The term amortization is usually used to refer to the process in which debt is paid off on a set schedule, with fixed payments each month. An amortization schedule can show you the amount of your payment that goes toward the principal and interest each month. Because credit cards are considered revolving loans, amortization is not often used with credit cards.
However, a credit card amortization schedule can be helpful if you’re trying to pay down your balance. Understanding credit card amortization can help you decide how big your payments should be each month, as well as what the impact of additional credit card payments would be.
What Is Amortization?
Amortization is the process where debt is paid down on a set schedule, usually with fixed monthly payments. One common example is a 30-year mortgage — each month, you make a mortgage payment for the same amount.
Every time you make the mortgage payment, part of your payment is an interest payment, and part of the payment goes toward paying down your mortgage principal. Each month, as the principal balance goes down, more and more of your monthly payment goes toward the principal, until the mortgage is completely paid off.
Because credit cards are considered revolving debt — meaning you can continually borrow and repay your debt — they don’t have amortization in the same way that a mortgage or car loan does. However, one area where a credit card amortization schedule may apply is if you’re trying to pay down a credit card balance.
In this instance, understanding the amortization schedule for your credit card can help you decide how making additional payments to your credit card issuer will impact your overall balance.
One of the credit card rules is that the higher your balance is, the more interest you’ll owe each month.
To be more specific, by only making the credit card minimum payment, it could take you many years to pay off your debt. If you’ve decided to rein in your credit card spending and pay down your balance, you can use a credit card amortization schedule to determine how long it will take.
Looking at credit card amortization will allow you to see how much less you’ll owe with each subsequent payment — assuming you’re no longer actively using your credit card. This schedule will take into account your current balance, your card’s annual percentage rate (APR), and how much you can afford to pay off each month. Then, you can determine how many months it will take until your balance is paid off in full.
Factors That Affect Credit Card Amortization
One of the biggest factors that affects a credit card amortization schedule is the interest rate on your credit card. The higher your credit card interest rate, the more of each monthly payment that will go toward interest. That will mean your amortization schedule will last longer.
Another factor to consider is the consequences of credit card late payments. If you delay credit card payments and incur late fees, that will increase your overall balance. That will also increase your amortization schedule and extend the length of time it will take to pay down your total credit card balance.
Guide to Calculating Credit Card Amortization Period
Since credit cards are considered revolving debt, it can make it difficult to calculate a credit card amortization period. If you continue to use your credit card for new purchases, you won’t be able to calculate an amortization period because your total balance will change each month.
One way you can calculate a credit card amortization period is if you decide to stop making any purchases on your card. If you have a $5,000 balance on your credit card, you can use any online amortization calculator and input the credit card payment amount you want to make each month. The resulting amortization schedule will show how long it will take to completely pay off your credit card, assuming you make payments by your credit card payment due date.
Debt Consolidation and Credit Card Amortization: What to Know
If you’re looking to lower your credit card debt, one option is credit card debt forgiveness. But because this isn’t always easy to get, another is to consolidate your debt by taking out a personal loan.
Unlike revolving loans which are what a credit card is, a personal loan is a type of fixed loan that has an amortization schedule. Following that amortization schedule lets you know when you’ll completely satisfy your debt obligation.
An amortization schedule shows how much of each loan payment goes toward interest and how much goes to principal. Because credit cards are considered revolving debt, they don’t have amortization schedules in the same way that fixed loans do. Still, you can use a credit card amortization schedule as a tool if you’re trying to eliminate your credit card balance.
Whether you're looking to build credit, apply for a new credit card, or save money with the cards you have, it's important to understand the options that are best for you. Learn more about credit cards by exploring this credit card guide.
FAQ
What does credit card amortization payment mean?
If you’re looking to pay down or eliminate your debt, one strategy is to stop making any new purchases with your card. That way, you can concentrate on lowering your total payment. If you only make the credit card minimum payment each month, it could take years before you pay off your balance. Following a credit card amortization schedule can help pay off your debt sooner.
How can I calculate my credit card amortization period?
A credit card amortization period mostly makes sense if you stop making any new purchases on the card. If you’re still regularly using your credit card, your total balance will change with each purchase and payment. On the other hand, if you aren’t regularly using your card for new purchases, you can calculate your credit card amortization period using your total balance, interest rate, and monthly payment amount.
What is a credit card amortization term?
An amortization term is how long it takes to completely pay off a loan. If you’re making regular payments on the credit card payment due date each month, you’ll gradually lower your total credit card balance. A credit card amortization term can make sense if you are no longer actively using your card and focusing on eliminating your debt. You can use your total balance, interest rate, and the amount you’re paying each month to figure out how long it will take to eliminate your balance.
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Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.
The Federal Reserve, the country’s central bank, is self-funded: It mostly gets its operations covered via interest from securities that it owns as part of the Fed’s open market operations (OMO).
That said, the funding goes towards making sure these banks do their important work. This includes making sure the U.S. economy runs smoothly and serves the public interest. The Fed also manages short-term interest rates, which in turn affects the availability of credit and eventually things like consumer spending, investment, employment, and inflation.
The bank’s goals with these actions is to promote maximum employment, keep prices stable, and keep long-term interest rates moderate.
Who Owns the Federal Reserve Bank?
Even though parts of the Federal Reserve are structured like a private bank, the Fed is not owned by anyone. Congress created the Federal Reserve in 1913, and it remains an independent government agency. However, the board that oversees it — which is appointed by the president and confirmed by the Senate — still reports to Congress today.
Its leaders are required to testify in Congress and submit a lengthy report on its plans twice a year. The Federal Reserve actually consists of 12 Reserve Banks spread across different regions of the U.S. Although each one has a board of directors and is incorporated, it’s not actually a private entity and the banks aren’t in business to make a profit.
The Federal Reserve does not “make” money exactly, in that it doesn’t print money — that’s the Treasury Department’s job. But it does serve as a bank for other banks and government agencies, allowing them to open accounts to hold their reserves, take out loans, issue government securities, and take other actions.
When it comes to other banks, the Fed is there to lend to them in case they have problems getting funding, either because of unexpected fluctuations in their loans and deposits or due to extreme events, such as the COVID-19 crisis.
The Fed lends at a higher rate than the market in order to ensure that it’s used as a last resort. The Federal Reserve does not lend money or provide bank accounts for individuals, as retail banks do.
While the Federal Reserve does not actually print money, it does put in orders with the U.S. Treasury for “Federal Reserve notes” based on the demand it expects both domestically and internationally.
Here’s more detail on how the Fed works and keeps our economy humming along.
Fractional Reserve Banking and the Money Multiplier
Fractional reserve banking describes the system in which only a fraction of the money on deposit is actually held as cash and available for withdrawals by customers. Here are a few aspects of this system to note:
• The Federal Reserve wants to ensure that banks keep enough money on hand so that when customers come in seeking cash, they aren’t turned away. To accomplish this, the Fed sets a reserve requirement (often 10% of all deposits) that banks must keep available. In response to the COVID-19 pandemic, this was lowered to 0% in an effort to stimulate the economy.
• The Fed buys treasuries to help create monetary reserves. It sends the funds to banks so they can make loans with it, up to that reserve requirement limit mentioned above.
• Another aspect of fractional reserve banking is what is known as the money multiplier. Financial analysts use a money multiplier equation to calculate the impact of the funds kept on reserve on the economy in general. It estimates how much money is created in the economy by the reserve system.
Here’s how the calculation looks: The amount on deposit is multiplied by one divided by the reserve requirement. So if a bank had $100 million on deposit, you would multiply that by one divided by 10% to get $1 billion. That $1 billion represents money potentially created by lending out the 90% not kept on reserve at the bank.
Another way of looking at the Federal Reserve’s role in our nation’s economy is the credit market funnel, meaning that the Fed funnels funds to businesses to grow the economy. Say the U.S. Treasury printed $20 billion in new bills, and the Fed credited $80 billion in liquid accounts. You might think the American economy got an infusion of $100 billion. But it’s actually much more than that. Credit markets act as a funnel in terms of distributing funds. As new loans are issued, more money is created. That $100 billion could trigger a tenfold monetary increase to $1 trillion.
Determining the Money Supply
Here’s another facet of what the Federal Reserve does: It considers whether our country’s money supply should be boosted. This can impact the state of the American economy. A larger money supply can lower interest rates and get more cash to consumers, which typically stimulates spending. If the Fed does feel that the money supply needs to be increased, it will typically augment bank reserves. It might purchase Treasury bonds and distribute those to banks’ reserve funds. The banks can then use some of those funds for loans and other activities.
Money Creation Mechanism
As you’ve learned, the Federal Reserve plays a vital role in determining how and when to influence the money supply in the U.S. economy. It often boils down to the Fed buying securities and putting them in the reserves of commercial banks. Those banks can then augment the amount of money in circulation by lending funds to both businesses and consumers.
So where does the Fed get its money? Unlike other government agencies, the Federal Reserve doesn’t get its money from Congress as part of the usual budget process.
Instead, Federal Reserve funding comes mainly through interest on government securities that it bought on the open market.
These primarily include U.S. Treasury securities, mortgage-backed securities, and government-sponsored enterprise (GSE) securities.
How much money does the Federal Reserve have? As of May 2024, the Fed had nearly $7.4 trillion in assets on its balance sheet. Those have grown significantly compared to 2007 (before the financial crisis hit), when the Fed had just around $870 billion in assets.
The reason for this has to do with the Fed’s response to the Great Recession and the COVID-19 crisis, among other factors. But remember how the Federal Reserve isn’t in it for the profit? Once it pays its own overhead, the rest of its earnings go right into the country’s coffers in the U.S. Treasury.
How the Fed Affects Interest Rates
In its attempts to steer the ship of the U.S. economy on a solid course, one of the main things the Fed does is influence interest rates. The Fed can either raise or lower the federal funds rate, which is the rate at which financial institutions that hold deposits can borrow and lend funds they keep at Federal Reserve banks from each other.
The Federal Open Market Committee, which is made up of some members of the Fed’s Board of Governors and others, meets multiple times a year to determine what they want the federal fund rates to be.
These decisions then influence other longer-term interest rates, such as those on savings accounts, mortgages, and loans.
The Fed often cuts interest rates to energize the economy by making it less expensive for businesses and consumers to borrow money. It raises rates when inflation seems too high, as was the case a couple of years ago.
The rate had been cut to the 0.00% to 0.25% rate in March of 2020 due to the emergence of the COVID-19 pandemic and its expected economic impacts. However, by September of 2022, with inflation surging to 40-year highs, the rate was raised to the 3.00% to 3.25% range. As of July 2024, the Fed’s interest rate is 5.25% to 5.50%, which is far below its peak of 20% in December 1980, when the Fed was reacting to runaway inflation.
The Takeaway
Understanding the role of the Federal Reserve in our economy and how it is funded can help explain how the Fed balances our money reserves, controls inflation, and stimulates the economy’s growth. Especially in the current economic climate, knowing how the Federal Reserve works can enhance your financial literacy. This in turn can help you better manage your own money.
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FAQ
How does the Federal Reserve obtain money?
The Fed makes money mainly through interest on government securities — such as U.S. Treasury securities, mortgage-backed securities, and government-sponsored enterprise (GSE) securities — that it bought on the open market.
Who gives money to the Federal Reserve?
The Federal Reserve isn’t given money; it finances its operations via the interest made on the securities it owns.
Is the Federal Reserve self-funded?
Yes, the Federal Reserve is self-funded. It doesn’t get money via Congress but through the interest earned on the government securities that it buys.
Does the Federal Reserve print money out of thin air?
While the Federal Reserve has the power to print money, there’s a delicate balance at work. If the Fed just ordered the Treasury Department’s Bureau of Engraving and Printing to print more money without a commensurate increase in economic activity, it could trigger inflationary growth, which isn’t desirable.
SoFi members with direct deposit activity can earn 4.30% 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 4.30% 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 4.30% 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 10/8/2024. There is no minimum balance requirement. Additional information can be found at https://www.sofi.com/legal/banking-rate-sheet.
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Bank guarantees are often used in real estate contracts and infrastructure projects, while letters of credit are primarily used in global transactions. But a bank guarantee and a letter of credit are quite similar.
With both instruments, the issuing bank accepts a customer’s liability if the customer defaults on the money it owes, and they both, effectively, are a show of good faith from a lending institution that ensures the bank will step up if a debtor can’t cover a debt.
What Is a Bank Guarantee?
Bank guarantees represent a more significant contractual obligation for banks than letters of credit do. With a guarantee, the seller’s claim goes first to the buyer, and if the buyer defaults, then the claim goes to the bank.
Bank guarantees serve a key purpose for businesses. The bank, through their due diligence of the applicant, provides credibility to them as a viable business partner in a particular business dealing. In essence, the bank puts its seal of approval on the applicant’s creditworthiness, co-signing on behalf of the applicant as it relates to the specific contract the two external parties are undertaking.
A bank guarantee is an assurance from a bank regarding a contract between a buyer and a seller. Essentially, the bank guarantee acts as a risk management tool. A bank guarantee provides support and assurance to the beneficiary of the payment, as the bank guarantee means that the bank is assuming liability for completion of the contract.
This means that if the buyer defaults on their debt or obligation, the bank makes sure the beneficiary receives their payment.
Any business may benefit from a bank guarantee, but especially small businesses that would be more affected if a payment from a business partner or customer falls through.
Bank guarantees only apply to a certain monetary amount and last for a set period of time. There will be a contract in place that dictates in which scenarios and at what point in time the guarantee is applicable.
Before taking on a bank guarantee, the bank does research on the applicant to make sure they are credible and will act as a reliable business partner. In a way, a bank guarantee serves as a seal of approval as the bank has good reason (they’re on the hook for the money) to only accept creditworthy applicants.
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Types of Bank Guarantees
There are a few different types of bank agreements, here’s a closer look at the main ones.
Financial Bank Guarantee
With a financial bank guarantee the bank guarantees that the buyer repays all debts they owe to the seller and if they fail to pay those various types of debts, the bank has to assume responsibility for the money owed. The buyer will need to pay a small initial fee when the guarantee is issued.
Performance-Based Bank Guarantee
When it comes to a performance-based guarantee, the beneficiary has the right to seek reparations from the bank if contractual obligations aren’t met due to non-performance. If the counterparty doesn’t deliver on promised services, then the beneficiary will have the choice to claim resulting losses caused by the lack of performance.
Foreign Bank Guarantee
Foreign bank guarantees can apply to unique scenarios such as international export situations. In this case, there may be a fourth party involved — a correspondent bank operating where the beneficiary resides.
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What Is a Letter of Credit?
A letter of credit (sometimes referred to as a credit letter) is a document provided by a financial institution such as a bank or credit union that guarantees a payment will be made during a business transaction. The bank acts as an impartial third party throughout the transaction.
When the bank issues a letter of credit, they are assuring that the purchaser will in fact pay for any goods or services on time and in full. If the buyer doesn’t make their payment on time and in full, the bank that issued the letter of credit will guarantee that they will make the payment instead. The bank will cover any remaining overdue balance as long as it doesn’t surpass the full purchase amount.
Letters of credit are commonly used in international trade (but can be used domestically as well) where, understandably, companies require more certainty when making deals across borders. A letter of credit can provide security and confidence to importers and exporters since they know the issuing bank guarantees the payment.
Applicants for letters of credit need to work with a lender in order to secure this backing. The applicant will need to provide a purchase contract, and a copy of the purchase order or export contract (among other documents) during the application process. Applicants will pay a fee to obtain the letter of credit and it usually equates to a percentage of the amount the letter of credit backs.
Types of Letters of Credit
There are multiple types of letters of credit, with some being more common than others, and some applying to unique situations. Here’s a look at the main types.
Commercial Letter of Credit
This type of letter of credit applies to commercial transactions and is commonly used for international trade deals. In this case the bank makes a direct payment to the beneficiary.
Standby Letter of Credit
A standby letter of credit acts as a secondary payment method. The bank will pay the beneficiary if they are able to prove they didn’t receive the promised product or service from the seller.
Revolving Letter of Credit
A revolving letter of credit can help secure multiple transactions when two parties anticipate doing multiple deals.
Traveler’s Letter of Credit
With a traveler’s letter of credit, the issuing bank guarantees to honor letters of credit signed at certain foreign banks.
Confirmed Letter of Credit
This type of letter of credit specifies that the seller’s bank will be the party to ensure that the seller receives payment if the buyer and their issuing bank default on the agreement.
Special Considerations
Bank guarantees and letters of credit differ slightly, but both serve the same purpose: to give confidence and protection during transactions.
Because the financial institutions that back these guarantees confirm that the buyer is creditworthy in the case of a bank guarantee or a letter of credit, the seller can be confident that the transaction should go through as planned if they have one of these agreements in place. If it does not, they know they’ll still receive payment from the institution that backed the agreement.
Key Differences between a Bank Guarantee and Letter of Credit
These are the most important differences to know about a bank guarantee vs. a letter of credit.
Liability
With some letters of credit the bank pays the seller directly so they take on the primary liability.
With a bank guarantee they only pay if the buyer fails to do so, so they take on a secondary liability.
Risk
The bank takes on more risk with a letter of credit as they take on the primary liability, but that means the seller and customer take on more risk with a bank guarantee.
Number of Parties Involved
At least three parties are involved in letters of credit and bank guarantee transactions. To start there is the buyer, seller, and a bank or other type of financial institution. With a letter of credit, a lender also gets involved. Sometimes two banks (more common in foreign transactions) are involved in a letter of credit or bank guarantee.
Payment
With a bank guarantee, the bank only makes payment if the buyer fails to do so. With a letter of credit this is also usually the case, but the bank can be more involved in the transaction, so disputes tend to be resolved faster.
The Takeaway
When considering a letter of credit versus bank guarantee, both can help two parties involved in a transaction feel more confident that the seller will be paid and the buyer will receive the goods or services promised — or they will be reimbursed by the bank that issued the agreement. Each type of agreement may be especially helpful when conducting business across borders.
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FAQ
How is a letter of credit different from a bank guarantee?
When it comes to a bank guarantee vs. a letter of credit, both letters of credit and bank guarantees function very similarly. The main difference is that with a letter of credit the bank takes on more risk than they do with a bank guarantee.
What is a bank guarantee and how does it work?
A bank guarantee is an assurance from a bank that a contract between a buyer and a seller will be executed or they will reimburse the wronged party accordingly.
What is the primary difference between a standby letter of credit and a bank guarantee?
The main difference between a letter of credit and a bank guarantee is risk level. With a bank guarantee the bank takes on less risk than they do with a letter of credit.
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SoFi members with direct deposit activity can earn 4.30% 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 4.30% 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 4.30% 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 10/8/2024. 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.
Your finances and time, if managed well, can elevate your quality of life significantly. Finding ways to make the most of these two resources can enhance how secure and enjoyable your days are.
Read on to understand the time-money relationship and how to make it work as well as possible.
What Does ‘Time Is Money’ Actually Mean?
The phrase “time is money” means that a person can translate their available hours into money by getting paid to work. If you’re sitting around relaxing, for instance, you could instead be working and earning cash.
This saying can be further explained in terms of opportunity cost. Say a person has an hour to spend. That person can choose to work for that hour or they can choose to do something that does not yield any income, like reading a book. The person who reads the book loses the opportunity to earn income for that hour. If the person can earn $50 an hour, the opportunity cost of choosing to read a book is $50. Thus, time is money.
Of course, it’s every person’s decision about how much they want to work versus enjoy their free time as they see fit. Some people are driven to work 60 or more hours a week and are focused on how much they can deposit in their checking account. Others, craving work-life balance or, say, taking care of children, work much less (if at all). They have chosen a different path.
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What Is the Relationship Between Time and Money?
Balancing time and money can involve a trade-off. To make more money, some people spend more time on their careers and have less time for the other obligations and pleasures in life, whether that means spending time with family, relaxing, or pursuing hobbies and passion projects. Working long hours can mean less time to clean, shop, and otherwise handle chores. If one makes enough by working, they can perhaps delegate those duties and hire someone to handle them.
For example, a lawyer might be able to afford to pay a landscaper $50 an hour to do yard work while they earn $300 an hour working with a client. The lawyer nets $250 by doing so. If the lawyer does the yardwork and not the landscaper, the lawyer loses the $300 they could have earned doing legal work. Seen through a financial lens, it could be sensible to embrace strategies that maximize your earning power with the limited time you have. If, however, you are a person who earns less than a lawyer and/or you love to garden and care for your property, you might well decide to do the yard work yourself.
As you may see from the yard work example above, good time management is not just about working every waking hour. It’s about allocating time for tasks wisely and balancing work and personal lives. Otherwise, your health, mood, and personal relationships could suffer. Not every minute of your time should have a price tag on it.
You only have so many hours in a day to get things done, so prioritizing is critical. Work, picking children up from school or daycare, grocery shopping, and preparing food are daily and weekly priorities. So too are things like exercise, meditation, seeing loved ones, and doing whatever feeds your spirit, from rafting to reading. Plan your priorities daily, but typically no more than three or you could feel overwhelmed.
Writing Down Your Schedule
Your daily schedule is critical, but planning your time weekly and monthly can also keep you on-task and organized. More than that, it can help you visualize your available time and consolidate tasks so you can make your life more manageable. For example, can you combine one task with another? Can you go to the grocery store while your child is on a playdate, saving you a trip? Can you fit in a workout during your lunch hour? Organizing your time and life can make you much more efficient and reduce stress.
There are many calendar-keeping tools available, from cool journals to apps. Using alerts on your mobile phone can also help you keep track of the “musts” on your daily schedule.
Putting Time Limits on Tasks
Spending more time on enjoyable tasks and putting off the less palatable ones is human nature. But it’s also procrastination that can leave you short on time and stressed about deadlines at work and at home.
One good solution: Set time limits for activities, and schedule them wisely. Tackle a difficult project when you have the most energy, such as first thing in the morning. Block off an hour or two. If you split up challenging tasks into manageable chunks, you won’t become overwhelmed. Just getting started and seeing some progress can motivate you to continue.
Focusing on One Task at a Time
Multitasking can be a fast track to inefficiency. Walking the dog and listening to a podcast is one thing, but trying to write a report while your child is doing homework (and asking for help), is another — and probably not efficient — one.
Given a quiet room and time to focus, you might knock out the report in an hour or two. Multitasking, on the other hand, can mean for many of us that nothing receives your full attention and is done well.
Removing Interruptions While Working
Social media, pop-up notifications, emails, phone calls, colleagues who want to chat on Slack, family members, and pets all can enrich and inspire your life, but when you are balancing time vs. money, face the facts. They pull you away from work and from being efficient. Find ways to eliminate interruptions, and you’ll likely accomplish more things, more quickly.
If you have an urgent task and work at home, consider going to a coffee shop or a library where you might have more peace. If colleagues at work are a problem, ask to use a conference room temporarily to get your work done or say you are on deadline and pull back from chat apps and email alerts. To avoid technology distractions, try putting your phone away in a drawer so that it is out of sight and out of mind while working.
Creating a Realistic Budget
When it comes to the financial aspect of money vs. time, budgeting can really optimize your efforts to wrangle your funds.
A budget helps you account for your income, expenses, and savings so there are fewer surprises and so you hit your goals. Many people, in fact, believe that being disciplined with money or more accountable for it is a major key to wealth.
Making a budget typically involves looking at your monthly after-tax income, including keeping track of money from side hustles and the like. Then, you will subtract the cost of your monthly necessities (housing, food, medical care), as well as debt, and then allocate what’s left to spending and saving. This process should reveal if you are living within your means, or are you spending more than you earn?
If your expenses exceed your income, look for ways to cut back on spending, such as eating out less, biking to work instead of driving or calling an Uber, or perhaps consolidating high-interest credit card debt with a lower-interest personal loan. The ultimate goal is to create a budget that you can live with and with room to save for long-term goals, like the down payment for a house or for retirement.
Finding Ways to Invest Your Money
A reasonable goal for long-term financial planning is to set aside 10% of your income and invest it. You can educate yourself with books, podcasts, websites, and apps to, say, learn the pros and cons of stocks vs. bonds. A professional financial advisor can also help you to find the best vehicles to build wealth. For example, a 401(k), a diversified portfolio of stocks and mutual funds, or a passion like watch investing or whiskey investing can all play a role in your investing.
Remember, however, the golden rule for investments, though, since they are not covered by the FDIC, or Federal Deposit Insurance Corporation: Only invest what you can afford to lose.
Using Time for Yourself Wisely
Work-life balance is increasingly a goal for Americans, and a number of companies are experimenting with four-day workweeks as one path to achieving this.
Overwork and burnout are real dangers for those who Incessantly strive to capitalize financially. It’s definitely wise to schedule time for yourself. It can be as simple as meditating, spending time with family, working out, volunteering, or pursuing a hobby. Spending time on things that bring you joy can spur you to be your best when you are working, too.
Automating Your Bills and Payments
Automating your monthly bills can be a win-win. Paying bills on time is the biggest single contributor (at 35%) to your credit score, and taking care of those charges before they accrue late fees also makes good money sense.
What’s more, in terms of the time vs. money equation, setting up automated bill payments will also free up some space in your schedule. Your bills will be paid on time each month, without you having to click around websites or write checks and buy stamps to mail them. It will take a few minutes of work up front, but the task is then much easier.
Watching Your Spending
Remember that budget you diligently prepared? Stick to it by following the 30-day spending rule. Wait 30 days before purchasing an item to avoid overspending and racking up debt. If you do spend too much, you’ll pay unnecessary fees on overdrafts or credit card interest payments.
The Takeaway
There’s little doubt that time and money are two valuable but limited resources. Making the most of each requires some smart strategies, such as budgeting, scheduling, reducing overspending, and finding work-life balance. But by respecting the value of time and money — and managing them well, you’ll likely enjoy a better quality of life, today and in the future.
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FAQ
Is time worth more than money?
The answer to this question is subjective. To a person who is terminally ill, time is clearly the most precious commodity; they might rather have less money and more time. In another scenario, someone might say money matters more. They might be willing to work every free minute for years to ensure they have a high-paying career, even if they don’t have much free time to enjoy the luxurious life they lead.
Is it worse to waste my time or money?
Neither wasting time nor money is a great idea, though many of us of course do so from time to time. A better approach can be to minimize the waste and balance your life so you have both enough time and money. This often requires prioritizing, planning, and budgeting.
What are the benefits of managing time and money wisely?
A key benefit of managing time and money wisely is better quality of life. Effective time and money management will make all aspects of your life easier because you gain peace of mind and may stress less about your money and your schedule. You can take control of two very important variables.
SoFi members with direct deposit activity can earn 4.30% 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.
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An ABLE account — short for Achieving a Better Life Experience — is a tax-advantaged savings vehicle that’s designed for eligible people with disabilities. Designated beneficiaries can use an ABLE savings account to set aside money to pay for qualified disability-related expenses.
An ABLE savings account can offer substantial tax benefits for qualified individuals, as contributions grow tax deferred and qualified withdrawals are also tax free. Also referred to as a 529 A account (owing to its similarity to a 529 college savings plan), the ABLE account is designed to make saving and investing more advantageous for people with disabilities and their families.
What Is an ABLE Account?
An ABLE account is a tax-advantaged savings account for people with disabilities and their families. ABLE savings accounts allow people to pay for qualified disability expenses (QDEs) without impacting their ability to qualify for Medicaid or other government assistance programs.
The Achieving a Better Life Experience Act became law in December 2014. The intention behind the ABLE Act and the creation of ABLE accounts was to ease financial stress associated with paying for many of the QDEs associated with different disabilities. Qualified expenses include: housing, education, assistive technologies, specially equipped vehicles, and even food.
Under the ABLE Act, states have the authority to establish an ABLE disability account program. As of June 2022, all 50 states offer at least one ABLE savings account program, according to the ABLE National Resource Center. However, plans are currently inactive in Idaho, North Dakota, South Dakota, and Wisconsin.
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How Do ABLE Accounts Work?
An ABLE account is a type of tax-deferred savings account similar to a 529 college savings plan. These accounts work by allowing designated beneficiaries to contribute money, up to prescribed limits.
The money can come from various sources, including individual or corporate contributions, or a trust. The money in an ABLE savings account does not affect your eligibility for other government benefits.
Also like a 529 plan, the money grows on a tax-deferred basis and can be withdrawn tax free when it’s used to pay for qualified disability expenses. Broadly speaking, QDEs are any expenses a person with disability pays in order to maintain their health, independence, and quality of life.
However, withdrawals from an ABLE savings account for non-qualified expenses can result in those distributions being subject to tax. Using money in an ABLE disability account for non-qualified expenses could also affect eligibility for government assistance.
Benefits of an ABLE Account
Generally speaking, ABLE savings accounts are designed to make paying for certain expenses easier for people with disabilities. Here are some of the main advantages of opening an ABLE savings account.
Tax-Deferred Growth and Tax-Free Withdrawals
One of the main draws of ABLE accounts is their tax-advantaged status. The money that goes into an ABLE account can be invested and allowed to grow on a tax-deferred basis. As long as distributions are used to pay for QDEs, withdrawals are always 100% tax-free.
ABLE accounts have an edge over savings accounts, since designated beneficiaries can invest their money in the market. That means they have an opportunity to grow their savings through the power of compound interest.
Flexibility
The ABLE account allows for flexibility, since the money can be used to pay for a wide range of disability-related costs. With a traditional 529 plan, savers are limited to using funds to pay for education-related expenses. The ABLE savings account allows designated beneficiaries (i.e. the disabled individual or family member) to use the money for the categories noted above — housing, transportation, technology, food, etc. — as well as employment training, health and wellness costs, legal and administrative fees, and more.
Friends, family members, and others can contribute to ABLE accounts on behalf of the designated beneficiary, up to the annual limit. For 2024, the annual contribution limit, including rollovers from 529 plans, is $18,000.
And beneficiaries don’t have to worry about those contributions affecting their ability to qualify for Medicaid, Supplemental Security Income (SSI), or other forms of government aid, assuming they’re within certain limits. To learn more about who can make qualified contributions, check the ABLE website, or consult the ABLE program in your state.
One further note: In addition, a U.S.-resident ABLE account owner who doesn’t participate in an employer-sponsored retirement plan can contribute up to an additional $14,580 from their earnings into their ABLE account. The amount that can be added to the account is higher for residents of Alaska at $18,210 and Hawaii at $16,770. (More details on this below.)
Financial Autonomy
ABLE accounts afford designated beneficiaries with a measure of financial independence, since they can set up an ABLE account themselves and make contributions on their own behalf. Individuals can also manage the account, and decide how to invest their savings and when to take qualified distributions for eligible expenses.
An ABLE account can give a person with disabilities more control than something like a special needs trust, a type of trust fund. In a special needs trust, the trust grantor sets aside assets for a disabled beneficiary but that beneficiary doesn’t have a say in how the money can be used.
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Drawbacks of an ABLE Account
While ABLE accounts have some positives, they’re not necessarily right for everyone who has a disability. Here are some of the potential drawbacks to consider when deciding whether to open an ABLE account.
Non-Deductible Contributions
Contributions to an ABLE savings account do not offer a tax break in the form of a deduction. (This is also true of some state 529 plans.) So even if you fully fund an ABLE account up to the annual limit each year, you can’t use those contributions as tax deductions.
Age Restrictions
An ABLE account can only be established for someone who has a blindness or disability that began before age 26. So someone who becomes disabled at age 27 or later would not be able to open an ABLE disability account.
The age requirement puts this type of special needs savings account out of reach for some individuals, though they could still be named the beneficiary of a special needs trust.
Worth knowing: There’s legislation afoot to raise the age of eligibility to “before 46” versus “before 26” in 2026.
Means Testing
Money held in an ABLE account is subject to means testing for the purposes of qualifying for Supplemental Security Income and Medicaid. The first $100,000 in ABLE account assets is disregarded for SSI but going over that limit can result in a suspension of your benefit payments.
The $100,000 account balance threshold doesn’t affect Medicaid eligibility. But if a designated beneficiary passes away with money remaining in their ABLE account, the state can lay claim to those assets in order to recoup any Medicaid benefits that were received.
Opening an ABLE Account
People with disabilities can open an ABLE account in any state, as long as that state’s plan is open for enrollment. The ABLE National Resource Center maintains a map with details for each state’s program, including whether out-of-state residents are accepted.
Once you find an eligible program, you can open an ABLE account online. There’s some basic information you’ll need to provide, including:
• Your name
• Date of birth
• Social Security number
• Bank account number
Parents can open an ABLE account on behalf of a minor child with disabilities. You also have to meet the definition of a designated beneficiary. In New York, for example, you must be able to show that one of the following is true:
• You’ve been classified as blind as defined in the Social Security Act
• You’re entitled to SSI or Social Security Disability Insurance (SSDI) due to a disability
• You have a disability that’s included on the Social Security Administration’s List of Compassionate Allowances Conditions
• You have a written diagnosis from a licensed physician documenting a physical or mental impairment which severely limits function, and is expected to last at least one year, or can cause death
Similar to opening a bank account, there may also be a low minimum deposit requirement to open an ABLE account.
Requirements of an ABLE Account
There are certain requirements that must be met in order to open an ABLE account. Generally, you’re eligible for one of these accounts if you:
• Become eligible for Supplemental Security Income based on disability or blindness that began before age 26; or
• Are entitled to disability insurance benefits, childhood disability benefits, or disabled widow’s or widower’s benefits based on a disability or blindness that began before age 26; or
• Certify that you have a medical impairment resulting in blindness or disability that began before age 26.
Again, age and disability status are the most important requirements for ABLE savings accounts. You can open an ABLE account in your home state or in another state, if that state’s program allows non-residents to enroll. It’s important to note, however, that you can only have one ABLE account in your name.
How Much Can You Contribute to an ABLE Account?
The annual contribution limit is pegged to the gift tax exclusion limit each year, which is $18,000 for 2024. Eligible designated beneficiaries can, however, contribute additional money if they’re employed and have earned income for the year.
The IRS limits those contributions to an amount up to the lesser of:
• The designated beneficiary’s compensation for the year, OR
• The poverty line amount for a one-person household as established by the Community Services Block Grant Act
For 2024, the allowable amount for persons with disabilities in the continental United States is up to $14,580. The limit for residents of Alaska $18,210 and Hawaii at $16,770.
Funds from a 529 college savings account can be rolled into an ABLE account. Any rollovers count toward the annual contribution limit. So if $6,000 have been contributed to the plan for the year already, in theory you could rollover up to $11,000 into an ABLE account from a 529 savings account for 2022.
How Can You Use ABLE Money?
As discussed earlier, money in an ABLE savings account can be used to pay for qualified disability expenses. That means expenses that are paid by or for the designated beneficiary and are related to their disability.
Examples of things you can use ABLE money for include such living expenses and other costs as:
• Education
• Housing expenses
• Food
• Transportation
• Employment and career training and support
• Assistance technology and related services
• Health care
• Prevention and wellness
• Financial management and administrative services
• Legal expenses
• Funeral and burial expenses
• Day-to-day living expenses
The IRS can perform audits to ensure that ABLE account funds are only being used for qualified disability expenses. So designated beneficiaries may want to keep a detailed record of withdrawal and how those funds are used, including copies of receipts.
ABLE Accounts vs Special Needs Trusts
A special needs trust (SNT) is another option for setting aside money for disability expenses. In a special needs trust, the beneficiary does not own any of the trust assets but the money in the trust can be used on their behalf. A trustee manages trust assets according to the direction of the trust grantor.
Here’s how ABLE accounts and special needs trusts compare at a glance. You may benefit from consulting a tax professional to understand when and how income from an SNT may be taxed.
ABLE Account
Special Needs Trust
Tax Treatment
Growth is tax-deferred and qualified withdrawals are tax-free; there is no tax deduction for contributions.
Income generated by the trust (i.e. withdrawals) is generally taxable to the beneficiary during their lifetime.
Control
Designated beneficiaries can control how assets in their account are managed.
The trustee manages the trust on behalf of the beneficiary, according to the wishes of the grantor.
Contribution Limits
Contribution limits correspond to annual gift tax exclusion limits.
No limit on contributions, though the gift tax may apply to contributions over the exclusion limit.
Medicaid/SSI Impact
Up to the first $100,000 in assets is not counted for SSI purposes; balances are not counted for Medicaid eligibility.
Assets are not counted toward Medicaid or SSI eligibility.
Use of Funds
Funds can be withdrawn tax-free to pay for qualified disability expenses.
Funds can be withdrawn for any purpose, though they’re typically used for disability expenses. The beneficiary may owe taxes.
Age Requirement
Disability must have occured before age 26.
Beneficiaries must be under age 65 when the trust is created.
Alternatives to ABLE Accounts
If you don’t qualify for an ABLE account or you’re looking for ways to save on behalf of a disabled child or dependent, there are other accounts you might consider. Here are some options to weigh when looking for alternatives to ABLE accounts.
Special Needs Trust
As mentioned, an SNT can also be used to pay for disability-related expenses. Establishing a trust can be a little more involved than opening an ABLE account, since you’ll need to create the trust on paper, name a trustee, and fund it with assets. But doing so could make sense if you care for a disabled child or dependent and you want to ensure that they’ll be taken care of should something happen to you.
529 College Savings Account
A 529 college savings account is designed to help parents and other individuals save money for education while enjoying some tax benefits. Contributions can be made on behalf of a beneficiary with disabilities. That money can grow tax-deferred, then be withdrawn tax-free to pay for qualified education expenses.
You might open a 529 college savings account for yourself or your child to help them pay for school without incurring student debt.
Bank Accounts
Opening one or more bank accounts is another way to set aside money to pay for disability expenses. Bank accounts won’t yield any tax breaks but they can allow for convenience and accessibility.
• Opening deposits: Brick-and-mortar banks might require an opening deposit of anywhere from $5 to $100 while online banks might allow you to open a checking or savings account with as little as $1 or even $0, with funds to be deposited in the future.
• You’ll need government-issued ID, like a driver’s license, to open an account.
• So how long does it take to open a bank account? Not long, if you’re doing it online. Typically, when you have your basic forms of ID ready, the time it takes to open an online account is minimal.
• When can you create a bank account online? The simple answer is when you’re old enough to do so. Keep in mind that the legal age to open a bank account in your name is typically 18 so if you’re underage, you may need your parents to open the account for you.
• Online banks and traditional banks can offer a variety of account options. Student checking and savings accounts, for example, are designed for younger teens. Older teens who are headed off to university might be interested in opening a bank account for college students.
Banks can also offer certificate of deposit (CD) accounts and money market accounts.
If you’re wondering whether you can open a bank account with no ID, the answer is no. You’ll need some form of personal identification, such as a government-issued ID, in order to open a bank account online or at a brick-and-mortar bank.
The Takeaway
An ABLE account can make it easier for someone with disabilities to meet their needs while maintaining control over their finances. With an ABLE account, the money that’s contributed grows tax-free and can be withdrawn tax free to pay for qualified expenses relating to the care of a disabled person. Another benefit: Those qualified expenses aren’t limited to health care. The range of expenses include housing, food, transportation, employment — as well as health and wellness and preventive care.
In addition, you may want to consider other options, such as online bank accounts, for growing your savings.
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FAQ
What is considered an ABLE account?
An ABLE account is a tax-advantaged account that’s administered through a state program for the purposes of helping persons with disabilities to save and invest money. An ABLE account’s tax status sets it apart from bank accounts, college savings accounts, or Individual Retirement Accounts (IRAs). You can sign up with your state program.
Should you have both an ABLE account and a special needs trust?
It’s possible to have both if that’s desired. An ABLE account can be managed by its designated beneficiary, allowing them control over their finances. Special needs trusts are managed by a trustee on behalf of the beneficiary, meaning they cannot direct how the money is spent. Having both an ABLE account and a special needs trust can help to ensure that someone with disabilities is taken care of financially while allowing them a measure of independence.
Is a Roth IRA an ABLE account?
No. A Roth IRA is a tax-advantaged account that’s used for retirement savings. Roth IRAs are funded with after-tax dollars and qualified distributions are tax-free. They’re not limited to persons with disabilities while an ABLE account is designed to be used specifically for qualified disability expenses.
SoFi members with direct deposit activity can earn 4.30% 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 4.30% 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 4.30% 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 10/8/2024. 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.
^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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