & Examples

A Guide to Tech IPOs

History of IPOs That Failed

Photo credit: iStock/TimArbaev

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Investing in an Initial Public Offering (IPO) involves substantial risk, including the risk of loss. Further, there are a variety of risk factors to consider when investing in an IPO, including but not limited to, unproven management, significant debt, and lack of operating history. For a comprehensive discussion of these risks please refer to SoFi Securities’ IPO Risk Disclosure Statement. IPOs offered through SoFi Securities are not a recommendation and investors should carefully read the offering prospectus to determine whether an offering is consistent with their investment objectives, risk tolerance, and financial situation.

New offerings generally have high demand and there are a limited number of shares available for distribution to participants. Many customers may not be allocated shares and share allocations may be significantly smaller than the shares requested in the customer’s initial offer (Indication of Interest). For SoFi’s allocation procedures please refer to IPO Allocation Procedures.

Claw Promotion: Customer must fund their Active Invest account with at least $25 within 30 days of opening the account. Probability of customer receiving $1,000 is 0.028%. See full terms and conditions.

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Dec
12
2024
How Income Tax Withholding Works

What Is Income Tax Withholding and How Does It Work?

By | Life & Career, money | Comments Off on What Is Income Tax Withholding and How Does It Work?

“What happened?!” may be your response when you look at your paycheck and see all of those deductions, whittling your hard-earned cash down to a (much) lower figure than you expected.

And perhaps, if you look more closely, you’ll notice a line on your paystub that shows a major amount of money subtracted and think, What is withholding tax? And why do they take so much?

Federal and state withholding taxes, also known as “taxes withheld,” are funds that your employer takes out and sends to the government to help federal programs. These taxes have a purpose, and in the long run, you’ll probably be glad they are deducted from your check rather than owed as a mega lump sum on Tax Day.

Read on to learn more about tax withholding, including factors that impact how much gets deducted and how to calculate your withholding taxes.

Key Points

•   Income tax withholding deducts money from your paychecks to cover your estimated tax liability, preventing large year-end bills.

•   Factors that affect tax withholding include income, filing status, claimed allowances, and extra withholding requests.

•   You can adjust your W-4 form to balance withholding, avoiding overpayment or tax debt.

•   Withholding exemptions are available for those with no tax liability.

•   Withheld taxes support federal programs and public services.

What is Income Tax Withholding?

Many people think their taxes are due mid-April, but the Internal Revenue Service (IRS) actually requires you to pay as you go, meaning you need to pay most of your tax during the year, as you receive income, rather than at the end of the year. When you see those federal and possibly state and local taxes being whisked out of each paycheck, that’s exactly what is happening.

A withholding tax is an amount, based on your salary, that your employer sets aside and then pays directly to the government on your behalf. It’s a credit against the full amount of personal income tax you will owe for the year. By doing this, your employer is helping you avoid a surprise tax bill come April. Tax withholding also helps ensure you won’t owe interest or a penalty for paying too little tax during the course of the year.

That said, how much is deducted from your paycheck can vary depending on a variety of factors. You are able to designate what portion of your check goes toward your taxes on the IRS W-4 form (more on that in a bit).

•   If you allocate too much, that means more than necessary is taken out, and you will likely receive a tax refund when you file your taxes.

•   If you set aside too little, you will probably owe a balance or have what’s known as a “tax bill” due during tax season to make up the difference.

Your federal withholding tax rate depends on your income and tax bracket.

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Factors That Determine Tax Withholding

There are several factors that determine just how much tax is withheld from your paycheck, whether it arrives as a paper check or via direct deposit. These include:

•   How much you earn: Generally, the more you earn, the higher the rate at which taxes are withheld

•   Your filing status: For instance, you might file your taxes as single, married filing jointly, or married filing separately.

•   How many (if any) withholding allowances you claim: Typically, if you claim a higher number of allowances, your withholding will be lower. This means more cash will flow your way on each payday, but you might owe taxes when you file. If you have a lower number of allowances, more money is taken out for taxes, and you could wind up getting a refund when your tax return is processed.

•   Whether you decide to have additional money withheld: Some individuals may ask their employers to withhold, say, an extra $100 or more per pay period if they find they typically owe taxes at year’s end.

Recommended: How to Reduce Your Taxable Income

What Is State Income Tax Withholding?

If you live in a state that levies income tax, you will also see tax withholding for that type of tax on your paycheck. There are just nine states that don’t tax earned income. In other words, you will not pay state taxes if you live in:

•   Alaska

•   Florida

•   Nevada

•   New Hampshire

•   South Dakota

•   Tennessee

•   Texas

•   Washington

•   Wyoming

The concept of tax withholding works in the same way at the state level as it does at the federal: A certain portion is put toward your future state tax bill, and you may either owe or get a refund, depending on how much you paid in.

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What Is the Purpose of Tax Withholding?

As briefly mentioned above, tax withholding saves you from owing a huge bundle of taxes in April. If people were left to their own devices to set aside money for taxes, well, that might not always be a success. Every time you receive your paycheck, there are bills to pay, dinners out and movies to tempt you, and vacations to plan and take. As a result it can be hard to save money from your salary.

In addition to helping you avoid a surprise tax bill, tax withholding is also a way for the government to maintain its pay-as-you-go income tax system. If you pay too little in taxes throughout the year, you can get hit with an underpayment penalty and interest payments (on top of that surprise tax bill).

Recommended: Your Guide to Filing Taxes for the First Time

Tax and Employment Documents to Know

When you are first hired at a company, you typically fill out a W-4 form. This form is designed to help your employer estimate how much tax you’ll owe by the end of the year. To do this, the form asks you about your family, potential deductions you might claim, and any additional income you earn outside your W-2 job. Based on your answers, your employer will determine how much tax to withhold from your paychecks.

Then when tax time rolls around, you will receive IRS Form W-2. This includes information on how much income you earned in a given tax year, as well as how much you paid in federal, state, and other taxes.

You’ll use this W-2 to file your taxes, and it will determine whether you receive a tax refund, owe more taxes, or break even.

Calculating Income Tax Withholding

It can take a bit of tweaking to find that balance between overpaying in federal withholding and having to pay more when you file your taxes.

Some people like getting a tax refund because it’s a lump sum they can put toward debt or invest. But realize that overpaying is a bit like giving the government a free loan throughout the year.

While there may be fast ways to get a tax refund, perhaps you’d rather just hold onto that money in the first place. If you better balance what is taken out of your paychecks, you could take the excess you would have paid and put it in a high-yield savings account or invest it for the future.

If you’re wondering what is a withholding tax allowance that’s right for you, there’s help. The IRS has a Tax Withholding Estimator you can use based on your current situation. In general, the more allowances or exemptions you have, the less will be withheld from your pay; the fewer the exemptions, the more will be withheld.

While you aren’t asked to fill out a new W-4 each year, you may request one if you think you need to adjust the withholding amount.

Some of the times it might be wise to adjust how much income tax is withheld include:

•   Starting a new job or position

•   Having a child

•   Getting married or divorced

•   Buying a house.

Can I Be Exempt from Tax Withholding?

To be exempt from tax withholding means that no federal taxes will be withheld from your pay. You might also have no state or local taxes (if applicable) deducted. Here are the ways in which someone might qualify to be exempt from such taxes:

•   If all of your federal income tax was refunded because you have no tax liability and you expect the same thing to happen this year, then you may be exempt from withholding taxes. (But note, Social Security and some other taxes may still be withheld as part of other types of payroll deductions.)

•   Certain types of income are considered exempt. For instance, money paid to foster parents for their taking care of children in their homes may be tax-free. Payments from workers’ compensation is another example of funds that may be tax-exempt.

The Takeaway

Paying taxes may not be fun, but it’s important to remember that this money is put toward things we all enjoy, like smooth roads and education programs. And federal withholding from your paycheck keeps you from having a giant bill when you file taxes.

When it comes to tax withholding, it’s important to understand how much is being withheld from each paycheck and whether you need to modify your W-4 to find a better balance between overpaying and owing more money come Tax Day.

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FAQ

Does the government pay for income tax withholdings?

Money that is withheld from your earnings, known as income tax withholding, goes to the government. These dollars help pay for federal programs that benefit citizens and keep our country running, from education to transportation to security.

How can someone qualify for a withholding exemption?

To qualify as tax-exempt, you would have to have had no tax liability in the previous year and expect the same status in the current tax year. Also keep in mind that some forms of income may be tax-exempt, such as payments for in-home foster care of children or for workers’ compensation.

Why has my employer withheld too much income tax?

If your employer withheld too much income tax, then you will likely get a refund at tax time. You can update your withholding on your W-4 form; the more allowances you have, the less money will be withheld to cover your tax liability.

Why has my employer withheld too little income tax?

If you wound up owing the IRS money at tax time, the issue could be that you have too many exemptions or allowances claimed on your W-4 form, meaning your employer is not withholding enough money from your paycheck. You may want to adjust your W-4, knowing that the lower your number of allowances, the more money your employer with withhold and send to the IRS on your behalf.

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Dec
09
2024
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Benefits of ETFs — Pros & Cons in Investment Portfolio

By | Growing Wealth, Investing | Comments Off on Benefits of ETFs — Pros & Cons in Investment Portfolio

Exchange-traded funds (ETFs) are funds that can be used to build a relatively simple and low-cost diverse portfolio. There are many investing benefits to ETFs, which is why they’ve grown in popularity both for DIY investors and for more traditional money managers. However, there are cons investors should be aware of, too.

Key Points

•   ETFs offer diversified exposure across various assets, potentially reducing large swings in overall portfolio value.

•   They tend to be cost-effective due to lower management fees compared to mutual funds.

•   ETFs provide flexibility with real-time trading, similar to stocks.

•   Tax efficiency is enhanced in ETFs because of fewer capital gains distributions.

•   However, ETFs can have hidden costs like bid-ask spreads and brokerage fees.

What Are the Benefits of ETFs?

Exchange-traded funds (ETFs) have become increasingly popular in recent years, especially with the rise of online investing allowing people to buy and sell them quickly.

As an investment tool, ETFs have become popular: there were almost 10,000 ETFs in the world with trillions of dollars in assets under management (AUM) at the end of 2023. In the U.S., there was more than $7 trillion in AUM in ETFs.

Here are some of the benefits of ETFs, which has helped spur their popularity.

ETFs Trade Similar to Stocks

​​ETFs are traded on stock exchanges and can be bought and sold throughout the day, like individual stocks. The market determines the price for a share of an ETF and changes throughout the day. This means investors can buy and sell ETFs efficiently, making them a convenient investment option.

Portfolio Diversification

An additional benefit of an ETF is that you don’t need a lot of money to invest in many different things. One share of an ETF offers investors a way to diversify their portfolio by investing in a basket of assets, such as stocks, bonds, or commodities, rather than just a single asset. This can help to reduce the overall risk of an investment portfolio.

Accessible Across Markets

There is also a range of ETFs on the market now: stocks, bonds, commodities, real estate, and hybrids that offer a mix. ETFs also vary in how they target certain assets — aggressively or defensively, specific to one asset class or broad. So investors should be able to find what they want and build a diverse portfolio.

Lower Costs

Most ETFs are passively managed and track a benchmark index, meaning portfolio managers don’t actively manage the fund to try to beat the market or an index. Passive investing, as opposed to active investing, may be more cost-effective because there tends to be less overhead and fewer investment fees.

Because there is often less overhead, ETFs generally charge investors a lower operating expense ratio than actively managed mutual funds. The operating expense ratio is the annual rate the fund charges to pay for portfolio management, administration, and other costs.

There are other costs investors need to consider, like commissions for trades and a bid/ask spread.

Recommended: What Are the Different Types of Investment Fees?

Tax Efficiency

ETFs tend to be more tax efficient than mutual funds because they typically generate fewer capital gains and capital gains taxes. This is because passively managed ETFs tend to have lower turnover than actively managed mutual funds, which means they sell fewer assets and, thus, result in fewer capital gains.

Transparency

ETFs generally disclose their holdings daily, so investors can see exactly what assets the ETF holds. This can be helpful for investors who want to know what they are investing in.

Flexibility

ETFs can be used as a part of various investment strategies, including as part of a long-term buy-and-hold strategy or as a short-term trading tool. This makes them a flexible investment option for a wide range of investors.

Moreover, investors can trade thematic ETFs — funds focusing on a specific trend or niche industry, like robotics, artificial intelligence, or gender equality. However, there are pros and cons to thematic ETFs. While they allow investors to make more targeted investments, the shares of these funds can be volatile. Because they’re so focused, these ETFs may also diminish the most important benefit of ETFs: broad, diverse exposure.

Disadvantages of ETFs

While ETFs offer many benefits to investors, there are also some potential disadvantages to consider. These disadvantages include the following:

Lack of Personalization

Because ETFs are not actively managed, they do not consider an investor’s specific financial goals or risk tolerance. A lack of personalization means that ETF investors may be unable to tailor their investment portfolio to their particular financial needs.

Tracking Error

ETFs are usually designed to track the performance of a particular index or basket of assets. However, the performance of the ETF may not precisely match the performance of the underlying index due to various factors, such as the fund’s expenses or the timing of when it buys and sells assets. This is known as a tracking error.

Short-Term Trading Costs

ETFs can be traded on the market throughout the day, making them attractive to short-term traders. However, the commission costs of trading ETFs can add up over time, which can eat into investment returns.

Limited Choices

While many ETFs are available, the range of options may be limited compared to other investment vehicles, such as mutual funds. Thus, investors may be unable to find an ETF that perfectly matches their investment needs.

Recommended: ETFs vs. Mutual Funds: Learning the Difference

Counterparty Risk

Certain ETFs may use financial instruments, such as futures contracts or swaps, to gain exposure to specific assets. These instruments carry counterparty risk, which means that there is a risk that the counterparty will not fulfill its obligations under the contract. This can expose ETF investors to additional risks.

Complexity

Some ETFs use complex investment strategies, such as leveraged or inverse ETFs, which can be difficult for some investors to understand. Complex investing strategies can make it challenging for investors to fully understand the risks and potential returns of these types of ETFs.

Market Risk

ETFs, like all investments, are subject to market risk, meaning the value of an ETF can go up or down depending on the performance of the underlying assets.

What to Consider When Investing in ETFs

When investing in ETFs, it is essential to consider the following factors:

•   Investment objective: Determine your investment goals and how ETFs fit into your overall investment strategy. This can help you choose an ETF that aligns with your financial goals and risk tolerance.

•   Asset class: Consider which asset classes you want to invest in and whether an ETF that tracks those assets is available. For example, if you want to invest in large-cap domestic stocks, look for an ETF that tracks a particular large-cap domestic stock index.

•   Diversification: ETFs offer a way to diversify your investment portfolio by investing in a basket of assets rather than just a single asset. Consider the level of diversification an ETF offers and whether it aligns with your investment goals.

•   Expenses: ETFs typically have lower fees than mutual funds because they are not actively managed. However, it is still important to compare the expenses of different ETFs to ensure you are getting the best value for your money.

•   Tax considerations: ETFs tend to be more tax efficient than mutual funds because they generate fewer capital gains. However, it is still important to consider the tax implications of investing in an ETF and whether it aligns with your overall financial plan.

Investing With SoFi

ETFs are becoming increasingly more popular and ubiquitous in the financial markets, with some being more targeted in focus than others. So, being aware of an ETF’s investments can be important for an investor who chooses to put dollars into this financial vehicle. But, as with any investment, they have their pros and cons, which investors should familiarize themselves with before investing.

Ready to invest in your goals? It’s easy to get started when you open an investment account with SoFi Invest. You can invest in stocks, exchange-traded funds (ETFs), mutual funds, alternative funds, and more. SoFi doesn’t charge commissions, but other fees apply (full fee disclosure here).

For a limited time, opening and funding an Active Invest account gives you the opportunity to get up to $1,000 in the stock of your choice.

FAQ

What is the benefit of investing in an exchange-traded fund?

Exchange-traded funds (ETFs) offer investors a convenient and cost-effective way to diversify their portfolios by investing in a basket of assets. ETFs are also typically more tax efficient than mutual funds and offer investors the ability to buy and sell their shares on a stock exchange.

Are ETFs a good investment?

Depending on their investment goals and risk tolerance, ETFs may be a good investment for some investors. ETFs offer a convenient and cost-effective way to diversify a portfolio and provide access to a wide range of asset classes. However, it is important for investors to consider the specific ETF they are considering and how it fits into their overall investment plan.

Why are ETFs better than stocks?

For some investors, ETFs may be a better investment option than individual stocks because they offer diversification by investing in a basket of assets rather than just a single stock.

Is an ETF better than a mutual fund?

Whether an ETF is better than a mutual fund depends on the specific circumstances of the investor and their investment goals. ETFs tend to have lower fees than mutual funds because they are not actively managed and may also be more tax efficient due to their lower turnover. However, mutual funds offer a more comprehensive range of investment options and may be more suitable for some investors.

SoFi Invest®

INVESTMENTS ARE NOT FDIC INSURED • ARE NOT BANK GUARANTEED • MAY LOSE VALUE

SoFi Invest encompasses two distinct companies, with various products and services offered to investors as described below: Individual customer accounts may be subject to the terms applicable to one or more of these platforms.
1) Automated Investing and advisory services are provided by SoFi Wealth LLC, an SEC-registered investment adviser (“SoFi Wealth“). Brokerage services are provided to SoFi Wealth LLC by SoFi Securities LLC.
2) Active Investing and brokerage services are provided by SoFi Securities LLC, Member FINRA (www.finra.org)/SIPC(www.sipc.org). Clearing and custody of all securities are provided by APEX Clearing Corporation.
For additional disclosures related to the SoFi Invest platforms described above please visit SoFi.com/legal.
Neither the Investment Advisor Representatives of SoFi Wealth, nor the Registered Representatives of SoFi Securities are compensated for the sale of any product or service sold through any SoFi Invest platform.

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.

Exchange Traded Funds (ETFs): Investors should carefully consider the information contained in the prospectus, which contains the Fund’s investment objectives, risks, charges, expenses, and other relevant information. You may obtain a prospectus from the Fund company’s website or by email customer service at https://sofi.app.link/investchat. Please read the prospectus carefully prior to investing.
Shares of ETFs must be bought and sold at market price, which can vary significantly from the Fund’s net asset value (NAV). Investment returns are subject to market volatility and shares may be worth more or less their original value when redeemed. The diversification of an ETF will not protect against loss. An ETF may not achieve its stated investment objective. Rebalancing and other activities within the fund may be subject to tax consequences.

Investment Risk: Diversification can help reduce some investment risk. It cannot guarantee profit, or fully protect in a down market.

Claw Promotion: Customer must fund their Active Invest account with at least $25 within 30 days of opening the account. Probability of customer receiving $1,000 is 0.028%. See full terms and conditions.

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2024
Refinancing Student Loans Without a Cosigner: Is It Possible?

Refinancing Student Loans Without a Cosigner: A Comprehensive Guide

By | Debt Payoff, Fresh Out of School, Student Loans, student_loan | Comments Off on Refinancing Student Loans Without a Cosigner: A Comprehensive Guide

You may be able to finance student loans without a cosigner as long as you meet specific lender requirements. Refinancing is when a private lender like a bank, credit union, or online lender pays off some or all of your existing student loans and replaces them with a new loan.

A cosigner is an individual with good credit who agrees to repay the loan if you, the primary borrower, cannot. A cosigner may give a student without a strong credit history a better chance of being approved for refinancing and also help them secure a better interest rate on the loan. However, it is possible to refinance loans with no cosigner if you meet certain conditions.

Read on for more information about student loan refinancing without a cosigner and what it involves.

Key Points

•   Refinancing student loans without a cosigner requires a good credit score, a solid credit history, and a stable income.

•   A lower debt-to-income ratio increases the chances of qualifying for student loan refinancing.

•   Refinancing student loans can potentially result in a lower interest rate. It also streamlines student loan payments by consolidating multiple loans into one.

•   Refinancing federal student loans turns them into private loans and results in the loss of federal benefits like federal loan forgiveness programs.

•   Alternatives to refinancing include income-driven repayment plans and loan forgiveness programs.

Understanding Student Loan Refinancing

With student loan refinancing, a private lender pays off your existing student loans, whether they are private student loans, federal student loans, or a mixture of both. The lender then issues you a new loan with a new interest rate and loan terms.

Ideally, refinancing student loans allows you to get a lower interest rate or more favorable loan terms. The loan interest rate, which is a percentage of your principal amount borrowed, is the amount you pay to your lender in exchange for borrowing money. A lower interest rate can help you save money on your monthly student loan payments.

When you refinance, you may be able to change the repayment terms of the loan. For instance, if you need more time to repay the loan and smaller monthly payments, you may be able to get a longer loan term. However, this means that you will likely pay more in interest overall since you are extending the life of the loan. Alternatively, if you are refinancing student loans to save money, you might be able to get a shorter loan term so that you can repay the loan faster, helping you save on interest payments.

Refinancing can also help you manage your student loan payments by streamlining the process. Instead of having to keep track of multiple loans with different due dates and balances, with refinancing you have just one loan to repay.

You can refinance both federal and private student loans, but be aware that refinancing federal student loans means that you’ll lose access to federal benefits such as federal loan forgiveness and income-driven repayment plans. Clearly, it’s important to consider when to refinance student loans for the best possible outcome.

Recommended: Guide to Student Loan Refinancing

Refinancing Student Loans Without a Cosigner

Refinancing student loans without a cosigner means you’ll have full control over your loan and the responsibility of repaying it will be all yours. No one else will be financially liable for it.

However, to qualify for student loan refinancing on your own you will need to meet specific requirements. These eligibility requirements include:

Qualifying With Your Own Credit

To get approved for student loan refinancing, you typically need a good credit score and a solid credit history. FICO®, the credit scoring model, considers a good credit score to be between 670 to 739. Different lenders have different credit score requirements — some have a minimum credit score that’s slightly lower than 670 — but a higher score is usually better not only for approval but also to get the best rates and terms.

If your credit score needs some work, there are ways to build your credit over time. First, make all your payments in full and on time. Payments account for 35% of your FICO score, so this is critical. In addition, keep your credit utilization — the amount of debt you owe vs. the available credit you have — as low as you can. This can help show that you’re not overspending. And have a balanced mix of credit, such as credit cards and loans, to demonstrate that you can successfully deal with different types of debt.

In addition to your credit score, lenders will also check your credit history — meaning the age of your credit accounts. Having some older active credit accounts shows that you have a track record of borrowing money and repaying it.

Debt-to-Income Ratio

The lender will also look at your debt-to-income (DTI) ratio. This is a percentage that indicates how much of your money goes toward your monthly debts versus how much money you have coming into your household each month.

You can calculate your DTI by adding up your monthly debts and dividing that figure by your gross monthly income (your income before taxes). Multiply the resulting number by 100 to get a percentage, and that’s your DTI. The lower your DTI is, the less risk you are to lenders because it indicates that you have enough money to pay your debts, including the new loan.

If your DTI is high, above 50%, say, work on paying down the debt you owe before you apply for student loan refinancing. You can also work to boost your income by applying for a promotion or taking on a side hustle.

Employment Status

Generally, lenders look for borrowers who are currently employed and have a steady income, or, in some cases, those who have an offer of employment to start within the next 90 days, in order to approve them for student loan refinance. Check with your lender to learn their specific employment and income criteria.

Recommended: Student Loan Refinancing Calculator

Alternatives to Refinancing

If you can’t qualify for student loan refinancing without a cosigner, there are some other options to explore to help manage your student loan payments.

Income-driven Repayment Plans

With an income-driven repayment (IDR) plan, your monthly student loan payments are based on your income and family size. Your monthly payments are typically a percentage of your discretionary income, which usually means you’ll have lower payments. At the end of the repayment period, which is 20 or 25 years, depending on the IDR plan, your remaining loan balance is forgiven.

Loan Forgiveness Programs

You might qualify for student loan forgiveness through a state-specific or federal program. For instance, borrowers with federal student loans who work in public service may be eligible for the Public Service Loan Forgiveness (PSLF) program. If you work for a qualifying employer such as a not-for-profit organization or the government, PSLF may forgive the remaining balance on your eligible Direct loans after 120 qualifying payments are made under an IDR plan or the standard 10 year repayment plan. There is also a federal Teacher Loan Forgiveness program for student loan borrowers who teach in low-income schools or educational service agencies.

Be sure to check with your state to find out what loan forgiveness programs may be available. Some state programs even offer forgiveness to private student loan holders.

Federal Student Loan Consolidation

A federal Direct Consolidation loan allows you to combine all your federal loans into one new loan, which can lower your monthly payments by lengthening your loan term. The interest rate on the loan will be a weighted average of the combined interest rates of all of your consolidated loans. Consolidation can simplify and streamline your loan payments, and your loans remain federal loans with access to federal benefits and protections. However, a longer loan term means you’ll pay more in interest over the life of the loan.

How SoFi Can Help You Refinance

If you opt to refinance your student loans, you may want to consider refinancing your loans with SoFi. You’ll get competitive fixed or variable interest rates on refinanced student loans, no fees, flexible repayment options, and member benefits such as financial advice.

You can refinance online with SoFi and the process is quick and easy. You can view your rate in just two minutes, and it won’t affect your credit score. Then, you can choose a term and payment that makes sense for you. Just remember that refinancing federal student loans makes them ineligible for federal benefits such as income-driven repayment plans.

With SoFi, refinancing is fast, easy, and all online. We offer competitive fixed and variable rates.

FAQS

Can I refinance my student loan without my cosigner?

If you can qualify for refinancing on your own, you typically won’t need to include the cosigner on the new loan which will have new loan terms. By qualifying on your own, you are essentially demonstrating to the lender that you have what it takes to make your loan payments. To qualify for refinancing without a cosigner, you’ll generally need a strong credit score and solid credit history, a low debt-to-income ratio, and a stable income

Is there any way to get a student loan without a cosigner?

Your ability to get a student loan without a cosigner depends on the type of loan it is and your financial situation. Most federal student loans, including Direct Subsidized and Unsubsidized loans, don’t require you to have good credit or to prove you have income, so you won’t need a cosigner for those loans. However, if you’re taking out a Direct PLUS loan and you have adverse credit, such as a recent loan default, you will likely need a cosigner for the loan.

If you’re interested in private student loans, private lenders generally have strict qualification requirements regarding your credit score and income. As a student without much of a credit history or a steady income, you may need a cosigner to qualify for a private student loan.

How easy is it to refinance student loans?

Refinancing student loans is quite easy today because in most cases you can do virtually all of it online. Here’s how: Research different lenders that offer refinancing and compare their loan terms and interest rates. Get a rate estimate from a few lenders to see what rate you may be eligible for (this process involves a soft credit check that does not affect your credit score), and then choose the lender that makes the most sense for you. You can typically complete the entire loan application online (just be aware that you will need to supply documentation to prove your financial situation).

Photo credit: iStock/paulaphoto

SoFi Student Loan Refinance
SoFi Student Loans are originated by SoFi Bank, N.A. Member FDIC. NMLS #696891. (www.nmlsconsumeraccess.org). SoFi Student Loan Refinance Loans are private loans and do not have the same repayment options that the federal loan program offers, or may become available, such as Public Service Loan Forgiveness, Income-Based Repayment, Income-Contingent Repayment, PAYE or SAVE. Additional terms and conditions apply. Lowest rates reserved for the most creditworthy borrowers. For additional product-specific legal and licensing information, see SoFi.com/legal.


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.

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.

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

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

Non affiliation: SoFi isn’t affiliated with any of the companies highlighted in this article.

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.

External Websites: The information and analysis provided through hyperlinks to third-party websites, while believed to be accurate, cannot be guaranteed by SoFi. Links are provided for informational purposes and should not be viewed as an endorsement.

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04
2024
15 Ways to Stay Motivated When Paying Down Debt

Staying Motivated When Paying Off Debt

By | Debt Payoff, Family Finances, money | Comments Off on Staying Motivated When Paying Off Debt

Paying off debt is a long-term commitment that requires discipline, and staying motivated until your debts are paid off can be a major challenge. Consider these examples:

•   If you have a student loan of around $38,000, it can take seven and a half years to pay off with monthly payments of roughly $500, according to the Education Data Initiative.

•   If you have $10,000 of credit card debt at a 20.39% interest rate and want to pay it off in three years, you’ll have to pay $373 every month.

It may sound daunting, but here’s a pep talk: The advantages of paying off debt are well worth the effort. With more money to spend each month, you can invest and build a nest egg toward retirement or simply save for luxuries like vacations. Paying down debt can also help build your credit, giving you access to loans with more attractive rates and terms in the future.

To help you buckle down and say goodbye to your debt, read on to learn how to stay motivated while paying off your debt.

Key Points

•   Tacking your progress and watching your debt diminish can boost your motivation and help you stick with your plan.

•   Post photos or create a vision board to visualize goals and stay motivated.

•   Celebrate small wins by rewarding yourself with budget-friendly treats for milestones.

•   Choose a repayment method that suits your situation, like the debt snowball or avalanche.

•   Earn extra money through overtime, gig work, or part-time jobs to accelerate repayment.

Why It’s Hard to Stay Motivated When Paying Off Debt

Paying down debts can feel like an uphill, almost endless battle. Depending on how much you have to pay off, the process may take many months to years and require some uncomfortable sacrifices you’d rather not make.

With a few changes to your money mindset, however, you’ll likely find that paying down debt becomes easier as you go along and learn better money management.

If you are ready to get rid of debt, read on to learn 15 ways to stay motivated.

15 Ways to Help You Stay Motivated When Paying Off Debt

Here are 15 tips to help setting yourself up for success. They’ll give you a boost as you consider how to stay motivated while paying off debt.

1. Remember the “Why”

Why have you decided to pay off your debt? Are you tired of never having as much spending money as you’d like and watching the debt pile up? Do you hate the idea of dollars flying out of your bank account to pay for interest? Do you have financial goals that are falling ever further out of reach?

Whatever your reasons, remind yourself regularly why you are working so hard and monitor your progress so that you can see the results.

💡 Quick Tip: Help your money earn more money! Opening a bank account online often gets you higher-than-average rates.

2. Get Organized

Achieving a goal is easier if you have a plan. Your strategies to become debt free might include consolidating your debt with a lower-interest loan, or you might decide to get a roommate and save on rent.

Whatever your method, plan a budget that you can live with and set up automatic payments each month so that you don’t have to think about your bills daily. (This will also help you avoid late fees.) Then, be disciplined, stick to your budget, and watch your debt diminish.

3. Have an Accountability Partner

Telling someone you are working on paying down debt can help motivate you. Called an accountability partner, this person could be your spouse, a friend, or a financial advisor. If you worry about telling your accountability partner that you fell off the proverbial wagon, remember that nobody’s perfect. Don’t beat yourself up. Just get right back on track with some encouraging words from your partner.

4. Put Yourself in an Uncomfortable Situation

Achieving a goal often takes acknowledging the difficulty saving money can present and then pushing through it. Paying down debt will require making changes to your lifestyle so that you can live more economically.

That might mean going out less with friends, not spending so much on clothes, or moving in with parents temporarily. Feeling uncomfortable is not a bad thing; it can be a powerful motivator. You will power through any feelings of deprivation to get on better financial footing going forward.

5. Track Your Progress

When you initially decide to tackle accumulated debt, it can seem overwhelming. By tracking your payments and your diminishing debt, you will see progress. This in turn can give you confidence and enhance your saving motivation as you stick with your plan.

6. Have a Vision Board

Staying motivated while paying off debt can involve having a vision of what you will do once you are debt free. Use that as a motivator, not just in your mind but in your home. Perhaps you want to take a vacation to London once you pay off your credit card balances. You might post your goal where you can see it so you are reminded each day of your intention. You might even create a vision board with photos of your goal to help spur you on. Whether it’s pics of the West End theaters or teatime at a posh hotel, those photos can be motivating.

7. Celebrate the Small Wins

Find ways to reward yourself as you gradually pay down your debt. These special treats should be inexpensive (so as not to blow your budget) but meaningful. It could be picking up and reading the latest book by your favorite author, a meal out with friends, or buying yourself new running shoes. Build room into your budget for rewards.

💡 Quick Tip: Did you know online banking can help you get paid sooner? Feel the magic of payday up to two days earlier when you set up direct deposit with SoFi.^

8. Have Like-Minded Friends

Surround yourself with people who will encourage you to spend less rather than overspend. Friends who like going out to expensive restaurants or shopping at expensive stores are generally not going to help your cause. There are lots of ways to socialize that don’t require spending a boatload of cash. For example, grab a coffee with a friend, or go for a hike. Don’t let keeping up with the Joneses (when the Joneses are big spenders) foil your efforts.

9. Reach out to Others

Knowing that you are not the only one fighting debt is comforting, and hearing success stories will encourage you to continue. Seek support by listening to others.

Podcasts on personal finances and online discussion platforms can provide community and give you ideas on how to manage your debt.

10. Focus on the End Date or End Goal

Have an end date or a final goal, and mark it on your calendar. Plan to reward yourself for your hard work when you reach it. It might be a weekend away or finding a new apartment now that you have freed up some cash in your budget. Looking forward to something will keep you motivated.

11. Listen to Sound Financial Advice

How to stay motivated to pay off debt comes down to making informed decisions that hasten the process. It’s important to make sure the financial advice you listen to comes from reliable sources. Many finance “gurus’ on YouTube and social media platforms may not give out the best advice. Find a financial advisor via recommendations if you are unsure of the steps to take to pay down your debt or need additional guidance.

12. Choose a Repayment Method that Makes Sense

There is more than one way to pay off what you owe, and the debt repayment strategies you choose should suit your particular situation and financial goals. You might choose the debt snowball method, where you pay off your smallest debts first for some early wins, or you might pay off the debts with the highest interest rates first to save the most money.

Feel as if you are in too deep of a debt hole? Consulting with a financial advisor or a credit counselor at a nonprofit can help you find the best ways to get the upper hand over your debt.

13. Break Repayment Down Into Smaller Goals

It helps to break down any overwhelming task into smaller goals. For example, if you’re interested in debt consolidation, the first step might be to do some research on the topic. The next step might be to arrange a loan with the bank and set up payments. Then, set goals to achieve after six months, 12 months, 18 months, and so on. It can help motivate you to pay off debt to see the individual steps that will get you there.

14. Earn Extra Money

You’ll pay off debt quicker if you can earn extra money. Think of ways to increase your income. Can you do overtime, gig work, or part-time work? You might meet new people and expose yourself to a whole new industry that interests you. Who knows? It could be the start of an entirely new career.

Recommended: 11 Benefits of Having a Side Hustle

15. Gamify Your Debt Repayment

Setting a challenge for yourself can add a sense of fun to paying off debt, and it can boost your confidence. For example, you might set a goal of making an additional $1,000 this month from a side hustle. Or each month vow to briefly give up a typical bit of discretionary spending, such as no take-out coffee for one month. The money saved goes towards debt. Gamifying can help you reach your goals quicker, just make sure your challenge is achievable.

The Takeaway

Paying down debt can be a long process, and it is not easy to stay motivated. Some of the ways to stay motivated when paying off debt are to acknowledge exactly how much you owe and then develop a plan, with clear benchmarks, to whittle it down. It also helps to reach out to others to learn their experiences, set achievable milestones, and reward yourself when you reach them. These steps can help keep you going untill you reach that debt-free finish line.

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 4.00% APY on SoFi Checking and Savings.

FAQ

Does paying off debt make you happier?

Paying off debt can be difficult at first, as it usually involves making some uncomfortable changes in your lifestyle and budget. Ultimately, however, paying down debt can come as a huge relief. It also frees up funds you can use to achieve your goals and improve your quality of life.

What are the benefits of paying off debt?

Paying off debt can lift a large weight off your shoulders. It also frees up funds you can now use in other ways, such as saving for an upcoming vacation or a downpayment on a home. In addition, taking control of your finances and paying off debt are huge accomplishments that can boost your confidence to tackle other challenges.

Is it worth it to pay off your debt?

Paying down debt helps reduce the amount you’re paying in interest. This frees up money to use for other purposes, such as saving for short- term goals and investing for the future, which can help you build wealth over time.

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SoFi members with direct deposit activity can earn 4.00% 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. SoFi members with direct deposit are eligible for other SoFi Plus benefits.

As an alternative to direct deposit, SoFi members with Qualifying Deposits can earn 4.00% 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 members with Qualifying Deposits are not eligible for other SoFi Plus benefits.

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 4.00% 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 12/3/24. 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.

We do not charge any account, service or maintenance fees for SoFi Checking and Savings. We do charge a transaction fee to process each outgoing wire transfer. SoFi does not charge a fee for incoming wire transfers, however the sending bank may charge a fee. Our fee policy is subject to change at any time. See the SoFi Checking & Savings Fee Sheet for details at sofi.com/legal/banking-fees/.
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.

^Early access to direct deposit funds is based on the timing in which we receive notice of impending payment from the Federal Reserve, which is typically up to two days before the scheduled payment date, but may vary.

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