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Since it’s so easy to do and omnipresent, online shopping can sometimes lead to debt. If this is the case for you, there are steps you can take to rein in your digital purchases, such as identifying triggers, deleting your card info from apps and websites, and trying other strategies.

Online shopping can give you access to a multitude of retailers with just a click or two, and its popularity continues to grow. The number of Americans using e-commerce is expected to grow by almost 22% between 2024 and 2029, adding 60 million online shoppers to the current estimate of 273.5 million. To help you curb excessive online shopping, try these tactics for spotting bad spending habits and building better ones.

Understanding Your Online Shopping Habits

It’s easy to ignore poor online shopping habits and assume they’re no big deal. Until, that is, you see how low your checking account is or how high your credit card balance has risen. That can quickly bring you back to reality.

When those moments occur (or, better still, before they do), it can be wise to evaluate whether you need to cut back on online shopping.

Identifying Triggers and Patterns

If you’re wondering whether it’s time to cut back on shopping and spending, here are a few signs to watch for:

•   You’re spending a lot of your free time and money on online shopping.

•   Your online shopping is making it hard to stick to your budget.

•   Buying items online is causing you to have credit card debt or owe a higher balance than in the past.

•   It’s tough to resist making purchases, even when you know it might hurt your finances or lead to debt.

•   You may be prioritizing shopping over other important responsibilities.

•   You feel uneasy or tense when you’re not shopping.

•   There’s a sense of guilt or regret about your online spending habits.

•   After a tough day, you often turn to online shopping to lift your mood.

•   You often buy something just because it’s on sale.

These can be signals that it’s time to stop online shopping and develop better financial habits.

Recommended: How to Combine Bank Accounts

Assessing the Impact on Your Finances

Do you know that around 40% of Americans say they have a budget for online shopping, but about 32% admit they often go over it, according to Badcredit.org? While going over budget now and then might not hurt your finances too much, doing so regularly can lead to debt and make it harder to get back on track to reaching your money goals.

If you want to see how much you’re really spending online, here are some ways you might track your purchases and check if you’re overspending:

•   Keep your receipts: Holding onto your receipts (whether paper or emailed) can make it easier to remember and review what you’ve spent at the end of the month.

•   Check credit card and bank statements: Many credit cards and banks have built-in budget trackers on their online platforms and in their apps. Some even break your spending into categories so you can easily see where your money is going.

•   Record your transactions: Even small buys, like toothpaste from Amazon, count as online spending. Keep your eyes peeled for these items which are easy to overlook. Budgeting apps, whether from your bank or a third party, or a little notebook can help you easily track your transactions.

By keeping an eye on your online spending with one of these methods, you can see if you’re going over your budget and determine if you need to cut back on your spending habits.

Strategies to Curb Online Shopping

Whether your spending habits are big or small, using a few smart tactics can help you reduce your online shopping and make the most of your money. Here’s how.

Creating a Realistic Budget

Creating a budget (and sticking to it) is one of the best ways to manage your spending habits more effectively. While there’s no one-size-fits-all solution, there are plenty of strategies you can use to find what works best for you. A few to consider:

•   50/30/20 Rule: This budgeting method has you split your monthly take-home income into three categories: 50% for needs (like rent or mortgage, groceries, utilities, and minimum debt payments), 30% for wants (like dining out, travel, or movies), and 20% for savings or additional debt payments. Say you net $5,000 a month. If you use this method, you’d set aside $2,500 for needs, $1,500 for wants, and $1,000 for savings. You can use an online 50/30/20 budget calculator to do the math.

•   70/20/10 Rule: This strategy is similar to the 50/30/20 rule, but you allocate 70% for needs and wants, 20% for savings, and 10% for paying off debt or charitable donations. This is a good option if debt repayment is one of your main focuses or if you have big savings goals.

•   Zero-based budgeting: With this strategy, you assign every dollar to a job or expense, like dining out, health care, or clothes. Start with your monthly income and subtract all your expenses — including savings — until you reach zero. This approach helps you stay aware of where every dollar is going.

•   Envelope budget system: Set aside a specific amount of cash divided into envelopes for each spending category, like $3,000 for housing or $600 for food. Once the money in each category is gone, you either wait until next month or adjust by borrowing from another category, like cutting back on streaming services to fund your grocery bill.

Developing Healthier Shopping Habits

If you find that impulse buying is becoming a bad habit, there are ways to start building healthier spending patterns. Here are some tips to help you get started:

•   Try the 24-hour rule. When you find something you want to buy that isn’t a necessity, try waiting at least 24 hours before buying it. This gives you more time to think about whether you really need it. If you still want it after waiting, shop around to find the best deal, as different sites usually offer different prices and deals. Some people find that the 24-hour period isn’t long enough to have the “I’ve got to have it” feelings potentially subside. You could extend it to a week or even a month.

•   Delete your saved credit card details. Today’s digital tools can make life more convenient, as with online banking and hotel reservation apps. But online shopping can lower the barrier to purchase and make it easy (some might say too easy) to buy items with just one click. By removing your saved card info, you add an extra step to the purchase process. This also gives you more time to decide if the purchase is really necessary.

•   Pick up a new hobby. Instead of browsing shopping sites when at loose ends or bored, try picking up a new inexpensive hobby like reading, photography, or learning coding or social media strategy online. Swapping out your old shopping habit for a new hobby can help reduce the temptation to shop online.

•   Unsubscribe from retailer and merchant emails. Stores love to tempt you with emails about their latest deals. Unsubscribing from these emails can help you avoid the urge to make impulse purchases. If you don’t know about the deal, you won’t be tempted to buy.

•   Limit your shopping time. The more time you spend looking at online retail sites or being served ads on social media, the more enticing objects you’ll be exposed to. Try to limit how much time you spend browsing to help reduce the temptation to shop. You might use a browser extension (such as Pause) to limit access to shopping sites as an easy way to save money.

Seeking Support and Accountability

Setting financial goals is a great way to help you stay accountable. Start by creating specific savings or spending goals. For example, you might want to build your emergency savings fund to cover three to six months’ worth of income or save money for that dream beach vacation. Whatever your goals are, make them specific, set a deadline, and create a savings plan.

You may also want to share your goals with friends or family members who can support you and hold you accountable. You can even schedule regular check-ins to track your progress, make adjustments if needed, and recommit to your money goals. Having someone to share this process with can keep you motivated and on track. Plus, isn’t it more fun when you have someone cheering you on?

Dealing with Setbacks and Maintaining Progress

Even after you’ve created a budget, set goals, and built healthy spending habits, setbacks are bound to happen — and that’s okay. It’s not about being perfect 100% of the time. It’s about making progress and continuing to move toward your goals.

Here are a few tips to help you handle those bumps in the road when it comes to reducing online shopping:

•   Review your budget and make adjustments. Set aside time to regularly review your budget, perhaps weekly and monthly. By tracking your spending, you can see where you stand. If something isn’t working, don’t be afraid to tweak it to fit your current needs.

•   Set up automatic bank transfers. Setting up automatic transfers between bank accounts (say, from your checking to savings right after you’re paid) can simplify the saving process for you. This way, you can stay consistent without having to think about it, which can help you stay on track to achieve your goals. Also, having money whisked out of your checking account can be a good thing. You won’t be feeling as rich and therefore tempted to start shopping.

•   Build an emergency fund. Unexpected expenses pop up all the time. Not having an emergency fund can leave you vulnerable to going into debt when surprise costs arise — like pricey car repairs or plane tickets for holiday travel. This cushion will help ease the stress when life throws you a curveball.

•   Use budgeting tools. Plenty of apps and tools are available to help you track spending and savings. One of these can keep you on top of your spending habits and help you avoid going over budget. You might start by seeing what your financial institution offers and then research third-party apps, if needed.

The Takeaway

If your spending habits have become a problem and you’re wondering how to stop online shopping, there are plenty of ways to tackle it. Start by creating a budget, blocking access to your favorite shopping sites, and focusing on positive spending habits. You may find that you need new hobbies to fill the time you used to spend shopping online, or that you can delete your banking details saved on websites and in apps, thereby discouraging impulse buys.

The right banking partner can also help make it easier to monitor your money and stay on track.

Interested in opening an online bank account? When you sign up for a SoFi Checking and Savings account with eligible 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 3.60% APY on SoFi Checking and Savings with eligible direct deposit.

FAQ

What are some effective strategies to curb impulse online purchases?

Some of the best ways to curb your online impulse buying are to create a budget, stick to shopping lists, limit time spent online, and delete financial information saved online or in apps (that could lead to impulse buying). You can also try delaying gratification, where you wait at least a period of time before making a purchase. This gives you time to think it over, and often you’ll realize you don’t really need the item.

How can I block or limit access to online shopping sites?

One way to limit your online shopping is by using a browser extension like Pause, which blocks distracting sites (it comes preloaded with some; you can add more) for a brief, programmable period of time. This gives you time to think before diving in. You can also block specific sites directly through your browser’s privacy and security settings. Deleting saved financial details (such as credit card numbers) from sites and in apps can also slow down the online shopping process and give you time to reconsider a purchase.

Are there apps that can help control online shopping habits?

Yes, there are apps like Stop Impulse Buying and the Daily Bean (a diary-style log) that can help you reduce those online shopping urges by tracking your spending habits. You can also try budgeting apps and tools provided by your financial institution to keep a closer eye on where your money is going.

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Photo credit: iStock/Bevan Goldswain

SoFi Checking and Savings is offered through SoFi Bank, N.A. Member FDIC. The SoFi® Bank Debit Mastercard® is issued by SoFi Bank, N.A., pursuant to license by Mastercard International Incorporated and can be used everywhere Mastercard is accepted. Mastercard is a registered trademark, and the circles design is a trademark of Mastercard International Incorporated.

Annual percentage yield (APY) is variable and subject to change at any time. Rates are current as of 11/12/25. There is no minimum balance requirement. Fees may reduce earnings. Additional rates and information can be found at https://www.sofi.com/legal/banking-rate-sheet

Eligible 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 (“Eligible Direct Deposit”) via the Automated Clearing House (“ACH”) Network every 31 calendar days.

Although we do our best to recognize all Eligible Direct Deposits, a small number of employers, payroll providers, benefits providers, or government agencies do not designate payments as direct deposit. To ensure you're earning the APY for account holders with Eligible Direct Deposit, we encourage you to check your APY Details page the day after your Eligible Direct Deposit posts to your SoFi account. If your APY is not showing as the APY for account holders with Eligible Direct Deposit, contact us at 855-456-7634 with the details of your Eligible Direct Deposit. As long as SoFi Bank can validate those details, you will start earning the APY for account holders with Eligible Direct Deposit from the date you contact SoFi for the next 31 calendar days. You will also be eligible for the APY for account holders with Eligible Direct Deposit on future Eligible Direct Deposits, as long as SoFi Bank can validate them.

Deposits that are not from an employer, payroll, or benefits provider or government agency, including but not limited to check deposits, peer-to-peer transfers (e.g., transfers from PayPal, Venmo, Wise, 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 Eligible Direct Deposit activity. There is no minimum Eligible Direct Deposit amount required to qualify for the stated interest rate. SoFi Bank shall, in its sole discretion, assess each account holder's Eligible Direct Deposit activity to determine the applicability of rates and may request additional documentation for verification of eligibility.

See additional details at https://www.sofi.com/legal/banking-rate-sheet.
*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.

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.

This content is provided for informational and educational purposes only and should not be construed as financial advice.

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A small, steady amount of inflation is considered good for the economy. But when prices rise faster than wages, the value of your money goes down. This can have a negative impact on quality of life, especially for those with middle and lower incomes. It can also complicate saving for emergencies and investing for retirement. Fortunately, there are steps you can take to fight the effect of rising prices on your household finances. Read on to learn what inflation is and how to stay ahead of it.

Understanding Inflation

Here are key things to know about your money’s purchasing power and how it changes over time.

Inflation Definition and Causes

Inflation refers to the rising cost of goods and services over time. If the price of one or two items spike, however, that’s not inflation True inflation occurs when costs generally increase across the board, making the things consumers normally spend money on more expensive. Some inflation is the sign of a healthy economy. In fact, the Federal Reserve (a.k.a., “the Fed”) likes to see an annual inflation rate of around 2%. But sometimes inflation runs much higher, as it did in the years following the Covid-19 pandemic, which can lead to financial strain.

While inflation has multiple causes, it often stems from a mismatch between demand for goods and services and the supply of those goods and services. Events that raise production costs or disrupt the production of goods in the economy (such as a pandemic, war, or natural disaster), can also lead to an increase in prices. Inflation can also be influenced by monetary policies, such as the Fed deciding to adjust benchmark interest rates or print more money.

How Inflation Affects Your Purchasing Power

When the cost of things you normally buy goes up, your purchasing power (the amount you can get in return for every dollar you spend) goes down. In other words, your money doesn’t stretch as far as it used to.

At the same time, investments and savings accounts that don’t offer returns above the inflation rate may actually lose value in real terms. For instance, if you put $500 in a savings account paying an annual percentage yield (APY) of 0.01%, you’ll have $500.05 at the end of a year. Even at the Fed’s target 2% inflation rate, $500.05 will buy you less than $500 did a year ago, so your purchasing power has declined. Fortunately, many online savings accounts offer APYs that beat inflation, so your money grows rather than shrinks over time.

Strategies for Protecting Your Money

Inflation is a fact of life — even when inflation is low, prices tend to creep over time. So how can we fight inflation? Here are a few strategies to consider.

Earn More on Your Savings

Savings accounts offer liquidity (meaning you can easily access your funds when you need them), making them a good place to stash any cash you may need in the next few months or years. On the downside, traditional savings accounts typically don’t keep up inflation. To ensure your funds don’t lose value over time, you’ll want to look for a savings account with APY that’s close to or beats the current rate of inflation, such as a high-yield savings account.

Other Options to Consider to Outpace Inflation

Having a diversified portfolio (including stocks, bonds, and short-term investments) can help protect you from periods of hyperinflation. Some options to consider:

•   I-Bonds: Series I Savings Bonds are U.S. government-backed securities that adjust their interest rate with inflation. They offer a fixed rate plus an inflation-adjusted rate, making them a low-risk way to protect your money’s value over time. Just keep in mind that this isn’t a short-term saving strategy — you need to leave your money deposited in the bond for at least five years to avoid forfeiting some interest.

•   Real estate: This area can be another strong inflation hedge, as property values and rental income tend to increase with inflation (though this will depend on local market conditions). Investing in real estate investment trusts (REITs) can offer exposure to real estate without the need to own physical properties.

•   Inflation-protected securities: With Treasury Inflation-Protected Securities (TIPS), the principal, called the par value, goes up with inflation, providing some stability in times of rising prices. When a TIPS matures, you get either the increased (inflation-adjusted) price or the original principal, whichever is greater. These can be a safer investment compared to traditional bonds, which may lose value when inflation rises.

Adjusting Your Budget and Spending Habits

To make up for the higher costs of goods and services, you may want to check in on your budget and look for places where you can cut back on spending. It’s generally easiest to do this with nonessential expenses, like dining out and entertaining. But you may also be able to find ways to trim the cost of essentials. Some ideas:

•   Shop for generics at the grocery store and use coupons whenever possible.

•   Make adjustments to your energy consumption to lower your utility bills.

•   If you rent, ask your landlord if you can trade services — such as cutting the grass or shoveling the sidewalk during the winter — for a rate reduction.

•   Reduce your driving and use an app to find the cheapest gas prices near you.

•   Buy non-perishable items in bulk — this allows you to lock in current prices before they rise further.

Recommended: Is Inflation Good or Bad?

Career Moves to Combat Inflation

Increasing your income can help offset inflation’s impact on your finances. While this may be easier said than done, you might have more options than you think. Here are some career moves to consider during inflationary times:

•   Negotiate for a raise: If it’s been a while since your last raise, now may be a good time to ask for one, citing either the high inflation rate or the added value you bring to the company — or both.

•   Find a new job: In some cases, changing jobs may provide a quicker path to a higher salary than waiting for a raise.

•   Invest in skill development: Acquiring new skills or certifications can make you more valuable to employers, increasing your potential for higher wages.

•   Explore side hustles: Freelancing, consulting, or starting a small business on the side can provide additional income streams to help combat rising costs.

Government Programs and Policies

The government can (and typically does) take a number of actions to combat inflation and help American consumers deal with rising costs. Here are some of the tools they have in their arsenal:

•   Raising the federal funds rate: One of the most common ways the Fed will fight inflation is by raising the federal funds rate, which is a benchmark interest rate that influences other interest rates. Raising the federal funds rate generally makes borrowing for businesses and consumers more expensive. This slows down spending, which can cool off the economy and lower inflation.

•   Tax adjustments: The government may also adjust tax brackets and standard deductions to prevent “bracket creep,” where inflation pushes taxpayers into higher tax brackets.

•   Stimulus programs: In times of economic difficulty, stimulus checks or other government support measures may be provided to help individuals manage higher living costs.

Recommended: How the Federal Reserve Rate Impacts Your Savings

Smart Borrowing in Inflationary Times

As mentioned above, the Fed will often raise interest rates during times of high inflation. While this can help tamp down rising prices, it also makes borrowing money more expensive.

For many people, the biggest impact of these rate increases is on credit cards, which have a variable interest rate. When rates are high, you want to be careful not to carry a balance from month to month. If you already have credit card debt, it’s a good idea to focus on paying it down.

If you’re in the market for a new mortgage during a time of high inflation, you might benefit by choosing a variable rate loan. That way, if rates begin to fall, your mortgage’s rate will likely also go down. On the other hand, if inflation (and rates) appear to be on the rise, you may be better off with a fixed-rate mortgage to lock in current rates.

Long-Term Planning for Inflation

When saving and investing for future goals, such as retirement, it’s important to factor in inflation. Rising prices can affect your long-term financial plan in two main ways:

•   The real return on your investments: You’ll need to consider not just the interest rate you expect to receive but also the real rate of return, which is determined by figuring in the effects of inflation. Your financial advisor can help you calculate your expected real rate of return on your investments.

•   Future costs: When calculating how much money you’ll need to comfortably retire, it’s important to estimate future living expenses with inflation in mind. This may mean adjusting your target retirement savings to account for an increased cost of living. There are online calculators that can help you model out what inflation-adjusted numbers would look like.

The Takeaway

Inflation is an inevitable part of economic life. Ideally, the Fed tries to limit the inflation rate to 2% annually, but sometimes a shift in supply and demand and other factors can lead to a spike in the inflation rate.

Government programs and policies can offer support when inflation gets too high. There are also steps you can take on your own to make your finances more inflation-resistant. These include spending less, boosting your annual income, avoiding high-interest debt, and choosing investments and savings accounts that protect the value of your cash so it grows (rather than shrinks) over time.

Interested in opening an online bank account? When you sign up for a SoFi Checking and Savings account with eligible 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 3.60% APY on SoFi Checking and Savings with eligible direct deposit.

FAQ

What types of investments typically perform well during inflation?

During inflation, certain investments tend to perform better because they can keep pace with or outgrow rising prices. Stocks, especially in sectors like consumer goods and energy, may see gains as companies pass higher costs onto customers. Real estate often appreciates, and rental income may rise with inflation. Lower-risk investment options include: Treasury Inflation-Protected Securities (TIPS), which adjust with inflation and help safeguard your purchasing power, and I Bonds, which have a variable interest rate that adjusts for inflation.

How can I adjust my budget to cope with inflation?

To cope with inflation, it’s a good idea to review your budget and identify areas where you may be able to cut back on spending, such as dining out, entertainment, and gym memberships. This can free up funds to cover the rising cost of essential monthly expenses, like groceries, rent, utilities, and gas. Other smart moves to beat inflation include: paying down debt (especially high-interest credit cards), boosting your income, and adjusting your emergency savings fund to account for a higher cost of living.

Does increasing my savings rate help combat inflation?

Yes, increasing your savings rate can help combat inflation. If you put your money in a savings account that pays more than the current rate of inflation, it will offset the loss of purchasing power and ensure your savings grow despite inflationary pressures. Increasing your savings also helps you build a larger financial cushion to cover rising costs.

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Photo credit: iStock/shutter_m

SoFi Checking and Savings is offered through SoFi Bank, N.A. Member FDIC. The SoFi® Bank Debit Mastercard® is issued by SoFi Bank, N.A., pursuant to license by Mastercard International Incorporated and can be used everywhere Mastercard is accepted. Mastercard is a registered trademark, and the circles design is a trademark of Mastercard International Incorporated.

Annual percentage yield (APY) is variable and subject to change at any time. Rates are current as of 11/12/25. There is no minimum balance requirement. Fees may reduce earnings. Additional rates and information can be found at https://www.sofi.com/legal/banking-rate-sheet

Eligible 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 (“Eligible Direct Deposit”) via the Automated Clearing House (“ACH”) Network every 31 calendar days.

Although we do our best to recognize all Eligible Direct Deposits, a small number of employers, payroll providers, benefits providers, or government agencies do not designate payments as direct deposit. To ensure you're earning the APY for account holders with Eligible Direct Deposit, we encourage you to check your APY Details page the day after your Eligible Direct Deposit posts to your SoFi account. If your APY is not showing as the APY for account holders with Eligible Direct Deposit, contact us at 855-456-7634 with the details of your Eligible Direct Deposit. As long as SoFi Bank can validate those details, you will start earning the APY for account holders with Eligible Direct Deposit from the date you contact SoFi for the next 31 calendar days. You will also be eligible for the APY for account holders with Eligible Direct Deposit on future Eligible Direct Deposits, as long as SoFi Bank can validate them.

Deposits that are not from an employer, payroll, or benefits provider or government agency, including but not limited to check deposits, peer-to-peer transfers (e.g., transfers from PayPal, Venmo, Wise, 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 Eligible Direct Deposit activity. There is no minimum Eligible Direct Deposit amount required to qualify for the stated interest rate. SoFi Bank shall, in its sole discretion, assess each account holder's Eligible Direct Deposit activity to determine the applicability of rates and may request additional documentation for verification of eligibility.

See additional details at https://www.sofi.com/legal/banking-rate-sheet.
*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 Bank Fee Sheet for details at sofi.com/legal/banking-fees/.

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Health savings accounts (HSAs) offer a tax-advantaged way to save for healthcare expenses. You may have access to an HSA if you have a high-deductible health plan at work or purchased an HDHP as a self-employed individual.

For those who have HSAs, it can be common to wonder just how much to contribute. Maxing out your annual contribution limit can help you get the most tax benefit from an HSA. However, your personal finances may not allow you to sock that much away. Here, important insights that can help you determine the right amount for your budget.

Understanding Health Savings Accounts (HSAs)

There are several types of medical expense accounts recognized by the IRS (Internal Revenue Service), including Health Savings Accounts. Several characteristics distinguish HSAs from other options, such as Flexible Spending Arrangements (FSAs), Health Reimbursement Arrangements (HRAs), and Archer Medical Savings Accounts (MSAs).

The differences between an HSA vs. FSA, or an HSA vs. HRA lie in who can contribute, how much you can contribute, how your contributions grow, and what happens if you don’t spend down those contributions year-over-year. Here’s a closer look at what HSAs involve.

What Is an HSA?

The IRS defines an HSA as a tax-exempt trust or custodial account you set up with a qualified HSA trustee to pay or reimburse certain medical expenses you incur. To put it more simply, an HSA is a special type of savings account for those with HDHPs and is funded with pre-tax dollars that is designed to help you pay for healthcare.

Here are the main benefits of an HSA:

•   Contributions are tax-deductible, unlike money you put in a savings account.

•   Amounts contributed to an HSA grow tax-deferred.

•   Funds roll over from year to year, so you don’t have to “use it or lose it” in terms of funds that haven’t been spent at the end of the year.

•   Most HSAs include a debit card, similar to what you get with a checking account, that you can use to conveniently pay for healthcare expenses.

•   Withdrawals for qualified medical expenses are tax-free.

Once you turn 65, you can withdraw money from your HSA for any reason, healthcare-related or otherwise. You’ll pay ordinary income tax on withdrawals that are not for medical expenses.

IRS Publication 502 outlines which medical and dental expenses you can use HSA funds to cover. The list is extensive, though it excludes health insurance premiums.

Eligibility Requirements

There’s one simple eligibility requirement you’ll need to meet to contribute to an HSA. You must be enrolled in a high-deductible health plan.

These healthcare plans must, by law, set a minimum deductible and a maximum limit on out-of-pocket costs for covered individuals. Deductibles for HSA-eligible plans are typically much higher than standard health insurance plans, but you get the benefit of a tax-advantaged savings account built in.

Here are the most recent guidelines, according to the IRS:

•   In 2024, the minimum annual deductible for HDHP was $1,600 for self-only coverage and $3,200 for family coverage.

•   For 2025, the minimum is to $1,650 for self-only coverage and $3,300 for family coverage.

Note that just because you have an HSA through your high-deductible health plan doesn’t mean you have to make contributions. But you could be missing out on some valuable tax breaks if you don’t contribute and instead just keep the cash in a bank account.

Recommended: Beginner’s Guide to Health Insurance

HSA Contribution Limits

Both employers and employees can contribute to an HSA, similar to the way your job might offer a company-matching contribution to your 401(k).

But that doesn’t mean the sky’s the limit. The IRS sets the annual contribution limits, adjusted for inflation. Your limit is determined by whether you have individual or family coverage.

Here are the HSA contribution limits for 2024:

•   Individual coverage: $4,150 maximum contribution

•   Family coverage: $8,300 maximum contribution

•   An additional $1,000 catch-up contribution is allowed if you’re aged 55 or older.

For 2025, the limits increase to:

•   Individual coverage: $4,300 maximum contribution

•   Family coverage: $8,550.

•   An additional $1,000 catch-up contribution is allowed if you’re aged 55 or older.

Contribution limits apply to both employer and employee contributions. So, if you have individual coverage and your employer contributes $1,150 to your HSA for the year, you could only contribute up to $3,000 in 2024.

Also, note that you cannot contribute to an HSA if you:

•   Have a flexible spending account (FSA) or

•   Are enrolled in Medicare or

•   Can be claimed as a dependent on someone else’s tax return1

To clarify, you can have an HSA before and after you enroll in Medicare. You just can’t make new contributions to it once you’re enrolled in Medicare.

Factors to Consider When Determining HSA Contributions

If you have an HSA, you may have questions about where it might fit into your larger financial plan. For example, you may be asking yourself:

•   How much should I put in my HSA if I’m still young and healthy?

•   What if I have an ongoing health condition or am concerned I might develop one later in life?

•   What amount should I save if I also want to contribute to my 401(k)?

•   Will employer contributions affect how much I should contribute to HSA?

•   Would saving in an HSA make a significant difference to my tax filing?

There’s no right or wrong answer for how much to contribute to HSA savings. It’s a personal decision that’s based on a variety of factors (as noted above), such as your plan coverage, age, financial situation, and anticipated healthcare needs. For instance, a healthy single 35-year-old with minimal family history of disease and an annual salary of $75,000 may opt to put less in an HSA than a married 45-year-old parent of three children, who has a family history of heart disease, and earns $175,000.

HSA tax benefits are a strong incentive to contribute something to your account, even if it’s not the full amount you’re eligible for each year. As your income grows, you could gradually increase contributions until you’re consistently maxing out your plan.

Strategies for Maximizing HSA Contributions

If you have an HSA, it helps to know how you can make the most of it. Here are some tips for making sure every penny you contribute counts.

•   Review your plan and IRS guidelines so you know your annual contribution limit.

•   Find out if your employer makes contributions on your behalf and if so, up to what amount.

•   Review your budget and other payroll deductions to determine how much you could contribute to your HSA per pay period.

•   Max out your annual contribution limit, if possible.

•   Take advantage of investment opportunities inside your HSA, which may include individual stocks, bonds, mutual funds, and exchange-traded funds (ETFs).

•   Review your contributions and asset allocations in other tax-advantaged accounts you may have, such as a 401(k) or IRA, to make sure your holdings are well-balanced.

Here’s one more tip. If you have multiple HSAs from previous employers, consider consolidating them into a single account. That can simplify HSA management and you may be able to save on fees or unlock better investments.

HSA Contribution Scenarios

Here’s how you might handle HSA contributions through different life stages.

•   Young, healthy individuals: You might assume that if you’re young and in good health HSA contributions aren’t a must. But consider this: The earlier you begin making contributions, the longer your money has to grow through the power of compounding vs. simple interest.

•   Families with children: If you have kids, you understand the simple truth that they get sick. Sometimes they get hurt. And even if they stay healthy, they still need regular checkups with doctors and dentists. All of that costs money, and an HSA helps you plan for those expenses while enjoying a tax deduction for contributions.

•   Near retirees: As you approach retirement it’s important to think about how your healthcare needs might change. If you’ve faithfully made HSA contributions and invested them you can use those funds to offset any out-of-pocket healthcare expenses you’re responsible for that aren’t covered by Medicare. Using an HSA for retirement can help you avoid having to drain your 401(k), IRA, or other assets.

Calculating Your Ideal HSA Contribution

Online tools, such as savings account calculators, can make it easier to build your financial literacy and manage your money. The same holds true for deciding how much to put in HSA savings. For example, you can use an HSA calculator to estimate how much tax-deferred growth you could realize based on:

•   Coverage type

•   Average yearly contribution

•   Average annual medical expenses

•   Current tax bracket (federal and state)

•   Expected number of years you’ll make contributions

•   Expected rate of return

For example, if you have family coverage and contribute $8,000 a year for 30 years, earning a 5% annual return, your HSA would grow to more than $523,000 over those three decades. That assumes you spend $500 per year on medical expenses.

Playing with the numbers can give you a better idea of how much you could gain from contribution to an HSA.

Common Mistakes to Avoid with HSA Contributions

HSAs offer plenty of benefits, but only when they’re used correctly. Here are some of the most important missteps to avoid if you have access to a health savings account.

Treating an HSA like a savings account at your bank. If you have a high-yield savings account you could technically withdraw money for anything. The worst penalty you might face is an excess withdrawal fee. HSAs aren’t like that and if you’re under 65, you’ll need to stick to withdrawals for healthcare only if you want to dodge a tax penalty.

Not paying attention to employer contributions. If your employer contributes to your HSA, it’s important to know how much they put in. Otherwise, you could be at risk of making excess contributions if you go over the maximum annual limit allowed based on your coverage type. Excess contributions are subject to a 6% excise tax penalty each year they remain in your account.

Not contributing at all. Perhaps the biggest mistake with HSA contributions is not making them if you’re eligible to do so. If you have an HSA at work, it’s an employee benefit, and it makes sense to use all such privileges and perks granted to you. So you might want to go ahead and set up an HSA account and add some funds.

The Takeaway

If you have a high-deductible health plan, it can be wise to consider setting up an HSA. Even if you don’t fully max out your contributions to start, every dollar you contribute and invest can benefit from compounding interest. Over time, your HSA grows in a tax-advantaged way, and those funds come in handy when you need to pay for healthcare spending.

Interested in opening an online bank account? When you sign up for a SoFi Checking and Savings account with eligible 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 3.60% APY on SoFi Checking and Savings with eligible direct deposit.

FAQ

What happens to unused HSA funds at the end of the year?

Unused HSA funds are not use-it-or-lose-it. If you have funds remaining in your account at the end of the year, they roll over and remain in your HSA until you spend them. That’s a major difference vs. FSAs, which require you to spend down contributions each year or forfeit them.

Can I contribute to an HSA if I’m self-employed?

You can contribute to an HSA if you’re self-employed provided you have a high-deductible health plan. That’s the only requirement to save in one of these accounts; you’re not limited based on your tax-filing status or income. You are, however, excluded if you have an FSA, are enrolled in Medicare or can be claimed as a dependent on someone else’s tax return.

How do HSA contributions affect my taxable income?

HSA contributions reduce your taxable income for the year, similar to the way that 401(k) contributions do. That means you get an instant tax break when you make contributions, even if you don’t plan to use any of your HSA funds right away.

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SoFi Checking and Savings is offered through SoFi Bank, N.A. Member FDIC. The SoFi® Bank Debit Mastercard® is issued by SoFi Bank, N.A., pursuant to license by Mastercard International Incorporated and can be used everywhere Mastercard is accepted. Mastercard is a registered trademark, and the circles design is a trademark of Mastercard International Incorporated.

Annual percentage yield (APY) is variable and subject to change at any time. Rates are current as of 11/12/25. There is no minimum balance requirement. Fees may reduce earnings. Additional rates and information can be found at https://www.sofi.com/legal/banking-rate-sheet

Eligible 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 (“Eligible Direct Deposit”) via the Automated Clearing House (“ACH”) Network every 31 calendar days.

Although we do our best to recognize all Eligible Direct Deposits, a small number of employers, payroll providers, benefits providers, or government agencies do not designate payments as direct deposit. To ensure you're earning the APY for account holders with Eligible Direct Deposit, we encourage you to check your APY Details page the day after your Eligible Direct Deposit posts to your SoFi account. If your APY is not showing as the APY for account holders with Eligible Direct Deposit, contact us at 855-456-7634 with the details of your Eligible Direct Deposit. As long as SoFi Bank can validate those details, you will start earning the APY for account holders with Eligible Direct Deposit from the date you contact SoFi for the next 31 calendar days. You will also be eligible for the APY for account holders with Eligible Direct Deposit on future Eligible Direct Deposits, as long as SoFi Bank can validate them.

Deposits that are not from an employer, payroll, or benefits provider or government agency, including but not limited to check deposits, peer-to-peer transfers (e.g., transfers from PayPal, Venmo, Wise, 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 Eligible Direct Deposit activity. There is no minimum Eligible Direct Deposit amount required to qualify for the stated interest rate. SoFi Bank shall, in its sole discretion, assess each account holder's Eligible Direct Deposit activity to determine the applicability of rates and may request additional documentation for verification of eligibility.

See additional details at https://www.sofi.com/legal/banking-rate-sheet.
*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.

Tax Information: This article provides general background information only and is not intended to serve as legal or tax advice or as a substitute for legal counsel. You should consult your own attorney and/or tax advisor if you have a question requiring legal or tax advice.

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.

This content is provided for informational and educational purposes only and should not be construed as financial advice.

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Unemployment benefits can help you get by in the event of job loss, but this money is subject to taxes just like any other source of income. How much your unemployment benefits are taxed depends on your filing status, tax bracket, and state of residence.

In this guide to unemployment benefit taxes, you’ll learn the ins and outs so you can pay Uncle Sam what you owe. Read on to find out:

•   Are unemployment benefits taxable?

•   How are unemployment benefits taxed?

•   What are tips for paying taxes on unemployment benefits?

Do You Have to Pay Taxes on Unemployment Benefits?

Yes, you do have to pay taxes on unemployment benefits. They are taxable like any other income. That means you won’t actually get to keep all the money the government gives you while you’re unemployed. You’ll have to give some of it back, just as you do on many other forms of money you receive. It’s simply part of being a taxpayer.

How Is Unemployment Taxed?

Now that you’ve learned that unemployment benefits are taxable, consider the details. How much are the taxes, is it just federal or state taxes too, and how do you pay them?

How Much Are Unemployment Benefits Taxed?

No matter which state you live in, your unemployment benefits are taxed at the federal level. That means everyone — including residents of states without income taxes — must pay taxes on unemployment compensation.

How much you owe depends on your filing status and tax bracket. The United States is on a progressive tax system: In general, the higher your adjusted gross income (AGI), the more you’ll pay in taxes.

For the 2024 tax season (filed in 2025), there are seven federal tax brackets, ranging from 10% to 37%.

Before filing your taxes, you’ll receive a Form 1099-G, Certain Government Payments, reflecting your unemployment benefits. This form will indicate how much unemployment compensation you received as well as how much was withheld, if applicable. You’ll need this form, plus any records of quarterly payments (more on those below) when filing your taxes.

Unemployment Benefit Taxes at the State Level

When determining how much unemployment benefits are taxed, don’t forget that federal taxes may not be the only funds due. Depending on where you live, you may have to pay state income taxes on your unemployment compensation, too. Nine states do not have personal income taxes on what are considered wages:

•   Alaska

•   Florida

•   Nevada

•   New Hampshire

•   South Dakota

•   Tennessee

•   Texas

•   Washington

•   Wyoming

If you live in one of those nine states, you don’t have to pay state income taxes on unemployment benefits.

That said, four states that do have a state income tax also don’t tax your unemployment compensation:

•   California

•   New Jersey

•   Pennsylvania

•   Virginia

If you live in one of the remaining 37 states (or Washington, D.C.), you’ll have to pay state taxes on any unemployment earnings.

How to Pay Taxes on Unemployment Benefit

Like it or not, you’ll owe taxes (federal and maybe state) on any unemployment compensation. Now that you know how unemployment is taxed, consider how you can pay those taxes. You have two main options:

•   Have the taxes withheld like you would from a paycheck

•   Estimate and pay the taxes each quarter

Here’s a closer look at each option.

Withholding Taxes

When you initially apply for unemployment, you can ask to have taxes withheld from your payments. However, federal law has established a flat rate of 10% for tax withholding for unemployment benefits.

When you receive income as wages, you can usually specify how much you want to have withheld via filling out Form W-4.

If you expect to be in a higher tax bracket and need to pay more in taxes than what’s being withheld, you can make quarterly estimated payments for the difference.

If you’re currently receiving unemployment compensation and taxes aren’t being withheld, you can submit Form W-4V.PDF File , Voluntary Withholding Request, to initiate the 10% withholding on future benefit distributions.

Recommended: Does Filing for Unemployment Affect Your Credit Score?

Paying Quarterly

To avoid owing an underpayment penalty when you file your taxes, you may need to make quarterly estimated payments on your unemployment earnings. You can use Form 1040-ES and send in your payment by mail, or you can pay online or over the phone.

If you’re new to estimating taxes, you can use the IRS resource for quarterly taxes , work with an accountant, or use tax software.

Tips for Paying Taxes on Unemployment Benefits

Being unemployed can be stressful, and on top of that, it may be hard to figure out how to properly pay taxes on unemployment benefits you receive. Follow this advice which can help simplify and clarify the process.

•   Opting into tax withholding: When you apply for unemployment, you can opt into automatic tax withholding at a flat 10% rate. While it may not be enough to cover your entire tax liability, it’s a good start — and can keep you from overspending your unemployment compensation.

•   Setting aside money in a high-yield savings account: If you don’t opt in to withholding (or if 10% is not enough to cover your tax liability), you’ll need to pay quarterly estimated taxes on your unemployment income. To avoid accidentally spending that money before it’s due, it’s a good idea to calculate what you’ll owe and put it in a savings account that pays a competition rate that you won’t touch until it’s time to pay Uncle Sam. Bonus: You’ll be earning interest on the money.

•   Keeping track of all your earnings and paperwork: Tax filing can be complicated — there are lots of forms to collect and statements to reference. Keeping clean records of benefit distributions and quarterly payments throughout is crucial to preparing for tax season.

•   Using IRS Free File: Because you have to pay taxes on all income, including unemployment, you’ll likely want some help. If your adjusted gross income is $84,000 or less, you can get free guided tax preparation software through IRS Free File . If your AGI is too high but you’re feeling overwhelmed by how complicated your taxes are, it might be a good idea to pay for tax software or hire an accountant.

•   Being aware of unemployment fraud: It’s possible for criminals to use your personal information to falsely make unemployment claims in your name. If you receive Form 1099-G for unemployment compensation but did not receive any unemployment benefits, follow the Department of Labor’s steps for reporting unemployment identity fraud .

💡 Quick Tip: Bank fees eat away at your hard-earned money. To protect your cash, open a checking account with no account fees online — and earn up to 0.50% APY, too.

The Takeaway

Like other forms of income, unemployment benefits are subject to taxes. If you aren’t having taxes withheld from your unemployment compensation — or if the flat 10% rate is not high enough — the IRS requires that you pay quarterly taxes. Paying what you owe on unemployment benefits is an important and necessary step in correctly filing your tax return.

Interested in opening an online bank account? When you sign up for a SoFi Checking and Savings account with eligible 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 3.60% APY on SoFi Checking and Savings with eligible direct deposit.

FAQ

Do you pay less in taxes when you’re on unemployment?

Your tax rate depends on your adjusted gross income. If you earned less income because you were unemployed — and your unemployment checks are smaller than your paychecks had been — you can expect to pay less in taxes.

Are unemployment benefits taxed in states with no income tax?

Unemployment money is taxed at the federal level no matter which state you live in. However, if you live in a state with no state income taxes, you won’t have to pay state taxes on your unemployment benefits. Four states that levy income taxes also exempt you from paying those state taxes on unemployment compensation: California, New Jersey, Pennsylvania, and Virginia.

Was pandemic unemployment taxed?

Pandemic unemployment was not taxed for the 2020 tax year — to a certain degree. Following the historic job loss associated with the initial wave of COVID-19, the government passed the American Rescue Plan Act of 2021, which made the first $10,200 of unemployment benefits non-taxable.

However, this was a one-time exclusion. Though the pandemic continued beyond the 2020 tax year, unemployment income became completely taxable once again.

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Photo credit: iStock/PixelsEffect

Annual percentage yield (APY) is variable and subject to change at any time. Rates are current as of 11/12/25. There is no minimum balance requirement. Fees may reduce earnings. Additional rates and information can be found at https://www.sofi.com/legal/banking-rate-sheet

Eligible 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 (“Eligible Direct Deposit”) via the Automated Clearing House (“ACH”) Network every 31 calendar days.

Although we do our best to recognize all Eligible Direct Deposits, a small number of employers, payroll providers, benefits providers, or government agencies do not designate payments as direct deposit. To ensure you're earning the APY for account holders with Eligible Direct Deposit, we encourage you to check your APY Details page the day after your Eligible Direct Deposit posts to your SoFi account. If your APY is not showing as the APY for account holders with Eligible Direct Deposit, contact us at 855-456-7634 with the details of your Eligible Direct Deposit. As long as SoFi Bank can validate those details, you will start earning the APY for account holders with Eligible Direct Deposit from the date you contact SoFi for the next 31 calendar days. You will also be eligible for the APY for account holders with Eligible Direct Deposit on future Eligible Direct Deposits, as long as SoFi Bank can validate them.

Deposits that are not from an employer, payroll, or benefits provider or government agency, including but not limited to check deposits, peer-to-peer transfers (e.g., transfers from PayPal, Venmo, Wise, 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 Eligible Direct Deposit activity. There is no minimum Eligible Direct Deposit amount required to qualify for the stated interest rate. SoFi Bank shall, in its sole discretion, assess each account holder's Eligible Direct Deposit activity to determine the applicability of rates and may request additional documentation for verification of eligibility.

See additional details at https://www.sofi.com/legal/banking-rate-sheet.
SoFi Checking and Savings is offered through SoFi Bank, N.A. Member FDIC. The SoFi® Bank Debit Mastercard® is issued by SoFi Bank, N.A., pursuant to license by Mastercard International Incorporated and can be used everywhere Mastercard is accepted. Mastercard is a registered trademark, and the circles design is a trademark of Mastercard International Incorporated.

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

Tax Information: This article provides general background information only and is not intended to serve as legal or tax advice or as a substitute for legal counsel. You should consult your own attorney and/or tax advisor if you have a question requiring legal or tax advice.

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.

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