SoFi Money

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Naris
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SoFi Money

Post by Naris » Wed Nov 14, 2018 10:43 pm

Hi Bogleheads,

I recently learned about SoFi Money, and I am trying to figure out if there is a catch I am missing. The materials I am reading make it sound head and shoulders above any alternative option for a Checking/Savings account setup to such an extent that I'm a bit suspicious.

Per the terms (https://www.sofi.com/faq/#money), SoFi Money functions like a checking account, i.e. without any limits on the number of transactions such as those imposed on savings accounts, but it pays out interest at rates comparable to savings accounts. The rates are excellent: 2.00% for "qualifying" accounts, which is easy enough to achieve with $3,000 in monthly direct deposits. Even non-qualifying accounts earn 1.00%, so it's not like there's a massive bait-and-switch surrounding that. I have used Capital One 360 as my standard bank account for some time, and SoFi Money's interest rate appears to be double that of Capital One 360's Savings and ten times the rate on Capital One 360 Checking (for amounts under $50,000).

To my understanding, the SoFi Money account is technically a "cash management account." But I'm not entirely clear on what that distinction ends up meaning in real terms, and if that should make me concerned. It appears to still be FDIC insured, although I can't quite tell if there's some delay in the application of FDIC insurance until funds are "swept" into the affiliated banks (and, if that's a quick process that happens on a routine basis, then it doesn't seem like that would likely be a large enough concern to overwhelm the rate difference?).

I couldn't find any substantive discussion of SoFi Money here or on the other financial websites I typically check, so I wanted to inquire before I shifted over to using it. Am I missing something? Or is this just a better option than a standard Checking/Savings account setup?

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whodidntante
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Re: SoFi Money

Post by whodidntante » Wed Nov 14, 2018 11:48 pm

Sounds OK, but I do not have personal knowledge of it. But it's just OK. I have a Fidelity CMA account and I get 2.05%, unlimited ATM fee rebates, free checks, free bill pay, and free wire transfers. It also links to my brokerage account, and overdraft is backed by margin. I've never needed that overdraft feature, but it's good to have because I purposely run a razor thin cash margin. I might make a mistake someday.

Starfish
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Re: SoFi Money

Post by Starfish » Thu Nov 15, 2018 12:32 am

Isn't Capital one 360 1.85%?

neoptolemus412
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Re: SoFi Money

Post by neoptolemus412 » Thu Nov 15, 2018 10:30 am

I research a lot of these products for my personal use. All quotes come from SOFI's footnote disclosures on their advertisement for these accounts. I am thinking of signing up for an account, so was in the process of researching it. Here's my $.02.

FDIC Insurance

This is the most important benefit of US banking system. You can have the government guaranty that your money will be returned in the event your bank fails. As SOFI is not a FDIC insured bank, SOFI Money offers the equivalent of a CDARS product in a cash balance money market account. Through relationships with insured depository institutions, i.e. banks, SOFI Money sweeps the funds to to 1 of 6 FDIC insured banks. It is unclear how often this occurs, but one can presume sweeps occur at least daily. SOFI Money markets "$1,500,000" in insurance, but that's just another way of saying $250,000 x 6 different banks. I did not see a list of the bank partners, so could not find the CAMELs ratings (rating of a bank's health). Based upon the marketing, I presume SOFI Money transfers funds to a different bank once a single account holder hits $250,000. Marketing does discuss that users may select different banking partners if the depositor already has a banking relationship with an institution SOFI uses. However, SOFI does not make it easy to find out which banks they have partnered with in their marketing materials.
The cash balance in SoFi Money Accounts is swept to one or more program banks where it earns a variable rate of interest and is eligible for FDIC insurance. FDIC Insurance is not provided until the funds arrive at partner bank. There are currently six banks available to accept these deposits, making customers eligible for up to $1,500,000 of FDIC insurance (six banks, $250,000 per bank). If the number of available banks changes, or you elect not to use, and/or have existing assets at, one or more of the available banks, the actual amount could be higher or lower.
Fees

SOFI markets that it charges no fees. No minimum balance. No direct deposit minimum. I did not see mention of overdraft or other protection, though. SOFI Money doesn't have any ATMs of their own and reimburses third-party ATM fees the next business day. This is very good as Charles Schwab, the major bank with a similar ATM reimbursement feature, only reimburses you at the end of the month and their is a cap to how much they will reimburse. Foreign transaction fees from SOFI are not charged, but a 1% exchange fee is charged. 1 replacement ATM card is free, which very few banks offer. Overall, this is very good and as competitive as you'll find in a banking product.
While SoFi doesn’t charge any ATM fees, third-party fees may apply. Eligible accounts will automatically be reimbursed by the following business day for eligible ATM fees charged by other institutions while using a SoFi Money™ Visa® Debit Card linked to your account at any ATM displaying the Visa®, Plus®, or NYCE® logo. Please note, though SoFi doesn’t charge foreign transaction fees, there is a foreign exchange fee of 1% that is not waived. SoFi reserves the right to limit or revoke ATM reimbursements at any time without notice.
Interest

The interest is really good (2%) and there is no minimum balance. They do require 1) direct deposits of $3,000 or 2) $500 in debit card transactions per month. Most people would meet this requirement pretty easily. If one does not meet the requirement, the interest is 1%. Again, very good as there does not appear to be a transfer or transaction limit.
Interest rates are variable subject to change at our discretion, at any time. No minimum balance required. Earn 2.00% APY and receive third-party ATM fee reimbursements on your first SoFi Money account. After three months, only accounts meeting one of the following monthly activity criteria will continue to receive 2.00% APY and third-party ATM fee reimbursements: 1) direct deposits totaling $3,000 or more; OR, 2) qualifying debit card purchases totaling $500 or more. Total monthly debit card purchases are based on posted transactions for the calendar month, net of any refunds, returns, or similar credit, and does not include ATM withdrawals or other similar cash transactions. The interest rate for qualifying accounts is 1.98%. After three months, unqualified accounts will earn 1.00% interest rate and APY. First-year APY for unqualified accounts is 1.26%, assuming an interest.
Functionality

This is my personal category that includes ease of use, check writing, cash deposits, online transfers, etc. I would say this product is very easy to use as SOFI Money has an app for most banking features. There was no mention of checks. Although I rarely write a check, it is something that I do need from time to time. Cash deposits were not mentioned. Similar to Charles Schwab, it's appears very difficult to deposit cash into your account. SOFI noted mobile banking to deposit checks digitally. Lastly, transfers to other SOFI members can occur instantaneously, so no delays. It was unclear if Venmo, Zell, or other products can be linked to the account.

Conclusions

My $.02 is "FINTECH" companies cannot get FDIC insurance as they would have to go through a lot of hoops to meet the requirements for de novo bank status. Their alternative is to offer "banking" products with partner banks that are desperate for a new source of deposits. Nothing wrong with this as low fees and high interest are what customers want.

The negative with these "FINTECH" banks is uncertainty regarding the underlying bank where deposits are held. IE, most people wouldn't bank with those institutions directly; however, as SOFI offering high interest & low fees, you're really putting your trust in SOFI's choice in partners and the model will succeed somehow. It's unclear how SOFI Money is making any money on this product. I'm presuming they get referrals from the banking partners, but it's not transparent. I just know that charging no fees and providing 2% interest, reimbursing ATM fees, and no limit on transactions is a recipe for a loss leader. So if a deal is too good to be true, they are probably selling your data, obtaining a fee from their banking partners, or making money from marketing to you. Sweeping funds from the SOFI account to a FDIC insured institution offers minimal risk that funds could be uninsured at a point in time. The other downside is cash deposits/check writing. For most people, not a huge issue, but something that may deter others that need to deposit cash or write checks.

In comparing SOFI Money to a traditional bank, Charles Schwab is the model for this type of account. Schwab offers checking accounts with many of the same features, but for substantially lower interest rates (.35%). Marcus/Ally/Barclays offer equivalent interest rates in their savings products, but do not offer the transactional features of a checking account. Thus, SOFI does seem to be one of the highest interest rate options with no fees out there. They have 0 track record, but their funding from Soft Bank and other VCs has been in the billions. So it's unlikely they'll close up shop anytime soon.

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White Coat Investor
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Re: SoFi Money

Post by White Coat Investor » Thu Nov 15, 2018 12:03 pm

This sounds awesome. Surprise this is the first I've heard of it given how much I work with SoFi. Do you know if they do business accounts?
1) Invest you must 2) Time is your friend 3) Impulse is your enemy | 4) Basic arithmetic works 5) Stick to simplicity 6) Stay the course

neoptolemus412
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Re: SoFi Money

Post by neoptolemus412 » Thu Nov 15, 2018 12:54 pm

White Coat Investor wrote:
Thu Nov 15, 2018 12:03 pm
This sounds awesome. Surprise this is the first I've heard of it given how much I work with SoFi. Do you know if they do business accounts?
I called to ask that question. Per their rep, no business accounts are offered at this time. Only individual and joint accounts are offered. The product is only being offered right now to those with an existing SOFI account; however, it's being rolled out to the public soon, but no date is out there. I had a SOFI account, but never used any of their products. I may invest a nominal amount just to try out this new checking account as it does seem like a much better checking account option than most products out there.

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White Coat Investor
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Re: SoFi Money

Post by White Coat Investor » Thu Nov 15, 2018 1:00 pm

neoptolemus412 wrote:
Thu Nov 15, 2018 12:54 pm
White Coat Investor wrote:
Thu Nov 15, 2018 12:03 pm
This sounds awesome. Surprise this is the first I've heard of it given how much I work with SoFi. Do you know if they do business accounts?
I called to ask that question. Per their rep, no business accounts are offered at this time. Only individual and joint accounts are offered. The product is only being offered right now to those with an existing SOFI account; however, it's being rolled out to the public soon, but no date is out there. I had a SOFI account, but never used any of their products. I may invest a nominal amount just to try out this new checking account as it does seem like a much better checking account option than most products out there.
I just like the idea of combining three accounts at three institutions to two accounts at one institution. Who needs a savings account when checking pays 2%?
1) Invest you must 2) Time is your friend 3) Impulse is your enemy | 4) Basic arithmetic works 5) Stick to simplicity 6) Stay the course

arf30
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Re: SoFi Money

Post by arf30 » Thu Nov 15, 2018 1:09 pm

Neat idea, sounds a lot like Vanguard Advtange or Fidelity CMA. There's a minor catch but probably not a big deal if it's your main checking account:
After three months, only accounts meeting one of the following monthly activity criteria will continue to receive 2.00% APY and third-party ATM fee reimbursements: 1) direct deposits totaling $3,000 or more; OR, 2) qualifying debit card purchases totaling $500 or more.

alfaspider
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Re: SoFi Money

Post by alfaspider » Thu Nov 15, 2018 1:58 pm

Interesting, but I'm willing to deal with a few transfers back and forth with my online savings account to get FDIC insurance. Plus, my account pays a wee bit higher (2.05%).

Topic Author
Naris
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Re: SoFi Money

Post by Naris » Thu Nov 15, 2018 10:20 pm

Thank you all for your replies; all of the input has been helpful.

Alfaspider, is the account you are earning 2.05% on a checking account or a savings account? I think the biggest part of the appeal to me is earning a high rate (2.00%) on a single account I can use like a checking account, since trying to manage the flows of money between checking and savings just isn't worth the time to me. Also, as far as I can tell, the SoFi Money account is FDIC insured.

Whodidntante, that is interesting to hear how it compares to the Fidelity CMA account. I actually tried finding the details on the Fidelity option before posting, and I never was able to locate actual rate information for the account (i.e. without putting money into a separate money market holding). Are you able to earn 2.05% on money held in that account while using it like a checking account? If so, that's very impressive as well. It's hard to see why more people don't ditch the standard checking/saving account setup in favor of these types of cash management accounts if that's all correct, so I'm just surprised that I haven't heard of this before.

YoungBogle
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Joined: Thu Nov 08, 2018 10:04 pm

Re: SoFi Money

Post by YoungBogle » Thu Jan 17, 2019 12:57 pm

Naris wrote:
Thu Nov 15, 2018 10:20 pm
Thank you all for your replies; all of the input has been helpful.

Alfaspider, is the account you are earning 2.05% on a checking account or a savings account? I think the biggest part of the appeal to me is earning a high rate (2.00%) on a single account I can use like a checking account, since trying to manage the flows of money between checking and savings just isn't worth the time to me. Also, as far as I can tell, the SoFi Money account is FDIC insured.

Whodidntante, that is interesting to hear how it compares to the Fidelity CMA account. I actually tried finding the details on the Fidelity option before posting, and I never was able to locate actual rate information for the account (i.e. without putting money into a separate money market holding). Are you able to earn 2.05% on money held in that account while using it like a checking account? If so, that's very impressive as well. It's hard to see why more people don't ditch the standard checking/saving account setup in favor of these types of cash management accounts if that's all correct, so I'm just surprised that I haven't heard of this before.
Can’t speak on Fido’s CMA MM situation, however, iirc FIDO gives you unlimited ATM reimbursements nationwide, whereas SoFi & Charles Schwab reimburses unlimited ATM fee’s worldwide. Also Fido debit card and credit card has foreign transaction fees, whereas CS & SoFi’s debit has no foreign transaction fees.

Those who travel abroad frequently will benefit from CS or SoFi, moreso than Fido CMA.

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