You’ve just received your first paycheck from your new job, and you’re excited to see the number of zeros on it. You’re ready to get out there and start spending, but there is some bad news for you before you do. You don’t earn interest on early paychecks, at least for most banks! That’s right: there’s no point in depositing your check into a savings account or CD because you won’t earn any interest until it clears—which might take weeks or even months, depending on how much is in your account at that time. So take a look at how you can get early direct deposit.
No, you don’t earn interest on your paychecks.
If you’ve ever wondered if your employer is earning interest on your paycheck before it’s deposited in your bank account, the answer is no. Instead, your employer only earns interest on paychecks once they’re actually paid to employees.
While banks can make money off this concept and charge a fee, your employer can only charge fees if you want them there. It’s unlikely that any company would offer this service without making sure they can make money, so don’t worry about being penalized if things go wrong with the system!
You will earn interest on your paycheck once it’s in your bank account.
If you’re wondering whether or not the interest on your paycheck will be earned while the check is still in your possession, you’ll be happy to know that it won’t. Instead, you earn interest on the money once it’s deposited into a bank account.
That means that if you have a large enough balance in your checking account before payday, and you’re expecting another big deposit later that day, as soon as that new paycheck lands in your account (at midnight), some of the money on which you’ll earn interest belongs to someone else—namely, whoever wrote out the original check to pay them.
Your employer doesn’t earn interest on paychecks before they’re paid to employees.
As a rule, your employer doesn’t earn interest on early paychecks. If you think about it, this makes sense. Your employer is getting less money than they need to pay you, and their costs are increasing while they wait for your paycheck to come in.
The only way this would make sense is if the bank or other financial institution guaranteed interest on your paycheck until your company paid it out. However, this is not usually the case since banks are usually reluctant to take on any risk without an incentive or guarantee, such as an insurance policy against defaulting on payments from employers. Which usually come in the form of collateral like real estate assets owned by businesses rather than just cash being deposited into bank accounts.
SoFi says, “In addition to an early paycheck, members with qualifying direct deposits are eligible for no-fee Overdraft Coverage.”
If you want to earn extra money, try investing it instead of depositing it in a savings account.
Investing is a better way to earn interest because it can help you grow your money over time. As stocks and bonds rise (or fall) in value over time, investing can be risky, but knowing what you’re doing can be a great way to make money.
You can invest in stocks, bonds and other things like real estate or business ventures. Congratulations, you now know what to do with your early paycheck!