money Archives | Page 16 of 170

Mar

2025

What to Do When Someone Asks for Money

Dealing with people who ask for money can be uncomfortable, and it can put a strain on even the best of relationships. You may feel pressured to say yes when you can’t really afford to. Or you may get tired of handing over your hard-earned cash to someone you view as being financially irresponsible.

Having a strategy for answering when someone asks for money can make those situations feel less awkward — and keep you from making a poor financial decision.

Key Points

• When someone asks you for money, assess your financial situation to ensure lending won’t jeopardize your stability.

• Determine if the request for money is for a genuine need or simply a want.

• Understand the risks involved in lending to friends and family, including potential non-repayment.

• Offer alternatives like paying expenses directly or non-financial help.

• Avoid guilt-driven decisions and be sure to prioritize your own personal financial goals.

Determining if You Have the Funds to Help First

Any time someone asks for money, there’s an important question to ask before you consider saying yes: What can I afford?

Giving friends money when they’re in a jam could make you deplete your bank account if your budget is already strained. So before agreeing to hand over any cash, review your financial situation first to see how much money you can realistically part with.

This is especially important when someone asks for money, and it’s more than just a few bucks. Say your aging parents ask you for $10,000 to help with medical bills, for example. That’s not exactly pocket change. Talking to parents about money may not be easy but if you can’t afford to part with that kind of money, it’s important to say so upfront.

Recommended: Guide to Practicing Financial Self-Care

Determining if It Is for a Genuine Need or Financial Situation

When someone asks for money, it’s natural to want to know what it’s for. And that might play a part in your decision to say yes or no.

For example, there’s a big difference between your younger sibling asking you for $1,000 to put a security deposit on an apartment and asking for $1,000 to buy a gaming console. One is a need, while the other is a want.

If you’re constantly dealing with family members or friends who ask for money to fund their desired lifestyle, you may begin to feel that you’re being taken advantage of. So it’s okay to set boundaries and specify that you’re only willing to give friends and family money in situations where there’s a genuine need.

However, be wary. Some people might use their hard-earned money on things like, say, the latest mobile device or a weekend away, and then come knocking for cash when a student loan or medical bill is due. Again, you don’t want to fund someone’s extravagant lifestyle.

Understanding the Risk Involved With Lending Money

Borrowing from friends and family isn’t the same as getting a personal loan from a bank. If someone asks you for money, they probably aren’t expecting you to whip out a loan agreement or charge them fees and interest, for instance. And they might assume that if they don’t pay you back, you won’t bombard them with collection calls the way a traditional lender would.

When you lend money to friends and family, you’re taking on risk. If they don’t pay you back, then you likely won’t be able to get that money back unless you’re willing to sue them in small claims court. When debts between friends or family members go unpaid, that can lead to the eventual breakdown of the relationship.

If people who ask for money regularly seek you out, there are two ways you can try to manage the risk factor:

• Require them to sign a loan agreement

• Consider the money a gift

The former can give you some legal protection if they don’t pay, but some people might balk at having to sign it. The latter, meanwhile, eliminates all risk since you’re assuming you’re never going to get the money back anyway. But you have to be sure beforehand that you can afford the loss.

Also, be aware that it may change the nature of your relationship with the person to whom you are gifting the money. Consider whether you want to set a precedent of bailing out, say, your younger sister’s or your fiancé’s finances.

Recommended: 5 Ways to Achieve Financial Security

Paying for Things Directly Instead of Gifting Money

If you’re not comfortable giving cash to friends or relatives who ask for money, you could offer to pay for things for them instead. If your best friend asks for $300 to pay their electric bill, you might not feel 100% sure they’ll use the money for that. You could offer to pay the bill for them instead.

You might also consider offering non-financial help. For example, if you have a cousin who is a struggling single parent and often requests cash, you might offer to watch their kids for free so they can spend time looking for a higher-paying job or take night classes to advance their education. You’re still helping them out, but you’re not giving them permission to turn to you for money every time they need it.

Watching Out for Your Financial Goals

Saying yes when someone asks for money can be problematic if it means your financial goals suffer. Going back to the example of aging parents, helping them pay for medical bills or other expenses in retirement could mean that you’re shortchanging your own financial future.

Again, it all goes back to looking at how much you can afford to give and whether you’re comfortable giving money to friends and family, knowing that you might never see that moolah again.

If doing so would put your money goals at risk, it’s important to consider whether helping them out is truly worth it, especially if the money they’re asking for is to fund wants rather than needs.

Learning From Your Mistakes

If you’ve gotten into the habit of automatically saying yes when people ask for money or you’ve given someone money in the past and regretted it, it’s not too late to correct those mistakes.

For example, say you have that one friend who, when you dine out, always asks if you can pick up the tab when the check arrives. Maybe they say they haven’t gotten paid yet and that you are lucky to earn a higher, dependable salary.

Remember, it’s perfectly okay to say, “I can’t afford to keep picking up the tab for dinner. What’s another way we can enjoy time together without spending as much?”You could suggest that instead of going out, you do potlucks at home instead. This could help you to avoid feeling like you’re being taken advantage of.

If you feel like you’ve made a mistake with money by lending it or giving it to friends and family, don’t shy away from it. Analyze the situation to figure out what went wrong, then commit to not repeating those same mistakes again. Just because you gave a person money in the past doesn’t mean you must continue to do so.

Teaching Them Smart Financial Habits

If you find yourself dealing with someone who asks for money on a regular basis because they’re terrible at managing their finances, you could offer to help. For example, you might introduce them to some online resources for learning about money or share your favorite budgeting app or savings calculator with them.

Keep in mind that this doesn’t always work. If someone has learned poor financial habits from an early age and doesn’t seem inclined to change them, you may not be able to put them on a different path. In that case, you may need to kindly but firmly say no to their frequent requests for money and know that you tried to improve their situation via education.

Providing Financial Resources to Help Them

If someone asks for money and you either can’t afford to give it or would prefer not to, you can still point them in the right direction. You can help them explore other ways to borrow money, such as personal loans, lines of credit, or credit cards.

Just be mindful of steering them toward loans that might worsen their financial situation. Payday loans, for example, can feature astronomical interest rates that can quickly lead borrowers into a downward spiral of expensive debt. Cash advances on credit cards are another very expensive way to borrow money that one may want to avoid.

Valuing Yourself and Your Hard Work

You work hard for your money, so it doesn’t make sense to give it away without some thought beforehand. A request in and of itself isn’t a good reason to part with your cash. For all you know, the person asked half a dozen people who said no before they came to you, and they may have several people they are planning on asking for funds if you decline.

When people ask for cash, check in with your money mindset. Don’t undervalue the effort it took for you to make it, even if that’s not something that’s on their radar. Also, be clear about how it will be used.

For example, finding out after the fact that the $500 you thought was going to buy groceries for your sister and her kids actually went to funding a trip to an amusement park might make you feel resentful. You may feel like your hard work to make that $500 was all for nothing since it went to a frivolous expense.

Not Giving Out of Guilt

Guilt can play a big part in influencing financial decisions. For example, perhaps your spouse’s parents gave you the money to put down on a home after you were married. That can lead to sticky situations with how to handle money with in-laws for years to come if they later need financial help and automatically expect you to provide it.

You may feel too guilty about the down payment gift to say no, which could put a strain on your finances or even your marriage. Or it may be your parents who are putting a guilt trip on you to justify asking you to pay for their expenses in retirement. Talking about money with your partner can help you to avoid conflicts in these kinds of situations.

Guilt can also come into play in other ways. For instance, you might feel guilty about making more money than your friends and use that as an excuse to always pay for nights out or give them money. But allowing guilt to guide you can lead to everyone you know treating you like a personal bank. So it can be important to not let guilt cloud your decisions, and feel comfortable saying, “No, sorry I can’t” to money requests without feeling obligated to explain your reasoning.

The Takeaway

Knowing how to navigate the conversation when people ask for money can make those situations less stressful. You don’t always need to say no, but it’s important to know when doing so makes sense for your financial situation — and your personal relationships. Whether you do or don’t choose to loan money to friends and family, it’s important to keep working toward your own financial goals by saving regularly.

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

When should you say no to someone who asks for money?

It may be a good idea to say no to someone who asks for money if you truly can’t afford to give it or if you believe the money will be wasted on wants vs. needs. You should also consider saying no if you suspect the money will be used for illegal purposes.

How can we trust if someone is telling the truth?

There’s no way to tell if someone is being truthful, short of giving them a lie detector test. When someone asks for money, you essentially have to trust your instincts. If you suspect they might not be truthful about why they need the money, then you can say no.

How can I avoid disputes if I choose to say no?

Telling someone who asks for money that your answer is no could lead to conflicts. If you’re worried about a dispute, you can explain your reasons for saying no or simply say, “I’m sorry; it’s just not a good time.” Don’t allow them to argue with you or try to wear you down to change your decision.

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/Sergey Nazarov

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Mar

2025

Managing Your Money as a Freelancer

By Rebecca Lake | Building Your Career, Life & Career, money | Comments Off

In this era of the Gig Economy, side hustles, and entrepreneurship, many people are freelancers. Working this way can offer flexibility and unlimited earning potential, but it can also bring a learning curve when it comes to managing your money. Financial planning for freelancers means knowing how to handle things like tracking income and expenses, planning for taxes, and investing for retirement.

Mastering freelance money management can take some time and focus, but it’s a worthwhile pursuit if it helps you to achieve your financial goals. The better you understand how to manage finances as a freelancer, the easier it can be to get ahead.

To help get on the right path, read on to learn, among other topics:

• Why financial planning is important for freelancers

• How to create a budget as a freelancer

• How to track cash flow

• How to separate business and personal expenses

What Is a Freelancer?

A freelancer is someone who gets paid to complete work on a per-job basis. Freelancers are independent contractors, not employees. A freelancer can work with multiple clients on a contract basis, performing a variety of tasks.

Why does understanding this definition matter for freelance money management? It’s important because freelancers are not entitled to the same financial perks as hourly or salaried employees.

As a freelancer, you’re responsible for handling things like retirement planning, health insurance, and taxes yourself. You also won’t have paid vacations and holidays the way employees do, which may factor into your cash flow and money management planning.

Why Financial Planning Is Important

What is financial planning? Financial planning is the process of creating a plan for managing your money. A financial plan can include both short-term and long-term goals and the steps you’ll need to take to achieve them. For example, your financial plan might include a strategy for paying off student loans or saving money toward a down payment on a home.

Financial planning for freelancers is important because you’re in charge of deciding what happens with your money. Learning how to manage finances as a freelancer can help you to:

• Create a workable budget, even if you have irregular income

• Formulate a plan for saving for retirement

• Stay on top of your tax obligations

• Streamline expenses so you can avoid debt

• Plan for emergencies or unexpected costs

Planning can be a pathway to good financial health. And it’s an opportunity to develop positive habits and improve your money mindset, both of which can benefit you throughout your freelance career.

11 Tips for Financially Planning as a Freelancer

If you’re new to freelance money management, you may not know where to start or what you even need to be doing. Having a blueprint to follow can make it easier to develop a workable plan for managing money. Here are some essential steps to include in your financial plan if you have a freelance mindset.

1. Having and Maintaining a Budget

A budget is a plan for spending the money you make each month. If you want to be better with money as a freelancer, then creating and sticking to a budget is non-negotiable. It will help you both understand and optimize your finances.

When making a freelancer budget, start with income first. If your income is irregular, it can help to create an average as your baseline. So you’d add up all the money you made from freelancing over the past 12 months, for instance, then divide by 12 to arrive at a monthly average income.

You can then plan out your expenses (more on that in a minute), using that average as your baseline. You’ll tally how much money flows out for necessities every month, and see how much profit you are making.

When you have higher-income months, you can stash extra money in a savings account to help cover expenses in months when income is lower. You’ll also want to put money towards an emergency fund and retirement (more details below).

2. Giving Yourself a Consistent Paycheck

When you freelance, there’s no such thing as a weekly or biweekly paycheck. Instead, you might get paid on different dates each month, depending on how your clients handle payments.

That can lead to uncertainty about when to pay bills. You can avoid that issue by giving yourself a consistent paycheck on a regular schedule. So you might pay yourself a set amount on the 1st and 15th of each month, for example.

To do that, you might need to set aside enough money to cover one month’s worth of bills in your checking account first. That way, you can pay yourself according to the schedule you set without having to worry about overdrawing your bank account.

3. Keeping Track of Your Expenses

Tracking expenses is central to managing money better as a freelancer, especially if you’re worried about going over budget. It’s important to keep tabs on both your personal expenses and your business expenses so you know how much you’re spending each month. When adding up your business expenses, be thorough: Do you rent an office? If so, don’t forget about the electrical bill and any cleaning services as expenses.

Also track the costs of legal fees, insurance, website hosting and any online advertising you may do. Some of these charges can be billed annually, and you may lose sight of them since they don’t recur.

Keeping up with business spending also matters from a tax perspective. There are a number of tax deductible expenses for freelancers that can help to reduce your tax bill.

For example, you might be able to write off marketing expenses if you maintain a website for your business or claim an office at home tax deduction. Having a paper trail to back up those deductions is important in case the IRS targets you for an audit.

4. Timing Your Freelance Projects

Staying booked and busy is every freelancer’s dream since no work means no income. Timing your freelance projects can help to keep your income and cash flow consistent, so that you’re not struggling to stay on top of the bills. For example, if you’re a freelance writer, you might set deadlines to allow yourself enough time to invoice for your work (and get paid) before certain bills come due.

There’s another dimension to timing to consider as well. It’s important to think about how much time it will take to complete a project when setting rates. Underestimating the amount of time involved could cause you to shortchange yourself when quoting rates to clients. A good rule of thumb is to assume that any project will take 20% to 50% longer than you think it will. Then base your rates on that higher number.

5. Paying Down Your Debt

Debt can be a stumbling block to getting ahead financially as a freelancer. If you have student loans, a credit card balance, or other debt, it’s to your advantage to create a plan for paying off your debt as quickly as possible.

If your income is irregular, your budget should be designed to ensure that your most important living expenses are paid first. You can then decide how much room you have left in your budget to commit to debt repayment.

Also, consider ways to make your debt less expensive. Refinancing student loans, for example, may help you to get a lower rate and monthly payment, if you qualify for them, which can ease budget strain. You might also consolidate credit card debt with a better APR (annual percentage rate) credit card or even a rate of 0% with a balance-transfer offer. This can help you save on interest, which could make it easier to pay off your debt.

6. Separating Business and Personal Expenses

Keeping business and personal spending separate is a good idea for a few reasons. It makes it easier to create budgets for personal expenses and business expenses, so you know what you’re spending on each one. And you may encounter fewer headaches at tax time when trying to claim freelance tax deductions if business expenses are separate.

Opening a business bank account is a simple way to separate your spending each month. You can link it to your personal checking account in order to pay yourself your regular paycheck. You may also consider opening a separate business credit card to cover freelancing expenses if you can afford to pay the bill in full each month and avoid interest charges.

7. Investing in Insurance

As a freelancer, you don’t have access to employer-sponsored health insurance. So if you want to get covered, you’ll need to purchase a policy yourself. Self-employed individuals, including freelancers, can buy health insurance through the Health Insurance Marketplace.

When comparing health insurance plans, pay attention to:

• Premiums

• Deductibles

• Copays and coinsurance

• Coverage limits

You may also consider applying for health insurance through Medicaid if you have little to no income or financial resources. Eligibility for Medicaid is based on your income, household size, and assets. You can apply through your local department of social services.

In addition to health insurance, you may also want to look into insurance for your business. Liability insurance, for example, can protect you against claims arising from copyright infringement, libel, or defamation. That type of insurance can come in handy if you’re sued.

8. Having an Emergency Fund

An emergency fund is money that you set aside for unexpected expenses; say, a major car repair or medical bill. As a freelancer, an emergency fund can be invaluable if your work assignments dry up or you get sick and are unable to work temporarily.

In terms of how much to save for emergencies, three to six months’ worth of expenses is a commonly-used rule of thumb. But you might want to double or even triple that amount if your freelance income is irregular or you’re worried about a sustained client drought.

Recommended: Ready to build your emergency fund? Use our emergency fund calculator to determine the right amount.

Keeping your emergency fund in an online savings account is an option to consider. The annual percentage yield (APY) tends to be higher than what bricks-and-mortar banks offer. Online savings accounts may also charge fewer fees than traditional savings accounts.

9. Accounting for Taxes

Freelancing means you don’t have an employer taking out taxes from your paychecks. So you’ll have to handle taxes yourself.

Generally speaking, the IRS requires you to file an annual tax return and pay estimated quarterly taxes if you expect to owe $1,000 or more for the year. Quarterly taxes are essentially an advance payment against the amount of tax you’ll likely owe for the year.

Estimated taxes are due four times a year, typically:

• April 15 (1st payment)

• June 15 (2nd payment)

• September 15 (3rd payment)

• January 15 of the following year (4th payment)

Failing to make those payments on time can trigger penalties. If your state collects income tax, you’ll also need to make estimated payments to your state revenue agency.

You can use an online tax calculator to gauge how much you’ll need to pay for estimated taxes each quarter. It may be helpful to set up a separate business checking account or savings account to hold the money for those payments. As your clients pay invoices, you can allocate part of each payment to your tax account.

If filing taxes as a freelancer seems overwhelming, consider talking to an accountant or another tax professional who can help you figure out how much to set aside for taxes and how to maximize deductions in order to lower your tax bill. You may be surprised to learn about some business tax credits you didn’t know about.

10. Investing Your Money

Investing is key to building wealth since it allows you to take advantage of the power of compounding returns. If you already have an emergency fund in place, the next step in freelance money managing is creating an investment portfolio.

You can start with a retirement account if you don’t already have one. Freelancers can use traditional IRAs, Roth IRAs, SEP IRAs, and solo 401(k) plans to save for retirement. Each of these plans can offer a tax-advantaged way to save for the future. You can supplement your retirement savings with investments in a taxable brokerage account if you choose.

When investing as a freelancer, consider your risk tolerance and how much you have to invest, based on your budget. You may need to start with a small monthly amount, but you could build on that over time. The most important thing is to start saving and investing for the future.

11. Taking Advantage of Resources

Financial planning as a freelancer can be easier when you have the right tools and resources. For instance, some of the things you might consider incorporating into your plan include:

• Budgeting apps

• Tax management apps

• Online bank accounts for freelancers

• Investment apps

You can also search online for resources to help with things like insurance and tax planning.

Managing Finances With SoFi

Between managing deadlines, tracking invoices, and keeping up with client needs, freelancing can be demanding. Finding ways to simplify money management as a freelancer, including opening the right bank account, can save you valuable time and money.

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 is freelancing paid?

Freelancers can get paid in a number of ways, depending on their clients’ preferences. For example, clients can send payments through PayPal, Stripe, direct deposit, or paper checks. When negotiating a freelance contract with a new client, it’s important to understand how and when you’ll be paid for the work you perform. In some professions, it can be typical for clients to take 30 days or longer to pay invoices.

Do you need insurance if you are a part-time freelancer?

If you freelance part-time while working a full-time job, you may be covered by a policy from your main employer. But if you have no insurance coverage at all, it could make sense to buy a policy for yourself through the healthcare marketplace. You may also want to look into buying separate liability insurance for your business.

What are some good freelancer jobs?

There are lots of ways to make money as a freelancer. Some of the highest-paying freelance gigs can include copywriting, graphic design, and editing. There are also a variety of freelance jobs that may be desirable because you can set your own hours, such as driving an Uber.

About the author

Rebecca Lake

Photo credit: iStock/StefaNikolic

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.

3.80% APY
SoFi members with Eligible Direct Deposit activity can earn 3.80% annual percentage yield (APY) on savings balances (including Vaults) and 0.50% APY on checking balances. Eligible Direct Deposit means a recurring deposit of regular income to an account holder’s SoFi Checking or Savings account, including payroll, pension, or government benefit payments (e.g., Social Security), made by the account holder’s employer, payroll or benefits provider or government agency (“Eligible Direct Deposit”) via the Automated Clearing House (“ACH”) Network during a 30-day Evaluation Period (as defined below).

Although we do our best to recognize all Eligible Direct Deposits, a small number of employers, payroll providers, benefits providers, or government agencies do not designate payments as direct deposit. To ensure you're earning 3.80% APY, we encourage you to check your APY Details page the day after your Eligible Direct Deposit arrives. If your APY is not showing as 3.80%, contact us at 855-456-7634 with the details of your Eligible Direct Deposit. As long as SoFi Bank can validate those details, you will start earning 3.80% APY from the date you contact SoFi for the rest of the current 30-day Evaluation Period. You will also be eligible for 3.80% APY on future Eligible Direct Deposits, as long as SoFi Bank can validate them.

Deposits that are not from an employer, payroll, or benefits provider or government agency, including but not limited to check deposits, peer-to-peer transfers (e.g., transfers from PayPal, Venmo, etc.), merchant transactions (e.g., transactions from PayPal, Stripe, Square, etc.), and bank ACH funds transfers and wire transfers from external accounts, or are non-recurring in nature (e.g., IRS tax refunds), do not constitute Eligible Direct Deposit activity. There is no minimum Eligible Direct Deposit amount required to qualify for the stated interest rate. SoFi members with Eligible 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 Eligible 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 an Eligible Direct Deposit or receipt of $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 Eligible 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 Eligible 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 Eligible 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 Eligible Direct Deposit or Qualifying Deposits until SoFi Bank recognizes Eligible Direct Deposit activity or receives $5,000 in Qualifying Deposits in a subsequent 30-Day Evaluation Period. For the avoidance of doubt, an account holder with both Eligible Direct Deposit activity and Qualifying Deposits will earn the rates earned by account holders with Eligible 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.

Members without either Eligible Direct Deposit activity or Qualifying Deposits, as determined by SoFi Bank, during a 30-Day Evaluation Period and, if applicable, the grace period, or who do not enroll in SoFi Plus by paying the SoFi Plus Subscription Fee every 30 days, will earn 1.00% APY on savings balances (including Vaults) and 0.50% APY on checking balances.

Interest rates are variable and subject to change at any time. These rates are current as of 1/24/25. There is no minimum balance requirement. Additional information can be found at http://www.sofi.com/legal/banking-rate-sheet.
*Awards or rankings from NerdWallet are not indicative of future success or results. This award and its ratings are independently determined and awarded by their respective publications.

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

Third-Party Brand Mentions: No brands, products, or companies mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third-party trademarks referenced herein are property of their respective owners.

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.

SOBNK-Q324-042

Mar

2025

What Is a Financial Checkup?

By Rebecca Lake | Budgeting & Goals, Financial Independence, money | Comments Off

A financial checkup is a process in which you thoroughly review your finances and how you are tracking against your goals. It’s similar to an annual visit with your doctor to help ensure that you’re maintaining good physical health.

A financial checkup can be an important step in achieving financial wellness, which means meeting your money obligations today and also funding your future goals. Regular financial checkups can help you see how well you’re doing. What’s more, they give you the opportunity to pinpoint where you might be able to improve your money management strategy.

If you’ve never done a personal financial checkup before, fear not. Getting started is easier than you might think.

Key Points

• A financial checkup involves a thorough review of personal finances, assessing budget, expenses, assets, and debt to gauge financial health.

• The process can include examining credit reports and retirement savings to ensure progress towards financial goals.

• Evaluating emergency savings and insurance needs can be a key step to securing financial stability.

• Regular financial checkups help eliminate bad spending habits and clarify budgeting.

• These checkups instill financial discipline and encourage consistent saving, essential for financial wellness.

What Is a Financial Checkup?

A financial checkup is a thorough review of your personal finances. It’s similar to getting a health checkup from a doctor, only instead of checking your blood pressure and other vitals, you’re measuring your financial stats. For example, some of the things you might review as part of a financial check include your:

• Monthly budget and expenses

• Assets, ranging from money in a savings account to equity in a home

• Debt situation and repayment strategy

• Credit reports and scores

• Retirement savings

• Emergency savings

• College planning, if you have kids

• Insurance needs and coverage

Those are all things that can go along with setting up a financial plan. What is a financial plan? It’s a strategy for managing your money in order to reach your personal money goals. You can complete a financial checkup and financial plan yourself or do so with the help of a professional financial advisor.

Recommended: Emergency Fund Calculator

Why Are Financial Checkups Important?

A financial health checkup can help you establish where you are with your money, where you’d like to be financially, and what steps you need to take to get there. Completing regular personal financial checkups can guide you to improve your financial health as you work toward your goals.

For instance, money checkups could help you to:

• Get clarity around budgeting and expenses

• Eliminate bad spending habits so you don’t overdraft your checking account

• Define your short- and long-term financial goals

• Instill a sense of financial discipline as you work toward those goals

• Develop a habit of saving consistently

• Create an actionable plan for paying off debt

• Form a workable strategy for retirement savings

• Fine-tune your investment goals

Taking those kinds of actions can get you on the path to living your personal definition of financial freedom. That might mean retiring early, for instance, or finding ways to create passive income so you can live a lifestyle that isn’t job-dependent.

Skipping regular financial checkups can make it more difficult to do those kinds of things and put your financial security in danger. The simple reason: You’re oblivious to how you’re managing your money.

Key Steps to Take for a Financial Checkup

Money checkups can help you move ahead with achieving financial security, but what do you actually include in one? How often do you need to perform a financial checkup? And do you need to get help from a professional financial advisor? Here’s a closer look.

• Frequency: In terms of frequency, it may be a good idea to consider a personal financial check at least once a year. For example, you might schedule it for the beginning of January. That way, you can review the previous year and set goals for the upcoming year. Quarterly checkups may be a better option if you’d like to get smaller snapshots of your finances throughout the year.

• Hiring a financial advisor: Whether you hire an advisor for a financial checkup is entirely up to you. An advisor can offer an extra set of eyes to review your finances but it’s important to know what you’ll pay for that help. The average financial advisor cost is around 1% of the assets they manage annually. However, some financial institutions provide access to professional advisors for free. It’s worth doing a bit of research to see what might be available.

Ready to start your financial health checkup? Here’s a simple checklist you can follow.

Take Your Financial Vital Signs

Getting some numbers down on paper can be a good way to start your financial checkup. Looking at certain metrics for the last 12 months can give you some perspective on where you are financially. Here are some of the most important measurements to take:

• Your monthly income and expenses

• How much you have saved for emergencies

• What you’re carrying in total debt

• Debt-to-income ratio (i.e., how much of your income goes to debt repayment)

• Your credit scores

• How much you’ve invested for retirement

• What percentage of your income you’re saving monthly

Along with looking at specific numbers, it can also be helpful to ask some basic questions to gauge your financial health. For example, you might ask yourself:

• How many months did I stick to my budget vs. going over budget?

• Have I bounced any checks or overdrafted my bank account this year?

• Was I late paying any bills in the past 12 months?

• Did I reach any savings goals or fall short of any goals?

• Did my overall debt load increase or decrease?

• How well did my investments perform?

The purpose of looking at numbers first and asking these kinds of questions is to establish your financial baseline. You can then move on to the next steps to take a deeper dive into your money situation.

Review Your Budget

Making a budget is usually at the top of the list of personal finance basics for beginners. A budget is a plan for spending the income that you have each month. The basic elements of a budget include:

• Fixed expenses, such as housing

• Variable expenses, which need to be paid monthly but their amounts may change (such as food costs)

• Discretionary expenses or the “wants” in your budget

• Income

• Debt repayment

• Savings

You might also include taxes as its own budget category if you’re self-employed. In this situation, you will need to set aside money regularly to pay estimated tax bills.

If you’re doing a financial checkup for the last 12 months, it can be helpful to look at what’s changed in your variable and discretionary expenses. For example, are you paying more for utilities than you were 12 months ago? Has your grocery bill increased? Is a bigger chunk of your budget going to “fun” things like hobbies, entertainment, or recreation?

Analyzing individual budget categories can help you pinpoint money leaks or areas where you might be able to cut back on spending. It’s also a good opportunity to review what you’re paying for cell phone service, internet, or car insurance to see if it’s worth switching to a cheaper provider.

Check Your Emergency Fund

An emergency fund is money that you save for unplanned or unexpected expenses. Emergency savings is meant to be separate from money you save for sinking funds or for various short- and long-term financial goals.

If you have an emergency fund, check the balance to see how much cash you have on hand for rainy days. How much should you have in an emergency fund? An often-cited rule of thumb dictates saving three to six months’ worth of expenses for emergencies. If your savings balance is below that amount, you might go back to your budget to see where you might be able to find extra money to set aside.

Also, consider where you’re keeping your emergency fund. Ideally, that money should be somewhere that’s easily accessible in case a true emergency comes along. But you might also be interested in earning a great interest rate in the meantime.

If you’re keeping your emergency fund in a traditional savings account at a regular bank, you might consider upgrading to a high-yield savings account instead in order to snag a higher rate. Online banks may be a good option for finding one with a competitive interest rate.

Recommended: Emergency Fund Calculator

Factor in Life Changes

Life changes can affect your financial plans in different ways. Losing a job, for instance, can shrink your income. Getting married might increase your household income if you’re both working. Having a child, changing jobs, moving, buying a home, and starting a business are other situations that can impact your financial outlook.

If you’ve been through any of these life changes in the past year, consider what that might mean for things like budgeting, saving, and expenses. It’s also important to review your tax situation.

Getting married, for instance, means a change to your tax filing status. Having a child can open the door for added tax breaks. And starting a new business can bring additional tax obligations, such as estimated quarterly tax payments. Those are all things that could increase your tax bill year to year. It’s therefore important to consider where they fit in during your financial checkup.

Review Your Investment and Retirement Goals

Investing can be key to building wealth over the long-term. You can invest inside of a tax-advantaged plan, such as a 401(k) or individual retirement account (IRA), or through a taxable brokerage account. As part of your financial health check, it’s helpful to know:

• Where your money is invested (i.e., taxable vs. tax-advantaged accounts)

• How your portfolio is diversified across different asset classes

• How those assets have performed over the last year

• What you’re paying in investment fees

• How your risk tolerance or tax situation has changed over the past year

• Whether you’re on track with retirement saving.

Reviewing those things can give you an idea of whether you’re on the right track with your investments. For example, if you’re 30 years old and want to retire at 50 with $1 million, but you only have $10,000 invested, that’s a clear sign that you’ve got a lot of work left to do.

Using online investment calculators and retirement calculators can help you to figure out how closely you’re keeping up with your goals. And if you don’t have an investment account yet, you may want to consider setting up an IRA online and a taxable brokerage account so you can start growing wealth.

The Takeaway

A financial checkup is a smart way to keep tabs on your money and your financial health. It will give you the opportunity to make course corrections and can aid you with overcoming personal financial challenges. If you’re struggling with credit card debt, for example, then a periodic financial checkup can help you to figure out a strategy for paying down your balances while streamlining your expenses so you’re less reliant on plastic. It can also help you highlight ways you are succeeding financially and inspire you to keep going and keep your money growing.

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 often should you do a financial checkup?

Completing a financial checkup at least once a year can be a good way to see whether you’re on track with your goals and where you might be able to improve. If you’d like to check in with your money more often, you might schedule quarterly financial checkups instead.

How do you do a financial health checkup?

A financial health checkup starts with gathering information about your income, expenses, debt, and savings. From there, you can review your financial progress and goals to determine what steps to take next with your money.

What does financial wellness include?

Financial wellness means being able to manage your current money obligations with ease while also being able to look ahead to the future. Someone who has achieved financial wellness generally has stable income, a firm grip on their expenses, a dedicated savings habit, and little to no “bad” debt. Another component is looking forward and tracking well for future financial goals, like retirement.

About the author

Rebecca Lake

Photo credit: iStock/Bilgehan Tuzcu

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.
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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.
For a full listing of the fees associated with Sofi Invest please view our fee schedule.

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

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

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.

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

SOBNK-Q424-097

Mar

2025

What Are Penalties for Early CD Withdrawal?

CD Early Withdrawal Penalty, Explained

By Rebecca Lake | Budgeting & Goals, money | Comments Off

Certificate of deposit accounts lock in your money for a certain period and guarantee an interest rate. But sometimes, life happens in the middle of the CD’s term. You have a dental emergency, your car needs new tires, or (yes, please!) a friend offers you a once-in-a-lifetime opportunity to join a trip to Barcelona but you just don’t have cash on hand to afford it. In these and other situations, you may be tempted to crack into a CD.

Should you do so, however, you will likely have to pay an early withdrawal penalty since you aren’t sticking with the agreed-to maturity term (the amount of time the CD was set for). You might forfeit some or all of the interest earned as a result. Read on to learn more about early withdrawal penalties for CDs and how to avoid them.

What Is a CD Early Withdrawal Penalty?

First, what is a CD? In simple terms, it’s an FDIC-insured time deposit. When you open a certificate of deposit account, you’re depositing money for a specific time frame. Depending on the CD, this may be as little as 30 days or as long as 10 years.

As the CD matures, your balance can earn interest. Generally, the longer the term, the higher the interest rate and APY. However, if you take money out before the maturity date, the bank can charge a CD withdrawal penalty.

Federal law sets the minimum penalty for early CD withdrawal at seven days’ interest if you withdraw money within the first six days after deposit. Banks can set the maximum CD withdrawal penalty higher.

The amount you might pay for withdrawing money from a CD early can depend on several factors, including:

• Maturity term of the CD

• How long the CD was open before you made the withdrawal

• The amount of the initial deposit and the amount that’s withdrawn.

Your bank may or may not allow you to make a partial early CD withdrawal. If you’re not able to withdraw a partial amount, you might have to cash out the whole CD which could result in a larger penalty.

💡 Quick Tip: Make money easy. Open a bank account online so you can manage bills, deposits, transfers — all from one convenient app.

How to Calculate an Early Withdrawal Penalty for a CD

You’re probably wondering just how steep a penalty you’d have to pay for early CD withdrawal. Are we talking $5 or 5% of the money invested? More?

Banks are required to provide you with certain disclosures regarding your accounts, including CD accounts. So the first step in calculating what you might pay for a CD early withdrawal penalty is to review your bank’s policy.

Again, this can vary depending on the bank. So, for example, here’s what a few banks charge if you make an early withdrawal from CD accounts. All penalties are deducted from the CD’s principal.

CD Term	CD Early Withdrawal Penalty
1 year	• 180 days’ interest • 3 months’ interest • Half of interest the money would have earned over entire term or 1% of the amount withdrawn, whichever is greater, plus $25
3 years	• 180 days’ interest • 6 months’ interest • Half of interest the money would have earned over entire term or 3% of the amount withdrawn, whichever is greater, plus $25

CD Term

CD Early Withdrawal Penalty

1 year

• 180 days’ interest

• 3 months’ interest

• Half of interest the money would have earned over entire term or 1% of the amount withdrawn, whichever is greater, plus $25

3 years

• 180 days’ interest

• 6 months’ interest

• Half of interest the money would have earned over entire term or 3% of the amount withdrawn, whichever is greater, plus $25

You should be able to find this information readily available on your bank’s website. But if not, you can contact your bank or visit a branch to get more details on the penalties for early withdrawal from a CD. In addition to telling you what the penalty is, the bank should also be able to tell you how the penalty is calculated.

Banks may calculate the penalty for early CD withdrawal based on:

• The amount withdrawn

• The entire balance

• Daily interest or monthly interest.

Calculating a CD Early WIthdrawal Penalty

Want to get a little more granular? Let’s dive into a little basic math to show you how the numbers look. Using Chase as an example, we see that the bank uses the amount withdrawn as the basis for calculating CD early withdrawal penalties. The calculation uses daily rather than monthly interest.

So the formula for calculating the penalty you might pay for an early CD withdrawal would look like this:

Penalty = Amount withdrawn x (Interest rate/365) x number of days’ interest.

So, say you have a 12-month CD that’s earning a 5% APY. You withdraw your initial $5,000 deposit six months prior to the CD’s maturity date. The math would look like this:

$5,000 x (0.05/365) x 180 = $123.29

You could also use an online CD early-withdrawal penalty calculator to figure out how much interest you might forfeit if you decide to withdraw money from a CD ahead of schedule.

Ways to Avoid Early Withdrawal Penalties for a CD

There are some options for avoiding prepayment penalties associated with early CD withdrawals. The strategies you could try include:

• Withdrawing only the interest earned. Your bank may allow you to withdraw the interest earned on a CD without assessing a penalty. This assumes that you don’t touch the principal amount at all. This could be an attractive option if you need some quick cash but don’t necessarily need or want to withdraw your initial deposit.

• Requesting a waiver of the penalty due to a crisis. If you are really in a bind, your bank may honor this.

• Tapping your rainy-day money instead, but this should really only be done if you have the right reason to using your emergency fund.

• Opening a no-penalty CD account. Banks can offer CDs that don’t charge a penalty for early CD withdrawal. The trade-off is that no-penalty CDs may offer a lower interest rate and APY, so you’d have to consider whether the convenience afforded by no-penalty CDs outweighs earning a higher rate.

• Building a CD ladder. A CD ladder is a collection of CD accounts, each with varying maturity terms. So you might have five CDs with maturity dates spaced six months apart. The idea is that you can avoid early withdrawal penalties because your next maturity date is always on the horizon.

• Consider a CD-secured loan. You may find some lenders who offer a CD-secured loan, but review the terms carefully and be sure you can make the payments at a time when money is tight.

Recommended: What Does Private Banking Offer?

When to Withdraw CDs Early

Withdrawing money from a CD early, even if it means triggering an early CD withdrawal penalty, could make sense in some situations. Some examples:

• If you have an emergency situation with no other cash reserves to rely on and you want to avoid using credit, it may be the best (or only move). For example, say your car breaks down and you need $5,000 to fix it, but you only have $1,200 in your emergency fund. Then paying a CD withdrawal penalty could be worth it. This move would allow you to avoid having to charge the expense on a high-interest credit card or take out a loan.

• Paying a penalty for early CD withdrawal could be worthwhile if your interest rate is low. You could access the funds and, with what you don’t use up, roll the money into a new CD with a higher APY. You’d have to calculate the amount of the penalty for withdrawing money early and compare that to the interest you could earn with a new CD to decide if it’s worth it or not.

Recommended: 10 Personal Finance Basics

The Takeaway

Investing in CDs can make sense if you want a safe way to earn interest on money you don’t necessarily need for the near-term. But sometimes, you’ll feel you must withdraw money early from a CD, despite the fact that you locked in for a specific term and interest rate. When doing so, you’ll face penalties, which may or may not make this transaction worth it to you. You can also follow a couple of smart money strategies to make sure you avoid triggering early CD withdrawal penalties in the future, because who wants to pay fees unless you absolutely have to?

If you hate penalties and fees, it can be wise to consider all your possibilities in terms of where to keep your money.

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 happens if I take money out of a CD early?

If you withdraw money from a CD early, you will likely be assessed a penalty, which is often all or some of the interest earned, and possibly a fee.

Can I write off a CD early withdrawal penalty?

If you wind up paying an early withdrawal penalty, you can deduct the amount from your taxes, even if it’s greater than the interest earned.

About the author

Rebecca Lake

Photo credit: iStock/tolgart

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 Eligible Direct Deposit activity can earn 3.80% annual percentage yield (APY) on savings balances (including Vaults) and 0.50% APY on checking balances. Eligible Direct Deposit means a recurring deposit of regular income to an account holder’s SoFi Checking or Savings account, including payroll, pension, or government benefit payments (e.g., Social Security), made by the account holder’s employer, payroll or benefits provider or government agency (“Eligible Direct Deposit”) via the Automated Clearing House (“ACH”) Network during a 30-day Evaluation Period (as defined below).

Although we do our best to recognize all Eligible Direct Deposits, a small number of employers, payroll providers, benefits providers, or government agencies do not designate payments as direct deposit. To ensure you're earning 3.80% APY, we encourage you to check your APY Details page the day after your Eligible Direct Deposit arrives. If your APY is not showing as 3.80%, contact us at 855-456-7634 with the details of your Eligible Direct Deposit. As long as SoFi Bank can validate those details, you will start earning 3.80% APY from the date you contact SoFi for the rest of the current 30-day Evaluation Period. You will also be eligible for 3.80% APY on future Eligible Direct Deposits, as long as SoFi Bank can validate them.

Deposits that are not from an employer, payroll, or benefits provider or government agency, including but not limited to check deposits, peer-to-peer transfers (e.g., transfers from PayPal, Venmo, etc.), merchant transactions (e.g., transactions from PayPal, Stripe, Square, etc.), and bank ACH funds transfers and wire transfers from external accounts, or are non-recurring in nature (e.g., IRS tax refunds), do not constitute Eligible Direct Deposit activity. There is no minimum Eligible Direct Deposit amount required to qualify for the stated interest rate. SoFi members with Eligible 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 Eligible 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 an Eligible Direct Deposit or receipt of $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 Eligible 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 Eligible 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 Eligible 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 Eligible Direct Deposit or Qualifying Deposits until SoFi Bank recognizes Eligible Direct Deposit activity or receives $5,000 in Qualifying Deposits in a subsequent 30-Day Evaluation Period. For the avoidance of doubt, an account holder with both Eligible Direct Deposit activity and Qualifying Deposits will earn the rates earned by account holders with Eligible 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.

Members without either Eligible Direct Deposit activity or Qualifying Deposits, as determined by SoFi Bank, during a 30-Day Evaluation Period and, if applicable, the grace period, or who do not enroll in SoFi Plus by paying the SoFi Plus Subscription Fee every 30 days, will earn 1.00% APY on savings balances (including Vaults) and 0.50% APY on checking balances.

Interest rates are variable and subject to change at any time. These rates are current as of 1/24/25. There is no minimum balance requirement. Additional information can be found at http://www.sofi.com/legal/banking-rate-sheet.
Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

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

Third-Party Brand Mentions: No brands, products, or companies mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third-party trademarks referenced herein are property of their respective owners.

SOBK0124011

Mar

2025

Does Switching Bank Accounts Affect Credit Score?

Does Switching Bank Accounts Affect Your Credit Score?

By Rebecca Lake | Family Finances, money | Comments Off

Closing a checking or savings account at one bank and opening a new one at a different bank won’t affect your credit score because banks don’t check your credit or report your banking activity to the major credit reporting bureaus.

That said, there are some instances where banking activity may influence credit scores indirectly. So let’s take a look at how things play out when you are changing bank accounts.

Key Points

• Switching bank accounts does not affect your credit score as banks do not report to credit bureaus.

• Negative balances or overdrafts reported to ChexSystems can hinder opening new accounts.

• Closing a credit card with the same bank may affect your credit score.

• Banks might check your ChexSystems report instead of your credit when opening new accounts.

• Multiple bank accounts opened do not impact your credit score as they are not reported to credit bureaus.

Will Switching Banks Be Visible on Your Credit File?

No. Your banking history is not reported to the three consumer credit bureaus (Equifax, TransUnion, and Experian), so switching banks will not be visible on your credit file.

While banks do track and report their customers’ financial activity, they report it to a different agency, which is called ChexSystems. Your ChexSystems report will include your past savings and checking account history, as opposed to your credit history. This may include negative information, such as any unpaid negative balances (from overdrafting), frequent overdraft fees, and bounced checks.

Having negative information on your ChexSystems report won’t impact your credit, but it could make it harder to open a new savings or checking account, since banks will typically pull your ChexSystems report when you apply for a new account.

Your credit reports, by contrast, contain information relating to credit accounts, including any credit cards or loans you have. It will include:

• Personal information, such as your name, date of birth, and Social Security number

• Credit accounts, including creditor names, account numbers, balances, and payment history

• Credit inquiries

• Public records and collection accounts

The information in your credit reports is used to calculate your credit scores, including your FICO® Scores. Lenders will typically check your credit scores when deciding whether to approve you for a loan or line of credit. Generally, the higher your score, the more likely you are to be approved for credit, and the better the rates and terms will be.

Does Switching Current Accounts Affect Your Credit Score?

Opening a new bank account and closing an old account does not affect your credit rating, as long as the account that’s closed is in good standing and you transfer any autopayments to your new bank account. There could potentially be credit score implications, however, if you’re shuttering the account with a negative balance, you forget to switch your autopay transactions, or you’re closing a credit card with the bank at the same time.

Here’s a closer look at three scenarios in which closing a bank account could indirectly impact your credit.

• Negative bank account balances: The bank won’t report a negative balance due to an overdraft or unpaid fees to the credit bureaus, However, if your account has been closed because of an unpaid negative balance, it could go into collections. The collection agency could then take action against you, including reporting the delinquent debt to the credit bureaus and suing you for the balance due. Delinquencies, collection accounts, and judgments can all show up on your credit reports and harm your score.

Missing loan or credit card payments: If you close a checking account that you were using to automatically pay credit accounts (such as your credit card, auto loan, or student loans) and don’t switch those payments to a new account, you could miss a payment. Late or missed credit card or loan payments could be reported to the credit bureaus and have a negative impact on your scores.

• You close a credit card at the same time: If you have a credit card with the same bank and close both your bank account and credit card account simultaneously, it could negatively impact your credit. Here’s why: Closing a credit card could lower the amount of overall credit you have versus the amount of credit you’re using (your credit utilization ratio), which could impact your credit scores. Also, closing a credit card account you’ve had for a long time may impact the length of your credit history, which is another factor used to calculate credit scores.

Will Switching Banks Affect Your Chances of Getting a Loan?

No. Switching banks should not affect your chances of getting a loan, since it won’t impact your credit scores. Closing an old bank account won’t get reported to the credit bureaus. And when you open a new bank account, the financial institution won’t likely run a credit check. Instead, the bank or credit union will screen your banking history through ChexSystems, which isn’t connected to your credit file.

Applying for a new credit card or loan, on the other hand, could impact your credit. When you apply for a new line of credit, the lender will typically run a hard inquiry or a “hard pull” on your credit file to determine how much risk you pose as a borrower. Hard inquiries show up on your credit report and can have a small negative impact on your scores in the short-term.

Can Your Credit Score Be Affected If You Open Multiple Bank Accounts?

No. Opening multiple bank accounts will not affect your credit scores. When you open a bank account, the financial institution won’t usually run a credit check but will instead screen you through ChexSystems, which is an entirely different reporting agency.

Your credit scores are based on credit accounts, such as credit cards or loans, rather than bank accounts. Things like how much money you keep in checking and savings or how many bank accounts you have don’t affect your credit rating. What does matter to your score is how good a record you have of borrowing and repaying funds in a timely fashion.

Steps That Can Positively Impact Your Credit

If you’re concerned about your credit, opening and closing bank accounts likely won’t have any effect (positive or negative), since your banking activity isn’t reported to the consumer credit bureaus. However, there are other steps you can take to add positive information to your credit reports and, in turn, help you build your credit. These include:

• Consistently pay your bills on time. Payment history accounts for 35% of your FICO Score, so it’s a good idea to set up autopay for all of your monthly credit payments so you never miss a due date.

• Pay down credit card balances. This can help lower your credit utilization rate, or ratio, which measures how much revolving credit you’re using relative to your total credit limits. Credit utilization accounts for up to 30% of your FICO credit score. The lower your credit utilization, generally the better.

• Keep older credit accounts open. While it’s fine to close unused bank accounts, the same can’t be said of unused credit accounts. Closing a credit card can negatively affect your credit by reducing the amount of revolving credit available to you (instantly increasing your credit utilization rate). It also shortens your credit history, and length of credit history is also factored into your scores.

• Review your credit reports. Inaccuracies in credit reports are uncommon but may show up from time to time, and depending on the information involved, could negatively affect your credit score. You can get copies of your credit reports free from AnnualCreditReport.com.

The Takeaway

Opening a new checking and/or savings account could be a good move if your current bank no longer meets your needs. And you can take comfort in knowing that closing an old checking or savings account and opening new ones at a different bank won’t impact your credit, since banks don’t run credit checks or report your banking activity to the consumer credit bureaus.

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 switching banks bad for your credit?

No. Switching banks won’t impact your credit, since banks don’t run credit checks or report your activity to the consumer credit bureaus.

Is switching bank accounts a good idea?

Switching bank accounts can be a good idea if it allows you to get a better interest rate on savings (and possibly checking), reduces banking fees, and/or gives you more perks and better access to your money. Before changing banks, it’s helpful to compare features, benefits, rates, and fees to find the right banking option for your needs.

Will getting a new bank account affect my credit score?

No. Opening a new bank account and closing an old one won’t impact your credit. Banks do not report your activity to the consumer credit bureaus. Instead, they report your financial activity (like opening and closing accounts, overdrafts, and bounced checks) to ChexSystems, the banking reporting agency. Your ChexSystems report does not appear in your credit file.

About the author

Rebecca Lake

Photo credit: iStock/Passakorn Prothien

SoFi members with Eligible Direct Deposit activity can earn 3.80% annual percentage yield (APY) on savings balances (including Vaults) and 0.50% APY on checking balances. Eligible Direct Deposit means a recurring deposit of regular income to an account holder’s SoFi Checking or Savings account, including payroll, pension, or government benefit payments (e.g., Social Security), made by the account holder’s employer, payroll or benefits provider or government agency (“Eligible Direct Deposit”) via the Automated Clearing House (“ACH”) Network during a 30-day Evaluation Period (as defined below).

Although we do our best to recognize all Eligible Direct Deposits, a small number of employers, payroll providers, benefits providers, or government agencies do not designate payments as direct deposit. To ensure you're earning 3.80% APY, we encourage you to check your APY Details page the day after your Eligible Direct Deposit arrives. If your APY is not showing as 3.80%, contact us at 855-456-7634 with the details of your Eligible Direct Deposit. As long as SoFi Bank can validate those details, you will start earning 3.80% APY from the date you contact SoFi for the rest of the current 30-day Evaluation Period. You will also be eligible for 3.80% APY on future Eligible Direct Deposits, as long as SoFi Bank can validate them.

Deposits that are not from an employer, payroll, or benefits provider or government agency, including but not limited to check deposits, peer-to-peer transfers (e.g., transfers from PayPal, Venmo, etc.), merchant transactions (e.g., transactions from PayPal, Stripe, Square, etc.), and bank ACH funds transfers and wire transfers from external accounts, or are non-recurring in nature (e.g., IRS tax refunds), do not constitute Eligible Direct Deposit activity. There is no minimum Eligible Direct Deposit amount required to qualify for the stated interest rate. SoFi members with Eligible 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 Eligible 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 an Eligible Direct Deposit or receipt of $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 Eligible 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 Eligible 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 Eligible 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 Eligible Direct Deposit or Qualifying Deposits until SoFi Bank recognizes Eligible Direct Deposit activity or receives $5,000 in Qualifying Deposits in a subsequent 30-Day Evaluation Period. For the avoidance of doubt, an account holder with both Eligible Direct Deposit activity and Qualifying Deposits will earn the rates earned by account holders with Eligible 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.

Members without either Eligible Direct Deposit activity or Qualifying Deposits, as determined by SoFi Bank, during a 30-Day Evaluation Period and, if applicable, the grace period, or who do not enroll in SoFi Plus by paying the SoFi Plus Subscription Fee every 30 days, will earn 1.00% APY on savings balances (including Vaults) and 0.50% APY on checking balances.

Interest rates are variable and subject to change at any time. These rates are current as of 1/24/25. There is no minimum balance requirement. Additional information can be found at http://www.sofi.com/legal/banking-rate-sheet.
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.

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

Third-Party Brand Mentions: No brands, products, or companies mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third-party trademarks referenced herein are property of their respective owners.

Disclaimer: Many factors affect your credit scores and the interest rates you may receive. SoFi is not a Credit Repair Organization as defined under federal or state law, including the Credit Repair Organizations Act. SoFi does not provide “credit repair” services or advice or assistance regarding “rebuilding” or “improving” your credit record, credit history, or credit rating. For details, see the FTC’s website .

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.

SOBK0124037

What to Do When Someone Asks for Money

Determining if You Have the Funds to Help First

Determining if It Is for a Genuine Need or Financial Situation

Understanding the Risk Involved With Lending Money

Paying for Things Directly Instead of Gifting Money

Get up to $300 when you bank with SoFi.

Watching Out for Your Financial Goals

Learning From Your Mistakes

Teaching Them Smart Financial Habits

Providing Financial Resources to Help Them

Valuing Yourself and Your Hard Work

Not Giving Out of Guilt

The Takeaway

FAQ

When should you say no to someone who asks for money?

How can we trust if someone is telling the truth?

How can I avoid disputes if I choose to say no?

Managing Your Money as a Freelancer

What Is a Freelancer?

Why Financial Planning Is Important

11 Tips for Financially Planning as a Freelancer

1. Having and Maintaining a Budget

2. Giving Yourself a Consistent Paycheck

3. Keeping Track of Your Expenses

4. Timing Your Freelance Projects

5. Paying Down Your Debt

Earn up to 3.80% APY with a high-yield savings account from SoFi.

6. Separating Business and Personal Expenses

7. Investing in Insurance

8. Having an Emergency Fund

9. Accounting for Taxes

10. Investing Your Money

11. Taking Advantage of Resources

Managing Finances With SoFi

FAQ

How is freelancing paid?

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What are some good freelancer jobs?

What Is a Financial Checkup?

What Is a Financial Checkup?

Why Are Financial Checkups Important?

Key Steps to Take for a Financial Checkup

Take Your Financial Vital Signs

Review Your Budget

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Check Your Emergency Fund

Factor in Life Changes

Review Your Investment and Retirement Goals

The Takeaway

FAQ

How often should you do a financial checkup?

How do you do a financial health checkup?

What does financial wellness include?

CD Early Withdrawal Penalty, Explained

What Is a CD Early Withdrawal Penalty?

How to Calculate an Early Withdrawal Penalty for a CD

Calculating a CD Early WIthdrawal Penalty

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Ways to Avoid Early Withdrawal Penalties for a CD

When to Withdraw CDs Early

The Takeaway

FAQ

What happens if I take money out of a CD early?

Can I write off a CD early withdrawal penalty?

Does Switching Bank Accounts Affect Your Credit Score?

Will Switching Banks Be Visible on Your Credit File?

Does Switching Current Accounts Affect Your Credit Score?

Get up to $300 when you bank with SoFi.

Will Switching Banks Affect Your Chances of Getting a Loan?

Can Your Credit Score Be Affected If You Open Multiple Bank Accounts?

Steps That Can Positively Impact Your Credit

The Takeaway

FAQ

Is switching banks bad for your credit?

Is switching bank accounts a good idea?

Will getting a new bank account affect my credit score?

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