One of the main advantages of using a credit card for purchases is that, in most cases, you’re not liable for fraudulent charges. If your card is lost or stolen, usually all it takes is a quick chat with your credit card issuer to resolve the issue. Where this gets a bit murkier is when it’s a family member or friend who uses your credit card without your permission.
While you’re still not liable, the process of dealing with unauthorized credit card charges by family members or friends can get more complicated. Your credit card issuer may want you to file a police report and even take legal action against the person who made the charges. You’ll have to decide whether it’s worth potentially damaging your relationship with your family member or friend.
Authorized vs Unauthorized Credit Card Charges
While you are legally responsible for paying back any authorized credit card charges, in most cases, you will not need to cover any unauthorized credit card charges.
Most credit cards come with a 0% liability guarantee, meaning that you’re not liable for any unauthorized or fraudulent charges that were made with your credit card or account information. This can help protect you against credit card scams and other fraudulent activity, as well as charges made to your card without your permission.
Legal Protection Against Unauthorized Use of Credit Cards
There are two main federal laws that help to protect you against unauthorized use of your credit card or account information:
• Fair Credit Billing Act (FCBA): This law limits your liability for unauthorized credit card charges to $50, though many card issuers lower your liability to $0 for all unauthorized charges.
• Electronic Fund Transfer Act (EFTA): Sometimes referred to as Reg E, this law limits liability for ATM transactions or debit card charges, among other types of transactions, if it’s reported within 60 days.
Tips for Handling Accidental Possession of Credit Cards
One of the best things you can do to help avoid unauthorized use of your credit card by a third party is to keep it in your possession. Make sure you know where your credit cards are at all times, especially if you have teens or other adults living in your home.
It’s also a great idea to regularly monitor your bank and credit card accounts. That way, you can spot any unauthorized charges quickly.
Tips for Handling Unauthorized Credit Card Charges
If unauthorized charges were made to your credit card, here are some tips for how to handle the situation.
Contact Your Credit Card Issuer
The first thing you’ll want to do if you spot an unauthorized credit card charge on your account is to contact your credit card issuer. You can do this by calling the number printed on the back of your credit card or contacting your issuer through your online account.
Request a Refund
As the refund process may vary slightly by issuer, the customer service representative you talk with can help you figure out how to request one. A refund is also sometimes referred to as a credit card chargeback. In many cases, the bank will provisionally credit your account within 24-48 hours while they investigate the fraudulent charges.
File a Police Report
In some cases, your bank or credit card company may request you to fill out a police report. In other cases, the card issuer may file a police report themselves. This can make the situation complicated if it’s a friend or family member who made the unauthorized charges.
Disputing Credit Card Charges
Disputing credit card charges is another term for reporting unauthorized or fraudulent activity on your account. When you dispute a credit card charge, you’re letting the card issuer know that you believe you should not be responsible for paying that particular charge. It’s important to dispute any fraudulent charges as soon as possible.
It’s good financial practice to regularly review your bank and credit card accounts for a number of reasons. One reason is to report any unauthorized credit card use as soon as you see it. The best way of handling fraudulent charges is to report them immediately and then let your bank or credit card company investigate them.
Tips for Avoiding Credit Card Fraud and Unauthorized Use
There are two things that you’ll want to do to avoid unauthorized use on your credit card:
• First, make sure that you keep track of your cards and don’t leave them where someone else might use them.
• Second, regularly monitor your bank and credit card accounts. That way, you can report any unauthorized use to avoid being liable for any credit card purchase interest charges that may accrue otherwise.
The Takeaway
Federal law limits consumer’s liability for fraudulent or unauthorized charges, and most credit cards have a $0 fraud liability policy. So if you do have any unauthorized or fraudulent charges, make sure to report them to your credit card issuer right away.
Where it can get complicated is if it’s a friend or family member who made the unauthorized charge. In the case of unauthorized use of a credit card by a family member or friend, you’ll need to decide whether to try and get the money back directly from that individual or report the charge to your card issuer, which may mean filing a police report.
To learn more about options for protecting your credit cards and tips for managing your accounts, explore our credit card guide.
FAQ
Who is liable for unauthorized credit card charges?
Federal law limits a consumer’s liability for unauthorized credit card charges and credit card fees stemming from unauthorized use. If you see a charge on your credit card account that you don’t recognize, make sure to report it to your card issuer as soon as possible.
How do credit cards investigate unauthorized charges?
Credit card companies have a variety of different ways that they investigate unauthorized charges. They may contact the merchant, review video from the purchase, or check online activity. In some cases, they may work with local law enforcement and/or pursue criminal charges.
Should you report a family member for unauthorized credit card use?
Whether or not you report a family member for unauthorized credit card use depends on the situation. Keep in mind that reporting a family member for unauthorized credit card use may lead to the card issuer pressing charges against them for fraud. So, depending on your relationship, you may not want to report your family member to the card issuer and instead try to get the money back directly from them.
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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.
Most credit cards come with an expiration date printed on the face of the card alongside the credit card account numbers. If you keep your account open, you’ll usually get a new card in the mail before your previous card expires. Still, that leaves the question of what to do with old credit cards.
Once you get your new credit card, or if you’ve decided to close your account, you’ll want to be careful about what to do with your expired credit card. There are a few things to keep in mind to make sure you keep your financial information safe.
Things to Do With an Old or Expired Credit Card
If you have a credit card that’s closed or has passed its credit card expiration date, here are some options to consider as you decide what to do with the card.
The simplest thing you can do after closing a credit card is to shred it. Most modern shredders have the ability to shred plastic credit cards in addition to paper. If you don’t have a shredder, you can cut your card into multiple pieces with scissors.
You might consider putting each piece of your card in a different trash can or trash bag. This will minimize the chance that someone might be able to reconstruct your full account number.
Disposing of Metal Credit Cards
It gets a little more complicated if you’re disposing of a metal credit card. Most retail shredders will not be able to handle shredding a metal credit card. If you have an expired metal credit card, you can try the following:
• Cutting it up with tin snips
• Turning it in at a physical bank branch
• Sending it back via certified mail to your credit card issuer
Contacting Expired Credit Card Hobbyists
Believe it or not, there are people that collect old credit cards as a hobby. They do it as part of the history of credit cards. While you might not feel comfortable having your credit card and account information in the hands of someone else, if you do, there may be someone who would want to have it.
Just keep in mind that while there are some old or historical cards that have actual value as collectibles, most current credit cards won’t be worth anything to a collector.
Deactivating Magnetic Strips and Chips
As part of the process of destroying a credit card that’s past its credit card expiration date, it’s not just the account number that you’ll need to take care of. Most credit cards have either a magnetic strip or an EMV chip (or both) that contain account information that you’ll need to make sure is destroyed.
If you have a contactless credit card, remember that it also contains potentially sensitive information.
Keeping Your Card Out Of The Recycling Bin
Above all else, don’t just throw your card in the recycling bin. While most credit cards are plastic, that doesn’t mean they can be recycled as-is. Check with your local trash or recycling authority to see if credit cards can be recycled. Even if your card can be recycled, it’s not a great idea to toss it in the recycling bin whole due to security risks.
Things to Do Before You Close Your Credit Card Account
It can be difficult to know when to cancel a credit card due to the implications it can have for your credit score. Especially if the account you’re thinking about closing is one of your older ones, it can impact the length of your credit history. As this is a factor that goes into determining your credit score, it could cause your score to drop.
So before closing your credit card account, consider the following options first.
Downgrade Your Card
Instead of closing your credit card account, you might consider downgrading your account to a different type of credit card. Most credit card issuers have a variety of different cards, so you might find one that’s a better fit for you. Plus, keeping your account open can help maintain your average age of accounts.
A secured credit card can make sense if you have a limited credit history or are working on rebuilding your credit history. But once you have an established history of adhering to credit card rules like making on-time payments, you may be able to qualify for an unsecured card.
It may make sense for you to keep your credit card and use it to make small purchases here and there, especially if it doesn’t have an annual fee. Keeping a credit card open can help you maintain your average age of accounts, especially if the card is one of your older ones.
Just keep in mind that if you do decide to keep it open, you may want to make occasional small purchases on it. Otherwise, your credit card issuer may close it for inactivity.
If you have an old or expired credit card, it’s important to take the necessary steps to keep your financial information safe. In most cases, it’s a good idea to shred your expired card so that nobody can access your information. You might also just keep your credit card account open to avoid lowering your average age of credit accounts.
If you’re in the market for a new card, you might consider a cash-back rewards credit card like SoFi’s credit card. If you get a credit card with SoFi, you can earn unlimited cash-back rewards, which you can use to invest in fractional shares, apply as a statement credit, or meet other financial goals you might have, like paying down eligible SoFi debt.
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FAQ
Can an expired credit card be charged?
In most cases, if you try to make a purchase after your credit card’s expiration date, it will be declined. Keep in mind, though, that merchants may continue to charge a card after its expiration date if you have it set up for recurring charges. Check with any merchants where you have recurring charges to see how this might affect you.
Can I cancel a credit card online?
Yes, in most cases you do have the ability to cancel a credit card online. You could do so through your online account or possibly by using a chat feature on the card issuer’s website. If you’re not able to cancel your credit card online, you may have to call the customer service number on the back of your card to cancel your card.
What should I do before canceling a credit card?
Knowing when to cancel a credit card is a matter of balancing a variety of different factors. Before canceling a credit card, make sure that it won’t drastically affect your credit score. You’ll also want to contact any merchants where you have recurring charges to update your account information. That will ensure that you don’t have any interruption in service.
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.
Disclaimer: Many factors affect your credit scores and the interest rates you may receive. SoFi is not a Credit Repair Organization as defined under federal or state law, including the Credit Repair Organizations Act. SoFi does not provide “credit repair” services or advice or assistance regarding “rebuilding” or “improving” your credit record, credit history, or credit rating. For details, see the FTC’s website .
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When you apply for a credit card, there are a few things that can happen. You may be instantly denied, or you may receive a notice that the card issuer needs more time to evaluate your application. Another possibility is that you’re instantly approved for the credit card.
When you receive an instant approval for a credit card, you can rest easy knowing that you’ll get the credit card and any applicable welcome bonus. In some cases, credit card issuers will allow you to have instant access to your credit card number. That can be useful if you want to make an immediate and time-sensitive purchase.
What Is an Instant Approval Credit Card?
An instant approval credit card is a credit card that guarantees a decision about your application within a matter of minutes. Once you submit your application, the credit card issuer will instantly let you know if you’ve been approved or denied for the card.
Not all credit card issuers do instant approvals, and it’s possible to not receive an instant approval even if you have excellent credit and income. For some issuers and certain credit cards, when you’re instantly approved, you also receive your credit card number and everything else you need to make a purchase with the card right away.
How Instant Approval Credit Cards Work
When you apply for a new credit card, the card issuer will conduct a hard pull of your credit report and review your credit history, income, and other financial information. They will use this information to decide whether or not to approve you for a card.
If they have enough information on your credit report to approve you automatically, you may be instantly approved. In other cases, a credit analyst may need to review your application before making a decision. This will impact how long it takes to get a credit card.
Many credit card issuers also allow you to pre-qualify for a credit card. When a lender pre-qualifies you for a credit card, they usually take your basic information and do a soft pull on your credit report, as opposed to the hard inquiry done for formal approval of your application. This soft pull allows them to see a limited amount of information about you, which may be enough for them to pre-qualify you.
Being pre-qualified does not mean that you’ll necessarily be approved when you fill out the complete application. In contrast, when you receive an instant approval, that means that you’ve actually been approved for the card.
Fast credit cards approval has some obvious upsides, but there are also some possible downsides to take into consideration as well:
Pros
Cons
You know right away when you are approved
You may not be instantly approved, even with good credit and income
You may be able to access your card information instantly
Instant access to your credit card number may tempt you to spend more
When to Consider an Instant Approval Credit Card
The only time it may be worth it to go out of your way to go for an instant approval card is if you have a large purchase that you need to make within the next day or two. In that case, being able to secure a big signup bonus on a new card or get a card with an introductory 0% APR offer may be worthwhile, given how credit cards work.
When possible, however, it’s better to manage your credit cards and credit card applications so that you don’t have to depend on instant credit card approval.
When to Skip an Instant Approval Credit Card
In most non-emergency cases, it doesn’t make sense to go out of your way to find an instant approval credit card. Instead, review the different credit cards that are out there and find the best card for you — regardless of whether you might be instantly approved.
Choosing a credit card that’s right for you might earn you hundreds of dollars or more in rewards. In the end, it may be worth more than getting the card information a few days earlier.
Choosing an Instant Approval Credit Card
It’s not always possible to determine whether any particular card will give you instant approval. Some card issuers (including American Express) publicly state that they offer instant credit card numbers to eligible cardholders.
That being said, receiving instant approval (and an instant credit card number) is contingent on the information on your credit report and the credit card requirements of the card issuer itself. In other words, instant credit card approval and use is not something that can be guaranteed.
Increasing Your Chances of Approval
While there isn’t always a guarantee of getting instant credit card approval, there are a few things you can do to help increase your chances of getting approved immediately.
Provide Information About Your Income
Most credit card applications ask about your total household income. Providing accurate income information can help the credit card issuer understand your financial situation and possibly approve you instantly.
Remember, one of the key credit card rules is that you should be truthful. If an issuer finds out that you were dishonest on your application, they may close your account.
Another great idea if you’re hoping to secure instant approval on a credit card is to check your credit report. Keep your eye out for any incorrect or inconsistent information. If there’s incorrect negative information on your credit report, it may prevent you from being instantly approved for a credit card.
In general, it’s a wise financial move to regularly review the information on your credit report at least on a yearly basis.
Apply for the Right Instant Approval Credit Card
You’ll also want to be realistic about your approval odds for the credit card you’re looking at. If your credit isn’t that great, you might not want to try applying for an instant approval credit card that requires excellent credit (meaning a score of 800+). It’s more important to try to apply for a card that you’re likely to get approved for than one that might offer instant approval.
Alternatives to Instant Approval Credit Cards
One alternative to an instant approval credit card is to just apply for the best credit card for you, regardless of whether you might be instantly approved. You might also look at virtual credit cards, where you can get a temporary, randomly generated credit card number that’s linked back to your actual credit card account.
If you are in need of fast funding, there are other options to explore there, too. Some online lenders offer funding the same day you apply and get approved for a loan. You might also consider tapping into your emergency fund, which you then can replenish once you’ve addressed your need for fast cash.
The Takeaway
When you apply for a credit card, it’s possible the credit card issuer may instantly approve you. In other cases, they may need more time to decide whether or not to approve your application. If you are instantly approved, you may also be able to have immediate access to your card number and other credit card details. Instant approval credit cards with instant use can be useful if you have an immediate need to make a large purchase and want to do it on a new credit card.
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 credit score do I need for an instant approval credit card?
There isn’t a single credit score you’ll need to be approved for an instant approval credit card. Instead, each credit card has its own criteria for approval. When choosing a credit card, it’s important to select a credit card that matches your credit profile. If you have fair or worse credit, you shouldn’t apply for a credit card that requires excellent credit — you’ll likely be denied.
What is the difference between instant approval and instant use of credit cards?
When you apply for a credit card, you may be instantly approved if the card issuer has enough information to make an automatic decision. If you’re instantly approved, some issuers allow you to have instant access to your credit card number and account.
Does an instant approval credit card guarantee you’ll be approved?
There’s no guarantee you’ll get approved when you apply for a credit card, and the same goes for instant approval credit cards. Whether you’re approved will depend on your financial specifics and the credit card requirements. Even if you’re pre-qualified or pre-approved, that does not guarantee that you’ll be approved when you go through the formal application process.
What if my application for an instant approval credit card gets declined?
If your instant approval credit card application is denied, you may still eventually be approved for the card. It may just mean that the issuer needs additional information or more time to determine if they can extend credit to you.
Photo credit: iStock/PeopleImages
Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.
Third-Party Brand Mentions: No brands, products, or companies mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third-party trademarks referenced herein are property of their respective owners.
In most cases, opening a checking or savings account is not reported to the major credit reporting bureaus and will not have an impact on your credit score. The same holds true for normal bank transactions and account balances.
That said, there may be some cases when a bank will perform what is known as a “hard pull” when you open an account, requesting access to your credit file. This can temporarily lower your credit score. Let’s take a closer look at how your banking activity can impact your credit – and the best way to keep that score of yours as high as possible.
Consider Your Options Before Choosing a Bank to Avoid a Hard Pull Penalty
Banks and other lenders usually make a hard pull, or hard inquiry, when you apply for credit. This action will lower your credit score slightly and temporarily. While the hard pull will stay on your credit report for two years, its impact on your credit should only last for a few months.
While your credit score is updated regularly, here’s why you should be concerned about too many of these in-depth credit checks. Several hard pulls on your credit report at the same time can make it look like you’re taking on too much credit and therefore might have a hard time paying your debts back.
When you open a bank account in person or online, the good news is that most banks will perform what is known as a soft pull. This sort of informal credit check when you apply to open checking at a bank has no impact on your credit score. (As mentioned above, in some rare cases, a bank will also make a hard pull when you open checking and/or savings. For example, some overdraft protection programs are considered a line of credit, so a bank may make a hard pull before approving you.)
If you’re worried about how a hard pull might affect your credit score, especially if you’re actively seeking credit, ask a bank whether they use them and under what circumstances. If they do plan on doing a hard inquiry, it may be worth considering banks that avoid this option.
While opening a bank account likely won’t have an affect on your credit, there are certain other bank-related transactions that may lower your score, such as failing to pay your bank back when you use overdraft.
Your credit score is used by banks and other lenders to determine how risky it is to extend credit to you. The lower your score, the more risk you represent to them, and they’ll offset this risk by offering you higher interest rates. If you have bad credit, lenders may not extend credit at all. If you’re applying for a home, car, or personal loan, this can obviously have major ramifications!
So, as you’re establishing credit, it’s critical that you protect your credit score. The goal is to have access to cheaper credit when you need it. That means if you are not sure whether a hard inquiry will be performed, ask before approving a credit check. You don’t want those hard pulls to pile up! Also, you may receive many different kinds of credit-card offers. Don’t assume more is better, as each one you apply for will likely trigger a hard pull, which in turn can raise red flags regarding your credit worthiness in the future.
Here are some other moves that can help keep your credit score as high as possible.
Avoid Overdrafts
When you dip into the overdraft zone, you’ve spent more than you have in your checking account. If you have overdraft protection, your bank will step in and cover the shortfall. They will usually charge overdraft protection fees, and you’ll have to repay the money using a credit card or money from a savings account.
Overdrafts themselves do not affect your credit score if you promptly pay back the overdraft fees and what you owe. However, failing to do so will have an adverse effect on your credit. If, for instance, you are unable to pay off your credit card or the overdraft is sent to collections – ouch! Your score is likely to tumble.
Avoid overdrafts whenever possible by keeping a close eye on how much money you have in your bank account and never spending beyond that amount. If you’re someone who frequently overdrafts, you may consider dropping overdraft protection. This means your debit card transaction will be declined when you try to make a purchase with money you don’t have. It may be momentarily embarrassing or inconvenient, but it will help protect your credit.
Pay Back Your Debts on Time
We can’t stress this strongly enough: Punctuality counts! Your payment history plays a big role in determining your credit score. It may take into account credit cards, auto loans, student loans, home loans, and other forms of credit. It will show details on late or missed payments, including how much you owed, how delayed a payment was, and how often you’ve missed payments. Late and missed payments will detract from your score and can even stay on your report for up to seven years! So it’s important to pay on time.
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Don’t Co-sign
Say a friend or family member is having troubling securing credit for themselves due to their bad score. They may ask you to co-sign a loan, using your good credit to help bolster theirs. Your heart may be in the right place and you may want to help, but – in a word – don’t! When you co-sign, you are also taking on responsibility for paying off that debt. That means if the friend or family member fails to make a payment, you’re on the hook for it. What’s more, their missed payments may have a negative impact on your credit score. For this reason, when you are in “protect my credit score” mode, it’s probably prudent to avoid co-signing.
File for Unemployment
If you lose your job and a steady stream of income, you may find it more difficult to pay your bills on time or you may take on more debt. Each of these scenarios can hurt your credit score.
Filing for unemployment can help you replace some of that income stream and prevent you from falling behind. What’s more, there is no public record that keeps track of who is receiving unemployment, and receiving benefits does not affect your score.
Seek Credit Counseling
Sometimes, despite one’s best efforts, debt gets out of hand or a credit score can spiral downward. If you are feeling overwhelmed and not sure of how to improve the situation, get help. Credit counselors are professionals trained to help you with money issues, including setting up a debt management plan as well as preparing and sticking to a budget.
You can find a counselor through nonprofit services, such as the National Foundation for Credit Counseling . With this kind of organization, there is usually no fee for your first counseling session, though there may be fees for subsequent services, such as crafting a debt management plan. These costs should be modest at most.
Be a Prudent Spender
The world has a lot of temptation out there in the form of tricked-out cars and mobile phones, great restaurants and vacation destinations, new clothes and more. But running up credit card charges you can’t pay off on time or taking out too steep loans can damage your credit and leave you deep in debt. Spending within your means can help you avoid this kind of debt.
A budget can help you determine how much you can comfortably spend each month. To build a budget, first tally your necessary expenses, including rent, mortgage payments, utility bills, groceries, insurance and debt payments. Subtract this from your monthly income. The money you have left can be put toward discretionary expenses such as eating out and entertainment, as well as paying down debt and saving. Be especially wary of spending beyond that discretionary limit. That’s where debt loves to live.
Monitor Your Score
You may wonder if checking your own credit score can lower it. The answer is no, and in fact, you should check. You can ask for a free credit report from each of the major credit reporting bureaus — Experian , Equifax , and TransUnion — once per year. Each bureau will display slightly different credit scores. Take a look at each report and make sure it’s correct. If you find any mistakes, let the bureau know immediately.
Do Cash Management Accounts Do Hard Credit Checks?
Cash management accounts are alternatives to traditional bank accounts that are offered by online banks or robo-advisors. As with traditional bank accounts, cash management accounts typically will not perform a hard credit pull when you open an account. It is therefore unlikely to lower your score.
The Takeaway
For the most part, opening a checking, savings, or cash management account will not hurt your credit score. Banks, credit unions, and other providers typically do what is known as a soft pull, not a hard pull, when considering your application. This process should not lower your credit rating nor linger on your report. That said, there may be some activity related to your accounts that can cause your score to drift downward, such as unpaid overdrafts. Do what you can to avoid these, and protect your credit score. It’s the key to opening more financial doors and helping ensure low rates if you do apply for a loan.
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FAQ
What are the 5 C’s of credit?
They are 1) character (overall, are you trustworthy?), 2) capacity (will you be able to maintain your end of a financial arrangement?), 3) capital (do you have sufficient funds to enter this arrangement?), 4) conditions (looking at the big picture, are economic forces favorable to your entering this arrangement), and 5) collateral (if you’re taking out a loan, do you have something of value to offer as security?).
What is a hard inquiry?
A hard inquiry, also known as a hard pull, occurs when you apply for credit and your lender has requested to look at your credit file. A hard pull will temporarily lower your credit score.
Does it hurt your credit to open a checking account?
Generally speaking, opening a checking account does not trigger a hard pull and does not hurt your credit score.
Is there a downside to opening a checking account?
When opening a checking account, it is important to be aware of any fees you may be required to pay or account minimums you’ll need to maintain.
Does opening a savings account require a credit check?
While most banks, credit unions, and other financial institutions do check your credit when you submit an application to open an account, these are most often soft inquiries that don’t impact your credit score.
Does opening a savings account impact your credit score?
As with checking accounts, opening a savings account does not typically trigger a hard pull that would affect your credit score.
Is it bad to open a savings account?
It’s usually a good idea to open a savings account, even if the current interest rates aren’t that high. It establishes a foothold for future savings, and you can open an account with just a little bit of cash – in some cases, you can even start an account without depositing anything.
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.
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If you’re wondering whether the government can take money out of a person’s bank account if they are late on a debt or child support payment, the answer isn’t a simple “yes” or “no.” While the government may not be able to directly tap someone’s bank account in these situations, it can permit other parties to remove the funds. Keep reading for more insight into when and how this can happen.
Times When the Government Can Legally Take Money From Your Account
There are certain situations where the government can allow for money to be removed from a consumer’s bank account without their permission. Let’s look at a few ways this can happen.
Right of Offset
The “right of offset” is a term that refers to the fact that both banks and credit unions are allowed to take money from an account holder’s checking account, savings account, or certificate of deposit in order to pay off a debt on another account held at the same financial institution. While the government isn’t the one directly taking the money out of a bank account, they do legally allow this to happen.
For example, if you have a checking account and a student loan through a single bank and you fail to pay your student loan, the bank has the right to take money from your checking account to pay for missed loan payments. If the student loan was held through a different financial institution where the account holder doesn’t have a checking account open, then no action can be taken.
Financial institutions don’t have to give account holders advanced warning before exercising the right of offset. This is legally allowed as long as they follow all rules surrounding this practice.
Appeasing Both Sides
Taking funds from your account typically only happens in situations such as a student loan being about to go into default when the person holding the loan has money sitting in checking that could cover the debt. To know whether your funds could be tapped in this way, take a look at the fine print. Financial institutions like banks and credit unions usually have language surrounding this right of offset in the agreement that an account holder signs when they open a savings account, checking account, or a CD. All financial institutions will have their own version of how they handle and explain their right of offset process. Typically, credit unions have a bit more leeway when it comes to right of offset while banks need to stick to stricter standards. For instance, it’s usually illegal for a bank to seize money from an account to pay a credit card debt. However, credit unions may be able to do this.
Which Accounts Can Be Tapped
Here’s another reason why it’s really important to pay close attention to this language: Sometimes a bank or credit union has the ability to access the funds in any joint accounts that the main account holder shares with someone else (like a spouse). So if, say, you had a joint checking account at a bank with funds in it, and the bank also held your student loan which was close to default, both you and your spouse could wind up having your money withdrawn to go towards that overdue loan. Luckily, the right of offset isn’t eligible for tax-deferred retirement accounts (such as IRAs), so the money in those accounts can’t be touched.
Garnishment of Wages
Garnishment of wages is another example of when the government permits taking money from someone without their permission. This is a legal procedure that requires an employer withhold part of a person’s earnings in order to repay a debt such as child support. Wage garnishment requires a court order; however, Title III of the Consumer Credit Protection Act (CCPA) protects the person who needs to repay their debt. It says that an employer can’t discharge an employee for having their wages garnished for a single source of debt. However, employee’s with earnings subject to garnishment for a second or subsequent debts do not receive this protection.
Personal earnings such as wages, salaries, commissions, bonuses, and retirement income all qualify for wage garnishment, but tips usually don’t.
Does the Government Take Money From Accounts Often?
Having funds removed from a bank account without the account holder’s permission doesn’t happen all that often. When it does, the account holder can generally anticipate that this scenario is going to unfold, with the exception of it being a right of offset situation and they didn’t read their account holder agreement carefully. Garnishment of wages, however, requires a court mandate and won’t catch anyone off guard.
Let’s look at an example of how these situations can occur. If someone has debt and they don’t respond to a debt collector’s suit against them, the judge usually rules against the person who owes money. The judge may rule that the debt collector can garnish their wages, take a lien out on their property, or take money from their bank accounts.
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Are Any Funds Exempt?
You may wonder if any kinds of funds are exempt from right of offset and wage garnishment. Let’s take a look at the guidelines in this situation. If the documents you signed when you opened a checking account, savings account, or CD included a right of offset agreement, then you’ve permitted the financial institution to take your money to pay a debt under the terms outlined in the agreement. The agreement is a legal contract, and you’re subject to it as long as you’re an account holder.
In some cases, you might not even learn that your bank or credit union has exercised its right of offset until after the fact. The agreement doesn’t, however, open the door for a financial institution to pull money from your account whenever it wants. For instance, federal law prohibits a federally chartered bank from using the right of offset to pay your overdue credit card bill. Again, it is used to repay a loan that is overdue at the same financial institution.
State laws might also limit a bank’s or credit union’s right of offset. This is the case in California, where a financial institution can’t push your balance below $1,000 when it pulls money from your account to cover a debt. Some states also prohibit draining government benefits like Social Security or unemployment in a right of offset action. When thinking about wage garnishment, let’s take a look at what the law says. What kinds of funds can be garnished? Title III applies to all individuals who receive personal earnings and to their employers. Personal earnings include wages, salaries, commissions, bonuses, and income from a pension or retirement program, but does not ordinarily include tips.
Ways to Avoid Government Withdrawals
None of these withdrawals are ideal, and there are steps you can take to avoid them. When it comes to right of offset, it’s possible to avoid having this happening with a little communication. If a consumer fears they won’t be able to make a debt payment to their bank or credit union, they can connect with their financial institution to work out a repayment plan. Being upfront won’t make the situation worse and can lead to a potential solution. If someone loses their job, they can talk to their bank about how to manage their debt until they find a new job.
The best way to avoid wage garnishment is to make the required payments, such as child support, on time. Again, if someone is struggling to make a payment because of financial hardship, it’s best to communicate that upfront and to make a plan for recovery instead of falling behind on payments.
The Takeaway
So, can the government take money out of your bank account? The answer is yes – sort of. While the government may not be the one directly taking the money out of someone’s account, they can permit an employer or financial institution to do so.
If someone plans for debt and other required payments properly, chances are that money won’t ever have to be removed from their account without their permission. Even though funds can be unexpectedly withdrawn via right of offset and garnishment of wages, a person usually knows they have debt that’s past due and may not be totally surprised by this turn of events. When falling behind in payments, it’s often a good idea to talk directly with creditors and explain the situation. A new plan may be created that allows the person in debt to avoid these two scenarios we’ve just explored.
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FAQ
What is it called when the government takes money from your bank account?
Generally, when someone has money removed from their bank account this occurs through processes known as right of offset or garnishment of wages (which is money taken directly from a paycheck). These processes don’t involve the government directly taking money out of a bank account, but require the government’s approval for a financial institution or employer to do so.
Can the government take money from your checking account?
Through the right of offset, banks and credit unions are legally allowed to remove funds from a checking account. They can do this to pay a debt on another account that the consumer has with that same financial institution.
Can a government take your savings?
Through right of offset, the government allows banks and credit unions to access the savings of their account holders under certain circumstances. This is allowed when the consumer misses a debt payment owed to that same financial institution.
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.
