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Fundraiser bank accounts offer a way to help take care of those in need, and they are typically easy to establish. You may have heard about these accounts on your local news. They are used in such situations as people donating to help a neighbor rebuild a flooded house or pay medical bills when facing a tough diagnosis.

If you are planning to raise money on someone else’s (or a cause’s) behalf, opening a fundraising bank account could be a good option. But how you do so will depend on what the account is for. Here’s a closer look at what a fundraising bank account is and how it operates.

What Is a Fundraising Bank Account?

A fundraiser bank account is one set up specifically to hold donations. For most of us, that means donations to a small cause, be it ourselves, another individual, or a small group of people. A fundraising bank account sets aside the money specifically for the beneficiary (or beneficiaries), though it may not be opened by the individual who will benefit. Some points to consider:

•   Keep in mind that opening a bank account for fundraising is different from donating to a charity. These are bank accounts people set up to hold donations to an individual or family as opposed to starting a full-on charity of their own.

•   A fundraising bank account is not the only way to capture donations. Most major crowdfunding platforms make it easy to accept donations through the platform itself, or you may also be able to take donations via peer-to-peer transfer services. The money could then be transferred directly to an individual’s personal checking or savings account.

•   Unless you’re offering something in return for the money or the total donations, it’s not considered taxable income, though the crowdfunding platform may report the transactions to the IRS.

That said, opening a fundraising bank account can still be the best option for some situations. It can provide more formal protections for beneficiaries and assure the donated monies are separate from other funds.

What Is Needed to Set Up a Fundraising Account?

What you need to set up a fundraising bank account will vary depending on the bank you choose and even the local laws in your area. A good first step: Explain the purpose of your account to the bank when you open it. This way, they will have a full picture of what your goal is and be able to guide you.

Your Identification Information

Just like when you open a new bank account, you’ll need identifying information such as a Social Security number, name, and address — but whose identifying information you need will vary. If the fundraising account is for donations to you as an individual, your own information will be needed.

The Beneficiaries’ Identification Information

But if you’re opening an account for a someone else to benefit from, it may make more sense to open the account with their credentials. In fact, if you can, bring them to the bank with you and have them open the account in their own name. A bank may or may not allow you to open an account for another person if they’re not present or haven’t provided signed and notarized forms.

If the beneficiary doesn’t have a Social Security number or you’re opening the account for multiple beneficiaries, you may need to obtain an Employer Identification Number, or EIN, from the IRS for the account. (This is simply a way for the IRS, or Internal Revenue Service, to keep tabs on the money for tax-reporting purposes — it doesn’t, in this case, have anything to do with being someone’s employer.)

What to Do With the Money While It Is Being Raised

When you are gathering funds to support a charity or help a person in need, it’s vital to keep it safe. A smart way to do that: Make sure that money gets into the bank account ASAP. Depositing it directly will protect it from possible loss. As other deposits come in, the balance will grow until the happy day you are able to distribute it to the individual or charity that will benefit from your kindness.

Things to Consider With a Fundraising Bank Account

There are some complications that can arise when opening a bank account for fundraising. Some examples:

Fundraising Accounts for Deceased Beneficiaries

In some cases, you may be raising money to pay for a deceased person’s funeral costs or to provide living expenses for loved ones left behind. Of course, if someone has passed away, you can’t use their Social Security number to open an account — so you’ll need to obtain an EIN, as mentioned above, and again, let the bank know explicitly the purpose of the account.

Fundraising Accounts for Minor Beneficiaries

Perhaps you want to help collect money for a child who needs cash for medical or educational expenses. Be forewarned that raising money for minors can come with a variety of complications — including the problem of ensuring the minor uses the money for what it’s being set aside for.

•   Establishing the account by or for the child’s legal guardian is a good way of safeguarding the funds and making sure they’re being used for the intended purpose.

•   If that option is unavailable, you might consider setting up a trust fund — which involves putting the legal responsibility for the money into a third party’s hands, with the added option of specifying certain ways the money can be used. An attorney can guide you through the process of setting up a trust.

Tax Consequences

As mentioned above, gift funds received in a fundraising bank account may not be taxable as income — although there are exceptions, and you should always consult a tax professional to be sure you understand the tax liabilities of your planned actions. For example, if the account the donations are being held in earns interest, taxes may be assessed on those earnings.

In addition, keep in mind that these kinds of donations are not considered charitable donations, and so will not be tax deductible for the donor.

Can the Bank Be Held Liable if Funds Are Misused?

Unfortunately, scammers do exist — and it’s possible that some people who set up fundraising bank accounts may end up using the monies for a purpose other than what was promised to the donors. If you’re setting up an account in good faith for someone else’s use, it’s worth checking with the bank about who’d be liable if the beneficiary misused the funds.

It’s not unheard of for banks to request that they be indemnified if this should happen and the money isn’t used according to the fund’s original intention.

Are There Safeguards in Case of Fraud?

It’s upsetting to think about, but yes, fraud does happen. People have been known to take advantage of the compassion of do-gooders and use the money raised to pay for things other than to fund’s intention.

•   Setting up a formal trust is one way to ensure the funds can only be used within the proper parameters.

•   You can also check with the bank to learn if there are any other safeguards in place in case of bank fraud.

The Takeaway

Opening a fundraising bank account is one way to set aside money being gathered for an individual or small group. The funds will be protected and can accumulate to help the beneficiary. When acting on good intentions, though, it’s important for the account’s creator to understand how these accounts function, what’s required to open one, and that they don’t afford any tax deductions for donors. With these steps taken, you can be well on your way to helping those in need or a cause that moves you.

On the topic of bank accounts, how are your own accounts doing?

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

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

FAQ

How do I set up a charity account?

To set up a fundraising bank account, you’ll need to explain to the bank the purpose of your account and ensure you have all the information they need, likely including the beneficiary’s Social Security number.

Do I need a tax ID for a fundraiser?

Depending on the type of account you set up and whether or not the beneficiary’s Social Security number can be used, you may need to get a tax ID number (such as an Employer Identification Number, or EIN) in order to open the account.

How do you account for donations?

All donations should be tracked for tax reporting purposes — and keeping them in a separate account makes it easy to see which funds are personal and which are gifts.

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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.

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

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Paying off your mortgage ahead of time might sound like an incredibly savvy thing to do — and in some cases, it is. But it’s not the right money move for everyone. And paying off a mortgage in just five years? It’s an aggressive strategy that may or may not be the smartest choice.

Benefits and Risks of Paying Off a Mortgage Early

Achieving homeownership is, well, an achievement. And since you’re here reading an article about paying a mortgage off early, you’re clearly an overachiever.

Paying off any kind of debt early usually seems advisable. But for most of us, our home is the single largest purchase we’ll ever make — and paying off a six-figure loan in only a few years could wreak havoc on the rest of your finances.

In addition, some mortgages come with a prepayment penalty, which means you could be on the line for additional fees that might eclipse whatever you’d stand to save in interest payments over time. (Mortgages tend to have lower interest rates than many other common types of debt anyway.)

That said, if you have the cash, paying off your home early can lead to substantial savings, not to mention helping you build home equity as quickly as possible.

Let’s take a closer look at the risks and benefits of paying off a mortgage early.

Benefits of Paying Off a Mortgage Early

The main benefit of paying off a mortgage early is getting out of debt. Even minimal interest is an expense it can be nice to avoid.

Additionally, paying off your home early means you’ll have 100% equity in your home, meaning you own its whole value, which can be a major boon to your net worth.


💡 Quick Tip: With SoFi, it takes just minutes to view your rate for a home loan online.

Risks of Paying Off a Mortgage Early

Paying off a mortgage early may come with risks, and not just prepayment penalties (which we’ll touch on again in a moment). In many instances, it can be a plain old bad financial move.

Depending on what your cash flow situation looks like, and what the interest rate on your mortgage is, you might stand to out-earn early payoff savings if you funnel the extra cash to your investment or retirement accounts instead. (You can use this mortgage calculator to see how much interest you stand to pay over the lifetime of your home loan — and then compare that to how much you might earn if you invested that money instead.)

Additionally, if you have other forms of high-interest debt, like revolving credit card balances, it’s almost always a better idea to focus your financial efforts on those pay-down projects instead.

And if you have historically taken the home mortgage interest deduction on your taxes, it’s also worth talking with your tax advisor about what impact paying off your mortgage early will have on your deductions. (For 2023, the standard deduction is $27,700 for married couples filing jointly and $13,850 for single people and married people filing separately. For 2024, the standard deduction for married couples filing jointly rises to $29,200. For single taxpayers and married people filing separately, the standard deduction rises to $14,600.)

To recap:

Benefits of Paying Off a Mortgage Early	Risks of Paying Off a Mortgage Early
Saving money on interest over time	Possible repayment penalty; possible loss of tax deduction
Building home equity quickly	Lost opportunity for investment growth, which could outweigh interest savings
No longer having to make a mortgage payment every month	Less money for other important goals, such as paying down credit card debt

Watching Out for Prepayment Fees

One of the biggest risks of paying off a mortgage before its full term is up is the potential to run into prepayment penalties. Some mortgage lenders charge large fees to make up for the interest they’ll be missing out on.

Fortunately, avoiding prepayment penalties on home loans written after 2014 is easier: Legislation was passed to restrict lenders’ ability to charge those fees. But if your mortgage was written in 2013 or earlier — and even if not — it’s a good idea to read the fine print before you hit “submit” on your lump-sum payment, and ideally before you accept the contract at all.

Steps to Paying Off a Mortgage Early

You’ve assessed the risks and benefits and decided that paying off the mortgage early is the right move for you. Nice!

Now let’s take a look at how to get it done.

Pregame: Considering Repayment Goals When House Shopping

This option won’t work if you’ve already found and moved into a home, but if you’re still in the home-shopping portion of the journey, looking at inexpensive homes can be a great first step toward paying off your mortgage fast.

After all, if the home has a lower price tag, it’ll be easier to reach that goal in a shorter amount of time. Ideally, you want its value to appreciate, so you’ll still want to shop around before just choosing the lowest-priced house on the block.

Maybe you signed your home contract years ago and are just now considering getting serious about early mortgage repayment. Take heart! There are some easy steps to follow to make your mortgage disappear in five years or so.

1. Setting a Target Date

The first step: figuring out exactly when you want the mortgage paid off. Choosing your target date will make it easier to figure out how much additional money you need to send to your lender each month.

Five years is a pretty tight timeline for this kind of debt repayment process, but it could be doable depending on your earnings and commitment.

2. Making a Higher Down Payment

The higher your down payment, the less loan balance you’ll have to pay down, so if you can manage it, offer as much as you can right at the start. There are many assistance programs for down payments that might boost your offer and put you on track for paying down your mortgage early.

Also, realize that first-time homebuyers — who can be anyone who has not owned a principal residence in the past three years, and some others — often have access to down payment assistance.

3. Choosing a Shorter Home Loan Term

Obviously, if you want to pay your mortgage off in a shorter amount of time, you can consider choosing a shorter home loan term; most conventional mortgages are paid off over 30 years, though it’s possible to find loans with 15- or even 10-year terms.

However, your interest rate might be higher on those loans in order to make the deal worthwhile to the lender, so for many borrowers, choosing a longer home loan term and making aggressive additional payments is a better option.

4. Making Larger or More Frequent Payments

One of the most achievable ways for most borrowers to pay off a home loan early is to pay more than the monthly minimum, either by adding extra toward the principal in the monthly payment or by paying more than once per month.

Unless you’re due for a six-figure windfall, chipping away at the debt this way might be the smartest option. But how does one come up with the additional money to funnel toward that goal?

5. Spending Less on Other Things

As with most debt repayment strategies, chances are you’ll need to find other ways to cut back on spending in order to set aside more money to put toward the mortgage. This could be as small as ditching the daily latte or as serious as choosing to give up a car.

6. Increasing Income

Another option, if there’s just nothing left to cut? Finding ways to increase your income, perhaps by starting a side hustle or asking for that long-overdue raise.


💡 Quick Tip: A Home Equity Line of Credit (HELOC) brokered by SoFi lets you access up to $500,000 of your home’s equity (up to 90%) to pay for, well, just about anything. It could be a smart way to consolidate debts or find the funds for a big home project.

The Takeaway

Pay off a mortgage in five years? While paying off your home loan early could help you save money on interest, sometimes the money is better spent on other financial goals and projects. So it pays to take a close look at the numbers, just as you did when you got your mortgage in the first place.

Looking for an affordable option for a home mortgage loan? SoFi can help: We offer low down payments (as little as 3% - 5%*) with our competitive and flexible home mortgage loans. Plus, applying is extra convenient: It's online, with access to one-on-one help.

SoFi Mortgages: simple, smart, and so affordable.

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Photo credit: iStock/fizkes

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

SoFi Mortgages
Terms, conditions, and state restrictions apply. Not all products are available in all states. See SoFi.com/eligibility for more information.

*SoFi requires Private Mortgage Insurance (PMI) for conforming home loans with a loan-to-value (LTV) ratio greater than 80%. As little as 3% down payments are for qualifying first-time homebuyers only. 5% minimum applies to other borrowers. Other loan types may require different fees or insurance (e.g., VA funding fee, FHA Mortgage Insurance Premiums, etc.). Loan requirements may vary depending on your down payment amount, and minimum down payment varies by loan type.

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To obtain a home equity loan, SoFi Bank (NMLS #696891) may assist you obtaining a loan from Spring EQ (NMLS #1464945).

All loan terms, fees, and rates may vary based upon individual financial and personal circumstances and state.

You may discuss with your loan officer whether a SoFi Mortgage or a home equity loan from Spring EQ is appropriate. Please note that the SoFi member discount does not apply to Home Equity Loans or Lines of Credit brokered through SoFi. Terms and conditions will apply. Before you apply for a SoFi Mortgage, please note that not all products are offered in all states, and all loans are subject to eligibility restrictions and limitations, including requirements related to loan applicant’s credit, income, property, and loan amount. Minimum loan amount is $75,000. Lowest rates are reserved for the most creditworthy borrowers. Products, rates, benefits, terms, and conditions are subject to change without notice. Learn more at SoFi.com/eligibility-criteria.

SoFi Mortgages originated through SoFi Bank, N.A., NMLS #696891 (Member FDIC), (www.nmlsconsumeraccess.org). Equal Housing Lender. SoFi Bank, N.A. is currently NOT able to accept applications for refinance loans in NY.

In the event SoFi serves as broker to Spring EQ for your loan, SoFi will be paid a fee.

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.

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

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When you close on a home, one of the most important documents you’ll review and sign is your mortgage note. It’s an agreement between you and the lender that outlines the terms and conditions of the mortgage. The document tells you how much and when to pay, and spells out the consequences if you don’t.

What Is a Mortgage Note?

A mortgage note, often referred to as a promissory note, is what you sign when you agree to take on the responsibility of a mortgage. The note outlines:

•   Your interest rate

•   The amount you owe

•   When the payments are due

•   The amount of time it will take to repay the loan

•   How to remit payment

•   Consequences for missed payments

It’s one of the key documents you’ll sign at closing.

Promissory notes also may be used in owner-financed home sales. The buyer and seller sign the document, which contains the loan terms. When a borrower pays the seller directly, the promissory note gives the lender the ability to enforce their rights through a mortgage lien, foreclosure, or eviction.


💡 Quick Tip: SoFi’s Lock and Look ⁺ feature allows you to lock in a low mortgage financing rate for 90 days while you search for the perfect place to call home.

What Is Included in a Mortgage Note?

The mortgage note outlines the conditions and responsibilities of the buyer. You’ll see sections like these in a mortgage note:

•   Borrower’s promise to pay. This section includes the total amount of money you’re borrowing and the name of the lender to whom you will remit payment.

•   Interest. The interest rate charged on the unpaid principal is listed here.

•   Payments. Borrowers agree to pay a monthly amount before or on a specific date. The place where borrowers can remit payment is also listed.

•   Borrower’s right to prepay. This section specifies a borrower’s ability to pay toward the mortgage principal without penalty. (Some lenders charge a fee if you pay off some or all of the principal early. Make sure you understand whether you have the right to prepay without a penalty before you get to the closing table.)

•   Loan charges. All charges by the lender must be legal. Any amounts over the legal limit will be refunded to the buyer or applied to the principal.

•   Borrower’s failure to pay as required. Default is clearly defined for the buyer, as are late charges and what happens in the event of default.

•   Giving of notices. Borrower and lender will have the details of how to contact each other for legal purposes.

•   Obligations of persons under this note. All people listed on the mortgage note are equally responsible for repayment of the loan.

•   Uniform secured note. Buyers are advised that a security instrument is signed in addition to the note that protects the note holder from potential losses by giving them the ability to foreclose in case of default.

How Does a Mortgage Note Work?

A mortgage or promissory note is drawn up by the lender when preparing your mortgage for closing during the underwriting process. This document is what makes the terms and conditions of the mortgage legally binding.

Borrowers will see the mortgage note at closing, though the terms and conditions will be outlined in a closing disclosure provided at least three business days before the closing date. The closing disclosure document can be compared with the loan estimate that was provided at the beginning of the mortgage application process. (This help center for mortgages is useful if you want to understand the entire mortgage process.)

A mortgage note is accompanied by another document, called the mortgage, security instrument, or deed of trust. It restates the terms of the mortgage note and outlines the rights and responsibilities you have as a borrower. As a security instrument, the document specifically gives the lender the right to foreclose on your property if you fail to make payments. Having this right reduces the risk to the lender, which can offer more competitive terms to the borrower in return.

Who Holds the Mortgage Note?

A mortgage note isn’t usually held by the lending institution that originated your loan. Mortgage notes are often sold, and it’s not easy to tell who holds your mortgage note. This is because the loan servicer (the company that sends your mortgage statements and handles day-to-day management of the loan) is usually different from the note holder.

Selling a Mortgage Note

You’ll see in your closing documents a provision that allows the lender to sell the mortgage note. This is common and legal in home contracts and typically occurs soon after the property closes. Lenders sell mortgages on the secondary mortgage market, usually to one of the large federally backed mortgage companies, Fannie Mae or Freddie Mac. When the mortgages are sold, the lender doesn’t have to keep the mortgage on their balance sheet, which, in turn, allows them to originate more mortgages for other borrowers.

Fannie Mae and Freddie Mac then bundle mortgages into what is called a mortgage-backed security. Investors around the world (think pension funds, mutual funds, insurance companies, and banks) can buy shares of mortgage-backed securities. The investors will receive steady returns as the mortgages are repaid by individual borrowers.

The loan servicer (which may be your original lender or a separate company) typically continues to service your loan, meaning you’ll send your payment to them. They’ll keep a small portion of your mortgage to cover their costs for servicing your loan while sending the rest to the buyer of your note.

When your mortgage note is sold, the terms of your mortgage won’t change. Your payment, interest rate, and due date will remain the same. If your servicer changes for any reason, you’ll be notified of the new servicer and the new way to remit your mortgage payment.

Different Kinds of Mortgage Notes

There are different types of mortgage loans and different kinds of mortgage notes to accompany them.

Secured Loans

With a secured mortgage note, the mortgage uses collateral to secure the property. The collateral is usually the property itself. A secured loan is usually accompanied by better terms, such as a lower interest rate and a longer repayment period.

Private Loans

Private mortgage notes are secured by private lenders. A seller may own the property outright and act as a private lender, setting their own terms for mortgage loans.

Institutional Loans

Institutional notes are mortgage notes issued by traditional lenders, such as financial institutions or banks. They’re highly regulated. Buyers must meet specific criteria, and the loans must have standard interest rates and repayment terms.


💡 Quick Tip: Not to be confused with prequalification, preapproval involves a longer application, documentation, and hard credit pulls. Ideally, you want to keep your applications for preapproval to within the same 14- to 45-day period, since many hard credit pulls outside the given time period can adversely affect your credit score, which in turn affects the mortgage terms you’ll be offered.

The Takeaway

Understanding your mortgage note and how it works is a critical step in buying and financing a home. You should review the terms of your mortgage well before you arrive at the closing, and it may be helpful to review the details of the mortgage note with a professional, as the note can protect the buyer just as much as the seller.

Looking for an affordable option for a home mortgage loan? SoFi can help: We offer low down payments (as little as 3% - 5%*) with our competitive and flexible home mortgage loans. Plus, applying is extra convenient: It's online, with access to one-on-one help.

SoFi Mortgages: simple, smart, and so affordable.

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Photo credit: iStock/Chinnapong

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

SoFi Mortgages
Terms, conditions, and state restrictions apply. Not all products are available in all states. See SoFi.com/eligibility for more information.

*SoFi requires Private Mortgage Insurance (PMI) for conforming home loans with a loan-to-value (LTV) ratio greater than 80%. As little as 3% down payments are for qualifying first-time homebuyers only. 5% minimum applies to other borrowers. Other loan types may require different fees or insurance (e.g., VA funding fee, FHA Mortgage Insurance Premiums, etc.). Loan requirements may vary depending on your down payment amount, and minimum down payment varies by loan type.

⁺Lock and Look program: Terms and conditions apply. Applies to conventional purchase loans only. Rate will lock for 91 calendar days at the time of preapproval. An executed purchase contract is required within 60 days of your initial rate lock. If current market pricing improves by 0.25 percentage points or more from the original locked rate, you may request your loan officer to review your loan application to determine if you qualify for a one-time float down. SoFi reserves the right to change or terminate this offer at any time with or without notice to you.

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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What Is a Bitcoin ETF?

Bitcoin ETFs are exchange-traded funds that allow investors to gain exposure to Bitcoin without directly owning it. These ETFs include spot Bitcoin ETFs, which are designed to track the price of Bitcoin. That means when the price of Bitcoin in U.S. dollars goes up, a spot Bitcoin ETF trading on the stock exchange should also go up, and vice versa.

Spot Bitcoin ETFs were first approved by regulators in the United States in January 2024, a significant step as it opened more doors for everyday investors interested in trading crypto on a public stock exchange.

Bitcoin ETFs have a much narrower focus than most other exchange-traded funds, which started out with the aim of giving investors broad exposure to the stock market. But, like all investments, they have benefits and risks that investors should know about.

An Introduction to Bitcoin ETFs

Bitcoin ETFs are exchange-traded funds that, effectively, allow investors to gain exposure to the crypto markets as easily as they would buy or sell a stock. Bitcoin ETFs track the price or value of Bitcoin, and so the value of a Bitcoin ETF share is designed to rise or fall in relation to the change in value of the underlying cryptocurrency.

It also means that investors don’t need to directly own cryptocurrency to gain exposure to the market in their portfolio — they can invest in a security that tracks it instead. Another added benefit is the investors may sometimes be able to avoid crypto fees that some platforms and brokerages could charge for crypto transactions.

The Securities and Exchange Commission, one of the top regulation bodies in relation to the financial industry in the United States, first approved U.S.-listed Bitcoin ETFs in January 2024.

What Are Spot Bitcoin ETFs?

Spot Bitcoin ETFs are ETFs that trade at “spot” value – “spot” value meaning the price of the underlying asset at any given time. So, if a buyer and seller come together to make a trade, they would do so at the spot price. There are spot markets for all sorts of commodities.

Where Can Investors Buy Spot Bitcoin ETF Shares?

Investors can buy spot Bitcoin ETF shares via numerous exchanges and platforms. While previously, investors interested in Bitcoin or other cryptocurrencies would need to trade on platforms that supported cryptocurrencies, since Bitcoin ETFs are, well, ETFs, investors are likely to find them available on many other platforms — that includes SoFi, which allows investors to buy spot Bitcoin ETF shares as well.

Are There Other Spot Crypto ETFs?

Spot Bitcoin ETFs track the price of a fund’s Bitcoin holdings, and other spot crypto ETFs, if and when they are approved and hit exchanges, will do the same.

As noted, spot Bitcoin ETFs were first approved by regulators in early 2024. There are ETFs that track Bitcoin-exposed or Bitcoin-adjacent companies, too, as well as Bitcoin futures. Spot Ethereum ETFs, which may be the next type to be greenlit by regulators, are similar to spot Bitcoin ETFs, in that they track the price of Ethereum, and allow investors to gain exposure to Ethereum in their portfolios without owning it directly.

What Are Bitcoin Futures ETFs?

Bitcoin futures ETFs are another type of ETF that give investors exposure to the price movements of Bitcoin via futures contracts. Futures are a type of contract that dictates the terms of a trade at a future date, and typically have underlying assets such as precious metals or other commodities — including crypto.

Accordingly, Bitcoin futures ETFs are crypto futures ETFs that specifically track Bitcoin futures contracts. The SEC actually approved Bitcoin futures contracts in 2021, but again, investors should know that they don’t track the price or value of the underlying asset exactly — which differentiates them from spot Bitcoin ETFs.

Are There U.S.-listed Spot Bitcoin ETFs?

There are U.S.-listed spot Bitcoin ETFs. When the SEC first granted their approval in January 2024, it opened the door to several Bitcoin ETFs hitting the market. As a result, investors were able to start buying and selling them via the stock market.

The SEC’s approval led to new spot Bitcoin ETFs being listed on a few different exchanges. Here’s a list of the first 11 spot Bitcoin ETFs that gained approval from the SEC:

•   Grayscale Bitcoin Trust (GBTC)

•   Bitwise Bitcoin ETF (BITB)

•   Hashdex Bitcoin ETF (DEFI)

•   ARK 21Shares Bitcoin ETF (ARKB)

•   Invesco Galaxy Bitcoin ETF (BTCO)

•   VanEck Bitcoin Trust (HODL)

•   WisdomTree Bitcoin Fund (BTCW)

•   Fidelity Wise Origin Bitcoin Fund (FBTC)

•   Franklin Bitcoin ETF (EZBC)

•   iShares Bitcoin Trust (IBIT)

•   Valkyrie Bitcoin Fund (BRRR)

Note, too, that it’s anticipated that additional spot cryptocurrency ETFs will become available.

How Are Bitcoin ETFs Regulated?

Bitcoin ETFs are and will be regulated by the SEC, which sets out guidance in terms of legality. Regulation in the crypto space is and has been murky — it’s been largely unregulated for the entirety of the crypto space’s existence. But the advent of crypto ETFs is likely to change that to some degree, as spot Bitcoin ETFs’ underlying asset is and can be Bitcoin itself, rather than Bitcoin derivatives.

That’s another important distinction investors should note: Spot and futures Bitcoin ETFs may be regulated under slightly different terms, as futures are derivatives. Investors should pay attention to the space and to any SEC guidance released regarding crypto regulation, as it may impact the value of their holdings in crypto ETFs, too.

Pros & Cons of Bitcoin ETFs

Like all investments, there are pros and cons of ETFs — including Bitcoin ETFs.

Benefits of Bitcoin ETFs

Proponents of Bitcoin ETFs appreciate that they can give investors exposure to the complicated and volatile cryptocurrency market, without the need to personally hold actual crypto.

Convenience and Ease

Buying a spot Bitcoin ETF requires little tech know-how beyond knowing how to use a computer, open a brokerage account, and place a buy order.

ETFs provide a seemingly easy way to profit from rising asset prices without having to actually own those assets. On the other hand, holding actual Bitcoin may require a somewhat advanced level of technical expertise.

Safe Storage

Some cryptocurrency exchanges might be trustworthy, but some users have also had a controversial history of being hacked, stolen from, or defrauded. Even reliable exchanges open investors up to risk. Owning shares of a Bitcoin ETF can help avoid those risks.

Securely storing cryptocurrencies — for example, storing the private keys to a Bitcoin wallet — is most often done by using either a paper wallet that has the keys written in the form of a QR code and a long string of random characters, or by using an external piece of hardware called a hardware wallet.

Lower Counterparty Risk

Counterparty risk arises whenever a third party holds onto something for someone else. In certain situations, the third party’s interests might run contrary to that of the investor’s assets that they hold. Over the years, some service providers have sprung up promising to securely hold crypto for users. This may or may not be a desirable or promising solution, but even if it were suitable in all cases, there would still be risk.

At best, an unforeseen event like a bankruptcy or market disruption could cause a business to withhold customer funds for a period of time, making them inaccessible when people might need those assets most. Owning shares of a Bitcoin ETF, however, provides a level of protection, as those shares are regulated and in an investor’s portfolio.

Risks of Bitcoin ETFs

There are, naturally, numerous risks for investors to consider with Bitcoin ETFs, including volatility, costs, and the unpredictable and still largely-unregulated nature of the crypto market.

Volatility

The volatility comes from the occasional wild swings experienced in the price of Bitcoin against most other currencies. A Bitcoin ETF, which is intended to mimic the price action of Bitcoin, should also experience similar price swings. This could scare investors that have a lower risk tolerance, enticing them to panic sell.

Fees

One of the risks that comes from holding an ETF of any kind involves its expense ratio. This number refers to the amount of money a fund’s management charges in exchange for providing the opportunity for investors to invest in their fund.

If a fund comes with an expense ratio of 2%, for example, the fund management would take $2 out of a $100 investment each year. This figure is usually calculated after profits have been factored in, cutting into investors’ gains. In other words, some Bitcoin ETFs could be relatively expensive for investors to hold, but it’ll depend on the specific fund.

Fraud and Market Manipulation

Regulators have cited fraud and market manipulation as reasons for why they were cautious about approving a spot market Bitcoin ETF. It’s unclear how the SEC’s approval of spot Bitcoin ETFs may affect fraud and market manipulation in the crypto space, but it’s something inventors should be aware of.

The Takeaway

Spot Bitcoin ETFs were approved by the SEC in early 2024, and as a result, it’s likely that many more crypto ETFs will also hit markets and exchanges in the future — though nothing is guaranteed. These ETFs function more or less like any other type of ETF, and investors can use them to gain exposure to the crypto markets.

For investors curious about the cryptocurrency market but not yet ready to take the plunge, a Bitcoin ETF may represent a more convenient, comfortable option. It may be best to speak with a financial professional before investing, too.

If you’re ready to bring crypto into your portfolio, you can invest in a Bitcoin ETF with SoFi. Along with many other types of investments, SoFi’s platform offers investors access to the crypto space through spot Bitcoin ETFs.

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 are the options for Bitcoin ETFs?

There are Bitcoin futures ETFs, and spot Bitcoin ETFs listed in the U.S., which investors can buy. Given the SEC’s approval of Bitcoin ETFs in early 2024, there may soon be additional spot crypto ETFs available to investors in the future.

Are there U.S.-listed Bitcoin ETFs?

As of January 2024, there are U.S.-listed spot Bitcoin ETFs after the SEC approved an initial batch of them, and it’s likely there will be more in the subsequent months and years.

Where can Bitcoin ETF shares be purchased?

Crypto ETFs can be purchased and traded on the stock market, alongside other ETFs.

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