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Renters insurance may cover mold damage, but only in certain situations. If the mold is caused by a sudden and accidental event, like a burst pipe or unexpected water leak, your policy could offer some coverage. But if the mold builds up slowly due to things like long-term leaks, humidity, or poor ventilation, it’s typically not covered.

Here’s what you need to know about renters insurance and mold coverage, what to do if you find mold in your rental, and how to protect your belongings from exposure.

When Does Renters Insurance Cover Mold Damage?

Generally speaking, renters insurance may cover mold damage as long as it resulted from something covered in your policy, also known as a peril. Examples include water damage from a burst pipe or a malfunctioning appliance. In these situations, your policy may help pay to repair or replace your personal items like rugs, clothes, or furniture, after you pay your deductible and up to your policy limits.

Your policy’s loss of use coverage may also step in to help cover temporary living expenses if the mold damage makes your rental unlivable. This might include hotel stays, meals, and other added costs while your home is being repaired.

When Does Renters Insurance Not Cover Mold Damage?

Renters insurance usually doesn’t cover mold caused by long-term issues or poor upkeep. For example, if you leave a window open during a storm and mold develops, your policy likely won’t help pay for the cleanup or replacing your belongings.

Sometimes, though, mold can show up because of your landlord’s failure to maintain the property, like ignoring a leak. Renters insurance typically won’t help with restoring or rebuilding parts of the unit. However, your landlord may be responsible for fixing the problem and covering damages to your belongings.

It’s also important to know that mold caused by flooding or sewer backup usually isn’t covered either. Purchasing separate flood insurance can help you protect your belongings in the event of a flood. If a sewer issue causes mold, it’s a good idea to reach out to your landlord promptly for next steps.

How Much Coverage Does Renters Insurance Provide for Mold?

As long as the mold is tied to a covered peril, your renters insurance could help you recover at least some of the cost of your personal property. The amount you’re eligible for, though, depends on your personal property coverage, which usually ranges from $10,000 to $100,000.

Consider choosing a coverage amount that matches the total value of your belongings. For example, if your policy includes $10,000 in personal property coverage and your claim is approved, you could be reimbursed up to that amount, minus your deductible.

If the mold forces you to move out, your policy’s loss of use coverage may help cover extra living expenses in the short term. This type of insurance usually comes as either a flat amount, such as $3,000 to $5,000, or a percentage of your personal property coverage. So, if your policy covers up to $10,000 in personal belongings and includes 40% loss of use coverage, you could have up to $4,000 for hotel stays, meals, and other temporary costs.

Preventing Mold Growth in Your Rental

Here’s the thing about mold: It can spread quickly. In fact, once it finds a damp area, it can start growing in just a day or two. You might notice a musty smell before you see signs of mold, but sometimes, there’s no smell at all. That’s why it’s important to keep an eye on your space, take care of any moisture right away, and understand what you’re responsible for—and what your landlord should handle.

As a tenant, your job is to keep your rental clean and well-ventilated — and to act quickly when you notice something isn’t right. So with that in mind here are some simple ways you can help prevent mold from showing up in your rental, according to the Centers for Disease Control and Prevention:

•   Keep surfaces dry. Pay attention to moisture in bathrooms, kitchens, and basements. Wipe up spills, and report leaks as soon as you spot them.

•   Manage humidity. Use fans or dehumidifiers in your space, especially if you live in a humid climate. Aim to keep indoor humidity between 30–50%.

•   Ventilate your space: Use bathroom and kitchen fans when cooking or showering. And open windows when the weather allows.

•   Act fast: If you smell something musty or see signs of mold, don’t wait. Let your landlord know right away.

Remember, it’s your landlord’s responsibility to make sure the place is safe to live in, which means fixing leaks, taking care of water damage, and helping prevent mold. They should also get the property inspected when needed and let you know if there’s been an issue with mold before. If you report a problem and your landlord doesn’t do anything about it, they could be responsible for any damage or health issues that arise because of it.

Understanding the Health Risks of Mold

Everyone reacts to mold differently. Many people who are exposed to it experience allergy-like symptoms or irritation, including:

•   Stuffy nose or sinus pressure

•   Itchy, red, or watery eyes

•   Breathing issues like wheezing, coughing, or shortness of breath

•   Sore or scratchy throat

•   Skin irritation or rashes

•   Headaches

Though rare, mold exposure can sometimes lead to infections or illness. This is more common among people with weakened immune systems or chronic lung problems.

What to Do If You Find Mold in Your Rental

Mold can look fuzzy, slimy, or discolored, and it usually smells musty. You can typically find it in damp areas like bathrooms, kitchens, and around windows. Look carefully, and don’t forget to check behind carpets, wallpaper, cabinets, or inside closets.

If you end up spotting mold — or even just smell something musty — you’ll want to take swift action. Remember, this stuff grows quickly!

Here are some steps to take:

•   Tell your landlord right away: As soon as you notice mold (or anything that could lead to mold, like a leak), contact your landlord or property manager. It’s their responsibility to fix the issue.

•   Stop further damage: If a broken pipe or appliance is causing the problem, shut off the water source if it’s safe to do so. Taking action right away can help prevent more damage to your home and belongings.

•   Document everything: Take clear photos and videos of the mold and any damage it caused. Write down the date you found it and what you reported. Keeping a paper trail is helpful in case things escalate or you need to break your lease.

•   Check local laws: Some states require landlords to respond within a certain time frame. Look up your state’s mold laws so you know your rights and can take action if needed.

•   Start an insurance claim if needed: If your belongings are damaged or you have to move out while repairs are made, contact your renters insurance provider. They’ll explain what your policy covers and guide you through the claims process.

Recommended: Renters Insurance Guide

The Takeaway

Renters insurance may help cover mold damage, but only if the mold was caused by something your policy covers, like a burst pipe or sudden leak. Coverage usually comes with limits and exclusions, so it’s smart to review your policy and ask your insurer what’s included.

Also, keep in mind that renters insurance only covers your personal belongings and, potentially, whatever personal expenses you incur if you have to live elsewhere while mold repairs are being done. Coverage doesn’t extend to the rental unit itself. That’s your landlord’s responsibility, so it’s worth checking that they’re handling repairs and have the right coverage in place.

Looking to protect your belongings? SoFi has partnered with Lemonade to offer renters insurance. Policies are easy to understand and apply for, with instant quotes available. Prices start at just $5 per month.

FAQ

If a burst pipe causes mold on my furniture, is the furniture covered?

It might be. If the mold on your furniture was caused by a cracked water line — a situation typically covered by renters insurance — your policy may help pay to repair or replace the damaged items. Just make sure to check your coverage limits and deductible to understand how much you could be reimbursed.

Does renters insurance pay for mold removal from walls or ceilings?

No, renters insurance typically doesn’t cover the structure of your rental, including walls or ceilings. That’s your landlord’s responsibility. If the mold was caused by something like sudden pipe failure or accidental bathtub overflow — a covered event — your landlord is usually in charge of handling the repairs and cleanup. Renters insurance is designed to protect your personal belongings, not the building itself.

Is mold caused by high humidity or condensation covered?

Usually not. For renters insurance to cover mold damage, it has to be caused by something your policy specifically covers, like an appliance leak. Mold that forms from high humidity or everyday condensation isn’t typically covered, since those issues are considered preventable with regular upkeep.

What if my landlord is responsible for fixing the mold source?

If the mold is caused by something your landlord should have repaired, such as a leak or plumbing issue, then they’re likely responsible for fixing the problem and cleaning up the mold. Landlord duties vary by state, so it’s a good idea to check your local laws or contact your local housing authority to understand your rights. In some states, like California, there are specific rules about how landlords must handle mold in rentals.

Does my policy cover hotel costs if mold makes my apartment unlivable?

It might, depending on what caused the mold. Renters insurance often includes loss of use coverage, which can help pay for hotel stays, meals, and other living expenses if your place becomes unlivable during repairs, up to policy limits. However, the mold must be caused by something your policy covers, like a sudden roof leak or water damage from a broken washing machine hose. Check your policy details or talk to your insurer to see what’s included in your policy.

Photo credit: iStock/Rocky89

Auto Insurance: Must have a valid driver’s license. Not available in all states.
Home and Renters Insurance: Insurance not available in all states.
Experian is a registered trademark of Experian.
SoFi Insurance Agency, LLC. (“”SoFi””) is compensated by Experian for each customer who purchases a policy through the SoFi-Experian partnership.

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.

SOPRO-Q225-052

Renters insurance may feel like one of those expenses that don’t add much to your life. But when damage occurs to your apartment or rental home, you’ll be glad you paid those premiums each year. In addition to covering any damage to your personal property, most policies also include renters insurance displacement coverage. That makes sure you receive financial reimbursement in certain scenarios when you need to leave your rental while repairs are made.

But there are specific steps you must take to be eligible — and there are limitations to this coverage. Here’s what you need to know about getting temporary housing coverage through your renters insurance policy.

Understanding Displacement and Renters Insurance

When you don’t own the building where you live, your landlord’s insurance won’t cover your losses in case of calamity. Instead, there’s renters insurance coverage available.

Renters insurance provides financial protection in a variety of circumstances.

Two common aspects are coverage for your possessions and legal liability. If your belongings get damaged due to a covered peril such as fire or vandalism, you can file a claim to be reimbursed for any amount up to your policy limit. Liability covers payment for any lawsuits that might arise if you or your family cause damage or injury to other people, or if someone is harmed in your home.

Here’s where renters insurance displacement coverage comes in. Say there’s a fire in your building, and it’s not safe to stay there while the damage is being fixed. Many renters insurance policies will reimburse you for all the additional living expenses you pay when staying elsewhere until you can move back into your rental unit. Each policy has its restrictions and limits, so it’s important to know what to look for before making arrangements.

Recommended: Cheapest Renters Insurance

How Renters Insurance Covers Temporary Housing Expenses

How does renters insurance cover displacement? Here are five common categories that may be covered under “loss of use” provisions in your policy.

Lodging

The costliest item covered with a displacement policy is your lodging, whether that’s a hotel or a temporary rental. Note, however, that the size of your hotel is expected to be similar to your rental. You generally can’t book a large suite or four-bedroom Airbnb if you live in a one-bedroom apartment.

Food

If your lodging doesn’t have a kitchen where you can cook, your policy may also provide partial reimbursement for eating out. Typically the reimbursement would be based on the amount you spent that exceeded your normal cost of groceries. You could also potentially be reimbursed for any food loss that happened at your apartment because of a power outage or other covered event.

Laundry

This is another need that can cost more when you’re temporarily living elsewhere. If you have to go to the laundromat or use a laundry service when you would normally wash your clothes inside your home, your policy may reimburse you for the extra costs.

Storage

When you’re displaced from your rental, you may incur storage unit expenses, especially if major repairs are underway and you need to move out some or all of your belongings. The cost of renting a storage unit may be covered under a “loss of use” provision in your policy. As for damage to your possessions while they’re in the unit, you typically have limited off-premises storage unit coverage as part of your personal property protection.

Parking and gas

If you have to pay parking fees at your hotel or buy additional gas for a longer drive to work each day, you may be compensated for these extra expenses as well.

Loss of Use Coverage Limits and Exclusions

Does renters insurance cover temporary housing in all scenarios? No. The damage caused to your rental home must be a result of a covered loss outlined in your policy. Typically, covered losses come from these calamities, among others:

•   Kitchen fires

•   Flooding caused by burst pipes

•   Water leaks from appliances

•   Sewage backups

•   Hail, ice, snow, windstorms

•   Freezing weather

•   Vandalism

Damage caused by weather-related flooding typically isn’t covered unless you have also put a separate renters insurance flood policy in place. The same goes for damage from earthquakes and sinkholes.

Also, watch for any restrictions or limitations in your policy. The fine print may specify time limits; for instance, you may not be eligible to file a claim if repairs are completed within a certain time frame, such as 15 to 30 days. You may also have constraints on how much you can spend and for how long.

Preparing for Potential Displacement

There are several things to do before you leave your rental due to displacement. For starters, call your insurance company and ask about policy limitations, when coverage kicks in, and what documentation they need for all of your expenses.

If you need to move out any of your belongings, look for a storage unit and make arrangements to transfer everything before you leave.

Even if all of your extra expenses are covered by the cost of your renters insurance, remember that most policies will reimburse your costs. That means you’d probably need to shell out for all of your expenses upfront. So it’s wise to have a plan for how you’d pay for everything you need (by tapping into your emergency fund, for instance).

What to Do If You’re Displaced from Your Rental

Depending on state laws, you may be able to negotiate a rent reduction with your landlord if you’re forced to leave due to repairs. Your lease may have details on any kind of notice and compensation your landlord is responsible for.

Also keep detailed receipts for your costs of living outside of your rental. From hotel bills to food expenses, track everything so that you can file a complete claim and get reimbursed as quickly as possible.

The Takeaway

When damage to your rental house or apartment forces you to temporarily relocate, your renters insurance is likely to cover many of the costs of displacement. Eligible expenses typically include lodging, extra food, laundry services, parking, and more. Carefully track your spending to help ensure you get the reimbursement you’re entitled to.

When the unexpected happens, it’s good to know you have a plan to protect your loved ones and your finances. SoFi has teamed up with some of the best insurance companies in the industry to provide members with fast, easy, and reliable insurance.

FAQ

What types of expenses does loss of use typically cover?

Loss of use coverage in your renters insurance policy usually includes lodging, food expenses beyond your normal budget, extra laundry expenses, storage of your belongings, and additional parking and gas costs.

How much loss of use coverage do I usually have?

Loss of use coverage is stated in your policy, usually either as a flat amount or a percentage of your personal property coverage. Flat amounts usually range between $3,000 and $5,000, or you could be covered for 30% to 40% of your personal property limit.

Does “loss of use” coverage pay my normal monthly rent?

No, loss of use coverage does not pay your monthly rent. It covers additional living expenses you incur because of being displaced. However, due to the damage, your landlord may be required to reduce your rent — depending on your lease agreement and the state in which you live.

What if I’m displaced by something not covered, like a flood?

If you can’t live in your rental home due to an uncovered peril, you’ll be on the hook for those extra living costs. Depending on the cause, you may be eligible for assistance from FEMA or other organizations, particularly if there is a declared disaster.

How long will insurance pay for my temporary housing?

The amount of time insurance pays for temporary housing depends on the details of your policy. Usually, there are limitations, often up to 30 days.

photo credit: iStock/Perawit Boonchu
Auto Insurance: Must have a valid driver’s license. Not available in all states.
Home and Renters Insurance: Insurance not available in all states.
Experian is a registered trademark of Experian.
SoFi Insurance Agency, LLC. (“”SoFi””) is compensated by Experian for each customer who purchases a policy through the SoFi-Experian partnership.

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

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.

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SOPRO-Q225-053

Renters insurance usually covers items you keep in storage units, but the coverage is often lower than it is for belongings kept in your home. Depending on what you’re storing and how valuable it is, you may need to add extra coverage to your renters policy or consider getting insurance directly through the storage facility.

Understanding How Renters Insurance Covers Items in Storage

Typically, renters insurance covers your personal belongings, including furniture, electronics, and clothing, if they’re damaged or lost due to events such as theft, fire, or vandalism.

But coverage can also extend beyond your home. This is known as off-premises coverage. So if you keep things in a storage unit, those items may still be covered under your renters insurance. But keep in mind, there are often limits. Most policies only cover a portion of your total personal property coverage, like 10% or a set dollar amount.

It’s also important to know that high-value items, such as jewelry, silverware, furs, or firearms, usually have lower coverage limits, even if they’re kept in a storage unit. These thresholds are called sub-limits. For example, if your policy covers up to $1,500 for jewelry and your $5,000 ring is stolen from your storage unit, you’d only get $1,500 unless you added more coverage.

If you want more protection for those belongings, you may need to add extra coverage to your policy. This is often called “scheduling” an item.

Covered Scenarios for Items in a Storage Unit

Personal items in a storage unit are usually covered if they’re damaged or lost due to specific events, known as “perils” in insurance lingo. Common covered situations include:

•   Theft

•   Vandalism

•   Fire

•   Lightning

•   Windstorms

•   Hail

•   Damage from a vehicle

Storage Unit Coverage Limits and Exclusions

As we discussed, renters insurance can help protect what’s in a storage unit. But there are limits and exclusions. For example, some policies may only cover theft but not fire or water damage. And even with broader coverage, most policies cap storage protection around 10% of your total personal property coverage. So, if you have $40,000 in personal property coverage, your storage unit items might only be covered up to $4,000.

Even if your policy covers more than just theft, it’s important to remember that renters insurance doesn’t cover everything. Some things just aren’t included, whether your belongings are in your apartment or elsewhere. Examples include:

•   Damage from earthquakes or flooding caused by weather. You’d need a separate flood insurance policy for that.

•   Power outages that affect a large area

•   Theft of your car or car parts, though renters insurance may cover items that are stolen from inside your car

•   Your roommate’s belongings

•   Pest problems, such as mice, rats, ants, or bed bugs

•   Mold, unless it’s caused by a covered peril

Important Steps for Documenting Your Storage Items

No matter where your belongings are stored, it’s a good move to create a home inventory. If a fire, storm, or break-in occurs, having a list of your things can streamline the renters insurance claims process. It helps the insurance company figure out how much coverage you need and what you’re owed when you file a claim.

Your home inventory doesn’t have to be complex. You’ll want to make a list of your items, writing down how much each item is worth and what it would cost to replace. (Some insurers may ask for receipts for expensive items.) You should also take photos and/or videos of your belongings as a backup.

Check if your insurance company offers an app or other digital tool to make the job easier — many do.

What to Do If Items Are Damaged or Stolen from Your Storage Unit

If your belongings are stolen or damaged while in storage, don’t panic. Here are some steps you can take:

•   Contact your insurance company right away. Reach out to your renters insurance provider as soon as possible to start the claims process. They’ll walk you through the claims process, what your plan covers, and what documents you’ll need to submit.

•   Prevent further damage. If there are items in your unit that weren’t impacted, take steps now to protect them. For example, move undamaged belongings to a safer place so you don’t risk losing more.

•   Make a detailed list. Write down everything that was damaged or lost, and include each item’s estimated value. Dig up any receipts or proof of ownership, if possible — this can help move along the claims process.

•   Take photos or videos. Document damage or theft with clear photos or videos. If you’ve created a home inventory, now’s the time to use it to compare what’s missing or damaged.

•   Report the incident to the authorities. If the loss involves theft, you may need to file a police report. Your insurance company might require this as part of your claim.

After you file your claim, your insurance company will likely assign an adjuster to review the damage and determine how much will be covered after you pay your deductible. This amount will be determined based on your policy limits and coverage type.

When it comes to personal property claims, how you’re paid depends on the coverage you have. There are two types:

•   Actual Cash Value (ACV), which refers to what the item is worth today, factoring in depreciation.

•   Replacement Cost Value (RCV), which refers to the amount it would take to repair or replace the item with something similar.

Check the details of your renters policy so you know exactly how much coverage you have and what you’re eligible to receive if something happens to your things.

The Takeaway

Does renters insurance cover storage units? Generally speaking, yes. Renters insurance can cover your belongings when they’re stored away from home, whether that’s in a storage unit or in your car. But keep in mind that this off-premises coverage usually comes with limits and exclusions and often only pays a percentage of your total personal property coverage. Even if your coverage is solid, it’s a good idea to prepare for the unexpected and set aside some extra cash for your deductible and any costs your policy might not cover.

Looking to protect your belongings? SoFi has partnered with Lemonade to offer renters insurance. Policies are easy to understand and apply for, with instant quotes available. Prices start at just $5 per month.

FAQ

How much renters insurance coverage applies to items in storage?

Generally speaking, renters insurance will cover your belongings in a storage unit, but usually only up to about 10% of your total personal property coverage. So, if your policy includes $50,000 in personal property coverage, you’d typically have up to $5,000 of protection for items in storage. If you need more coverage, some insurers let you add extra protection — known as insurance riders — for an additional cost.

Does renters insurance cover damage from a leaky storage unit roof or flood?

It usually depends on what caused the damage. If the leak was due to something your policy covers — like hail damaging the roof — your renters insurance may help pay for the damage. But flooding from heavy rain or rising water isn’t usually covered. For that kind of protection, you’d need to buy separate flood insurance.

Do I need separate storage unit insurance from the facility?

Not always, but it comes down to what you’re storing and your current coverage. Some storage companies offer insurance or may even require you to have it, either through your renters insurance or a separate policy. If the value of the items you’re storing is higher than what your renters insurance covers, getting extra coverage through the storage facility or another insurer could help you fill the coverage gap.

Are high-value items covered in storage?

Some coverage may apply, but it’s usually limited. Renters insurance might protect valuable items like jewelry or electronics in a storage unit, but only up to a certain amount. To make sure your valuables are adequately covered, check your policy details and ask your insurance provider if you need to add extra coverage.

What proof do I need for a claim involving items in storage?

Along with basic info like your name, policy number, and a description of what happened, you’ll likely need to share a list of the items that were damaged or stolen. Having a home inventory prepared ahead of time can make this much easier. From there, your insurance company will guide you through the next steps to process your claim.

Photo credit: iStock/imaginima

Auto Insurance: Must have a valid driver’s license. Not available in all states.
Home and Renters Insurance: Insurance not available in all states.
Experian is a registered trademark of Experian.
SoFi Insurance Agency, LLC. (“”SoFi””) is compensated by Experian for each customer who purchases a policy through the SoFi-Experian partnership.

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.

SOPRO-Q225-054

Taxes are part of life, but many people would like to know if there are any ways to lower their tax bill.

While paying no taxes isn’t likely, there are ways you can use the tax code to reduce your taxable income and tax liability. These range from knowing the right filing status to maxing out your retirement contributions to understanding which deductions and credits you may qualify for.

Read on to learn some smart strategies for lowering your tax bill without running afoul of the IRS.

1. Choosing the Right Filing Status

If you’re married, you have a choice to file jointly or separately. In many cases, a married couple will come out ahead by filing taxes jointly.

Typically, this will give them a lower tax rate, and also may help make them eligible for certain tax breaks, such as the Earned Income Tax Credit (EITC), the American Opportunity Tax Credit (AOTC), and the Lifetime Learning Credit (LLC) for education expenses. But there are certain circumstances where couples may be better off filing separately.

Some examples include: when both spouses are high-income earners and earn the same, when one spouse has high medical bills, and if your income determines your student loan payments.

Seeking advice from a tax professional or preparing returns both ways can help you assess the pros and cons of filing jointly or separately.

2. Maxing Out Your Retirement Account

Generally, the lower your income, the lower your taxes. However, you don’t have to actually earn less money to lower your tax bill.

Instead, you can reduce your gross income (which is your income before taxes are taken out) by making contributions to a 401(k) retirement plan, a 403(b) retirement plan, a 457 plan, or an IRA.

The more you contribute to a pre-tax retirement account, the more you can reduce your adjusted gross income (AGI), which is the baseline for calculating your taxable income. A lower taxable income may also put you into different tax brackets. It’s important to keep in mind, however, that there are annual limitations to how much you can put aside into retirement, which depend on your income and your age.

Even if you don’t have access to a retirement plan at work, you may still be able to open and contribute to an IRA. And, you can do this even after the end of the year.

While the tax year ends on December 31st, you may still be able to contribute to your IRA or open up a Roth IRA or traditional IRA (if you meet the eligibility requirements) up until the tax deadline in mid-April.

3. Adding Up Your Health Care Costs

Health care expenses are typically only deductible once they exceed 7.5% of your AGI (and only for those who itemize their deductions). But with today’s high cost of medical care and, in some cases, insurance companies passing more costs onto consumers, you might be surprised how much you’re actually spending on health care.

In addition to the obvious expenses, like copays and coinsurance, it’s key to also consider things like dental care, prescription medications, prescription eyeglasses, and even the mileage to and from all medical appointments.

4. Saving for Private School and College

If you have children who may attend college in the future, or who attend or will attend private school, it can pay off to open a 529 savings plan.

Even if your children are young, it’s never too early to start setting aside money for their education. In fact, because of the power compounding returns with long-term investing, starting early could help make college a lot more affordable.

A 529 savings plan is a type of investment account designed to help parents save for educational expenses (such as for private schools or colleges) in a tax-advantaged way. While you won’t typically get a federal tax deduction for the money you put into a 529, many states offer a state tax deduction for these contributions.

The big tax advantage is that no matter how much your investments grow between now and when you need the money, you won’t pay taxes on those gains, and any withdrawals you take out to pay for qualified education expenses will be tax-free.

Recommended: Compound vs. Simple Interest

5. Putting Estimated Tax Payments on Your Calendar

While this move won’t technically lower your taxes, it could help you avoid a higher-than-necessary tax bill at the end of the year.

That’s because income tax in the United States works on a pay-as-you-go system. If you are a salaried employee, the federal government typically collects income taxes throughout the year via payroll taxes.

If you’re self-employed or a freelancer, however, it’s up to you to pay as you go. You can do this by paying the IRS taxes in quarterly installments throughout the year.

If you don’t pay enough, or if you miss a quarterly payment due date, you may have to pay a penalty to the IRS. The penalty amount depends on how late you paid and how much you underpaid.

The deadlines for quarterly estimated tax payments are typically in mid-April, mid-June, mid-September, and mid-January.

For help calculating your estimated payments, individuals can use the Estimated Tax Worksheet from the IRS .

6. Saving Your Donation Receipts

You may be able to claim a deduction for donating to charities that are recognized by the IRS. So it’s a good idea to always get a receipt whenever you give, whether it’s cash, clothing and household items, or your old car.

If your total charitable contributions and other itemized deductions, including unreimbursed medical expenses, mortgage interest, and state and local taxes, are greater than your available standard deduction, you may wind up with a lower tax bill.

Note: For any contribution of $250 or more, you must obtain and keep a record.

7. Adding to Your HSA

If you have a high deductible health plan, you may be eligible for or already have a health savings account (HSA), where you can set aside funds for medical expenses.

HSA contributions are made with pre-tax dollars, so any money you put into an HSA is income the IRS will not be able to tax. And, you can typically add money until mid-April to deduct those contributions on the prior year’s taxes.

Distributions from your HSA are tax-free as long as they’re used for yourself, your spouse, and your dependents for qualifying medical expenses. If you don’t end up needing the money to pay for health care, you can simply leave it in your HSA until you reach age 65, at which point you can withdraw money from an HSA for any reason.

HSAs typically allow you to invest your funds, and in that case, the interest, dividends, and capital gains from an HSA are also nontaxable for qualified distributions.

Recommended: How to Switch Banks

8. Making Student Loan Payments

You may be able to lower your tax bill by deducting up to $2,500 of student loan interest paid per year, even if you don’t itemize your deductions.

There are certain income requirements that must be met, however. The deduction is phased out when an individual’s income reaches certain thresholds.

Even so, it’s worth plugging in the numbers to see if you qualify.

9. Selling Off Poorly Performing Investments

If you have investments in your portfolio that have been down for quite some time and aren’t likely to recover, selling them at a loss might benefit you tax-wise.

The reason: You can use these losses to offset capital gains, which are profits earned from selling an investment for more than you purchased it for. If you profited from an investment that you held for one year or less, those gains can be highly taxed by the IRS.

This strategy, known as tax-loss harvesting, needs to be done within the tax year that you owe, and may be used to reduce capital gains on both short-term and long-term investments (short-term gains are taxed at a higher rate than long-term gains). Tax-loss harvesting can help a taxpayer who has made money from investments avoid a large, unexpected tax bill.

The Takeaway

The key to saving on taxes is to get to know the tax code and make sure you’re taking advantage of all the deductions and credits you’re entitled to.

It can also be helpful to look at tax planning as a year-round activity. If you gradually make tax-friendly financial decisions like saving for retirement, college, and health care throughout the year, you could easily reduce your tax burden and potentially score a refund at the end of the year. If you do score a tax refund, you can put it to good use, paying down debt or earning interest in a bank account.

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.

FAQ

How can I lower my tax payments?

Filing jointly, when applicable, can often get you a lower tax rate and a higher standard deduction. Other common ways to reduce taxes include contributing the maximum amount to retirement accounts, such as 401(k)s and IRAs, making tax-deductible contributions to an HSA account, deducting charitable contributions, and deducting up to $2,500 in student loan interest payments.

With investments, tax-loss harvesting may also help reduce the amount of taxes owed on capital gains.

How can saving for retirement help me lower my taxes?

Contributing to traditional, pre-tax retirement accounts like 401(k)s, 403(b)s, 457 plans, or IRAs can lower your taxable income for the year. These pre-tax contributions reduce the income you report to the IRS, which can result in a smaller tax bill now, while also allowing your retirement investments to grow tax-deferred until retirement.

Are there tax advantages to saving for health care expenses?

Yes, if you have a high-deductible health plan, you may be eligible for a Health Savings Account (HSA). HSAs offer a few different tax advantages: your contributions are tax-deductible, the money, if invested, may grow tax-free, and withdrawals for qualified medical expenses are also tax-free. In addition, non-medical withdrawals made after turning 65 are also tax-free.

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.

Annual percentage yield (APY) is variable and subject to change at any time. Rates are current as of 12/23/25. 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.
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.
Third Party Trademarks: Certified Financial Planner Board of Standards Center for Financial Planning, Inc. owns and licenses the certification marks CFP®, CERTIFIED FINANCIAL PLANNER®

*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.

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If you’re looking for a short-term place to park your cash while earning a competitive interest rate, certificates of deposits (CDs) are worth considering.

Traditional CDs often offer higher returns than standard savings accounts, which can help your money grow faster. However, there’s a catch: Your funds are locked in until the CD matures — anywhere from a few months to several years — and withdrawing early typically means paying a penalty.

No-penalty CDs offer a more flexible alternative. They function like traditional CDs but allow you to withdraw your money before maturity without incurring a fee. The tradeoff? These CDs can be harder to find and may offer lower interest rates compared to traditional options.

Here’s what you need to know to determine whether a no-penalty CD is the right fit, plus how it compares to other high-yield savings options.

No-Penalty CDs Explained

A no-penalty CD is a type of deposit account that’s structured like a traditional certificate of deposit (CD) in that money is placed into the account for a set period of time — usually around a year or less.

During that period, interest accrues, often at a higher rate than a standard savings account. That rate is locked in until the end of the CD term, also known as its maturity date.

Unlike traditional CDs, there is no fee or loss of earned interest if the money is withdrawn before the account matures. Funds usually need to be kept in the account for at least a week before they can be withdrawn. But as long as that short milestone is met, a no-penalty CD is a very flexible option.

No-Penalty CDs vs Traditional CDs

Opening one or more CDs can be an effective way to house your savings. It’s one of several ways to earn more interest than you might in a traditional savings account. But before deciding which CD to choose, it helps to understand the intricacies involved in each type.

With a traditional CD, money can’t be withdrawn from that account without incurring a penalty fee. Early withdrawal penalties for a CD vary, depending on the individual financial institution, but the penalty typically involves losing a certain number of days or months’ worth of interest.

The length of time varies by each bank or credit union, but depending on how early you withdraw your funds from a CD, you could possibly lose some of the principal or initial deposit.

For example, a bank may charge a CD early withdrawal penalty as 120 days (or four months) of interest payments. If the CD has only been open for three months, you’d not only lose the account’s accumulated interest but an additional month of daily interest would also be deducted before the cash could be withdrawn.

Generally, the farther away you are from the CD’s maturity date, the higher the penalty will be.

That’s why long-term CDs aren’t typically recommended to house short-term emergency savings. When that surprise expense pops up, it could end up costing money to access the funds.

Of course, every bank has different terms and conditions. Before opening any account, it’s important to understand all of the details to avoid getting caught off guard with unexpected charges.

Recommended: Passive Income Ideas

Pros and Cons of a No-Penalty CD

No-penalty CDs have both advantages and drawbacks. Here are some to consider:

Finding a No-Penalty CD

While no-penalty CDs aren’t as common as their traditional counterparts, some banks and credit unions offer them.

Shopping for a no-penalty CD is the same as evaluating any other financial product. In addition to comparing interest rates, it’s also a good idea to look at how much money you need to open the account, as well as the minimum time after depositing your money before withdrawals are allowed (typically around a week, but this can vary).

Some banks also offer tiered interest rates for no-deposit CDs, with higher rates offered for higher deposit amounts.

Whatever no-penalty CD you are considering, it’s smart to read the fine print. Some banks may advertise a “no-penalty CD” but are really offering something quite different, such as a 12-month CD that only allows you to withdraw your money penalty-free in the event of an emergency, such as a job loss.

Alternative Options

A no-penalty CD can be a great way to earn higher interest on your savings than you would get in a standard savings account yet still maintain flexibility.

It’s not the only option, however. Here are some others to consider.

High-Yield Checking Account

An interest-bearing checking account helps earn some extra cash on the money you use on a day-to-day basis. It’s one of the most flexible options because there are no transaction limits and both a checkbook and debit card can be linked to the account.

However, some banks charge a monthly account fee or require a certain minimum balance in order to qualify for interest. And interest rates on these accounts tend to be lower than other short-term savings options.

High-Yield Savings Account

High-yield savings accounts, typically offered by online banks and credit unions, generally come with a higher interest rate than a checking account or traditional savings account.

It’s easy to access your money, but withdrawals may be limited to six per month, and some institutions may charge fees for dropping below a certain minimum balance.

You can often find the best rates on high-yield savings accounts at online banks. These banks tend to have lower operating costs compared to traditional brick-and-mortar institutions, and will pass that savings on to customers in the form of higher rates and lower, or no, fees.

Online savings accounts typically allow you to deposit checks and move money back and forth between accounts but may have limits on how many withdrawals or transfers you can make per month.

Recommended: Different Types of Savings Accounts

Money Market Account

A money market account (MMA) is a type of savings account that offers some of the features of a checking account, such as checks and a debit card. These accounts may pay a higher rate than a traditional savings account, but usually have higher minimum deposit or balance requirements. Like other savings accounts, MMAs may limit the number of withdrawals you can make each month.

Cash Management Account

A cash management account (CMA) is a cash account offered by a financial institution other than a bank or credit union.

CMAs are designed to merge the services and features of checking, savings, and investment accounts, all into one offering.

Generally, when you put money into a CMA, it earns money (often through low-risk investing that is done automatically), while you can also access it for your daily spending.

This allows CMAs to function similarly to a traditional checking account, yet pay interest that is often higher than most savings accounts.

Some brokerage firms require a large minimum deposit to open a CMA, or may charge monthly fees if you balance dips below a certain threshold.

For people who are interested in streamlining their accounts, as well as saving for a short-term goal, a CMA can be a good option.

The Takeaway

If you’re looking for a higher return on your savings than you’re getting at the bank, but still want some liquidity, a no-penalty CD could be the right choice for your financial goals.

However, these CDs may offer lower interest rates than you would get with a traditional CD. So it’s a good idea to shop around for rates to see which bank is offering the best deal.

Other types of accounts that can help your savings grow include regular CDs, high-yield savings accounts, interest-bearing checking accounts, money market accounts, and cash management accounts

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.

FAQ

Are no-penalty CDs a good idea?

No-penalty certificates of deposit (CDs) can be a good idea if you value flexibility and the potential to access your funds without fees. They offer a middle ground between savings accounts and traditional CDs, often providing a slightly higher interest rate than regular savings while allowing for withdrawals without penalties.

How much will a $10,000 CD make in one year?

The amount a $10,000 certificate of deposit (CD) will make in one year depends on the interest rate. For example, at a 4.00% annual percentage yield (APY), it would earn $400 in interest over one year. CDs with lower rates will make less, while those with higher rates will yield more.

What is the difference between a high-yield CD and a no-penalty CD?

A high-yield CD is a certificate of deposit that offers one of the highest available rates on CDs. A no-penalty CD, on the other hand, allows you to withdraw funds without incurring early withdrawal penalties, offering more flexibility but often at a lower interest rate.

What is the biggest negative of putting your money in a CD?

The biggest negative of putting your money in a certificate of deposit (CD) is the lack of liquidity. Your funds are typically locked in for a set period, and early withdrawal can result in significant penalties. This limits your ability to access funds for emergencies or better investment opportunities.

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 12/23/25. 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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