Uncommon Knowledge
Newsweek is committed to challenging conventional wisdom and finding connections in the search for common ground.
If you default on your federal student loans, the government can typically force you to pay without a court order through administrative wage garnishment. With this process, your student loan servicer is able to collect 15% of your paycheck to automatically go towards loan repayment.
Wage garnishment can happen if you’ve missed payments on federal student loans for at least nine months (and haven’t entered an agreement with your lender to pay them back), and may continue until your loan is paid in full or the default status is resolved. Your wages can also be garnished if you default on private student loans, but the process works differently.
Learn what you can do to avoid wage garnishment on your student loans, plus how to get help with student loan garnishment once it has started.
Administrative wage garnishment (AWG) is a debt collection method at the federal level. A federal agency can require a non-federal employer to withhold money from an employee’s paycheck to pay for a debt.
Typically, an employer may withhold up to 15% of your wages to repay a defaulted student loan. However, if you have multiple loans in default with different companies or have an existing child support order, garnishment can increase to 25%.
For federal student loans, you must have missed 270 (or nine months of) payments before your loan goes into default and the government can garnish your wages. The time-frame for default and garnishment can vary for private loans, and will depend on the policy of the lender.
With federal student loans, wage garnishment can take place without your servicer taking you to court. With private student loans, on the other hand, most states require lenders to obtain a court order to garnish your wages if you default on a loan.
Generally, wage garnishment can continue until your loan balances plus interest and fees are paid back, or your loan is removed from default.
An important note about federal student loans: The U.S. Department of Education is providing a temporary “on-ramp” to repayment between October 1, 2023 and September 30, 2024 to protect federal borrowers from the worst consequences of not making their student loan payments. During this transition period, servicers aren’t reporting missed, late, or partial payments as delinquent. In addition, loans will not go into default.
For borrowers who defaulted on their loans prior to March 13, 2020, the Education Department has created a Fresh Start program , which temporarily offers special benefits for borrowers to help them get out of default (more on this program below).
💡 Quick Tip: Get flexible terms and competitive rates when you refinance your student loan with SoFi.
If your federal student loan goes into default, the Education Department (the lender) is required to send you a notice of wage garnishment by mail to the last known address 30 days before wage garnishment starts. This notice must inform you of the nature and amount of the debt and the agency’s intention to initiate garnishment.
You’ll be given the option to establish a voluntary repayment agreement as well as to request a court hearing.
If you don’t do either, wage garnishment will start. Your employer is required to comply with a wage garnishment request from the government. You’ll continue having money garnished from your paycheck until your loan is paid in full or has been removed from default.
If you request a hearing within the 30-day window, the government isn’t allowed to take money from your paycheck until the hearing is over and a decision is made.
With private student loans, wage garnishment follows a different process. For starters, private lenders may consider your loan in default after you’ve missed payments for three (rather than nine) months, though the time frame varies by lender. Once you default, a private lender may assign your loan to their collections department or sell your loan to a third party debt collection agency. The lender or collector must then sue you, take you to court, and receive a court order before they can garnish your wages.
Recommended: Understanding Student Loan Requirements
Making your student loans payments on time and in full is the simplest way to protect yourself from student loan wage garnishment.
If you’re having trouble keeping up with your payments, the best time to take action is when you begin missing student loan payments and before you actually default on the loan. At this point, you’ll want to reach out to your loan servicer to discuss options that can help keep your loan in good standing. Here are some to steps that can help:
• Look into deferment and forbearance. The federal government has several deferment and forbearance options available, and some private lenders also offer forbearance programs. Keep in mind, though, that interest will likely still accrue on your loans during the deferment or forbearance period, which can make your loan more expensive in the end.
• Switch repayment plans to get a lower monthly payment. The Education Department offers a number of different repayment plans, including long-term plans that can last up to 30 years. You may be able to lower your monthly payment if you opt for a longer repayment term. Extending your repayment term generally means paying more in interest overall, though.
• Request an income-driven repayment plan. Income-driven repayment plans let you pay a percentage of your discretionary income toward federal loans for 20 to 25 years, at which point the remaining loan balances are forgiven. For some people, payments on an income-driven repayment plan can be as low as $0 per month.
• Refinance your student loans for a cheaper rate. If you can qualify for a lower interest rate, refinancing your student loans with a private lender can lead to lower monthly payments. If you have multiple loans, it can also simplify repayment by consolidating them into one loan. Just keep in mind that refinancing federal loans with a private lender means giving up federal protections like deferment, forbearance, and access to income-driven repayment plans.
💡 Quick Tip: Refinancing could be a great choice for working graduates who have higher-interest graduate PLUS loans, Direct Unsubsidized Loans, and/or private loans.
If your loans are already in default, you’ve received notice of wage garnishment, or you’re currently having your wages garnished, here are four steps you can take to remedy the situation.
You may be able to negotiate a loan settlement with a collections agency. Consider offering a lump sum or series of installment payments, and be sure to mention any specific financial hardships or medical issues you’re experiencing. A private lender or debt collector may be willing to settle the loan for less than the amount owed, such as principal and 50% interest or 90% principal and interest, or waive the collection fee (which may be 10% to 15% of the loan balance).
It is generally difficult to negotiate a loan settlement deal with federal student loans. Because federal loan servicers have multiple ways to recoup their money, including AWG, they have less incentive to negotiate with borrowers. You can only qualify in extenuating circumstances, and you’ll likely still have to pay the majority of your debt.
If you have a federal loan already in default, you might consider loan consolidation. This allows you to pay off defaulted federal loans with a new loan (called a Direct Consolidation Loan) and new repayment terms. To consolidate a defaulted loan, you need to either agree to repay your new loan under an income-driven repayment plan or make three consecutive, voluntary, on-time, full monthly payments on the defaulted loan before consolidation.
Keep in mind that eligible borrowers will be able to use the Fresh Start program to get out of default without having to consolidate.
Also note that if you want to consolidate a defaulted loan that is being collected through wage garnishment, you can’t consolidate the loan unless the wage garnishment order has been lifted or the judgment has been vacated.
Normally, one of the main ways to get out of federal student loan default is by rehabilitating your loans. Right now, however, loan rehabilitation has been temporarily replaced by the Fresh Start program.
Fresh Start is a short-term, one-time program to provide relief for borrowers with defaulted federal student loans. Fresh Start automatically gives you some benefits, such as restoring access to federal student aid (including federal loans and grants). To use Fresh Start to get out of default and claim the full benefits of the program, you must contact your loan holder.
After September 2024, when Fresh Start ends, loan rehabilitation will be an option again. Loan rehabilitation is a program offered by the federal government that involves entering into a repayment agreement to get your loan out of default and back into good standing. If you make a certain number of consecutive payments on time under the rehabilitation agreement, you can get your loan out of default and avoid wage garnishment. Contact your loan holder for more information.
Private lenders typically don’t offer a formal loan rehabilitation option. However, if you’ve defaulted on your private loans, it’s worth reaching out to your lender and see what payment assistance programs they provide.
If you receive a wage garnishment notice from the federal government, you have the right to dispute the notice and request a hearing, in writing, within 30 days.
This could be a good option if you do not agree that you owe the student loan debt you’re being asked to pay, disagree with the amount, or believe you weren’t properly notified about the garnishment.
You may also ask for a hearing if you believe that wage garnishment could create an extreme financial hardship in your life, or if you have been employed for less than 12 months after losing a previous job.
If any of these scenarios ring true, be sure to make a request for a hearing in writing and that the letter is postmarked no later than 30 days from the date the wage garnishment notification was sent. You’ll also want to include proof to support your objections to the debt or the garnishment.
If you’re in danger of wage garnishment, refinancing your loans could be a way to get back on top of repayment. Refinancing involves getting a new student loan with a private lender and using it to pay off your existing federal or private student loans.
Refinancing can potentially allow you to lower your monthly payment by extending your loan term, getting a lower interest rate than what you currently have, or both. (Please note that refinancing federal loans makes them ineligible for federal forgiveness and protections. Also, lengthening your loan term may mean paying more in interest over the life of the loan.)
If you decide refinancing is right for you, it’s a good idea to assess your credit health, research lenders, and shop around for the best rates. If a lender offers a prequalification tool, consider taking advantage — these applications require only a soft credit inquiry on your credit report. Getting prequalified can help you see the rates and loan terms you might qualify for if you refinanced.
With SoFi, refinancing is fast, easy, and all online. We offer competitive fixed and variable rates.
Administrative wage garnishment is a debt collection process that allows a federal agency to order a non-federal employer to withhold up to 15% of an employee’s disposable income to pay a past-due (non tax) debt owed to the agency. For federal student loans, you typically must miss nine months of payments before the government can begin wage garnishment.
Wage garnishment happens when a court (or federal agency) orders that your employer withhold a specific portion of your paycheck and send it directly to the creditor or lender until your debt is resolved. Common sources of wage garnishment include child support, consumer debts, and student loans. Your wages will be garnished until the debt is paid off or otherwise resolved.
First, you’ll want to carefully read the judgment to verify that all of the information is accurate. If you believe the garnishment was made in error, you can file a dispute.
If the garnishment is justified, it’s a good idea to call the creditor or loan servicer to see if you can work out a payment plan that brings the loan back to good standing and allows you to pay it off in a way that works with your budget. Or, you can simply accept the wage garnishment and pay off the debt in the installment plan instructed by the judgment.
Photo credit: iStock/fizkes
SoFi Student Loan Refinance
If you are a federal student loan borrower, you should consider all of your repayment opportunities including the opportunity to refinance your student loan debt at a lower APR or to extend your term to achieve a lower monthly payment. Please note that once you refinance federal student loans you will no longer be eligible for current or future flexible payment options available to federal loan borrowers, including but not limited to income-based repayment plans or extended repayment plans.
SoFi Loan Products
SoFi loans are originated by SoFi Bank, N.A., NMLS #696891 (Member FDIC). For additional product-specific legal and licensing information, see SoFi.com/legal. Equal Housing Lender.
Non affiliation: SoFi isn’t affiliated with any of the companies highlighted in this article.
Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.
External Websites: The information and analysis provided through hyperlinks to third-party websites, while believed to be accurate, cannot be guaranteed by SoFi. Links are provided for informational purposes and should not be viewed as an endorsement.
SOSL0322007
Source: sofi.com
When both parents and kids in one family have student loans, you may benefit from a game plan about how to handle the debt and the stress that can go along with it. Perhaps the student is still in college and the parent is reaching the end of their payments. Or maybe the parent is currently getting a degree, and the child with student loans has just graduated and is living at home.
Whatever your particular situation may be, there is a silver lining when parents and kids both have student loans. You can all work together as a unit toward the same goal: to pay them off in the most manageable way possible.
Here, you’ll learn about the financial impacts of student loans, repayment strategies, how to prioritize financial security, and how to support each other. While being in debt can be hard, arming yourself with knowledge is a solid step forward.
Student loans can have several impacts on individuals of any age. It can alter your budget and your debt-to-income ratio (also known as your DTI), meaning the amount of debt you carry versus your earnings. This, in turn, can make lenders less likely to offer you loans or credit, or do so at the most favorable rates.
To look at the big picture, student debt could affect your ability to do the following:
• Purchase housing, including renting an apartment or qualifying for a mortgage
• Get married due to financial setbacks and can also add stress to a marriage
• Commit to attending graduate school
• Build long-term savings
But keep in mind, plenty of people have student loans and achieve these things, whether the debt means a delay in plans or they find a way to forge ahead. And know that people without student loans also face financial challenges: Perhaps they have a lot of credit card debt or a mortgage that is difficult to pay. Know that you are not alone in having financial challenges.
If student debt proves to be really unmanageable, it can affect other areas of your life as well, and the consequences of default can range from ineligibility for more federal financial aid, having a default reported to credit bureaus, credit score impact, and paycheck garnishment.
Of course, you want to avoid these scenarios. So if your family unit has multiple members with student loans, it’s wise to start by having open communication between parents and kids. Take the following steps:
1. Talk with each other. Don’t sweep the topic under the rug. Talking about it together can help you both share knowledge, support one another emotionally during what can be a difficult time, and come up with ideas for tackling your debt.
2. Total it up. Identify the total student loan debt for parents and kids. Break it up individually and figure out how much you both owe and the types of loans you have. Federal or private? High interest rate or low interest rate? When does the loan interest accrue? Only after you map it all out can you see exactly what’s going on.
3. Explore the implications of student loan debt on future financial goals. How will student loan debt affect your future financial goals? Writing down your future financial goals can help you create goals for moving forward.
4. Budget together. Finding a budget that helps you manage and track your finances is crucial. Share learning about the different budgeting techniques available, experiment with them (including apps that may be provided by your bank), and land on a system that helps you.
💡 Quick Tip: Often, the main goal of refinancing is to lower the interest rate on your student loans — federal and/or private — by taking out one loan with a new rate to replace your existing loans. Refinancing makes sense if you qualify for a lower rate and you don’t plan to use federal repayment programs or protections.
Next, you can create a repayment strategy. Both parents and students can follow these steps:
• Understand the loans. Particularly in the child’s case, do they understand all the terms, including interest rate, repayment schedule, and cosigned loans? Cosigning means that the parents signed to obtain loans on their behalf. A Direct PLUS loan is a loan made to a parent to pay for a student’s education and cannot transfer to the child. The parent is legally responsible for repaying the loan.
• Look into repayment plans. Will you stick with the Standard Repayment plan or would a Graduated or Extended plan work better? Reach out to your loan servicer to find out if you qualify for an income-driven repayment plan. An income-driven repayment plan bases your payments on income and family size. It can help ensure that you make manageable payments every month.
You might also benefit from learning about the SAVE Plan, which replaces the REPAYE Plan, and can make debt repayment more manageable for some borrowers.
• See if you qualify for student loan forgiveness. If a government or nonprofit organization employs you, you might qualify for the Public Service Loan Forgiveness Program, or PSLF. If you qualify, you could have the remaining balance on your federal student loans forgiven. In other words, you won’t have to pay them back.
• Consider consolidating federal student loans. Consolidating means combining one or more federal education loans into a new Direct Consolidation loan to lower your monthly payment amount or gain access to federal forgiveness programs.
• Pay extra toward the principal. You can pay extra toward the principal, meaning you make more payments toward your loans every month — the principal is the amount you owe on your loans. This can help speed up repayment and potentially lower the amount of interest you pay over the life of the loan.
• Consider refinancing student loans. You can also explore refinancing your student loans, which means replacing your current student loans with private student loans. This might enable you to get a simpler single monthly payment that is more affordable. However, it’s important to know these two facts:
◦ When you refinance federal student loans with private ones, you forfeit federal benefits and protections, such as deferment and forgiveness. For this reason, think carefully about which option best suits your needs.
◦ When you refinance with an extended term, you may get a lower monthly payment, but you could pay more interest over the life of the loan. This knowledge can help you make an informed decision.
Yes, that’s a lot of information to digest and contemplate. What’s the right student loan debt solution? Ultimately, it’s determining the repayment strategy that will help you meet your financial goals while paying off your loans. Talking to your loan servicer about options can help, as can speaking with a nonprofit credit counselor who specializes in managing student loans.
What does it mean to prioritize financial security? Financial security means having the money to cover the necessities in your life, like food, water, and shelter, and having a safety net, like an emergency fund and having money stashed away for your future retirement. It also means balancing loan repayments with these other financial obligations.
Building financial stability could also include:
• Creating a budget: Creating a budget involves totaling up your income and subtracting your expenses, choosing a budgeting system, like an app, and tracking your expenses. Many experts recommend the 50/30/20 budget rule, which advocates spending 50% of your budget on necessities, 30% on wants, and 20% on savings and additional debt repayment.
• Putting together an emergency fund: Try to put some money aside for an emergency fund. Many experts recommend at least $1,000 to start and then go on to save three to six months’ worth of emergency expenses. That said, $1,000 can be a significant chunk of money. Setting up automated deductions from checking into a high-yield savings account ($20 or so per paycheck is fine) can get you started.
Building an emergency fund can help you combat unexpected expenses that may come up, like a job loss.
• Setting long-term financial goals: What long-term financial goals do you have? Set some long-term financial goals, such as saving for retirement or achieving homeownership with student loans. Both parents and college-aged or newly graduated kids can do this with a financial advisor who can help everyone balance loan repayments alongside other financial aspirations.
This is a biggie, emotionally and financially. As you discuss your money goals, consider creating a joint plan. Kids should remember that parents still need support throughout this journey, and the reverse is true. Paying off debt and staying motivated during your repayment journey can be incredibly stressful.
Reach out to the people who will support you in your journey, and that includes resources and support networks for guidance, such as your student loan servicer, a financial advisor, and, if stress is an issue, a mental health provider.
Planning for the future may seem overwhelming while managing student loan debt. However, you don’t have to go it alone. Consider meeting with a financial advisor to discuss how to balance today (as in, your student loan repayment strategies) and tomorrow, such as putting away some funds for retirement.
It can be a good idea to have an objective, outside expert come in and evaluate your situation so they can help you devise a plan of action — in both kids’ and parents’ situations. You may feel as if you can’t possibly save for the future while focused on paying off your student debt, but a trained professional can often offer wise guidance.
Both parents and students may also wonder how to save for college for future generations. Ultimately, it’s important to secure your financial path first to reach your long-term financial goals and achieve financial freedom before worrying about future generations. After all, grandchildren can also borrow for college, but you can’t borrow for retirement. That said, this is another good topic to broach with a financial expert who is familiar with student loans and saving.
Student debt can be challenging on its own, but when two generations of the same family are paying off their loans, it can feel overwhelming. It’s important to remember that student debt is a phase you are moving through, like paying off a car loan or mortgage. It doesn’t define you, nor is it with you forever. By supporting one another emotionally, budgeting well, and exploring repayment options, families can take control of their debt and pay it off in the most manageable way possible.
Looking to lower your monthly student loan payment? Refinancing may be one way to do it — by extending your loan term, getting a lower interest rate than what you currently have, or both. (Please note that refinancing federal loans makes them ineligible for federal forgiveness and protections. Also, lengthening your loan term may mean paying more in interest over the life of the loan.) SoFi student loan refinancing offers flexible terms that fit your budget.
With SoFi, refinancing is fast, easy, and all online. We offer competitive fixed and variable rates.
Student debt can affect families in many ways, from stretching the family budget thin to making it difficult to save for long-term financial goals. However, families that devise a plan and explore their loan repayment options can pay off their debt and work towards future goals successfully.
The average student loan debt is $37,718 on average per borrower of federal loans — about 92% are federal student loans and the remaining are private student loans. Including both federal and private loans, borrowers in the U.S. owe about $1.75 trillion in student loan debt.
No, children are not responsible for parents’ student loan debt. However, parents may be legally obligated to repay student loans on behalf of a child if they took out Parent PLUS loans.
Photo credit: iStock/Daniel Balakov
SoFi Student Loan Refinance
If you are a federal student loan borrower, you should consider all of your repayment opportunities including the opportunity to refinance your student loan debt at a lower APR or to extend your term to achieve a lower monthly payment. Please note that once you refinance federal student loans you will no longer be eligible for current or future flexible payment options available to federal loan borrowers, including but not limited to income-based repayment plans or extended repayment plans.
SoFi Loan Products
SoFi loans are originated by SoFi Bank, N.A., NMLS #696891 (Member FDIC). For additional product-specific legal and licensing information, see SoFi.com/legal. Equal Housing Lender.
Non affiliation: SoFi isn’t affiliated with any of the companies highlighted in this article.
SOSL1223004
Source: sofi.com
Nestled in the heart of the American South, Kentucky embodies a rich tapestry of history, culture, and natural beauty. Known as the “Bluegrass State,” it conjures images of rolling hills adorned with vibrant green pastures and legendary horse farms. From the bustling urban landscapes of Louisville to the serene countryside of Lexington, Kentucky offers a diverse array of experiences. However each state has its downsides to living there. In this ApartmentGuide article, we’ll dive into the pros and cons of living in Kentucky so you can gain valuable insight on what to expect.
Kentucky’s horse racing culture is deeply ingrained in the state’s identity, with the world-renowned Kentucky Derby serving as the pinnacle event. The Derby, held annually at Churchill Downs in Louisville, attracts visitors from across the globe to witness the thrilling races and immerse themselves in the traditions of racing. Additionally, Lexington, often dubbed the “Horse Capital of the World,” boasts numerous horse farms and equestrian events, further enhancing the state’s equine heritage.
Kentucky’s humid summers can be challenging for residents, with high temperatures often accompanied by oppressive humidity levels. The combination of heat and moisture can make outdoor activities uncomfortable and increase the risk of heat-related illnesses. Additionally, the humidity can exacerbate air quality issues, particularly in urban areas like Louisville, where stagnant air masses can trap pollutants and allergens.
Bourbon distilleries dot the Kentucky landscape, offering residents and visitors alike a taste of the state’s rich whiskey-making tradition. The Bourbon Trail, which spans across various counties, allows enthusiasts to tour iconic distilleries such as Maker’s Mark, Jim Beam, and Woodford Reserve.
Limited public transportation options pose a hurdle for many Kentuckians, especially those in rural areas where access to reliable transportation is scarce. While larger cities in Kentucky have bus systems, they may not cover all areas comprehensively, leaving some residents reliant on personal vehicles for commuting and errands. In fact, Covington has a transit score of 28 meaning most errands require a car.
Kentucky’s natural beauty captivates all who encounter it, from the rolling hills of the Bluegrass region to the majestic peaks of the Appalachian Mountains. Red River Gorge, located in the Daniel Boone National Forest, showcases breathtaking sandstone cliffs, lush forests, and countless hiking trails.
Kentucky’s susceptibility to natural disasters, including floods, tornadoes, and earthquakes, presents significant challenges for residents and communities. The state’s location in the Ohio River Valley and proximity to the New Madrid Seismic Zone increase the risk of catastrophic events that can cause widespread damage and displacement.
With a low cost of living compared to many other states, Kentucky provides residents with affordability and financial stability. Housing prices are notably reasonable, as seen in Frankfort, which has a median sale price of $218,900 and an average rental price for a one-bedroom standing at $785. Additionally, everyday expenses such as groceries, utilities, and transportation tend to be more affordable, enabling residents to stretch their dollars further.
Environmental concerns loom large in Kentucky, particularly in regions where industries like coal mining and manufacturing have left lasting impacts on air and water quality. Appalachia, in particular, has grappled with the environmental consequences of mountaintop removal mining, which has led to habitat destruction and water pollution
Kentucky’s abundance of outdoor recreational opportunities invites adventure seekers and nature enthusiasts to explore its diverse landscapes. From boating and fishing on the state’s scenic lakes like Lake Cumberland and rivers like Big Sandy River to hiking and camping in its sprawling parks and forests, there’s something for everyone to enjoy.
From aging roads and bridges to inadequate water and sewer systems, Kentucky has its fair share of challenging infrastructure. Rural communities often bear the brunt of these challenges, experiencing limited access to reliable utilities and transportation networks.
Historic homes such as Ashland, the estate of Henry Clay, and My Old Kentucky Home provide insights into the lives of prominent figures in Kentucky. Meanwhile, Civil War battlefields like Perryville Battlefield State Historic Site and Camp Nelson Civil War Heritage Park preserve the memories of significant events and sacrifices, allowing visitors to connect with Kentucky’s storied past.
Rural isolation can be a significant drawback for residents living in remote parts of Kentucky, where access to essential services, healthcare, and employment opportunities may be limited. When considering a move to this state, you’ll want to consider the rural and urban cities that fit with your lifestyle.
Methodology : The population data is from the United States Census Bureau, walkable cities are from Walk Score, and rental data is from ApartmentGuide.
Source: apartmentguide.com
The recent rise of the average long-term U.S. mortgage rate, which poses a new obstacle to aspiring homeowners hoping to purchase a property during this homebuying season, could have dramatic consequences on the country’s housing market.
The national weekly average for 30-year mortgages, the most popular in the nation, was 6.88 percent as of April 11, according to data from the Federal Home Loan Mortgage Corp., better known as Freddie Mac. That was 0.06 of a percentage point higher than a week before and up 0.61 compared to a year before. The national average for 15-year mortgages was 6.16 percent, up 0.1 of a percentage point compared to the previous week and 0.62 compared to a year before.
Read more: How to Get a Mortgage
On Monday, experts monitoring mortgage rates on a daily basis noted that the national average for 30-year fixed mortgages reached 7.44 percent—the highest they’ve been so far this year and close to the 23-year weekly record of 7.79 percent reached on October 25, 2023. On Monday, the 15-year mortgage rate was 6.85 percent. At its peak on October 25, 2023, it had reached 7.03 percent.
“Big one-day jump,” commented journalist Lance Lambert on X, formerly known as Twitter. “The average 30-year fixed mortgage rate ticks up to 7.44 percent. New high for 2024.”
The rise in mortgage rates comes as homebuying season, a time when the number of homes listed for sale increases, is heating up. This climb in inventory starts in spring and normally peaks in summer before declining as the weather gets colder, marking one of the busiest times of the year for home sales. But higher mortgage rates could have an early chilling effect on the market.
Read more: Compare Top Mortgage Lenders
The median monthly U.S. housing payment hit an all-time high of $2,747 during the four weeks ending April 7, up 11 percent from a year earlier, according to a report from real estate brokerage Redfin last week. It noted that the average 30-year fixed mortgage rate, then at 6.82 percent, was more than double pandemic-era lows.
There’s not much hope that mortgage rates will come down soon, as the U.S. Labor Department said last week that inflation has risen faster than expected last month, at 3.5 percent over the 12 months to March. That was up from 3.2 percent in February.
“For homebuyers, the latest CPI [consumer price index] report means mortgage rates will stay higher for longer because it makes the Fed unlikely to cut interest rates in the next few months,” said Redfin Economic Research Lead Chen Zhao. “Housing costs are likely to continue going up for the near future, but persistently high mortgage rates and rising supply could cool home-price growth by the end of the year, taking some pressure off costs.”
Jamie Dimon, CEO of JPMorgan Chase, voiced concern last week over “persistent inflationary pressures” and said the bank was prepared for “a very broad range of interest rates, from 2 percent to 8 percent or even more, with equally wide-ranging economic outcomes.”
While the jump in mortgage rates appears modest, it makes a huge difference for borrowers, who might end up paying hundreds of dollars a month more on top of what’s already one of the most significant expenses in their lives.
Many might decide that they can’t afford to buy a home—which is what happened when mortgage rates suddenly skyrocketed between late 2022 and early 2023 as a result of the Federal Reserve’s aggressive interest rate-hiking campaign.
Between late summer 2022 and spring 2023, a drop in demand caused by the unaffordability of buying a home led to a modest price correction of the housing market. But prices have since climbed back due to the combination of pent-up demand and historic low inventory.
While the Federal Reserve doesn’t directly set mortgage rates, these are hugely influenced by the central bank’s decision to hike or cut interest rates. The Fed left rates unchanged in March and is considered unlikely to cut them this month considering the latest data on inflation.
Newsweek is committed to challenging conventional wisdom and finding connections in the search for common ground.
Newsweek is committed to challenging conventional wisdom and finding connections in the search for common ground.
Source: newsweek.com
Whether it’s going to bed before midnight, eating broccoli, or dealing with your finances, doing the “right” thing can sometimes feel like a herculean effort.
Similar to an erratic sleep schedule or an aversion to eating green things, there are consequences to delaying wise financial moves. If you avoid creating a budget, putting your bills on autopay or learning how to invest, your financial life may become more stressful.
But knowing something is good for you isn’t always enough to make you do it. Many people have complicated feelings around money, and for good reason. Getting to the bottom of those feelings may be the most effective way to deal with avoidant tendencies.
To get to the root of your financial anxieties, it may be helpful to learn about your “money scripts,” a term that’s a registered trademark of the Financial Psychology Institute. Money scripts are what financial therapists call the unconscious beliefs we hold about money. Often, these beliefs are rooted in our childhood and continue to shape our financial lives as adults.
Rick Kahler, a certified financial therapist and founder of the Kahler Financial Group in Rapid City, South Dakota, had one client who struggled to save despite being a high-earning professional. Through several interviews, Kahler learned that the client’s parents had filed for bankruptcy when she was a child, and in the process, she lost her own savings.
“She just knew that all her money that she worked hard to save disappeared. And so the lesson she took away from that was ‘don’t save money, because it will disappear,’” says Kahler.
Georgia Lee Hussey, a certified financial planner and founder of Modernist Financial, a B Corp wealth management firm in Portland, Oregon, says that taking what may seem to be a logical step, such as investing just a small amount, before unearthing your deeper emotions may sometimes do more harm than good.
“The small step to get closer to the logical action is actually a reinforcement of the mega story,” says Hussey.
While uncovering your money scripts may feel daunting, there are a lot of tools out there that can help you get started. You can take the Klontz Money Script Inventory-Revised (KMSI-R), which is a free short quiz that helps you identify your dominant money scripts and offers actionable advice. The KMSI-R evaluation is offered by Your Mental Wealth Advisors, a financial advisor firm based in Burlingame, California, that focuses on overall financial health. Hussey’s firm offers a similar reflective experience you can download for free that can help you facilitate a conversation about your money history.
And if you’re able, it may be worth working with a financial therapist in conjunction with these tools.
“Working with a financial therapist can really help,” says Kahler. “But if a person doesn’t want to do that, they may want to employ journaling or mindfulness meditation that is specifically geared to money scripts. But typically, people can make pretty good progress in really focusing on their personal situation, and a financial therapist can help with that.”
After doing some deep work on your money story, and on how your long-held beliefs came to be, you may be feeling ready to take some small steps toward a better financial future.
A few baby steps you can consider could include moving your money into a high-yield savings account instead of a standard savings account. If you have a 401(k) with an employer match, you could also look into contributing enough to receive that match.
But be ready for those old stories to come up, because even an account type like a 401(k) may become an emotional stumbling block.
“One of my favorites from the Great Recession is, ‘I’m not going to invest in a 401(k) because my uncle lost all of his money in his 401(k),’” says Hussey. “It wasn’t the 401(k) that was the problem. It was your uncle, who in the middle of the night got freaked out and sold everything in his 401(k) at the bottom of the market. That’s actually what was wrong. It was the human making an emotional decision. The 401(k) itself is just a tax wrapper. It has no personality. It doesn’t do things to anybody. So let’s unpack what that story is about.”
Hussey encourages people to deeply investigate where the stories they’ve heard about investing came from.
“I think those kinds of questions like, ‘What am I telling myself? Where’s it coming from? Who told it? What was the location I heard that? Where do you think they heard that from?’ That’s how we start to unpack these stories about investing and saving,” says Hussey.
This article was written by NerdWallet and was originally published by The Associated Press.
Source: nerdwallet.com
Editorial Note: We earn a commission from partner links on Forbes Advisor. Commissions do not affect our editors’ opinions or evaluations.
As we head into peak home-buying season, signs of life have begun to spring up in the housing market.
Even so, still-high mortgage rates and home prices amid historically low housing stock continue to put homeownership out of reach for many.
Moreover, the National Association of Realtors agreed to a monumental $418 million settlement on March 15 following a verdict favoring home sellers in a class action lawsuit. Still subject to court approval, the settlement requires changes to broker commissions that will upend the buying and selling model that has been in place for years.
Elevated mortgage rates, out-of-reach home prices and record-low housing stock are the perennial weeds that experts say hopeful home buyers can expect to contend with this spring—and beyond.
“The housing market is likely to continue to face the dual affordability constraints of high home prices and elevated interest rates in 2024,” said Doug Duncan, senior vice president and chief economist at Fannie Mae, in an emailed statement. “Hotter-than-expected inflation data and strong payroll numbers are likely to apply more upward pressure to mortgage rates this year than we’d previously forecast.”
Despite ongoing affordability hurdles, Fannie Mae forecasts an increase in home sales transactions compared to last year. Experts also anticipate a slower rise in home prices this year compared to recent years, but price fluctuations will continue to vary regionally and depend strongly on local market supply.
U.S. home prices declined in January for the third consecutive month due to high borrowing costs, according to the latest S&P CoreLogic Case-Shiller Home Price Index. But prices year-over-year jumped 6%—the fastest annual rate since 2022.
Chief economist at First American Financial Corporation Mark Fleming predicts a “flat stretch” ahead.
“If the 2020-2021 housing market was too hot, then the 2023 market was probably too cold, but 2024 won’t yet be just right,” Fleming said in his 2024 forecast.
For a housing recovery to occur, several conditions must unfold.
“For the best possible outcome, we’d first need to see inventories of homes for sale turn considerably higher,” says Keith Gumbinger, vice president at online mortgage company HSH.com. “This additional inventory, in turn, would ease the upward pressure on home prices, leveling them off or perhaps helping them to settle back somewhat from peak or near-peak levels.”
And, of course, mortgage rates would need to cool off—which experts say is imminent despite rates edging back up toward 7%. For the week ending April 11, the 30-year fixed mortgage rate stood at 6.88%, according to Freddie Mac.
However, when mortgage rates finally go on the descent, Gumbinger says don’t hope they cool too quickly. Rapidly falling rates could create a surge of demand that wipes away any inventory gains, causing home prices to rebound.
“Better that rate reductions happen at a metered pace, incrementally improving buyer opportunities over a stretch of time, rather than all at once,” Gumbinger says.
He adds that mortgage rates returning to a more “normal” upper 4% to lower 5% range would also help the housing market, over time, return to 2014-2019 levels. Yet, Gumbinger predicts it could be a while before we return to those rates.
Nonetheless, Kuba Jewgieniew, CEO of Realty ONE Group, a real estate brokerage company, is optimistic about a recovery this year.
“[W]e’re definitely looking forward to a better housing market in 2024 as interest rates start to settle around 6% or even lower,” says Jewgieniew.
Following years of litigation, the National Association of Realtors (NAR) has agreed to pay $418 million to settle a series of antitrust lawsuits filed in 2019 on behalf of home sellers.
The plaintiffs claimed that the leading national trade association for real estate brokers and agents “conspired to require home sellers to pay the broker representing the buyer of their homes in violation of federal antitrust law.”
Though the landmark settlement is subject to court approval, most consider it a done deal.
The settlement requires NAR to enact new rules, including prohibiting offers of broker compensation on multiple listing services (MLS), the private databases that allow local real estate brokers to publish and share information about residential property listings. The rule is set to take effect in mid-July, once the settlement receives judge approval.
Moreover, sellers will no longer be required to pay buyer broker commissions and real estate agents participating in the MLS must establish written representation agreements with their buyer clients.
NAR denies any wrongdoing and maintains that its current policies benefit buyers and sellers. The organization believes it’s not liable for seller claims related to broker commissions, stating that it has never set commissions and that commissions have always been negotiable.
Per the settlement’s terms, the costs associated with buying and selling a home are set to change dramatically.
“The primary things that will change are the decoupling of the seller commission and the buyer commission in the MLS,” says Rita Gibbs, a Realtor at Realty One Group Integrity in Tucson. “It’s gonna cause some chaos.”
While sellers will no longer be able to offer broker compensation in the MLS, there’s no rule prohibiting off-MLS negotiations. Because of this, Gibbs suspects buyers and sellers will continue offering broker compensation off the MLS.
The Department of Justice confirmed it will permit listing brokers to display compensation details on their websites. However, buyer agents will need to undergo the tedious task of visiting countless broker websites to find who’s offering what.
Michael Gorkowski, a Virginia-based real estate agent with Compass, is also trying to figure out how to manage the potential ruling.
“We often work with buyers for many months and sometimes years before they find exactly what they’re looking for,” Gorkowski says. “So in a case where a seller isn’t offering a co-broker commission, we will have to negotiate that the buyer pays an agreed-upon commission prior to starting their search.”
“In the short term, it is absolutely going to injure buyers, especially FHA and VA buyers,” Gibbs says. “With rare exception, these buyers are not in a position to pay for their own agent.”
Gibbs says that if sellers don’t offer compensation, many buyers who can’t otherwise afford to pay a broker will choose to go unrepresented.
Gorkowski notes that veterans taking out VA loans face a unique challenge under the new rules. “[P]er the VA requirements, buyers cannot pay so it must be negotiated with the seller for now.”
As a result, NAR is calling on the U.S. Department of Veterans Affairs to revise its policies prohibiting VA buyers from paying broker commissions. Even so, there’s skepticism that the federal government will be able to implement changes in time for the July deadline.
Gibbs and Gorkowski are among the many agents especially concerned about first-time home buyers. After July, first-time and VA buyers will be required to sign a buyer-broker agreement stating that they will compensate their broker—but Gibbs says many won’t have the means to do so.
In this situation, agents would likely only show buyers homes where sellers are offering compensation.
“This is a very troubling situation,” Gorkowski says.
With many homeowners “locked in” at ultra-low interest rates or unwilling to sell due to high home prices, demand continues to outpace housing supply—and likely will for a while—even as some homeowners may finally be forced to sell due to major life events such as divorce, job changes or a growing family.
“I don’t expect to see a meaningful increase in the supply of existing homes for sale until mortgage rates are back down in the low 5% range, so probably not in 2024,” says Rick Sharga, founder and CEO of CJ Patrick Company, a market intelligence and business advisory firm.
Housing stock remains near historic lows—especially entry-level supply—which has propped up demand and sustained ultra-high home prices. Here’s what the latest home values look like around the country.
Yet, some hopeful housing stock signs have begun to sprout:
The most recent National Association of Home Builders (NAHB)/Wells Fargo Housing Market Index (HMI), which tracks builder sentiment, saw a fourth consecutive monthly rise, surpassing a crucial threshold with an increase from 48 to 51 in March. A reading of 50 or above means more builders see good conditions ahead for new construction.
At the same time, new single-family building permits ticked up 1% in February—the 13th consecutive monthly increase—according to the latest data from the U.S. Census Bureau and U.S. Department of Housing and Urban Development (HUD).
Though some housing market data indicates signs of growth are in store this spring home-buying season, persistently high mortgage rates may hinder activity from fully flourishing.
Here’s what the latest home sales data has to say.
Existing-home sales came to life in February, shooting up 9.5% from the month before, according to the latest data from the NAR. Sales dipped 3.3% from a year ago.
Experts attribute the monthly jump to a bump in inventory.
“Additional housing supply is helping to satisfy market demand,” said Lawrence Yun, chief economist at NAR, in the report.
Existing inventory rose 5.9%—logging 1.07 million unsold homes at the end of February. However, there are still only 2.9 months of inventory at the current sales pace. Most experts consider a balanced market falling between four and six months.
Meanwhile, existing home prices continue to soar to unprecedented heights, reaching $384,500, which marks the eighth consecutive month of yearly price increases and a February median home price record.
Sales of newly constructed single-family houses ticked down by a nominal 0.3% compared to January, but outpaced February 2023 sales by 5.9%, according to the latest U.S. Census Bureau and HUD data.
Amid a high percentage of homeowners still locked in to low mortgage rates, home builders have been picking up the slack.
“New construction continues to be an outsized share of the housing inventory,” said Dr. Lisa Sturtevant, chief economist at Bright MLS, in an emailed statement.
Sturtevant notes that declining new home prices are coming amid a recent trend of builders introducing smaller and more affordable homes to the market.
The median price for a new home in February was $400,500, down 7.6% from a year ago.
Source: U.S. Census Bureau and U.S. Department of Housing and Urban Development
NAR’s Pending Homes Sales Index rose 1.6% in February from the month prior even as mortgage rates approached 7% by the end of the month. Pending transactions declined 7% year-over-year.
A pending home sale marks the point in the home sales transaction when the buyer and seller agree on price and terms. Pending home sales are considered a leading indicator of future closed sales.
The Midwest and South saw monthly transaction gains while the Northeast and West saw declines due to affordability challenges in those higher-cost regions.
“While modest sales growth might not stir excitement, it shows slow and steady progress from the lows of late last year,” said Yun, in the report.
Though down from its 2023 high of 7.79%, the average 30-year fixed mortgage rate in 2024 remains well over 6% amid rising home values. As a result, home buyers continue to face affordability challenges.
According to data from its first-quarter 2024 U.S. Home Affordability Report, property data provider Attom found that median-priced single-family homes remain less affordable than the historical average in over 95% of U.S. counties.
For one, the data uncovered that expenses are eating up more than 32% of the average national wage. Common lending guidelines require monthly mortgage payments, property taxes and homeowners insurance to comprise 28% or less of your gross income.
At the same time, home prices and homeownership expenses continue to outpace wage growth.
Consequently, the latest expense-to-wage ratio is hovering at one of the highest points over the past decade, according to the Attom report, despite some slight affordability improvements over the last two quarters.
“Affording a home remains a financial stretch, or a pipe dream, for so many households,” said Rob Barber, CEO at Attom.
Here are some expert tips to increase your chances for an optimal outcome in this tight housing market.
Hannah Jones, a senior economic research analyst at Realtor.com, offers this expert advice to aspiring buyers:
Gary Ashton, founder of The Ashton Real Estate Group of RE/MAX Advantage, has this expert advice for sellers:
Despite some areas of the country experiencing monthly price declines, the likelihood of a housing market crash—a rapid drop in unsustainably high home prices due to waning demand—remains low for 2024.
“[T]he record low supply of houses on the market protects against a market crash,” says Tom Hutchens, executive vice president of production at Angel Oak Mortgage Solutions, a non-QM lender.
Moreover, experts point out that today’s homeowners stand on much more secure footing than those coming out of the 2008 financial crisis, with many borrowers having substantial home equity.
“In 2024, I expect we’ll see home appreciation take a step back but not plummet,” says Orphe Divounguy, senior macroeconomist at Zillow Home Loans.
This outlook aligns with what other housing market watchers expect.
“Comerica forecasts that national house prices will rise 2.9% in 2024,” said Bill Adams, chief economist at Comerica Bank, in an emailed statement.
Divounguy also notes that several factors, including Millennials entering their prime home-buying years, wage growth and financial wealth are tailwinds that will sustain housing demand in 2024.
Even so, with fewer homes selling, Dan Hnatkovskyy, co-founder and CEO of NewHomesMate, a marketplace for new construction homes, sees a price collapse within the realm of possibility, especially in markets where real estate investors scooped up numerous properties.
“If something pushes that over the edge, the consequences could be severe,” said Hnatkovskyy, in an emailed statement.
In February, total foreclosure filings were down 1% from the previous month but up 8% from a year ago, according to Attom.
“These trends could signify evolving financial landscapes for homeowners, prompting adjustments in market strategies and lending practices,” said Barber, in a report.
Lenders began foreclosure on 22,575 properties in February, up 4% from the previous month and 11% from a year ago. Meanwhile, real estate-owned properties, or REOs, which are homes unsold at foreclosure auctions and taken over by lenders, spiked year-over-year in three states: South Carolina (up 51%), Missouri (up 50%) and Pennsylvania (up 46%).
Despite foreclosure activity trending up nationally and certain areas of the country seeing notable annual increases in REOs, experts generally don’t expect to see a wave of foreclosures in 2024.
“Foreclosure activity is still only at about 60% of pre-pandemic levels … and isn’t likely to be back to 2019 numbers until sometime in mid-to-late 2024,” says Sharga.
The biggest reasons for this, Sharga explains, are the strength of the economy—we’re still seeing low unemployment and steady wage growth—along with excellent loan quality.
Massive home price growth in homeowner equity over the past few years has also helped reduce foreclosures.
Sharga says that some 80% of today’s homeowners have more than 20% equity in their property. So, while there may be more foreclosure starts in 2024—due in part to Covid-era mortgage relief programs phasing out—foreclosure auctions and lender repossessions should remain below 2019 levels.
Buying a house—in any market—is a highly personal decision. Because homes represent the largest single purchase most people will make in their lifetime, it’s crucial to be in a solid financial position before diving in.
Use a mortgage calculator to estimate your monthly housing costs based on your down. But if you’re trying to predict what might happen next year, experts say this is probably not the best home-buying strategy.
“The housing market—like so many other markets—is almost impossible to time,“ Divounguy says. “The best time for prospective buyers is when they find a home that they like, that meets their family’s current and foreseeable needs and that they can afford.”
Gumbinger agrees it’s hard to tell would-be homeowners to wait for better conditions.
“More often, it seems the case that home prices generally keep rising, so the goalposts for amassing a down payment keep moving, and there’s no guarantee that tomorrow’s conditions will be all that much better in the aggregate than today’s.”
Divounguy says “getting on the housing ladder” is worthwhile to begin building equity and net worth.
Declining mortgage rates will likely incentivize would-be buyers anxious to own a home to jump into the market. Expect this increased demand amid today’s tight housing supply to put upward pressure on home prices.
Most experts do not expect a housing market crash in 2024 since many homeowners have built up significant equity in their homes. The issue is primarily an affordability crisis. High interest rates and inflated home values have made purchasing a home challenging for first-time homebuyers.
If you’re in a financial position to buy a home you plan to live in for the long term, it won’t matter when you buy it because you will live in it through economic highs and lows. However, if you are looking to buy real estate as a short-term investment, it will come with more risk if you buy at the height before a recession.
Source: forbes.com
Reverse mortgage industry professionals have spoken for months about the consequences of high interest rates on their ability to pursue business, and now AARP has taken a closer look at the impacts.
While higher rates are bad news for the mortgage industry in a broad sense, the impact on reverse lending is more nuanced, Bruce Simmons of American Liberty Mortgage in the Denver area explained to AARP.
“If a reverse mortgage can help your situation, it still makes sense for a lot of people,” Simmons told the organization. “There are so many people who can benefit from this today, even with the rates the way they are.”
These sentiments echo what Simmons shared with RMD at the beginning of this year when asked about how business is progressing after the general tumult observed in 2023. Inconsistent interest rate forecasts have made things challenging in his business, but different kinds of marketing — including a refocusing exercise on his existing marketing efforts — have helped to improve things, Simmons told RMD in February.
But a rise in interest rates also impacts the amount of money owed on the negatively amortizing loan, observed Stephanie Moulton, a longtime reverse mortgage academic researcher from Ohio State University.
“It might accelerate the growth of the balance and reduce, potentially, the equity when your heirs go to sell the home, because your balance is going to grow faster,” she told AARP.
But the utility of eliminating a forward mortgage payment still has the potential to add value for reverse mortgage borrowers, along with a raft of disbursement options such as a standby line of credit or monthly term payments, Simmons added.
Bruce McClary, senior vice president of the National Foundation for Credit Counseling (NFCC) also shared that while reverse mortgages can add value for borrowers in certain situations, the fee structure of a home equity line of credit (HELOC) could potentially make more sense for some seniors. But certain situations may make a reverse mortgage a better idea for some individual borrowers.
“[It] depends on an individual’s capacity to borrow, the reasons for borrowing and what they’re going to use the money for,” McClary told AARP. “The answers will be different depending on people’s financial circumstances and their goals.”
Source: housingwire.com
A 401(k) plan is a retirement savings plan in which employees contribute to a tax-deferred account via paycheck deductions (and often with an employer match). A pension plan is a different kind of retirement savings plan in which a company sets money aside to give to future retirees.
Over the past few decades, defined-contribution plans like the 401(k) have steadily replaced pension plans as the private-sector, employer-sponsored retirement plan of choice. While both a 401(k) plan and a pension plan are employer-sponsored retirement plans, there are some significant differences between the two.
Here’s what you need to know about a 401(k) vs. pension.
The main distinction between a 401(k) vs. a pension plan is that pension plans are largely employer driven, while 401(k)s are employee driven.
These are some of the key differences between the two plans.
Pension | 401(k) | |
---|---|---|
Funding | Typically funded by employers | Funded mainly by the employee; employer may offer a partial matching contribution |
Contributions | No more than $275,000 in 2024 or 100% of employee’s average compensation for the highest 3 consecutive years | $23,000 ($30,500 for those 50 and up) for 2024. Contributions from employee and employer cannot exceed $69,000 (or $76,500 for those 50 and up) in 2024 |
Investments | Employers choose the investments for the plan | Employees choose the investments from a list of options |
Value of the Plan | Set amount designed to be guaranteed for life | Determined by how much the employee contributes, the investments they make, and the performance of the investments |
Employees typically fund 401(k) plans through regular contributions from their paychecks to help save for retirement, while employers typically fund pension plans.
Employees can choose investments (from several options) in their 401(k). Employers choose the investments that fund a pension plan.
The value of a 401(k) plan at retirement depends on how much the employee has saved, in addition to the performance of the investments over time. Pensions, on the other hand, are designed to guarantee an employee a set amount of income for life.
💡 Quick Tip: The advantage of opening a Roth IRA and a tax-deferred account like a 401(k) or traditional IRA is that by the time you retire, you’ll have tax-free income from your Roth, and taxable income from the tax-deferred account. This can help with tax planning.
A pension plan is a type of retirement savings plan where an employer contributes funds to an investment account on behalf of their employees. The earnings are paid out to the employees once they retire.
There are two common types of pension plans:
• Defined-benefit pension plans, also known as traditional pension plans, are the most common type of pension plans. These employer-sponsored retirement investment plans are designed to guarantee the employee will receive a set benefit amount upon retirement (usually calculated with set parameters, i.e. employee earnings and years of service). Regardless of how the investment pool performs, the employer guarantees pension payments to the retired employee. If the plan assets aren’t enough to pay out to the employee, the employer is typically on the hook for the rest of the money.
According to the IRS, contributions to a defined-benefit pension plan cannot exceed 100% of the employee’s average compensation for the highest three consecutive calendar years of their employment or $265,000 for tax year 2023 and $275,000 for 2024.
• Defined-contribution pension plans are employer-sponsored retirement plans to which employers make plan contributions on their employee’s behalf and the benefit the employee receives is based solely on the performance of the investment pool. Meaning: There is no guarantee of a set monthly payout.
Like 401(k) plans, employees can contribute to these plans, and in some cases, employers match the contribution made by the employee. Unlike defined-benefit pension plans, however, the employee is not guaranteed a certain amount of money upon retirement. Instead, the employee receives a payout based on the performance of the investments in the fund.
Recommended: What Is a Money Purchase Pension Plan (MPPP)?
When it comes to pension plan withdrawals, employees who take out funds before the age of 59 ½ must pay a 10% early withdrawal penalty as well as standard income taxes. This is similar to the penalties and taxes associated with early withdrawal from a traditional 401(k) plan.
There are benefits to and drawbacks of pension plans. It’s important to understand both in order to maximize your participation in the plan.
Advantages of a pension plan include:
Funded by employers
For employees, a pension plan is retirement income from your employer. In most cases, an employee does not need to contribute to a defined-benefit pension plan in order to get consistent payouts upon retirement.
Higher contribution limits
When compared to 401(k)s, defined-contribution pension plans have significantly higher contribution limits and, as such, present an opportunity to set aside more money for retirement.
A set amount in retirement
A pension plan typically provides employees with regular fixed payments in retirement,usually for life.
Disadvantages of a pension plan include:
Lack of control
Employees can’t choose how the money in a pension plan is invested. If the investments don’t pan out, the plan could struggle to pay out the funds.
Vesting
Employees may need to work for the employer for a set number of years to become fully vested in the plan. If you leave the company before then, you might end up forfeiting the pension funds. Find out what the vesting schedule is for your pension plan.
Earnings and years employed
How much an employee gets in retirement with a pension plan generally depends on their salary and how long they work for the employer.
A traditional 401(k) plan is a tax-advantaged defined-contribution plan where workers contribute pre-tax dollars to the investment account via automatic payroll deductions. These contributions are sometimes fully or partially matched by their employers, and withdrawals are taxed at the participant’s marginal tax rate.
With a 401(k), employees and employers may both make contributions to the account (up to a certain IRS-established limit), but employees are responsible for selecting the specific investments. They can typically choose from offerings from the employer, which may include a mixture of stocks and bonds that vary in levels of risk depending on when they plan to retire.
Recommended: 401(a) vs 401(k): What’s the Difference?
To account for inflation, the IRS periodically adjusts the maximum amount an employer or employee can contribute to a 401(k) plan.
• For 2024, annual employee contributions can’t exceed $23,000 for workers under 50, and $30,500 for workers 50 and older (this includes a $7,500 catch-up contribution). The total annual contribution by employer and employee in 2024 is capped at $69,000 for workers under 50, and $76,500 for workers 50 and over.
• For 2023, annual employee contributions can’t exceed $22,500 for workers under 50, and $30,000 for workers 50 and older (this includes a $7,500 catch-up contribution). The total annual contribution paid by employer and employee in 2023 is capped at $66,000 for workers under 50, and $73,500 for workers 50 and over.
Some plans allow employees to make additional after-tax contributions to their 401(k) plan, within the contribution limits outlined above.
• Money can be withdrawn from a 401(k) in retirement without penalties. But taxes will be owed on the funds withdrawn. The IRS considers the removal of 401(k) funds before the age of 59 ½ an “early withdrawal.” The penalty for removing funds before that time is an additional tax of 10% of the withdrawal amount (there are exceptions, notably a hardship distribution, where plan participants can withdraw funds early to cover “immediate and heavy financial need”).
While a 401(k) plan might not offer as clearly-defined a retirement savings picture as a pension plan, it still comes with a number of upsides for participants who want a more active role in their retirement investments.
Advantages of a 401(k) include:
Self-directed investment opportunities
Unlike employer-directed pension plans, in which the employee has no say in the investment strategy, 401(k) plans offer participants more control over how much they invest and where the money goes (within parameters set by their employer). Plans typically offer a selection of investment options, including mutual funds, individual stocks and bonds, exchange traded funds (ETFs).
Tax advantages
Contributions to a 401(k) come from pre-tax dollars through payroll deductions, reducing the gross income of the participant, which may allow them to pay less in income taxes. Also, 401(k) contributions and earnings in the plan may grow tax-deferred.
Employer matching
Many 401(k) plan participants are eligible for an employer match up to a certain amount, which essentially means free money.
Disadvantages of a 401(k) include:
No guaranteed amount in retirement
How much you have in your 401(k) by retirement depends on how much you contributed to the plan, whether your employer offered matching funds, and how the investments you chose fared.
Contributions are capped
The amount you can contribute to a 401(k) annually is capped by the IRS, as described above.
Less stability
How the market performs generally affects the performance of 401(k) investments. That could make it difficult to know how much money you’ll have for retirement, which could complicate retirement planning.
💡 Quick Tip: Before opening an investment account, know your investment objectives, time horizon, and risk tolerance. These fundamentals will help keep your strategy on track and with the aim of meeting your goals.
When considering a 401(k) vs. pension, most people prefer the certainty that comes with a pension plan.
But for those who seek more control over their retirement savings and more investment vehicles to choose from, a 401(k) plan could be the more advantageous option.
In the case of the 401(k), it really depends on how well the investments perform over time. Without the safety net of guaranteed income that comes with a pension plan, a poorly performing 401(k) plan has a direct effect on a retiree’s nest egg.
The percentage of private sector employees whose only retirement account is a defined benefit pension plan is just 4% today, versus 60% in the early 1980s. The majority of private sector companies stopped funding traditional pension plans in the last few decades, freezing the plans and shifting to defined-contribution plans like 401(k)s.
When a pension fund isn’t full enough to distribute promised payouts, the company still needs to distribute that money to plan participants. In several instances in recent decades, pension fund deficits for large enterprises like airlines and steel makers were so enormous they required government bailouts.
To avoid situations like this, many of today’s employers have shifted the burden of retirement funding to their workers.
With a 401(k), if you leave your job, you can take your 401(k) with you by rolling it over to your new employer’s 401(k) plan or into an IRA. The process is fairly easy to do.
If you leave your job and you have a pension plan, however, the plan generally stays with your employer. You’ll need to keep track of it through the years and then apply in retirement to begin receiving your money.
Pension plans are employer-sponsored, employer-funded retirement plans that are designed to guarantee a set income to participants for life. On the other hand, 401(k) accounts are employer-sponsored retirement plans through which employees make their own investment decisions and, in some cases, receive an employer match in funds. The post-retirement payout varies depending on market fluctuations.
While pension plans are far more rare today than they were in the past, if you have worked at a company that offers one, that money will still come to you after retirement even if you change jobs, as long as you stayed with the company long enough for your benefits to vest.
Some people have both pensions and 401(k) plans, but there are also other ways to take an active role in saving for retirement. An IRA is an alternative to 401(k) and pension plans that allows anyone to open a retirement savings account. IRAs have lower contribution limits but a larger selection of investments to choose from. And it’s possible to have an IRA in addition to a 401(k) or pension plan.
Ready to invest for your retirement? It’s easy to get started when you open a traditional or Roth IRA with SoFi. SoFi doesn’t charge commissions, but other fees apply (full fee disclosure here).
Easily manage your retirement savings with a SoFi IRA.
Yes. An individual can have both a pension plan and a 401(k) plan, though the two plans may not be from the same employer. If an employee leaves a company after becoming eligible for a pension and opens a 401(k) with a new employer, their previous employer will still typically maintain their pension. An employee can access the pension funds by applying for them in retirement.
If you have both a pension and a 401(k), it’s wise to contribute as much as you can to your 401(k) up to the annual contribution limit. While a pension can help supplement your retirement income, it may not be enough to cover all your retirement expenses, so contributing to your 401(k) can help fill the gap. One rule of thumb says to contribute at least 10% of your salary to a 401(k) if possible to help ensure that you’ll have enough savings for retirement.
Photo credit: iStock/Sam Edwards
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.
Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.
Tax Information: This article provides general background information only and is not intended to serve as legal or tax advice or as a substitute for legal counsel. You should consult your own attorney and/or tax advisor if you have a question requiring legal or tax advice.
SoFi Invest®
INVESTMENTS ARE NOT FDIC INSURED • ARE NOT BANK GUARANTEED • MAY LOSE VALUE
SoFi Invest encompasses two distinct companies, with various products and services offered to investors as described below:
Individual customer accounts may be subject to the terms applicable to one or more of these platforms.
1) Automated Investing and advisory services are provided by SoFi Wealth LLC, an SEC-registered investment adviser (“SoFi Wealth“). Brokerage services are provided to SoFi Wealth LLC by SoFi Securities LLC.
2) Active Investing and brokerage services are provided by SoFi Securities LLC, Member FINRA (www.finra.org)/SIPC(www.sipc.org). Clearing and custody of all securities are provided by APEX Clearing Corporation.
For additional disclosures related to the SoFi Invest platforms described above please visit SoFi.com/legal.
Neither the Investment Advisor Representatives of SoFi Wealth, nor the Registered Representatives of SoFi Securities are compensated for the sale of any product or service sold through any SoFi Invest platform.
Investment Risk: Diversification can help reduce some investment risk. It cannot guarantee profit, or fully protect in a down market.
Exchange Traded Funds (ETFs): Investors should carefully consider the information contained in the prospectus, which contains the Fund’s investment objectives, risks, charges, expenses, and other relevant information. You may obtain a prospectus from the Fund company’s website or by email customer service at [email protected]. Please read the prospectus carefully prior to investing.
Shares of ETFs must be bought and sold at market price, which can vary significantly from the Fund’s net asset value (NAV). Investment returns are subject to market volatility and shares may be worth more or less their original value when redeemed. The diversification of an ETF will not protect against loss. An ETF may not achieve its stated investment objective. Rebalancing and other activities within the fund may be subject to tax consequences.
SOIN0124024
Source: sofi.com
Welcome to NerdWallet’s Smart Money podcast, where we answer your real-world money questions. In this episode:
Explore how to protect yourself from identity fraud, understand its emotional toll and learn fraud recovery steps.
How can you protect yourself from identity theft and fraud?
What steps should you take if you become a victim of financial fraud?
Hosts Sean Pyles and Sara Rathner delve into the unsettling world of identity theft and fraud prevention to help listeners safeguard their finances and wellbeing. They begin with a discussion on the various facets of identity theft, with tips and tricks on identifying fraudulent activity, enhancing personal banking security and dealing with the aftermath of having your identity compromised. Then, they discuss the differences between identity fraud and scams, the importance of good cyber hygiene, and the steps to take immediately if your personal information is breached.
Sean also speaks with John Breyault, Vice President of Public Policy, Telecommunications and Fraud at the National Consumers League, about the current trends in identity theft and the forms of fraud that are on the rise in 2024. They cover topics such as new account fraud, the impact of zero-day vulnerabilities on personal data security and the necessity for consumers to stay vigilant with software updates and report incidents promptly.
They also explore how victims can navigate the process of recovering from fraud, including freezing credit reports, changing passwords, and engaging with financial institutions and law enforcement to document the crime and seek restitution.
Check out this episode on your favorite podcast platform, including:
NerdWallet stories related to this episode:
This transcript was generated from podcast audio by an AI tool.
Sean Pyles:
So there you are just going along with your life, running errands, finishing work projects, walking the dog, making lunch, paying bills, and then you realize, something is very, very wrong. Someone has gotten into your accounts and stolen your money.
Charlene MacNeil:
August 28th was a normal day. I took my cat to the vet, went and got groceries. That morning, I checked my online banking just to make sure I had enough money to do everything. It just seemed like a normal day and then everything changed that evening when I got that email.
Sean Pyles:
Welcome to NerdWallet’s Smart Money podcast. I’m Sean Pyles.
Sara Rathner:
And I’m Sara Rathner.
Sean Pyles:
We’re back with our Nerdy deep dive into identity theft, fraud, and scams, and their potentially devastating effects on your finances if you become a victim. As we said last episode, and we’ll continue to reiterate over and over, these crimes do not discriminate. Absolutely anyone can find themselves in deep water with their money situation because these financial criminals have so very many tools and options at their disposal.
Sara Rathner:
Yeah. And, Sean, I think we also want to repeat the message that this doesn’t just happen to you because you’re ignorant or careless. It happens because as our guest last week said, “We have to be 100% right all the time.” We have to be watching our accounts and changing our passwords, realizing we’re talking to someone who’s pretending to be from a bank, etc., etc. And the criminal only has to be right once to get what they’re after. So if they catch you in a moment where you’re tired or hangry, they might just do that.
Sean Pyles:
So the last thing that you should feel is embarrassed or ashamed if you do become a victim of ID theft or a scam. Angry and upset, yes, ashamed, no. The more we all talk about it, the more educated we become and the harder we make it for the thieves and scammers.
Sara Rathner:
Yes. Let’s take our power back.
Sean Pyles:
Yes. So last week we talked about identity theft, how it happens, what to be on the lookout for, and how to protect yourself as much as possible. Today we’re going to look at the next step in that process, which is the identity fraud that happens after the theft.
Sara Rathner:
It’s the credit card opened in your name. It’s the tax return that isn’t really yours. It’s the healthcare account that also isn’t yours that gets the thief medical care on your dime. Listener, we’re going to help you understand what it looks like, how to avoid it, and what to do if it happens to you.
Sean Pyles:
All right, well, we want to hear what you think too, listeners. Tell us your stories of identity theft or share how you’re working to fight it or recover from it. Leave us a voicemail or text the Nerd hotline at (901) 730-6373. That’s (901) 730-NERD, or email a voice memo to [email protected].
Sara Rathner:
So, Sean, where do we start today?
Sean Pyles:
Well, we’re going to start today with a real world tale of identity fraud. We’re hearing from Charlene MacNeil, a mom from Alberta, Canada. She’s got a story about what happened when someone was able to get into her account at BMO Bank, a subsidiary of the Bank of Montreal. Then after Charlene, we’re going to talk with an expert in ID fraud, who’s seen it all in his capacity at the National Consumers Union. Charlene MacNeil, welcome to Smart Money.
Charlene MacNeil:
Hello. Thanks for having me.
Sean Pyles:
Charlene, you experienced a form of bank account fraud. When did you first realize that something was wrong?
Charlene MacNeil:
On August 28th, I had just put my kids to bed and I got an email pop up on my cell phone saying that I had a credit limit alert from BMO and it told me that I had $33 left in my account.
Sean Pyles:
And so that was an indication that you didn’t have sufficient funds or maybe your credit was run up. What were you thinking when you first saw that?
Charlene MacNeil:
I panicked when I saw the $33. It just didn’t make sense. So I immediately went onto my online banking and noticed that my line of credit was maxed to the $15,000 mark.
Sean Pyles:
And what steps did you take once you realized that something was very wrong with your account?
Charlene MacNeil:
I immediately called BMO and just told them the email that I got and she told me that she would cancel my card right away and my account and to go to the branch immediately the next day to file a report of what had happened.
Sean Pyles:
So the next day, did you go in and talk with them about that?
Charlene MacNeil:
Yeah, I went in the next morning and I told her what had happened and she had told me that there was a text message that was sent to me like a one-time passcode, and I tried to think back to the day before because I do get text messages or calls from scammers sometimes, but that summer I felt like I had gotten quite a few, but I just kind of always ignored them, so I didn’t really think much of it. And then when she was looking at my account, she asked me if I knew the company Wise, because she noticed that’s where the money had been sent and I Googled Wise right away because I didn’t know what she was talking about.
And when I Googled it, it said international money sending. So she was, “Oh, that’s a red flag. That’s crazy.” She made me feel like we should be able to get the money back, that she would fill out this report and send it off and it should be okay. What had happened was they took my line of credit money, transferred it to my checking account, and they set up a bill payment to the company Wise, and then they sent out the money that way through a bill payment.
Sean Pyles:
So a slightly convoluted way to get the money that you had from your line of credit over to them essentially?
Charlene MacNeil:
Yes, exactly.
Sean Pyles:
And so it seems like things are maybe going, okay, this was a frustrating experience, but you thought you were going to be able to get your money back?
Charlene MacNeil:
Yeah, I went back to work and I felt relieved. “Okay, that’s done. It should be fine.”
Sean Pyles:
But that’s not what ended up happening.
Charlene MacNeil:
No. Two days later, the teller that had helped me, she called me and started the conversation with, “I have some very unfortunate news. They will not refund that money to your line of credit.” And my heart fell because I was just, “What do you mean?”
Sean Pyles:
And this was $15,000 they said they weren’t going to refund?
Charlene MacNeil:
I had a balance on there before. So really they just took whatever I had left in my line of credit and sent it out, so it was like $9,700.
Sean Pyles:
And what reason did they give you for why you wouldn’t be able to get this money back?
Charlene MacNeil:
They had told me that they tried reaching out to Wise, but the money had already been transferred. So whoever the bill was made out to through the company, they had the money and that’s it. They couldn’t get the money back, but she did say, “If you want, we could escalate this and see if there’s something else that they could do.”
Sean Pyles:
Because there have to be some kind of protections. This was an instance of fraud. You didn’t authorize this transfer of money?
Charlene MacNeil:
No, but as this continued on, they kept saying that I had gotten this one time passcode sent to me August 28th at 4:20 p.m., but I don’t recall entering this six digit code that they’re telling me that I entered. But from their records, it shows I entered the code and that it was all good.
Sean Pyles:
It’s also possible that someone could have somehow gained access to your phone number or gotten that code themselves. Correct?
Charlene MacNeil:
That’s what I am trying to explain to them. I just know that I didn’t enter this code.
Sean Pyles:
So did you end up escalating this then?
Charlene MacNeil:
I did. I escalated it three times and then I finally got a final response just saying that it’s really unfortunate, but we can’t get that money back. And they just kept telling me it’s the one-time passcode and that’s the reason why the money was sent out that I pretty much authorized it to be sent out.
Sean Pyles:
I’m really sorry to hear that. Do you know how the people were able to get into your account?
Charlene MacNeil:
I don’t know. I just have a lot of people just giving me different ideas of how maybe it could have happened. I had a conference in Vegas at the beginning of August and it was on the news that Vegas was having issues with scammers.
Sean Pyles:
Was it an issue with people getting on public Wi-Fi and logging into their bank accounts?
Charlene MacNeil:
That or people also told me that maybe somebody walked by my purse and scanned my purse, but people have told me that too, thinking it’s because of the Wi-Fi.
Sean Pyles:
So I’m wondering, Charlene, how has this experience made you feel about the safety of your money? Have you thought about switching banks, anything like that?
Charlene MacNeil:
I’m very nervous because it blows my mind to think that somebody can get onto your online banking and then move money like that without a signature or maybe voice recognition or something. I shut down my line of credit now and I’m kind of waiting to hear what’s going to happen, but I am really considering moving banks. I wish this almost happened on a credit card because I feel like credit card companies have your back more than the bank.
Sean Pyles:
Yeah. Your story brings me back to a theme which is that fraud, scams, anyone can experience these things and it’s not like you followed a typical playbook of seeing a text message come through on your phone or clicking a link in email and entering your login credentials. You don’t know how someone got your information. It just exemplifies that you could be doing everything right and somehow people could still get your information and still get into your bank.
Charlene MacNeil:
Yeah, exactly. August 28th was a normal day. I took my cat to the vet, went and got groceries. That morning, I checked my online banking just to make sure I had enough money to do everything. It just seemed like a normal day and then everything changed that evening when I got that email.
Sean Pyles:
What do you think your next steps will be?
Charlene MacNeil:
I’m not very hopeful, to be honest. It’s something that I just have to accept. And I mean, I’ve done better the last couple months, but in the beginning it was very difficult. I lost lots of sleep, missed some work. It was very stressful. And you feel like you’re the one that did something wrong.
Sean Pyles:
Well, I’m sorry that you experienced this. I’m wondering if there’s anything that you would like listeners to keep in mind as they try to protect themselves and their finances online?
Charlene MacNeil:
Yeah, I mean it’s so important to be checking your banking probably daily just to make sure everything is going as you think. Be very careful, I guess, on public Wi-Fi. I was actually just on a trip with my family to Mexico and so many people use public Wi-Fi. And I did in Vegas just to load my boarding passes.
I did not check my online banking. I know a lot of people when they hear me say that I was on public Wi-Fi in Vegas. I did not check my online banking, but I was on public Wi-Fi and I guess people can be sitting in that room and gain all of your information. So I don’t know. I don’t want people to be paranoid, but I kind of feel paranoid.
Sean Pyles:
It might not be a bad idea in the year 2024 when if you’re on a public Wi-Fi network, someone who’s also on that can get into your device very easily. That’s the truth of where we are right now.
Charlene MacNeil:
Yes, and I heard once they’re in, then they can be in there for a while. If I would’ve checked my online banking a day or two later, they could have seen me enter my codes. Yeah, it’s very invasive.
Sean Pyles:
Well, Charlene, thank you for sharing your story with us today.
Charlene MacNeil:
Well, thank you for hearing me.
Sara Rathner:
Sean, this just makes me so sad and angry that anybody has to deal with this because it’s just not fair. It’s not a fair fight against these really savvy identity thieves.
Sean Pyles:
It’s really not. And what’s so worrisome to me about Charlene’s story is that she still can’t pinpoint exactly how these criminals got into her account. Again, it just shows that this kind of fraud can happen to anyone, but as tempting as it might be to just throw up your hands and yell, “I give up,” that just feeds the beast and doesn’t do us any good.
Sara Rathner:
Well, I’m looking forward to some advice on how to avoid all of this and anything that we could do to keep it from happening to us, to me, to my loved ones, and of course to our listeners.
Sean Pyles:
Well, our next guest will walk us through some of what happens when you’re the victim of identity fraud and give advice on how to avoid it and recover from it if it does happen to you. John Breyault is Vice President of Public Policy Telecommunications and Fraud at the National Consumers League. That’s coming up. Stay with us.
John, thanks so much for joining us on Smart Money.
John Breyault:
Hey, thanks for having me on the show. I really appreciate it.
Sean Pyles:
So last week we spent some time explaining identity theft and the various ways that bad actors can steal our IDs from us. And today, we’re going to explore what they do with all that information once they’ve got it. So I’d like to start by asking you to explain maybe the difference between ID fraud and scams. We’re going to talk about scams in our next episode, but what differentiates the two?
John Breyault:
Both scams and ID theft, we call fraud, right? It’s a crime where it involves typically a scammer trying to acquire information or funds that they can use for their own purposes. So identity fraud is definitely a subset of fraud overall, but it is certainly one of the biggest subsets.
So we know that, for example, the Federal Trade Commission every year puts out their Consumer Sentinel Data Book. It’s a compilation of millions of fraud complaints that they get from agencies and organizations like mine all over the country. And in 2022, which is their most recent data, they received 5.2 million fraud reports and the number one category that they heard about was identity theft. And so clearly this continues to be a major problem that the biggest enforcement agency out there is hearing about. Definitely identity theft is one of the biggest types of fraud, and one I think we continue to see consumers of every age level, every education level, every demographic be victimized by.
Sean Pyles:
And when you think about specific ways that ID fraud and scams can manifest, what makes them distinct?
John Breyault:
I think what makes each scam distinct is often, number one, what is the entry point for the scammer? Is it one where they have to interact with the victim, say by sending them a link that the consumer clicks on and then provides the data to the identity for the scammer that’s then used to commit fraud? Or is this something where the scammers can commit identity fraud really with no interaction with the victim at all?
We know, for example, that due to data breaches, that’s practically limitless information about almost every American out there on criminal forums on the dark web that can be used to basically commit identity theft as a service. With a few hundred dollars in Bitcoin, you too can hire an identity thief to do things like start bogus credit card accounts in your name or try and get healthcare benefits or unemployment insurance. These are all very common types of identity theft that’s out there, and that doesn’t require any of us to do anything.
Sean Pyles:
So you touched on this a little bit, but John, can you give us a sense of what you’re seeing out there right now? What are some of the most prevalent forms of identity fraud in 2024?
John Breyault:
Yeah, I would say some of the fastest growing types of identity theft is new account fraud. It’s not necessarily a new type of identity theft. We’ve seen scammers using information to create new credit card accounts for decades at this point, but certainly it is returning to its previous position as one of the top types of identity fraud. And it’s happening because the resources that identity thieves were devoting to government benefits fraud is going down. As those pandemic relief programs start to wind down, there’s less money for the identity thieves to steal. And so they’ve gone back to some of the tried and true types of identity fraud.
Sean Pyles:
Is there anything that’s relatively new that consumers should know about that maybe they haven’t really heard about?
John Breyault:
What we have seen over the past year has been a staggering increase in the number of data breaches attributable to what are called zero-day vulnerabilities. And if you’ve never heard of a zero-day vulnerability, that’s okay. Basically what it means is it’s a vulnerability that nobody else has identified. Think of it as having a key to a vault that nobody else has, and until the people who own that vault figure out that you have that key, they have no reason to try and solve the problem or change the lock.
Sean Pyles:
So this could be something like a weakness in our phones’ operating systems that allows a bad actor to get into our phones.
John Breyault:
Yes, exactly. It’s operating systems like Windows. It is browsers that can be hacked. It could be Microsoft Office. Really any software program can have a zero-day vulnerability. And so what’s concerning to us is just the increase in breaches that were attributable to zero days. It’s gone up. I believe the number that the ITRC cited was by more than 100% over the past 12 months.
Sean Pyles:
Do we know why this might be? Is it that software developers are maybe pushing out code a bit faster than they should and they aren’t combing through for vulnerabilities? Or is it that hackers are really zeroing in on these vulnerabilities and trying to exploit them?
John Breyault:
Well, I think that’s the $64,000 question, as they say. We have theories on how that is. One of the more worrying ones is that the scammers have learned how to automate their search for zero-day vulnerabilities using artificial intelligence. And if they’re able to search for these zero days at scale, a very low cost, that is scary because I think AI has revolutionized so many other facets of our economy and businesses and government over the past several years.
It definitely has the potential to do the same thing when it comes to fraud. I think many of us who work on fraud and identity theft on a daily basis, we are thinking of the potential of this as the same kind of potential for supercharging fraud and scams that we saw when the internet sort of became a technology that everybody was using. That’s the kind of scale of the threat that’s out there.
Sean Pyles:
And so when people get notifications on their phone saying, “Oh, you have a new software update to patch a security vulnerability,” this might be something that is being addressed. Correct? And it’s important for people to actually update their phones regularly so that they are having the most secure software possible?
John Breyault:
Yes. Cyber hygiene is definitely one of the lowest cost and easiest ways for consumers to reduce their risk of falling victim to identity fraud because once they are detected, the operating systems and browser makers are usually pretty quick to plug the hole. But that is often dependent on consumers paying attention to those little pop-up boxes that say, “Do you want to update your browser? Do you want to update windows?” And actually taking action. Definitely don’t wait to update. Make sure you do that because it really is one of the easiest ways to reduce your risk.
Sean Pyles:
So, John, walk us through some of the ways that listeners can protect themselves from identity fraud. We heard last week about protections from identity theft. So let’s assume that the theft has already happened and now we have to react to prevent the fraud. What are some first steps here?
John Breyault:
Well, number one, I would say act quickly. We know that identity theft is a crime that often relies on consumers doing nothing. If you know that your information has been compromised, take steps to reduce your risk. For many people, that’s going to start with freezing their credit report. All of the major credit reporting bureaus offer consumers the ability to freeze credit.
Number two, I would say try and limit the damage to the extent you can. For example, particularly if your primary email address has been compromised, that can be the entry point for scammers to take over lots of other accounts, your bank accounts, your social media accounts. So definitely change the password on your primary email account right away and turn on two-factor authentication as well to add an additional layer that the scammers have to get through. They’re going to try and use that entry point.
I would do the same for any financial accounts that you may have linked to that email account. In addition, call the banks and let them know what’s going on so that they can place fraud alerts on your accounts. And then finally, make sure and get a police report. Identity theft is a crime in all 50 states, but consumers, I think particularly if you start to see activity related to identity theft, having that report is often documentation that will be needed to get the kind of help from not just law enforcement, but also from banks and other entities that you’ll need.
I think, unfortunately, we know that local police departments aren’t always super excited to create those reports, so you may have to be persistent to do that, but definitely local police departments is the place I would start. And then work your way up to the State Attorney General and ultimately the Federal Trade Commission.
Sean Pyles:
Related to what you were just discussing, let’s go a step further. So let’s say someone took your information and then fraud happened before you could get to it. Who should you really go to for help? Let’s talk about reporting it and starting to deal with the fallout of fraud.
John Breyault:
Yeah. Once fraud has occurred, typically you still have rights. For example, an identity thief created a credit card in your name and started running a bunch of charges. You aren’t liable for that, but you’re going to need to take steps like have that identity theft affidavit and a police report ready to show to creditors who may wonder why you haven’t been paying your credit card bill that you just opened weeks ago. So definitely I would say getting those reports is going to be one key piece of information to have.
Also, call and talk to the entities who the identity thief is using in your name. Let them know who you are, what’s been going on, and see what you can do to address the fraud. Most of us don’t spend all day every day recovering from identity theft, but most of the financial institutions do have people who are devoted to helping you through that journey. But you’ve gotta keep records of that. Grab a notebook, create a little Word document on your computer, and start logging every communication that you have with those entities so that you can create a paper trail because you can’t just depend on them to know where you are in the process and to ensure that in one place they’re going to quickly try and use that information to commit identity theft in other places as well.
Sean Pyles:
Earlier in this episode, I spoke with a woman who experienced a form of bank fraud. A fraudster got access to her line of credit, and her bank didn’t offer much in the way of resolving the issue. She didn’t get her money back. And I’ve heard other similar stories before. What sort of recourse do people in that situation have to try to recoup their losses?
John Breyault:
Generally, if the consumer victim is not the one who is actually hitting send on the money transfer, whether it’s through a payment app or through a wire transfer from your bank, then you have protections under federal law as well as many state laws. So I think it’s important that if in a case like that where it sounds like the scammer got in because they were able to hack this woman’s credentials that she should have rights. Certainly if the bank seems unwilling to work with her, I would say your next stop should be the State Attorney General as well as groups like the Identity Theft Resource Center, which have great resources and help coach victims through recovering from these identity theft schemes.
Sean Pyles:
Yeah. And your advice just there brings up the idea of jurisdiction. The woman that I spoke with was based in Canada, where they have different rules and regulations than we do in the U.S. So I think it’s important for anyone to be familiar with what laws protect them where they’re living, whether it’s in a different country or a specific state.
John Breyault:
Yeah, absolutely. And I would say a great place to start that journey of learning what your rights are and what laws may apply is the FTC has a great website at identitytheft.gov where you can start to go through their checklist and create an identity theft recovery plan.
Sean Pyles:
Well, one final question. I’m asking this of all the experts that we’re talking with for this series, so I’ll ask you too. Have you ever fallen victim to a scam or identity theft or fraud?
John Breyault:
I definitely have. Fortunately for me, it wasn’t sort of life altering, but what got me interested in working on fraud was a trip I took to Jamaica on vacation where I was in a bar, which probably tells you the first thing that I wasn’t thinking very clearly, but one of the locals came up to me and said, “Hey, if you give me $20, I can get you cheaper drinks at the bar.” And I said, “Great.” And so I gave him the $20 and he turned around, bought some beers for him and his friends and just ignored me.
And I wasn’t about to start a fight with a bunch of guys in a bar in Jamaica. So I just said, “Okay, lesson learned.” Don’t always take what people say to you at face value and listen to your gut before you hand over your money. Unfortunately, in this country we have, when it comes to identity theft and being a victim of fraud, we often have this tendency to blame the victim.
And there’s a real stigma attached to being a victim of fraud. And we often use terms like, “You fell for a scam.” Or people say, “I can’t believe I was so stupid.” Or we use terms like, “pig butchering scams,” which suggest that somehow the victim is the one who’s culpable. I think that that is wrong. If I could have one additional message for listeners of this podcast, it’s show a little compassion the next time somebody tells you their fraud story and recognize that these are people who are victims of organized, multinational, very savvy criminals, and help them work through sort of this crime they’ve been a victim of and encourage them to report it.
Sean Pyles:
Well, John, thank you again for talking with us.
John Breyault:
I appreciate it, Sean.
Sean Pyles:
Sara, one thing that I really want listeners to remember is that the cost of experiencing identity fraud can go well beyond the money loss, which of course can be significant. People who are victimized in this way often suffer mental health consequences. Many feel ashamed or like they brought this upon themselves. So like John said, if you’ve experienced a loss like this, get help. Yes, contact the FTC and your local police, but also think about talking with a loved one or a therapist who can help you process your emotions around this.
Sara Rathner:
Yeah, know that you are not alone. You probably know people who have gone through something like this and you could commiserate with each other. The important thing is to receive nonjudgmental help from people who are on your side and will help you wrap your head around everything that’s happened to you, and you can come out the other side stronger and more determined to protect yourself in the future. Okay, Sean, tell us what’s coming up in Episode 3 of this series. I assume there are more horrors on the way.
Sean Pyles:
Unfortunately, yes. Next week we’re going to walk into the lion’s den of the scammiest people on earth. Imposter scams, romance scams, phishing, vishing, all in the name of parting you from your money.
Speaker 5:
That’s what these scammers try to do. They try to rush you into making a decision by telling you something’s urgent or an emergency like the family emergency scam, where they’ll say, “Oh, this is your grandchild and I’m overseas, and I need you to wire money fast because I’m jail or in the hospital.”
Sara Rathner:
Yikes. Well, for now at least, that’s all we have for this episode. Do you have a money question of your own? Turn to the Nerds and call or text us your questions at (901) 730-6373. That’s (901) 730-NERD. You could also email us at [email protected]. Also visit nerdwallet.com/podcast for more info on this episode. And remember to follow, rate and review us wherever you’re getting this podcast.
Sean Pyles:
This episode was produced by Tess Vigeland. I helped with editing, Kevin Berry helped with fact checking, Sara Brink mixed our audio.
Sara Rathner:
And here’s our brief disclaimer. We’re not financial or investment advisors. This nerdy info is provided for general educational and entertainment purposes and may not apply to your specific circumstances.
Sean Pyles:
And with that said, until next time, turn to the Nerds.
Source: nerdwallet.com
You likely agree that saving money is a good idea. Putting extra cash aside every month can help you reach your financial goals, whether that’s building an emergency fund, going on vacation, or putting a down payment on a car or home.
But wanting to save money and actually doing it are two very different things. It’s easy to get caught up in day-to-day needs (and wants), and never gain any traction on savings. But don’t give up. We’ve got 33 tricks and tips that can make saving simple and pain-free. The best part — you can get started as soon as today.
While spending less and saving more admittedly sounds painful, it doesn’t have to be that hard. You don’t have to go to the extremes like never shopping or having fun. Just making a few small changes in your day-to-day spending habits can actually add up to a big difference in how much you save each month.
Getting better with money is like any type of behavior modification — the key to lasting change is to make small, incremental changes that stick.
💡 Quick Tip: Help your money earn more money! Opening a bank account online often gets you higher-than-average rates.
What follows are 33 simple money-saving tips you can start working on right now.
One of the best ways to spend less and save more is to take a close look at where your money is currently going. You can track your spending by scanning your checking account and credit card statements over the last few months. But a simpler way is to use a budgeting app that syncs with your accounts and keeps track of what you spend in different categories in real time.
Once you have a big-picture idea of your cash flow, you can make adjustments. Spending a lot more on takeout than you thought? Commit to cooking one or two more nights per week. Is keeping up with fashion killing your budget? You may want to focus on spending less on clothing.
An simple way to earn some extra cash is to periodically sell gently used items you no longer want or need. You might organize a yard sale or resell your items piecemeal via online marketplaces like OfferUp, Facebook Marketplace, or eBay. If you have extra clothes, shoes, or accessories in good condition, consider listing them on Poshmark or thredUP. Selling your unwanted stuff is essentially getting paid for clearing out clutter.
Watching influencers take luxury vacations and promote their favorite products can prompt you to spend more and live beyond your means. In fact, recent research finds that social media can significantly impact your finances — and not in a good way.
Putting a time limit on daily phone scrolling, on the other hand, can automatically lead to less spending and more saving. It also frees up time for activities that can truly enhance your life, like reading, exercising, seeing (real) friends, even taking up side hustle (and earning more money).
When we do things with focus, intention, and a clear goal in mind, we usually have an easier time making it happen. Instead of saving for the sake of saving, consider setting specific savings goals with target dates and amounts. For instance, maybe you want to save $5,000 for a summer vacation or $2,000 for a new computer.
By setting a target date, you can work backward and figure out exactly how much you need to set aside regularly. For example, if you want a new laptop in eight months, and it will cost you about $2,000, you’ll need to save $250 a month or about $60 a week.
Generic brands typically have the same ingredients and offer comparable quality to name brands but for a fraction of the price. For example, generic drugs usually cost 80% to 85% less than their brand-name counterparts. During your next supermarket or drugstore visit, try to go generic whenever it’s offered. Chances are, the only difference you’ll notice is less money draining out of your checking account.
Spending a bit of extra time comparison shopping can help you scoop up the best deals and avoid paying full price. You can do it on your phone while you shop in-store. For online shopping, consider installing a browser extension that helps you find the lowest prices and automatically applies coupons and cash-back options at checkout. Many of these tools will also alert you when the price of an item you intend to purchase drops.
Rather than transfer money to your savings account whenever you think of it, consider putting your savings on autopilot. Simply set up a recurring transfer from your checking account to your savings account for the same day each month (perhaps right after you get paid). It’s fine to start small. Even $50 can add up to a sizable sum over time, since the transfer happens every month without fail.
While it’s not directly putting money into your bank account, making on-time, consistent payments on your debt means you’ll pay it off quicker. Once your debt is paid off, the money you are currently spending on principal/interest can go towards savings. In addition to your monthly minimum payments, try to put extra payments towards high-interest debt each month. You’ll whittle those balances down faster and save on interest.
If you see something you want to buy but don’t actually need, consider putting off the purchase for at least one week (or ideally 30 days). Tell yourself that if you still want the item and can afford it after the waiting period, you can go ahead and buy it. Chances are good that once that waiting period is over, you’ll no longer have a burning need to purchase the item and simply move on.
If it’s 6pm, you’re tired from a full day of work, and have no food in the house, you’ll probably seek out the path of least resistance — getting takeout or eating out. Your best defense against overspending on food is to sit down every Sunday to scan recipes and come up with a meal plan for the week (including breakfast, lunch, dinner, and snacks). You can then make a shopping list and hit the store.
Recommended: Examining the Price of Eating at Home Versus Eating Out
While it’s fine to occasionally splurge on a fancy coffee, getting your daily coffee out can add up, especially if you sometimes throw in a tempting pastry at the last minute. Even cutting back your coffee shop visits to just two or three times a week and brewing at home the other days can help you save a lot on coffee.
While it is easier to replace items than fix them, the latter approach is better for both your wallet and the environment. Depending on the item, a repair could end up costing significantly less expensive than a replacement. Call around for quotes or ask for help from a tech-savvy or handy friend. Also see if there are “repair cafes” in your community. These are volunteer-run events where you can get items mended or fixed for free.
While credit cards are convenient, they make it all too easy to spend money. When you tap or swipe to make a purchase, you don’t really have a sense that you are giving up physical money. Switching to cash-only, even for just a month or so, can help you become more mindful about your spending. You might even try the envelope system. This involves labeling envelopes for each spending category, dividing your available cash for the month into the envelopes, and then only spending what’s in each envelope.
When it comes to cell service, you don’t have to stick with the big names. Mobile virtual network operators (such as Mint Mobile, Consumer Cellular or Republic Wireless) typically offer the same quality of service at a much lower price tag. It’s also a good idea to look at your last cell phone bill to see how much data you actually use. You may be able to get a smaller plan to save even more.
Before you hire someone for a home repair or improvement job, like painting a room, re-caulking your tub or shower, or installing a water filter under your sink, consider whether or not you could do it yourself. Often, the cost of materials and a simple YouTube search will lead to significant savings.
*Customer must fund their Active Invest account with at least $25 within 30 days of opening the account. Probability of customer receiving $1,000 is 0.028%. See full terms and conditions.
There are two major types of coupons: Store coupons, which are issued by a specific retailer and can only be used at those locations (you can find these in the paper and through a retailer’s app or mailer); and manufacturer’s coupons, which are found on manufacturer’s and coupon sites. By stacking them, you get an even deeper discount. Stacking coupons for an item that is on sale is a triple whammy that can bring you back to pre-inflation prices.
Dropping subscriptions that you hardly use or are redundant is a simple money-saving move with a potentially big payoff, since these debits occur monthly. It’s worth scanning your checking account and credit card statements for recurring charges to see if there are any items you can cut. If you primarily watch one streaming service but pay for four, for example, canceling three can save you significant cash.
While keeping bottled water (and seltzers or sodas) on hand is convenient, the cost can add up, especially if you have a family. A simple way to spend less at the grocery store each week is to give each person in your household their own reusable water bottle. You can then take bottled drinks off your shopping list. This will not only save money but also reduce plastic waste.
You might be surprised at how many things you can actually get for free. For example, your library can grant you access to movies, books, activities, and in some cases, passes to state parks and other nearby attractions. You might also join a Buy Nothing group. These are hyper-local virtual communities where neighbors can give and receive essentially anything for free.
If you’re becoming a stranger to your gym, consider canceling your membership. Even if you got a great deal, gyms debit money out of your bank account every month, whether you go or not. You might look for alternative, low-cost ways to get physically fit, such as walking/jogging/biking around your neighborhood, lifting free weights at home, and taking hikes.
A nickel here and a quarter there might not seem like much, but if you start dropping all your spare change into a jar every day, you’ll be surprised at how much you’ll accumulate. If you rarely carry or pay in cash, consider collecting digital change. Many money-saving apps automatically round up your purchase to the nearest dollar, then transfer the difference into your savings account.
💡 Quick Tip: Want a simple way to save more everyday? When you turn on Roundups, all of your debit card purchases are automatically rounded up to the next dollar and deposited into your online savings account.
Ordering a cocktail or a glass of wine (or three) when out to dinner can significantly inflate your bill. Consider getting water or a non-alcoholic beverage instead, then perhaps having a glass of wine when you get home. If you must drink, local beer, “house wine” options, and happy hour cocktails are usually the cheapest options.
Taking the family to concerts, movies, and immersive art exhibits can add up quickly. Instead, look for free or low-cost community activities. These offerings typically spike during the summer months and around holidays. To stay abreast of upcoming goings-on, you can sign up for newsletters or follow social media accounts of your local community, recreation centers, and libraries.
A simple way to save (potentially hundreds) is to do a no-spend month. This involves spending money only on essentials for 30 days. Before you begin, it’s a good idea to set parameters for what you will and won’t spend money on and then commit to the plan. It’s only a month! By the end of the challenge, you may realize there were certain things you didn’t really miss and rethink your approach to spending.
You may be able to significantly lower your utility bills with just a few tweaks to your habits and home. Try taking shorter showers, fixing any drippy faucets or constantly running toilets, turning off lights whenever you leave a room, and washing your clothes in cold water. Once you see a difference in your monthly bills, you’ll be encouraged to carry on and find more ways to cut energy use.
If you typically get a refund after doing your taxes, you’re essentially giving the government an interest-free loan. That’s money that could be working for you by earning interest in a high-yield savings account. Revisit your withholdings and put that extra money into your own bank account.
It may sound boring, but you’d be surprised how much a staycation can feel like a fun and luxurious getaway. The key is to take a complete break from your daily routine, change up the scenery, and spend time doing things you truly enjoy. This can provide the respite you’ve been longing for — minus the headaches of travel — and for a fraction of the price.
If you focus too hard on saving and never on fun, you might end up feeling deprived and give up on the whole project. Instead, allow yourself to celebrate small money wins and life events on the cheap. For instance, for every X amount you’ve put away into your emergency fund, you might reward yourself with a fancy coffee, a $5 “spree” at the dollar store, or getting a treat at your favorite ice cream shop.
Overdraft fees, ATM fees, and monthly maintenance fees can make your bank account balance move in the wrong direction — down instead of up. To ditch costly overdraft fees, keep regular tabs on your checking account to make sure you have enough to cover your debits and checks. To eliminate other fees, you may want to look for a bank account that doesn’t charge monthly maintenance fees and ATM fees.
Negotiating prices isn’t just for buying cars or houses. You can haggle for just about any product or service — your cable and cell phone bills, things you buy in stores, and even your rent. The key to success is to come to the negotiation prepared (do all the research you may need in advance), speak with confidence, and start off the conversation with the question, “What flexibility do you have?”
Recommended: 15 Creative Ways to Save Money
It can be tempting to go hog wild and spend your windfalls. But next time you get a work bonus, cash gift, or tax refund (which you actually want to avoid, see tip #26), consider spending a small percentage of it on something frivolous and fun, then putting the rest into your savings account. This can help you reach your savings goals significantly faster.
Recommended: The Fastest Ways to Get a Tax Refund
If you want to buy something that you don’t need right away, it’s worth researching the best times of the year for deals and sales. For example, you can often find great deals on cars in May, October, November and December; clothes are typically cheapest at the end of any season; and the end and the very beginning of the year are generally the best times to buy appliances.
If your extra cash is sitting in a traditional savings account, you’re missing out on a free source of extra cash. A high-yield savings account is a type of savings that you can open at many banks and credit unions. But it differs from a traditional savings account in that it offers an annual percentage yield (APY) that’s 10 to 20 times higher. If, for example, you put $25,000 into a savings account with a 4.60% APY, you’ll earn an extra $177.78 by the end of the year — just for letting the money sit in the bank.
Interested in opening an online bank account? When you sign up for a SoFi Checking and Savings account with direct deposit, you’ll get a competitive annual percentage yield (APY), pay zero account fees, and enjoy an array of rewards, such as access to the Allpoint Network of 55,000+ fee-free ATMs globally. Qualifying accounts can even access their paycheck up to two days early.
Better banking is here with SoFi, NerdWallet’s 2024 winner for Best Checking Account Overall. Enjoy up to 4.60% APY on SoFi Checking and Savings.
Saving money enables you to build an emergency fund that protects you against the unexpected. It also allows you to work towards — and achieve — future goals, such as buying a car or home, sending your kids to college, and being able to one day retire.
To find the motivation to save money, it helps to set specific goals. Think about the things you want to buy or do in the next year or two and how much these things will cost. You can then determine how much you need to set aside each month to reach your goals. Watching your savings account balance go up can also help keep you motivated.
When you don’t have a cushion of savings, any bump in the road (such as a car or home repair, trip to the ER, or loss of income) can force you to run up credit card debt. This can lead to a debt spiral that can take months, if not years, to recover from. Not saving also means you won’t make any progress towards your financial goals and simply continue living paycheck to paycheck.
Photo credit: iStock/Chaninan Boongate
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.
SoFi® Checking and Savings is offered through SoFi Bank, N.A. ©2023 SoFi Bank, N.A. All rights reserved. Member FDIC. Equal Housing Lender.
The SoFi Bank Debit Mastercard® is issued by SoFi Bank, N.A., pursuant to license by Mastercard International Incorporated and can be used everywhere Mastercard is accepted. Mastercard is a registered trademark, and the circles design is a trademark of Mastercard International Incorporated.
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.
External Websites: The information and analysis provided through hyperlinks to third-party websites, while believed to be accurate, cannot be guaranteed by SoFi. Links are provided for informational purposes and should not be viewed as an endorsement.
Tax Information: This article provides general background information only and is not intended to serve as legal or tax advice or as a substitute for legal counsel. You should consult your own attorney and/or tax advisor if you have a question requiring legal or tax advice.
SOBK0124057
Source: sofi.com