Feb
28
2025

The History of US Recessions: 1797-2020

By | Growing Wealth, invest, Investing | Comments Off on The History of US Recessions: 1797-2020

“Recession” can be a scary word, but economic contractions are fairly common throughout the history of the United States. In fact, they’re perfectly normal parts of the overall business cycle, during which the economy expands, contracts, and then expands again.

It’s during certain contractions, which we usually refer to as recessions, that life can get difficult, as a brief walk through U.S. recession history shows. While the U.S. most recently experienced a short recession in the wake of the COVID-19 pandemic, and no one knows when the next recession might occur, it’s important to understand that recessions are common — and so are the recoveries.

Key Points

•   Recessions are common in the history of the United States and are part of the overall business cycle.

•   A recession is a period when the economy contracts, with indicators such as stock market declines, business failures, and rising unemployment.

•   The National Bureau of Economic Research officially declares recessions based on various economic indicators.

•   U.S. recession history includes significant downturns like the Great Depression and the Great Recession.

•   There have been multiple recessions throughout U.S. history, caused by factors such as credit expansion, financial crises, and economic contractions.

What Exactly Is a Recession?

A recession is a period of time during which the economy contracts, or shrinks. There are some typical hallmarks of a recession: Stock markets fall, businesses fail or close, and unemployment goes up. Indicators, such as U.S. gross domestic product (GDP), also dips into the negative.

While recessions are often “called” following two-straight quarters of negative GDP growth, that’s more of a layman’s definition. Recessions are, in fact, officially declared by the Business Cycle Dating Committee at the National Bureau of Economic Research (NBER).

The NBER, and the economists comprising it, look at a number of economic indicators when deciding whether to label a period of economic contraction a recession or not. Those might include employment numbers, production, personal income, and more. As such, it’s not an exact science.

Also, as noted, a recession in the U.S. economy isn’t exactly uncommon. The NBER’s measures show that, prior to the COVID-19 pandemic, U.S. recession history comprises as many as 33 recessions.

The last time the U.S. experienced a recession was in 2020. But that was a relatively short recession. The biggest recession in U.S. history sparked the Great Depression, between 1929 and 1933, though the Great Recession (2007-2009) was the worst in modern times.

But U.S. recession history stretches way back nearly to the founding of the country itself.

💡 Dive deeper: Understanding Recessions and What Causes Them

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Earliest Known Recessions

The history of U.S. recessions goes back almost as far as the history of the nation.

1797-1798

Strikingly familiar to the Great Recession of 2008 to 2009, the recession of 1797 is believed to have been caused by a credit expansion and an investment bubble that included real estate, manufacturing, and infrastructure projects.

Problems ensued, bringing about a recession that affected nearly everyone from investors to shopkeepers to laborers.

1857

The Panic of 1857 wasn’t the first financial crisis in the United States, but thanks to the invention of the telegraph, news about the crisis spread quickly across the country.

Most historians attribute the panic to a confidence crisis that involved the failure of the Ohio Life Insurance and Trust Company, but other events have also been cited, including the end of the Crimean War overseas (which affected grain prices), excessive speculative investing in various markets, and questions about the overall stability of the U.S. economy.

1873-1879

Often referred to as the “Long Depression,” the Depression of 1873-1879 started with a stock market crash in Europe. Investors there began selling their investments in American projects, including bonds that funded railroads.

Without that funding, the banking firm Jay Cooke and Company, which was heavily invested in railroad construction, realized it was overextended and closed its doors. Other banks and businesses followed; and from 1873 to 1879, 18,000 U.S. businesses went bankrupt, including 89 railroads and at least 100 banks.

At the same time, the Coinage Act of 1873 demonetized silver as the legal tender of the United States, in favor of fully adopting the gold standard. The withdrawal of silver coins further contributed to the recession, as miners, farmers, and others in the working class had few ways to pay their debts.

1893-1897

Like many other financial downturns, this depression was preceded by a series of events that undermined public confidence and weakened the economy, including disputes over monetary policy (particularly gold vs. silver), underconsumption that led to a cutback in production, and government overspending.

Two of the country’s largest employers, the Philadelphia and Reading Railroad and the National Cordage Company, collapsed, and the stock market panic that followed turned into a larger financial crisis.

Banks and other financial firms began calling in loans, causing hundreds of businesses to go bankrupt and fail, and as a result, unemployment rates and homelessness soared.

Recessions Between 1900-2000

The last century had its fair share of recessions, too.

1907-1908

The recession that occurred between May 1907 and June 1908 was preceded by the San Francisco Earthquake, which took a toll on the insurance industry, and was also influenced by the Bankers Panic of 1907 which caused a huge stock market drop.

Those events spread fear across the country and a lack of confidence in the financial industry, causing more banking failures. As a result, the banking industry experienced major changes, including the creation of the Federal Reserve System in 1913, which was designed to provide a more stable monetary and financial system.

1929-1938

Most recessions last months. The Great Depression lasted years, and is generally regarded as the most devastating economic crisis in U.S. history. It had many causes, including reckless speculation, volatile economic conditions in Europe, and overvaluation that ended in a stock market crash in 1929.

Consumer confidence crashed as well, and a downturn in spending and investment led businesses to slow down production and lay off workers.

By early 1933, after a series of panics caused investors to demand the return of their funds, thousands of banks closed their doors. Immediately upon taking office, President Franklin D. Roosevelt began implementing a recovery plan, including reforms known as the New Deal.

He also moved to protect depositors’ accounts with the new Federal Deposit Insurance Corporation (FDIC). And he created the Securities and Exchange Commission (SEC) to regulate the stock market.

America’s entry into World War II further solidified the recovery, as production expanded and unemployment continued to drop from a high of 24.9% in 1933 to 4.7% by 1942.

1945

The result of demobilization and a shift to a peacetime economy after World War II ended, this eight-month recession (February to October 1945) is mostly known for a precipitous 12.7% drop in the gross domestic product, or GDP.

1948-1949

Economists generally blame this 11-month downturn (November 1948 to October 1949) on the “Fair Deal” social reforms of President Harry Truman, as well as a period of monetary tightening by the Federal Reserve in response to rampant inflation. Although it is generally considered a minor downturn, the unemployment rate did reach a 7.9% peak in October 1949.

1953-1954

A combination of events led to this 10-month recession (July 1953 to May 1954), including a post-Korean War economic contraction, as well as the tightening of monetary policy due to inflation and the separation of the Federal Reserve from the U.S. Treasury in 1951.

Unemployment peaked at 6.1% in September 1954, four months after the recession was officially over.

1957-1958

The Federal Reserve’s contractionary monetary policy — restricting the supply of money in an overheated economy — is often cited as the cause of this economic downturn. GDP fell 4.1% in the last quarter of 1957, then dropped another 10% at the start of 1958. Unemployment peaked at 7.5% in July 1958.

1960-1961

This recession lasted 10 months (from April 1960 to February 1961) and spanned two presidencies. When it began, Dwight D. Eisenhower was in office, but John F. Kennedy inherited the problem (after using the downturn to defeat then-vice president Richard Nixon in the 1960 presidential election.)

Although the recession caused serious problems for many sectors of the economy (a drop in manufacturer’s sales — and, therefore, manufacturing employment — was one of the first signs of trouble), its overall effects were mostly mild.

Personal income continued to rise through much of 1960, and declined less than 1% from October 1960 to February 1961. Unemployment was high, however, peaking at 7.1% in May 1961.

1969-1970

Though it lasted almost a year (from December 1969 to November 1970), this recession is considered to have been relatively mild, because it brought about only a 0.6% decline in the GDP. However, the unemployment rate was high, reaching a peak of 6.1% in December 1970.

The downturn’s causes include a rising inflation rate resulting from increased deficits, heavy spending on the Vietnam War, and the Federal Reserve’s policy of increasing interest rates.

1973-1975

This recession, which lasted from November 1973 to March 1975, is usually blamed on rocketing gas prices caused by OPEC (the Organization of Petroleum Exporting Countries), which raised oil prices and embargoed oil exports to the United States.

Other major factors in this 1970s recession included a stock market crash that caused a bear market from 1973 to 1974, and several monetary moves made by President Richard Nixon, including implementing wage-price controls and ending the gold standard in the U.S. The result was “stagflation,” a slowing economy with high unemployment and high inflation.

1980-1982

There were actually two recessions during the early 1980s, according to the NBER. A brief recession occurred during the first six months of 1980, and then, after a short period of growth, a second, more sustained recession, lasted from July 1981 to November 1982.

That second recession, known as a double-dip recession, is largely blamed on monetary policy, as high-interest rates – in place to fight inflation – put pressure on sectors of the economy that depended on borrowing, such as manufacturing and construction.

1990-1991

The “Reagan Boom ” of the early and mid-1980s came to an ugly end at the beginning of the 1990s, as stock markets around the world crashed, and the U.S. savings and loan industry collapsed.

When Iraq invaded Kuwait in 1990, driving up the price of oil, consumer confidence took another hit.

The recession lasted from July 1990 to March 1991, according to the NBER, but it took the economy a while longer to fully rebound. Unemployment peaked at 7.8% in June 1992, and then-presidential candidate Bill Clinton’s focus on the struggling economy helped him unseat President George H.W. Bush later that year.

Recessions Between 2000-2025

Here’s a rundown of the most recent recessions.

2001

The 2001 recession lasted just eight months, from March to November, according to the NBER. And yet, the story behind the dot-com bubble trouble that triggered it remains a cautionary tale.

Investors looking for the next big thing cast aside fundamental analysis, and a frenzy grew over tech companies in the late 1990s. Many became overvalued, and the Y2K scare at the start of 2000 made investors jittery and took things up another notch.

When the tech bubble burst in 2001, equities crashed, and the 9/11 terrorist attacks only made matters worse. The Nasdaq index – one of several different stock exchanges – tumbled from a peak of 5,048.62 on March 10, 2000, to 1,139.90 on Oct 4, 2002, totaling a 76.81% fall.

On June 7, 2001, President George W. Bush signed the Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA), which used tax rebates and tax cuts to help stimulate the economy. And by 2003, the Federal Reserve had lowered its federal funds rate to a range of between 0.75% and 1.0% in an effort to further lift economic activity.

2008 to 2009

The Great Recession — also known as the financial crisis of 2008-2009 — is as notable for its severity as for its length. U.S. GDP fell 4.3% from its highest level at the end of 2007 to its lowest point in mid-2009. Meanwhile, the unemployment rate kept rising, from 5% at the end of 2007 to 10% in October 2009.

The average home price fell about 30% between mid-2006 and mid-2009. The S&P 500 fell 57% from October 2007 to March 2009. And the net worth of U.S. households and nonprofit organizations also took a hit, dropping from approximately $69 trillion in 2007 to $55 trillion in 2009.

Though the recession was especially devastating in the U.S., where it was triggered by the subprime mortgage crisis, it was an international crisis as well. A global economic downturn resulted in an unprecedented number of stimulus packages being introduced around the world.

In the U.S., the Federal Reserve reduced the federal funds rate from 5.25% in September 2007 to a range of zero to 0.25% by December 2008. And a $787-billion stimulus package, the American Recovery and Reinvestment Act of 2009, included tax breaks and spending projects credited with helping revive the sagging economy.

As for the three main causes of the recession of 2008? It’s complicated, but regulatory changes to how banks were allowed to invest customers’ money (specifically, into derivatives) was a main cause.

From there, derivative products were created from subprime mortgages, and as demand for homes increased (and interest rates rose) many borrowers could no longer afford to pay their mortgages. Finally, a collision of security fraud and predatory lending practices nearly overwhelmed the financial sector, as banks stopped lending to each other, and a game of derivative hot-potato ended with notable bank failures.

2025

The pandemic in 2020 caused a short recession, one that lasted only two months. It was largely due to businesses needing to shut down or curtail work in response to the pandemic, and though the recession itself was fairly short, the effects were felt for years.

Test your understanding of what you just read.

The Takeaway

U.S. recession history is a long, complicated topic. But if there’s one thing you should take away from it, it’s that recessions happen, they happen fairly frequently, and they’re not the end of the world. There are many reasons that a recession could or might happen, too, and there’s often no way to accurately predict a recession.

With that in mind, you can and should keep an eye on the news, the markets, and on economic indicators to try and get a sense of what might happen in the economy. As discussed above, recessions may spell bad news, but typically only for a period of time, after which markets tend to recover.

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Feb
28
2025
How to Use the Fear and Greed Index To Your Advantage

Guide to the Fear and Greed Index

By | Growing Wealth, invest, Investing | Comments Off on Guide to the Fear and Greed Index

The Fear and Greed Index is a tool developed by CNN (yes, the news network) to help gauge what factors are driving the stock market at a given time.

If you’ve ever taken a look at how the market is doing on a given day and wondered just what the heck is going on, the Fear and Greed Index may be helpful in deciphering the overall mood of the markets, and what’s behind it.

Key Points

•   The Fear and Greed Index, developed by CNN, measures market emotions.

•   The scale of the index ranges from 0 to 100, with 50 indicating neutral sentiment.

•   Seven stock indicators are used to gauge market sentiment.

•   The purpose is to help investors make informed decisions, and to try to avoid overvaluations or undervaluations.

•   Investors should consider economic growth, company performance, and other sentiment indicators.

What Is the Fear and Greed Index?

CNN’s Fear and Greed Index attempts to track the overriding emotions driving the stock market at any given time — a dynamic that typically toggles between fear and greed.

The Index is based on the premise that fear and greed are the two primary emotional states that influence investment behavior, with investors selling shares of stocks when they’re scared (fear), or buying them when they sense the potential for profit (greed).

CNN explains the Index as a tool to measure market movements and determine whether stocks are priced fairly or accurately, with the logic that fear drives prices down, and greed drives them up, or is used as a signal of when to sell stocks.

There are specific technical indicators used to calculate the Fear and Greed Index (FGI), and strategies that investors can use to inform their investment decisions based on the Index.

Understanding the Fear and Greed Index

The Fear and Greed Index uses a scale of 0 to 100. The higher the reading, the greedier investors are, with 50 signaling that investors are neutral. In other words, 100 signifies maximum greediness, and 0 signifies maximum fear.

To give some historical context, on Sept. 17, 2008, during the height of the financial crisis, the Fear and Greed Index logged a low of 12. On March 12, 2020, as the pandemic recession set in, the FGI hit a low of 2 that year.

Seven different types of stock indicators are used to calculate the Fear and Greed Index.

CNN tracks how much each indicator has veered from its average versus how much it normally veers. Then each indicator is given equal weighting when it comes to the final reading. Here are the seven inputs.

1.    Market Momentum: The S&P 500 versus its 125-day moving average. Looking at this equity benchmark relative to its own history can measure how the index’s 500 companies are being valued.

2.    Stock Price Strength: The number of stocks hitting 52-week highs and lows on the New York Stock Exchange, the largest of the world’s many stock exchanges. Share prices of public companies can signal whether they’re getting overvalued or undervalued.

3.    Stock Price Breadth: The volume of shares trading in stocks on the rise versus those declining. Market breadth can be used to gauge how widespread bullish or bearish sentiment is.

4.    Put and Call Options: The ratio of bullish call options trades versus bearish put options trades. Options give investors the right but not the obligation to buy or sell an asset. Therefore, more trades of calls over puts could indicate investors are feeling optimistic about snapping up shares in the future.

5.    Junk Bond Demand: The spread between yields on investment-grade bonds and junk bonds or high-yield bonds. Bond prices move in the opposite direction of yields. So when yields of higher-quality investment-grade bonds are climbing relative to yields on junkier debt, investors are seeking riskier assets.

6.    Market Volatility: The Cboe Volatility Index, also known as VIX, is designed to track investor expectations for volatility 30 days out. Rising expectations for stock market turbulence could be an indicator of fear.

7.    Safe Haven Demand: The difference in returns from stocks versus Treasuries. How much investors are favoring riskier markets like equities versus relatively safe investments or assets, like U.S. government bonds, can indicate sentiment.

The Fear and Greed Index page on the CNN website breaks down how each indicator is faring at any given time. For instance, whether each measure is showing Extreme Fear, Fear, Neutral, Greed, or Extreme Greed among investors.

“Stock Price Strength” might be showing Extreme Greed even as “Safe Haven Demand” is signaling Extreme Fear.

Tracking the Fear and Greed Index Over Time

The Fear and Greed Index is updated often. CNN says that each component, and the overall Index, are recalculated as soon as new data becomes available and can be implemented.

Looking back over the past several years, the Index has tracked market sentiment with at least some degree of accuracy. For example, prior to the COVID-19 pandemic, the market was seeing a bull run and hitting record levels — the Index, in late 2017, was nearing 100, a signifier that the market was driven by greed at that time.

Conversely, the Index dipped into “fear” territory (below 20) during the fall of 2016, when uncertainty was on the rise due to the U.S. presidential election at that time. Note, too, that midterm elections can also affect market performance.

How Does the Fear and Greed Index Fare Against History?

As mentioned, the Index does appear to capture investor sentiment with some degree of accuracy. The past few years — which have been rife with uncertainty due to the pandemic — have shown pockets of fear. For example, the Index showed “extreme fear” among investors in early 2020. That was right when the pandemic hit U.S. shores, and absolutely devastated the markets.

However, over the course of 2020, and near the end of the year, the Index was scoring at around 90, as the Federal Reserve stepped in and large-scale stimulus programs were implemented to prop up the economy.

Interestingly, the Index then dipped down into the “fear” realm in late 2020, likely due to uncertainty surrounding the outcome of the U.S. presidential election. It likewise saw a fast swing toward “greed” in the subsequent aftermath. Similar dynamics were seen in 2024.

Again, these largely mirror what was happening in the markets at large, and economic sentiment.

How Does the Fear and Greed Index Fare Against Other Indicators?

While the Fear and Greed Index does fold several indicators into its overall calculations, it is more of an emotional barometer than anything. While many financial professionals would likely urge investors to set their emotions aside when making investing decisions, it isn’t always easy — and as such, investors can be unpredictable.

That unpredictability can have an effect on the markets as investors may panic and engage in sell-offs, or conversely start buying stocks and other investments. Ultimately, it’s really hard to predict what people and institutions are going to do, barring some obvious motivating factor.

With that in mind, there are other market sentiment indicators out there, including the American Association of Individual Investors (AAII) Sentiment Survey, the Commitment of Traders report published by the CFTC (one of several agencies governing financial institutions), and even the U.S. Dollar Index (DXY), which can be used to measure safe haven demand. They’re all a bit different, but attempt to capture more or less the same thing, often with similar results.

For instance, while the Fear and Greed Index showed a state of fear in mid-March, the AAII Sentiment Survey likewise showed a majority of investors with a “bearish” sentiment as well during the same time frame.

And, of course, there are a number of other economic indicators that you can use to inform your investing decisions, such as GDP readings, unemployment figures, etc.

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Dos and Don’ts of Using the Fear and Greed Index

Why is the Fear and Greed Index useful? The same reason that any sort of measurement or gauge has value. In this case, measuring sentiment can help you determine which move you want to make next as an investor, and help you ride investing trends to potentially bigger returns.

Are you being too greedy? Too fearful? Is now the time to think about herd mentality?

Also generally, some investors often try to be contrarian, so when markets appear frothy and the rest of the herd appears to be overvaluing assets, investors try to sell, and vice versa.

Recommended: Should I Pull My Money Out of the Stock Market?

Dos

Use the Index to realize that investing can be emotional, but it shouldn’t be.

You can also use it to determine when to enter the market. Let’s say, for instance, you’ve been monitoring a stock that becomes further undervalued as investor fear rises, that could be a good time to buy the stock.

Don’ts

Don’t only rely on the Fear and Greed Index or other investor sentiment measures as the sole factor in making investment decisions. Fundamentals — like how much the economy is growing, or how quickly companies in your portfolio are growing revenue and earnings (which will be apparent during earnings season) — are important.

For instance, the FGI may be signaling extreme greed at some point, with all seven metrics indicating a rising market. However, this extreme bullishness may be warranted if the economy is firing on all cylinders, allowing companies to hire and consumers to buy up goods.

Recommended: Using Fundamental Analysis on Stocks

What Is the Crypto Fear and Greed Index?

While CNN publishes and maintains the traditional Fear and Greed Index, there are other websites that publish a similar index for the cryptocurrency markets.

The Crypto Fear and Greed Index operates in much the same way as CNN’s Index, but instead, focuses on sentiment within the crypto markets. The Crypto Fear and Greed Index is published and maintained by Alternative.me.

The Takeaway

The Fear and Greed Index is one of many gauges that tracks investor sentiment, and CNN’s Index focuses on seven specific indicators to measure whether the market is feeling “greedy” or “fearful.” While it’s only one indicator, in recent years, it has served as a somewhat accurate barometer of the markets, particularly regarding major events like elections and the pandemic.

But, as with anything, investors shouldn’t rely solely on the Fear and Greed Index to make decisions, though it can be used as one of many tools at their disposal. As always, it’s best to check with a financial professional if you have questions.

Ready to invest in your goals? It’s easy to get started when you open an investment account with SoFi Invest. You can invest in stocks, exchange-traded funds (ETFs), mutual funds, alternative funds, and more. SoFi doesn’t charge commissions, but other fees apply (full fee disclosure here).

For a limited time, opening and funding an Active Invest account gives you the opportunity to get up to $1,000 in the stock of your choice.

FAQ

Is the Fear and Greed Index a good indicator?

It can be a “good” indicator in the sense that it can be helpful when used in conjunction with other indicators to make investing decisions. That said, it shouldn’t be the only indicator investors use, and isn’t necessarily going to be accurate in helping determine what the market will do next.

Where can you find the Fear and Greed Index?

The Fear and Greed Index is published and maintained by CNN, and can be found on CNN’s website.

When does it make sense to buy, based on the Fear and Greed Index?

While you shouldn’t make investing decisions solely based on the Fear and Greed Index’s readings, generally speaking, the market is bullish when the Index produces a higher number (greed), and is bearish when numbers are lower (fear).

Photo credit: iStock/guvendemir

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

SoFi Invest encompasses two distinct companies, with various products and services offered to investors as described below: Individual customer accounts may be subject to the terms applicable to one or more of these platforms.
1) Automated Investing and advisory services are provided by SoFi Wealth LLC, an SEC-registered investment adviser (“SoFi Wealth“). Brokerage services are provided to SoFi Wealth LLC by SoFi Securities LLC.
2) Active Investing and brokerage services are provided by SoFi Securities LLC, Member FINRA (www.finra.org)/SIPC(www.sipc.org). Clearing and custody of all securities are provided by APEX Clearing Corporation.
For additional disclosures related to the SoFi Invest platforms described above please visit SoFi.com/legal.
Neither the Investment Advisor Representatives of SoFi Wealth, nor the Registered Representatives of SoFi Securities are compensated for the sale of any product or service sold through any SoFi Invest platform.

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.

Claw Promotion: Customer must fund their Active Invest account with at least $50 within 30 days of opening the account. Probability of customer receiving $1,000 is 0.028%. See full terms and conditions.

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Feb
27
2025
25 Ways to Cut Costs on a Road Trip_780x440

25 Ways to Cut Costs on a Road Trip

By | Budgeting & Goals, Financial Independence, money | Comments Off on 25 Ways to Cut Costs on a Road Trip

Road trips are a popular vacation idea, and there are plenty of ways to cut costs when taking to the open road. Whether you are heading to a national park or a local lake, on a wine-tasting getaway or just to hang with your college roommate, you can do a little bit of planning to bring down costs.

Learn how to minimize expenses on a road trip here.

Key Points

•   Road trips can be a fun and affordable way to take a vacation.

•   Choose a fuel-efficient car to save on gas.

•   Drive at or below the speed limit to avoid speeding tickets.

•   Prebook hotels for better rates, and sign up for loyalty programs for discounts.

•   Eat lunch at special restaurants to save.

1. Choose a Fuel-Efficient Car

If you have a choice of cars to take, you may want to go with one that is large enough to be comfortable but also gives you the best gas mileage. This is true whether you are using your own wheels or renting a car.

You can use FuelEconomy.gov’s Trip Calculator to determine which car will cost you the least in gas. This tool helps estimate fuel consumption and how much it will cost for a particular route using a specific car.

2. Drive at or Below the Speed Limit

This cautionary measure can help you save money in two ways. For one, you’ll be less likely to get pulled over and slapped with an expensive speeding ticket.

For another, observing the speed limit can actually reduce your gas consumption. In fact, according to the U.S. Department of Energy, every five miles you drive above 50 miles per hour is akin to paying an additional $0.27 per gallon.

3. Pack Your Car Wisely

You can also cut your gas costs by placing items inside the car or trunk rather than piling them on your roof. By reducing drag, this tactic can increase your fuel economy by 5% on highways according to one benchmark study.

4. Set a Road Trip Budget

When you first start talking about the road trip, you may want to roughly map out where you want to go, how long it’ll take to get there, and if you’ll need hotels or motels. From there, you can calculate the approximate cost of gas (FuelEconomy.gov can help) and tolls (try Tollsmart ), as well as food and fun.

Once you’ve established an overall budget for the trip, you start creating a travel fund.

    Tip:

A smart place to keep your fund is in a high-yield savings account, often found at online banks. These can help grow your money faster, thanks to favorable interest rates and no or low fees.

5. Bring Your Own Food and Supplies

Packing a cooler with water bottles, drinks, hand-held snacks, and sandwiches before leaving home is a proven frugal traveler trick. You can end up saving a sizable chunk of cash by not having to buy drinks and snacks at rest stops, vending machines, and drive-throughs.

You’ll also have a quick solution the next time someone in the car wants to pull over because they’re hungry.

6. Sign up for an Electronic Toll Account

The money-saving shift to electronic tolling is well underway. If you haven’t yet done so, getting a quick pass (or transponder) for your car can be a smart move. In New York, for example, drivers with EZ-Pass can save up to 75% on tolls.

7. Avoid Tolls Altogether

When your road trip isn’t on any set schedule, you may want to take the scenic route and completely avoid tolls. You can do this by setting your GPS app to “avoid tolls.”

If you’re in a location with pricey bridges and highways, your savings could really add up. You may want to make sure, however, that avoiding tolls doesn’t take you so far out of your way that you’re spending a lot more on gas.

8. Look for Hotels that Offer Free Breakfasts

If you’re comparing lodging options in a similar price and quality range, one way to save on hotel costs and on road trip expenses in general is to choose the hotel with a free breakfast.

Not only will you probably get a large, filling meal, but you might even be able to take a piece of fruit or cereal box as a snack for later on in the trip.

9. Pack Reusable Water Bottles for Everyone

You’ll no doubt get thirsty while driving and sightseeing, especially in summer, and buying water or drinks can put a major dent in your road trip budget.

Making sure everyone in the car has a large reusable water bottle (or two) to fill up at rest stops and in restaurants can help you avoid spending money on drinks, and also create less plastic waste.

10. Buy a National Park Pass

If you’re going to be road-tripping across the U.S. and visiting a few national parks, you may want to consider getting an America the Beautiful pass.

The pass (which costs $80 per year and $20 for seniors) covers entrance, standard amenity, and day use fees for a driver and all passengers in a personal vehicle (up to 4 adults) at more than 2,000 federal recreation sites.

Just remember that summer is primetime for many parks, from Yosemite in California to Acadia in Maine. If you need lodging, book early.

Recommended: How to Make Money Fast

11. Hit the Grocery Store

Once you’ve run out of your cooler meals and snacks, consider restocking at a local grocery store while en route so you don’t have to resort to fast food or a pricey local restaurant for the rest of your trip. That can be a good way to save on food costs.

This is also a good strategy if you’re going to be staying at a hotel for a few nights. Making good use of a hotel kitchenette and fridge can help you avoid having to eat out for every single meal.

12. Prebook Your Hotels

Spontaneity is great, but if you’re looking to save money on accommodations, it can be wiser to book ahead of time and stick to your plan. You can often secure a better rate by booking in advance (and online), than by showing up without a reservation or booking last minute.

13. Look Beyond Hotels

Your first thought when looking for roadside accommodation may be cheap hotels or motels. But you sometimes find a better deal (or a nicer option for the same price) using a home rental site, such as Airbnb, VRBO, or FlipKey, especially if you’re staying for more than one night.

When booking lodging, it can be smart to use a travel credit card or a cash back rewards credit card, since every swipe can help you earn points, miles, or cash back that you might apply to future trips.

14. Plan to Visit Free Attractions

Part of the fun of a road trip is to enjoy the journey and scenery while en route to your final destination.

To cut spending while still enjoying your travels, you may want to research free attractions, such as a hike, walk on a beach, or a free museum, on your route for times when you need to stretch and take a driving break.

You can also look for festivals and local events by checking out the online events calendar for the towns you’ll be visiting that day. You might also check out Meetup.com and see what kinds of local groups are gathering for experiences and outings.

15. Plan Gas Stops in Advance

Getting stuck in a big city with the tank close to empty can be costly (and driving in circles looking for a gas station when you’re en route to the beach is no fun either). To avoid overpriced gas, you may want to use a gas app like Gas Guru or GasBuddy, which can help you compare prices and find affordable gas no matter where you are. This hack is an easy way to lower your gas costs.

16. Set a Daily Spending Limit

You can use your overall budget to get a rough idea of how much you can spend on the road trip each day. This can help you avoid blowing the money you’ve saved, wherever you may keep your travel fund, before the end of the trip.

A spending plan can also let you know when you can splurge a bit and when you’ll have to reign it in with a meal, activity, or lodging. You may also want to set aside some of your budget for the unexpected, such as the car getting a flat and needing to be towed, or discovering the cheap hotel you planned to stay in is actually a total dump. Also factor in some summer road-trip treats: You’re likely to be stopping for ice cream here and there and maybe even a lobster roll.

17. Entertain the Kids on the Cheap

Road trips can help you afford a family vacation since you sidestep pricey plane tickets. But remember that kids have a tendency to get bored, tired, and antsy on a road trip. To avoid giving in to impulse toy purchases, you may want to bring along their favorite toys and also pick up a variety of new ones at the dollar store before you leave.

Good choices include coloring books and games they can play in the car that won’t create a mess. You might also consider borrowing audio books from the library to give yourself an hour or so of peace and quiet.

18. Search Online for Local Coupons and Passes

It can be worthwhile to research online coupons and discount codes for local attractions and restaurants at some of your scheduled stops.

Consider checking Groupon or LivingSocial for deals and steals. Sometimes booking online ahead of time saves you money, and it’ll give you a reason to try to reach a specific destination by a certain day.

19. Save on Alcohol

Sipping a cold beer or glass of wine at a local bar at the end of your long drive might sound like the perfect way to unwind.

But alcohol costs can quickly add up on a road trip vacation. Consider buying a few local beers or a small bottle of wine that’s native to that area to enjoy in your hotel room. You’ll save money on tipping too.

20. Volunteer at a Festival

Yes, you read that correctly. Some festivals and special events offer discounts or free admission to volunteers. You can look up events taking place in the town you’ll be visiting and reach out to the event organizer to see if they need help. Summer is full of events like these, from concerts to craft fairs to food festivals.

21. Sign up for a AAA Membership

An auto club like AAA can save you time, money, and hassle should you run into car trouble during your trip. What’s more, a membership (often starting at around $6 a month) gives you access to discounts at loads of hotels, restaurants, and many retailers nationwide.

22. Travel During the Off-Season

Yes, summer can be the most welcoming time of the year to hop behind the wheel. But visiting national parks when kids are back in school can often help save money on lodging and activities. Planning a road trip to a destination like Disney World or Disneyland? You’ll likely find better deals if it’s not during a spring break or other school vacation.

You can often also save money by visiting warm weather locations during “shoulder seasons.” This is the period in between a destination’s low and high seasons of tourism, when prices for hotels tend to be lower, and crowds tend to be smaller, at popular attractions.

23. Do Some Camping

Outdoorsy road trippers might enjoy setting up a tent at a free or low-cost public campsite. You can find out more on the Bureau of Land Management site.

This can end up saving you a lot of money on hotel costs, provided you don’t go out and buy a lot of expensive camping equipment.

If you don’t have any camping gear, you may want to consider renting equipment from an outdoor specialty store or asking a friend who regularly goes camping if you can borrow their equipment. As noted above, summer can be prime time for basking in some of America’s natural beauty, so book your campsite early.

24. Eat Out for Lunch Instead of Dinner

If there are special restaurants you want to try without breaking the bank, consider going there for lunch. You might get a slightly smaller portion than you would if you ordered it off the dinner menu, but you’ll likely save on dining out.

25. Take Advantage of Loyalty Programs

Booking with the same hotel chain as often as possible and signing up for their member loyalty (or “points”) program may net you a free night after a few stays.

Travel booking services, such as Expedia, Travelocity, or Hotels.com, may also offer discounted rates and free nights for loyal customers.

Recommended: 50/30/20 Budget Calculator

The Takeaway

Planning a summer vacation? A car trip might sound much more affordable than traveling by plane. However, gas, food, and accommodations can add up.
One of the best ways to cut road trip expenses is to plan out your trip and research deals, coupons, and discounts ahead of time. Packing wisely and loading up on drinks, snacks, toys, and activities can also help cut costs once you’re out on the road. It’s part of optimizing your financial wellness.

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

Better banking is here with SoFi, NerdWallet’s 2024 winner for Best Checking Account Overall.* Enjoy up to 3.80% APY on SoFi Checking and Savings.

FAQ

How can I make road trips more affordable?

Some ways to make road trips more affordable include bringing your own snacks, driving at or under the speed limit, and booking hotels or motels ahead of time.

How can I save money when traveling by car?

You can save money when traveling by car by using a gas card and taking other steps that can help you save on tolls; using electronic tolling or avoiding tolls; and bringing snacks and drinks with you vs. buying them on the road.

How can I spend time when on a road trip?

Ways to spend time on a road trip include going to local and national parks, looking for activities at a discount on Groupon or LivingSocial, and checking out any interesting gatherings that might be happening on Meetup.com.

SoFi® Checking and Savings is offered through SoFi Bank, N.A. ©2025 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 3.80% 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 3.80% APY on savings balances (including Vaults) and 0.50% APY on checking balances. Qualifying Deposits means one or more deposits that, in the aggregate, are equal to or greater than $5,000 to an account holder’s SoFi Checking and Savings account (“Qualifying Deposits”) during a 30-day Evaluation Period (as defined below). Qualifying Deposits only include those deposits from the following eligible sources: (i) ACH transfers, (ii) inbound wire transfers, (iii) peer-to-peer transfers (i.e., external transfers from PayPal, Venmo, etc. and internal peer-to-peer transfers from a SoFi account belonging to another account holder), (iv) check deposits, (v) instant funding to your SoFi Bank Debit Card, (vi) push payments to your SoFi Bank Debit Card, and (vii) cash deposits. Qualifying Deposits do not include: (i) transfers between an account holder’s Checking account, Savings account, and/or Vaults; (ii) interest payments; (iii) bonuses issued by SoFi Bank or its affiliates; or (iv) credits, reversals, and refunds from SoFi Bank, N.A. (“SoFi Bank”) or from a merchant. SoFi members with Qualifying Deposits are not eligible for other SoFi Plus benefits.

SoFi Bank shall, in its sole discretion, assess each account holder’s 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 3.80% APY on savings balances (including Vaults) and 0.50% on checking balances on or before the following calendar day. You will continue to earn these APYs for (i) the remainder of the current 30-Day Evaluation Period and through the end of the subsequent 30-Day Evaluation Period and (ii) any following 30-day Evaluation Periods during which SoFi Bank determines you to have 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.

Separately, SoFi members who enroll in SoFi Plus by paying the SoFi Plus Subscription Fee every 30 days can also earn 3.80% APY on savings balances (including Vaults) and 0.50% APY on checking balances. For additional details, see the SoFi Plus Terms and Conditions at https://www.sofi.com/terms-of-use/#plus.

*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 Checking & Savings Fee Sheet for details at sofi.com/legal/banking-fees/.
Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

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

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.

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Feb
27
2025
atms next to each other

Credit Unions vs. Banks

By | Budgeting & Goals, Financial Independence | No Comments

A credit union is a nonprofit financial institution that offers products and services similar to banks, such as deposit accounts and loans. However, it may have certain requirements for membership, such as living in a certain geographic area or working in a specific profession.

If you are trying to figure out the kind of financial institution that suits you best, it may be valuable to consider credit unions vs. banks.

Key Points

•   Banks operate for profit, while credit unions function as nonprofits.

•   Banks do not require membership, but credit unions have specific criteria to be satisfied.

•   Banks typically offer a wider range of financial services, but traditional banks may charge higher fees and offer lower interest rates.

•   Credit unions are known for more personalized customer service.

•   Banks generally provide better technology and accessibility.

What Is a Credit Union?

Credit unions are financial institutions like banks, and they offer products you’d expect such as checking and savings accounts, loans, debit cards, checks, money orders, and more. They can provide apps and online access, just as banks do.

Credit unions may charge fewer fees, often with no minimum or a very low minimum deposit to open an account. In this way, they may be closer to online banks vs. traditional banks.

One difference between a credit union and a bank is that credit unions are run as coops, meaning each member has a stake in the business. Just like buying stock in a company, you own a small piece of the credit union when you join.

Here are some more features of credit unions:

•   These organizations are typically smaller than big banks and specific to certain locations, while offering similar services.

•   As nonprofits, credit unions are usually designed to serve their members, generally paying higher overall interest rates on deposits and with lower fees and penalties.

Typically, credit unions serve people only within their geographic area, and you need to be a member. Some credit unions have specific requirements for membership, but most make it easy to meet the qualifications, such as:

•   Where you work or your industry

•   Where you live

•   Where you attend school or worship

•   Which organizations you are a member of

Get up to $300 when you bank with SoFi.

No account or overdraft fees. No minimum balance.

Up to 3.80% APY on savings balances.

Up to 2-day-early paycheck.

Up to $2M of additional
FDIC insurance.


Pros and Cons of Banks

Here are some of the upsides and downsides of keeping your money at a bank.

Pros of Banks

Consider these benefits:

•   One of the biggest overall benefits of choosing a bank, especially a major one, might be that they generally offer a larger array of financial products, including checking accounts and savings accounts, loans, and more. They can be your one-stop shopping for many financial needs.

•   Banks may have extensive networks of brick-and-mortar branches, possibly both nationally and internationally.

•   They usually have large ATM networks as well.

•   Banks are likely to be insured by FDIC (Federal Deposit Insurance Corporation), adding a layer of security in the very rare event of a bank failure.

•   Bigger banks can be quicker to adopt new technology, such as launching mobile check deposit.

Cons of Banks

In terms of the downsides:

•   Traditional banks may not offer as high interest rates as online banks or credit unions do.

•   Similarly, traditional banks vs. online banks and credit unions often charge higher fees.

•   A big bank may not provide as specialized, personalized services as credit unions do. Credit unions may provide ATM fee reimbursement and other perks.

Pros and Cons of Credit Unions

Now, take a look at the upsides and downsides of credit unions.

Pros of Credit Unions

On the plus side, credit unions can offer the following:

•   Credit unions typically offer many of the same services as banks, satisfying a range of client needs.

•   They may offer higher interest rates on deposit accounts than traditional banks because profits go back to the members.

•   The fees are often lower than at traditional banks, both on deposit accounts and other financial products. For instance, credit union vs. bank mortgages may have less costly fees.

•   Most credit unions are insured by the National Credit Union Administration, or NCUA vs. FDIC, which helps protect funds in the very rare event of a financial institution failing.

•   Credit unions are typically known for personalized service and may offer financial literacy classes and more to support their members.

Cons of Credit Unions

Now, some of the minuses:

•   Membership is required. It’s possible that a person may not qualify to become a member/shareholder.

•   Credit unions are typically local or regional; there may not be many options in a given area. Shared branch credit unions may, however, offer greater reach.

•   They may not offer the kind of 24/7 accessibility and extensive customer service options as major banks.

•   While many services are offered, they may not have all the bells and whistles that a bank offers, such as money transfer service (such as Zelle) or a next-gen app.

Recommended: Do Credit Unions Help You Build Your Credit Score?

Credit Union vs. Bank

Here’s a comparison of how credit unions vs. banks stack up.

Business Model and Pricing

Banks are for-profit enterprises while credit unions are not. Some banks may charge higher fees and interest rates to borrow money. They may have higher minimum deposit requirements as well and lower annual percentage yields (APYs) on deposit accounts.

Recommended: APY Calculator

Membership Requirements

Banks are open to all who can apply for and be approved for services. Credit unions, however, have requirements to join and become a shareholder. They might cater to members of the military or employees in a certain industry. Or they might simply charge a small fee. But there will be some requirement to be met.

Services

Banks are known for having a full array of services: various kinds of accounts, loans, and other financial products. Credit unions usually have diverse offerings but may not offer quite the breadth as they tend to be smaller institutions.

Customer Care

Credit unions may have the edge here; they are known for personalized attention and coaching to help members gain financial literacy and reach their money goals. A large bank may not be able to take such interest in each client.

Accessibility

Banks may offer many physical branches, 24/7 customer service, and a national and even international network of locations and ATMs. Credit unions are likely smaller and local, with more limited access.

Technology Tools

Larger banks tend to be more advanced in terms of technological innovation than credit unions. They may have state-of-the-art websites, apps, and services like money transfer services.

Here’s how these bank vs. credit union differences look in chart form:

BanksCredit Unions
A for-profit business that may charge higher fees and interest rates on loans; lower APYs on deposits, especially at traditional banksA nonprofit that puts profits to work for members and may offer lower fees and interest rates on loans, plus higher APYs on deposits
No membership requirements beyond perhaps initial depositsMay need to meet certain location, employment, or other membership requirements
Full array of financial products and servicesBasic array of financial products and services
May not offer intensive personalized attentionKnown for personalized customer care and financial literacy coaching
Likely to have 24/7 access and a national or global network of branches and ATMsMay not have 24/7 access to services or a network of branches
Advanced technology, including apps and P2P servicesMay be less technologically advanced

Finding the Right Credit Union

If you think a credit union may be the right fit for you but are unsure where to start, you could ask your coworkers or neighbors if they use one and if they like it. Since a credit union is a local financial institution, word-of-mouth can make for valuable research.

You could also search in your geographic area, making sure to check the eligibility requirements, and nationally, if you’re able to use a different local branch as part of the network. Then, joining is just like opening up any other bank account if you meet the membership credentials. Additionally, a credit union account may allow you to do most tasks online or over the phone.

Recommended: Passive Income Ideas

The Takeaway

A credit union is a nonprofit financial institution that offers many of the same products and services as a bank, with each account holder being a shareholder and often enjoying highly personalized service. However, credit unions may have membership requirements and may lack a major bank’s ATM network, accessibility, and tech features. Credit unions often have lower fees and higher interest rates than traditional banks, making them more similar to online banks in this realm.

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


Better banking is here with SoFi, NerdWallet’s 2024 winner for Best Checking Account Overall.* Enjoy up to 3.80% APY on SoFi Checking and Savings.

FAQ

Is it better to have a credit union or a bank?

Whether it’s better to have a credit union or a bank depends upon a person’s individual needs. If you need a financial institution with a national or global network of branches and ATMs, a bank might suit you best. If you are looking for personalized, local service, lower fees, and financial literacy training, a credit union might offer those features.

What is a disadvantage of a credit union?

One potential disadvantage of a credit union is that you need to qualify as a shareholder. This might mean that you need to live or work in a certain geographic area or work in a specific profession. Not everyone may qualify.

What are the biggest risks to credit unions?

The biggest risks to credit unions are similar to the biggest risks to banks. These include cyberthreats (hacking, for instance), uncertain interest rates, and the potential loss of deposits, although the latter is a very rare occurrence.

SoFi® Checking and Savings is offered through SoFi Bank, N.A. ©2025 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 3.80% 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 3.80% APY on savings balances (including Vaults) and 0.50% APY on checking balances. Qualifying Deposits means one or more deposits that, in the aggregate, are equal to or greater than $5,000 to an account holder’s SoFi Checking and Savings account (“Qualifying Deposits”) during a 30-day Evaluation Period (as defined below). Qualifying Deposits only include those deposits from the following eligible sources: (i) ACH transfers, (ii) inbound wire transfers, (iii) peer-to-peer transfers (i.e., external transfers from PayPal, Venmo, etc. and internal peer-to-peer transfers from a SoFi account belonging to another account holder), (iv) check deposits, (v) instant funding to your SoFi Bank Debit Card, (vi) push payments to your SoFi Bank Debit Card, and (vii) cash deposits. Qualifying Deposits do not include: (i) transfers between an account holder’s Checking account, Savings account, and/or Vaults; (ii) interest payments; (iii) bonuses issued by SoFi Bank or its affiliates; or (iv) credits, reversals, and refunds from SoFi Bank, N.A. (“SoFi Bank”) or from a merchant. SoFi members with Qualifying Deposits are not eligible for other SoFi Plus benefits.

SoFi Bank shall, in its sole discretion, assess each account holder’s 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 3.80% APY on savings balances (including Vaults) and 0.50% on checking balances on or before the following calendar day. You will continue to earn these APYs for (i) the remainder of the current 30-Day Evaluation Period and through the end of the subsequent 30-Day Evaluation Period and (ii) any following 30-day Evaluation Periods during which SoFi Bank determines you to have 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.

Separately, SoFi members who enroll in SoFi Plus by paying the SoFi Plus Subscription Fee every 30 days can also earn 3.80% APY on savings balances (including Vaults) and 0.50% APY on checking balances. For additional details, see the SoFi Plus Terms and Conditions at https://www.sofi.com/terms-of-use/#plus.

*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 Checking & Savings Fee Sheet for details at sofi.com/legal/banking-fees/.
Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

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

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.

Third Party Trademarks: Certified Financial Planner Board of Standards Inc. (CFP Board) owns the certification marks CFP®, CERTIFIED FINANCIAL PLANNER®, CFP® (with plaque design), and CFP® (with flame design) in the U.S., which it awards to individuals who successfully complete CFP Board's initial and ongoing certification requirements.

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Feb
26
2025

If I Refinance My Home, Can I Keep My HELOC?

By | Home Ownership, Money & Life, mortgage | Comments Off on If I Refinance My Home, Can I Keep My HELOC?

Refinancing replaces your current mortgage with a new one. That’s something you might consider if you’d like to get a lower interest rate or different repayment terms. Having an open home equity line of credit (HELOC) can add a wrinkle to the refinancing process.

Here’s some comforting news for those who are wondering, If I refi my home, can I keep my HELOC? Yes, if your lender agrees to subordinate the line of credit. What, exactly, does that mean? Read on for what you need to know about refinancing with HELOC debt (or refinancing with an open line of credit).

Key Points

•   When refinancing, a subordination agreement makes it possible for a homeowner to refinance with a HELOC.

•   Subordination maintains the HELOC in a junior lien position, keeping it open.

•   Retaining a HELOC may lead to a higher interest rate and monthly payment on the new mortgage.

•   Advantages include flexible credit access and avoiding reapplication; disadvantages involve higher interest rates and increased debt risk.

•   Steps to navigate refinancing with a HELOC include financial assessment, using a refinance calculator, and securing a subordination agreement.

Understanding Refinancing and HELOCs


Refinancing replaces your existing mortgage with a new home loan. You may refinance with your current lender or a different one. It’s a fairly straightforward process if you have just one mortgage to refinance. You compare mortgage rates from different lenders, go through the mortgage preapproval process, and apply for a loan. The lender appraises your home’s value and checks your credit to determine whether to approve you.

Do you have to pay off a HELOC if you refinance? Not necessarily. Whether you get to keep your HELOC after refinancing depends largely on the lender.

If you need an in-depth HELOC definition or want to better understand how this type of credit line works, read our detailed HELOC loan guide.

Impact of Refinancing on an Existing HELOC


Refinancing with HELOC debt opens up some different possibilities for how your line of credit is handled. It helps to understand what could happen before applying for a mortgage refinance loan.

Subordination of the HELOC


Subordination refers to the way debts are ranked in order of priority for payoff, from highest to lowest.1 When you get a loan to buy a home, the home secures the property. This creates a lien, which allows the lender to make a legal claim to the property if you don’t repay what you owe. This mortgage is a first or senior lien. A HELOC, on the other hand, is a secondary or junior lien.2,3

Here’s what that means in simple terms. If you refinance your home, your first mortgage takes precedence for payoff. Once that loan is paid off with the proceeds from the new loan, your HELOC moves into the first loan position.

If you were to sell the home or fall into foreclosure, the HELOC would take priority for repayment which poses a risk to the lender who provides your new mortgage. If there isn’t enough money from the sale or auction of the home to cover the refinanced mortgage debt, the lender could take a financial hit.

Paying Off the HELOC


You could pay off your HELOC in full prior to refinancing, either with cash on hand or money from the refinance loan. Once you pay your line of credit off, your lender may close the account. If you’d still like to have access to a credit line for emergencies or other purposes, you’d need to apply for a new HELOC.

Whether that makes sense can hinge on how much equity you have in the home and what you’ll pay for a new HELOC in interest and fees. If you’re refinancing your first mortgage because rates dropped, for instance, you may be able to qualify for a low rate on a new home equity line of credit.

Closing the HELOC


HELOC rules prevent lenders from closing your account as long as you continue making payments. So you wouldn’t be able to shut your line of credit down without paying the balance off first.4

If you’re refinancing your HELOC debt into the new mortgage (borrowing enough to cover what you owe on your home plus what you owe on your HELOC), the new loan would pay off the balance on your line of credit and close the account. Once your HELOC is closed you wouldn’t be able to make additional withdrawals from your credit line.

Recommended: How Much Does It Cost to Refinance a Mortgage?

Options to Retain Your HELOC During Refinancing


Keeping your HELOC when refinancing may take a little effort on your part. Here’s how to navigate this part of the refinance process.

Requesting Subordination from Your HELOC Lender


A subordination agreement is a legally binding agreement specifying that your HELOC will take a second lien position when you refinance. If you have a HELOC with one lender and plan to refinance with another, all the lenders involved in the transaction would need to agree to subordination.

You can reach out to your lender directly to ask if subordination is an option. If so, you’ll need to complete whatever paperwork the lenders require. A lender may have a standard subordination form you’ll need to fill out.5

Subordination allows you to keep your HELOC open after refinancing. You may, however, have to pay a fee to the lender to get them to agree to subordination of your line of credit.

Refinancing with the Same Lender


If you plan to refinance with the same lender that you have your HELOC with, it may be easier to have your subordination request granted. Keep in mind that:

•   New draws from your HELOC may be temporarily prohibited until refinancing is complete

•   Your new loan may come with a higher interest rate if the lender is concerned about your risk profile

•   A higher rate on your refinance loan could result in a higher monthly payment

If you’re considering this option, talk to your lender about how refinancing with a HELOC would work and the ways it might impact your new loan.

Refinancing Without Paying Off the HELOC


Subordination allows you to refinance your first mortgage without having to pay off your HELOC or close your HELOC account. The main consideration is whether you’ll be able to afford the monthly payments on your HELOC and your new mortgage payment.

Running the numbers is relatively easy if both your refinance loan and your HELOC have a fixed rate. It’s a little more challenging if you have a variable-rate HELOC.

With a variable-rate HELOC, your rate is tied to an index or benchmark rate, like the prime rate. If the benchmark rate goes up or down, your rate — and your payments — can move the same way.6

Pros and Cons of Keeping Your HELOC When Refinancing


Keeping your HELOC open when refinancing has pros and cons. Weighing both sides can help you decide if it’s right for you.

Advantages


Here are some of the benefits to keeping your line of credit open when you refinance.

•   HELOCs offer flexible access to credit when you need it, whether it’s for an emergency or a large purchase.

•   You pay interest only on the portion of the credit line you use, so you can control your costs to a degree.

•   Keeping your HELOC open means you don’t have to apply for a new one (and get another ding on your credit).

Disadvantages


When is keeping your HELOC open after a refi not the best move? Here are the downsides.

•   Subordinating your HELOC could mean paying a higher interest rate on your refinance loan, which can add to your cost of borrowing.

•   You risk losing the home if your refinance and HELOC payments become unaffordable.

•   An open HELOC could be a temptation to spend unnecessarily, leading to more debt and more interest that you’ll have to repay.

Recommended: How Often Can You Refinance Your Home?

Steps to Refinance Your Home While Retaining Your HELOC


Refinancing with a HELOC takes some planning and it helps to understand what you can expect. Here’s an overview of how refinancing with a HELOC typically works.

Assess Your Financial Situation


Your credit and finances carry weight in refinancing, as lenders want to see that you have a good credit history and reliable income. Before you start shopping for a lender, take time to:

•   Check your credit reports and scores

•   Review your monthly budget and income, including how much of your pay currently goes to debt repayment

•   Consider the long-term and how your income or expenses might change over time

•   Use a refinance calculator to estimate the monthly payments on a new loan

If you’re still in the draw period of your HELOC, you might be making minimum or interest-only payments. Once repayment begins, your principal plus interest payments could be much higher. Thinking ahead can increase the odds of being able to manage your HELOC and refinance loan payments.

Communicate with Both Lenders


Communication can make refinancing with a HELOC a much smoother process. If you plan to refinance with a lender that’s different from the one you have your HELOC with, you’ll need to talk to both of them about subordination.

This is an opportunity to explain why you want to keep your HELOC open and ask questions about the subordination process. Ultimately, it’s the HELOC lender that must agree to remain in the second lien position. Be prepared to explain the terms of the refinance loan to the HELOC lender and the HELOC terms to your refinance lender.

Understand Subordination Agreements


Subordination agreements may not be lengthy; they just need to include the key details of the transaction and the signatures of the parties involved. However, it’s still important to review the agreement carefully so you know what you’re agreeing to.

The agreement should include:

•   Names of the subordinating and refinance lenders

•   Your name

•   The date each mortgage was taken out

•   An acknowledgment by the HELOC lender that the HELOC will stay in the second lien position

If you’re having trouble decoding your subordination agreement, don’t hesitate to ask the lender to explain it in more detail.

Prepare Necessary Documentation


Your lender should handle preparation of the subordination agreement. You may need to provide the HELOC lender with documentation for the refinance loan, showing how much you plan to borrow.

For the refinance itself, your lender may ask for:

•   Recent pay stubs

•   Bank and/or investment account statements

•   Tax returns

•   A profit and loss statement if you’re self-employed

You’ll need to go through a hard credit check and get an appraisal of the home. The refinance lender may schedule an in-person, drive-by, or virtual appraisal. Once approved, you’ll just need to review and sign the closing paperwork and pay closing costs. Those are the basic steps for how to refinance a home loan, with or without a HELOC.

The Takeaway


Refinancing with a HELOC makes things a little more complicated, but it’s possible to keep your line of credit through a process called subordination. You’ll have to communicate both with your new mortgage company as well as with the lender who gave you the HELOC. Alternatively, it may be possible to pay off your HELOC with your new mortgage, or pay it off with funds from other sources before you undertake a refi.

SoFi now partners with Spring EQ to offer flexible HELOCs. Our HELOC options allow you to access up to 90% of your home’s value, or $500,000, at competitively lower rates. And the application process is quick and convenient.


Unlock your home’s value with a home equity line of credit from SoFi, brokered through Spring EQ.

FAQ

Is it possible to refinance both my primary mortgage and HELOC simultaneously?

It’s possible to refinance a primary mortgage and HELOC at the same time using a cash-out refinance. You’d get a new mortgage loan and pull your equity out in cash, then use that money to pay off the HELOC. You’d then have one mortgage payment to make going forward.

Will my HELOC lender agree to subordinate their lien during refinancing?

The answer to this question depends on the lender. Subordination moves the HELOC into a junior lien position, but that’s where HELOCs ordinarily go when you have a primary mortgage. Talking to your lender can give you an idea of whether subordination is something they’ll agree to.

How does the combined loan-to-value ratio impact refinancing with an existing HELOC?

Combined loan-to-value (CLTV) measures all of the outstanding mortgage debt you have against your home’s value. If your CLTV ratio is too high, that could affect your ability to qualify for a refinance loan. The lender may limit the amount you can borrow or deny you altogether.

Are there additional costs associated with subordinating a HELOC during refinancing?

Lenders may assess a fee to enter into a subordination agreement. The fee may be lower or higher, depending on the lender. Talking to your HELOC lender is the best way to find out whether subordination is allowed and if so, what fees you might pay.

Can I draw from my HELOC during the refinancing process?

Your lender may limit new draws while you’re in the middle of refinancing. Once the refinance is complete and the subordination agreement has been signed, you should be able to resume withdrawing from your credit line.

Photo credit: iStock/ljubaphoto

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