Financial Topics Archives

Jan

2026

Safe Harbor 401(k) Plan: What Is It? Is It for You?

By Ashley Kilroy | Growing Wealth, Investing, Preparing for Retirement | Comments Off

Safe harbor 401(k) plans enable companies to avoid the annual IRS testing that comes with traditional 401(k) plans. With a safe harbor 401(k), an employer makes mandatory contributions to all employees’ retirement accounts, and those funds vest immediately.

Often a perk used to attract top talent, safe harbor 401(k) plans are a way for highly compensated employees, like company executives and owners, to save more than a traditional 401(k) plan would normally allow.

Keep reading to learn more about safe harbor rules, why companies use these plans, along with the benefits, drawbacks, and relevant deadlines.

Key Points

• Like a traditional 401(k), a safe harbor 401(k) lets employees deposit tax-deferred funds from their paychecks into a retirement savings account.

• Employers are required to contribute to employees’ safe harbor 401(k) accounts.

• Employer contributions in a safe harbor 401(k) vest immediately. There is no waiting period.

• Highly-paid employees can contribute more to a safe harbor 401(k) than a traditional 40(k).

• Safe harbor 401(k) plans allow companies to skip the annual nondiscrimination regulatory testing required by the IRS for traditional 401(k)s.

What Is a Safe Harbor 401(k) Plan?

A 401(k) safe harbor plan is similar to a traditional 401(k) plan — but with a twist. In both cases, eligible employees can use the plan to contribute pre-tax funds to a retirement account and employers may contribute matching funds.

But with a traditional 401(k) retirement plan, companies must submit to annual nondiscrimination regulatory testing by the IRS to ensure that the company plan doesn’t treat highly compensated employees (HCEs) more favorably than others. HCEs are generally defined as earning at least $160,000 in the 2025 and 2026 tax years, and being in the company’s top 20% in pay, or owning more than 5% of the business. The testing process is complex and can be a burden for some companies.

An alternative is to set up a safe harbor 401(k) plan with a safe harbor match. This allows a company to skip the annual IRS testing — and avoid imposing restrictions on employee saving — by providing the same 401(k) contributions to all employees, regardless of title, salary, or even years spent at the company. And those funds must vest immediately.

This is an important benefit, because in many cases, employer contributions to traditional 401(k) plans vest over time, requiring employees to stay with the company for some years in order to get the full value of the employer match. Often, if you leave before the employer contributions or match have vested, you may forfeit them.

For smaller companies, it may be worth making the extra safe harbor match contributions in order to avoid the time and expense of the IRS’s annual nondiscrimination testing. For larger companies, giving all employees the same percentage contribution could be expensive. But the upside is that highly paid employees can then make much larger 401(k) contributions without running afoul of IRS rules, a real perk for company leaders. In addition, 401(k) safe harbor plans are typically less expensive to set up than traditional plans.

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Traditional 401(k) vs Safe Harbor 401(k) Plans

While safe harbor 401(k)s and traditional 401(k) plans are similar in many ways, there are some important differences that employers should be aware of.

For instance, with traditional 401(k) plans, contributions from highly compensated employees can’t comprise more than 2% of the average of all other employee contributions, in addition to other restrictions. However, with safe harbor 401(k) plans, those limits don’t apply.

Comparing Plan Features and Benefits

Here is a side-by-side comparison of a safe harbor 401(k) vs. a traditional 401(k)

Safe Harbor 401(k)	Traditional 401(k)
Employer contributions are required.	Employer contributions are optional.
Employer contributions are vested immediately.	Employer contributions may vest over time.
Highly-paid employees can contribute up to the $23,500 maximum in tax year 2025 and up to $24,500 in 2026.	Highly-paid employees can be limited in how much they can contribute.
Companies do not have to do annual nondiscrimination testing.	Companies must do annual nondiscrimination testing.

Choosing the Right Plan for Your Business

A safe harbor plan may be beneficial for some smaller companies that can’t afford the expense of nondiscrimination testing. In addition, the plan is simpler with less administrative tasks.

A company might also choose a safe harbor 401(k) if it has some key high-earning employees that make up a large share of the workforce.

However, if your company is able to easily manage the nondiscrimination testing process, you may want to opt for a traditional 401(k). A traditional 401(k) could also be a good option for business owners who want to try to retain employees over the long-term. They could set up a vesting schedule for employer contributions that requires employees to be with the company for three years before becoming fully vested, for instance.

Setting Up a Safe Harbor 401(k) Plan

For employers interested in using a safe harbor 401(k), there are some general rules and guidelines they will need to follow.

Requirements, Contribution Formulas, and Deadlines

To fulfill the safe harbor 401(k) requirements, the employer must make qualifying 401(k) contributions (a.k.a. the safe harbor match) that vest immediately. The company contributes to employees’ retirement accounts in one of three ways:

• Non-elective: The company contributes the equivalent of 3% of each employee’s annual salary to a company 401(k) plan, regardless of whether the employee contributes.

• Basic: The company offers 100% matching for the first 3% of an employee’s 401(k) plan contributions, plus a 50% match for up to 5% of an employee’s contributions.

• Enhanced: The company offers a 100% company match for all employee 401(k) contributions, up to 4% of a staffer’s annual salary.

Companies that opt for a safe harbor 401(k) plan have to adhere to strict compliance filing deadlines. These are the dates worth knowing.

October 1: That’s the deadline for filing for a safe harbor 401(k) for the current calendar year. This deadline meets the government criteria of a company needing to have a safe harbor 401(k) in operation for at least three months in a 12 month period, for the first year operating a safe harbor plan.

December 1: By this date, all companies — whether they’re rolling out a brand new safe harbor plan or are administering an existing one — must issue a formal notice to employees that a safe harbor 401(k) will be offered to company staffers.

January 1: The date that all safe harbor 401(k) plans are activated. For companies that currently have no 401(k) plan at all, they can roll out either a traditional 401(k) plan or a safe harbor 401(k) plan at any point in the year, for that calendar year.

Advantages of Implementing a Safe Harbor 401(k) Plan

Safe harbor 401(k)s offer some distinct upsides for business owners and employees alike.

Benefits for Employers and Employees

By creating a safe harbor 401(k) plan, a business owner can potentially attract and maintain highly skilled employees. Employees are attracted to higher retirement plan contributions and the ability to optimize retirement plan contribution amounts, ensuring more money for long-term retirement savings.

Plus, a safe harbor 401(k) plan can also help business owners save money on the compliance end of the spectrum. For example, companies save on regulatory costs by avoiding the costs of preparing for a nondiscrimination test (and the staff hours and training that goes with it).

There are some additional upsides to offering a safe harbor 401(k) retirement plan, for higher paid employees and regular staff too.

• Playing catch up. If a company owner, or high-level managers, historically haven’t stowed enough money away in a company retirement plan, a safe harbor 401(k) plan can help them catch up. The same may be true, although to a lesser degree, for regular employees.

• The spread of profit. Suppose a company has a steady and robust revenue stream and is managed efficiently. In that case, company owners may feel comfortable “spreading the wealth” with not only high-profile talent but rank-and-file employees, too.

• Encourage retirement savings. If a company is seeing weak contribution activity from its rank-and-file employees, it may feel more comfortable going the safe harbor route and at least guaranteeing minimum 401(k) contributions to employees while rewarding higher-value employees with more lucrative 401(k) plan contributions.

Disadvantages of Safe Harbor Plans

Safe harbor 401(k) plans have their downsides, too. Here are some drawbacks to consider.

Financial Implications for Employers

The matching contribution requirements for safe harbor 401(k)s can add up to a hefty expense, depending on employee salaries. And because employees are vested immediately, there’s no incentive to stay with the company for a certain period.

In addition, if a company introduces a safe harbor 401(k) plan, it must commit to it for one calendar year, no matter how the plan is performing internally. Even after a year, 401(k) plan providers (which administer and manage the retirement plans) may charge a termination fee if a company decides to pull the plug on its safe harbor plan after one year.

💡 Quick Tip: The advantage of opening a Roth IRA and a tax-deferred account like a 401(k) or traditional IRA is that by the time you retire, you’ll have tax-free income from your Roth, and taxable income from the tax-deferred account. This can help with tax planning.

Safe Harbor 401(k) Contribution Limits and Match Types

There are some different rules for employer contribution limits and matching with a safe harbor 401(k) vs. a traditional 401(k).

Understanding Contribution Limits

Just like traditional 401(k) plans, the maximum employee contribution limit for a safe harbor plan is $23,500 in 2025 and $24,500 in 2026. If you are over 50, you would be eligible for an additional $7,500 catch-up contribution in 2025 and $8,000 in 2026, if your plan allows it.

For both 2025 and 2026, those aged 60 to 63 may contribute an additional $11,250 (instead of $7,500 and $8,000) to their 401(k) plan.

But in a safe harbor plan, a company owner can reserve the maximum $23,500 in 2025 for their annual plan contribution, $24,500 for 2026, and also boost contribution payments to valued team members up to an individual profit-sharing maximum amount of 100% of their compensation, or $70,000 (77,500 for those over age 50 with the standard catch-up and $81,250 with the SECURE 2.0 catch-up for those 60 to 63) — whichever is less — for 2025.

For 2026, the total allowed is 100% of compensation or $72,000, whichever is less. (For those 50 and up the cap is $80,000 with the standard catch-up, and $83,250 with the SECURE 2.0 catch-up for those ages 60 to 63 only.) Employer rules about catch-up provisions may vary, so be sure to ask.

Regular employees are allowed the standard maximum contribution limit of $23,500 in 2025, $24,500 in 2026; plus anyone over age 50 can contribute an extra “catch-up” amount of $7,500 in 2025 and $8,000 in 2026. Those are the same maximum contribution ceilings as regular 401(k) plans. For 2025 and 2026, those aged 60 to 63 may contribute an additional $11,250 instead of $7,500 and $8,000 respectively, thanks to SECURE 2.0.

Different Types of Employer Matching Contributions

As mentioned earlier, with a safe harbor 401(k), an employer must make qualifying 401(k) contributions that vest immediately in one of these ways:

• Non-elective: The company contributes the equivalent of 3% of each employee’s annual salary to a company 401(k) plan.

• Basic: The company matches 100% for the first 3% of an employee’s 401(k) plan contributions, plus a 50% match for the following 2% of their contributions.

• Enhanced: The company provides a 100% company match for all employee 401(k) contributions, up to 4% of a staffer’s annual salary.

IRS Compliance Testing and Safe Harbor Provisions

To help understand the benefit of safe harbor plans, it helps to see what employers with traditional 401(k) plans face in terms of following IRS rules and submitting to the annual nondiscrimination tests.

Navigating Non-Discrimination Testing

Each year, a company must conduct Actual Deferral Percentage (ADP), Actual Contribution Percentage (ACP), and Top Heavy tests to confirm there is no compensation discrimination.

If the company fails one of the tests, it could mean considerable administrative hassle, plus the expense of making corrections, and potentially even refunding 401(k) contributions.

Before explaining the details of each test, here’s a refresher on how the IRS defines highly compensated employees (HCEs) and non-highly compensated employees (NHCEs).

To be an HCE:

• The employee must own more than 5% of the company at any time during the current or preceding year (directly or through family attribution).

• The employee is paid over $160,000 in compensation from the employer for both 2025 and 2026. The plan can limit these employees to the top 20% of employees who make the most money.

Employees who don’t fit these criteria are considered non-highly compensated. The nondiscrimination tests are designed to assess whether top employees are saving substantially more than the rank-and-file staffers.

• The Actual Deferral Percentage (ADP) test measures how much income highly paid employees contribute to their 401(k), versus staff employees.

• The Actual Contribution Percentage (ACP) test compares employer retirement contributions to HCEs versus the contributions to everyone else.

According to the IRS, the terms of the ADP test — which compares the amounts different employees are saving in their 401(k)s — are met if the ADP for highly compensated employees (HCE) doesn’t exceed the greater of:

• 125% of the deferral percentage for ordinary, i.e., non-highly compensated employees (NHCEs)

Or the lesser of:

• 200% of the deferral percentage for the NHCEs

• or the deferral percentage for the NHCEs plus 2%.

The ACP test is met if the deferral percentage for highly compensated employees doesn’t exceed the greater of:

• 125% of the deferral percentage for the NHCEs,

Or the lesser of:

• 200% of the deferral percentage for the group of NHCEs

• or the deferral percentage for the NHCEs plus 2%.

Last, the top-heavy test measures the value of the assets in all company 401(k) accounts, total. If the 401(k) balances of “key employees” account for more than 60% of total plan assets, the 401(k) would fail the top heavy test. The IRS defines key employees somewhat differently than highly compensated employees, although both groups are similar in that they earn more than ordinary staff.

As you can see, maintaining a traditional 401(k) plan, and meeting these requirements each year, can be a burden for some companies. Fortunately, by setting up a safe harbor 401(k) plan, a company can avoid the annual nondiscrimination tests and still provide a 401(k) savings plan for employees.

The Takeaway

Companies that don’t want the regulatory obligations of a traditional 401(k) plan, and would like to prioritize talent acquisition and employee retention may want to consider safe harbor 401(k) plans.

However, a business owner needs to weigh the pros and cons of a safe harbor 401(k) plan because, in some cases, it can be expensive for a company to maintain.

But no matter what type of 401(k) an employer decides to go with, having a retirement plan in place, with different savings and investment options, can help employees — and business owners themselves — save for the future.

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FAQ

Is a safe harbor 401(k) worth it?

Whether a safe harbor 401(k) is worth it depends on the goals of the business owner. A safe harbor 401(k) allows a company to skip the expense of nondiscrimination testing. And by creating a safe harbor 401(k) plan, a business owner may be able to attract and maintain highly skilled employees because of the higher contributions. However, the matching employer contribution requirements can add up to a high expense. A business owner needs to weigh the pros and cons of these plans.

Can I cash out my safe harbor 401(k)?

You can withdraw safe harbor 401(k) funds without penalty at age 59 ½ or if you leave your job. However, hardship withdrawals for immediate and heavy financial need may be allowed in certain circumstances. You can learn more at irs.gov.

Why would a company use a safe harbor 401(k)?

A company might use a safe harbor 401(k) to avoid the expense of nondiscrimination testing and to simplify the administration of a 401(k) plan. They might also use a safe harbor 401(k) to help attract and keep highly skilled employees.

What is an example of a safe harbor 401(k) match?

If an employer with a safe harbor 401(k) chooses to offer non-elective matching contributions, that means they contribute at least 3% of each employee’s annual salary. So if an employee makes $70,000 a year, for example, the employer would contribute $2,100 to their safe harbor 401(k) account.

About the author

Ashley Kilroy

Ashley Kilroy is a seasoned personal finance writer with 15 years of experience simplifying complex concepts for individuals seeking financial security. Her expertise has shined through in well-known publications like Rolling Stone, Forbes, SmartAsset, and Money Talks News. Read full bio.

INVESTMENTS ARE NOT FDIC INSURED • ARE NOT BANK GUARANTEED • MAY LOSE VALUE

Jan

2026

Overhead shot of a woman sitting on a wooden floor, surrounded by a laptop, tablet, phone, and investment statements.

9 Golden Rules of Investing

By Beth Braverman | Growing Wealth, invest, Investing | Comments Off

Table of Contents

Basic Investing Principles
FAQ

While every investor has their own unique approach, certain best practices have been developed and refined over time by seasoned professionals.

That’s not to say that one investing strategy is inherently better or more successful than another — after all there are no guarantees or crystal balls in the market. However, understanding a few timeless principles can help you make more informed and confident investment decisions.

Key Points

• A longer time horizon may allow investments to weather short-term volatility and potentially benefit from compound returns.

• Automating contributions ensures consistent and disciplined investment habits.

• IRAs and 401(k)s are tax-advantaged tools designed for retirement savings.

• Diversification involves strategically allocating investments across various asset classes to help mitigate potential losses.

• Sticking to a long-term plan helps avoid emotional reactions and supports goal achievement.

Basic Investing Principles

The following fundamentals hold true for many investors across a wide range of situations. While bearing them in mind won’t guarantee specific results, they can help you manage risk, control costs, and stay disciplined through the emotional ups and downs of investing.

1. The Sooner You Start, the Better

In general, the longer your investments remain in the market, the greater the odds that you might see positive returns. That’s because long-term investments may benefit from time in the market, not timing the market.

Markets inevitably rise and fall. The sooner you invest, and the longer you keep your money invested, the more likely it is that your investments can recover from any volatility or downturns.

Starting early also allows you to potentially benefit from compounding returns, which is when your returns earn returns of their own. The longer your money is invested, the more time it has to generate earnings, which you can opt to be reinvested to earn even more earnings, creating a powerful snowball effect.

💡 Quick Tip: Did you know that opening a brokerage account typically doesn’t come with any setup costs? Often, the only requirement to open a brokerage account — aside from providing personal details — is making an initial deposit.

2. Make It Automatic

One of the easiest ways to build up an investment account is by automatically contributing a certain amount to the account at regular intervals over time. If you have a 401(k) or other workplace retirement account, you likely already do this via paycheck deferrals. However, most brokerages allow you to set up automatic, repeating deposits in other types of accounts as well.

Investing in this way also allows you to take advantage of dollar-cost averaging. This is an investment strategy where you invest a fixed amount of money into a specific investment at regular intervals, regardless of its current market price. This approach may help mitigate the impact of market volatility by smoothing out the average purchase price over time.

3. Take Advantage of Free Money

“If you have access to a workplace retirement account and your employer provides a match, contribute at least enough to get your full employer match,” advises Brian Walsh, CFP® and Head of Advice & Planning at SoFi. “That’s a return that you can’t beat anywhere else in the market, and it’s part of your compensation that you should not leave on the table.”

Recommended: Investing 101 Guide

4. Build a Diversified Portfolio

Creating a diversified portfolio may reduce some of your investment risk. Portfolio diversification involves investing your money across a range of different asset classes — such as stocks, bonds, and real estate — rather than concentrating it in one area. Studies indicate that diversifying the assets in your portfolio may offset a certain amount of investment risk by reducing exposure to any single asset or risk source.

Taking portfolio diversification to the next step — further differentiating the investments you have within asset classes (for example, holding small-, medium-, and large-cap stocks, or a variety of bonds) — may also be beneficial.

5. Reduce the Fees You Pay

Whether you take an active, passive, or automatic approach to investing, you’re likely going to have to pay some fees. For example, if you buy mutual funds or exchange-traded funds (ETFs), the main annual costs, known as the expense ratio, are automatically deducted from the fund’s total assets, directly reducing the fund’s net asset value (NAV) and lowering your overall investment returns.

Fees can be one of the biggest drags on investment returns over time, so it’s important to look carefully at the fees that you’re paying and to occasionally shop around to see if it’s possible to get similar investments for lower fees.

6. Stick with Your Plan

When markets go down, it can feel like the world is ending. New investors might find themselves pondering questions like: How can investments lose so much value so quickly? Will they ever go back up? What should I do?

During the crash of early 2020, for example, $3.4 trillion in wealth disappeared from the S&P 500 index alone in a single week. And that’s not counting all of the other markets around the world. But over the next two years, investors saw big gains as markets hit record highs.

The takeaway? Investments fluctuate over time and managing your emotions can be as important as managing your portfolio. If you have a long time horizon, you may not need to be overly concerned with how your portfolio is performing day to day. It’s often wiser to stick with your plan, rather than buy or sell based on emotional reactions to short-term external factors.

7. Maximize Tax-Advantaged Accounts

Like fees, the taxes that you pay on investment gains can significantly eat away at your profits. That’s why tax-advantaged accounts, those types of investment vehicles that allow you to defer taxes, or enjoy tax-free withdrawals, are so valuable to investors.

The tax-advantaged accounts that you can use will depend on your workplace benefits, your income, and state regulations, but they might include:

• Workplace retirement accounts such as 401(k), 403(b), etc.

• Health Savings Accounts (HSAs)

• Individual Retirement Accounts (IRAs), including Roth IRAs, SEP IRAs, SIMPLE IRAs, etc.

• 529 Accounts (college savings accounts)

Recommended: Benefits of Health Savings Accounts

8. Rebalance Regularly

Once you’ve nailed down your asset allocation, or how you’ll proportion out your portfolio to various types of investments, you’ll want to make sure your portfolio doesn’t stray too far from that target. If one asset class, such as equities, outperforms others that you hold, it could end up accounting for a larger portion of your portfolio over time.

To correct that, you’ll want to rebalance once or twice a year to get back to the asset allocation that works best for you. If rebalancing seems like too much work, you might consider a target-date fund or an automated account, which will rebalance on your behalf.

9. Understand Your Personal Risk Tolerance

While all of the above rules are important, it’s also critical to know your own personality and your ability to handle the volatility inherent in the market. If a steep drop in your portfolio is going to cause you extreme anxiety — or cause you to make knee-jerk investing decisions — then you might want to tilt your portfolio more conservatively.

Ideally, you’ll want to land on an asset allocation that takes into account both your risk tolerance and the level of risk required to have a reasonable chance of reaching your specific financial goals.

If, on the other hand, you get a thrill out of market ups and downs (or have other assets that make it easier for you to stomach short-term losses) and a long time horizon, you might consider taking a more aggressive approach to investing.

💡 Quick Tip: If you’re opening a brokerage account for the first time, consider starting with an amount of money you’re prepared to lose. Investing always includes the risk of loss, and until you’ve gained some experience, it’s probably wise to start small.

The Takeaway

The rules outlined above are guidelines that can help both beginner and experienced investors build a portfolio that helps them meet their financial goals. While not all investors will follow all of these rules, understanding them provides a solid foundation for creating the strategy that works best for you.

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FAQ

How much will $100 a month be worth in 30 years?

The value of $100 invested monthly for 30 years depends on the rate of return. If you consistently invest $100 per month, your total contribution is $36,000. If you earn an average 5% annual return, you’d have about $83,800, assuming returns are compounded daily. At 7%, it’s closer to $123,000 and at 10%, you’d have around $230,000. Keep in mind, however, that investment returns are not guaranteed and these examples do not account for investment fees, expenses, or taxes, which would reduce actual returns.

What are the four golden rules of investing?

While there is no single, universally agreed-upon list, four fundamental and time-tested principles of investing are: starting early to take advantage of compounding returns; diversifying your portfolio to manage risk; keeping costs and fees low; maintaining a long-term perspective and avoiding emotional, short-term reactions to market volatility.

What is the 70/20/10 role in finance?

The 70/20/10 rule in finance is a simple budgeting guideline for allocating your after-tax income. According to this rule:

• 70% of your income should go toward needs (like living expenses) and daily spending.

• 20% is dedicated to saving and investing, building your long-term wealth and financial security.

• 10% is allocated to debt repayment (beyond minimum payments) and charitable contributions.

This breakdown helps individuals prioritize financial health by ensuring savings and investment are part of the core budget.

INVESTMENTS ARE NOT FDIC INSURED • ARE NOT BANK GUARANTEED • MAY LOSE VALUE

SoFi Invest is a trade name used by SoFi Wealth LLC and SoFi Securities LLC offering investment products and services. Robo investing and advisory services are provided by SoFi Wealth LLC, an SEC-registered investment adviser. Brokerage and self-directed investing products offered through SoFi Securities LLC, Member FINRA/SIPC.

For disclosures on SoFi Invest platforms visit SoFi.com/legal. For a full listing of the fees associated with Sofi Invest please view our fee schedule.

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.

Mutual Funds (MFs): Investors should carefully consider the information contained in the prospectus, which contains the Fund’s investment objectives, risks, charges, expenses, and other relevant information. You may obtain a prospectus from the Fund company’s website or clicking the prospectus link on the fund's respective page at sofi.com. You may also contact customer service at: 1.855.456.7634. Please read the prospectus carefully prior to investing.Mutual Funds must be bought and sold at NAV (Net Asset Value); unless otherwise noted in the prospectus, trades are only done once per day after the markets close. Investment returns are subject to risk, include the risk of loss. Shares may be worth more or less their original value when redeemed. The diversification of a mutual fund will not protect against loss. A mutual fund may not achieve its stated investment objective. Rebalancing and other activities within the fund may be subject to tax consequences.

Exchange Traded Funds (ETFs): Investors should carefully consider the information contained in the prospectus, which contains the Fund’s investment objectives, risks, charges, expenses, and other relevant information. You may obtain a prospectus from the Fund company’s website or by emailing customer service at [email protected]. Please read the prospectus carefully prior to investing.

Investment Risk: Diversification can help reduce some investment risk. It cannot guarantee profit, or fully protect in a down market.

S&P 500 Index: The S&P 500 Index is a market-capitalization-weighted index of 500 leading publicly traded companies in the U.S. It is not an investment product, but a measure of U.S. equity performance. Historical performance of the S&P 500 Index does not guarantee similar results in the future. The historical return of the S&P 500 Index shown does not include the reinvestment of dividends or account for investment fees, expenses, or taxes, which would reduce actual returns.
Dollar Cost Averaging (DCA): Dollar cost averaging is an investment strategy that involves regularly investing a fixed amount of money, regardless of market conditions. This approach can help reduce the impact of market volatility and lower the average cost per share over time. However, it does not guarantee a profit or protect against losses in declining markets. Investors should consider their financial goals, risk tolerance, and market conditions when deciding whether to use dollar cost averaging. Past performance is not indicative of future results. You should consult with a financial advisor to determine if this strategy is appropriate for your individual circumstances.

Third Party Trademarks: Certified Financial Planner Board of Standards Center for Financial Planning, Inc. owns and licenses the certification marks CFP®, CERTIFIED FINANCIAL PLANNER®

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.

SOIN-Q425-038

Jan

2026

The Fastest Ways to Get Your Tax Refund

By Kylie Ora Lobell | Budgeting & Goals, Family Finances, money, Money & Life | Comments Off

Learning that you are eligible for a tax refund can be a welcome surprise. Or maybe it’s something you’ve been hoping (or even waiting for) for months.

If you have any pressing expenses — maybe you’re behind on a few bills or have been putting off going to the dentist because of the cost — you may be wondering how you might be able to get that money into your hands ASAP.

Fortunately, there are a few simple things any taxpayer can do to help ensure that their refund comes quickly.

This includes e-filing with the IRS (rather than physically mailing in your return) and setting up direct deposit, so there’s no waiting for that refund check to come through the mail.

Read on to learn more about getting your tax refund sooner, including:

• How to plan your tax return filing

• How to file electronically

• How to set up direct deposit

• How to track your refund

Quickest Ways to Get Your Tax Refund

Here are some key steps you may want to take as tax season gets underway, starting well before Tax Day in April. They’ll help ensure that you get your refund ASAP.

1. Start Planning Your Tax Return Filing in January

In general, the fastest way to get your tax refund is to file your taxes early, and you certainly don’t want to miss that tax-filing deadline.

This means that, starting in January, you may want to begin collecting all the necessary information for filling out your tax forms, such as your W-2 and any 1099s. You’ll also likely need to decide whether you are going to file on your own (perhaps using tax software) or hire a tax preparation service or accountant to help.

2. Get Your Return in ASAP

The further into tax season that you file, the more likely the IRS is to be inundated with returns. That can slow processing times, which can delay your refund.

If you followed Step 1, above, then you’ll have your documentation organized. All of the forms you need should be issued by January 31.

If you prefer working with a professional tax preparer, it’s wise to book them in advance, since they’ll likely be very busy with other clients. If you plan to use tax software, buy it early and learn how to use it. You’ll be ready to be one of the first filers out of the starting gate.

3. File Your Tax Return Electronically

One of the fastest ways to get your refund can be to choose electronic filing instead of sending your return by mail.

That way, your refund can begin moving through the system immediately, rather than having to wind its way through snail mail and hands-on processing.

A paper tax return can take about six to eight weeks to process, but with electronic filing, or e-filing, taxpayers can typically expect to receive their refund within 21 days. Your tax preparer will usually offer ways for you to file electronically.

Taxpayers can also use tax preparation software such as TurboTax, TaxSlayer, TaxAct, or H&R Block. You can use these programs to file your taxes yourself, or you might go to a professional who knows how to use this type of software. Either way, electronic filing is probably an option.

4. Get Help Filing Your Return Quickly

But what if you don’t have funds for tax help and are feeling overwhelmed by the process and therefore don’t file right away? Fortunately, help is available. The Internal Revenue Service (IRS) offers a few options for e-filing which can help you get this task completed.

If taxpayers make an adjusted gross income (AGI) of $89,000 or less per year, then they can use IRS Free File to turn in their tax forms.

For taxpayers whose AGI is greater than $89,000, they can use the IRS’s Free File Fillable Forms service, which lets you simply input your data onto your tax forms so you can e-file (if you choose this option, you’ll need to know how to prepare your own tax return).

The IRS Volunteer Income Tax Assistance (VITA) and the Tax Counseling for the Elderly (TCE) programs also provide help and e-file for taxpayers who qualify.

Many states also offer free e-filing options for state returns.

The IRS has a helpful tool on their website where taxpayers can find an authorized IRS e-file Provider
Locator . All taxpayers have to do is input their zip code and choose what kind of provider they need.

5. Set Up Direct Deposit

How else to get your refund fast? The speediest way to get your tax refund is to have it electronically deposited into your financial account. This is known as direct deposit, and the service is free. It’s also possible to break up your refund and have it deposited into one, two, or even three accounts.

You can set up direct deposit simply by selecting it as your refund method through your tax software and then inputting your account number and routing number (which you can find on your personal checks or through your financial institution).

Or, you can tell your tax preparer that you want direct deposit.

It’s also possible to select direct deposit if you’re filing by paper and sending your return through the mail (you may want to double check to make sure you didn’t make any errors inputting your financial account information). But remember, paper returns tend to move through processing more slowly.

💡 Quick Tip: As opposed to a physical check that can take time to clear, you don’t have to wait days to access a direct deposit. Usually, you can use the money the day it is sent. What’s more, you don’t have to remember to go to the bank or use your app to deposit your check.

6. Open a Bank Account If You Don’t Have One

If you just read the step above and thought you can’t use direct deposit because you don’t have a bank account, this could be the moment to set one up. Perhaps you haven’t gotten around to opening a checking or savings account. Now is a great moment to open one. Many online banks can guide you through the application and opening process online, from your home, in a minimal amount of time. This can be an excellent move as you prepare for tax season.

If you were previously turned down for a bank account, you might want to look into what are known as second chance accounts. Offered by some banks and credit unions, these may not have all the features of conventional accounts, but they can give you a good landing pad for your tax refund via direct deposit.

Recommended: What Are the Different Types of Taxes?

When Can I Expect My Tax Refund?

As long as taxpayers have e-filed by the deadline and chosen direct deposit, then the refund should hit their account within three weeks. According to the IRS, nine out of 10 refunds arrive in less than 21 days. However, if you file a paper return, the timing will more likely be six to eight weeks.

And, remember, if you file later in the tax season, you might face processing delays. That’s because the volume of returns working their way through the IRS rises significantly. So being an early bird can be among the quickest ways to get your refund.

Recommended: What Is Income Tax Withholding?

Finding Out Where Your Refund Is

Once everything is filed, taxpayers can check their tax refund status on the IRS’s Where’s My Refund? page. This requires inputting your Social Security number, filing status, and the exact amount of the refund, which can be found on the tax forms that were submitted.

Can I Track the Status of My Tax Refund?

Taxpayers can check “Where’s My Refund?” starting 24 hours after e-filing.

The site is updated daily, usually at night. The IRS cautions that you may experience delays in getting your refund if you file by mail, or you are responding to a notice from the IRS.

If it’s been more than 21 days and you still haven’t received your refund, you can call the IRS at (800) 829-1040 for help. You may also want to contact the IRS if “Where’s My Refund?” instructs you to do so.

Can You Get Your Tax Refund Back the Same Day?

Unfortunately, there is currently no way to get a tax refund back the same day. The speediest timing tends to be closer to eight days from e-filing to direct deposit of a refund.

However, if taxpayers are in a bind, some tax preparation services offer 0% interest tax-refund loans. Tax-refund loans, also called “refund advances,” allow you to access your refund early, but you may want to keep in mind that tax preparers typically charge fees for filing tax returns.

If you are paying a tax preparer just to get the advance, you’ll essentially be paying a company in order to access your refund. Consider these points:

• Some providers may charge an additional fee for the advance service.

• These short-term loans range from $200 to $4,000. In some cases, there may be a minimum amount your refund must meet in order to qualify for a refund advance (how much can vary from one company to another).

• You may only get part of your expected refund in advance.

• Some companies may offer to give you a prepaid card with the loan amount on it within 24 hours.

• Once your tax refund is issued, the tax preparer will typically deduct the loan amount from your refund.

Also be aware that you may be offered this kind of quick cash from other non-bank lenders with significant fees. Proceed with caution.

If you’d rather not pay any fees, however, you may also want to look into other options.

• If you have bills that are due, it may be worth calling up your providers or credit card companies to see if they can extend their due date while you are waiting for your refund.

• You might open a 0% interest credit card, such as a balance transfer one, and charge an urgent expense on that card and then pay it off as soon as the refund comes in.

What’s the Best Way to Spend Your Tax Refund?

Finally! Your tax refund has arrived. You may wonder about the best way to use the funds. Yes, it can be tempting to splurge on a weekend away or those new boots you’ve had your eye on, but consider this financially-savvy advice first:

• If you are carrying any high-interest debt, one smart move might be to put your tax refund towards minimizing the debt or, if possible, wiping it out all together. Doing this can help you avoid spending more money on interest charges. It may also help boost your credit score, which may help you qualify for loans and credit cards with lower interest rates in the future.

• Or you might consider using your tax refund to jump-start one of your current savings goals, such as building up an emergency fund, a downpayment on a home, or buying a new car.

For an emergency fund or savings goals you hope to accomplish within the next few years, you may want to put your refund in a high-yield savings account. These options typically offer a higher return than a traditional savings account but allow you easy access to your money when you need it.

• Your tax refund can also help you start saving for the longer term, such as retirement or paying for a child’s education. Using a tax refund to buy investments can help you create additional wealth over time to help fund these far-future goals.

The Takeaway

To get your tax refund as quickly as possible, it’s a good idea to file early, and, if possible, avoid the mail. That means filing electronically (using the IRS’s free service or tax software, or hiring a tax pro) and signing up for direct deposit when you file.

It’s also wise to keep track of your refund on the IRS site and reach out to the agency if you haven’t received your refund within three weeks.

Interested in opening an online bank account? When you sign up for a SoFi Checking and Savings account with eligible direct deposit, you’ll get a competitive annual percentage yield (APY), pay zero account fees, and enjoy an array of rewards, such as access to the Allpoint Network of 55,000+ fee-free ATMs globally. Qualifying accounts can even access their paycheck up to two days early.

Better banking is here with SoFi, NerdWallet’s 2024 winner for Best Checking Account Overall.* Enjoy 3.30% APY on SoFi Checking and Savings with eligible direct deposit.

FAQ

How can I receive my tax refund sooner?

To receive your tax refund as soon as possible (which typically means within three weeks of filing), file electronically and request that the refund be paid by direct deposit.

Is direct deposit faster than mail for tax refunds?

Direct deposit will typically save time versus a check sent by mail in terms of tax refunds. If you file your return electronically too, you’ll likely have the shortest possible time from finishing your return to receiving funds that are due to you.

When should you start planning to file your tax return?

Tax season begins in January, with the forms you need having to be sent by January 31. It’s wise to start getting organized as soon as possible in the New Year to get your return done. If you work with a professional tax preparer, you might want to book them even earlier since January through April will be their busy season.

About the author

Kylie Ora Lobell

Kylie Ora Lobell is a personal finance writer who covers topics such as credit cards, loans, investing, and budgeting. She has worked for major brands such as Mastercard and Visa, and her work has been featured by MoneyGeek, Slickdeals, TaxAct, and LegalZoom. Read full bio.

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

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

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

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.

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.
SOBK0224014
CN-Q425-3236452-130

Jan

2026

Image of three arrows pointing up, each one getting progressively bigger.

What Increases Your Total Loan Balance?

By Rebecca Safier | Going to College, Student Loans, student_loan | Comments Off

Table of Contents

Understanding Loan Balances
Factors that Contribute to Increased Loan Balances
Strategies for Managing and Reducing Loan Balances
Long-Term Financial Impact of Growing Loan Balances
Tips for Preventing Loan Balance Increases
Navigating Loan Repayment Options

Key Points

• Interest accrual can contribute to an increase in the total student loan balance over time.

• Unpaid interest can capitalize, adding to the principal balance and causing borrowers to pay interest on top of interest.

• Periods of deferment or forbearance often lead to loan balance growth due to interest accumulation.

• Late or missed payments can incur fees and penalties, increasing the total amount owed.

• Opting for a longer repayment term can reduce monthly payments but typically increases the total interest paid over the life of the loan.

If you have student loans, you may sometimes see the total loan balance go up, due to such factors as the interest you owe, your repayment term, or loan fees.

Whether your student loans are in a period of deferment or you’ve working to make payments every month, it can be frustrating to see your balance increase instead of go down.

To discover why this happens and what to do about it, read on. You’ll learn what increases your total loan balance, ways to reduce it, and repayment options that may help.

Understanding Loan Balances

The way student loans work is that when you first take out a loan for your education, your loan balance is the amount you borrowed. However, that loan balance can increase or decrease depending on your payments, interest charges, and fees.

Principal vs. Interest Explained

A student loan typically consists of principal plus interest. The loan principal is the amount you originally borrowed. If you took out a $25,000 student loan to pay for school, your principal amount is $25,000.

Interest is the cost of borrowing money, and it is part of what you owe on your student loan balance. Federal Direct loans for undergraduates disbursed on or after July 1, 2025 and before July 1, 2026, have fixed interest rates of 6.39%, while Direct Unsubsidized Loans for graduate or professional students have a fixed rate of 7.94%. Direct PLUS loans for parents and graduates and professional students have a rate of 8.94%.

The rates on private student loans vary, but as of December 2025, they ranged from 3.18% to 15.99% or more, depending on such factors as your credit and the lender you choose. Private student loan rates may be fixed or variable. If your rates are variable, meaning they fluctuate with market conditions, it can be quite challenging to predict exactly how your loan balance will change over time.

When you sign into your student loan account, your loan balance is the total amount you currently owe on your loan.

Recommended: Student Loan APR vs. Interest Rate

Capitalization of Interest and How It Works

In some circumstances, unpaid interest on your loan capitalizes, or gets added onto, your principal balance. Then you end up paying interest on top of interest, which is what increases your total loan balance — and potentially your monthly payment as well.

Here’s how capitalization works: Interest accrues on your student loans even at times you’re not responsible for paying it, such as the six-month grace period after graduation or during student loan deferment. If you have unsubsidized Direct loans or Direct PLUS loans, the unpaid interest that accrued during these times is added to your loan principle. The principle is then higher and you pay interest on the new larger amount.

Factors that Contribute to Increased Loan Balances

Whether you’re in a period of deferment or active repayment, you probably don’t expect your student loan balance to be increasing over time. Unfortunately, there are various circumstances that can cause your federal student loan balance to increase, such as the ones below.

Accrued Interest

Most loans, with the exception of Direct Subsidized Loans, start accruing interest immediately from the date of disbursement. If you borrowed as a freshman in college and deferred payments the entire time you were in school and for the six-month grace period after graduation, your loan balance could significantly increase after four and a half years of nonpayment.

Loan Forbearance or Deferment

It’s possible to temporarily postpone payments through student loan deferment or forbearance if you go back to school, encounter financial hardship, or have another qualifying reason. Most loans accrue interest during this time, however, causing your loan balance to grow. The only exception is Direct Subsidized Loans, which don’t accrue interest during periods of deferment. In forbearance, all loan types accrue interest.

Missed or Late Payments

If you make late payments, or you miss payments on your student loans, the ramifications can be serious. For one thing, you’ll likely be charged late fees and penalties, increasing the amount you owe. Also, your federal loan will be considered delinquent after just one missed payment. And after approximately 90 days of missed payments, your loan servicer will report the delinquency to the credit bureaus, which can then negatively impact your credit score.

After 270 days of missed payments, your loan goes into default. At that point, the government can take a portion of your wages or seize your tax refund, and the debt you owe may be sent to a collection agency. A default stays on your credit report for seven years, which can severely damage your credit.

Negative Amortization

If your monthly payments are less than the interest you’re charged (meaning you’re not paying off your interest each month), this is known as negative amortization. The interest charges will then be added to the amount you owe, causing your loan amount to grow over time.

Negative amortization can happen under income-driven repayment (IDR) plans if your payments are not big enough to cover the accruing interest each month.

Strategies for Managing and Reducing Loan Balances

Now that you know what increases your total student loan balance, these are some strategies you can consider for reducing it.

Making Extra Payments Toward Principal

Putting extra payments toward your loan balance can help you pay it down faster and save money on interest. Here’s how: Making extra payments can help you reduce your principal, which can help you save on interest over time.

So, if you get a windfall, such as a birthday gift, or you earn a little extra cash, putting that money toward your student loans could help you pay down your debt faster. Just be sure to tell your lender to direct the extra payment toward your loan principal, which can help you shrink the balance.

Enrolling in Autopay for Interest Rate Discounts

When you set up automatic payments for your federal student loans from your bank account, you’ll save 0.25% on your interest rate. Many private lenders also offer a 0.25% rate discount for using autopay. Besides the savings, autopay helps ensure your payment will be consistent and on time.

Avoiding Missed Payments Through Budgeting

Making your monthly payments by the due date will help you avoid late fees and penalties. One way to do this is to create a budget that factors in your student loans.

To make a budget, calculate your monthly income, including paychecks from your regular job plus anything you earn from a side hustle, and then make a list of all your monthly expenses, including your student loans. If your expenses are greater than your income, see where you can cut back. Perhaps you can eliminate a streaming service or two, and bring lunch from home rather than buying it every day. Creating room in your budget and then sticking to that plan, can help you make your loan payments so you won’t fall behind and end up owing more.

Long-Term Financial Impact of Growing Loan Balances

A growing student loan balance is not only stressful, but it can also harm your overall financial health.

Effects on Total Repayment Amount

The total repayment amount of your loan can increase over time for reasons that include missed or late payments that result in late fees and penalties being added to what you owe, failing to keep up with accruing interest on your loan, and deferring your student loan payments, which can result in interest capitalization, significantly increasing the amount you owe. The more your debt grows, the harder it becomes to pay off.

Impact on Credit Score and Future Borrowing

A large student loan balance can also negatively impact your credit. The amount of debt you have makes up 30% of your FICO® credit score. Owing a sizable amount of debt can drag down your score, making it difficult to qualify for new loans or credit cards or get affordable rates. Plus, a high debt load increases your debt-to-income ratio (or DTI), and lenders prefer a DTI under 36%.

Tips for Preventing Loan Balance Increases

To keep your balance from increasing, make sure you understand how your student loans work — including the interest rate on the loans and when you need to start paying them back — and then review the different options for repaying them.

Choose the Right Repayment Plan

Before picking a repayment plan, make sure you understand how it will impact your loan balance and overall costs. A longer plan can reduce your monthly payments, but it tends to increase the amount of interest you pay over the loan’s term.

For example, if you have federal student loans, sticking with the Standard Repayment Plan will help you pay off your balance in 10 years, assuming you don’t use deferment or forbearance during that time. However, your monthly payments will be higher than they would be on other plans.

On the other hand, the Extended Repayment Plan lets you stretch out your repayment period for a longer term, which can lower your monthly balance but increase the amount you pay overall.

There are also income-driven repayment plans that typically lower the amount you owe each month (read more about how these plans work below).

Stay Informed About Loan Terms and Changes

Make sure you understand the terms and conditions of your loans. Look over your loan agreement to see what your interest rate is, how much you owe, and how long you have to repay your loans. If you have any questions, contact your loan servicer.

Also, check to see how your interest accrues. If your loan accrues interest right away, consider making interest-only payments while you’re in school to prevent your balance from rising.

Navigating Loan Repayment Options

Borrowers with federal student loans currently have repayment plans to choose from that could potentially reduce their student loan payments, such as income-driven repayment, as well as repayment alternatives like refinancing.

Income-Driven Repayment Plans

Income-Driven Repayment plans base your monthly federal loan payments on your discretionary income and family size and extend your loan term to 20 or 25 years. These plans can make your monthly payments more affordable. But you may pay more interest overall on an IDR plan.

There are currently three IDR plans — the Income-Based Repayment (IBR) Plan, the Pay As You Earn (PAYE) Plan, and the Income-Contingent Repayment (ICR) Plan. On the IBR plan, any remaining balance on your loans is forgiven when your repayment term ends.

However, as part of the Trump administration’s One Big Beautiful Bill, changes are coming to IDR plans. In July 2027, most of the current IDR plans, except IBR, will no longer accept new enrollees.

In July 2026, a new plan will be introduced, called the Repayment Assistance Plan (RAP), that bases payments on borrowers’ adjusted gross income (AGI). (This and a revised version of the Standard Repayment Plan will be the only repayment plans available to new loan borrowers as of July 1, 2026.)

Under RAP, depending on their income, a borrower would pay 1% to 10% of their AGI over a term that spans up to 30 years. If they still owe money after 30 years, the rest will be forgiven. The government will cover unpaid interest from month to month. However, a borrower on RAP could end up paying more interest over the life of the loan due to the longer repayment term.

Refinancing to a Lower Interest Rate

If you have good credit (or a creditworthy cosigner), another option you might consider is to refinance student loans for a lower interest rate and new repayment terms. With refinancing, you exchange your current student loans for a new loan from a private lender.

Some potential advantages of refinancing student loans may include lowering your monthly payment, saving money over the life of the loan, and/or paying off your balance faster. A student loan refinancing calculator can help you see how much you might save.

However, it’s important to keep in mind that refinancing federal loans means you forfeit access to federal benefits and protections, including federal student loan forgiveness programs. Also, if you refinance for an extended term, you may pay more interest over the life of the loan. For these reasons, refinancing student loans requires careful thought to decide if this is the right next step for you.

The Takeaway

Student loan debt can be stressful, and seeing your loan balance rise can add to this situation. Understanding what increases your student loan balance (such as your interest rate, loan fees, and repayment plan) can help you avoid paying more than you need to on your debt.

Everyone’s situation is unique, so consider your budget, financial goals, and any plans for loan forgiveness when choosing a repayment strategy. You may find that changing your federal loan repayment plan or refinancing your existing loans might help you better manage your student loan debt.

Looking to lower your monthly student loan payment? Refinancing may be one way to do it — by extending your loan term, getting a lower interest rate than what you currently have, or both. (Please note that refinancing federal loans makes them ineligible for federal forgiveness and protections. Also, lengthening your loan term may mean paying more in interest over the life of the loan.) SoFi student loan refinancing offers flexible terms that fit your budget.

With SoFi, refinancing is fast, easy, and all online. We offer competitive fixed and variable rates.

FAQ

What causes student loan balances to grow over time?

Some of the factors that can cause student loan balances to grow over time include interest that accrues; capitalization, which is when unpaid interest is added to your loan balance in certain situations, such as at the end of student loan deferment or when your six-month grace period after graduation ends; and fees and penalties due to late or missed student loan payments that are added to what you owe.

How does interest capitalization increase your loan balance?

Interest capitalization increases your loan balance because the interest that accrues during certain situations, such as student loan deferment, is added to your principal balance, making the balance bigger. You then owe interest on the new bigger balance, increasing the amount you’ll pay over time.

Can deferment or forbearance make your loan more expensive?

Yes, deferment and forbearance can make your loan more expensive over time. If you have unsubsidized federal loans or Direct PLUS loans, for example, the interest on your loans accrues while you’re in deferment, making your total loan balance bigger. (If you have subsidized federal loans, the interest does not accrue during deferment.) In forbearance, interest accrues on all types of federal loans, and the interest is typically added to the loan balance, meaning you’ll pay more over the life of the loan.

What are the best ways to lower your total loan balance?

Some ways to lower your student loan balance include making extra payments toward the principal on your student loans; paying the interest that accrues while you’re in school, during the six-month grace period after graduation, or during deferment; and setting up automatic payments for your loans to ensure that your payments are consistent and on time (as a bonus, you’ll typically get a $0.25% discount on your interest rate when you set up autopay).

Will refinancing help reduce my loan balance faster?

Refinancing might help you lower your student loan balance, but it depends on your specific situation. For example, if you qualify for a lower interest rate when you refinance, your monthly payments may be lower, which might help you to repay your loans faster. You might also be able to shorten your loan term through refinancing and pay off your loan more quickly.

Photo credit: iStock/:Olemedia

SoFi Student Loan Refinance
Terms and conditions apply. SoFi Refinance Student Loans are private loans. When you refinance federal loans with a SoFi loan, YOU FORFEIT YOUR ELIGIBILITY FOR ALL FEDERAL LOAN BENEFITS, including all flexible federal repayment and forgiveness options that are or may become available to federal student loan borrowers including, but not limited to: Public Service Loan Forgiveness (PSLF), Income-Based Repayment, Income-Contingent Repayment, extended repayment plans, PAYE or SAVE. Lowest rates reserved for the most creditworthy borrowers. Learn more at SoFi.com/eligibility. SoFi Refinance Student Loans are originated by SoFi Bank, N.A. Member FDIC. NMLS #696891 (www.nmlsconsumeraccess.org).

SoFi Loan Products
SoFi loans are originated by SoFi Bank, N.A., NMLS #696891 (Member FDIC). For additional product-specific legal and licensing information, see SoFi.com/legal. Equal Housing Lender.

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

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 .

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.

SOSLR-Q425-053

Jan

2026

Reasons to Balance Your Bank Account Every Month

By Kim Franke-Folstad | Budgeting & Goals, Financial Independence, money | Comments Off

You may wonder if anyone balances their bank account manually anymore given how many aspects of personal finances have become electronic. However, tracking withdrawals and deposits and tallying up amounts can have value.

Monitoring your checking account in this way can help you identify errors or fraud. It can reveal charges and fees you may not have known you were being assessed. It can also put you in better touch with your money and your spending. All those things are definitely positives.

This guide will help you learn the step-by-steps for balancing your checkbook as well as its benefits.

Table of Contents

How to Balance a Checking Account Step-by-Step
Modern Tools to Help You Balance Your Account
Why Is Balancing Your Checking Account Still Important?
The Takeaway

Key Points

• Regularly monitoring a checking account helps identify errors, fraud, and unknown fees, fostering better financial awareness and control.

• Balancing an account involves gathering all financial records, then meticulously matching them against bank statements, including deposits, debits, fees, and pending transactions.

• Account reconciliation ensures personal records align with bank statements after accounting for all transactions, requiring careful review if discrepancies arise.

• Contacting the bank immediately is crucial if any inconsistencies or suspected errors are found during the reconciliation process.

• Monthly account balancing acts as a crucial safeguard, helping avoid fees, spot fraud, and improve overall budgeting and money management.

How to Balance a Checking Account Step-by-Step

Here’s how to balance your checking account. It can take a little time and effort but rewards you with control over your finances.

Step 1: Gather Your Bank Statement and Transaction Records

Start by gathering the receipts and records for spending and deposits for the period chosen. If you use a check register, grab that. If you write your purchases down in a notebook or use software or a spreadsheet, use those. If you collect ATM receipts, pull that pile together, too.

Step 2: Compare Deposits and Add Any Interest Earned

Next, you’re going to match those records with the bank statement. Many people review these online or in their bank’s app; some people may still get hard copies sent by snail mail.

In this step, you’re specifically looking for deposits. Make sure you have accounted for every transaction. If you missed something the bank has listed and you’re sure it’s accurate (for example, or a birthday check you deposited and forgot about), add it to your records. Factor in any interest you may have earned on the amount of money in your account.

Step 3: Check Off All Cleared Withdrawals, Payments, and Debits

Go ahead and make sure you have included all debits. This can mean any withdrawals from the ATM, autopayments, debit card transactions, and other transactions deducted from your account. This will help you get to the true bottom line of your account.

Step 4: Subtract Any Bank Fees or Service Charges

Don’t forget to account for any bank fees and service charges. Perhaps you keep your accounts at a fee-free bank, or maybe you pay a maintenance fee and overdraft charges from time to time. Check your statement and account for any such fees.

Every little bit counts: If you use fee-free ATMs, great, but if you paid a few dollars as a fee, don’t forget to account for that as you do the math.

Step 5: List and Total All Your Outstanding Transactions

Take note of any transactions that are pending. Did you deposit a check by mobile deposit last night that hasn’t fully cleared yet? Do you have an autopay that’s currently processing? Consider what might be about to hit your account and add or subtract it.

Reconcile Your Records With the Bank’s Balance

Now for your account reconciliation: The amount you come up with should match with the balance you have in your register/notes/spreadsheet and jibe with what you are seeing online or in app, once pending transactions are accounted for. If it doesn’t, you may have to do a closer check to see what you might have missed or if your math is a little off.

If you’re confident that the bank made a mistake or you notice anything else askew, contact the bank by phone, email, messaging, or in-person right away to let them know about the inconsistency.

Modern Tools to Help You Balance Your Account

If the thought of doing this reckoning and the math has you in a cold sweat, relax. There are tools to help you balance your checking account with less stress.

Using Your Bank’s Mobile App and Website

Your bank’s app and/or website can typically play a major role in balancing your account. By checking these options, you can see your real-time balance, transaction history, and digital statements. You can also likely glean spending insights that help you match your records to the bank’s, not to mention budget better.

You can also uncover errors this way. You use these tools to see what your bank knows and then compare that to your records to find discrepancies.

Using a Personal Budgeting Spreadsheet

Another system that can help you balance your account is a budgeting spreadsheet. There are many variations of these templates available online. It can be a smart move to start with one that is free to download. Digital spreadsheets vs. physical ones can offer the benefit of automatically doing the math for you as you enter your starting balance, credits, debits, and other bits of data.

If you’re the kind of person who enjoys working on a hard copy, you can print out these spreadsheets or buy paper ones at a local office supply retailer or perhaps a big box store.

Why Is Balancing Your Checking Account Still Important?

Balancing your checking account is still important because it helps you manage your money better, even in this era of online banking.

It Helps You Catch Bank Errors and Overcharges

Even if you are a fastidious record keeper, logging every cash withdrawal, bill payment, and deposit into a paper ledger, spreadsheet, or app, we all make mistakes from time to time.

Maybe an ATM receipt went missing or a bill payment was forgotten or recorded incorrectly. Or perhaps you were double-charged by a merchant. By reconciling an account regularly, these little mistakes can be quickly fixed. Banks also can make errors in rare instances. Balancing your checking account can allow you to bring a possible mistake to the attention of customer service.

It Helps You Spot Fraudulent Activity Sooner

Every time a person makes an ATM withdrawal, pays for gas with a debit card, or places an order online, there’s a slight chance that a scammer will intervene.

Consumers who check their accounts regularly may have a better chance of spotting fraud faster, limiting their own liability and helping the bank deal with potential problems.

It Gives You Control Over Automatic Payments and Subscriptions

Automatic bill payments are convenient and can help an account holder avoid late payments (and late fees).

But the downside is that those bills might not get the same attention as those paid every month by check, phone, or online. Ready or not, the money comes out of the bank account as scheduled, and if the account is low on the payment date, it can lead to bounced checks and overdraft fees.

Account holders who check their statements regularly may find they’re more aware of and prepared for the amount and timing of their autopay charges. They also might find they’re ready to dump or reduce the cost of some of the services and subscriptions they’ve been paying for from their checking account every month or year.

It Provides a Clear Picture of Your Spending Habits

Balancing your checking account can benefit those who need or want to take more control of their spending to see exactly where their money is going every day, week, or month.

Regularly scheduled reconciliations enable people to see exactly how much they’re spending every week on nonessentials, such as in-app purchases or happy hours. This kind of information can help people budget more effectively and help bring them closer to their savings goals, such as a downpayment on a home.

The Takeaway

Balancing a bank account every month can serve as an important backup and safeguard, especially for those who have multiple accounts, or who have turned over certain financial tasks (say, bill paying and budgeting) to automation and apps. It can also help you avoid unnecessary fees, spot mistakes or fraud, and enable better budgeting and money management.

Better banking is here with SoFi, NerdWallet’s 2024 winner for Best Checking Account Overall.* Enjoy 3.30% APY on SoFi Checking and Savings with eligible direct deposit.

FAQ

How often should I balance my checking account?

How often you should balance your checking account can vary. Financial experts recommend a minimum of once a month, with some saying weekly is a good cadence. If you conduct a lot of transactions, an even more frequent rhythm can be best.

What should I do if my checking account doesn’t balance?

If your checking account doesn’t balance, it’s wise to dig in and reconcile the account, looking for missing and pending transactions, fees you forgot about, and math errors. If you can’t find an error or if you see any unauthorized or incorrect activity, contact your bank immediately.

Do I need to balance my account if I use a banking app?

It’s a good idea to balance your account even if you use a banking app. The reason: Apps can’t necessarily catch instances of fraud or mistakes the way you can, and they may not show pending transactions (like an upcoming autopay) in a way that allows you to manage your money optimally.

What is the difference between my current balance and my available balance?

Here’s the difference between these two amounts: Your current balance reflects money in your account for all transactions that have cleared or are in the works. Your available balance, however, shows what you can spend right now. It doesn’t include transactions that are still pending or processing, nor does it reflect any funds that have a hold on them.

What is a check register and is it still used?

A check register is a ledger (often in booklet form) that is filled out to track bank account activity, such as deposits, checks written, and ATM withdrawals. This serves as a tracker for account activity and current balance. Some people still use them; others prefer online tools to keep tabs on their money.

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.

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/.
^Early access to direct deposit funds is based on the timing in which we receive notice of impending payment from the Federal Reserve, which is typically up to two days before the scheduled payment date, but may vary.

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 Trademarks: Certified Financial Planner Board of Standards Center for Financial Planning, Inc. owns and licenses the certification marks CFP®, CERTIFIED FINANCIAL PLANNER®

SOBNK-Q425-042

Safe Harbor 401(k) Plan: What Is It? Is It for You?

What Is a Safe Harbor 401(k) Plan?

Traditional 401(k) vs Safe Harbor 401(k) Plans

Comparing Plan Features and Benefits

Choosing the Right Plan for Your Business

Setting Up a Safe Harbor 401(k) Plan

Requirements, Contribution Formulas, and Deadlines

Advantages of Implementing a Safe Harbor 401(k) Plan

Benefits for Employers and Employees

Disadvantages of Safe Harbor Plans

Financial Implications for Employers

Safe Harbor 401(k) Contribution Limits and Match Types

Understanding Contribution Limits

Different Types of Employer Matching Contributions

IRS Compliance Testing and Safe Harbor Provisions

Navigating Non-Discrimination Testing

The Takeaway

FAQ

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Can I cash out my safe harbor 401(k)?

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What is an example of a safe harbor 401(k) match?

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5. Reduce the Fees You Pay

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The Takeaway

FAQ

How much will $100 a month be worth in 30 years?

What are the four golden rules of investing?

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The Fastest Ways to Get Your Tax Refund

Quickest Ways to Get Your Tax Refund

1. Start Planning Your Tax Return Filing in January

2. Get Your Return in ASAP

3. File Your Tax Return Electronically

4. Get Help Filing Your Return Quickly

5. Set Up Direct Deposit

6. Open a Bank Account If You Don’t Have One

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When Can I Expect My Tax Refund?

Finding Out Where Your Refund Is

Can I Track the Status of My Tax Refund?

Can You Get Your Tax Refund Back the Same Day?

What’s the Best Way to Spend Your Tax Refund?

The Takeaway

FAQ

How can I receive my tax refund sooner?

Is direct deposit faster than mail for tax refunds?

When should you start planning to file your tax return?

What Increases Your Total Loan Balance?

Understanding Loan Balances

Principal vs. Interest Explained

Capitalization of Interest and How It Works

Factors that Contribute to Increased Loan Balances

Accrued Interest

Loan Forbearance or Deferment

Missed or Late Payments

Negative Amortization

Strategies for Managing and Reducing Loan Balances

Making Extra Payments Toward Principal

Enrolling in Autopay for Interest Rate Discounts

Avoiding Missed Payments Through Budgeting

Long-Term Financial Impact of Growing Loan Balances

Effects on Total Repayment Amount

Impact on Credit Score and Future Borrowing

Tips for Preventing Loan Balance Increases

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Stay Informed About Loan Terms and Changes

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