SoFi has been one of the most important business partners of The White Coat Investor for the last 5-6 years. Despite that,
not a single one only one of the 1500+ blog posts on this site has ever been dedicated to SoFi.
SoFi was founded the same year as The White Coat Investor, and we've grown up together. Well, one of us grew up. The other one is still being run off a dining room table in Utah. But it has been fun to watch them expand and offer new products over the years.
They usually bring them to me and see if I think my audience would be interested. I think I've turned down more products than I have actually helped them market, but we've still worked together on several lines of business.
The one most of you know is what SoFi is most famous for, student loan refinancing. I have had a number of discussions over the years with SoFi about their student loan refinancing products.
I distinctly remember one conversation where I was sitting across the table from the CFO trying to convince him they needed to offer a product to residents to refinance their private loans. There was a lot of hesitation as he wondered how he could ever find investors willing to loan money knowing they weren't going to get any significant interest payments for years, but eventually, they came out with perhaps the best loan refinancing product available to residents.
I've also included SoFi mortgage on my doctor mortgage page. It's not technically a doctor mortgage, but it has been helpful to a lot of readers, particularly in California. Like most doctor mortgages, it has no PMI for jumbo loans. It would probably be even more popular with readers except it requires a 10% down payment rather than the more typical 0-5%.
I even have an affiliate agreement with them for their personal loan product, although I don't really publicize that one. Doctors are too debt-numb as it is, so I try not to float out a personal loan as the solution to their financial issues until they've at least worked their way through other options. But as personal loans go, it's a pretty good product with relatively low rates and fees. Certainly, there are doctors who would find it helpful in certain short term situations and I occasionally point people there.
Sofi Wealth Management
They have a wealth management and financial planning service which is pretty unique too, being FREE and all (at least for a while). I've been encouraging them to hire some doctor specific advisors to work there.
SoFi has lots of other products too — refinancing of student loans and mortgages, term life insurance, a money-tracking app, a low cost investing service, and even four new ETFs they're coming out with.
Perhaps the reason I have never dedicated a post to SoFi despite having thousands of my readers who have used their services is that I have never personally used a single SoFi product. Well, that moment has finally come.
Introducing SoFi Bank
SoFi came out with a fancy new type of banking account that they call SoFi Bank. They market it as a “cash management account” Finally, they've come out with a solution to a problem I actually have.
Solving My Problem
What's my problem? My problem is that I leave tens of thousands of dollars in checking in order to avoid bouncing payments and checks. I have true first world cash flow problems and sometimes the easiest way around them is to just leave an extra buffer in the old checking accounts. I basically never have less than $15K in our main checking account and sometimes ten times that much.
What's the big deal? Well, my USAA checking account pays 0.01%. That's right. 1 basis point. Why do they even bother? Our business checking account at a local credit union pays between 0.1-0.25%. Sure, that's 10-25X what I'm making at USAA, but it's still pretty pathetic, and I tend to leave even more money in that account. Yes, I get all the usual things you can get pretty much anywhere in a checking account these days–ATM fees are waived and overdraft protection, but the opportunity cost of that money sitting there is a big deal.
So what does a SoFi Bank account pay?
As of this writing it pays an APY of 2.25%. That's 200X what my current checking account is paying. In fact, it's better than my current savings account at Ally Bank (APY of 2.20% today). [Update: As of 7/1/2020, accounts with monthly deposits of $500 or more will earn a 0.25% APY. All other accounts will earn a 0.01% APY. Accounts opened prior to June 9, 2020, will continue to earn a 0.25% APY regardless of deposit activity.] Even a Vanguard money market fund is only paying slightly better (2.35-2.45% today on taxable MMFs and 1.33-1.45% today on municipal MMFs). The difference between having an average of $50K in an account paying 2.25% instead of 0.01% is $1,125 per year instead of $5 per year. Too bad I can't get a business SoFi Bank account yet.
The account comes with all the usual stuff you like to see in a checking account –no fees, free ATMs, automatic bill pay, free checks, mobile deposit, super easy sign-up (literally took me 2 minutes to open and fund an account), easy connections to your other accounts, a nice little app, the ability to transfer money instantly to other SoFi Bank users, and FDIC protection up to $1.5 Million. Other than the pain of changing checking accounts, what's not to like?
Criticisms of SoFi Bank
There have been a few criticisms about SoFi Bank accounts. Some of it is in the fine print and some of it is just due to the nature of the product.
# 1 No Separation of Savings from Checking
Some people criticize that combining your checking and savings account will cause you to spend more money. I always find arguments like that to be patronizing and kind of dumb. If your financial discipline is so low that a tiny barrier like having to transfer money from savings to checking before you can spend it is going to be your salvation, well, you've probably got bigger financial problems than where you do your banking.
# 2 Low Withdrawal/Peer to Peer Transfer Limits
This one could be a little annoying to high-income professionals considering SoFi Money. SoFi has some limits in place to help protect your account from fraud. You can only withdraw $1000 per day from an ATM.
That doesn't seem too bad since my limit at USAA was $10 less! But when I wanted to buy a boat with $20 bills, I could call USAA and have them raise the limit temporarily. Whether SoFi will allow me to do that, I don't know. If this is a big deal for you, plan ahead.
Perhaps a bigger deal is you can only do peer to peer transfers of $1000/day ($3,000/month.) I send friends larger amounts than that all the time with PayPal or Venmo, so that could potentially be a problem. But since I don't yet have any friends with SoFi Bank, I guess I would still need PayPay/Venmo anyway. You can read more about the limits here.
# 3 No Wire Transfers
You apparently can't do wire transfers. I wasn't planning on ditching all of my other bank accounts for a SoFi Bank account, but this sort of a thing needs to be solved if SoFi Bank wants people to use them as a one-stop solution. They tell me it is on the list to be accomplished in the third quarter of 2019.
# 4 No Bank Charter
SoFi Bank isn't a bank. It doesn't have a bank charter. It is what is being referred to as a “neobank.” There are at least a half dozen of these out there now and the way it works is they basically sweep their cash to 6 other banks. That has its pluses and minuses.
The main plus is that you get a much higher FDIC insurance limit — you get six $250K limits for $1.5M. I suppose it is also possible that you may not have some consumer protections that exist for true banks when things go wrong, but I don't know enough about banking to say whether that matters or not. There aren't any bank branches either, but that's the case for most of the banks I use anyway. Neither USAA or Ally has branches.
# 5 Where's the Money Coming From?
If SoFi Bank isn't charging you any fees and it is paying you a pretty good interest rate, that money has to come from somewhere. Some might complain that SoFi tries to sell you all of their other financial services. Honestly, that's not any different from any other bank out there. However, it does seem like there are a lot more “ads” for other services than I am used to. Are they collecting information on you in order to know what to try to sell you next? I'm sure they are. Welcome to the Age of Big Data.
# 6 Rate Drops After 3 Months Unless Direct Deposit Set Up The 2.25% rate is technically only good for three months before it drops to half that. Half that rate is still awfully good for a checking account, but most importantly, this one is pretty easy to get around. All you have to do is set up a direct deposit of at least $3K/month. That shouldn't be too hard to do if you're really going to use this as your checking account.
[Update after publication: This requirement is now gone.]
# 7 No Cash Deposits
You can't deposit cash into your SoFi Bank account. Not a big deal for me. It's been years since I deposited cash. I didn't even know I could deposit cash into my USAA checking account. Of course, I have to drive 16 hours round trip for me to do so. Welcome to the digital age. This is one reason I have a local credit union account I almost never use.
# 8 Can't Export Data to Other Software I hope you like the SoFi Bank App, because you're not going to be able to export your data to Mint, Personal Capital, You Need a Budget, Every Dollar or other popular budgeting apps.
[Update after publication: See comments below, but users have been able to use both Mint and Personal Capital with their SoFi Bank account.]
# 9 1% Currency Exchange Fee
If you want to use your debit card internationally, you'll pay a 1% fee on all transactions. I'm sure there are some debit cards out there that don't charge that sort of a fee, but most do. No big deal for me.
That's all I could come up with. If you are okay with those downsides, a SoFi Bank account is a great way to make some extra money and reduce some of the hassles in your life. All you have to do is overcome the inertia to just leave things as they are because it is a pain to change things like direct deposit and automatic payments.
If you do decide to try out SoFi Bank, please use our affiliate link as it helps support this site.
Note that upon initial publication of this post, there was an additional $25 sign-up bonus (which was honored for those who signed up quickly) but that deal is no longer available.
What do you think? How would you like to earn interest on your checking account? Have you tried a neobank like SoFi Bank? What did you like or dislike about it? Comment below!