A certificate of deposit (CD) can be a useful tool for saving money for an upcoming goal. The downside is that you need to wait until the CD matures in order to access your money. If you withdraw some or all of your funds early, you typically get hit with a hefty penalty fee.
If you’re in a pinch and need cash quickly, however, you may be able to get a CD loan. Also known as a CD-secured loan, this is a type of personal loan that uses the value of a CD account as collateral. CD loans are offered by some banks and credit unions. Typically, the lender needs to be the same institution that holds your CD.
Here’s a closer look at how CD loans work and how they stack up against unsecured personal loans.
What Is a CD Loan?
A CD loan is a type of personal loan that is secured by the money you have in a CD. Since the collateral lowers the risk for the lender, these loans can be easier to qualify for and have lower interest rates than unsecured loans. However, if you don’t repay the loan, the bank can take the money out of your CD to cover their losses.
Of course, to get a CD loan, you need to have a CD, which is a type of savings account that pays a fixed interest rate over a set amount of time, or term. You must leave the money untouched for the CD term, which can range from three months to five years. If you withdraw your funds before the end of the CD’s term, you usually have to pay an early withdrawal penalty. CDs generally pay a higher annual percentage yield (APY) than regular savings accounts. And the longer the CD’s term, usually the higher the APY. Similar to other types of savings accounts, CDs come with FDIC protection, up to the applicable limits.
How Do CD-Secured Loans Work?
If you take out a CD loan, the lender will charge interest. So you’ll be earning interest on the CD but paying interest on the CD-secured loan. In some cases, a bank or credit union will set the minimum annual percentage rate (APR) on their CD loans at 2% over the CD rate. So if your CD pays 3%, your CD loan rate would start at 5%. Your actual rate would depend on your credit and the term of the loan, among other factors.
How much you can borrow with a CD-secured loan depends on the lender. Often, you are able to borrow up to 100% of the value of your CD principal. The term of the loan can generally be as long as the term of the CD.
While you can typically access money in a CD if absolutely necessary and pay a penalty, that may no longer be the case if you get a CD loan. Typically, the funds being used as collateral are sealed even in the event of an emergency.
Who Might CD Loans Be Right For?
The idea of paying interest on a loan backed by an interest-bearing CD may seem counterintuitive. However, there can be some logical reasons for taking out a CD-secured loan. One is that you may be able to build your credit by taking out a CD loan and then making a series of on-time payments on the loan. More common ways to do that include getting a secured credit card or becoming an authorized user on another person’s credit card. But if those options aren’t available, and you have a CD, you might use a CD loan for that purpose.
Another reason you might opt for a CD loan is that you need access to your funds for an emergency before it matures. However, you’ll want to first check what your CD’s early withdrawal penalty is. It might be cheaper and easier to simply break open a CD early and pay the penalty. However, if the penalty would be more than what you’d pay in a CD loan’s fees and interest, you might consider a CD loan.
Before taking out a CD loan, it makes sense to weigh the pros and cons.
CD Loan Pros
• Lower interest rates CD-secured loans often have lower interest rates compared to credit cards and unsecured personal loans, making them an attractive option for borrowers seeking lower borrowing costs.
• Building credit CD loans offer an opportunity to establish or improve your credit history if you currently have limited or no credit.
• Retaining CD benefits Despite using the CD as collateral, you can still earn interest on the deposited amount.
• Fast access to funds If you apply for a CD loan with the bank or credit union that holds your CD, you can often get approved quickly and receive funds within a day or two.
• Good for those with bad credit Borrowers with poor credit often qualify for CD-secured loans.
CD Loan Cons
While CD loans have their benefits, there are also some drawbacks to keep in mind.
• Frozen funds The funds in the CD are tied up as collateral, limiting access to the money until the loan is repaid.
• Potential loss of CD If you default on the loan, the lender can seize the CD, resulting in the loss of the deposited funds.
• Limited loan amount CD loans are typically limited to a percentage of the CD’s value, which might not meet your full borrowing needs.
• Fees Your bank may charge fees, such as an origination fee, for issuing you a CD loan.
• Hard to find CD loans aren’t as common as other types of personal loan, so your bank or credit union may not offer them.
CD Loan vs Personal Loan
While CD-secured loans and unsecured personal loans have some similarities, they also have some significant differences.
With both types of loans, you get a lump sum of money up front and can then use those funds for virtually any type of expense. Both also typically offer fixed interest rates and a set repayment term so payments are easy to predict and budget for.
Unlike a personal loan, however, a CD-secured loan can be hard to find. Also with a CD loan, you need to put your savings on the line to secure the loan. With an unsecured personal loan, you don’t need to provide any funds or personal assets as collateral, making them accessible to borrowers without a CD or other assets.
CD loans also tend to have lower interest rates than unsecured personal loans due to the collateral, while personal loans tend to offer more flexibility in loan amount and repayment terms.
CD loans can be a viable option for someone who has a certificate of deposit and needs access to funds while keeping their deposited amount intact. The lower interest rates and potential credit-building opportunities make CD loans attractive for some borrowers.
However, these loans aren’t widely available and the cost of the loan could potentially exceed the CD’s early withdrawal fee. Also, you could lose the money in your CD if you have difficulty making payments. It’s crucial to weigh the pros and cons, consider your personal financial goals and needs, and compare loan options before deciding on the best borrowing solution.
If you’re interested in exploring personal loans, SoFi could help. SoFi’s unsecured personal loans offer competitive, fixed rates and a variety of terms. Checking your rate won’t affect your credit score, and it takes just one minute.
See if a personal loan from SoFi is right for you.
FAQ
Where can I get a CD loan?
CD loans are typically offered by banks and credit unions. It’s best to start by contacting your current financial institution to inquire about their CD loan options. They can provide you with specific details about their loan terms, interest rates, and application process. Typically, you need to take out a CD loan from the same institution that holds your CD.
What are CD loan interest rates?
CD loan interest rates vary depending on the lender, current market conditions, and your qualifications as a borrower. Rates tend to be lower than those of unsecured personal loans, since the loan is backed by the funds in the CD.
Some banks and credit unions will set the minimum annual percentage rate (APR) on their CD loans at 2% over the CD rate. So if your CD pays 3%, your CD loan rate would start at 5%. Your actual rate would depend on your credit and the term of the loan, among other factors.
Do you get money back from a CD loan?
When you take out a CD loan, you do receive money from the lender. However, it’s important to note that the funds received are borrowed money that you are obligated to repay, typically with interest. The funds from the loan are separate from the funds you have deposited in a certificate of deposit. The CD itself remains intact and continues to earn interest, but it is held as collateral until the loan is repaid. Once the loan is fully repaid, you regain full access to your CD and any interest it has earned during the loan term.
About the author
Rebecca Lake
Rebecca Lake has been a finance writer for nearly a decade, specializing in personal finance, investing, and small business. She is a contributor at Forbes Advisor, SmartAsset, Investopedia, The Balance, MyBankTracker, MoneyRates and CreditCards.com. Read full bio.
Photo credit: iStock/PeopleImages
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A checking account is one of the most useful items you can have in your financial toolbox. You can use a checking account to pay bills, get paid early with direct deposit, or build your savings through automatic transfers.
However, it’s possible you’re not getting the most out of your account. Recognizing some of the most common mistakes you’re making with your checking account could help you to save money and time.
Ready to optimize this aspect of your financial life? Read on to learn:
• Common mistakes you’re making with your checking account
• Tips for improving your banking habits
Why Banking Mistakes Can Be Costly
Making mistakes with your bank account could cost you in more ways than one. It’s possible that you’re overpaying bank fees unnecessarily, missing out on valuable interest earnings, and possibly leaving yourself vulnerable to fraud. You may also be short-changing yourself and missing out on benefits and features if you’re using the wrong type of bank account for your needs.
Here’s why these issues can cost you:
• High fees are generally not a good thing, as they can nibble away at your balances over time.
• Losing out on the best interest rates means your money has less room to grow.
• Fraud can potentially be the biggest drain on your accounts, if your debit card or bank account is used to make unauthorized withdrawals or purchases.
The good news is that it’s relatively easy to get back on track. That starts with knowing which checking account mistakes to avoid. You’ll learn about them next.
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11 Checking Account Mistakes to Avoid
Managing a checking account shouldn’t be complicated. Here are 11 of the biggest checking account mistakes that you’ll likely want to sidestep.
1. Not Shopping Around
Sticking with the same bank for years may be comfortable, but it doesn’t necessarily mean you’re getting the best deal. It’s a mistake not to shop around for better banking options, as banks regularly introduce new benefits and features to attract customers.
It’s also incorrect to assume that switching banks is time-consuming or difficult. Many banks offer switch kits that help to simplify the process of transitioning your accounts over. These kits include a checklist of steps to complete to get your new accounts open and shut down your old ones if you choose to do so.
2. Overlooking the Benefits of Online Banks
How you use your checking account matters but it’s also important to consider where you keep it. Online banks can offer benefits you don’t always get at traditional banks or credit unions, such as lower fees or higher interest rates for deposit accounts. These two features could help you build wealth.
Opening an online checking and savings account is usually something you can do in just a few minutes. The trade-off of choosing an online bank is that you don’t have branch banking access. Comparing online banking pros and cons can help you to decide if it’s right for you.
3. Paying a Monthly Maintenance Fee
Banks can charge monthly maintenance fees for having a checking account. In some cases, you might pay these fees for savings and money market accounts as well. Paying these fees is a mistake if there are ways to get around them.
• Meeting a daily or monthly minimum balance requirement
• Scheduling a qualifying recurring direct deposit
• Maintaining a minimum balance across multiple linked accounts at the same bank
• Making a certain number of purchases with your debit card each month
You could also avoid monthly maintenance fees by moving to an online bank. Online banks tend to be more fee-friendly than traditional banks, and you could earn a higher rate on interest-bearing accounts as well.
4. Triggering ATM Fees
Here’s another common mistake you may be making with your checking account: When you need quick cash, you hit the first ATM you come across. Convenient, yes, but that’s a problem if your bank charges ATM fees.
What are ATM fees? They’re fees you pay to use another bank’s machine. Typically, your bank won’t charge if you use their ATMs. But they might tack on a foreign ATM surcharge if you use a machine that’s out of the bank’s network. The ATM owner can also charge a fee of their own. Typically, out-of-network ATM fees will cost you between $2.50 and $5 per transaction and possibly even more.
Knowing where you can withdraw cash fee-free is a simple way to avoid that mistake. You might also consider looking for a bank that reimburses foreign ATM fees each month. Some banks offer reimbursement, either as a flat dollar amount or up to a certain number of foreign ATM fees per month.
5. Not Keeping Enough in Your Account
Maintaining a lower balance in your checking account isn’t necessarily a bad thing, but it could put you at risk of incurring overdraft of non-sufficient funds (NSF) fees.
Banks can charge overdraft fees to complete transactions when you don’t have enough money in your account. Non-sufficient funds fees may apply when you don’t have enough money in your account and the bank cancels or rejects the transaction.
In terms of how much you’ll pay for NSF vs. overdraft fees, that depends on the bank. However, it’s not uncommon for banks to charge anywhere up to $40 for these fees.
You could avoid overdraft fees by enrolling in overdraft protection. What is overdraft protection? It’s a service that allows banks to transfer money automatically from your savings account to checking if you’re in danger of overdrafting your account. You can avoid high overdraft fees by opting in, though banks may charge a smaller transfer fee.
6. Keeping Too Much Money in Checking
Keeping too much money in checking could also be a mistake if you’re missing out on interest earnings. Siphoning off some of the money in checking into a high-yield savings account or money market account, for example, could allow you to earn a competitive interest rate and APY on your balances.
It’s also important to consider how FDIC coverage limits apply to checking accounts. The Federal Deposit Insurance Corporation insures deposits up to $250,000 per depositor, per account ownership type, per financial institution. If you keep more than that in checking, you could be at risk of losing money in the rare event that your bank fails.
7. Choosing a No Frills Checking Account
A basic checking account should have all the features you need to pay bills, deposit money, or make purchases with a linked debit card. But a specialty account could offer a wider range of benefits.
For example, a high-yield checking account earns interest on balances. That’s like getting free money just for keeping a balance in checking. You will, however, have to pay tax on the interest you earn at the end of the year.
8. Missing Out on Potential Rewards
Another checking account mistake to avoid is losing out on potential rewards and bonuses. What are reward checking accounts? These are bank accounts that reward you with points or cash back for completing certain activities. For example, you might earn rewards when you make a specific number of debit card purchases each month or link a savings account.
These accounts are similar to rewards credit cards but the difference is you’re spending your own money to earn them, rather than borrowing from the credit card company. They can offer you some nice perks as you conduct your usual banking business.
9. Not Protecting Your Account When You Shop Online
Shopping online is convenient and you might be able to save money versus shopping in store if you’re using promo codes or coupons at checkout. However, you could be putting your checking account at risk if you’re shopping over unsecured WiFi networks or making purchases on untrusted websites.
A simple way to verify a site’s authenticity is to look for “https” in the site’s address. That indicates the site uses a Secure Sockets Layer certificate to encrypt and protect user data.
You can also protect yourself by not storing your debit card information at the checkout. If you’d like to be able to automatically enter your debit card details to pay, you can add them to a secure mobile wallet like Google Pay, Apple Pay, or Samsung Pay.
10. Not Enrolling in Email and Text Alerts
There are different ways to keep track of your bank accounts, including online and mobile banking. If you don’t always have time to log in, you could use email and text alerts to monitor your accounts instead.
Banks can allow you to set up different types of alerts, including notifications for:
• Low balances
• New credit transactions
• New debit transactions
• Updates to your personal information or login information
• New linked accounts
• New wire transfer transactions
• Failed login attempts
Not using alerts can be a mistake as it can save you time as you manage your financial life.
Enrolling in alerts can also help you to spot potentially fraudulent activity before someone is able to do any major damage with your account.
Your password is your entry key to your online and mobile banking accounts and it’s important to choose a strong one. The stronger your password, the more difficult it might be for hackers to steal your information, and your money.
If you’re using weak passwords that are easy to guess, you could be leaving yourself open to fraud. It’s also a mistake to reuse the same passwords to log in to multiple accounts. If a hacker gets their hands on the password, they could have instant access to bank accounts, credit cards, investment accounts, email accounts, and any other accounts you manage online.
Choosing strong passwords and updating them regularly can help you avoid that scenario. If you have trouble remembering passwords, you might consider storing them online in a secure password keeper.
Ways to Improve Your Banking Habits
Building better habits can take time, but it may be well worth the effort if you’re able to avoid making common checking account mistakes. Here are a few ways to improve your banking habits:
• Check your accounts regularly. Logging in to your bank accounts once a day or every few days is a simple way to check your transaction history and balances so you know what you have to spend.
• Sign up for alerts. Banking alerts can help you to spot potential fraud, track your balances, and know what’s being debited or credited to your account. It’s typically free to enroll, and you can personalize which alerts you want to receive.
• Maintain a buffer. Getting in the habit of maintaining a cash cushion in your checking account can help you to minimize your risk of overdraft. For example, you might want to keep an extra $500 to $1,000 in your account at all times and not let your balance fall below that amount.
• Review your accounts. Reviewing your checking account once a year can be a good way to see what you’ve paid in fees and what benefits you’ve enjoyed. You can then use that as a guide for deciding whether to stick with your current bank or shop around for a new one.
Having a checking account can make managing your financial life easier, but it’s important to make sure you’re using it the right way. Avoiding common checking account mistakes and developing good banking habits can help you use your account to its full potential. Doing so can also help you earn more interest and pay fewer or lower fees.
If you’re ready to try a new banking experience, you might consider opening an online checking and savings account with SoFi. You can enjoy the convenience of saving and spending in one place, plus you’ll get benefits like paying no account fees and enjoying a great APY on deposits, which can help your money grow faster.
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
What is the worst checking account mistake that I need to avoid?
The worst checking account mistake may simply be choosing the wrong account or the wrong bank. When you fully understand what you need a checking account for and what kind of features you’d like to have, that can make it easier to find the right banking option that’s convenient and low-cost.
What to do if the bank makes a mistake?
If your bank makes a mistake with a deposit, bill payment, or any other transaction, it’s important to contact the bank right away. You can explain what you believe the mistake to be so the bank has an opportunity to correct it.
What are the disadvantages of these banking mistakes?
Making banking mistakes can cost you both time and money. You may end up spending more time than you’d like to managing your accounts. Or you might overpay banking fees if you’re not paying attention. Correcting any banking mistakes can help you avoid those scenarios.
About the author
Rebecca Lake
Rebecca Lake has been a finance writer for nearly a decade, specializing in personal finance, investing, and small business. She is a contributor at Forbes Advisor, SmartAsset, Investopedia, The Balance, MyBankTracker, MoneyRates and CreditCards.com. Read full bio.
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.
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.
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Achieving financial security is a key goal for many people, yet it often seems out of reach due to daily expenses, debt, and the unpredictability of life. Financial security is not about being wealthy — it’s about having enough resources and financial stability to cover your expenses, handle emergencies, and plan for the future without constantly worrying about money.
The question is, how do you get there?
Whatever your future goals or current financial situation, these seven strategies can help you build a strong foundation and put you on the path to financial security.
Key Points
• Financial security is defined as living without debt, being able to cover your expenses, and feeling confident about the future.
• Setting specific, measurable goals can help you achieve financial security.
• Setting up a budget that aligns with your goals, automating saving, and paying down debt are also key to achieving financial security.
• Building an emergency fund reduces financial stress and allows you to handle unexpected expenses without strain.
• Investing early maximizes retirement savings and financial growth.
What Is Financial Security?
Financial security is typically defined as reaching a point where you’re living without debt, can cover your monthly financial obligations, and feel secure about your financial future. It means you’re confident that you could manage the unexpected, even a job loss, since you have a solid cushion of cash in the bank.
Financial security can look somewhat different for everyone because it’s based on individual circumstances and goals. For one person, it may mean being debt-free and having a solid emergency fund; for another, it may involve building wealth through investments and passive income streams. At its core, financial security means having the freedom and peace of mind to live the life you want without being burdened by money worries.
💡 Quick Tip: Help your money earn more money! Opening a bank account online often gets you higher-than-average rates.
Why Financial Security Matters
Financial security provides peace of mind and reduces the stress associated with living paycheck to paycheck. When you know you have money set aside for emergencies and future expenses, you generally feel more in control and less anxious about your finances.
Financial security gives you the freedom to make decisions based on your goals and values, rather than financial limitations. You might have the flexibility to switch careers, take time off, or pursue opportunities without worrying about income. It also allows you to plan for the future. When your present financial needs are covered, you can focus on long-term goals like retirement, home ownership, and building wealth.
Benefits of Achieving Financial Security
When you achieve financial security, you gain more than just financial stability — you gain the freedom to live on your terms. Here’s a look at some of the key benefits of financial security.
• Less financial stress: Knowing you can cover your expenses and handle emergencies can significantly lower anxiety and stress related to money.
• More flexibility: Financial security allows you to explore new opportunities, such as starting a business, investing, or traveling, rather than being limited by financial constraints.
• Improved relationships: Financial stress can strain personal relationships. Becoming financially secure can reduce conflict and help you build stronger connections.
• Confidence in decision-making: When you have financial security, you can make decisions from a place of strength rather than desperation or fear.
• Generational wealth: Financial security allows you to build wealth that can be passed down to future generations, improving your family’s financial stability.
7 Ways to Achieve Financial Security
No matter your age or stage of life, achieving financial security typically requires a strategic and disciplined approach. Here are seven steps that can help you get there.
1. Setting Goals
Financial goal-setting is like jumping ahead to the last chapter of a book. It starts with the endgame, such as traveling, upgrading your home, or paying for kids’ college. From there, your work backwards by breaking those goals into bite-size steps until the arrival at Chapter 1 — the first step.
Short-term financial goals could include things like paying off high-interest debt, eliminating student loans, optimizing your credit score, or building an emergency fund. Longer-term objectives might include retirement, paying off a mortgage, and/or investing.
When setting goals it’s important to make them specific and measurable (e.g., “Save $5,000 for an emergency fund in 12 months”) and to regularly review and adjust your goals as you go along.
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 $3M of additional FDIC insurance.
2. Creating a Goals-Based Budget
A budget is a crucial tool for financial security because it helps you understand where your money is going and how to align your spending with your goals.
To start building a budget, look at the last several months’ worth of financial statements to determine your average monthly income (after taxes) and average monthly spending. It’s also a good idea to make a list of your typical monthly expenses, dividing them into essential and nonessential spending.
From there, you can come with a plan for how you want to allocate your income. For example, one popular framework is the 50/30/20 rule. This approach recommends putting 50% of your take-home income for needs (housing, utilities, groceries, minimum debt payments); 30% for wants (entertainment, dining out); and 20% for goals (saving and debt repayment beyond the minimum).
If those monthly high-interest credit-card payments didn’t exist, where would that money go instead? Paying off debt could free up a potentially big chunk of money to put toward those big dreams. Two popular debt-payoff methods include:
• The debt snowball, which calls for paying off the lowest balance first and then focusing on the next-lowest balance, and so on. This approach provides early wins which can help keep you motivated.
• The debt avalanche, which requires paying off the debt with the highest interest rate first, then working your way down to the debt with the lowest interest rate. This approach can help you save money on interest.
Other solutions for dealing with debt include looking into zero- or low-interest balance transfer offers for credit cards, which can give your breathing room (often 18 months) to pay off what you owe without those steep interest charges. Or you might look into debt consolidation with a personal loan, which could give you a lower monthly payment, or you might meet with a low- or no-cost debt counselor for guidance.
4. Managing Your Expenses
Overspending is one of the most common barriers to financial security. Here are some ways to control your cash flow and stay on track toward your financial goals:
• Reduce fixed expenses: You might be able to get a better deal on some of your so-called “fixed” bills, like your cell phone, insurance, and utilities, by negotiating or switching providers.
• Limit impulse purchases: Try to avoid shopping when you’re emotional or bored, and consider implementing a 30-day rule before making big purchases.
• Use cash or debit for everyday expenses: Credit cards can encourage overspending. Paying with cash or debit helps you stick to your budget.
• Review subscriptions and memberships: Cancel unused or unnecessary services. Even small monthly charges can add up over time.
• Meal plan and cook at home: Eating out is a major expense for many people. Preparing meals at home is generally healthier and more affordable.
5. Saving
Having money in the bank for near-term goals and emergencies is an important part of financial security. Here are some ways to build your savings:
• Open a high-interest account. To earn a competitive rate on your savings, it’s wise to shop around and compare annual percentage yields (APYs). A high-yield savings account can pay 9x the national average interest rate for savings accounts.
• Build an emergency fund. It’s important to have a cushion of cash in the bank that you can tap should you get hit with any unexpected expenses or lose your job (more on this below).
• Pay yourself first. To make sure some money goes into saving each month, it’s a good idea to set up a recurring transfer from checking to one or more savings accounts for a set amount on the same day each money (ideally the day after you get paid). This keeps the money out of sight and (hopefully) out of mind so you don’t inadvertently spend it on something else.
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6. Investing
A major part of financial security is knowing you’ll be able to comfortably retire one day. The earlier you start investing for retirement, the less you need to set aside each year to reach your retirement goal. This is thanks to the magic of compounding returns — when your returns start earning returns of their own, accelerating your account’s growth.
Financial advisors often recommend investing around 15% of your pre-tax income each year into a 401(K) or individual retirement account (IRA). If that feels too high right now, try to contribute at least up to any employer match, since this is essentially free money. You can gradually increase your contributions over time.
7. Keeping Your Money Safe
Achieving financial security also involves keeping your money safe. Here are some steps that can help:
• Choose reputable financial institutions When opening a checking or savings account, look for a financial institution that’s insured by either the Federal Deposit Insurance Corporation (FDIC) or the National Credit Union Administration (NCUA).
• Guard against fraud. Keeping your money safe also involves choosing strong passwords, enabling mutli-factor identification, and monitoring your accounts regularly for unauthorized transactions.
• Safeguard your income. Long-term disability insurance helps protect your income should you become unable to work due to illness or injury. You may have protection from your employer, but it’s a good idea to check your coverage and make sure it’s sufficient.
Building an Emergency Fund for Financial Security
An emergency fund acts as a financial safety net and is crucial for building and maintaining financial security. Having cash set aside for emergencies allows you to cover those surprise expenses — like a car repair or a broken appliance — without stress or running up expensive debt.
Financial advisors generally recommend having at least six months’ worth of living expenses set aside in a savings account earmarked for the unexpected. But you don’t have to build your emergency fund overnight. It’s fine to start with a smaller goal (say, $500 to $1,000), then gradually build your back-up fund over time.
As you work towards achieving financial security, it’s important to monitor your progress every month or quarter, and make adjustments when needed.
For example, if you’re not meeting your goal of putting 10% of your income into your savings account each month, you might track your spending for a month or two to see exactly where your money is going. This can help you identify patterns and areas where you can cut back.
Monitoring your progress can also help keep you motivated. Watching your vacation savings fund and/or retirement account grow, for example, can motivate you to keep up the good work and potentially put even more aside each month towards your goals.
Opening a SoFi Savings Account
Whatever your starting point, there are certain strategies that can help you achieve long-term financial security. These include setting goals, establishing a budget, managing expenses, knocking down debt, saving, and investing for long-term growth.
Once you achieve financial security, you’ll have the freedom and confidence to make decisions that align with your values and live a more fulfilled life. Start today — your future self will thank you.
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
What is an example of financial security?
Financial security means having enough savings, investments, and income to cover your living expenses and handle emergencies without stress. For example, someone with a stable job, a solid emergency fund, and investments generating passive income is financially secure. They can cover monthly bills, handle unexpected medical expenses, and still save for future goals like retirement or buying a home.
How do you start financial security?
To build financial security, you might start by creating a budget to ensure you’re not overspending and that you’re putting some money into savings each month. It’s also important to build an emergency fund, pay down high-interest debt, and contribute to retirement accounts, such as a 401(k) or individual retirement account (IRA). Financial advisors often recommend putting15% of your pre-tax income towards retirement each year to build long-term financial security.
What are financial security issues?
Issues that can hinder financial security include insufficient savings and high-interest debt. If you’re living paycheck to paycheck and don’t have an emergency fund, an unexpected expense or loss of income can threaten your financial stability. Inadequate retirement planning and poor investment choices can also weaken long-term security, making it difficult to maintain a comfortable lifestyle in the future.
How can I protect my financial assets?
Steps that can help protect your financial assets include using only trusted financial institutions, setting up strong passwords and multi-factor identification, diversifying your investments, and monitoring your accounts regularly for any signs of fraud. It’s also important to purchase health, disability, and property insurance to cover unexpected losses.
Does financial security include having insurance?
Yes, insurance is a key part of financial security. Health, life, disability, and property insurance can help protect you from unexpected expenses and loss of income. Having insurance provides a financial safety net, ensuring you don’t have to drain your savings or go into debt when faced with costly emergencies.
How can an emergency fund contribute to financial security?
An emergency fund provides a financial cushion for unexpected expenses (like medical bills or car repairs) or a loss of income. If you don’t bother to build a back-up fund and experience a financial set-back, you might be forced to run up expensive debt that could take months, even years, to get out from under. Ideally, an emergency fund should cover at least six months’ worth of living expenses. Having this safety net can reduce stress and help you stay on track with long-term financial goals.
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.
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Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.
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The average net worth of Americans is about $1.06 million, according to the Federal Reserve’s most recent Survey of Consumer Finances released in October 2023. Meanwhile, the median net worth of American households is $192,900, according to the same Federal Reserve Survey.
Net worth measures the difference between assets (what you own) and liabilities (what you owe). Understanding the average American net worth by age can be useful for comparing your own progress in building wealth.
The Federal Reserve collects data on net worth in the U.S. using the Survey of Consumer Finances. This survey is conducted every three years; the most recent undertaking began in March 2022. Findings are typically published in the year following the year the survey was completed.
To understand wealth and economic well-being in the U.S., the Federal Reserve looks at several specific factors:
• Assets (including investment accounts, deposit accounts held at banks, vehicles, and business equity)
The Federal Reserve uses net worth as a gauge to measure increases or decreases in overall wealth levels. The survey also takes into account demographic factors, such as age, race, ethnicity, and level of education.
If you’re interested in calculating your net worth, you’d use similar metrics. For example, you could use an online net worth calculator to enter in your total debts and assets to determine your net worth. When calculating net worth home equity may or may not be included, depending on your preferences. It’s possible to get a positive or negative number, depending on how your liabilities compare to your assets.
You can also use a budget planner app to track net worth as well as your spending, credit scores, and savings. This type of money management tool can deliver a snapshot of your finances to your mobile device.
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Using the Survey of Consumer Finances as a guide, net worth rises over the average American’s lifetime before gradually beginning to decline. Average net worth is lowest for Americans under age 35; between the ages of 35 and 44, the average net worth makes a sizable leap.
There’s another significant bump that happens between the ages of 45 and 54, then the pace at which net worth increases begin to slow. Once Americans turn 75, their average net worth begins to decline.
This pattern makes sense, however, if you consider what the typical person’s working career and retirement might look like. Someone in their 20s likely isn’t making much money yet. They probably don’t own a home and a lot of what they do make might go to repaying student loans, car loans, or credit cards.
In their 30s and 40s, they may move into higher-paying jobs. Their debts may be mostly paid down or paid off so they can afford to buy a home. By the time they reach their mid-40s, they may be in their peak earning years and their home might have appreciated in value since they purchased it.
Net worth growth begins to gradually slow down once they’re in their 50s and 60s. That could be chalked up to moving some of their portfolio into safer investments or beginning to draw down their savings if they’re retired. Once they reach their 70s, they may be spending more of their assets on health care, including long-term care. Or they might have downsized into a home with a lower value.
Age Range
Average Net Worth
Less than 35
$183,500
35-44
$549,600
45-54
$975,800
55-64
$1,566,900
65-74
$1,794,600
75+
$1,624,100
Source: The Federal Reserve’s 2023 Survey of Consumer Finances
How the Average American Net Worth Varies Over Time
The Survey of Consumer Finances provides a snapshot of how the average American net worth has changed over time. From 1998 to 2007, for instance, there’s a steady increase in net worth among American households. But between 2007 and 2013, the average American net worth declined. This makes sense, given that the 2008 financial crisis had an impact on millions of American households. Between 2013 and 2019, net worth rebounded sharply, and it continued to rise between 2019 and 2022.
This begs the question of how much net worth might change again if the economy were to experience another downturn. If home values were to drop or a bear market caused stock prices to dip, it stands to reason that Americans’ might see their net worth fall. There is a silver lining, as economies do recover over time and the impacts may be less for younger investors. But a drop in net worth might not be as welcome for someone who’s close to retirement.
Survey of Consumer Finances Year
Average American Net Worth
2019 – 2022
$1.06 million
2016 – 2019
$748,800
2013 – 2016
$692,100
2010 – 2013
$534,600
2007 – 2010
$498,800
2004 – 2007
$556,300
2001 – 2003
$448,200
1998 – 2001
$395,500
How the Average American Net Worth Varies by State
The Survey of Consumer Finances does not track net worth data by state. But the Census Bureau does compile information on household wealth and debt at the state level.
In terms of what influences the average net worth by state, there are a number of factors that come into play. Some of the things that can influence net worth include:
• Homeownership rates
• Property values
• Employment opportunities
• Average incomes
• Access to education and job training
According to the most recent data available from the Census Bureau, the median net worth across all states was $166,900 as of 2021. “Median” represents households in the middle of the pack, so to speak, for net worth calculations. Here’s what the median net worth looks like in each state.
State
Median Net Worth
State
Median Net Worth
Alabama
$85,900
Montana
$190,300
Alaska
(B)*
Nebraska
$99,520
Arizona
$126,100
Nevada
$93,920
Arkansas
$49,990
New Hampshire
$243,600
California
$200,300
New Jersey
$195,200
Colorado
$217,900
New Mexico
$56,450
Connecticut
$173,500
New York
$123,900
Delaware
$143,700
North Carolina
$108,400
District of Columbia
$24,000
North Dakota
$241,000
Florida
$95,770
Ohio
$102,800
Georgia
$110,000
Oklahoma
$80,790
Hawaii
$373,200
Oregon
$183,200
Idaho
$182,400
Pennsylvania
$137,800
Illinois
$103,500
Rhode Island
$83,790
Indiana
$84,620
South Carolina
$81,150
Iowa
$152,800
South Dakota
$216,600
Kansas
$77,010
Tennessee
$70,100
Kentucky
$73,150
Texas
$90,390
Louisiana
$84,850
Utah
$170,900
Maine
$107,400
Vermont
(B)*
Maryland
$194,700
Virginia
$148,400
Massachusetts
$251,000
Washington
$170,400
Michigan
$117,600
West Virginia
$65,920
Minnesota
$228,500
Wisconsin
$110,400
Mississippi
$40,280
Wyoming
$171,600
Missouri
$70,220
*Note: Where a (B) is entered, that means the base was less than 200,000 households or a sample size of less than 50 so the Census Bureau did not record net worth information for those states.
As discussed, net worth captures the difference between an individual’s assets and their debts. In the U.S. the average net worth varies by location and age. Tracking net worth is something you may want to do monthly if you’re paying off debt. You can use a money tracker app to figure out how long it will take you to become debt-free based on what you can afford to pay. As your income increases you may be able to pay down debt in larger amounts to increase your net worth faster.
Take control of your finances with SoFi. With our financial insights and credit score monitoring tools, you can view all of your accounts in one convenient dashboard. From there, you can see your various balances, spending breakdowns, and credit score. Plus you can easily set up budgets and discover valuable financial insights — all at no cost.
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FAQ
What is the average net worth by age for California?
The median net worth for Californians is $200,300, according to the Census Bureau. This figure represents the middle ground between California residents of all ages from the highest net worth to the lowest.
What is the average net worth by age for New York?
The median net worth for New Yorkers of all ages is $123,900, according to the Census Bureau. This figure represents the middle ground between New York residents whose net worth is at the highest and lowest end of the spectrum.
What is the average net worth by age for Florida?
The median net worth for Florida residents of all ages is $95,770, according to the Census Bureau. This amount represents the middle ground between Floridians with the highest and lowest net worth.
About the author
Rebecca Lake
Rebecca Lake has been a finance writer for nearly a decade, specializing in personal finance, investing, and small business. She is a contributor at Forbes Advisor, SmartAsset, Investopedia, The Balance, MyBankTracker, MoneyRates and CreditCards.com. Read full bio.
Photo credit: iStock/Prostock-Studio
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While business checks and personal checks may seem like the same thing, there are actually some important differences. Sure, all checks can be used to pay bills or cover other expenses using funds in a linked checking account. But the main difference between a personal check and a business check is the source of funds. Personal checks are drawn on personal accounts; business checks are drawn on business checking accounts.
Learn more about how these checks work and how they differ.
What Is a Business Check?
A business check is a check that’s written from a business checking account. Banks and credit unions can offer business checking accounts to sole proprietors, limited liability companies (LLCs), and other kinds of businesses that need a safe, secure place to keep their money. Business checks are often one of the features included with these accounts.
Business bank accounts can also offer a debit card for making purchases or cash withdrawals. They typically allow for ACH transfers of funds to pay bills or vendors. But there are some instances where it could make sense — or even be necessary — to use business checks instead. For example, you may need to write or print paper checks to cover payroll for employees.
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How Does a Business Check Work?
When someone opens a business bank account, the bank may give them a set of business checks and a checkbook. If you are wondering what a checkbook is, they are simply a small folder or book that contains your checks and a check register, which is where you’ll write down deposits and credits for your account. Check registers can help you balance your checkbook.
To use a business check, you’d simply make the check out to the payee, then fill in the required information. That includes the date and amount of the check, as well as a signature. Business checks typically have a memo line where you can record what the check is being used for.
The payee can then take that business check to their bank to deposit it or cash it. The amount written on the check is then deducted from the business checking account on which the check is drawn. When the check is deposited, it typically takes two days to clear (or for the funds to become available).
What Does a Business Check Look Like?
Business checks look much like personal checks, in terms of the type of information they include. On the front of a business check, you should see the following:
• Business name and address
• Check number (in the upper right hand corner)
• Payee name (where it says Pay to the Order of)
• Date
• Dollar amount, in numbers
• Dollar amount, in words
• Payer’s signature
• Memo line
• The bank’s routing number
• The account number
• Bank’s name and address
Business checks may also include room to include the business logo or a watermark.
There may be an attached transaction stub on the left hand side of the check. You can use this stub to record the details of the transaction, including the date the check was written, the amount, and to whom it was paid.
Business checks can be hand-written like personal checks, or they can be filled digitally and printed out.
What Is a Personal Check?
A personal check, on the other hand, is a check that’s drawn against a personal checking account. Most but not all checking accounts offer checks and check-writing; some even offer free starter checks to new customers.
Personal checks are paid using personal funds. So you might write a personal check to repay a friend you borrowed money from, for example, or to pay your rent. Likewise, you could receive a personal check made out to you that you could deposit into your bank account or cash it. In terms of where to cash personal checks without a bank account, the options include check cashing services, supermarkets, and convenience stores.
Personal checks are not the same as other types of checks, including certified checks and traveler’s checks. (If you’re unfamiliar with how to use traveler’s checks, these are paper certificates that can help you pay for things overseas without having to exchange hard currencies.)
How Do Personal Checks Work?
Personal checks work by allowing individuals to pay bills or make other payments to individuals, businesses, and other organizations. When you open a checking account, the bank may give you paper checks with your name and account number printed on them. You can then use these checks to make payments.
When someone receives a personal check and deposits it in their account, their bank requests the transfer of funds from the bank on which the check was drawn. These transfers are processed electronically. Processing times can vary, though it typically takes a couple of business days for a check to clear.
If someone writes a personal check and doesn’t have sufficient funds in their account to cover it, that check will bounce. When a check you write bounces, it may be returned unpaid or your bank may cover the amount for you but they can charge overdraft or non-sufficient funds (NSF) fees for that convenience.
Bounced checks typically don’t show up on consumer credit reports or affect credit scores, though banks may report them to ChexSystems. A consumer credit reporting agency, ChexSystems collects information about closed checking and savings accounts.
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Can I Use a Personal Check for a Business Account?
Personal accounts and business accounts are separate banking products. That being said, you could use personal checks to pay for business expenses. For example, you could write out a personal check to pay a business lease or make payments to a business loan. And you could use funds in a business account to pay for personal expenses.
If you feel you must use personal checks for a business account or business checks for personal expenses, proceed with caution. Many personal checking account agreements specifically prohibit using this kind of account for business purposes. Familiarize yourself with your account guidelines. This should only happen in very limited circumstances and not as a regular practice.
What’s more, mixing your accounts this way can complicate matters when it comes time to pay your taxes and figure out personal vs. business deductions. If you ever need to review your business or personal account (say, for legal reasons or an audit), it can be hard to remember which funds were used where.
Using Business Checks vs. Personal Checks
When you need to write a business check vs. personal check can depend on the circumstances. For instance, some of the most common uses for business checks include:
• Employee payroll
• Federal and state tax payments
• Making payments to vendors
• Paying operating costs, such as rent or utilities
• Making any large purchases that are necessary for the business.
Personal checks can be used to meet a different set of needs. Examples of when you might write a personal check include:
• Paying utility bills, rent, or the mortgage
• Buying groceries
• Repaying personal debts
• Making payments to loans
• Covering school-related expenses if you have kids (like lunch money or PTA fundraisers)
• Paying college tuition
• Covering doctor bills.
Whether you need business checks or personal checks, it helps to know where to order checks safely. You can get checks online from check-printing companies or order them through your bank.
Whether you’re using business checks or personal checks, one thing is true: They can be a dependable, convenient way to move money. They provide an alternative to using a debit card, credit card, ACH transfer, or wire transfer. But if you’re still wondering how business checks are different from personal checks, here are a few other noteworthy distinctions.
Size of the Check
Personal checks are usually somewhere around 6″ x 2″ x 3″ in size. Business checks, on the other hand, might or might not be larger in size. For example, they may be 8″ x 2″ x 3″ instead. The larger size allows for easier printing and more room for writing out checks by hand.
Security of the Check
Check fraud can threaten a business’s bottom line. For that reason, many check printers include built-in security measures to minimize the chances of a business check being stolen or otherwise used fraudulently. Those measures can include holographic features, thermochromatic ink, and chemically sensitive paper. These features all help to verify a check’s authenticity.
How Much Each Check Costs
As mentioned, banks can sometimes offer starter checks for free when you open a new checking account. This benefit may not be included with business checking accounts, which means you might need to buy checks yourself. The amount you pay can depend on the type of check, any added features you choose to include, and the number of checks printed. You might pay three cents per check or a quarter or more per personal check, depending on where you order from, the features you want, and how quickly you want them printed and delivered.
Business checks range in cost, but many online retailers charge 20 to 30 cents each.
There can be other charges associated with checks. For example, you may also pay separate fees when purchasing cashier’s checks for a business or personal account. Cashier’s checks are drawn against the bank’s account, not yours, though a cashier’s check looks very much like a personal or business check.
Check Conversion Protection
Check conversion is a process in which paper checks are converted to electronic ACH debits. Both consumer and business checks can be converted in this way. Converted checks usually clear faster, but it’s possible that you may not want this for checks written from a business account. In that case, you could order business checks that include an optional Auxiliary On-Us field to exclude them from conversion.
Why to Consider Having Separate Checks
Using one bank account for business and personal expenses might seem simpler and less stressful, since you’re moving money in and out of the same place. However, as noted above, which kind of check to use is not typically a matter of personal choice. Personal checking accounts usually have restrictions against use for business purposes.
What’s more, establishing a business account has other benefits:
• Writing checks with your business name can add credibility to your venture, since it looks more professional.
• A business account helps you keep track of business finances and expense reporting for tax purposes.
• Establishing a business checking account could make it easier to get approved for business loans or lines of credit if you have a good banking history.
• Having separate business and personal checking accounts can provide an added protection against creditor lawsuits. Depending on how your business is structured, money in a personal checking account may be safe from collection efforts if you’re sued by a creditor.
The Takeaway
Business checks and personal checks serve similar functions; they both transfer funds from one account to another. However, they do have some important differences, and you typically cannot use a personal check for business purposes.
For your personal bank accounts, see what SoFi offers.
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
Can you cash a business check?
You can cash a business check if your bank allows it. You’ll need to endorse the check properly and show proof of identification to cash it, the same as you would with any other type of check.
What should be on a business check?
A business check should include the business name and address, the payee’s name, the amount of the check, the date, and the payer’s signature. The check will likely be pre-printed with the bank’s name and address, a routing number and account number, as well as a check number. A business check may also include a memo line to record the purpose of the check.
Do checks need to say LLC?
Checks do not need to say LLC unless your business is structured as an LLC. If your business operates as a sole proprietor, partnership, S corporation, or anything other than an LLC, then you wouldn’t need to include that designation.
About the author
Rebecca Lake
Rebecca Lake has been a finance writer for nearly a decade, specializing in personal finance, investing, and small business. She is a contributor at Forbes Advisor, SmartAsset, Investopedia, The Balance, MyBankTracker, MoneyRates and CreditCards.com. Read full bio.
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.
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