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A typical 18-year-old has an average credit score of 681, according to Experian data from June 2024. The score is considered good and can help borrowers qualify for some credit cards and loans, though they could pay higher interest rates.

Learn what a credit score is, how it can vary by age, and the steps you can take to improve yours.

What Is a Credit Score?

Your credit score is a three-digit number that reflects how likely you are to responsibly manage credit and pay it back on time. It’s based on information from your credit reports, which are created by the three major credit bureaus: Equifax, Experian, and TransUnion. With this information and other personal details you provide on your application, lenders can determine whether to approve you for a loan or credit card.

Most people have more than just one score, and each score can vary based on the source of the data being used, when that data was calculated, and the scoring model (for instance, FICO® vs. VantageScore).

Recommended: FICO Score vs Credit Score

Average Credit Score by Age 18

There’s no single starting credit score for people who are just beginning their credit journey. However, early scores tend to be in the good (670-739) or fair (580-669) range. The average credit score for 18-year-olds — 681 — falls well within the good range.

What Is the Average Credit Score?

If you’re an 18-year-old with a credit score of 681, it can be useful to see how your score compares to other borrowers in the country. According to Experian, the average adult in the U.S. has a credit score of 715.

Average Credit Score by Age

It makes sense that a younger consumer would have an average score that’s below the national average. After all, it takes time to build credit, and as the chart below shows, credit scores tend to rise with age.

What’s a Good Credit Score for Your Age?

It can be tempting to compare your credit score to your peers’ average score. But a more effective way to determine whether your three-digit number is good is by checking how credit scoring companies classify it. FICO defines a “good” credit score as one between 670 and 739, while VantageScore considers scores between 661 and 780 as “prime.”

Another approach: Ask yourself if your credit score is high enough to help you achieve your goals, like renting an apartment or buying a car. If so, then it’s reasonable to think your score is good.

How Are Credit Scores Used?

Your credit score helps lenders evaluate your potential credit risk, and it’s used for a variety of purposes. When you apply for a credit card or loan, for instance, a lender will look at your credit score to help decide whether to extend credit and what interest rate and credit limit to offer.

Scores may also be used by landlords to screen potential tenants and by utility companies to determine how much of a deposit you’re required to pay for services.

Factors Influencing the Average Credit Score

Understanding what affects your credit score is a key part of strategically improving your credit. FICO, which is used by 90% of lenders, considers the following factors when calculating your score:

•  Payment history. This includes whether you make payments on time or have a pattern of late payments. It also takes delinquencies, default, collections, and bankruptcies into account.

•  Amount owed. Your score is influenced by the amount you’ve borrowed on each account compared to your available credit as well as your total amount of outstanding debt.

•  Credit history length. Keep older accounts open. This adds to the length of your credit history, which can positively impact your score.

•  Credit variety. Having a diverse mix of credit types, like retail cards, credit cards, student loans, and personal loans, shows you can responsibly juggle revolving and installment credit payments.

•  New credit and inquiries. Too many new credit lines or inquiries in a short period can be a red flag that you’re financially overextended.

How to Build Your Credit Score

Working on the factors described above is a good way to build credit and maintain a strong credit score.

The biggest factors affecting your FICO Score are payment history (35%) and credit use (30%). VantageScore gives more weight to payment history and depth of credit, which includes length of credit history and credit mix. With that in mind, one impactful way to raise your score is to pay your bills on time, every time. Consider setting up payment reminders on your mobile device, or enroll in autopay so you don’t miss a due date.

Keeping your unpaid credit card balances as low as possible can also bolster your credit over time. And keep your credit use at less than 30% of your available credit limit. A good place to start is learning how to lower credit card utilization.

It’s also wise to go through your credit report at least once a year via AnnualCreditReport.com and fix any errors you see. You can also check your credit score for free through some banks, credit card issuers, and Experian.

Recommended: Why Did My Credit Score Drop After a Dispute?

How Does My Age Affect My Credit Score?

Your age has no direct impact on your credit score, but there tends to be a connection between age and the average credit score. Generally speaking, the older you are, the more likely you are to have a higher average credit score.

That’s because older individuals are more likely to have a longer credit history than younger consumers. And chances are, they have a more diverse credit mix, too. Both of those things can help bolster a borrower’s creditworthiness.

What Factors Affect My Credit Score?

As we mentioned, a number of factors go into determining your credit score. The five most impactful ones are:

•  Payment history

•  Amounts owed

•  Length of credit history

•  Credit mix

•  New credit

It’s worth noting that your credit score updates once a month. If you’re working to boost your numbers, it could take a little time before you see the results.

At What Age Does a Credit Score Improve the Most?

There’s a correlation between older age and a higher credit score. According to Experian data, Gen Z consumers (age 18-25) have the lowest credit score, at 680, while the Silent Generation (age 77+) has the highest credit score, at 760.

Tips for Building Your Credit Score

If you’re just starting your credit journey, consider these strategies to build your score incrementally and over time:

•  Start your credit use slowly. Opening a secured credit card at 18 years old can be an effective way to establish your credit, as it has some guard rails. Card issuers require a deposit which acts as your card’s credit limit. You can then use your secured credit card up to your limit, and the issuer reports your payment data to the credit bureaus. This builds your credit history without the risk of overspending.

•  Use an app to manage your finances. A spending app can help you see how you’re balancing your income and spending habits across multiple financial accounts, including credit accounts. It can also help you keep track of upcoming bills.

•  Check on your credit score regularly. Checking in on the health of your credit score doesn’t have to cost you. Financial tools, like a money tracker app, often show you your credit score as a complimentary feature.

The Takeaway

The average credit score by age 18 is 681. If you’ve achieved a score that’s at or near there by age 18, then you’re in a good place. If your score is below 681, there are steps you can take to give it a boost, including paying bills on time, limiting new credit applications, and paying off debts.

Remember that your credit score can fluctuate, depending on your repayment and borrowing patterns. It’s a good idea to get into the practice of keeping track of your credit score and disputing any inaccuracies you see.

Take control of your finances with SoFi. With our financial insights and credit score monitoring tools, you can view all of your accounts in one convenient dashboard. From there, you can see your various balances, spending breakdowns, and credit score. Plus you can easily set up budgets and discover valuable financial insights — all at no cost.

FAQ

What credit score is needed to buy a $300K house?

For a conventional loan, you’ll typically need a minimum credit score of 620. Some mortgage loans, like an FHA loan, might accept a minimum credit score of 500 for home financing.

Is 650 a good credit score?

A 650 FICO credit score is considered a “fair” credit rating and is lower than the average credit score in the U.S. However, some lenders are willing to offer financing to consumers with this score.

Is a 900 credit score possible?

No. The two most commonly used U.S. consumer credit scoring models, FICO and VantageScore, set their maximum score at 850.

How rare is an 800 credit score?

Among U.S. consumers, only 21% of borrowers have a FICO score between 800 to 850, while 25% of consumers have scores between 740 and 799.

Is a 600 credit score at 18 good?

A 600 FICO score, which is considered “fair,” is below the average credit score of individuals ages 18 to 26. The average 18-year-old has a 681 score.

What is the average credit line for an 18-year-old?

The average credit card limit for an 18-year-old is $12,899, according to Q3 2023 Experian data. Among all generations, Generation Z has the lowest average credit card limit.

Photo credit: iStock/sorrapong

SoFi Relay offers users the ability to connect both SoFi accounts and external accounts using Plaid, Inc.’s service. When you use the service to connect an account, you authorize SoFi to obtain account information from any external accounts as set forth in SoFi’s Terms of Use. Based on your consent SoFi will also automatically provide some financial data received from the credit bureau for your visibility, without the need of you connecting additional accounts. SoFi assumes no responsibility for the timeliness, accuracy, deletion, non-delivery or failure to store any user data, loss of user data, communications, or personalization settings. You shall confirm the accuracy of Plaid data through sources independent of SoFi. The credit score is a VantageScore® based on TransUnion® (the “Processing Agent”) data.

*Terms and conditions apply. This offer is only available to new SoFi users without existing SoFi accounts. It is non-transferable. One offer per person. To receive the rewards points offer, you must successfully complete setting up Credit Score Monitoring. Rewards points may only be redeemed towards active SoFi accounts, such as your SoFi Checking or Savings account, subject to program terms that may be found here: SoFi Member Rewards Terms and Conditions. SoFi reserves the right to modify or discontinue this offer at any time without notice.

Disclaimer: Many factors affect your credit scores and the interest rates you may receive. SoFi is not a Credit Repair Organization as defined under federal or state law, including the Credit Repair Organizations Act. SoFi does not provide “credit repair” services or advice or assistance regarding “rebuilding” or “improving” your credit record, credit history, or credit rating. For details, see the FTC’s website .


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.

Non affiliation: SoFi isn’t affiliated with any of the companies highlighted in this article.

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.

SORL-Q424-030

If you’re in the market for a new (or new-to-you) set of wheels with plans to finance it, predicting your interest rate will help you figure out the total costs of the loan. According to recent Experian data, the average interest rate for a new car loan for someone with a 750 credit score is 6.87%. For a used car, the average interest rate is 9.36%.

In general, the higher the interest rate, the more expensive the loan. But what exactly does an interest rate mean for your wallet, and how can you get a lower score? We’ll look at the ins and outs of what factors can impact the interest rate on your auto loan and what you can do to get a better rate.

Average Used Car Interest Rate for 750 Credit Score

As we discussed above, drivers with a 750 credit score who are shopping for a used car can expect to pay an average interest rate of 9.36%.

A score of 750 is considered very good and is a sign to lenders that you’re able to successfully manage your credit. This means you could qualify for credit cards and loans and better-than-average lending terms. If your credit score isn’t where you’d like it to be, there are steps you can take to build your credit over time.

Factors That Affect Auto Loan Interest Rates

Several variables play into the interest rate on your car loan. Let’s look at the most common ones:

Credit Score

Your credit score can play a major role in determining your interest rate. Usually, the higher your credit score, the lower your interest rate. On the flip side, the lower your score, the higher your rate.

Case in point: Based on Experian data, the average interest rate for used-car borrowers with a deep subprime credit score (500 or under) is 21.55%. Meanwhile, the average interest rate for those with super prime credit (781 and above) is 7.13%.

Lender

Whether you go through a bank, credit union, online lender, or dealer, the car loan interest rate you’re offered is influenced in part by where you get your loan. Interest rates vary widely by lender.

Amount Borrowed

When you borrow a large amount of money, you’re considered a greater risk to the lender. That’s because they stand to lose more if you aren’t able to pay back the loan. In turn, a lender may decide to charge a higher interest rate on a larger loan.

Length of the Loan

Typically, the longer the loan term is, the higher the interest rate. That’s because there’s more time for your financial circumstances to shift, and you might have a harder time keeping up with your payments down the line. Conversely, shorter loan terms typically have lower interest rates.

Economic and Market Conditions

Decisions made by the Federal Reserve can influence the lending rates on car loans. The strength of the economy and larger market trends may also play into what interest rates are offered. For instance, the higher the inflation rate, the greater the chances that interest rates rise.

How to Get a Better Auto Loan Interest Rate

There are a number of measures you can take to improve your chances of getting a better auto loan insurance rate.

A good place to start is to focus on building your credit. This means staying on top of bill payments, keeping your credit usage low, and only applying for credit when necessary, among other things.

You can also spend some time improving your credit score. Regular credit score monitoring can help you find ways to boost your score.

Finally, shop around for a lender to see which one can offer you the lowest interest rate.

Recommended: What Is the Starting Credit Score?

How Often Do Auto Loan Rates Change?

Auto loan interest rates change daily and can vary based on the lender, loan amount, market conditions, and other factors. It’s a good idea to check your auto loan rate at different points of your shopping journey. Also, recheck your auto loan rate if you decide to get a new car instead of a used one or change the loan term or amount.

How to Use Average Car Interest Rates

Knowing the average car loan interest rates — and the average interest rate for a car loan with a 750 credit score, if that’s your situation — can help give you an idea of what you’ll pay for your used set of wheels.

To figure out the total cost of the car, factor in the interest rates, fees, routine maintenance and repairs, gas, and registration and title fees. You’ll also want to determine your monthly payments, which include the loan amount, interest rate, and repayment term. That way, you can gauge what’s an affordable amount to cover each month.

Where Are Auto Loan Rates Heading?

While it’s impossible to say where exactly auto loan rates will be in the coming months, they have gradually increased over the past several years. According to Experian, in Q2 of 2024, the average interest rate for new car loans was 6.84%, and 12.01% for used cars. Compare that to Q2 of 2019, when the average interest rate for new car loans was 5.70% and 9.34% for used cars.

However, you may be able to get more for your money if you’re planning to buy a car in the months ahead. The Federal Reserve is expected to lower its benchmark rate multiple times in late 2024 into 2025, which will likely impact borrowing costs for a new car.

Ways to Get a Better Car Loan Rate

Here are some ways you can help improve your odds of receiving favorable car loan rates:

Build Your Credit

Your credit score isn’t the only factor a lender considers when determining your interest rate, but it’s an important one. Generally speaking, the higher your score, the lower your interest rate will be. A good first place to start is to check your credit score to see where you stand.

Some credit card issuers, banks, credit counselors, and spending apps offer free credit scores. They’ll also alert you when your score changes and give you insights into what caused your score to go up or down.

To build up credit, stay on top of your payments, lower your credit utilization, and avoid taking out credit unless absolutely necessary. It’s not an overnight process, but putting in the effort and taking the right steps make for steady progress.

Recommended: What Affects Your Credit Score?

Work With Lenders You Know

If you have an existing loan with a lender, that longstanding relationship could help boost your odds of getting more favorable rates. Sit down with your lender and see what kind of car loan rates you might qualify for.

Shop Around

Different lenders have different lending criteria and a range of available financing. Do your homework and get quotes from several lenders for the same loan amount and repayment term. That way, you can compare your rates side by side.

Opt for a Shorter Loan Term (If Possible)

A shorter loan term poses less risk for lenders and could translate to a lower rate for you. A shorter term can also mean larger monthly payments, so play around with different loan terms to see how much you might owe on your car loan each month in different scenarios.

Save for a Larger Down Payment

Because higher loan amounts mean higher interest rates, see if you can shore up funds for a larger down payment. That can bump down the rate on your auto loan. (A money tracker app can help you set budgets and monitor spending.)

Get a Cosigner

A cosigner with strong credit may help boost your odds of landing a lower interest rate. However, should you fall behind on your payments, the cosigner is on the hook financially to pay what is due. You’ll want to have a discussion about each person’s role and responsibilities beforehand.

The Takeaway

Getting your head around the average used car loan interest rate for a 750 credit score can help you determine how much you’ll be paying on interest on a car should you get financing. In turn, it can give you a stronger handle on the total cost of the car.

Take control of your finances with SoFi. With our financial insights and credit score monitoring tools, you can view all of your accounts in one convenient dashboard. From there, you can see your various balances, spending breakdowns, and credit score. Plus you can easily set up budgets and discover valuable financial insights — all at no cost.

FAQ

How common is an 825 credit score?

According to Experian, 21% of consumers have a credit score between 800 and 850, which is considered exceptional.

How many people have a 900 credit score?

Nobody has a 900 credit score. That’s because standard credit scores range from 300 to 850. That said, FICO created industry-specific FICO® Score models that range between 250 and 900, but these models have very limited use.

How rare is an 800 credit score?

About a quarter of Americans (22%) have a credit score of 800 or higher, which falls within the “Excellent” range.

What is a bad APR for a car?

A bad APR on a car is typically associated with lower credit scores. For instance, the average interest rate for used-car borrowers with a credit score of 500 or under is 21.55%.

What is a good interest rate on a 72-month car loan?

According to MarketWatch, the average interest rate for new cars on a 72-month car loan is 6.86%, and 12.80% for used ones. An interest rate that falls below that is considered better than average.

Is 750 a good credit score to buy a car?

A 750 credit score is in the “Very Good” range and considered above average. With that score, you can usually qualify for more competitive interest rates, larger loan amounts, and more flexible repayment terms.

Photo credits: iStock/Drazen Zigic

SoFi Relay offers users the ability to connect both SoFi accounts and external accounts using Plaid, Inc.’s service. When you use the service to connect an account, you authorize SoFi to obtain account information from any external accounts as set forth in SoFi’s Terms of Use. Based on your consent SoFi will also automatically provide some financial data received from the credit bureau for your visibility, without the need of you connecting additional accounts. SoFi assumes no responsibility for the timeliness, accuracy, deletion, non-delivery or failure to store any user data, loss of user data, communications, or personalization settings. You shall confirm the accuracy of Plaid data through sources independent of SoFi. The credit score is a VantageScore® based on TransUnion® (the “Processing Agent”) data.

*Terms and conditions apply. This offer is only available to new SoFi users without existing SoFi accounts. It is non-transferable. One offer per person. To receive the rewards points offer, you must successfully complete setting up Credit Score Monitoring. Rewards points may only be redeemed towards active SoFi accounts, such as your SoFi Checking or Savings account, subject to program terms that may be found here: SoFi Member Rewards Terms and Conditions. SoFi reserves the right to modify or discontinue this offer at any time without notice.

Disclaimer: Many factors affect your credit scores and the interest rates you may receive. SoFi is not a Credit Repair Organization as defined under federal or state law, including the Credit Repair Organizations Act. SoFi does not provide “credit repair” services or advice or assistance regarding “rebuilding” or “improving” your credit record, credit history, or credit rating. For details, see the FTC’s website .


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.

Non affiliation: SoFi isn’t affiliated with any of the companies highlighted in this article.

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.

SORL-Q424-020

Whether you’re buying a home or an investment property, it’s important to understand property ownership rights in real estate. Each type of real property has a classification of ownership that determines what can be done with that asset. A freehold estate refers to real property where the owner has full ownership rights, allowing the property to be passed down indefinitely.

In this guide, we’ll take a closer look at the definition of freehold estates and the implications for property owners.

Definition of Freehold Estate

What is a freehold estate? A freehold estate is an estate in land that has an undefined duration of ownership, while a non-freehold estate involves leased property rights with a specific termination date.

In other words, an owner of a freehold estate has exclusive and indefinite rights to the property. This means that it can be passed on to heirs or beneficiaries for any amount of time. The specifics depend on the type of freehold estate, which we’ll elaborate on below.

Types of Freehold Estates

There are three main types of freehold estates: fee simple absolute, fee simple defeasible, and life estate. Conditions for ownership and how the property may be used vary between each type.

•  Fee simple absolute: This is the most common type of freehold estate. It gives property owners complete rights to a property title in perpetuity and to use the land without restriction, as long as you pay property taxes and avoid violating any active easements and local land use regulations.

•  Fee simple defeasible: This type of freehold estate operates similarly to fee simple absolute but with more restrictions. For example, fee simple defeasible could require that a farm remain as agricultural land. If a buyer violates these conditions, even after closing, the property could legally revert back to the seller or a specified heir or third party. Keep these conditions in mind if making an offer on a home with a fee simple defeasible situation.

•  Life estate: This type of estate is a form of joint ownership that allows a grantee to receive the title to a property upon the grantor’s death, rather than going through probate. Life estates are often created by property owners who want to streamline the process of giving their home or land to a child or heir after they pass. The grantor may continue occupying their home, but selling the property or mortgage refinancing would require the grantee’s approval.

Rights Associated with Freehold Estates

A freehold estate is the highest degree of property ownership, giving the owner the right to use the land for any lawful purpose, unless otherwise restricted by an encumbrance or fee simple defeasible ownership.

With a freehold estate, the property owner has an unlimited duration of ownership. They have the right to sell their home or property, lease it to others, and pass it down to heirs.

Freehold vs. Leasehold Estates

There are non-freehold estate arrangements to become familiar with, too.

If you’ve ever rented an apartment, you’re likely familiar with the concept of a lease agreement. A leasehold estate operates on the same principles. Put simply, it refers to a tenant’s exclusive right to occupy a property for a specific period of time.

When comparing a leasehold and a freehold estate, the key difference is the duration of the occupant’s rights. Leasehold estates are temporary and dictated by the terms of the lease, while freehold estates grant an indefinite duration of ownership.

Recommended: Mortgage Calculator With Taxes

Creation and Transfer of Freehold Estates

If you own a home or property, you already are in possession of a freehold estate. How the property is transferred will depend on the type of freehold estate. One way to transfer ownership is through a life estate.

Setting up a life estate can be done through a life estate deed. This legal document is filed with your local recording office to ensure the other person, known as the remainderman, is added to the deed. Again, using a life estate helps an heir receive the property faster by avoiding probate. Creating a life estate is serious business, and it is not the only way to transfer property to avoid probate, so it’s wise to consult an estate planning expert before you sign anything.

Recommended: Mortgage Interest Deductions

Limitations on Freehold Estates

There are limitations to any type of property ownership, including freehold estates. Of note, there could be a legal claim against a property from a party other than the owner, known as an encumbrance.

There are multiple types of encumbrances, including easements, liens, and encroachment.

An easement grants land use rights or property access to a third party. For example, a utility may have an easement to run a gas line through a property, or an easement can grant access to a shared driveway. This might have an impact on how much a house is worth.

Properties may be encumbered by a lien, which gives another party the right to seize the property for nonpayment of a debt, such as home mortgage loans, property taxes, or homeowners association fees. Since the estate serves as collateral, the property can be sold if needed to recoup unpaid debts.

Encroachments can also limit the use of freehold estates. An encroachment occurs when a neighbor has built a structure that intrudes on a property, limiting its full use.

During the homebuying process, in addition to ordering a home inspection, buyers typically request a formal title search to make sure there aren’t any encumbrances or claims against the property, which could delay closing.

Freehold Estates in Different Jurisdictions

Freehold estates exist in different jurisdictions in the U.S. and abroad. In the U.S., they are dictated by state and local laws.

Local zoning outlines how a property can be used in a specific area, as well as building dimensions and characteristics. Some common types of zoning include residential, commercial, agricultural, and industrial. Residential zoning may also differentiate between single-family and multifamily properties.

Freehold Estates in Estate Planning

Freehold estates are often referred to as “estates of inheritance”, since the estate is transferred to the owner’s heirs upon death. Including freehold estates when doing estate planning can give peace of mind that loved ones will have fewer legal and financial hurdles to deal with. Otherwise, the transfer of property and other assets can get held up in probate court.

The Takeaway

Buying real estate is a major investment. Freehold estates provide owners with indefinite property rights, though there can be limitations depending on encumbrances and the type of freehold estate arrangement.

Unless you’re a real estate professional, some of these terms may go beyond your needs. However, understanding your rights as a property owner and if there are any claims against your property is essential for protecting your investment when you are buying a home or other property.

Looking for an affordable option for a home mortgage loan? SoFi can help: We offer low down payments (as little as 3% - 5%*) with our competitive and flexible home mortgage loans. Plus, applying is extra convenient: It's online, with access to one-on-one help.

FAQ

How does a freehold estate differ from fee simple ownership?

Fee simple ownership is a type of interest that property owners can have in a freehold estate. Fee simple ownership lets you do as you wish with a property, barring any liens or local laws, while the other types of freehold estates carry more conditions for how a property is used and transferred.

Can a freehold estate be taken away by the government?

A freehold estate could be taken by the government through eminent domain, or when the owner dies if there aren’t any heirs or beneficiaries. Eminent domain allows governments to claim private property if it’s necessary for public use and after compensating the owner.

Are there any restrictions on selling a freehold estate?

A freehold estate can be sold or bequeathed as the owner sees fit, without conditions and restrictions. However, there may be specific restrictions for how the property is used if conditions were set by the seller. This is known as fee simple defeasible ownership.

Photo credit: iStock/Kirpal Kooner

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SOHL-Q424-006

Most of us don’t learn bank terms in school, but knowledge of these concepts is an important part of developing your financial literacy. Becoming familiar with banking vocabulary can help you better understand financial products and might even boost your money-management skills.

Here, you’ll find a glossary of 19 banking terms and definitions to know. Whether you’re opening your very first checking account or diversifying your investments, this bank terminology can enhance your personal finance journey.

19 Banking Terms

Here’s a list of 19 important banking terms and definitions to know:

1. Savings Account

A savings account is a type of bank account that lets you safely store your money. Money in a savings account earns interest and grows over time, thanks to the power of compounding interest.

Savings accounts can be a good place to stash funds for an emergency fund or short-term goals, such as next year’s vacation. You can typically access funds as needed, although some financial institutions may limit how often you can take money out of your savings account.

When shopping for a savings account, know that a high-yield savings account can pay out more interest than a typical savings account. Currently, some HYSAs pay 9x the national savings account interest rate or more.

2. Checking Account

Checking accounts are also a common type of bank account that enable consumers to access and spend their money easily. You can tap funds in your checking account by writing paper checks, using an ATM, swiping or tapping a debit card, entering account information online, or using mobile payment apps. Many checking accounts don’t earn interest, but you may find some that offer a low interest rate, often at online banks.

Checking accounts may come with a variety of fees, so it can be wise to compare charges for at least a few accounts before opening one. You’ll also want to make sure you understand whether there’s a minimum opening deposit or balance requirement.

3. Money Market Account

Another type of bank account is a money market account. These are often structured as a blend of savings and checking accounts. Like a savings account, a money market account usually has a higher interest rate than a checking account (which may or may not earn any interest at all) in exchange for having certain restrictions, such as a limited number of withdrawals that can be made each month. But it may also have some checking account features, like the ability to write checks.

4. Certificate of Deposit (CD)

You can also open a certificate of deposit (CD), a kind of term deposit, at many financial institutions. Here, your money is less liquid (i.e., it’s not as easily available). When you put money in a CD, you agree to a set number of months or years that you won’t access that cash — typically between a few months and several years. In exchange, however, you may receive an interest rate that’s higher than most standard savings accounts. If you do tap your funds before the CD term ends, you will likely be assessed a penalty.

5. Account Number

Your bank account number is a unique string of numbers (usually between eight and 12 digits) that identifies your individual bank account. Every time you open a new bank account, you’ll get a new account number — and you can typically find it on your account statements, on paper checks, and on your bank’s website and in its app when you’re logged in.

Recommended: How to Balance Your Bank Account

6. Routing Number

While an account number is unique to your individual account, a routing number is unique to your bank. Most banks have a single routing number, though larger banks may have multiple routing numbers, with each number attributed to a specific region.

A routing number (also called an American Bankers Association number, or ABA number) is always nine digits and helps other entities route payments to and from your bank.

By the way, when thinking about routing numbers vs. account numbers, remember that they are important bits of personal information, to be kept confidential. In the wrong hands, they could be used to commit bank fraud.

7. Direct Deposit

Direct deposit is a method wherein a business or government agency can pay you electronically by transferring funds into your bank account. If you receive payment from your employer directly into your bank account, you’re already using direct deposit; more than 95% of American workers get paid this way.

8. Annual Percentage Yield (APY)

Annual percentage yield (APY) refers to how much interest you’ll earn each year from money in a deposit account, like a savings account. Unlike the straight interest rate, however, APY also accounts for compound interest (earning interest on the interest you’ve earned thus far).

9. Credit Union

A bank is one common type of financial institution. But you can also get typical banking services — like deposit accounts and loans — from credit unions. Credit unions are member-owned nonprofits and are typically local, rather than a national network. You may need to qualify to join one, based upon such attributes as where you live or your profession. Depending on your needs, you might choose a credit union vs. a bank to get the best fit for your finances.

10. Federal Deposit Insurance Corporation

Congress created the Federal Deposit Insurance Corporation (FDIC) in 1933 to create a safety net in the event of a bank failure and instill confidence in the U.S. banking system. Today, the FDIC offers insurance typically up to $250,000 per depositor, per account category, per insured institution. Some banks have programs to offer even a higher level of insurance than that. Worth noting: Most but not all banks are FDIC-insured. It’s worthwhile to check that you keep your funds at one that is, to enjoy that protection.

Deposits at credit unions are also typically insured in a similar manner, but by the National Credit Union Association, or NCUA, vs. FDIC insurance.

11. Fintech

Fintech, meaning “financial technology,” refers to companies leveraging new technologies to improve or provide innovative financial services. They may be a chartered online bank or an unchartered neobank, often offering higher interest rates on savings accounts and lower or no fees as a result of their having less overhead than traditional brick and mortar banks. Many fintechs have built their models on younger consumers’ frustrations with the traditional banking experience.

12. Automated Teller Machine (ATM)

You probably know automated teller machines as ATMs, and they’re an important part of banking. An ATM allows you to access certain banking services — like cash withdrawals — on the go. You can find ATMs all over, from inside bank branches to hotels and airports.

Just make sure an ATM is in your bank’s network before using it. If you use an out-of-network ATM, you may incur high ATM fees.

13. Debit Card

A debit card is a form of payment that typically comes with a checking account. You can swipe, tap, or wave the debit card at a point of sale to pay for goods and services with money from your checking account. You can also enter your debit card to pay bills or shop online, or tie your debit card to peer-to-peer transfer apps to send money between friends.

14. Joint Account

A joint bank account allows more than one person to manage the account. That means any account holder can withdraw or deposit money at their discretion. With so much power available to multiple account holders, there are a lot of pros and cons of joint accounts to consider before moving forward, but it can be a good tool for couples or family members who want to merge their finances.

15. Electronic Fund Transfer (EFT)

An electronic fund transfer refers to any type of electric payment where money moves electronically. Examples of EFTs include wiring money, paying with a debit or credit card, sending funds via P2P transfer, receiving direct deposit, and conducting ACH transfers. They are typically quick and secure.

16. ACH Transfer

An ACH transfer is a type of electronic fund transfer. ACH stands for Automated Clearing House, and an ACH transfer simply refers to the electronic movement of money from one bank account to another. That process is regulated by the Automated Clearing House (governed by the National Automated Clearing House Association, or NACHA).

17. Overdraft Fee

If you pay for a transaction with a check or debit card but don’t have enough money in your account to cover the purchase, your payment can be declined or the purchase can still go through, which is called overdrafting. Essentially, your bank may cover the shortfall. Some financial institutions charge you an overdraft fee when this happens. The average fee is currently quite high, over $27. You may be able to link accounts (say, your checking and savings accounts) to provide coverage in the case of overdraft.

18. Emergency Fund

An emergency fund is money set aside in a savings account that you can access in an emergency, such as if you are laid off, need unexpected car repair, or have to pay a high vet bill. The amount of money you need in an emergency fund can vary, but most experts advise working toward saving enough cash to cover three to six months’ worth of basic living expenses. Saving this much can keep you from needing to take out a personal loan or going into credit card debt when unplanned expenses arise.

19. Minimum Account Balance

A minimum account balance, also called minimum daily balance or simply minimum balance, is the amount of money you must keep in your bank account to avoid minimum balance service fees (if your bank charges these). Not all bank accounts require minimum balances, and, of those that do, the amount can vary from one financial institution to the next. The amount may also vary by account type.

Why Understanding Banking Terms Matters

Understanding banking terms — and the concepts and products they describe — can help you pick the right bank for your needs. It can also help build a good foundation of knowledge that can enhance your money management for years to come.

The Takeaway

Knowing basic financial terms, like ACH, EFT, and FDIC, as well as those that describe different types of bank accounts, can build your financial literacy. This, in turn, can help equip you to make well-informed decisions and manage your money better.

Another important aspect of managing your money is partnering with the right bank.

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.

FAQ

What are basic banking terms?

Some basic banking terms include savings account, checking account, direct deposit, routing number, and electronic fund transfer. If you’re new to banking, it’s a good idea to review a list of common banking terminology to get a better handle on your finances and how to manage them.

What are common banking transactions?

Some common banking transactions include cash withdrawals or deposits at the bank or ATM, mobile check deposits via an app, and direct deposits into and direct debits from a bank account. Individuals can also transfer money from one bank account to another, like from their checking to their savings.

What are banking processes?

Common banking processes include managing customers’ checking and savings accounts, which can include charging fees or paying interest. Banks also often offer loans, which have a range of processes from underwriting to account servicing.

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SoFi members with Eligible Direct Deposit activity can earn 3.80% annual percentage yield (APY) on savings balances (including Vaults) and 0.50% APY on checking balances. 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 during a 30-day Evaluation Period (as defined below).

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 3.80% APY, we encourage you to check your APY Details page the day after your Eligible Direct Deposit arrives. If your APY is not showing as 3.80%, 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 3.80% APY from the date you contact SoFi for the rest of the current 30-day Evaluation Period. You will also be eligible for 3.80% APY 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, 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 members with Eligible 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 Eligible 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 an Eligible Direct Deposit or receipt of $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 Eligible 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 Eligible 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 Eligible 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 Eligible Direct Deposit or Qualifying Deposits until SoFi Bank recognizes Eligible Direct Deposit activity or receives $5,000 in Qualifying Deposits in a subsequent 30-Day Evaluation Period. For the avoidance of doubt, an account holder with both Eligible Direct Deposit activity and Qualifying Deposits will earn the rates earned by account holders with Eligible 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.

Members without either Eligible Direct Deposit activity or Qualifying Deposits, as determined by SoFi Bank, during a 30-Day Evaluation Period and, if applicable, the grace period, or who do not enroll in SoFi Plus by paying the SoFi Plus Subscription Fee every 30 days, will earn 1.00% APY on savings balances (including Vaults) and 0.50% APY on checking balances.

Interest rates are variable and subject to change at any time. These rates are current as of 1/24/25. There is no minimum balance requirement. Additional information can be found at http://www.sofi.com/legal/banking-rate-sheet.

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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.

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