North Carolina-based Truist Financial Corporation announced on Tuesday that seasoned mortgage executive David Smith will be the head of Truist Mortgage effective July 31. Smith will replace the soon-to-be-retired Todd Chamberlain, who will assist with the transition.
Smith, whose experience includes leadership roles at companies such as Keller Williams and CitiMortgage, will oversee the strategy and execution of originations, fulfillment, servicing and warehouse lending.
In addition, Smith will lead the nationwide direct channels and correspondent business, reporting to chief retail and small business banking officer Dontá Wilson.
Wilson said that Smith positions Truist to “reimagine the future,” according to a news release.
Truist, a top U.S. mortgage lender and servicer, has shrunk amid a challenging mortgage market.
In the first quarter of 2023, the company originated $4 billion in mortgages, according to the Inside Mortgage Finance (IMF) estimates. The volume was 64% lower than in the same period of last year but was enough to rank the company the 15th largest residential mortgage lender in the country.
The company’s volume comes mainly from third-party originators. It originated $2.7 billion through TPO in Q1 2023, down 67.2% year over year. Meanwhile, the retail channel was responsible for $1.3 billion, a 58.3% decline in the same period.
The firm’s owned servicing portfolio, now under Smith’s leadership, reached $272 billion from January to March, 10.4% higher than in the same period of 2022. Truist is the 12th largest servicer by owned portfolio in the U.S, according to the IMF data.
Prior to joining Truist, Smith led the mortgage lending, insurance and title businesses affiliated with Keller Williams. Before that, Smith was the president and chief executive officer of CitiMortgage, a subsidiary of Citibank, where he navigated the financial downturn of 2008. His expertise is in building product breadth and pricing strategies for clients.
Smith said that he targets with his new position at Truist to deliver an “innovative, digital-first client experience to help even more clients bring their dreams into reality and achieve financial happiness,” according to a news release.
Dave Wicki, a branch manager who returned to Advisors after a year of hiatus, commented: “I came back home to Advisors because of its family-oriented culture. The support they provide to all their loan officers is unrivaled. They listen to my needs and go out of their way to set me up for success.” “I … [Read more…]
A potentially scary, or intriguing thought, depending on your worldview: Whether you are approved for a mortgage could hinge upon the type of yogurt you purchase.
Buying the more daring and worldly Siggi’s — a fancy imported Icelandic brand — could mean you achieve the American Dream while enjoying the more pedestrian choice of Yoplait’s whipped strawberry flavor could lead to another year of living in your parents’ basement.
Consumer habits and preferences can be used by machine learning or artificial intelligence-powered systems to build a financial profile of an applicant. In this evolving field, the data used to determine a person’s creditworthiness could include anything from subscriptions to certain streaming services to applying for a mortgage in an area with a higher rate of defaults to even a penchant for purchasing luxury products — the Siggi’s brand of yogurt, for instance.
Unlike the recent craze with AI-powered bots, such as ChatGPT, machine learning technology involved in the lending process has been around for at least half a decade. But a greater awareness of this technology in the cultural zeitgeist, and fresh scrutiny from regulators have many weighing both its potential benefits and the possible unintended — and negative — consequences.
AI-driven decision-making is advertised as a more holistic way of assessing a borrower than solely relying on traditional methods, such as credit reports, which can be disadvantageous for some socio-economic groups and result in more denials of loan applications or in higher interest rates being charged.
Companies in the financial services sector, including Churchill Mortgage, Planet Home Lending, Discover and Citibank, have started experimenting with using this technology during the underwriting process.
The AI tools could offer a fairer risk assessment of a borrower, according to Sean Kamar, vice president of data science at Zest AI, a technology company that builds software for lending.
“A more accurate risk score allows lenders to be more confident about the decision that they’re making,” he said. “This is also a solution that mitigates any kind of biases that are present.”
But despite the promise of more equitable outcomes, additional transparency about how these tools learn and make choices may be needed before broad adoption is seen across the mortgage industry. This is partially due to ongoing concerns about a proclivity for discriminatory lending practices.
AI-powered systems have been under the watchful eye of agencies responsible for enforcing consumer protection laws, such as the Consumer Financial Protection Bureau.
“Companies must take responsibility for the use of these tools,” Rohit Chopra, the CFPB’s director, warned during a recent interagency press briefing about automated systems. “Unchecked AI poses threats to fairness and our civil rights,” he added.
Stakeholders in the AI industry expect standards to be rolled out by regulators in the near future, which could require companies to disclose their secret sauce — what variables they use to make decisions.
Companies involved in building this type of technology welcome guardrails, seeing them as a necessary burden that can result in greater clarity and more future customers.
The world of automated systems
In the analog world, a handful of data points provided by one of the credit reporting agencies, such as Equifax, Experian or TransUnion, help to determine whether a borrower qualifies for a mortgage.
A summary report is issued by these agencies that outlines a borrower’s credit history, the number of credit accounts they’ve had, payment history and bankruptcies. From this information, a credit score is calculated and used in the lending decision.
Credit scores are “a two-edged sword,” explained David Dworkin, CEO of the National Housing Conference.
“On the one hand, the score is highly predictive of the likelihood of [default],” he said. “And, on the other hand, the scoring algorithm clearly skews in favor of a white traditional, upper middle class borrower.”
This pattern begins as early as young adulthood for borrowers. A report published by the Urban Institute in 2022 found that young minority groups experience “deteriorating credit scores” compared to white borrowers. From 2010 to 2021, almost 33% of Black 18-to-29-year-olds and about 26% of Hispanic people in that age group saw their credit score drop, compared with 21% of young adults in majority-white communities.
That points to “decades of systemic racism” when it comes to traditional credit scoring, the nonprofit’s analysis argues. The selling point of underwriting systems powered by machine learning is that they rely on a much broader swath of data and can analyze it in a more nuanced, nonlinear way, which can potentially minimize bias, industry stakeholders said.
“The old way of underwriting loans is relying on FICO calculations,” said Subodha Kumar, data science professor at Temple University in Philadelphia. “But the newer technologies can look at [e-commerce and purchase data], such as the yogurt you buy to help in predicting whether you’ll pay your loan or not. These algorithms can give us the optimal value of each individual so you don’t put people in a bucket anymore and the decision becomes more personalized, which is supposedly much better.”
An example of how a consumer’s purchase decisions may be used by automated systems to determine creditworthiness are displayed in a research paper published in 2021 by the University of Pennsylvania, which found a correlation between products consumers buy at a grocery store and the financial habits that shape credit behaviors.
The paper concluded that applicants who buy things such as fresh yogurt or imported snacks fall into the category of low-risk applicants. In contrast, those who add canned food and deli meats and sausages to their carts land in the more likely to default category because their purchases are “less time-intensive…to transform into consumption.”
Though technology companies interviewed denied using such data points, most do rely on a more creative approach to determine whether a borrower qualifies for a loan. According to Kamar, Zest AI’s underwriting system can distinguish between a “safe borrower” who has high utilization and a consumer whose spending habits pose risk.
“[If you have a high utilization, but you are consistently paying off your debt] you’re probably a much safer borrower than somebody who has very high utilization and is constantly opening up new lines of credit,” Kamar said. “Those are two very different borrowers, but that difference is not seen by more simpler, linear models.”
Meanwhile, TurnKey Lender, a technology company that also has an automated underwriting system that pulls standard data, such as personal information, property information and employment, but can also analyze more “out-of-the-box” data to determine a borrower’s creditworthiness. Their web platform, which handles origination, underwriting, and credit reporting, can look at algorithms that predict the future behavior of the client, according to Vit Arnautov, chief product officer at TurnKey.
The company’s technology can analyze “spending transactions on an account and what the usual balance is,” added Arnautov. This helps to analyze income and potential liabilities for lending institutions. Additionally, TurnKey’s system can create a heatmap “to see how many delinquencies and how many bad loans are in an area where a borrower lives or is trying to buy a house.”
Bias concerns
Automated systems that pull alternative information could make lending more fair, or, some worry, they could do the exact opposite.
“The challenges that typically happen in systems like these [are] from the data used to train the system,” said Jayendran GS, CEO of Prudent AI, a lending decision platform built for non-qualified mortgage lenders. “The biases typically come from the data.
“If I need to teach you how to make a cup of coffee, I will give you a set of instructions and a recipe, but if I need to teach you how to ride a bicycle, I’m going to let you try it and eventually you’ll learn,” he added. “AI systems tend to work like the bicycle model.”
If the quality of the data is “not good,” the autonomous system could make biased, or discriminatory decisions. And the opportunities to ingest potentially biased data are ample, because “your input is the entire internet and there’s a lot of crazy stuff out there,” noted Dworkin.
“I think that when we look at the whole issue, it’s if we do it right, we could really remove bias from the system completely, but we can’t do that unless we have a lot of intentionality behind it,” Dworkin added. Fear of bias is why government agencies, specifically the CFPB, have been wary of AI-powered platforms making lending decisions without proper guardrails. The government watchdog has expressed skepticism about the use of predictive analytics, algorithms, and machine learning in underwriting, warning that it can also reinforce “historical biases that have excluded too many Americans from opportunities.”
Most recently, the CFPB along with the Civil Rights Division of the Department of Justice, Federal Trade Commission, and the Equal Employment Opportunity Commission warned that automated systems may perpetuate discrimination by relying on nonrepresentative datasets. They also criticized the lack of transparency around what variables are actually used to make a lending determination.
Though no guidelines have been set in stone, stakeholders in the AI space expect regulations to be implemented soon. Future rules could require companies to disclose exactly what data is being used and explain why they are using said variables to regulators and customers, said Kumar, the Temple professor.
“Going forward maybe these systems use 17 variables instead of the 20 they were relying on because they are not sure how these other three are playing a role,” said Kumar. “We may need to have a trade-off in accuracy for fairness and explainability.”
This notion is welcomed by players in the AI space who see regulations as something that could broaden adoption.
“We’ve had very large customers that have gotten very close to a partnership deal [with us] but at the end of the day it got canceled because they didn’t want to stick their neck out because they were concerned with what might happen, not knowing how future rulings may impact this space,” said Zest AI’s Kamar. “We appreciate and invite government regulators to make even stronger positions with regard to how much is absolutely critical for credit underwriting decisioning systems to be fully transparent and fair.”
Some technology companies, such as Prudent AI, have also been cautious about including alternative data because of a lack of regulatory guidance. But once guidelines are developed around AI in lending, GS noted that he would consider expanding the capabilities of Prudent AI’s underwriting system.
“The lending decision is a complicated decision and bank statements are only a part of the decision,” said GS. “We are happy to look at extending our capabilities to solve problems, with other documents as well, but there has to be a level of data quality and we feel that until you have reliable data quality, autonomy is dangerous.”
As potential developments surrounding AI-lending evolve, one point is clear: it is better to live with these systems than without them.
“Automated underwriting, for all of its faults, is almost always going to be better than the manual underwriting of the old days when you had Betty in the back room, with her calculator and whatever biases Betty might have had,” said Dworkin, the head of NHC. “I think at the end of the day, common sense really dictates a lot of how [the future landscape of automated systems will play out] but anybody who thinks they’re going to be successful in defeating the Moore’s Law of technology is fooling themselves.”
The acting director of the Office of the Comptroller of the Currency has directed seven of the nation’s largest mortgage lenders to review their foreclosure processes amid reports of widespread mishandling of homeowner evictions.
John Walsh told lawmakers at a hearing on the financial regulatory overhaul that some lenders “clearly had deficiencies” in their foreclosure procedures.
The banks include Bank of America, Chase, Citibank, HSBC, PNC Bank, U.S. Bank, and Wells Fargo.
That means five out of six of the top mortgage lenders in the second quarter of 2010 have been told to potentially put the brakes on foreclosures and evictions until a review is conducted.
GMAC, the only bank in the top six that wasn’t explicitly told to review its processes, already halted evictions, cash-for-keys transactions, and lockouts in 23 states after the company warned it could need to take corrective action in connection with some foreclosures.
Chase followed suit a week later, and it’s becoming increasingly likely all major banks and mortgage lenders will get on board to avoid any controversy.
Walsh said the OCC wants to see that they fix the foreclosure processing problems, while also determining whether specific harm has been caused in individual cases.
Last week, the California AG called for Ally to halt foreclosures amid similar complaints, and today the Connecticut AG called for a state-wide foreclosure freeze until things get cleared up.
All the foreclosure issues stem out of paperwork issues (potential fraud), where bank employees who never read borrowers’ files signed off on evictions.
It’s semi-ironic, given many of these lenders may have also committed fraud when they put these borrowers in the homes to begin with.
Update: Bank of America has halted foreclosures, the others will likely do the same.
When someone passes away, there can be plenty of questions over who gets what, especially if there’s a home in the mix. An often-overlooked question centers on who is responsible for paying property taxes when the owner dies. A delinquent property tax bill could result in a lien against the home or worse, a tax foreclosure. It’s the job of the deceased person’s executor to make sure that property taxes—and any other outstanding debts—are paid when finalizing their estate. If you’re ready to create an estate plan, a financial advisor can help.
Understanding What Happens to Property Taxes When Someone Dies
When someone passes away, their debts don’t automatically disappear. Any outstanding financial obligations must be paid, either from the proceeds of their estate or by individuals who are jointly responsible for debts.
For instance, if a husband and wife both sign off on a $30,000 car loan and one of them dies unexpectedly, the other spouse is responsible for the remaining debt since they’re co-borrowers. The same would be true for other co-signed loans, including mortgages and private student loans or joint credit card accounts.
Property tax bills that are outstanding when someone dies must still be paid. Failing to pay property taxes can result in a lien being placed on the property. The agency responsible for collecting property taxes could go a step further and foreclose on the home. In that case, the home could then be sold at auction to the highest bidder.
Who Is Responsible for Paying Property Taxes When the Owner Dies?
The executor of a deceased person’s estate is responsible for making sure that any remaining property taxes are paid when the owner dies. An executor can be named in a will or if there is no will, they can be appointed by the court. Any interested party can petition the probate court to become the executor when one isn’t named in a will.
In terms of where the money comes from that goes to pay property taxes when someone dies, the answer is typically the estate itself. There are different ways this can be handled, depending on how the person structured their estate plan.
For instance, they might specify in their will that certain assets in their estate should be used to pay property taxes. If they’ve set up a trust as part of their estate plan, they could also allocate assets within the trust to cover any remaining tax bills. In that case, a trustee, not an executor would be responsible for making sure the taxes are paid.
If there are no assets set aside to pay property taxes, then the executor or trustee could use assets from the estate to do so. For instance, they might draw money from the deceased person’s bank account or sell tangible assets to raise the money that’s needed. That could even include selling the home itself to pay the tax bill if the will or trust doesn’t specifically disallow it.
Certain assets are beyond an executor or trustee’s reach when settling an estate. For example, if your parents named you as the beneficiary to a life insurance policy or retirement account, that money would come directly to you when they pass away.
Are Beneficiaries or Heirs Responsible for Property Taxes When an Owner Dies?
Inheriting a home from someone doesn’t necessarily make you responsible for any property taxes right away. Again, the responsibility for paying taxes would fall on the executor until the legal title is transferred to you.
However, once the property is in your name, you’d have to pay any property taxes owed on it, including past due amounts, current bills and future bills. The only exception would be if the property owner’s will or trust directs the executor or trustee to pay any and all debts associated with the home before it’s transferred to you. How quickly a home’s title is transferred after death can depend on where you live.
If someone dies without a will in place, their heirs receive their assets in accordance with state inheritance laws. Whomever the home goes to under state law would be responsible for paying property taxes once the title is transferred to them.
What if you have no heirs? In that case, the home becomes the property of the state. The state could then sell the home and use money from the proceeds to pay any remaining taxes due.
Accounting for Property Taxes in an Estate Plan
If you don’t want to leave your heirs with a property tax burden when you pass away, there are some things you can do now to ensure that doesn’t happen. The easiest way to do that is by including a provision for handling property taxes in your will.
You can name an executor and leave directions on which assets they should use to pay the property taxes. You can also direct them to pay the taxes from estate assets before distributing any remaining assets to your beneficiaries. If you’re concerned that there may not be enough assets to cover the tax bill, you can also state that it’s okay for them to sell the home if necessary.
If you’ve put your home into a trust, you can do the same thing in the trust document. That includes directing the trustee to pay property taxes out of trust assets or requiring the beneficiary to pay the taxes before they can inherit the property. Talking to a financial advisor can help you decide what the best option might be.
You could also buy a life insurance policy just to cover final expenses or debts, including property taxes. Instead of naming a loved one as the beneficiary to the policy, you could name your estate instead. That way, you can be assured that the executor will have the funds they need to cover property tax bills once the probate process gets underway.
The Bottom Line
Unpaid property taxes can add a wrinkle to the settlement of an estate after a homeowner passes away. If you own a home that you intend to pass on to someone else, early planning can help your beneficiaries avoid financial hiccups once it’s time for them to inherit the home.
Tax Planning Tips
Working with a financial advisor to flesh out an estate plan can make it easier to decide how to divide your assets while accounting in advance for any debts you might leave behind. Finding a financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with up to three vetted financial advisors who serve your area, and you can have a free introductory call with your advisor matches to decide which one you feel is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
If you don’t have a will yet, you might want to consider making one so you can specify how you want property taxes to be handled when you pass away. You can work with an estate planning attorney to draft a will or make one online. There are a number of affordable online will-making software options that you can use to make a basic will. Just keep in mind that once you make the will, you’ll typically need to have it witnessed and notarized for it to be considered legally valid.
Rebecca Lake, CEPF®
Rebecca Lake is a retirement, investing and estate planning expert who has been writing about personal finance for a decade. Her expertise in the finance niche also extends to home buying, credit cards, banking and small business. She’s worked directly with several major financial and insurance brands, including Citibank, Discover and AIG and her writing has appeared online at U.S. News and World Report, CreditCards.com and Investopedia. Rebecca is a graduate of the University of South Carolina and she also attended Charleston Southern University as a graduate student. Originally from central Virginia, she now lives on the North Carolina coast along with her two children.
Rolling over a 401(k) is something you might consider if you’re planning to retire or just changing jobs and don’t want to leave your savings behind. When deciding where to move retirement assets, a certificate of deposit is one you might consider but it’s important to consider the tax implications. Can you transfer a 401(k) to a CD without penalty? Yes, but there are a few rules to know to make sure you don’t get hit with a surprise tax bill. A financial advisor can help you choose the best option for rolling over your 401(k) money.
Understanding 401(k) Rollovers
When you roll over a 401(k), you’re simply moving it from one place to another. A rollover is not the same as a withdrawal since you’re not taking any assets out of your account. In terms of where you can roll a 401(k) to, the options can include:
Another 401(k) or qualified retirement plan if you’re changing jobs
A traditional or Roth IRA
IRA CDs or money market accounts
Why would you want to roll over a 401(k)? There are different reasons for doing so and it often depends on your financial situation and needs. If you’re changing jobs, for instance, you might want to roll the money over from your old plan to your new one so that all of your 401(k) assets are together. On the other hand, if you’re retiring you may feel more comfortable having your 401(k) funds in an Individual Retirement Account or IRA CD.
Of course, you could always leave your plan where it is if you’re happy with your current investments. Just keep in mind that if your account balance is below a certain threshold, your former employer can cash it out and cut you a check.
Can You Transfer a 401(k) to a CD Without Penalty?
It’s possible to roll 401(k) money into a CD without paying tax penalties but there are some guidelines for doing so. First, you’ll need to make sure you’re using the right type of CD. Specifically, that means an IRA CD.
An IRA CD is a CD account that’s funded through an IRA and enjoys its tax benefits. Banks and credit unions can offer traditional and Roth IRA CDs. Each one follows the same rules as a traditional or Roth IRA. Here are a few things to know.
Both traditional and Roth IRA CDs are subject to IRA annual contribution limits (except when rolling over 401(k) funds).
Traditional IRA CDs are funded with pre-tax dollars and withdrawals are taxed as ordinary income.
Roth IRA CDs are funded with after-tax dollars and allow for tax-free withdrawals in retirement.
Early withdrawals from either type of CD before age 59 ½ could trigger tax penalties.
None of that applies to traditional bank CDs. You can generally put as much money as you like into a standard CD and withdraw the money at maturity without a penalty. Any interest earned is taxed as ordinary income.
Next, you’ll need to make sure you’re handling the transfer the right way. With a 401(k) plan, you can use a direct or indirect rollover to move money from one account to another. A direct rollover allows you to move money from your 401(k) to an IRA CD without ever receiving any of the money yourself. Indirect rollovers send the money to you and you then have to deposit it into a new account.
If you want to transfer money from a 401(k) to a CD without penalty, then a direct rollover is the best option. An indirect rollover puts the burden of redepositing the money into an IRA CD on you. If you fail to do so within 60 days, the IRS can treat the entire rollover as a taxable withdrawal.
Also, note that rollovers need to be like-kind to avoid any tax consequences. If you have a traditional 401(k) and you want to roll it into a Roth IRA CD, for instance, the IRS requires you to pay taxes on the amount that you’re converting. Talking to a financial advisor can help you figure out whether that type of 401(k) transfer makes sense.
How to Transfer Money From a 401(k) to a CD Without Penalty
Rolling over a 401(k) isn’t a difficult process but there are some important steps you’ll need to follow. The first is to decide where you want to open an IRA CD to receive your retirement funds. You can start with your bank first to see what options you might have, then compare them to IRA CDs offered by other banks or brokerages.
Once you choose an IRA CD option, the next step is filling out the paperwork to initiate the rollover. You can contact the company that currently holds your 401(k) to find out what forms you’ll need. It’s possible that you might be able to fill them out and submit them electronically.
You’ll need to tell your 401(k) administrator where to send the money and how much to transfer if you’re only doing a partial rollover. Once you’ve done that the plan administrator and the company that holds your newly opened IRA CD does the rest.
In terms of how long it takes to roll a 401(k) into an IRA CD, it largely depends on the plan administrator and the company that’s receiving the funds. Two weeks is usually a good amount of time to allow for a rollover to complete, though it can take longer in some cases. Following up with your bank or brokerage can help you get a better idea of when your 401(k) funds should hit your CD account.
Is a 401(k) to CD Rollover a Good Idea?
Can you transfer a 401(k) to a CD without penalty? Sure, but the better question is, should you? An IRA CD can be a safe place to park your retirement funds and having your retirement money at your bank might be more convenient than keeping it at a brokerage if you need to withdraw funds. On the other hand, you could be missing out on a chance to grow your retirement savings.
IRA CDs can pay interest like other CDs, but the rates may not be the best. Even if you’re able to find a high-yield IRA CD option, you may still be able to get a better return by rolling over your 401(k) to a regular IRA instead. Traditional and Roth IRAs can offer access to index funds, exchange-traded funds and other investments, all of which could outperform CD rates.
You might consider an IRA CD if you’re looking for safety and virtually guaranteed rates but it’s important to consider the bigger picture where your portfolio is concerned. Depending on what your goals are, you might run the risk of shortchanging your retirement savings if you’re leaning heavily on CDs to save.
The Bottom Line
Transferring money from a 401(k) to an IRA doesn’t automatically trigger a tax penalty if you’re following the proper steps to complete the rollover. Before starting the process, it helps to flesh out what your goals and reasons are for doing so. You’ll also want to shop around to compare IRA CD rates to see which banks have the best options.
Retirement Planning Tips
One of the most challenging parts of retirement planning is deciding when and how to draw down your assets. A financial advisor can help you develop a strategy for withdrawing your savings as efficiently as possible. Finding a financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with up to three vetted financial advisors who serve your area, and you can have a free introductory call with your advisor matches to decide which one you feel is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
IRA CDs can come in a variety of terms, ranging from as little as three months up to 10 years. When your CD matures, it may renew automatically so it’s important to keep the timing in mind when deciding which ones to choose. If you need to withdraw money from an IRA CD before maturity, your bank could impose an early withdrawal penalty equivalent to some or all of the interest earned. The IRS can also assess a tax penalty if you make early withdrawals before age 59 ½.
Rebecca Lake, CEPF®
Rebecca Lake is a retirement, investing and estate planning expert who has been writing about personal finance for a decade. Her expertise in the finance niche also extends to home buying, credit cards, banking and small business. She’s worked directly with several major financial and insurance brands, including Citibank, Discover and AIG and her writing has appeared online at U.S. News and World Report, CreditCards.com and Investopedia. Rebecca is a graduate of the University of South Carolina and she also attended Charleston Southern University as a graduate student. Originally from central Virginia, she now lives on the North Carolina coast along with her two children.
A life insurance policy can provide your loved ones with a death benefit should something happen to you. Permanent life insurance can also accumulate a cash value that you can withdraw or borrow while you’re still living. For example, you might use whole or variable life insurance for college savings to pay tuition bills, room and board or other costs. Is using life insurance to pay for college a good idea? There are some pros and cons to consider. Talking to a financial advisor can help you decide on the best way to save for college costs.
Understanding Life Insurance and Cash Value
Life insurance comes in different varieties, but the two main categories are term and permanent life. Term life coverage insures you for a set time period. If you pass away during the term, the policy pays out a death benefit to your beneficiaries that they could use to pay for college or other expenses. If you outlive the term, the policy terminates and no benefit is paid out.
Permanent life insurance, on the other hand, covers you for the duration of your life as long as premiums are paid. Certain types of permanent life insurance can also include a cash value component. As you pay in premiums monthly or annually, part of that premium is deposited into an interest-bearing account. You can then withdraw cash value or take out a loan against it during your lifetime.
Term life, meanwhile, doesn’t build cash value. However, it’s generally less expensive than permanent life insurance coverage. If you’re specifically interested in accumulating cash value with life insurance, you might be able to do that with a permanent whole life, universal life or variable life policy. The main difference between them lies in how the cash value account earns interest.
Can You Use Life Insurance for College Savings?
Yes, if you have cash value in a life insurance policy, you could use it to pay college expenses. There are typically three ways to do that:
Take a loan against your cash value
Withdraw cash from the policy
Surrender the policy
When you get a loan from a life insurance policy, you’re borrowing a lump sum from the cash value. You may not need to pay anything back toward the loan while you’re still living. When you pass away, the remaining loan balance is deducted from the death benefit and any remaining amount is paid to your beneficiaries.
You might choose to withdraw cash instead if your policy doesn’t allow for loans. A withdrawal would allow you to get cash for college or other expenses. Again, the death benefit would be reduced when the time comes to pay out a claim.
The final option is to surrender the policy altogether in exchange for its cash value. If you surrender, the policy terminates and you’ll no longer have coverage. You might choose this option to use life insurance for college savings if you have another life insurance policy as a backup or if you believe you have sufficient assets that make coverage unnecessary.
How to Use Life Insurance for College Savings
If you’d like to tap into your life insurance policy to pay for college, the first step is making sure that you can actually do so. A quick call to your insurance company or a review of your policy documents should tell you whether you have a term life or permanent life insurance policy and if it’s permanent, where there’s a cash value component.
Assuming that your policy has some cash value, the next step is deciding how to go about withdrawing it. Your insurance agent should be able to walk you through the different options. You may also want to talk to your financial advisor to discuss whether it makes more sense to borrow from your policy, withdraw the cash value or surrender it altogether.
If you’re opting for a loan or cash value withdrawal, you’ll need to know how much cash value is available and what amount to withdraw for college costs. You can then make the request to the insurance company to get the cash. Life insurance loans don’t require all the usual hoops associated with personal loans or student loans, though there might be some paperwork you need to fill out.
Once everything is finalized, the life insurance company will cut a check to you for the cash value that you’re taking out. You can then deposit it to your bank and once it clears, use the money to pay for college expenses.
Should You Use Life Insurance to Pay for College?
Life insurance isn’t designed to be a college savings vehicle, per se. Its primary function is to help people leave a financial safety net behind for their loved ones should the worst happen. Life insurance beneficiaries can use the death benefit from a policy to cover a wide range of costs, including mortgage payments, everyday expenses, final expenses and credit card bills.
Education expenses can also be added to that list and there are a few good reasons to consider using life insurance for college savings. Here are some of the advantages of life insurance as a college savings tool.
It’s flexible since you can withdraw or borrow against your cash value and use it to pay education expenses at your own pace.
Life insurance policies and any loans you might take from them, typically don’t affect a student’s ability to qualify for financial aid.
You can continue accumulating interest until you’re ready to withdraw it and you’re not penalized if your child decides not to go to college.
Coverage is lifelong, which means you could use your cash value to fund college for your children, grandchildren or even great-grandchildren.
There are, however, some downsides to using life insurance for college savings in lieu of a tax-advantaged plan, such as a 529 account or even a Coverdell Education Savings Account (ESA). Here are some of the most important things to keep in mind.
Cash value can take time to accumulate in a permanent life insurance policy and it’s possible that you won’t have enough to pay for college costs when the need arises.
A 529 college savings account may offer a higher rate of return, along with tax advantages.
Permanent life insurance can be more expensive than term life insurance when you factor in the premiums, upfront fees and recurring fees that you might pay.
Withdrawing or borrowing against cash value shrinks the death benefit that you’re able to leave behind for your loved ones.
A financial advisor might recommend incorporating life insurance into your college savings plan, but as just one piece, not the main focal point. For instance, you might set up a 529 for each of your children and contribute money to it each year that grows on a tax-deferred basis. When your child is ready to go to school, you can withdraw that money tax-free as long as it’s used for qualified higher education expenses.
If you pass away while your child is still in school, your life insurance policy can help to cover any remaining costs to help them finish their education. And if you have a 529 plan but your child doesn’t go to college, you could always transfer it to another beneficiary without a penalty.
The Bottom Line
Using life insurance for college savings is something you might consider if you have a permanent policy. It’s important to consider all the options for funding higher education, including a 529 plan or Coverdell account, to determine what best fits your needs. And if you don’t have a life insurance policy yet, you might want to get a rate quote to get an idea of how much you’ll pay for coverage.
Insurance Planning Tips
If you’re not sure where to get started with college planning, a financial advisor can help. An advisor can review your financial situation and your student’s estimated needs, then offer solutions for meeting them. Finding a financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with up to three vetted financial advisors who serve your area, and you can have a free introductory call with your advisor matches to decide which one you feel is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
When comparing life insurance policies, it’s important to consider not only what you’ll pay but how much cash value you might be able to accumulate. Whole life policies, universal life policies and variable life policies can all take very different approaches to growing your cash value.
Rebecca Lake, CEPF®
Rebecca Lake is a retirement, investing and estate planning expert who has been writing about personal finance for a decade. Her expertise in the finance niche also extends to home buying, credit cards, banking and small business. She’s worked directly with several major financial and insurance brands, including Citibank, Discover and AIG and her writing has appeared online at U.S. News and World Report, CreditCards.com and Investopedia. Rebecca is a graduate of the University of South Carolina and she also attended Charleston Southern University as a graduate student. Originally from central Virginia, she now lives on the North Carolina coast along with her two children.
When you choose a bank for your daily checking and savings needs, you can choose between a national bank, a smaller regional bank, credit unions of varying sizes, and even online banks and financial technology companies.
Since early 2023, when Signature Bank and Silicon Valley Bank both experienced failures after customers pulled out large amounts of money during bank runs, banking customers may feel more comfortable choosing a national bank.
Although the U.S. government took extraordinary measures to protect the assets of SVB and Signature Bank customers, and deposits held in the accounts were FDIC insured, many customers were still rightfully concerned about gaining access to their money in a timely manner.
After the banking crisis of 2008, the Federal government declared banks like JPMorgan Chase, Bank of America, Citibank, and Wells Fargo as “too big to fail.” But these aren’t the only national banks or credit unions available.
You might think that smaller online banks may have lower fees, while small local banks are known for friendly and responsive customer service. But the national banks on this list blend the best of all worlds: low fees, high marks for customer satisfaction, ways to avoid overdraft fees, convenient ATM networks, and a variety of banking products.
16 Best National Banks
Here are the 16 best national banks that offer exceptional services, excellent customer support, and innovative banking solutions to meet all of your financial needs.
1. SoFi – Best for Digital Banking & High Yields
SoFi became a nationally chartered online bank in 2022, after acquiring Golden Pacific Bancorp, Member FDIC. Originally known for its vast array of loan products, including private student loans, today SoFi has a combination checking and savings account, or a cash management account, with no monthly service fee.
SoFi also has no minimum balance requirements, no overdraft fee, and overdraft protection up to $50 with qualifying direct deposits each month. You can bank for free at any of 55,000+ fee free Allpoint ATMs nationwide.
As an online bank, SoFi offers higher interest rates than you may find at brick and mortar banks. Earn up to 4.20% APY on your savings account balance and 1.20% on money in your checking account. When you use your SoFi debit card at select local businesses, you can earn up to 15% cash back.
SoFi offers two tiers of accounts: SoFi and SoFi Plus. To qualify for the “freemium” SoFi Plus membership, bank customers must have qualifying direct deposits. Plus, when you sign up before December 31, 2023, you can earn a cash bonus of $250 when you set up direct deposits of $5,000 or $50 with a direct deposit as low as $1,000.
SoFi Plus members receive loan rate discounts, bonus rewards, access to special entertainment events and more, making SoFi a unique company when it comes to online banks.
2. Discover Bank – Best for Cash Back
Discover may be best known for cashback and rewards credit cards. But its online banking products are some of the best you’ll find among national banks.
With no monthly fees and no minimum balance, your Discover Cashback checking account pays 1% cashback on up to $3,000 worth of debit card purchases monthly. You’ll never pay overdraft charges, and you can withdraw cash at a network of 60,000+ fee free ATMs.
You can qualify for overdraft protection by linking your Discover Bank savings account. Discover Savings pays a high 3.90% APY with no minimum deposit required.
Other Discover Bank deposit accounts include CDs with terms from 3 months to 10 years, and a money market account that pays 3.80% APY for balances under $100,000 and 3.85% on balances $100,000 and up.
For questions or help with your account, you can reach a U.S.-based customer service representative for Discover Bank by phone, 24/7/365.
3. Chase Bank – Best for Credit Card Rewards & Referral Bonuses
As the world’s largest national bank, JPMorgan Chase Bank doesn’t need to do much to entice customers. People will choose Chase based on its name, reputation, and more than 4,700 convenient branch locations across the U.S.
However, Chase happens to have one of the best bonuses for new customers and a generous referral bonus program when existing customers refer their friends. This, coupled with a robust and easy-to-use mobile app and a variety of checking, savings and investment services, puts Chase on our list of top national banks in the U.S.
Chase is currently offering new Chase Total Checking customers a $200 bonus when they open a new account and set up direct deposit within the first 90 days.
New or upgrading Chase Private Client customers can earn a $3,000 bonus with a deposit of $500,000 or more within the first 45 days of account opening. Deposits of $150,000 to $249,999 earn $1,000 and cash deposits of $250,000 to $499,999 earn $2,000. You must keep the money in your J.P. Morgan Wealth Management or JPMorgan Chase deposit accounts for 90 days to qualify.
In addition to Chase Total Checking, the bank’s most popular checking account, and Private Client services, Chase also offers other checking and savings accounts.
Chase Secure Banking has a $4.95 monthly fee and no overdraft fees. Chase Premier Plus Checking offers a few added benefits beyond Chase Total Checking, including ATM fee rebates up to four times per statement cycle, a linked personal checking account with no monthly fees, and a 0.01% interest rate on balances.
Chase also offers bank accounts for kids, teens, and college students, as well as CDs, savings and money market accounts, mortgages, loan products, and a full array of top-rated rewards credit cards.
If you have multiple Chase accounts, it’s easy to manage them all within the mobile app.
4. Chime – Best for Building Credit
Chime is a financial technology company backed by Stride Bank, Member FDIC, and Bancorp Bank, Member FDIC. It is not a bank, itself, but offers some of the same features, including online banking, a debit card, and direct deposit up to two days earlier than some other banks.
Chime has no monthly service fee, no overdraft fee, and no minimum balance requirements. For customers who need a little boost to make it from paycheck to paycheck, Chime offers fee-free overdraft up to $200 through the SpotMe5 program and a credit builder secured Visa credit card with no annual fees, interest or minimum security deposit.
Use your Chime debit card at any of 60,000+ fee free1 ATMs in the Allpoint, MoneyPass or Visa Plus Alliance ATM networks. Out of network ATM fees may apply, otherwise.
You can qualify for Chime’s SpotMe program with a single direct deposit of $200 or more during any monthly statement period. If you process a transaction that would put you into overdraft, Chime will accept the transaction even if it puts your balance into the negative by up to $200.
The Credit Builder Secured Visa card carries the same requirements of a $200 monthly minimum direct deposit. You can build your credit and raise your credit score with responsible use of the card.
5. Citi® – Best for Large Cash Deposits
The third of the four largest national banks in the U.S. based on assets, Citi, owned by Citigroup, is best for high net worth customers or those with large cash deposits divided among Citi checking, savings, and other accounts.
Currently, you can earn a generous cash bonus of $200 to $2,000 when you open a qualifying Citi checking account and meet specific minimum opening deposit requirements. Your bonus will be determined by your account balance on the 20th day after opening the account. Funds must remain in the account for an additional 60 days after the 21st day.
Citi offers multiple checking accounts to meet various customers’ financial needs, all with monthly fees that are easy to waive if you hold the required minimum balance. The bank accounts include:
Citibank
Citi Priority, which includes travel perks and access Citi Personal Wealth Management advisors
Citigold, relationship banking and investment services
Basic Banking and ATM access
Access Account, a debit account with no paper checks
For the Basic Checking account, you’ll need to maintain a $1,500 minimum balance to waive the fees. The other accounts have larger minimum balance requirements to avoid monthly maintenance fees and take advantage of other perks, up to $200,000 for a Citigold account.
All accounts provide access to personal banking at Citi branches and access to more than 65,000 fee free ATMs across the U.S. All accounts except for Basic and Access accounts also have no fees at ATMs outside the Citi network.
Like all the larger national banks on this list, Citi has a full gamut of rewards credit cards, savings and money market accounts, and high-yield CDs.
6. CIT Bank – Best for High Interest Rates
CIT Bank, a division of First Citizens Bank, has earned awards and accolades for customer satisfaction, rated by American Banker as #1 for “delivering the most humanized experience in banking.”
You should be aware that deposits in First Citizens Bank & Trust Company, Member FDIC, are not separately insured. This only matters if you hold more than $250,000 in any single account type, such as checking or savings, in both First Citizens Bank and in CIT Bank.
CIT is the online only banking arm of First Citizens Bank, with high-yield savings accounts, CDs, money markets, and eChecking, all with no monthly fees and no overdraft fees. You won’t pay any ATM fees at CIT Bank machines, and CIT Bank reimburses up to $30 per month when you use out-of-network ATMs.
CIT offers 0.25% APY on checking when you hold more than $25,000 in your account, and 0.10% APY on balances under $25,000. The bank has high interest rates for savings, offering customers a 4.85% APY on balances of $5,000 or more with the Platinum Savings account.
CIT Bank has two other savings accounts as well:
Savings Connect, with a 4.60% APY
Savings Builder, which requires a minimum balance of $25,000 or a $100 monthly deposit to earn 1.00% APY
You’ll need a $100 minimum deposit to open a checking or savings account at CIT Bank.
7. Bank of America – Best for College Students
As the second largest of the best national banks, behind Chase, Bank of America has the full gamut of banking products, with three checking accounts plus a student account, savings, CDs, and investment products.
It’s easy to waive monthly maintenance fees on a checking account with a minimum daily balance, direct deposits, combined balances across eligible linked Bank of America accounts, or by enrolling in their Preferred Rewards programs.
We like the Advantage SafeBalance banking for kids, teens, and college students under 25 years old. They have no monthly fee and no overdraft fees. Teens ages 16+ can have sole ownership of the account.
For everyone else, the bank offers Advantage Plus and Advantage Relationship checking accounts with easy ways to waive the monthly fees with direct deposit or a minimum daily balance.
When you open a new checking account, you can qualify for a $100 bonus when you receive qualifying direct deposits of at least $1,000 within 90 days of opening the account.
Of course, Bank of America also has CDs, and a savings and money market account. Plus you can invest with Merrill. All of these deposit accounts count toward your Preferred Rewards membership.
When you have a combined average daily balance of at least $20,000 for three months, you’ll qualify for the rewards program.
8. U.S. Bank – Best for Military Members & High Balance Savings
U.S. Bank offers the Bank Smartly checking account so you can earn interest on your money. The current interest rate is just 0.01% APY on all checking balances. You’ll pay a $6.95 maintenance fee, but this is waived if you meet minimum deposit requirements or if you are a member of the U.S. military.
You can link your Bank Smartly checking account to a standard savings account or Elite Money Market to earn even more. To avoid fees on your savings account, you’ll want to keep a $300 minimum daily balance or a $1,000 average monthly collected balance. If you are already a Bank Smartly customer, you can enroll in Smart Rewards to waive savings account fees.
The Elite account is better for those with high balances. You can earn up to 4% APY on balances from $25,000 up to just under $500,000.
The appeal of U.S. Bank is in its high ratings for banking satisfaction across the board from customers. U.S. Bank earned accolades for having the best mobile app, the best digital mortgage tools, the best customer service features, and best mobile check deposit capabilities. These factors all contribute to its ranking as a best national bank.
9. Axos Bank – Best Online Bank
Axos is an online only bank with a rewards checking account that delivers up to 3.30% APY, with no fees and unlimited ATM fee rebates for out-of-network ATMs.
To earn the maximum APY, you’ll need to set up direct deposit and Axos Bank’s free Personal Finance Manager for 0.70% interest. Then, open an investment account and take out an Axos personal loan or auto loan and earn another 2.60% annual percentage yield on your checking account balance.
Axos also offers an Essential Checking account with early direct deposit and no fees, and a Cashback Checking account, which gives you 1% cash back on debit card purchases, along with no maintenance fees and unlimited domestic ATM fee reimbursements.
Voted the best online bank by many top personal finance sites, Axos Bank offers more than just high interest, no fee checking.
Axos Bank offers CDs with terms between 3 and 60 months and a savings account with 0.61% annual percentage yield, with interest compounded daily. You can also find personal loans, car loans, mortgages, and investment products.
Like other national banks, Axos Bank provides FDIC insurance up to $250,000 or $500,000 for joint account holders. But you can expand your coverage up to $150 million with Axos Bank InsureGuard+ Savings from IntraFi Network Deposits.
Axos splits up your large deposit into multiple accounts across several banks, each covered up to $250,000. If you are dealing with a substantial amount of cash and want your savings protected at a single bank, Axos may be a good choice for you.
New customers can earn a $100 welcome bonus by opening an account with just a $50 minimum opening deposit.
10. Truist Bank – Best for Relationship Banking & Innovative Savings Perks
Truist Bank is one of the top 10 largest national banks, formed as a merger between BB&T and SunTrust in 2019. Called “the biggest bank you’ve never heard of” by CNN Business, Truist holds assets of $574 billion and has been growing steadily since the merger.
Truist offers checking and savings accounts, CDs, and credit cards. Truist checking and savings customers can earn perks and benefits. This includes access to Long Game, a savings game app that lets you earn cash when depositing into your Truist savings account. It also includes bonus rewards on your Truist credit cards.
Truist has four levels of relationship banking in its Truist One checking account. This means the more you deposit, the more perks you will receive, up to a 50% loyalty bonus on Truist credit cards, and a discounted annual fee for a Delta SkyMiles debit card. Benefits for relationship banking begin at $10,000 in combined average monthly balances for Truist deposit accounts.
Your Truist checking account has a $12 monthly fee, which is easy to waive with $500 or more in direct deposits each month or a $500 minimum balance across all Truist deposit accounts. Truist personal loan, mortgage or credit card customers also pay no fees on their Truist checking account.
You can also waive the monthly fee with a linked Small Business checking account or if you are a student under the age of 25. You’ll need a $25 minimum opening deposit for a Truist One checking.
Customers with lower income or just getting started establishing their finances can benefit from Truist Confidence checking and savings accounts. The account has just a $5 monthly maintenance fee, which is easily waived.
11. Capital One – Best for High Interest Rates at a Brick and Mortar Bank
Like Chase Bank, Capital One is well known for its top-rated rewards credit cards. The company is also one of the best national banks with a savings account and CDs offering interest rates higher than the national average.
Capital One Performance 360 savings has a 3.90% APY, no monthly maintenance fees, and no minimum deposit to open your account. A Capital One 360 Performance checking account, similarly, has no monthly maintenance fee, overdraft protection through your linked savings account, and early direct deposit.
You can bank with no fees at a network of 70,000+ ATMs nationwide, and can deposit cash easily at CVS retail locations. Although you must open your Capital One Performance account online, you can receive personalized service and deposit cash at any Capital One bank branches or Capital One Cafes.
12. PNC Bank – Best in East and Southwest
PNC Bank is a large, national bank with branch locations across 29 states. Most branches are in the east, south, and southwest, although you will also find branch locations in some Midwest states.
PNC Bank’s online checking account is called Spend and it links to the PNC VirtualWallet. You can add a savings account, called Reserve, or upgrade to the Performance Select product with two tiers of savings and double layer overdraft protection.
When you set up your VirtualWallet with PNC Bank and open your Spend account, you can earn a $50 bonus.
Combining your Spend account with a PNC Bank Reserve account yields even more benefits. Earn a $200 bonus when you qualify. Finally, if you open a Performance Select VirtualWallet, you could earn $400.
Each account comes with a low monthly fee that is easily waived through qualifying monthly direct deposits or by meeting minimum balance requirements.
13. Wells Fargo – Best for Checking Account Options
Wells Fargo, one of the “big four,” is the fourth largest of the best national banks in the U.S. It is known for having many convenient bank locations, with 4,700 branch locations.
The vast number of branches across the country puts it top on our list for in-person banking and customer satisfaction.
Plus, we also rated it best for various checking account choices for everyone from children to retail investors.
Like the other national banks on this list, Wells Fargo has checking, savings, and CD accounts. The bank has four checking account options for consumers at various stages of their financial lives:
Clear Access Banking, with no overdraft fee and a low $5 monthly fee, waived for teens and young adults ages 13 to 24
Everyday Checking, the most popular bank account, with optional overdraft protection
Prime Checking, offering discounted interest rates for loans and higher interest rates for linked CDs and savings accounts
Premier Checking, a relationship banking service with 24/7 support and discounts on investing services
It’s easy to waive the $10 fee on Everyday Checking with a $500 minimum daily balance or $500 in monthly direct deposits. Waive the $25 fee on your Prime checking with $20,000 in linked balances. Similarly, your Premier Checking account will be free with $250,000 in linked balances, including investments with the bank’s Advisors.
You’ll need a $25 minimum opening deposit to open your account.
14. Ally Bank – Best Online Only Bank for Savings
Ally Bank is widely recognized as one of the best national online banks. It has very few fees, including no maintenance fee, no overdraft fee, and no ACH fee (even on expedited transfers). Plus, you’ll earn interest of 0.25% in your checking account and 3.85% APY on savings, including money you have allocated into various buckets.
We rated Ally Bank as the best online only bank for savings, not just because of the high interest rate, but because it offers so many ways to manage your money and ramp up your savings efforts.
You can set up recurring transfers into your savings account for specific goals or just to build up your emergency coffers. You can choose to round up transactions made with your Ally Bank debit card, or even electronic payments and checks. When Ally Bank finds at least $5 in “round-up” savings, it will be transferred automatically to your checking account.
Finally, Ally Bank analyzes your checking account periodically to reveal extra funds that are “safe to save.” Ally Bank automatically transfers that money for you. But you can transfer it back whenever you’d like.
In addition to these savings benefits, Ally Bank lets you access your money with your debit card with no fees at any of 43,000+ Allpoint ATMs. The online bank also refunds up to $10 in fees charged by out-of-network ATMs.
You can avoid stress and overspending with the Overdraft Transfer Service, which automatically transfers money from your Ally Bank savings account into checking. If you exceed six transfers or six savings withdrawals per month, Ally Bank will reimburse those fees, too.
You can also apply for CoverDraft℠ Coverage, which will cover up to $250 in charges that would put your account in the negative. You’ll qualify 30 days after you deposit at least $100 into your checking account. If you receive qualifying direct deposits of at least $250 two months in a row, you can increase your coverage to $250.
15. TD Bank – Best for Overall Banking Satisfaction
TD Bank, deemed America’s most convenient bank for its number of branches, branch hours and excellent customer service, blends the best of brick and mortar banks with easy online banking.
Most TD Bank locations are open seven days a week, including Sundays, with extended hours beyond what most brick and mortar banks provide. Most TD Bank branches are located across the East Coast, with locations in 15 different states and Washington, D.C.
TD Bank is the 7th largest bank in the U.S. based on deposits, with 1,668 branch locations nationwide. You can also reach customer service by phone, 24/7/365, which earns TD Bank high marks for banking satisfaction.
TD Bank offers six checking accounts for customers in various life stages:
TD Essential Banking
TD Convenience Checking
TD Beyond Checking
TD Simple Checking
TD 60 Plus Checking
TD Student Checking (for ages 17 to 23)
Currently, TD Bank is offering sign-on bonuses for new customers who open a TD Beyond or TD Convenience bank account. You’ll need a qualifying direct deposit (or more than one) totaling $2,500 within the first 60 days to earn $300 with TD Beyond, and a direct deposit of just $500 within the first 60 days to earn $200 with TD Convenience.
16. Schwab Bank – Best for Investors
Schwab may be best known as an investment service, but the bank was rated highest in banking satisfaction with checking accounts from J.D. Power & Associates four years running.
If you have a Schwab investment account, or are considering opening one, Schwab could be the best choice in banking for you.
The Schwab Bank Investor checking account has no foreign transaction fees, no minimums, and unlimited ATM fee rebates. Plus, earn 0.45% annual percentage yield on checking. Schwab’s savings account offers 0.48% APY.
Schwab also offers exceptionally high interest rates for CDs, with up to 5.40% APY and terms as short as 30 days. You’ll receive FDIC protection exceeding the federal maximum because you can purchase CDs from multiple banks, all through Schwab investment.
Methodology: How We Chose the Best National Banks
We evaluated a variety of banks and credit cards, taking into consideration the:
Variety of products
Interest rates
Monthly fees
ATM fees and ATM fee reimbursement
Branch locations and number of branches
Minimum deposit requirements
Fraud protection and security
We also looked at consumer reviews, and drew on the general reputation of each bank to find the best national bank.
Finding the Best National Bank
Now that we’ve explored the specifics of the best online banks and brick and mortar banks nationwide, you probably still have questions about which one is really the best national bank.
Let’s compare the three largest in the U.S. based on number of branches, interest rates, and overall banking satisfaction.
Chase vs. Wells Fargo
For the largest nationwide bank, Chase offers excellent banking satisfaction with an A+ rating from the Better Business Bureau, 4,800 branch locations, and an easy and intuitive mobile app. If you are shopping for a bank credit card, Chase also offers some of the best rewards cards available today.
Wells Fargo rivals Chase when it comes to number of branches, with roughly 4,700 locations across the U.S. It’s somewhat easier to waive the checking account fees at Wells Fargo. Wells Fargo offers higher interest rates for savings, with a 0.15% APY compared to Chase’s 0.01%.
Both banks have lower interest rates than you might find at online banks. However, if you are looking for national banks with a solid reputation, many branches, and high marks in banking satisfaction, either Chase or Wells Fargo would be a good choice.
Wells Fargo vs. Bank of America
Bank of America and Wells Fargo are the second and third-largest banks in the U.S. based on assets. BofA only has 4,000 branches compared to Fargo’s 4,700, but BofA boasts more ATMs nationwide.
BofA stands out when you join the Preferred Rewards program because you can waive the fees on your bank account and enjoy perks, bonus rewards on BofA credit cards, and rate discounts on loans.
If you have a large balance or are looking for an investing platform through your bank, BofA may be your best choice. On the other hand, Wells Fargo offers high interest rates on savings and convenient branch locations nationwide.
Common Questions
People have many questions related to whether an online bank is better than a traditional bank or whether a local bank is better than one of the largest national banks. We break it all down here.
Which is better, an online bank or a brick-and-mortar bank?
If you are looking for the highest interest rates and generous rewards programs, you are highly likely to find them at online banks. However, there are some advantages to a brick and mortar bank, including in-person service at local branches, the availability of paper checks, and easy ways to deposit cash in person or at branch ATMs.
You should expect the best national online banks and the best brick and mortar banks to have robust mobile apps, easy-to-waive fees, and fraud protection.
Make sure whatever bank you choose is “Member FDIC,” which means your deposits are insured up to $250,000 per account holder, per account type. That means joint accounts have $500,000 worth of FDIC insurance protection.
Is my money safer in a national bank vs. a regional bank (or a national credit union vs. a regional credit union)?
All banks on this list are Member FDIC, which means they are insured to the maximum allowable limit of $250,000 per account holder, per account type. Credit unions are covered up to the same limits by the National Credit Union Administration.
Many online banks are insured up to $2 million or more. These financial institutions divide cash deposits among multiple partner banks. Each bank insures deposits up to the maximum limit allowed by the Federal Deposit Insurance Corp. Read the fine print to determine your coverage limits when you choose a bank.
Beyond that, your money should be equally safe in a national bank, a smaller bank, or a credit union of any size. Also look for features such as fraud protection, fraud alerts via text, email or in the mobile app, and enhanced website security measures. You should also be able to lock and unlock your debit card in the mobile app if you misplace it or believe it may have been stolen.
What makes big banks different from smaller banks?
By definition, big banks will have larger market capitalization, which represents the total value of a bank’s stocks. Big banks will also hold more assets. For instance, Chase, which is the world’s largest financial institution, holds $3.2 trillion in assets. The second-largest national bank, Bank of America, possesses $2.41 trillion in assets. Larger financial institutions may also have more bank branches.
In many other ways, big national banks and smaller banks are similar, especially today. Customers want specific features and are unwilling to compromise on things like fee-free ATMs, no monthly fees, early direct deposit, and an intuitive mobile app.
How much interest do the best big banks pay?
In general, some of the largest national banks do not have the highest interest rates for savings and very few offer interest earning checking accounts.
Capital One 360 and Discover are two of the best national banks that offer interest on checking. To earn a higher APY with one of the largest national banks, you might want to consider CDs.
Are national banks better than other kinds of banks?
National banks aren’t necessarily better or worse than other kinds of banks. They may have more convenient branch locations, a higher number of branches, and a greater variety of products, but they might also have higher fees. Decide what’s most important to you when you choose a bank.
If you’d prefer to trust your money with one of the largest national banks, with a large market capitalization, high value, and branches nationwide, consider opening your checking and savings accounts with one of the best national banks on this list.
Chime is a financial technology company, not a bank. Banking services and debit card provided by The Bancorp Bank N.A. or Stride Bank, N.A.; Members FDIC. Credit Builder card issued by Stride Bank, N.A.
The Chime Credit Builder Visa® Card is issued by Stride Bank, N.A., Member FDIC, pursuant to a license from Visa U.S.A. Inc. and may be used everywhere Visa credit cards are accepted.
1. Out-of-network ATM withdrawal fees may apply with Chime except at MoneyPass ATMs in a 7-Eleven, or any Allpoint or Visa Plus Alliance ATM.
5. Chime SpotMe is an optional, no fee service that requires a single deposit of $200 or more in qualifying direct deposits to the Chime Checking Account each at least once every 34 days. All qualifying members will be allowed to overdraw their account up to $20 on debit card purchases and cash withdrawals initially, but may be later eligible for a higher limit of up to $200 or more based on member’s Chime Account history, direct deposit frequency and amount, spending activity and other risk-based factors. Your limit will be displayed to you within the Chime mobile app. You will receive notice of any changes to your limit. Your limit may change at any time, at Chime’s discretion. Although there are no overdraft fees, there may be out-of-network or third party fees associated with ATM transactions. SpotMe won’t cover non-debit card transactions, including ACH transfers, Pay Anyone transfers, or Chime Checkbook transactions. See Terms and Conditions.
If you owe federal income tax and can’t pay in full, the IRS Fresh Start program can help you get caught up. Fresh Start was established by the federal government in 2011 to offer some relief to taxpayers and curb predatory practices by the IRS. Under the Fresh Start Initiative, eligible taxpayers can enroll in a payment plan to clear their tax debt or negotiate an agreement to pay less than what’s owed. Either one could help you get back on track financially if you have an outstanding tax bill. You can also talk to a financial advisor about how to manage your tax liability going forward.
Understanding IRS Fresh Start
The IRS Fresh Start program or Fresh Start initiative was established in 2011 to help eligible taxpayers manage past-due tax debts. The program is designed to aid people who don’t have a prior history of unpaid taxes and aren’t subject to a federal tax lien.
Fresh Start offers help in one of four ways:
Payment plans
Offers in compromise
Currently not collectible status
Penalty abatements
The main goal of the Fresh Start program is to help individuals and business owners resolve their federal tax debt, without being unfairly penalized by the IRS. That includes allowing taxpayers who might otherwise be subject to a tax lien to avoid that scenario.
IRS Fresh Start Tax Relief Options
As mentioned, there are four avenues taxpayers can use to get tax relief through the Fresh Start initiative. Each one is designed to meet a different type of need.
If you’re interested in seeking tax relief through Fresh Start, here’s how the options compare.
Payment plans: The IRS offers short- and long-term payment plans, also referred to as installment agreements, to eligible taxpayers. Short-term plans must be paid in full within 180 days while long-term plans may allow you up to 84 months to repay tax debt, depending on how much you owe.
Offer in compromise: An offer in compromise allows you to repay tax debt for less than what you owe. You must be able to prove a financial hardship that prevents you from paying what you owe in full. If approved, you’d need to be able to pay the IRS an agreed-upon amount to settle your tax debt in a series of periodic payments.
Currently not collectible status: Currently not collectible status allows you to claim financial hardship and temporarily pause your obligations to repay your tax debt. While your account is marked as currently not collectible, the IRS cannot take any collection actions against you and must halt any levies, including bank account levies and tax refund offsets.
Penalty abatement: When you fail to pay taxes on time, penalties and interest can accrue. Penalty abatement allows you to get some relief from penalties if you owe a significant amount of tax debt.
Who Qualifies for IRS Fresh Start Relief?
Generally speaking, you may qualify for help through the Fresh Start program if you:
Owe federal income tax
Don’t have a history of unpaid taxes
Are not yet subject to a federal tax lien
Cannot pay your tax bill in full
If you’re specifically interested in a payment plan, your ability to qualify can depend on how much you owe. You may qualify to apply online for a long-term payment plan if you owe $50,000 or less in combined tax, penalties and interest, or for a short-term plan if you owe $100,000 or less. Business owners can apply online for a long-term payment plan if they’ve filed their tax return and owe $25,000 or less in combined tax, penalties and interest.
The IRS approves Offers in Compromise on a case-by-case basis. To apply, you’ll need to have filed all required tax returns and made the required estimated payments. You can’t be in a bankruptcy proceeding and you must have filed a valid tax extension. Approval is based on your:
Ability to pay
Income
Expenses
Asset equity
The IRS encourages taxpayers to explore payment plan options before applying for an Offer in Compromise.
You’ll need to contact the IRS to apply for currently not collectible status if you’re experiencing a significant financial hardship. The IRS may ask you to file any past-due tax returns if you haven’t done so and you’ll likely need to provide documentation proving your hardship situation. Late payment penalties and interest will continue to accrue on your account.
If you receive an IRS notice for back taxes, the notice may include instructions on how to apply for penalty abatement. You’ll need to call the IRS and provide some information to the IRS about your taxes and financial situation. You can also submit Form 843, Claim for Refund and Request for Abatement if you’re not able to call.
IRS Fresh Start Advantages and Disadvantages
The Fresh Start program is designed to offer some benefits to people who are dealing with unpaid tax debt. Specifically, this program can help you to avoid:
IRS levies
Federal tax liens
Wage garnishments
Criminal penalties
Once you qualify for Fresh Start relief through a payment plan or Offer in Compromise, you’re automatically sheltered from those types of outcomes since you’re making an effort to resolve your debt with the IRS.
Claiming currently not collectible status can also create some breathing room financially if you’re experiencing an extreme hardship that leaves you unable to pay what you owe. Penalty abatement, meanwhile, can reduce some of what you owe in penalties to the IRS.
Fresh Start is not a perfect solution, however. If you enroll in a payment plan, then penalties and interest will continue to accrue until the balance is paid in full. So, the total paid can exceed more than your actual tax balance due.
If you’re interested in an Offer in Compromise, it’s also important to keep in mind that getting approved can be challenging. The IRS wants to collect as much of your unpaid tax debt as possible. If you’re unable to provide sufficient proof of a hardship that keeps you from paying in full, you may be denied. In that case, you’d have to reconsider a short- or long-term payment plan.
The Bottom Line
IRS Fresh Start can help you get out of a tax debt hole if you owe money to the federal government. If you also owe state income tax, you’d need to reach out to your state tax authority to discuss repayment options. The most important thing to remember if you owe taxes is that some action is better than none since your obligation to pay won’t go away.
Tax Planning Tips
Staying on top of your tax situation can help you avoid being hit with a surprise bill when it’s time to file your return. Talking to a financial advisor about how to minimize your tax liability can ensure that you’re paying enough to stay in favor with the IRS, without paying more than you need to. Finding a financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with up to three vetted financial advisors who serve your area, and you can have a free introductory call with your advisor matches to decide which one you feel is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
The simplest way to avoid IRS tax penalties and interest is to pay what you owe by the filing deadline. If you don’t have cash readily available to pay, you might consider getting a personal loan to pay instead.
Rebecca Lake, CEPF®
Rebecca Lake is a retirement, investing and estate planning expert who has been writing about personal finance for a decade. Her expertise in the finance niche also extends to home buying, credit cards, banking and small business. She’s worked directly with several major financial and insurance brands, including Citibank, Discover and AIG and her writing has appeared online at U.S. News and World Report, CreditCards.com and Investopedia. Rebecca is a graduate of the University of South Carolina and she also attended Charleston Southern University as a graduate student. Originally from central Virginia, she now lives on the North Carolina coast along with her two children.
Taxes are unavoidable but that doesn’t mean you have to pay more than you owe. What happens to your tax liability with proper financial planning? The simple answer is that it can allow you to minimize what you owe while preserving more of your income to fund your financial goals. Talking to a financial advisor is a good first step in creating a strategy for effectively managing tax liability.
Understanding Tax Liability
Tax liability refers to the money that an individual, business or organization owes to a federal, state or local tax authority. A simpler way to think of your tax liability is the difference between your taxable income and the tax deductions you’re able to claim.
As a general rule of thumb, earning a higher income can result in a higher tax liability. The U.S. uses a graduated tax system, which means that income and tax rates move together. As income increases, so does your tax rate.
The amount you pay in taxes is determined by your income, but capital gains can also affect your tax liability. That’s important to know if you’re focused on investing and building wealth, as higher net-worth individuals may face a steeper tax liability if they’re reaping capital gains from investments.
What Happens to Your Tax Liability With Proper Financial Planning?
Managing your tax liability is important as it can directly influence how much of your income or investment earnings you get to keep. The more income and assets you have to work with, the easier it becomes to build wealth.
Proper financial planning can help you implement strategies that are designed to minimize taxes while maximizing income and assets. Having a solid financial plan in place can generate significant tax savings year by year. You can then use those savings to generate additional income through investments, grow your retirement accounts and increase your net worth.
Does financial planning require you to work with a financial advisor? Not necessarily. You could always go it alone. But there are some distinct advantages to having a financial advisor help you formulate a plan for managing tax liability.
Financial advisors have extensive knowledge about how tax planning can affect your financial plan. A good advisor is also familiar with the tax code and the latest tax rules. Even if you think you have a relatively straightforward tax situation, a financial advisor may be able to pinpoint areas where you can improve tax efficiency that you might have missed.
Financial Planning Strategies for Minimizing Tax Liability
There are different ways to approach tax planning in order to reduce your tax bill, depending on the specifics of your situation. If you’re working with a financial advisor to create a tax plan, then it may include any or all of the following.
Retirement Planning
Retirement planning is a focal point of a solid financial plan, particularly with regard to taxes. Aside from ensuring that you have enough money to retire, it’s also important to consider how much of your savings you’ll be able to keep once you start making withdrawals.
In terms of how you plan for retirement, your financial advisor may suggest any of the following:
Maxing out annual contributions to a traditional 401(k) or to a Roth 401(k) if you have that option.
Contributing money to a traditional or Roth IRA each year.
Funding a Health Savings Account (HSA) if you have that option with a high deductible health plan.
If you’re self-employed or own a business, you might open a solo 401(k), SEP IRA or SIMPLE IRA to save for retirement instead. It’s important to understand the tax treatment of different retirement savings options.
For example, traditional 401(k) plans and traditional IRAs allow for tax-deductible contributions. Qualified distributions are taxed as ordinary income in retirement. Roth accounts don’t offer a tax deduction, but you can make withdrawals tax-free when you retire.
A Health Savings Account is not a retirement account, per se. It’s meant to be used to save money for medical expenses, but it can double as a source of retirement income since you can withdraw funds for any purpose after age 65 without a tax penalty. You’ll just owe regular income tax on withdrawals.
Investment Planning
Investment planning is related to retirement planning, but it can include different aspects of managing tax liability. For instance, say that you’re investing through a taxable brokerage account, which is subject to capital gains tax. Your financial advisor can offer different strategies for managing tax liability, which may include:
Holding investments longer than one year to take advantage of the more favorable long-term capital gains tax rate.
Choosing tax-efficient investments, such as exchange-traded funds (ETFs), which can trigger fewer turnover events than traditional mutual funds.
Harvesting tax losses to offset some or all of your capital gains for the year.
Your advisor may also be able to guide you on how to deduct expenses related to investment properties if you own one or more rental homes. They could also help with executing a 1031 exchange if you’re interested in swapping out one property for another to minimize capital gains tax.
Tax Deductions and Credits
Tax deductions reduce your taxable income, which can help to push you into a lower tax bracket for the year. There are numerous expenses you might be able to deduct, including:
Mortgage interest
State and local taxes
Charitable donations
Business expenses
Self-employment expenses
Medical expenses
Student loan interest
Tax credits, meanwhile, reduce what you owe in taxes on a dollar-for-dollar basis. For instance, if you owe $1,000 in taxes and qualify for a $1,000 tax credit, the credit can wipe out what you owe. Some credits are refundable which can increase the size of your tax refund for the year. A financial advisor can walk you through the various deductions and credits you might be eligible to take in order to reduce your tax liability.
Withdrawal Planning
As you approach retirement, it’s important to consider how you’ll withdraw the money that you’ve saved. Your advisor can discuss different strategies for withdrawing money from a 401(k), IRA or taxable brokerage account so that you’re not overpaying taxes or draining your retirement reserves too quickly.
Your advisor may also discuss ways to tax-friendly ways to create supplemental income in retirement, such as purchasing an annuity or taking out a reverse mortgage. An advisor can also help you figure out when to take Social Security benefits to maximize your payment amount and how to coordinate those benefits with other sources of income in retirement.
The Bottom Line
Knowing what happens to your tax liability with proper financial planning is important for creating a long-term strategy for growing wealth. Handing over more money than you need to in taxes doesn’t offer any tangible benefit and it can be problematic if it leaves you with less money to save and invest. Having a trusted financial advisor to work with can ensure that you’re meeting your tax obligations without shortchanging your goals.
Financial Planning Tips
Tax planning can seem complicated if you’re not well-versed in the Internal Revenue Code. Finding a financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with up to three vetted financial advisors who serve your area, and you can have a free introductory call with your advisor matches to decide which one you feel is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
Robo advisors can offer a more affordable way to manage financial planning, as the fees may be lower than what traditional advisors charge. However, it’s important to know what you’re getting for the money. For example, some robo-advisors offer tax loss harvesting but not all of them do. Additionally, robo-advisors aren’t really equipped to offer one on one advice about tax planning or investing. Those are good reasons to consider working with a human advisor instead, even if it means paying a slightly higher fee.
Rebecca Lake, CEPF®
Rebecca Lake is a retirement, investing and estate planning expert who has been writing about personal finance for a decade. Her expertise in the finance niche also extends to home buying, credit cards, banking and small business. She’s worked directly with several major financial and insurance brands, including Citibank, Discover and AIG and her writing has appeared online at U.S. News and World Report, CreditCards.com and Investopedia. Rebecca is a graduate of the University of South Carolina and she also attended Charleston Southern University as a graduate student. Originally from central Virginia, she now lives on the North Carolina coast along with her two children.