SoFi

Most credit cards come with credit limits that determine how much you can spend at any given time. Requesting a credit line increase is something you might consider if you’d like to have more purchasing power, you want to schedule a balance transfer, or you need a cash advance.

Asking for a higher credit limit can be as simple as calling the credit card company or completing an online form. In some cases, a credit card company may grant one automatically based on an account history.

Increasing available credit can also improve credit utilization, which could raise your credit score. But asking to increase credit limits for one or more cards could potentially cost you points if it involves a hard credit inquiry.
Knowing how to increase a credit limit the right way can minimize credit score impacts.

Why Credit Limits Matter for Credit Scoring

Credit scores are a measure of your ability to manage debt responsibly. FICO® Scores, which are used by 90% of top lenders, are calculated using these five factors:

•  Payment history (35% of your score)
•  Credit utilization (30% of your score)
•  Length of credit history (15% of your score)
•  Credit mix (10% of your score)
•  New credit inquiries (10%)

Credit limits are important because they can affect the credit utilization part of your credit score. Credit utilization refers to the percentage of your available credit you’re using. For example, if you have a credit card with a $5,000 limit and a $1,000 balance, your credit utilization is 20%.

Using a lot of your available credit can be detrimental to your credit scores, while keeping balances low can improve your scores.

Generally, it’s recommended that you keep the ratio at 30% or less for the most favorable credit score impact. A higher ratio could suggest to lenders that you may be struggling to manage spending and debt.

Does Requesting a Credit Increase Hurt Your Score?

Whether a credit line increase hurts your credit score, or affects it all, depends on how the credit card company reviews your financial information. Specifically, it hinges on whether the credit card company performs a soft or hard inquiry into your credit history.

Remember, credit inquiries account for 10% of your FICO credit score. An inquiry simply means that you have authorized a creditor or biller to review your credit reports and scores. (Inquiries for credit remain on your credit report for two years, though they only affect FICO credit score calculations for 12 months.)

When requesting an increase in credit limit that involves a hard pull, you may lose a few credit score points. While the impact isn’t as significant as a late payment or a maxed-out credit card, it’s still worth noting.

If you were to ask for a credit line increase from several cards at once, multiple hard inquiries could cost you more points.

A soft inquiry, on the other hand, has no credit score impact. Checking your own credit score, prescreened credit offers, and credit screenings that are required as part of an employer’s hiring process are examples of soft pulls.

Can a Credit Line Increase Positively Impact a Credit Score?

While you may lose a few points initially if your credit card company performs a hard inquiry, asking to increase your limit could help your credit score over time.

It all goes back to credit utilization. If raising your credit limit on one or more credit cards improves your credit utilization, then you may see a positive effect on your credit score.

Say you have a card with a $10,000 limit and a $5,000 balance. That puts your credit utilization at 50%. But if you can increase the credit limit to $15,000, you instantly shrink your credit utilization to 33%.

The key to making this strategy work is not adding to your debt balance. Going back to the previous example, say that you have to unexpectedly replace your HVAC system to the tune of $5,000. You decide to take advantage of your new higher credit limit to make the purchase.

Now your balance is $10,000. While you still have a $5,000 available credit cushion, you’ve increased your credit utilization to 66%. That could result in a credit score drop until you’re able to pay some of the balance down. So, while asking for a credit line increase can give you more purchasing power, that can work against you if you use it.

Four Ways to Increase a Credit Limit

There are several ways to get a credit line increase, depending on what your credit card company offers. There are different types of credit cards, and card issuers don’t always follow the same policies with regard to credit limit increases.

Before asking to increase your credit limit, get familiar with the various ways your credit card company allows you to do it. Then consider how much of a credit limit increase you’d like to ask for.

Keep in mind that whether the credit card company grants your request can depend on things like:

•  How long you’ve been a customer
•  Your account history, including payment and purchase history
•  Your income
•  Credit scores, if a hard pull is required

With that in mind, here are four ways to get a higher credit limit:

Request a Credit Line Increase Online

Your credit card company may make it easy to ask for a higher credit limit online. Log in to your account, navigate to the Request Credit Limit Increase section, and fill out the relevant details. You may need to update your income information.

If your credit card company offers this option, it’s possible to be approved for a credit line increase almost instantly. But a decision may be delayed if the credit card company wants to take time to review your account or credit history.

Update Your Income Information

Credit card companies may periodically ask you to update your income information when you log in. You may be tempted to skip over this step, but it’s worth taking a moment to do, as the credit card company may use the information to grant an automatic credit limit increase.

Again, whether you’re eligible for an automatic credit line increase can depend on the type of your card and your account history, income, and overall financial situation.

Call and Ask

If your credit card company doesn’t allow for automatic increases or credit limit increase requests online, you can always call and ask for a higher limit. You may need to tell them your income, specify how much of a credit limit increase you’d like, and provide a reason for the request.

Calling the credit card company may also be worthwhile if you’ve been denied for a credit limit increase online. You can ask the card provider to reconsider your request, but be prepared to make a strong case (e.g., significantly higher income, on-time payment history) for why it should do so.

Open a New Credit Card Account

If you’ve tried other avenues for requesting an increase in credit limit and been unsuccessful, you could always consider opening a brand-new credit card account. The upside is that you can expand your available credit if you’re approved, which could improve your credit utilization ratio.

The downside of opening a new credit card is that applying can ding your score, since it typically involves a hard inquiry. But if you’re able to keep your credit utilization low, that could help make up the difference in lost points relatively quickly.

The Takeaway

How to increase your credit limit? If you have good credit, requesting a higher credit limit may be easy. The key is knowing how to make the most of a credit limit increase to improve your credit score.

Keeping your balances as low is a step in the right direction. Paying your balance in full each month is even better, since this can help you avoid paying interest on credit cards.

Finally, spacing out credit line increase requests and opening new accounts sparingly can help keep credit scores on track.

Whether you're looking to build credit, apply for a new credit card, or save money with the cards you have, it's important to understand the options that are best for you. Learn more about credit cards by exploring this credit card guide.

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.

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 .

SOCC0523013

If you’ve lost your job, you may be able to defer your student loan payments. The unemployment deferment and repayment options available can depend on the type of loans you have.

For instance, if you have federal student loans, one option is the Unemployment Deferment program offered by the government. Unemployment Deferment is a program run by the Department of Education that allows eligible federal loan borrowers who are out of work or cannot find full-time employment to postpone payments on existing educational debts.

Read on to learn how the Unemployment Deferment program works, plus other alternatives, including deferment opportunities for private student loans.

What is Unemployment Deferment?

For anyone who has federal student loans, student loan deferment allows eligible borrowers to put student loan payments on hold for a predetermined period.

Unemployment Deferment is awarded to eligible federal student loan borrowers who are seeking unemployment benefits or who are unable to find full-time work.

Those who qualify can temporarily pause putting money toward student loans for up to three years for federal loans, assuming that they continue to meet all the requirements.

It’s important to note that if you have unsubsidized loans or Direct PLUS loans, interest will continue accruing during any deferment period. This means the balance owed on outstanding loans would keep growing. So, over the life of the loan, a short-term savings from deferring repayment could mean owing more in the end.

In general, interest won’t accrue on federal subsidized loans.

If you qualify for deferment and your loan continues to accrue interest, you can choose between two ways to pay back the interest. First, you could make interest-only payments. Or, you could let the interest accumulate during the deferment, adding whatever accrues to the total balance owed.

Currently, if a borrower decides to forgo interest-only payments and allow interest charges to rack up on an unsubsidized loan, that interest is added onto the total balance of the student loans, which is a process called “capitalization.”

In addition to having a larger loan amount due down the line, future interest is calculated on top of the new balance. Therefore, borrowers pay interest on top of interest, potentially resulting in higher monthly payments than before the deferment.

However, thanks to new regulations that begin in July 2023, this kind of interest capitalization on federal student loans will be eliminated.

What Types of Student Loans Are Eligible for Unemployment Deferment?

If you’re unemployed with student loans, federal student loan unemployment deferment is available for Direct Loans, FFEL Program loans, and Perkins Loans. Here are a few specific examples of loans that may qualify.

•   Direct Loans

•   Family Education Loans (FEEL Loans)

•   Stafford Loans

•   Perkins Loans

•   PLUS Loans

•   Direct Consolidation Loans

In addition, if a borrower received federal student loans before July 1, 1993, they may qualify for other deferments.

Private loans from private lenders are not eligible for the federal Unemployment Deferment program. However, some lenders may provide economic hardship programs for borrowers.

Borrowers can contact their loan servicer for details on any hardship repayment or deferment programs they may offer.

Who is Eligible for Unemployment Deferment?

Deferring payments on federal student loans isn’t automatic.

Borrowers first need to apply with supporting documentation to determine if they’ll be eligible for a student loan unemployment deferral.

Generally, an applicant can qualify either by providing proof of eligibility to receive employment benefits or by demonstrating that a diligent search for full-time employment is underway.

In the second case, certifying that you’re registered with an employment agency (whether privately owned or state run) can help show that an active search for work is being carried out.

Applicants seeking unemployment deferment under the searching full-time employment category may receive a deferment period for only six months.

If you need to extend the deferment past that time, you’ll have to submit a new application certifying that you’ve made at least six attempts to find full-time employment. The deferment period cannot exceed three years.

To pursue unemployment deferral, you must first fill out the unemployment deferment form at StudentAid.gov — answering questions about your job search, current unemployment benefits, and understanding of what loan deferment entails.

What About Private Student Loan Deferment?

Although private lenders aren’t legally required to offer unemployment deferment options, some do.

But, it’s worth keeping in mind that, similar to federal student loan Unemployment Deferment, private loans typically still accrue interest during the approved deferment period (even refinanced student loans with lenders who honor grace periods).

In other words, the total student loan balance would continue to grow even while payments are suspended. This is one of the basics of student loans.

Over the life of the loan, this could add to what the borrower owes overall. Some private lenders allow borrowers to make interest-only payments during a forbearance to help avoid interest capitalization.

Even with the accrual of interest and limited options, deferment is preferable to defaulting on student loans.

Borrowers with private student loans can contact their lender to learn if special deferment is available for those who are unemployed. This private student loans guide may also be helpful.

Advantages and Disadvantages of Unemployment Deferment

So, what are the potential pros and cons of pursuing an unemployment deferment on student loans?

These are some of the advantages and disadvantages you may want to think over:

Advantages

Whether a borrower has been laid off due to an economic downturn or they have recently graduated and are struggling to find employment, unemployed deferment is one way to help ease the financial pressure of repaying student debt in the short term.

For borrowers in need of financial relief, student loan unemployment deferment can help temporarily lower monthly expenses. This can be especially helpful if an unemployed borrower would otherwise run the risk of student loan default.

Defaulting on loans can have a negative impact on your credit history, complicating your ability to pursue mortgage or other loans in the future.

And, with student loans, simply not paying them does not erase the amount owed or the interest that can keep accruing.

If a borrower has only subsidized student loans, the unemployment deferment program comes at no additional cost because interest does not accrue.

And, while it’s completely fine to apply for a deferral, borrowers are typically expected to use the approved deferment period to find a new job; some unemployment protection programs from private lenders even have stipulations to that effect.

Disadvantages

In the case of unsubsidized federal student loans, taking a deferment will increase the total amount owed on the loan. And even if a borrower decides to make interest-only payments, they’re not not chipping away at the principal amount.

Unemployed student loan borrowers may want to weigh whether the short-term savings tied to reduced or suspended loan payments are worth owing more money on those loans later on.

When a borrower does eventually find employment and the deferment ends, the future payments on their student loan payments may be higher each month—to cover the additional accrued interest.

For someone who is just adjusting to a new job, higher loan payments may come as a shock and could be hard to budget for.

Understanding the long-term implications of applying for student loan unemployment deferment can help borrowers to decide whether this sort of program is the right for the current and future financial situations.

Alternatives to Unemployment Deferment

For federal student loan borrowers who don’t qualify for the Unemployment Deferment program, there may be other ways to handle student loans during a job loss.

Forbearance and income-driven repayment plans are two potential options:

Forbearance

Similar to deferment, federal or private loan forbearance temporarily suspends or reduces loan payments.

However, while principal payments are postponed, interest will continue to accrue, no matter what type of loans you have. To see if you qualify, contact your loan servicer.

Because forbearance does not suspend the accrual of interest on a student loan, it can make sense to consider other options, such as income-driven repayment.

Income-Driven Repayment

Income-driven repayment plans calculate loan payments based on a borrower’s current income and family size. They also, typically, stretch the loan repayments over 20 or more years.

There are four different types of income-driven repayment plans run by the US government:

•   Revised Pay As You Earn Repayment Plan (REPAYE Plan)

•   Income-Based Repayment Plan (IBR Plan)

•   Pay As You Earn Repayment Plan (PAYE Plan)

•   Income-Contingent Repayment Plan (ICR Plan)

Although this type of plan may trim monthly loan payments, it could cost borrowers more in interest over the life of the loan.

So, once your financial or employment situation improves, you may want to switch to an alternative repayment plan.

Public Service Loan Forgiveness (PSLF) Program

Having been previously employed in certain public sector jobs may also qualify some borrowers for student loan forgiveness if unemployed.

By definition, loan forgiveness means that the remaining amount owed is, well, forgiven—the borrower is no longer bound to pay it back.

Eligible federal student loan borrowers who’ve completed 10 years of employment with a qualifying job—such as, a public school teacher, some non-profit employees, Americorps recipient, or government worker—might be eligible for the PSLF program.

If you think you may qualify for the federal forgiveness program, and your goal is to lower your monthly payments, you may still want to switch to an income-driven repayment plan while the PSLF application is being reviewed in order to lower your monthly payments.

Student Loan Refinancing

After exhausting federal program options, or if none are quite the right fit, borrowers with federal or private student loans may want to look into refinancing student loans.

When you refinance student loans, you replace your loans with one new private loan. One of the advantages of refinancing student loans is that qualified borrowers may either get a lower monthly payment or help reduce the total interest paid over the life of the loan. Note: You may pay more interest over the life of the loan if you refinance with an extended term.

But it’s important to be aware that by refinancing federal student loans with a private lender, borrowers give up benefits and protections such as federal Unemployment Deferment, PSLF, and income-driven repayment.

Lenders that offer refinancing options usually look at applicants’ qualifying financial attributes—including employment status, credit history, and income. So, refinancing student loans is not necessarily available to all who apply.

The Takeaway

There are numerous possible student loan repayment options for unemployed borrowers who qualify, including deferment, income-driven repayment, federal student loan forgiveness programs, and student loan refinancing. One good place to start is by calling your loan provider to review all options you may qualify for.

If you decide that refinancing your student loans makes sense for your situation, SoFi offers loans with a low fixed or variable rate and no fees. By filling out a simple application, you can find out if you qualify in just two minutes.

Check your student loan refinancing rate today with SoFi.

SoFi Student Loan Refinance
SoFi Student Loans are originated by SoFi Bank, N.A. Member FDIC. NMLS #696891. (www.nmlsconsumeraccess.org). SoFi Student Loan Refinance Loans are private loans and do not have the same repayment options that the federal loan program offers, or may become available, such as Public Service Loan Forgiveness, Income-Based Repayment, Income-Contingent Repayment, PAYE or SAVE. Additional terms and conditions apply. Lowest rates reserved for the most creditworthy borrowers. For additional product-specific legal and licensing information, see SoFi.com/legal.

Everyone loves a good deal, especially when it comes with a little cash back in their pockets.

According to a Lending Tree survey, 87% of U.S. adults have at least one rewards credit card. Another poll found that the majority of rewards cardholders prefer cash-back cards over any other option.

If you’re thinking about adding a credit card to your wallet, here are a few things you might want to know about cash-back rewards, including how cash-back rewards work, and whether this type of rewards card makes sense for you.

What Are “Cash-Back Rewards”?

Cash-back credit cards are offered by many credit card companies to qualified consumers. Consumers can use these credit cards to make purchases, and a certain percentage of that purchase is returned to the customer as a cash incentive. In other words, cash back rewards can be an easy way to make the most of everyday expenses.

Typically, cash-back rewards range between 1% and 2%; however, a few cards offer more.

Some rewards cards offer a set number of points per purchase that can be redeemed later for cash or for goods like airline tickets, discounts at coffee shops, or gift cards.

How Does Cash Back Work?

Cash-back rewards are easy to use. All that consumers have to do is spend as they normally do, and in return, the credit card company calculates the percentage to return to the cardholder based on what they spent on eligible purchases.

For example: A card pays a flat rate of 2% cash back on all purchases. If the cardholder spends $1,000 in a statement period, the card issuer will then give the cardholder $20 in cash-back rewards.

The card issuer pays out the percentage at the end of a given term, which could mean paying it out at the end of a statement period or billing cycle, or even once you hit a predetermined amount, like $20.

Cash-back cards might come in handy for everything from large purchases to everyday needs. Think of it this way — rather than purchasing things with cash, which doesn’t provide any added benefits, a cash-back card could return money right into a consumer’s pocket.

However, in order for that money to really pay off, the cardholder will likely want to pay off the credit card balance every month in full so they’re not accruing interest and fees, and negating that cash-back reward.

One thing to remember is that cash-back cards are different from other rewards cards. There are rewards cards that offer specific travel rewards, cards that partner with gas stations to earn free gallons, and many more.

Four Ways to Redeem Cash-Back Rewards

Depending on the cash back card, there may be a number of different ways you can redeem cash back rewards. Here are some commonly offered options.

1. Credit card balance reduction: This allows you to have your cash rewards applied to your balance and use them to pay off a portion of your monthly bill.

2. Gift cards: Some card issuers allow you to redeem your cash back rewards in the form of gift cards to your favorite retailers or restaurants. To sweeten this deal, some issuers partner with other companies, such as online retailers or airlines, to provide bonus payouts when cash back rewards are redeemed with a gift card.

3. Charitable giving: Several card providers allow users to use their cash back for good, sending their rewards directly to the charity of their choice. All that users need to do is select the charity and the card does the rest.

4. Paper check or direct deposit: You can often redeem your cash-back as just that — cash. In this case, you ask your card issuer to transfer the money directly to your bank account or send a paper check.

The Different Types of Cash-Back Cards

While cash-back cards all work in a similar way, there are some differences between these cards to keep in mind.

Some are flat-rate cards, which means that cardholders receive the same exact cash back percentage on every eligible purchase, be it groceries or plane tickets. This option is easy as users never have to think about the way they use their cards.

Another option is a bonus category cash back card. These cards offer higher cash back percentages on certain purchase categories. For example, you might get more cash back on gas and groceries (say 2% or 3%) than you do on other items (say 1%). If you opt for this type of card, it can be a good idea to make sure the higher variable percentage is for items you purchase often.

Some cards rotate these bonus purchase categories every quarter, and you need to activate your rotating bonus categories in order to earn rewards. Others allow you to choose your bonus category.

Any of these cards may offer additional features, such as:

•   Special promotions One way to earn even more cash back may be via a special promotion run through the credit card. For example, a credit card may typically offer 1% cash-back. However, for one billing cycle, it could partner with a large retailer for 5% cash back for all eligible purchases.

•   Signup bonuses Cash back rewards cards might also come with signup bonuses to attract new customers. This might be a certain lump sum of cash back (say $100) if you spend a certain amount in the first three months. Or, you might be able to earn double or triple cash back for a set period of time.

Potential Drawbacks of Cash-Back Rewards

Cash-back credit cards can come with a few potential downsides that users may also want to be aware of. As with signing up for any new credit card, it’s a wise idea to read the fine print.

For instance, you may want to be sure to read through the contract carefully to understand exactly how the rewards work, what to expect along the way, and also suss out any hidden credit card fees such as late payment fees, balance transfer fees, foreign transaction fees, and more.

It can also be a good idea to find out if the card has a high annual fee, which may negate any earned rewards, and what the APR (annual percentage rate) is, in case you get into a bind and need to carry over a balance month to month. However, it’s key to keep in mind that carrying a balance nearly always outweighs any rewards.

It’s also important to note that many credit cards (cash-back or otherwise) can retain the right to change their bonus structure at any time. That means it could change the percentage of cash users receive in return for purchases for a lower (or higher) amount. So, users might want to be happy with the card and its rates and policies, not just the cash-back rewards, as that could change at any moment.

When looking at the fine print, consumers might also want to identify if the card comes with a cap on possible rewards. Many cards limit just how much money a user is allowed to claim, so make sure to know that number and be comfortable with the limit.

And, again, like all cards, it’s key to pay off a cash-back rewards card in a timely fashion. This way, users won’t be paying interest on purchases with a card that was meant to bring them a little money in return.

Recommended: What Is a Good APR?

The Takeaway

Cash-back is a credit card rewards benefit that refunds the cardholder a small percentage of some or all purchases made with the card. Every time you make an eligible purchase with your cash-back credit card, your card issuer will pay you back a percentage of that transaction. Your cash-back reward won’t necessarily pay out immediately. Like your statement balance, your rewards will accrue each month and show up on your monthly statement.

Whether you're looking to build credit, apply for a new credit card, or save money with the cards you have, it's important to understand the options that are best for you. Learn more about credit cards by exploring this credit card guide.

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.

SOCC0623006

There are many reasons why you might want to sock away some cash and perhaps earn interest while you’re at it. Perhaps you’re saving up for a down payment on a house or gathering funds for an epic cross-country road trip. Or maybe you are trying to build up a healthy emergency fund or save for grad school. Or you might just need a safe place with good rewards to store your paycheck as you pay bills.

Whatever the scenario may be, a deposit account can be the answer. There are several different kinds of these accounts that can help your money stay secure but accessible and perhaps earn an annual percentage yield (APY) to help it grow.

Here, you’ll learn about the different account options that are available, including the pros and cons of each.

Basic Checking and Savings Accounts

There are several different kinds of basic checking and savings accounts. You may find standard accounts, premium accounts, and other variations offered by financial institutions. Here are the pros and cons of these deposit accounts.

Checking Account Pros and Cons

First, the pros:

•   A checking account usually has very low monthly account fees or no monthly account fees.

•   A checking account typically allows access in multiple ways. You can write checks and get an ATM card or debit card. You might get access to online and mobile banking apps so that you can mobile deposit money and pay your bills.

•   These accounts provide a hub for your financial life: You have a home for your paycheck to be direct-deposited, you’ll have records of your transactions, and more ways to anchor and track your money.

•   You’ll usually enjoy FDIC (Federal Deposit Insurance Corporation) or NCUA (National Credit Union Administration) insurance of $250,000 per account holder, per account ownership category, per insured institution. Some institutions offer enhanced coverage, too.

•   You may find an interest-bearing checking account, though the rate is usually not as much as a savings account.

Next, the cons:

•   Many checking accounts pay no interest or very low interest, so you’re not helping your money grow.

•   There can be minimum balance requirements on checking accounts, especially ones with enhanced levels of service.

•   You may be charged accounts fees as well, which can cut into your cash.

Savings Account Pros and Cons

Savings accounts come with slightly different pros and cons. First, the upsides:

•   Most of the different kinds of savings accounts don’t charge account fees.

•   Savings accounts are interest-bearing, meaning your money can grow, especially through compound interest. However, not all savings accounts are created equal: Some standard accounts pay quite low interest. Look to online vs. traditional banks for higher rates (more on this below).

•   These accounts are also typically insured by FDIC or NCUA.

As for the downsides:

•   You probably can’t access your account via checks or a debit card. You will likely be limited to transfers and ATM withdrawals.

•   In addition, while the Federal Reserve has lifted the six-transaction limitation on savings accounts due to the pandemic, many banks still impose some transfer and withdrawal limitations on savings accounts.

•   You may encounter minimum balance requirements and fees if you go below that amount.

5 Other Deposit Account Options

Here are some other deposit account types you might consider beyond checking and savings:

1. High-Interest Savings Accounts

Some banks offer special, high-interest savings accounts that can offer much higher rates than traditional savings accounts. Some institutions don’t charge monthly fees for these accounts while others do but will waive them if you meet a balance minimum.

As with all savings accounts, you may be limited in terms of the number of withdrawals or transfers you can make each month.

One good place to look for this type of account is at an online bank. Because these institutions typically have lower operating expenses than brick-and-mortar banks, they can often offer rates that can be considerably higher than traditional banks, and may also be less likely to charge monthly fees.

💡 Learn more about how high-yield savings accounts work

2. Money Market Accounts

A money market account is a type of deposit account that pays interest on deposits and allows withdrawals.
Money market accounts are similar to standard savings and checking accounts, except that they typically pay higher interest rates, require higher initial deposits, and may also require minimum balances, which can run anywhere from $100 to $10,000.

Unlike standard savings accounts, some money market accounts also come with a debit card and checks, although institutions may require that they not be used more than six times per month.

You may want to keep in mind the difference between a money market account vs. a money market fund. A money market account is a federally insured banking instrument, whereas a money market fund is an investment account.

Typically, money market funds invest in cash and cash-equivalent securities. It is considered low risk but doesn’t have a guaranteed return.

3. Certificates of Deposits (CDs)

A certificate of deposit (CD) is a product offered by consumer financial institutions, including banks and credit unions, that provides a premium interest rate in exchange for leaving a lump-sum deposit untouched for a certain period of time.

The bank determines the terms of a CD, including the duration (or term) of the CD, how much higher the rate will be compared to the bank’s savings and money market products, and what penalties will be applied for early withdrawal.

CDs offer different term lengths that usually range from a few months to several years. Interest rates tend to be higher for longer terms. Some CDs have a minimum deposit amount that can be over $1,000 or more, though there are banks that offer CDs in any amount.

Sounds good? Well, it is if you know you won’t be touching that money for the entire term length. If you suddenly need the money, then you will likely have to pay a penalty to withdraw money early from your CD.

While you can get no-penalty CDs or early withdrawal CDs, it’s a good idea to make sure to read the fine print, as many of these accounts only have no penalties or withdrawal fees if you take money out during the first few weeks after you invest. In return for that withdrawal window, you often give up a significant amount in APY.

If ease of access is a concern, it might make sense to invest in CDs that feature fewer restrictions around withdrawals. Or, you could set up a CD ladder strategy where you buy CDs that have different maturity dates, ensuring access to funds as your CDs mature at staggered intervals.

4. High-Yield Checking Accounts

Though interest is normally associated with savings, and not checking, accounts, many financial institutions offer high-yield checking accounts.

These interest-bearing accounts, sometimes called rewards checking, work like regular checking accounts and come with checks and an ATM or debit card.

In return for getting a higher interest rate, these accounts often come with rules and restrictions. You may, for example, only earn the higher rate on money up to a certain limit. Any money over that amount would then earn a significantly lower rate.

You may also be required to make a certain number of debit card purchases per month and sign up for direct deposit in order to earn the higher (or rewards) rate and to avoid a monthly fee.

The benefit of an interest-bearing checking account is that you’ll always have access to your money and you may have fewer limitations on how you can use your account than you might with a savings account, all while still earning a bit of interest.

5. Cash Management Accounts

A cash management account is a cash account offered by a financial institution other than a bank or credit union, such as a brokerage firm. These accounts are designed for managing cash, making payments, and earning interest all in one place.

Cash management accounts often allow you to get checks, an ATM card, and online or mobile banking access in order to pay your bills. They also typically pay interest that is higher than standard savings accounts.

Cash management accounts also generally don’t have as many fees or restrictions as traditional savings accounts, but it’s important to read the fine print.

Before opening a cash management account, you may want to ask about monthly account fees and minimum balance requirements.

Some brokerage firms require a sizable opening deposit and/or charge monthly fees if your account falls below a certain minimum. Others will have no monthly fees and no minimums.

Time vs Demand Deposit Accounts

When you consider different kinds of deposit accounts, you may hear the terms time vs. demand accounts. Here’s how they differ:

•   A time deposit, such as a CD, requires you to keep your money with a financial institution for a particular period of time.

•   With a time deposit, if you withdraw funds before the end of the term, you may face penalties.

•   With a demand deposit account (such as a checking account), you may access your cash whenever you like.

•   While you won’t pay a penalty for withdrawing money, you may earn a lower interest rate than with a time deposit account.

Here’s the difference between these two kinds of accounts in chart form:

Opening a Bank Account With SoFi

If you’re looking for a safe, convenient place to keep your money and also earn some interest while you’re at it, there are a number of great options to pick from.

When you open a Checking and Savings account with SoFi, you’ll spend and save in one convenient place, while earning a competitive APY and paying no account fees. Plus you’ll have fee-free access to 55,000+ ATMs worldwide within the Allpoint Network.

SoFi Checking and Savings: The better way to bank.

FAQ

What are the different types of deposit accounts?

There are several different kinds of deposit accounts, including checking, savings, certificate of deposit (CD), cash management, and money market accounts.

What is the most common type of deposit account?

Among the most common types of deposit accounts are a standard checking account or other kind of checking account.

Is a CD considered a deposit account?

A CD is considered a deposit account, but a time deposit vs. a demand deposit. That means that you are supposed to let the money stay in the CD until it reaches the maturity date or else you will likely be charged a fee. A demand deposit account, on the other hand, can be accessed when you please.

SoFi® Checking and Savings is offered through SoFi Bank, N.A. ©2024 SoFi Bank, N.A. All rights reserved. Member FDIC. Equal Housing Lender.
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.

SoFi members with direct deposit activity can earn 4.20% annual percentage yield (APY) on savings balances (including Vaults) and 0.50% APY on checking balances. Direct Deposit means a recurring deposit of regular income to an account holder’s SoFi Checking or Savings account, including payroll, pension, or government benefit payments (e.g., Social Security), made by the account holder’s employer, payroll or benefits provider or government agency (“Direct Deposit”) via the Automated Clearing House (“ACH”) Network during a 30-day Evaluation Period (as defined below). Deposits that are not from an employer or government agency, including but not limited to check deposits, peer-to-peer transfers (e.g., transfers from PayPal, Venmo, etc.), merchant transactions (e.g., transactions from PayPal, Stripe, Square, etc.), and bank ACH funds transfers and wire transfers from external accounts, or are non-recurring in nature (e.g., IRS tax refunds), do not constitute Direct Deposit activity. There is no minimum Direct Deposit amount required to qualify for the stated interest rate. SoFi members with direct deposit are eligible for other SoFi Plus benefits.

As an alternative to direct deposit, SoFi members with Qualifying Deposits can earn 4.20% APY on savings balances (including Vaults) and 0.50% APY on checking balances. Qualifying Deposits means one or more deposits that, in the aggregate, are equal to or greater than $5,000 to an account holder’s SoFi Checking and Savings account (“Qualifying Deposits”) during a 30-day Evaluation Period (as defined below). Qualifying Deposits only include those deposits from the following eligible sources: (i) ACH transfers, (ii) inbound wire transfers, (iii) peer-to-peer transfers (i.e., external transfers from PayPal, Venmo, etc. and internal peer-to-peer transfers from a SoFi account belonging to another account holder), (iv) check deposits, (v) instant funding to your SoFi Bank Debit Card, (vi) push payments to your SoFi Bank Debit Card, and (vii) cash deposits. Qualifying Deposits do not include: (i) transfers between an account holder’s Checking account, Savings account, and/or Vaults; (ii) interest payments; (iii) bonuses issued by SoFi Bank or its affiliates; or (iv) credits, reversals, and refunds from SoFi Bank, N.A. (“SoFi Bank”) or from a merchant. SoFi members with Qualifying Deposits are not eligible for other SoFi Plus benefits.

SoFi Bank shall, in its sole discretion, assess each account holder’s Direct Deposit activity and Qualifying Deposits throughout each 30-Day Evaluation Period to determine the applicability of rates and may request additional documentation for verification of eligibility. The 30-Day Evaluation Period refers to the “Start Date” and “End Date” set forth on the APY Details page of your account, which comprises a period of 30 calendar days (the “30-Day Evaluation Period”). You can access the APY Details page at any time by logging into your SoFi account on the SoFi mobile app or SoFi website and selecting either (i) Banking > Savings > Current APY or (ii) Banking > Checking > Current APY. Upon receiving a Direct Deposit or $5,000 in Qualifying Deposits to your account, you will begin earning 4.20% APY on savings balances (including Vaults) and 0.50% on checking balances on or before the following calendar day. You will continue to earn these APYs for (i) the remainder of the current 30-Day Evaluation Period and through the end of the subsequent 30-Day Evaluation Period and (ii) any following 30-day Evaluation Periods during which SoFi Bank determines you to have Direct Deposit activity or $5,000 in Qualifying Deposits without interruption.

SoFi Bank reserves the right to grant a grace period to account holders following a change in Direct Deposit activity or Qualifying Deposits activity before adjusting rates. If SoFi Bank grants you a grace period, the dates for such grace period will be reflected on the APY Details page of your account. If SoFi Bank determines that you did not have Direct Deposit activity or $5,000 in Qualifying Deposits during the current 30-day Evaluation Period and, if applicable, the grace period, then you will begin earning the rates earned by account holders without either Direct Deposit or Qualifying Deposits until you have Direct Deposit activity or $5,000 in Qualifying Deposits in a subsequent 30-Day Evaluation Period. For the avoidance of doubt, an account holder with both Direct Deposit activity and Qualifying Deposits will earn the rates earned by account holders with Direct Deposit.

Members without either Direct Deposit activity or Qualifying Deposits, as determined by SoFi Bank, during a 30-Day Evaluation Period and, if applicable, the grace period, will earn 1.20% APY on savings balances (including Vaults) and 0.50% APY on checking balances.

Interest rates are variable and subject to change at any time. These rates are current as of 10/31/2024. There is no minimum balance requirement. Additional information can be found at https://www.sofi.com/legal/banking-rate-sheet.

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.

SOBK0523022