A certificate of deposit (CD) can be a useful tool for saving money for an upcoming goal. The downside is that you need to wait until the CD matures in order to access your money. If you withdraw some or all of your funds early, you typically get hit with a hefty penalty fee.
If you’re in a pinch and need cash quickly, however, you may be able to get a CD loan. Also known as a CD-secured loan, this is a type of personal loan that uses the value of a CD account as collateral. CD loans are offered by some banks and credit unions. Typically, the lender needs to be the same institution that holds your CD.
Here’s a closer look at how CD loans work and how they stack up against unsecured personal loans.
What Is a CD Loan?
A CD loan is a type of personal loan that is secured by the money you have in a CD. Since the collateral lowers the risk for the lender, these loans can be easier to qualify for and have lower interest rates than unsecured loans. However, if you don’t repay the loan, the bank can take the money out of your CD to cover their losses.
Of course, to get a CD loan, you need to have a CD, which is a type of savings account that pays a fixed interest rate over a set amount of time, or term. You must leave the money untouched for the CD term, which can range from three months to five years. If you withdraw your funds before the end of the CD’s term, you usually have to pay an early withdrawal penalty. CDs generally pay a higher annual percentage yield (APY) than regular savings accounts. And the longer the CD’s term, usually the higher the APY. Similar to other types of savings accounts, CDs come with FDIC protection, up to the applicable limits.
How Do CD-Secured Loans Work?
If you take out a CD loan, the lender will charge interest. So you’ll be earning interest on the CD but paying interest on the CD-secured loan. In some cases, a bank or credit union will set the minimum annual percentage rate (APR) on their CD loans at 2% over the CD rate. So if your CD pays 3%, your CD loan rate would start at 5%. Your actual rate would depend on your credit and the term of the loan, among other factors.
How much you can borrow with a CD-secured loan depends on the lender. Often, you are able to borrow up to 100% of the value of your CD principal. The term of the loan can generally be as long as the term of the CD.
While you can typically access money in a CD if absolutely necessary and pay a penalty, that may no longer be the case if you get a CD loan. Typically, the funds being used as collateral are sealed even in the event of an emergency.
Who Might CD Loans Be Right For?
The idea of paying interest on a loan backed by an interest-bearing CD may seem counterintuitive. However, there can be some logical reasons for taking out a CD-secured loan. One is that you may be able to build your credit by taking out a CD loan and then making a series of on-time payments on the loan. More common ways to do that include getting a secured credit card or becoming an authorized user on another person’s credit card. But if those options aren’t available, and you have a CD, you might use a CD loan for that purpose.
Another reason you might opt for a CD loan is that you need access to your funds for an emergency before it matures. However, you’ll want to first check what your CD’s early withdrawal penalty is. It might be cheaper and easier to simply break open a CD early and pay the penalty. However, if the penalty would be more than what you’d pay in a CD loan’s fees and interest, you might consider a CD loan.
Before taking out a CD loan, it makes sense to weigh the pros and cons.
CD Loan Pros
• Lower interest rates CD-secured loans often have lower interest rates compared to credit cards and unsecured personal loans, making them an attractive option for borrowers seeking lower borrowing costs.
• Building credit CD loans offer an opportunity to establish or improve your credit history if you currently have limited or no credit.
• Retaining CD benefits Despite using the CD as collateral, you can still earn interest on the deposited amount.
• Fast access to funds If you apply for a CD loan with the bank or credit union that holds your CD, you can often get approved quickly and receive funds within a day or two.
• Good for those with bad credit Borrowers with poor credit often qualify for CD-secured loans.
CD Loan Cons
While CD loans have their benefits, there are also some drawbacks to keep in mind.
• Frozen funds The funds in the CD are tied up as collateral, limiting access to the money until the loan is repaid.
• Potential loss of CD If you default on the loan, the lender can seize the CD, resulting in the loss of the deposited funds.
• Limited loan amount CD loans are typically limited to a percentage of the CD’s value, which might not meet your full borrowing needs.
• Fees Your bank may charge fees, such as an origination fee, for issuing you a CD loan.
• Hard to find CD loans aren’t as common as other types of personal loan, so your bank or credit union may not offer them.
CD Loan vs Personal Loan
While CD-secured loans and unsecured personal loans have some similarities, they also have some significant differences.
With both types of loans, you get a lump sum of money up front and can then use those funds for virtually any type of expense. Both also typically offer fixed interest rates and a set repayment term so payments are easy to predict and budget for.
Unlike a personal loan, however, a CD-secured loan can be hard to find. Also with a CD loan, you need to put your savings on the line to secure the loan. With an unsecured personal loan, you don’t need to provide any funds or personal assets as collateral, making them accessible to borrowers without a CD or other assets.
CD loans also tend to have lower interest rates than unsecured personal loans due to the collateral, while personal loans tend to offer more flexibility in loan amount and repayment terms.
CD loans can be a viable option for someone who has a certificate of deposit and needs access to funds while keeping their deposited amount intact. The lower interest rates and potential credit-building opportunities make CD loans attractive for some borrowers.
However, these loans aren’t widely available and the cost of the loan could potentially exceed the CD’s early withdrawal fee. Also, you could lose the money in your CD if you have difficulty making payments. It’s crucial to weigh the pros and cons, consider your personal financial goals and needs, and compare loan options before deciding on the best borrowing solution.
If you’re interested in exploring personal loans, SoFi could help. SoFi’s unsecured personal loans offer competitive, fixed rates and a variety of terms. Checking your rate won’t affect your credit score, and it takes just one minute.
See if a personal loan from SoFi is right for you.
FAQ
Where can I get a CD loan?
CD loans are typically offered by banks and credit unions. It’s best to start by contacting your current financial institution to inquire about their CD loan options. They can provide you with specific details about their loan terms, interest rates, and application process. Typically, you need to take out a CD loan from the same institution that holds your CD.
What are CD loan interest rates?
CD loan interest rates vary depending on the lender, current market conditions, and your qualifications as a borrower. Rates tend to be lower than those of unsecured personal loans, since the loan is backed by the funds in the CD.
Some banks and credit unions will set the minimum annual percentage rate (APR) on their CD loans at 2% over the CD rate. So if your CD pays 3%, your CD loan rate would start at 5%. Your actual rate would depend on your credit and the term of the loan, among other factors.
Do you get money back from a CD loan?
When you take out a CD loan, you do receive money from the lender. However, it’s important to note that the funds received are borrowed money that you are obligated to repay, typically with interest. The funds from the loan are separate from the funds you have deposited in a certificate of deposit. The CD itself remains intact and continues to earn interest, but it is held as collateral until the loan is repaid. Once the loan is fully repaid, you regain full access to your CD and any interest it has earned during the loan term.
About the author
Rebecca Lake
Rebecca Lake has been a finance writer for nearly a decade, specializing in personal finance, investing, and small business. She is a contributor at Forbes Advisor, SmartAsset, Investopedia, The Balance, MyBankTracker, MoneyRates and CreditCards.com. Read full bio.
Photo credit: iStock/PeopleImages
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When planning a move to a new city or state, the cost of living is an important consideration. Here’s why: Cost of living tells you how much money it takes to maintain a basic standard of living in a given place. If you were offered your dream job in a city 1,000 miles away, you’d want to know whether the salary would allow you to live well…or whether you’d have to be on a super tight budget.
Location typically plays a major role in determining the level of income needed to finance your lifestyle. For instance, a dollar doesn’t buy as much in New York as it would in Des Moines. If the cost of living is higher because you live in a major city, you’ll likely have to allocate more of your budget toward everyday expenses, such as housing, food, and transportation.
It’s important to understand the factors that affect cost of living calculations and what a higher or lower cost of living means for your finances. Otherwise, you could wind up with an uncomfortable level of “sticker shock” if you relocate.
Key Points
• Cost of living refers to the expenses required to maintain a basic standard of living and varies significantly across different cities and states.
• Calculating the cost of living involves assessing essential expenses like housing, food, transportation, and healthcare, which can fluctuate over time.
• The cost of living index helps compare the affordability of living in different locations, indicating how much income is needed to sustain a particular lifestyle.
• Regions with higher demand for housing and services often experience increased living costs, affecting purchasing power and lifestyle choices.
• Strategies to lower the cost of living include reducing unnecessary spending, refinancing debts, and potentially relocating to more affordable areas.
What Is the Cost of Living?
The cost of living is the cost to cover basic household expenses. The cost of living can vary from state to state and city to city. As you might guess, renting a 1,500-square-foot home is likely to be much more affordable in a small town in the middle of the country than doing so in a hip neighborhood in San Francisco.
That said, you can also have different costs of living within the same metro area. For example, someone who owns a home in the suburbs of a major city may have higher or lower expenses compared to someone who lives downtown.
In terms of what the cost of living is used for, it’s a gauge for determining affordability. Before moving to a new location, you might look at the cost of living in that area to help you decide if it’s realistic for your budget.
Quick Tip: Want to save more, spend smarter? Let your bank manage the basics. It’s surprisingly easy, and secure, when you open an online bank account.
How Does the Cost of Living Work?
Cost of living calculations work by measuring how much it costs to live in a specific location, using basic living expenses as a guide. The cost of living is not static; it can go up or down over time. Looking at cost of living trends for a certain city, region, or state can give you an idea which way consumer prices are trending.
There are a number of entities that perform cost of living calculations. The Council for Community and Economic Research, for example, maintains a cost of living index for participating cities across the U.S. Other organizations calculate cost of living for locations around the world.
On a personal level, the most important question to ask is, “What does the cost of living mean for me?” The simple answer is that cost of living can determine how far your income is able to go toward funding your lifestyle.
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Factors That Determine Cost of Living
When discussing cost of living and expenses, you’re talking about necessities. In other words, the things you need to spend money on to live each month. According to the Economic Policy Institute, that includes:
• Housing
• Food
• Childcare
• Transportation
• Healthcare
• Taxes
• Other necessities, such as clothing, household supplies, and personal care items
Cost of living calculators use prices for those types of expenditures in a particular area to determine how much it costs to live there on average. Consumer prices for goods and services are largely a product of supply and demand, and what’s happening with inflation. Inflation is a general upward trend in prices over time.
When inflation is higher, prices tend to rise across the board, which brings a higher cost of living. Even when inflation is lower, prices may still be higher in some areas than others if there’s higher demand for goods and services.
Calculating Cost of Living
Cost of living indexes collect information about various costs for different cities and locations, then use average prices to determine how much it costs to live there. If you’re comparing two cities, you can use a cost of living index to see which one is less expensive.
If you’d like to calculate your personal cost of living, you’d use your spending history to determine your average monthly expenses for these categories:
• Housing
• Food
• Transportation
• Utilities
• Childcare, if applicable
• Healthcare
• Taxes
• Other necessary expenses
Using those numbers can tell you how much it costs to maintain your basic standard of living each month. You can also add in your average monthly spending for debt repayment or non-essentials or discretionary expenses, like dining out, travel, or recreation, to get a sense of what your actual cost of living adds up to.
What Is the Cost of Living Index?
Generally speaking, a cost of living index is a measurement of average prices. Similar to a stock market index, a cost living index is meant to provide a benchmark for comparison. The Consumer Price Index (CPI) is often referred to as a cost of living index, though that description isn’t entirely accurate.
The CPI measures the average change in prices over time for a market basket of consumer goods and services. That’s how the U.S. Bureau of Labor Statistics (BLS) defines the Consumer Price Index. The CPI isn’t a true cost of living index but an inflation index. Changes to the CPI can be an indicator of how inflation is changing; whether it is rising, falling, or remaining flat.
Does Cost of Living Vary State by State?
The cost of living by state is not uniform and what you might pay to live in one state could be very different from what you’d pay to live in another. That’s important to keep in mind if you’re considering moving across state lines to a new location. The more expensive a state is, the less purchasing power your money holds.
For example, the California cost of living index is much higher than the Texas cost of living index. So why do some states have a higher cost of living? Again, it depends largely on things like supply and demand, though taxes and average incomes can also play a part.
When the average income in a state is higher and job opportunities abound, that can lead to an increase in people moving to the state. That means more demand for housing, which can send home and rental prices soaring. More people can also mean more demand for everyday goods and services, such as food or utilities. As demand rises, prices can follow suit.
So, in our example above, if you were living in Texas in a two-bedroom rental apartment and were offered a job at the same salary in California, you’d face a higher cost of living. If you moved there, you might have to rent a smaller home. Your groceries would likely be more expensive as well as your other monthly necessities. You might find you couldn’t eat out or go to concerts as often since prices are higher.
As of 2024, West Virginia had the lowest cost of living in the U.S., with a cost of living index of 84.3. For perspective, cost of living indexes are generally based on 100 as an average. So an index of 84.3 means that the cost of living in West Virginia is 15.7% less than the national average.
Housing, which is typically the biggest expense most people have, is nearly 40% cheaper in West Virginia compared to the U.S. average. The median sale price for a home there was $284,000 as of January 2024.
Which State Has the Highest Cost of Living?
Hawaii is the most expensive place to live in the U.S., with a cost of living index of 188.4. Housing is more expensive there than in any other state in the country, with a median list price of $714,100 as of January 2024. A home buyer would have to shell out considerably more to live in Hawaii’s natural paradise than elsewhere in America.
But housing demand isn’t the only factor. Higher taxes and higher costs for transporting goods and materials to the state are some of the other factors that drive up the cost of living in Hawaii. Other states that rank among the most expensive include New York, California, and Massachusetts.
How Much Should Your Cost of Living Be?
Your cost of living should be a figure that, given your income, you can reasonably afford to pay. When your expenses exceed your income, that can cause shortfalls in your budget each month. You may need to use credit cards or loans to fill the gap, which can leave you with a pile of bills, wondering how to pay off high-interest debt.
When calculating your ideal cost of living, start with your income. Then work your way backwards to determine how much you should be spending on things like housing, food, transportation, utilities, and other necessities. If your income comfortably covers those things, you can then decide how much to allocate to savings, debt repayment, or “wants” like travel and entertainment.
Also, consider your household size. The cost of living for a single person can be very different from the cost of living for a family of four. So you may need to allocate more of your budget for necessities if you have a spouse, partner, or children in your household.
Quick Tip: If you’re saving for a short-term goal — whether it’s a vacation, a wedding, or the down payment on a house — consider opening a high-yield savings account. The higher APY that you’ll earn will help your money grow faster, but the funds stay liquid, so they are easy to access when you reach your goal.
Tips to Improve Cost of Living
If you’ve run the numbers and your cost of living is higher than you’d like it to be, you aren’t necessarily out of luck. There are some things you can do to try and bring it down. Here are some ideas for ways to reduce your cost of living:
• Eliminate unnecessary spending from your budget.
• Move your money to a different financial institution to avoid bank fees and/or earn higher interest.
• Plan meals at home, and cut down on restaurant meals.
• Consider refinancing student loans or your mortgage to lower your interest rate.
• Consolidate credit card debt using a 0% balance transfer offer.
• Shop around for better rates on auto, homeowners, or renters insurance.
• Aggressively pay off debt.
• Consider moving to a cheaper area.
• Take on a roommate to share expenses.
• Downsize into a smaller home.
• Sell a vehicle if you own more than one.
Some of these money-saving ideas are relatively easy to implement; others may seem a bit more extreme. But the more you can cut your expenses, the easier it may be to improve your cost of living.
You can also research different ways to make more money. That might mean taking a different job, getting a part-time gig, or starting a side hustle. If you’re contemplating a move for a higher-paying role, remember to factor in the cost of living in a new location to see how far a higher salary might go. A higher cost of living could eat up the salary boost you’ll receive, and so you’d want to be prepared for that.
Managing Finances With SoFi
Achieving a manageable cost of living starts with keeping a close eye on your budget and spending. Even making small changes, such as cutting out high banking fees and earning more interest, can free up more cash that you can use to save and fund your financial goals.
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 3.80% APY on SoFi Checking and Savings.
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FAQ
What is a cost of living adjustment?
The Social Security Administration (SSA) applies a cost of living adjustment to Social Security benefits, based on changes to the Consumer Price Index. That means benefits can rise as the cost of living does. In other words, these adjustments are designed to ensure that recipients’ benefit payments are able to keep pace with inflation.
How can I compare the cost of living between two cities?
The easiest way to compare the cost of living between two cities is to use a cost of living index, which measures the relative cost of living in different areas of the U.S. You can subtract the cost of living index for the city that’s lower from the one that’s higher to figure out how much cheaper it is.
Which country has the highest cost of living?
Monaco is the most expensive country to live in. The average monthly cost of living there, as of 2024, is $6,538.
About the author
Rebecca Lake
Rebecca Lake has been a finance writer for nearly a decade, specializing in personal finance, investing, and small business. She is a contributor at Forbes Advisor, SmartAsset, Investopedia, The Balance, MyBankTracker, MoneyRates and CreditCards.com. Read full bio.
SoFi members with direct deposit activity can earn 3.80% annual percentage yield (APY) on savings balances (including Vaults) and 0.50% APY on checking balances. Direct Deposit means a recurring deposit of regular income to an account holder’s SoFi Checking or Savings account, including payroll, pension, or government benefit 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, or are non-recurring in nature (e.g., IRS tax refunds), do not constitute Direct Deposit activity. There is no minimum Direct Deposit amount required to qualify for the stated interest rate. SoFi members with direct deposit are eligible for other SoFi Plus benefits.
As an alternative to direct deposit, SoFi members with Qualifying Deposits can earn 3.80% 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 members with Qualifying Deposits are not eligible for other SoFi Plus benefits.
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 3.80% 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.
Separately, SoFi members who enroll in SoFi Plus by paying the SoFi Plus Subscription Fee every 30 days can also earn 3.80% APY on savings balances (including Vaults) and 0.50% APY on checking balances. For additional details, see the SoFi Plus Terms and Conditions at https://www.sofi.com/terms-of-use/#plus.
*Awards or rankings from NerdWallet are not indicative of future success or results. This award and its ratings are independently determined and awarded by their respective publications.
We do not charge any account, service or maintenance fees for SoFi Checking and Savings. We do charge a transaction fee to process each outgoing wire transfer. SoFi does not charge a fee for incoming wire transfers, however the sending bank may charge a fee. Our fee policy is subject to change at any time. See the SoFi Checking & Savings Fee Sheet for details at sofi.com/legal/banking-fees/. 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.
A checking account is one of the most useful items you can have in your financial toolbox. You can use a checking account to pay bills, get paid early with direct deposit, or build your savings through automatic transfers.
However, it’s possible you’re not getting the most out of your account. Recognizing some of the most common mistakes you’re making with your checking account could help you to save money and time.
Ready to optimize this aspect of your financial life? Read on to learn:
• Common mistakes you’re making with your checking account
• Tips for improving your banking habits
Why Banking Mistakes Can Be Costly
Making mistakes with your bank account could cost you in more ways than one. It’s possible that you’re overpaying bank fees unnecessarily, missing out on valuable interest earnings, and possibly leaving yourself vulnerable to fraud. You may also be short-changing yourself and missing out on benefits and features if you’re using the wrong type of bank account for your needs.
Here’s why these issues can cost you:
• High fees are generally not a good thing, as they can nibble away at your balances over time.
• Losing out on the best interest rates means your money has less room to grow.
• Fraud can potentially be the biggest drain on your accounts, if your debit card or bank account is used to make unauthorized withdrawals or purchases.
The good news is that it’s relatively easy to get back on track. That starts with knowing which checking account mistakes to avoid. You’ll learn about them next.
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11 Checking Account Mistakes to Avoid
Managing a checking account shouldn’t be complicated. Here are 11 of the biggest checking account mistakes that you’ll likely want to sidestep.
1. Not Shopping Around
Sticking with the same bank for years may be comfortable, but it doesn’t necessarily mean you’re getting the best deal. It’s a mistake not to shop around for better banking options, as banks regularly introduce new benefits and features to attract customers.
It’s also incorrect to assume that switching banks is time-consuming or difficult. Many banks offer switch kits that help to simplify the process of transitioning your accounts over. These kits include a checklist of steps to complete to get your new accounts open and shut down your old ones if you choose to do so.
2. Overlooking the Benefits of Online Banks
How you use your checking account matters but it’s also important to consider where you keep it. Online banks can offer benefits you don’t always get at traditional banks or credit unions, such as lower fees or higher interest rates for deposit accounts. These two features could help you build wealth.
Opening an online checking and savings account is usually something you can do in just a few minutes. The trade-off of choosing an online bank is that you don’t have branch banking access. Comparing online banking pros and cons can help you to decide if it’s right for you.
3. Paying a Monthly Maintenance Fee
Banks can charge monthly maintenance fees for having a checking account. In some cases, you might pay these fees for savings and money market accounts as well. Paying these fees is a mistake if there are ways to get around them.
• Meeting a daily or monthly minimum balance requirement
• Scheduling a qualifying recurring direct deposit
• Maintaining a minimum balance across multiple linked accounts at the same bank
• Making a certain number of purchases with your debit card each month
You could also avoid monthly maintenance fees by moving to an online bank. Online banks tend to be more fee-friendly than traditional banks, and you could earn a higher rate on interest-bearing accounts as well.
4. Triggering ATM Fees
Here’s another common mistake you may be making with your checking account: When you need quick cash, you hit the first ATM you come across. Convenient, yes, but that’s a problem if your bank charges ATM fees.
What are ATM fees? They’re fees you pay to use another bank’s machine. Typically, your bank won’t charge if you use their ATMs. But they might tack on a foreign ATM surcharge if you use a machine that’s out of the bank’s network. The ATM owner can also charge a fee of their own. Typically, out-of-network ATM fees will cost you between $2.50 and $5 per transaction and possibly even more.
Knowing where you can withdraw cash fee-free is a simple way to avoid that mistake. You might also consider looking for a bank that reimburses foreign ATM fees each month. Some banks offer reimbursement, either as a flat dollar amount or up to a certain number of foreign ATM fees per month.
5. Not Keeping Enough in Your Account
Maintaining a lower balance in your checking account isn’t necessarily a bad thing, but it could put you at risk of incurring overdraft of non-sufficient funds (NSF) fees.
Banks can charge overdraft fees to complete transactions when you don’t have enough money in your account. Non-sufficient funds fees may apply when you don’t have enough money in your account and the bank cancels or rejects the transaction.
In terms of how much you’ll pay for NSF vs. overdraft fees, that depends on the bank. However, it’s not uncommon for banks to charge anywhere up to $40 for these fees.
You could avoid overdraft fees by enrolling in overdraft protection. What is overdraft protection? It’s a service that allows banks to transfer money automatically from your savings account to checking if you’re in danger of overdrafting your account. You can avoid high overdraft fees by opting in, though banks may charge a smaller transfer fee.
6. Keeping Too Much Money in Checking
Keeping too much money in checking could also be a mistake if you’re missing out on interest earnings. Siphoning off some of the money in checking into a high-yield savings account or money market account, for example, could allow you to earn a competitive interest rate and APY on your balances.
It’s also important to consider how FDIC coverage limits apply to checking accounts. The Federal Deposit Insurance Corporation insures deposits up to $250,000 per depositor, per account ownership type, per financial institution. If you keep more than that in checking, you could be at risk of losing money in the rare event that your bank fails.
7. Choosing a No Frills Checking Account
A basic checking account should have all the features you need to pay bills, deposit money, or make purchases with a linked debit card. But a specialty account could offer a wider range of benefits.
For example, a high-yield checking account earns interest on balances. That’s like getting free money just for keeping a balance in checking. You will, however, have to pay tax on the interest you earn at the end of the year.
8. Missing Out on Potential Rewards
Another checking account mistake to avoid is losing out on potential rewards and bonuses. What are reward checking accounts? These are bank accounts that reward you with points or cash back for completing certain activities. For example, you might earn rewards when you make a specific number of debit card purchases each month or link a savings account.
These accounts are similar to rewards credit cards but the difference is you’re spending your own money to earn them, rather than borrowing from the credit card company. They can offer you some nice perks as you conduct your usual banking business.
9. Not Protecting Your Account When You Shop Online
Shopping online is convenient and you might be able to save money versus shopping in store if you’re using promo codes or coupons at checkout. However, you could be putting your checking account at risk if you’re shopping over unsecured WiFi networks or making purchases on untrusted websites.
A simple way to verify a site’s authenticity is to look for “https” in the site’s address. That indicates the site uses a Secure Sockets Layer certificate to encrypt and protect user data.
You can also protect yourself by not storing your debit card information at the checkout. If you’d like to be able to automatically enter your debit card details to pay, you can add them to a secure mobile wallet like Google Pay, Apple Pay, or Samsung Pay.
10. Not Enrolling in Email and Text Alerts
There are different ways to keep track of your bank accounts, including online and mobile banking. If you don’t always have time to log in, you could use email and text alerts to monitor your accounts instead.
Banks can allow you to set up different types of alerts, including notifications for:
• Low balances
• New credit transactions
• New debit transactions
• Updates to your personal information or login information
• New linked accounts
• New wire transfer transactions
• Failed login attempts
Not using alerts can be a mistake as it can save you time as you manage your financial life.
Enrolling in alerts can also help you to spot potentially fraudulent activity before someone is able to do any major damage with your account.
Your password is your entry key to your online and mobile banking accounts and it’s important to choose a strong one. The stronger your password, the more difficult it might be for hackers to steal your information, and your money.
If you’re using weak passwords that are easy to guess, you could be leaving yourself open to fraud. It’s also a mistake to reuse the same passwords to log in to multiple accounts. If a hacker gets their hands on the password, they could have instant access to bank accounts, credit cards, investment accounts, email accounts, and any other accounts you manage online.
Choosing strong passwords and updating them regularly can help you avoid that scenario. If you have trouble remembering passwords, you might consider storing them online in a secure password keeper.
Ways to Improve Your Banking Habits
Building better habits can take time, but it may be well worth the effort if you’re able to avoid making common checking account mistakes. Here are a few ways to improve your banking habits:
• Check your accounts regularly. Logging in to your bank accounts once a day or every few days is a simple way to check your transaction history and balances so you know what you have to spend.
• Sign up for alerts. Banking alerts can help you to spot potential fraud, track your balances, and know what’s being debited or credited to your account. It’s typically free to enroll, and you can personalize which alerts you want to receive.
• Maintain a buffer. Getting in the habit of maintaining a cash cushion in your checking account can help you to minimize your risk of overdraft. For example, you might want to keep an extra $500 to $1,000 in your account at all times and not let your balance fall below that amount.
• Review your accounts. Reviewing your checking account once a year can be a good way to see what you’ve paid in fees and what benefits you’ve enjoyed. You can then use that as a guide for deciding whether to stick with your current bank or shop around for a new one.
Having a checking account can make managing your financial life easier, but it’s important to make sure you’re using it the right way. Avoiding common checking account mistakes and developing good banking habits can help you use your account to its full potential. Doing so can also help you earn more interest and pay fewer or lower fees.
If you’re ready to try a new banking experience, you might consider opening an online checking and savings account with SoFi. You can enjoy the convenience of saving and spending in one place, plus you’ll get benefits like paying no account fees and enjoying a great APY on deposits, which can help your money grow faster.
Better banking is here with SoFi, NerdWallet’s 2024 winner for Best Checking Account Overall.* Enjoy up to 3.80% APY on SoFi Checking and Savings.
FAQ
What is the worst checking account mistake that I need to avoid?
The worst checking account mistake may simply be choosing the wrong account or the wrong bank. When you fully understand what you need a checking account for and what kind of features you’d like to have, that can make it easier to find the right banking option that’s convenient and low-cost.
What to do if the bank makes a mistake?
If your bank makes a mistake with a deposit, bill payment, or any other transaction, it’s important to contact the bank right away. You can explain what you believe the mistake to be so the bank has an opportunity to correct it.
What are the disadvantages of these banking mistakes?
Making banking mistakes can cost you both time and money. You may end up spending more time than you’d like to managing your accounts. Or you might overpay banking fees if you’re not paying attention. Correcting any banking mistakes can help you avoid those scenarios.
About the author
Rebecca Lake
Rebecca Lake has been a finance writer for nearly a decade, specializing in personal finance, investing, and small business. She is a contributor at Forbes Advisor, SmartAsset, Investopedia, The Balance, MyBankTracker, MoneyRates and CreditCards.com. Read full bio.
SoFi members with direct deposit activity can earn 3.80% annual percentage yield (APY) on savings balances (including Vaults) and 0.50% APY on checking balances. Direct Deposit means a recurring deposit of regular income to an account holder’s SoFi Checking or Savings account, including payroll, pension, or government benefit 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, or are non-recurring in nature (e.g., IRS tax refunds), do not constitute Direct Deposit activity. There is no minimum Direct Deposit amount required to qualify for the stated interest rate. SoFi members with direct deposit are eligible for other SoFi Plus benefits.
As an alternative to direct deposit, SoFi members with Qualifying Deposits can earn 3.80% 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 members with Qualifying Deposits are not eligible for other SoFi Plus benefits.
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 3.80% 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.
Separately, SoFi members who enroll in SoFi Plus by paying the SoFi Plus Subscription Fee every 30 days can also earn 3.80% APY on savings balances (including Vaults) and 0.50% APY on checking balances. For additional details, see the SoFi Plus Terms and Conditions at https://www.sofi.com/terms-of-use/#plus.
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.
Many people love showing their holiday spirit with Christmas lights, whether just a strand of twinkle lights around a window or going all-out like the Griswolds.
While these lights are festive, it’s worth noting that they aren’t free. In fact, the cost of running holiday lights rose 13% last year, costing the average household $15.48 vs. $13.41 the prior year.
In this economy, every dollar can count, so if you want to learn how much it costs to run Christmas lights for a month and how to reduce that expense, read on.
Here, you’ll learn more about:
• How much do Christmas lights cost to run?
• How much does it cost to run Christmas lights for a month?
• How can you save money on your holiday light electric bill?
Factors Affecting the Cost of Running Christmas Lights
Running Christmas lights uses energy, which can translate to higher utility bills. How much of an increase you see in your electric bill can depend on a number of factors, including:
• How many strands of lights you use
• The type of bulbs used in each strand
• The number of hours you run your lights each day
• How many days you run Christmas lights for
• Where you live and what you pay per kilowatt hour for electricity.
All of these things can influence how large your Christmas lights electric bill turns out be once January rolls around. Understanding what you could wind up paying can help if affordably celebrating the holidays is your goal.
Keep in mind that other costs can drive up electric bills during the holidays, apart from Christmas lights. If you’re using the oven more often to prepare holiday meals, for example, that can result in a higher electric bill. You may also see a bigger bill if colder weather means the heat is kicking on more often or your kids are home all day using electronics more while school is out. Lowering your energy bill may require a multifaceted approach.
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How Much Electricity Do Christmas Lights Use?
The amount of energy used by Christmas lights can depend on the type of bulb and the number of bulbs per strand. The most popular options for Christmas lights include incandescent mini lights, mini LED lights, and ceramic C7 lights.
So which type of bulb uses the most energy?
The simplest answer is to look at the wattage of Christmas lights, based on bulb size and number of bulbs per strand. For example:
• With C7 lights, for instance, you’re typically getting 25 lights per strand.
• With mini LED lights, you’ll normally have 50 bulbs for a 14-foot strand and 100 bulbs per 32-foot strand.
• With mini icicle lights, you often have 300 bulbs for a 26-foot strand.
Here’s how the average wattage for each one compares, though note that incandescent bulbs stopped being manufactured and sold in August 2023 (some people may still own and use strands of these, however):
• C7 lights: 5 watts
• C9 incandescent lights (2-¼” long): 7 watts
• Mini incandescent lights: 0.4 watts
• Mini LED lights: 0.07 watts
Between those three options, mini LED lights draw the least amount of energy per strand while C7 lights draw the most.
LEDs possibly lowering energy costs by up to 90% vs. the other options. Switching to LEDs could be a way to save money daily during the holidays.
Also note that you’d need four strands of C7 lights to equal the same number of bulbs in just one strand of incandescent or LED mini lights. This is important to understand because it can affect the number of kilowatt hours used and your overall energy costs.
So how much do Christmas lights cost to run for a month? Or longer? Calculating your estimated cost of running Christmas lights matters when trying to lower your electric bill during the winter months. Again, what you’ll pay can depend on a variety of factors, including where you live and how much electricity costs.
The average household pays $0.17 cents per kilowatt hour for electricity, according to the U.S. Department of Energy, but prices may be significantly higher or lower in different parts of the country due to cost of living differences.
If you live in Connecticut, for example, you might pay an average of $0.21 cents per kilowatt hour. People living in Florida, however, might pay an average of $0.11 cents per kilowatt hour. Residents of Hawaii typically pay the most, currently spending $0.32 cents per kilowatt hour.
Here’s how to figure out how much you’ll pay for Christmas lighting:
• Multiply the wattage of the lights by the hours per day the lights will be on, then divide by 1,000 to find kilowatt hours per day
• Multiply kilowatt hours per day by your cost of electric usage to get the cost per day
• Multiply the cost per day by the number of days your lights will be on
Calculating the Cost of Christmas Lights
Now, for how much does it cost to run Christmas lights? Here’s a look at what it would cost to run C7 lights, C9, and mini incandescent lights, and mini LED lights for six hours a day for 30 days, using a price of $0.14 cents per kilowatt hour. Here’s what you’d pay for each one:
Bulb Type
Hourly Cost
Daily Cost
Monthly Cost
C7 (25 bulbs, 5 watts per bulb)
$0.0175
$0.105
$3.15
C9 (25 bulbs, 7 watts per bulb)
$0.025
$0.15
$4.50
Incandescent Mini Lights (100 bulbs, 0.45 watts per bulb)
$0.0063
$0.0378
$1.13
Mini LED Lights (100 bulbs, 0.07 watts per bulb)
$0.0042
$0.0252
$0.76
Keep in mind that these costs are for just one strand of lights, as noted. If you string together several strands on your tree, frame your windows with lights, and then drape your shrubs or street-facing windows outdoors with more, your costs will of course go up.
Also, in terms of what the average person spends on Christmas lights, it can vary by a state’s cost of living, as well as by what kind of bulbs are used. Louisiana residents who run LED lights, for example, would likely spend the least, since they are paying just over nine cents per kilowatt hour (currently the lowest rate in the US) and they would be using energy-saving bulbs. Meanwhile, Hawaiians who opt for incandescent bulbs would probably spend the most, since their bulbs use a considerable amount of power and they currently pay the highest national rate for energy of almost 33 cents per kilowatt hour.
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Tips to Save on Your Christmas Lighting Bill
If you’re looking for ways to lower your energy bill when you start plugging in your holiday lights, follow this advice.
Embracing Energy-Efficient LEDs
As mentioned, the wattage of Christmas lights plays an important part in determining how much you pay for electric bills over the holidays. Between C7 lights, incandescent lights and LED lights, LED lights are highly energy-efficient. According to the Department of Energy, residential LEDs that are ENERGY STAR rated use up to 75% less energy and last 25 times longer than incandescent lights.
People who use LED Christmas lights tend to pay far less than those using incandescent bulbs or C7 lights. So it follows that an easy way to save money on your electric bill and reduce energy usage would be to use mini LED lights as often as possible. Aside from that, LED bulbs emit less light and are less likely to overload sockets, making them a potentially safer option for Christmas lighting compared to other types of bulbs.
So if you still have some incandescent bulbs in your box of Christmas decorations, you may want to think about swapping them out for LEDs. (You won’t find incandescents made or sold in the US anymore either.)
Benefits of Solar-Powered Outdoor Lights
You might consider using solar-powered outdoor lights on your house over the holidays. These strands depend upon energy collected by small panels that gather and hold energy from the sun during the day.
These strands don’t plug in and draw no electrical power. So they can be especially easy and economical to use over the holidays.
Battery-Operated Lights for Smaller Displays
If you like to create smaller displays, you might consider battery-powered strands of lights. There is a wide range of how long these lights will stay illuminated, but this can be a good unplugged option to try for small-scale displays. While you do have to pay for the batteries, it can be cheaper than plugging in lights for weeks on end.
A higher-than-usual electric bill can put a damper on your holiday celebrations. Estimating your potential costs beforehand can help you manage utility expenses. And you can decide whether it’s worth it to invest a little money in upgrading your current Christmas lights to energy-efficient options.
Having the right banking partner, such as one with budgeting tools, can also help make tackling high utility bills after the holidays easier.
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 3.80% APY on SoFi Checking and Savings.
FAQ
Do LED Christmas lights use a lot of electricity?
Compared to C7 lights or incandescent mini lights, LED Christmas lights use the least amount of energy. Specifically, they can use up to 90% less energy while lasting longer. LED Christmas lights also emit less heat and can be easier to install than other types of holiday lighting.
Do Christmas lights raise your light bill?
Holiday lights can raise your electric bill during the winter months. How much it costs to run Christmas lights can depend on several things, including the type of bulbs used, how many light strands you’re running, how long you turn the lights on for, and the average cost of energy per kilowatt hour in your area. Using timers and switching to energy-efficient bulbs can be helpful for reducing your Christmas lights electric bill.
Do Christmas trees use a lot of electricity?
Christmas trees can use a lot of electricity, depending on the type of lights you use, the number of strands on the tree, and how long you leave your tree plugged in each day. Using mini LED lights can reduce electric costs for Christmas tree lighting, while using C7 bulbs to light your tree could result in a higher energy bill.
About the author
Rebecca Lake
Rebecca Lake has been a finance writer for nearly a decade, specializing in personal finance, investing, and small business. She is a contributor at Forbes Advisor, SmartAsset, Investopedia, The Balance, MyBankTracker, MoneyRates and CreditCards.com. Read full bio.
SoFi members with direct deposit activity can earn 3.80% annual percentage yield (APY) on savings balances (including Vaults) and 0.50% APY on checking balances. Direct Deposit means a recurring deposit of regular income to an account holder’s SoFi Checking or Savings account, including payroll, pension, or government benefit 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, or are non-recurring in nature (e.g., IRS tax refunds), do not constitute Direct Deposit activity. There is no minimum Direct Deposit amount required to qualify for the stated interest rate. SoFi members with direct deposit are eligible for other SoFi Plus benefits.
As an alternative to direct deposit, SoFi members with Qualifying Deposits can earn 3.80% 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 members with Qualifying Deposits are not eligible for other SoFi Plus benefits.
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 3.80% 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.
Separately, SoFi members who enroll in SoFi Plus by paying the SoFi Plus Subscription Fee every 30 days can also earn 3.80% APY on savings balances (including Vaults) and 0.50% APY on checking balances. For additional details, see the SoFi Plus Terms and Conditions at https://www.sofi.com/terms-of-use/#plus.
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.
When you deposit money into a bank, you expect it to be safe and accessible whenever you need it. But what happens if the bank itself runs into trouble or even goes out of business? That’s where the Federal Deposit Insurance Corporation (FDIC) comes in.
FDIC insurance is a crucial safety net that protects depositors’ funds in the rare event of a bank failure. This ensures that you don’t lose your money (up to certain limits) if a financial institution goes belly up.
But there are rules and limits surrounding FDIC insurance that are important for banking customers to understand. Read on for a closer look at what the FDIC is, what “FDIC insured” means, and how to make the most of the FDIC’s coverage.
Key Points
• The FDIC protects depositors’ funds and ensures bank stability by offering insurance, monitoring banks, and managing failures.
• The agency insures checking accounts, savings accounts, money market accounts, CDs, and certain retirement accounts and prepaid cards.
• Coverage limits for FDIC insurance are $250,000 per depositor, per insured bank, and per account ownership category.
• When a bank fails, the FDIC ensures quick access to insured funds, typically by transferring them to another bank or issuing a check.
• Uninsured financial products like stocks, bonds, and crypto assets carry risks.
What Is the FDIC?
The FDIC is shorthand for the Federal Deposit Insurance Corporation. It’s an independent agency of the U.S. government that provides insurance to protect depositors’ money in case of a bank failure. You don’t need to apply for this insurance when you open a bank account — your deposits are automatically insured up to at least $250,000 at each FDIC-insured bank.
The National Credit Union Administration (NCUA) offers similar protection at credit unions.
History and Mission of the FDIC
The FDIC was created under the Banking Act of 1933 in response to the many bank failures during the Great Depression. In the early 1930s, the U.S. experienced one of the most severe banking crises in history. Thousands of banks failed, wiping out savings and triggering widespread financial panic. To prevent future economic disasters and protect the savings of ordinary Americans, Congress established the FDIC.
The FDIC officially began operations on January 1, 1934. Its initial insurance limit was $2,500 per depositor, which has been increased multiple times over the decades to reflect inflation and changing economic conditions. Today, the standard insurance coverage limit is $250,000 per depositor, per insured bank, for each account ownership category (more on exactly how this works below).
What Does the FDIC Do?
The FDIC plays a crucial role in the U.S. financial system by acting as both an insurer and a regulator.
Role of the FDIC in Maintaining Financial Stability
The FDIC’s primary responsibility is to safeguard depositors’ funds and ensure that banks operate in a sound and secure manner. It does this by:
• Providing deposit insurance: By insuring deposits, the FDIC protects individual and business accounts from losses due to bank failures. Customers do not pay for this insurance; banks cover the cost of insurance premiums.
• Conducting bank examinations: The FDIC regularly audits banks to ensure they are following sound financial practices and complying with federal regulations.
• Managing risk: The FDIC monitors financial institutions for signs of instability and typically steps in to address problems before they lead to failure.
• Handling bank failures: If a bank does fail, the FDIC ensures that depositors’ insured funds are quickly accessible. They often do this by transferring the funds to another bank or directly reimbursing depositors.
Thanks to FDIC insurance, the money you deposit in a checking account or savings account remains safe (up to certain limits), even if your bank goes out of business. In fact, no depositor has lost any insured money as a result of bank failure since the creation of FDIC insurance.
The FDIC’s protection extends beyond just insuring deposits, though. The agency also enforces consumer protection laws to prevent unfair practices by banks. These protections include:
• The Truth in Lending Act, which requires banks to disclose the terms and costs of loans and credit products.
• The Electronic Fund Transfer Act, which protects consumers when they use ATMs, debit cards, and electronic payment systems.
• The Fair Credit Reporting Act, which regulates how banks use and share consumer credit information.
Through these regulations, the FDIC ensures that banks treat consumers fairly and transparently, and help foster trust in the financial system.
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No account or overdraft fees. No minimum balance.
Up to 3.80% APY on savings balances.
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Up to $3M of additional FDIC insurance.
Types of Accounts Insured by the FDIC
The FDIC covers common banking products, including checking accounts, savings accounts, and money market accounts. However, not all financial products qualify for FDIC coverage.
How to Tell if Your Money Is FDIC-Insured
To determine if a bank is FDIC-insured, you can ask a bank representative or look for the FDIC sign when visiting a branch. If you use an online bank, the company’s website should contain information about its coverage.
Another option is to use the FDIC’s BankFind tool. BankFind provides access to detailed information about all FDIC-insured institutions, including branch locations, the bank’s official website, and the current operating status of the bank.
Commonly Covered Accounts Under FDIC Insurance
The FDIC insures all deposit accounts at insured banks and savings associations up to the FDIC’s limits, including: Checking accounts
• Prepaid cards (if certain FDIC requirements are met; also note that funds are only insured in the event of bank failure, not loss or theft of card)
• Certain retirement savings accounts (in which plan participants have the right to direct how the money is invested)
Types of Accounts Not Insured by the FDIC
While the FDIC protects many types of deposit accounts, not all financial products are covered. For example, investments in the stock market and other securities carry inherent risks, and the FDIC does not cover losses in these markets.
Examples of Uninsured Financial Products
Products that are not insured by the FDIC include:
Understanding how FDIC insurance works is essential to maximizing your coverage and protecting your assets.
Coverage Limits and How They Apply
FDIC insurance covers up to $250,000 per depositor, per institution, and per ownership category. But what exactly does that mean? Let’s break it down.
• “Per deposit, per institution” refers to one person (the depositor) at one insured bank. If you own multiple deposit accounts at the same bank those deposits count towards the $250,000 limit. If you own accounts at two different banks, each account would have separate and full coverage.
• “Per ownership category” generally refers to whether the account is owned by one person (single) or owned by two or more individuals (joint). (Other types of ownership categories include certain retirement accounts, employee benefit plan accounts, and business accounts.)
• A couple with a joint account is insured for up to $500,000 ($250,000 per depositor).
• A person with a checking account at one insured bank and a savings account at another insured bank is insured for up to $250,000 at each bank.
If you’re married and want to maximize your FDIC insurance, you and your spouse could each open individual accounts at one bank (resulting in each of you having up to $250,000 FDIC-insured), then also open a joint account (where each of you has $250,000 insured). Across all three accounts, you could have up to $1 million FDIC-insured at one bank.
If you’re not sure if all your cash on deposit at a bank is insured, the FDIC’s Electronic Deposit Insurance Estimator can show your specific deposit insurance coverage once you put in your account details.
When a bank fails, the FDIC steps in to protect depositors and minimize disruption to the financial system.
Steps the FDIC Takes to Protect Depositors
If a bank were to collapse, the FDIC would intervene in two ways:
Giving Customers Access to Their Funds
The FDIC would pay depositors up to the insurance limit to cover their losses. So, if you had $10,500 in an insured account and the bank failed, you would be reimbursed for that amount. Typically, this happens within a few days after a bank closes.
The FDIC may pay depositors by providing a new account at another insured bank for the insured amount they had at the failed bank, or by issuing a check for that amount.
In some cases, you may be able to receive amounts higher than the coverage limit, but there is no guarantee. If the failed bank is acquired by another institution, your uninsured funds may also be transferred. If the failed bank is dissolved, you typically need to file a claim with the FDIC to recoup uninsured funds.
Becoming the “Receiver” of the Failed Bank
The FDIC also takes responsibility for collecting the assets of the failed bank and settling its debts. As assets are sold, depositors who had more than the $250,000 limit in an insured account may receive payments on their claim, though this can take several years.
How to Recover Your Money if a Bank Fails
Recovering your funds after a bank failure is usually straightforward. Here’s how it works.
FDIC Claims Process Explained
Because of the FDIC safety net, you won’t likely see fearful customers lining up to get their money the way they did before deposit insurance was established.
Still, when a bank closes, it can cause depositors to worry and wonder how to get their money. Typically, there are one of two scenarios when a bank fails:
• Most commonly, you would become a depositor at a healthy, FDIC-insured bank. You would have access to your insured funds at this new bank and could likely choose to keep your accounts there if you like.
• If there is not a healthy, FDIC-insured bank that can step in quickly, the FDIC will likely pay the insured depositor by check within as little as a few days after the bank closes.
As for immediate next steps if you learn your bank is closing, the FDIC aims to post information as promptly as possible, or you can contact the agency at 877-ASK-FDIC or visit the FDIC Support Center website.
The Takeaway
Though it’s a rare occurrence, a bank can fail when it takes on too much risk. This means the bank can’t meet its financial obligations to its depositors and borrowers. If your bank is covered by FDIC insurance, you can receive reimbursement up to certain limits, meaning your funds aren’t lost for good. FDIC insurance covers checking accounts, savings accounts, money market accounts, CDs, and other deposit accounts.
The FDIC does not cover some of the other financial products or services offered by banks, including stocks, bonds, mutual funds, annuities, and securities.
Putting your money in a brick-and-mortar financial institution isn’t the only way to make sure it’s protected. Many online banks, including SoFi, are FDIC-insured.
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 3.80% APY on SoFi Checking and Savings.
FAQ
How often does a bank fail?
Currently, bank failure is relatively uncommon. Since January 2020, there have been 12 bank failures in the U.S., but only three of these were major banks.
In stable economic periods, bank failures tend to be rare due to strict regulations and oversight. If an insured bank does go under, the FDIC steps in to protect depositors by covering funds up to the standard limit. This ensures customers can access their money with little to no disruption.
How does the FDIC differ from the NCUA?
The FDIC (Federal Deposit Insurance Corporation) insures deposits at banks, while the NCUA (National Credit Union Administration) insures deposits at credit unions. Both provide up to $250,000 in coverage per depositor, per institution, and per account ownership category.
The FDIC is an independent government agency, while the NCUA is a federal agency overseeing credit unions. Although they serve similar functions, they apply to different types of financial institutions — banks (FDIC) and credit unions (NCUA).
How many banks are FDIC insured?
As of the third quarter of 2024, the FDIC (Federal Deposit Insurance Corporation) insured 4,517 banks and savings institutions in the U.S. The FDIC protects deposits up to $250,000 per depositor, per insured bank, per account category. The number of FDIC-insured banks has declined over time due to mergers and acquisitions, but the FDIC continues to monitor and regulate the banking system.
Are credit unions FDIC insured?
No, credit unions are not insured by the FDIC (Federal Deposit Insurance Corporation). Instead, they are insured by the NCUA (National Credit Union Administration), which provides similar protection for deposits up to $250,000 per depositor, per credit union, and per account type.
The NCUA operates the National Credit Union Share Insurance Fund (NCUSIF) and ensures that credit union members’ deposits are safe even if the institution fails, similar to how FDIC insurance protects bank customers.
Does FDIC insurance cover online banks?
Yes, FDIC insurance typically covers online banks just as it does traditional brick-and-mortar banks. This protects your deposits up to $250,000 per depositor, per insured bank, per ownership category, even if the online bank fails. You can confirm an online bank’s FDIC status by checking the FDIC website, the bank’s website, or contacting the bank directly.
SoFi members with direct deposit activity can earn 3.80% annual percentage yield (APY) on savings balances (including Vaults) and 0.50% APY on checking balances. Direct Deposit means a recurring deposit of regular income to an account holder’s SoFi Checking or Savings account, including payroll, pension, or government benefit 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, or are non-recurring in nature (e.g., IRS tax refunds), do not constitute Direct Deposit activity. There is no minimum Direct Deposit amount required to qualify for the stated interest rate. SoFi members with direct deposit are eligible for other SoFi Plus benefits.
As an alternative to direct deposit, SoFi members with Qualifying Deposits can earn 3.80% 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 members with Qualifying Deposits are not eligible for other SoFi Plus benefits.
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 3.80% 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.
Separately, SoFi members who enroll in SoFi Plus by paying the SoFi Plus Subscription Fee every 30 days can also earn 3.80% APY on savings balances (including Vaults) and 0.50% APY on checking balances. For additional details, see the SoFi Plus Terms and Conditions at https://www.sofi.com/terms-of-use/#plus.
*Awards or rankings from NerdWallet are not indicative of future success or results. This award and its ratings are independently determined and awarded by their respective publications.
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.
We do not charge any account, service or maintenance fees for SoFi Checking and Savings. We do charge a transaction fee to process each outgoing wire transfer. SoFi does not charge a fee for incoming wire transfers, however the sending bank may charge a fee. Our fee policy is subject to change at any time. See the SoFi Checking & Savings Fee Sheet for details at sofi.com/legal/banking-fees/. 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.
