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If you have a retirement account or a life insurance policy, you’re probably familiar with the process of naming a beneficiary, but did you know that bank accounts can have beneficiaries as well?

The point of designating beneficiaries is to specify who will inherit your assets when you die. When you open a new bank account, you may have the option to add one or more beneficiaries. You can also typically name beneficiaries later, even years after you open the account. You can generally name a beneficiary for a checking account, savings account, certificate of deposit (CD), or money market account.

Naming beneficiaries to bank accounts is something you might consider as part of a broader estate plan. Read on to learn about the benefits of adding a beneficiary to a bank account and how to do it.

What Is a Beneficiary?

A beneficiary is someone who’s entitled to inherit assets from someone else. The types of assets that can allow you to name someone as beneficiary include:

•   Life insurance policies

•   401(k) plans and similar workplace retirement plans

•   Individual Retirement Accounts (IRAs)

•   Trusts

•   Bank accounts

Primary beneficiaries have first claim to assets. Contingent beneficiaries can be named to inherit assets should the primary beneficiary die or not be able to be located.

Beneficiaries can be a person, organization, or entity. For example, you might choose to add a non-profit organization as a beneficiary of a bank account. In that case, you would need to provide details about the organization rather than a person’s information.

Beneficiaries vs Writing a Will

A will is a legal document that allows you to specify how you’d like all the assets included in your estate to be distributed among your heirs after you pass away. You can also use a will to leave funeral or burial instructions or name a legal guardian for your minor children.

A beneficiary designation, on the other hand, assigns a person or party to receive benefits from a specific account or financial product, such as a checking account, savings account, retirement account, or life insurance policy. Beneficiary designations are unique to each asset and are managed by the institution or company that holds that asset.

Beneficiary designations generally supersede the intentions stated in a will. So, if you’ve named your spouse as beneficiary to your 401(k), for example, you wouldn’t be able to leave that asset to someone else in your will.

Should You Add a Beneficiary to Your Bank Account?

Bank accounts, including savings and checking accounts, typically allow you to name a beneficiary, and doing so is generally a good idea.

Naming a beneficiary for a bank account allows that person to inherit those assets once you pass away without having to go through probate. Probate is a legal process in which a deceased person’s estate is divided up among their heirs. Assets can be divided according to the terms of a will. If there isn’t a will, then state inheritance laws can determine what happens to the deceased’s estate.

Probate can be time-consuming and costly. Adding a beneficiary to a bank account allows them to sidestep all of that. Your beneficiary can collect the money in the account without a lengthy wait. They may need to verify their identity and provide a death certificate, but it’s a much simpler process than probate.

You might choose to add a beneficiary if you want to make sure that they’re able to access those assets right away. Your beneficiary designations for a bank account won’t affect your designations for life insurance policies, retirement accounts, or other assets.

Steps for Adding a Beneficiary to Your Bank Account

Banks typically don’t require or perhaps even request that you add a beneficiary to an account. It’s a good idea to check with your bank first to find out if you can add a beneficiary to a checking account or savings account. If so, the bank should be able to tell you what you’ll need to do next to do so.

Typically, the process works something like this.

1. Decide Which Accounts Will Have a Beneficiary

The first thing to consider is which accounts to name beneficiaries for. You might have a checking account, savings account, and money market account at the same bank, for instance. Since the accounts are separate, you’d have to decide which ones will have beneficiaries and whether the beneficiary for each one will be the same person.

You’ll need to tell the bank which bank account number or numbers you’re referencing when adding a beneficiary. It’s a good idea to double-check the number to make sure you’re giving the right account information.

2. Choose Your Beneficiaries

Next, you’ll need to decide who will be the beneficiary for your bank accounts. If you’re married, that might be your spouse. If you’re unmarried or widowed, you might choose to name one of your children, another relative, or a close friend.

Keep in mind that you may not be able to name minor children as beneficiaries. If you’d like to ensure that your bank account goes to a minor child, you may need to choose a trusted adult as the beneficiary and ask them to act on behalf of your child and to use the money for their benefit. Alternatively, you could set up a trust or custodial account for your child.

3. Update Your Beneficiary Preferences

The actual process for naming a beneficiary to a checking or savings account will vary by bank. At some banks, it may be as simple as logging in to online banking, navigating to your account settings, and entering your beneficiary’s information. That may include their name, address, date of birth, and Social Security number.

Other banks may require you to submit a beneficiary designation form, either online or in person at a branch. Again, you’d need to provide the beneficiary’s identifying information to add them to your account.

Note that adding a beneficiary designation does not grant that person access to your account during your lifetime. They would only be able to access the money in the account upon your death.

What Is a POD Account?

A payable on death or POD account is a bank account that has a named beneficiary. That beneficiary is entitled to automatically receive the assets from the account when the original account owner passes away. They do not have access to the account during the primary account owner’s lifetime.

Adding a beneficiary to a bank account effectively turns that account into a POD account. Creating a POD account allows your beneficiaries to bypass probate. You can name one or more beneficiaries for a payable on death account. In terms of how to create a POD account, you’d need to tell your bank that you either want to open a new account for that purpose or convert an existing account.

A POD beneficiary designation will override instructions left in a will. When there are multiple beneficiaries to a payable on death account, assets in the account are split between them equally.

How Marriage Impacts POD Accounts

Marriage can add a wrinkle to your will or estate planning efforts if you’re creating a POD account. If you live in a community property state, your spouse would be entitled to half of the assets in the account, excluding ones you owned before the marriage or ones that you inherited. If the account was jointly owned by you and your spouse, a named beneficiary cannot access the funds until your spouse dies.

Keep in mind that if you named your spouse as beneficiary to a bank account and you end up getting divorced, they would still be entitled to receive assets from the account. You’d need to contact your bank to update your POD beneficiary designations to make sure those assets go where you want them to once you pass away.

Alternatives to Adding a Beneficiary to Your Bank Account

Adding one or more beneficiaries isn’t the only option for making sure your loved ones have access to your bank accounts after your passing. You might also consider setting up a joint account with someone else or specifying how you want your bank accounts to be divided in your will. Setting up a joint bank account might be easier, though there are some pros and cons.

Opening a Joint Bank Account

Opening a joint bank account is something you might consider if you’d like the person you’d otherwise choose as a beneficiary to have access to the account while you’re alive. For example:

•   You might choose to set up a joint account with a spouse if you have a high level of financial trust between you.

•   If you’re unmarried, then you might choose to open a joint bank account with your adult child, a parent, or a sibling.

•   You might be asked to open a joint bank account with someone else if you’re assuming responsibility for managing their finances. For instance, an aging parent might want to set up a joint account so you can help them with managing bills.

Can you open a bank account for someone else? Yes, but only in limited situations. Generally, you can open a bank account for someone else if:

•   They’re a minor child.

•   They’ve granted you power of attorney.

Before opening a joint account, consider the relationship you have with the other person and how much control you’re comfortable allowing them to have. For instance, what if you’d like them to inherit the assets in your bank account but not be able to make withdrawals right now? You may be better off naming them as a beneficiary instead of opening up a joint account with that person.

Recommended: Joint Bank Accounts vs. Separate Bank Accounts in Marriage

The Takeaway

Do checking accounts have beneficiaries? Some of them do or can upon request. Whether you should add a beneficiary to your account will depend on your financial and personal situation.

If you want to ensure that a loved one can easily and quickly claim your checking, savings, or any other type of bank account after you die, it’s a good idea to add them as a beneficiary to the account. This ensures they will be able to claim the funds quickly and with minimal paperwork. If you want that person to be able to access your account while you’re alive, however, setting up a joint account might better suit your needs.

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

FAQ

What if there is no beneficiary on a bank account?

If there is no beneficiary on a bank account and the account holder dies, the assets in the account will be combined with other assets from the estate during probate. All assets, including bank accounts, would then be distributed according to the terms of a will or, if there is no will, state inheritance laws.

How many beneficiaries can you have on one bank account?

Banks can decide whether to limit the number of beneficiaries you can have on a bank account. When naming multiple beneficiaries, keep in mind that they’ll each be entitled to an equal share of those assets. If you’d rather divide the account up differently, you may want to leave it to your heirs in your will instead.

How does a beneficiary receive their money?

A bank account beneficiary will typically need to verify their identity and the death of the account owner before receiving any money from the account. The bank may cut them an official check for the account balance or transfer the money to their bank account electronically.

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

Annual percentage yield (APY) is variable and subject to change at any time. Rates are current as of 12/23/25. There is no minimum balance requirement. Fees may reduce earnings. Additional rates and information can be found at https://www.sofi.com/legal/banking-rate-sheet

Eligible Direct Deposit means a recurring deposit of regular income to an account holder’s SoFi Checking or Savings account, including payroll, pension, or government benefit payments (e.g., Social Security), made by the account holder’s employer, payroll or benefits provider or government agency (“Eligible Direct Deposit”) via the Automated Clearing House (“ACH”) Network every 31 calendar days.

Although we do our best to recognize all Eligible Direct Deposits, a small number of employers, payroll providers, benefits providers, or government agencies do not designate payments as direct deposit. To ensure you're earning the APY for account holders with Eligible Direct Deposit, we encourage you to check your APY Details page the day after your Eligible Direct Deposit posts to your SoFi account. If your APY is not showing as the APY for account holders with Eligible Direct Deposit, contact us at 855-456-7634 with the details of your Eligible Direct Deposit. As long as SoFi Bank can validate those details, you will start earning the APY for account holders with Eligible Direct Deposit from the date you contact SoFi for the next 31 calendar days. You will also be eligible for the APY for account holders with Eligible Direct Deposit on future Eligible Direct Deposits, as long as SoFi Bank can validate them.

Deposits that are not from an employer, payroll, or benefits provider or government agency, including but not limited to check deposits, peer-to-peer transfers (e.g., transfers from PayPal, Venmo, Wise, etc.), merchant transactions (e.g., transactions from PayPal, Stripe, Square, etc.), and bank ACH funds transfers and wire transfers from external accounts, or are non-recurring in nature (e.g., IRS tax refunds), do not constitute Eligible Direct Deposit activity. There is no minimum Eligible Direct Deposit amount required to qualify for the stated interest rate. SoFi Bank shall, in its sole discretion, assess each account holder's Eligible Direct Deposit activity to determine the applicability of rates and may request additional documentation for verification of eligibility.

See additional details at https://www.sofi.com/legal/banking-rate-sheet.
*Awards or rankings from NerdWallet are not indicative of future success or results. This award and its ratings are independently determined and awarded by their respective publications.

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.

We do not charge any account, service or maintenance fees for SoFi Checking and Savings. We do charge a transaction fee to process each outgoing wire transfer. SoFi does not charge a fee for incoming wire transfers, however the sending bank may charge a fee. Our fee policy is subject to change at any time. See the SoFi Bank Fee Sheet for details at sofi.com/legal/banking-fees/.

SOBNK-Q225-003

Opening a certificate of deposit (CD) account is one way to save for short- or long-term financial goals. You can deposit money, then earn interest for a set term until the CD maturity date rolls around.

At that point, you’ll have to decide whether to continue saving or withdraw the money. Your bank may renew the CD automatically if you don’t specify what you’d like to do with the account.

Understanding CD maturity options (and there are several) can help you decide what to do with your savings once the term ends.

What Can I Do When My CD Matures?

A certificate of deposit is a time deposit account. That means you make an initial deposit which earns interest over a set period of time. You’re typically not able to make additional deposits to your CD, though some banks offer what are known as add-on CDs that allow you to do so.

CDs generally require you to leave your money untouched until the CD matures, so you’re committed to keeping your cash there. That’s why CDs may pay a higher annual percentage yield (APY) than a conventional savings account.

Early withdrawal can trigger penalties, though there are some penalty-free CDs available, typically at a lower interest rate.

So what happens when a CD matures? It largely depends on your preferences, but there are three main possibilities for handling a CD once it reaches maturity.

Deposit It Into a Different Bank Account

If your financial goals have changed or you’d just like more liquidity when it comes to your savings, you could withdraw your CD funds and deposit them into a bank account. For example, savings accounts and money market accounts are two types of deposit accounts that can earn interest.

You might deposit funds at the same bank or at a different bank if you’re able to find a higher rate for savings accounts elsewhere. Or you might choose to put your CD savings into checking if you were saving for a specific purchase and the time has come to spend that money.

Deposit It Into a New CD

Another option is to withdraw your funds and put them in a new CD. You might prefer a certificate of deposit vs. savings account if you know that you won’t need the money prior to the CD maturity date. Just keep in mind that if you do end up needing the money sooner, you could end up paying a CD withdrawal penalty, as noted above. The penalty can vary from bank to bank, but it could cause you to forfeit a significant portion of the interest earned.

Automatically Renew the CD

Banks can renew CDs automatically if the account owner doesn’t specify that they’d like to make a withdrawal at maturity. In that case, your initial deposit and the interest you’ve earned would be moved into a new CD that would begin a new maturity term of similar length. The interest rate might be different, however, if rates have increased or decreased since you initially opened the account.

Continuing to save in CDs (or a savings account) can keep your money safe. When accounts are held at an FDIC-member bank, they’re protected up to $250,000 per depositor, per account ownership type, per financial institution by the Federal Deposit Insurance Corporation. If you choose to have a CD at an insured credit union, NCUA (the National Credit Union Administration) will provide similar insurance. As a result, you generally can’t lose money on a CD, even if the institution were to go out of business (at least up to federally insured amounts).

A point worth noting: When you invest in CDs, their low-risk profile can make them a good way to balance out your holdings. They can be a wise move if you have some funds in the stock market or other more volatile uninsured investments.

Withdraw CD Savings In Cash

A fourth option is to withdraw your CD savings in cash. That might make sense if you need the money to pay for a large purchase. For example, if you were using a CD to save money so you could buy a car, you might use the proceeds to cover the cost.

How Long Do I Have to Withdraw My CD?

Banks typically offer a grace period for CDs which allows you time to decide what you’d like to do with the money at maturity. The CD grace period is usually around 10 days, and the clock starts ticking on the day the CD matures.

Your bank should notify you in advance that your CD maturity date is approaching so you have time to weigh your options. You may also be able to find your CD maturity date by logging in to your account or reviewing your account agreement.

It’s important to keep track of CD maturity dates, especially if you have multiple CDs with varying terms. For example, you might build a CD ladder that features five CDs with maturity terms spaced three, six, nine, 12, and 18 months apart. Being aware of the dates and grace periods can help you plan in advance which of the maturity options mentioned earlier you’d like to choose.

What Happens If I Miss the Grace Period to Withdraw?

Once the CD grace period window closes, your CD will typically auto-renew. If that happens, you’ll typically have to wait until the renewed CD’s term ends before you can access your money without paying a penalty.

The penalty for withdrawing funds early from a CD may be a flat fee, but it’s more common for the fee to be assessed as a certain number of days of interest. The longer the maturity term, generally the steeper the penalty. For example, you might have to pay three months’ worth of interest for withdrawing money early from a one-year CD and six months’ of interest for withdrawing money early from a 5-year CD.

There is one way to get around that. If your bank offers a no-penalty CD, you’d be able to withdraw money at any time during the maturity term without paying an early withdrawal fee. There is something of a trade-off, however, since no-penalty CDs typically offer lower interest rates than regular CDs.

Things to Think About When Your CD Matures

If you have one or more CDs that are approaching maturity, it’s important to have a game plan for what to do with them. Otherwise, you could end up locked in to a new CD, which may not be what you want or need.

Here are a few things to consider when weighing your CD maturity options:

•   Do I need the money right now?

•   Could I get a better rate by moving the money to a new CD or savings account elsewhere?

•   If I let the CD renew automatically, how much of a penalty would I pay if I decide to withdraw the money early later on?

•   Would it make more sense to keep the money in a savings account so that it’s more accessible if I end up needing it?

•   If I have multiple CDs in a CD ladder, does it make sense to roll the money into a new CD “rung” or use the funds for something else?

Thinking about your financial goals and your current needs can help you figure out which option might work best for your situation.

What Are the Tax Implications Once a CD Matures?

Here’s one more question you might have about CD maturity: Are CDs taxable? The short answer is yes.

Interest earned from CDs is considered taxable interest income by the IRS if the amount exceeds $10. That rule applies whether the bank renews the CD, you deposit the money into a new CD or savings account yourself, or withdraw the money in cash. If you have a CD and it accrues more than $10 in interest, those earnings are taxable in the year that you earned the interest. In other words, interest earned on CDs with terms longer than one year must be reported and taxed every year, even if you can’t withdraw the money until maturity.

Your bank should send you a Form 1099-INT in January showing all the interest income earned from CDs (or other deposit accounts) for the previous year. You’ll need to hang onto this form since you’ll need it to file taxes. And if you’re tempted to just “forget” about reporting CD interest, remember that the bank sends a copy of your 1099-INT to the IRS, too.

The Takeaway

CDs can help you grow your money until you need to spend it. Assuming your goals line up with your CD maturity dates, that shouldn’t be an issue.

On the other hand, you might prefer to keep some of your money in a savings account so you have flexible access. Savings accounts can work particularly well for emergency funds, since they offer easy access to cash should you get hit with an unexpected expense. To get the most out of savings, consider putting your money in a high-yield savings account. Commonly offered by online banks and credit unions, these accounts tend to pay 9x times the national average interest rate for savings accounts.

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

FAQ

What should you do when your CD matures?

When a certificate of deposit (CD) matures, you can roll it into a new CD, deposit the funds into a savings account, allow the CD to renew, or withdraw the money in cash. The option that makes the most sense for you can depend on your financial goals and whether you have an immediate need for the money.

Do you have to pay taxes when your CD matures?

Interest earned on certificates of deposit (CDs) is taxable, even if the CD has not yet matured. Your bank will issue you a Form 1099-INT in January showing the interest earned for the previous year. You’ll need to keep that form so you can report the interest earnings when you file your annual income tax return.

Are there penalties if you withdraw a CD early?

Banks can charge an early withdrawal penalty for taking money out of a certificate of deposit (CD) before maturity. You may pay a flat fee or forfeit some of the interest earned. The amount of the penalty can vary by bank and CD maturity term. Generally, the longer the maturity term, the higher the penalty for early withdrawal.

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

Annual percentage yield (APY) is variable and subject to change at any time. Rates are current as of 12/23/25. There is no minimum balance requirement. Fees may reduce earnings. Additional rates and information can be found at https://www.sofi.com/legal/banking-rate-sheet

Eligible Direct Deposit means a recurring deposit of regular income to an account holder’s SoFi Checking or Savings account, including payroll, pension, or government benefit payments (e.g., Social Security), made by the account holder’s employer, payroll or benefits provider or government agency (“Eligible Direct Deposit”) via the Automated Clearing House (“ACH”) Network every 31 calendar days.

Although we do our best to recognize all Eligible Direct Deposits, a small number of employers, payroll providers, benefits providers, or government agencies do not designate payments as direct deposit. To ensure you're earning the APY for account holders with Eligible Direct Deposit, we encourage you to check your APY Details page the day after your Eligible Direct Deposit posts to your SoFi account. If your APY is not showing as the APY for account holders with Eligible Direct Deposit, contact us at 855-456-7634 with the details of your Eligible Direct Deposit. As long as SoFi Bank can validate those details, you will start earning the APY for account holders with Eligible Direct Deposit from the date you contact SoFi for the next 31 calendar days. You will also be eligible for the APY for account holders with Eligible Direct Deposit on future Eligible Direct Deposits, as long as SoFi Bank can validate them.

Deposits that are not from an employer, payroll, or benefits provider or government agency, including but not limited to check deposits, peer-to-peer transfers (e.g., transfers from PayPal, Venmo, Wise, etc.), merchant transactions (e.g., transactions from PayPal, Stripe, Square, etc.), and bank ACH funds transfers and wire transfers from external accounts, or are non-recurring in nature (e.g., IRS tax refunds), do not constitute Eligible Direct Deposit activity. There is no minimum Eligible Direct Deposit amount required to qualify for the stated interest rate. SoFi Bank shall, in its sole discretion, assess each account holder's Eligible Direct Deposit activity to determine the applicability of rates and may request additional documentation for verification of eligibility.

See additional details at https://www.sofi.com/legal/banking-rate-sheet.
*Awards or rankings from NerdWallet are not indicative of future success or results. This award and its ratings are independently determined and awarded by their respective publications.

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.

We do not charge any account, service or maintenance fees for SoFi Checking and Savings. We do charge a transaction fee to process each outgoing wire transfer. SoFi does not charge a fee for incoming wire transfers, however the sending bank may charge a fee. Our fee policy is subject to change at any time. See the SoFi Bank Fee Sheet for details at sofi.com/legal/banking-fees/.
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-Q225-002

Congratulations on the new home. But hang on. The garbage disposal isn’t working as it should and the hot water doesn’t seem to be hot anymore. A home warranty can ease the headaches and financial strain of fixing or replacing appliances and home systems, but any contract will require much more than a glance.

A policy can be purchased directly from a home warranty company at any time, not just upon a move-in. In some cases, the seller may provide a home warranty with the sale of the home.

Home warranties can help protect new homeowners and existing owners from troubles here and there, but is a home warranty really worth it?

What Exactly Is a Home Warranty?

A home warranty — different from homeowners insurance — covers specific items such as home systems (things like the HVAC system), washers and dryers, kitchen appliances, pool equipment, garbage disposals, and exposed electrical work.

Homeowners insurance, on the other hand, covers theft and damage to a home from perils like fire, wind, and lightning strikes.

While homeowners insurance is typically required by a mortgage company, home warranties are optional.

Price of a Home Warranty

The cost of a home warranty can range from $450 to $600 a year, possibly more for coverage for items not on the stock home warranty list. Extras may include pool systems and septic systems.

Those who purchase a home warranty will pay that annual premium. If they do call in a service provider, they will likely have to pay a fee for service calls, too.

Depending on the extent of the issue, the service call may cost anywhere from $75 to $150.

Recommended: How Much Are Closing Costs on a New Home?

Pros of a Home Warranty

While the above fee may seem pricey, the real pro of having a home warranty is it could save a homeowner a bundle on repairs in the future. HomeAdvisor reports that the average national cost to replace an HVAC system ranges from $5,000-$12,500, and a new water heater ranges from $883-$1,807. Both of these items would likely be covered under a home warranty.

Another benefit of a home warranty is pure convenience. If something breaks, a homeowner calls the warranty company, which will likely have a list of technicians at the ready. This means homeowners won’t have to spend time researching and vetting the right people for a repair or replacement. As the saying goes, time is money.

Then there’s resale value. When selling a home, homeowners with a home warranty may be able to transfer the warranty to the new owner, which could be a bargaining chip for those attempting to sell an older home. (Some home warranties are non-transferable, so it’s up to sellers to do their due diligence when adding this to the deal.)

Cons of a Home Warranty

A downside of a home warranty is that it can be complicated to understand. Every purchaser should carefully read the contract before signing and ask all the questions they need to in order to understand the warranty.

For example, a home warranty may come with a financial limit per repair or per year. If someone ends up having one heck of a year with the appliances, some of those repairs may not be covered.

Recommended: Most Common Home Repair Costs

You may need to request additional coverage for appliances that are considered optional or replaced frequently. And will your Sub-Zero fridge and Wolf range be covered if they go kaput? (Not likely.) Most warranty companies list excluded items on their sample contracts.

Ask: Will the plan repair or replace a broken item? If a repair is considered too expensive, the provider might offer to replace the broken item — but give you only the depreciated value.

Claims can also be denied by the warranty company for a variety of reasons, including if it believes an appliance hasn’t properly been maintained. The warranty company can also ultimately decide if a problem is worth fixing or not, despite how the homeowner feels about the situation.

Home warranties also cannot guarantee timeliness. If something breaks, homeowners may have to wait longer than they’d like to get it fixed.

Home warranties will also likely not cover preexisting conditions. If a person moves into a home with a termite problem, the warranty will likely not cover the cost to repair issues. Before you sign the warranty, the company will probably come inspect all the items covered, and could deny coverage for certain items.

Choosing the Right Home Warranty

Choosing the right home warranty comes down to personal choice and research. It’s important to look into each contract to see what is covered, what isn’t, the cost of services, and more.

While searching for the right home warranty, it may be best to go beyond online reviews. Rather than looking on public listings, head over to websites like the Better Business Bureau and search for individual companies.

Is a Home Warranty Really Worth It?

A home warranty could be the right call for people who are not up for having to perform repairs themselves or don’t have time to hire technicians.

For those buying a new construction, a home warranty may likely be unnecessary as many newer homes come with some type of guarantee. Also, because everything is newer, it may be less likely to break early on.

Individual appliances may also come with their own warranties, so make sure to check each one to see if it’s still protected before spending extra money on it with a home warranty.

One more way to figure out if a home warranty is worth it is to check out the home’s inspection report. If there are red flags about a home’s condition, it may be a good idea to purchase a home warranty to cover any additional expenses that crop up.

Alternatives to Home Warranties

If homeowners are worried about protecting their investment but aren’t sure a home warranty is right for them, there is an alternative: Build up an emergency fund.

Homeowners can start stashing away cash into an emergency savings fund that they can dip into whenever they need repairs done. This acts as their own “home warranty” without having to pay a premium to a company.

To take it one step further, homeowners could also create a spreadsheet with the names of repair workers when they need something fixed.

The Takeaway

Are home warranties worth it? Anyone looking into purchasing one will want to take a close look at the annual cost, the charge for service calls, exactly what is and isn’t included, and how much of a replacement item is covered.

Note: SoFi does not offer home warranties at this time. However, SoFi does offer homeowners insurance options.

If you’re a new homebuyer, SoFi Protect can help you look into your insurance options. SoFi and Lemonade offer homeowners insurance that requires no brokers and no paperwork. Secure the coverage that works best for you and your home.

Auto Insurance: Must have a valid driver’s license. Not available in all states.
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SOPRO-Q225-026

A 401(k) loan allows you to borrow money from your retirement savings and pay it back to yourself over time, with interest. While this type of loan can provide quick access to cash at a relatively low cost, it comes with some downsides.

Read on to learn about borrowing against a 401(k), how 401(k) loans work, when it may be appropriate to borrow from your 401(k) — and when you might want to consider an alternative source of funding.

Can I Borrow From My 401(k)?

Borrowing from a 401(k) is possible under many 401(k) plans. In general, it’s wise to let your retirement savings stay invested so you’ll have that money for the future, but in some circumstances, borrowing against a 401(k) could make sense. For instance, if you find yourself in a situation where you need money immediately and have no other options, you may want to consider a 401(k) loan.

A 401(k) loan lets you borrow money from your retirement savings account and pay it back over time with interest. You’re essentially paying back yourself — the money you borrow against your 401(k) goes back into your 401(k) account with interest.

Not all 401(k) plans offer loans, so check with your plan administrator to find out if yours does.

What Is a 401(k) Loan & How Does It Work?

A 401(k) loan is a provision that allows participants in a 401(k) plan to borrow money from their own retirement savings. Here are some key points to understand about 401(k) loans.

Limits on How Much You Can Borrow

The Internal Revenue Service (IRS) sets limits on the maximum amount that can be borrowed from a 401(k) plan. Typically, you can borrow up to 50% of your account balance or $50,000, whichever is less, within a 12-month period.

Spousal Permission

Some plans may require borrowers to get the signed consent of their spouse before a 401(k) loan can be approved.

You Repay the Loan With Interest

Unlike a withdrawal, a 401(k) loan requires repayment. You typically repay the loan (plus interest) via regular payroll deductions, over a specified period, usually five years. These payments go into your own 401(k) account.

401(k) Loans vs. Early Withdrawals

When you withdraw money from your 401(k), these distributions generally count as taxable income. And, if you’re under the age of 59½, you typically also have to pay a 10% penalty on the amount withdrawn.

You may be able to avoid a withdrawal penalty, if you have a heavy and immediate financial need, such as:

•  Medical care expenses for you, your spouse, or children

•  Costs directly related to the purchase of your principal residence (excluding mortgage payments).

•  College tuition and related educational fees for the next 12 months for you, your spouse, or children.

•  Payments necessary to prevent eviction from your home or foreclosure

•  Funeral expenses

•  Certain expenses to repair damage to your principal residence

While the above scenarios can help you avoid a penalty, income taxes will still be due on the withdrawal. Also keep in mind that an early withdrawal involves permanently taking funds out of your retirement account, depleting your nest egg.

With a 401(k) loan, on the other hand, you borrow money from your retirement account and are obligated to repay it over a specified period. The loan, plus interest, is returned to your 401(k) account. But during the term of the loan the money you borrow won’t enjoy any potential growth.

Recommended: Can I Use My 401(k) to Buy a House?

Should You Borrow from Your 401(k)?

It depends. In some cases, borrowing against a 401(k) can make sense, while in others, it may not. Here’s a closer look.

When to Consider a 401(k) Loan

•   You’re in an emergency situation. If you’re facing a genuine financial emergency, such as medical expenses or imminent foreclosure, a 401(k) loan may provide a timely solution. It can help you address immediate needs without relying on more expensive forms of borrowing.

•   You have expensive debt. If you have high-interest credit card debt, borrowing from your 401(k) at a lower interest rate can potentially save you money and help you pay off your debt more efficiently.

When to Avoid a 401(k) Loan

•   You want to preserve your long-term financial health. Depending on the plan, you may not be able to contribute to your 401(k) for the duration of your loan. This can take away from your future financial security (you may also miss out on employer matches). In addition, money removed from your 401(k) will not be able to potentially grow or benefit from the effects of compound returns.

•   You may change jobs in the next several years. If you anticipate leaving your current employer in the near future, taking a 401(k) loan can have adverse consequences. Unpaid loan balances may become due upon separation, leading to potential tax implications and penalties.

Pros and Cons of Borrowing From Your 401(k)

Given the potential long-term cost of borrowing money from a bank — or taking out a high-interest payday loan or credit card advance — borrowing from your 401(k) can offer some real advantages. Just be sure to weigh the pros against the cons.

Pros

•   Efficiency: You can often obtain the funds you need more quickly when you borrow from your 401(k) versus other types of loans.

•   No credit check: There is no credit check or other underwriting process to qualify you as a borrower because you’re withdrawing your own money. Also, the loan is not listed on your credit report, so your credit won’t take a hit if you default.

•   Low fees: Typically, the cost to borrow money from your 401(k) is limited to a small loan origination fee. There are no early repayment penalties if you pay off the loan early.

•   You pay interest to yourself: With a 401(k) loan, you repay yourself, so interest is not lost to a lender.

Cons

•   Borrowing limits: Generally, you are only able to borrow up to 50% of your vested account balance or $50,000 — whichever is less.

•   Loss of potential growth: When you borrow from your 401(k), you specify the investment account(s) from which you want to borrow money, and those investments are liquidated for the duration of the loan. Therefore, you lose any positive earnings that would have been produced by those investments for the duration of the loan.

•   Default penalties: If you don’t or can’t repay the money you borrowed on time, the remaining balance would be treated as a 401(k) disbursement under IRS rules. This means you’ll owe taxes on the balance. And if you’re younger than 59 ½, you will likely also have to pay a 10% penalty.

•   Leaving your job: If you leave your current job, you may have to repay your loan in full in a very short time frame. If you’re unable to do that, you will face the default penalties outlined above.

Alternatives to Borrowing From Your 401(k)

Because borrowing from your 401(k) comes with some drawbacks, here’s a look at some other ways to access cash for a large or emergency expense.

Emergency fund: Establishing and maintaining an emergency fund (ideally, with at least three to six months’ worth of living expenses) can provide a financial safety net for unexpected expenses. Having a dedicated fund can reduce the need to tap into your retirement savings.

Home equity loans or lines of credit: If you own a home, leveraging the equity through a home equity loan or line of credit can provide a cost-effective method of accessing extra cash. Just keep in mind that these loans are secured by your home — should you run into trouble repaying the loan, you could potentially lose your house.

Negotiating with creditors: In cases of financial hardship, it can be worth reaching out to your creditors and explaining your situation. They might be willing to reduce your interest rates, offer a payment plan, or find another way to make your debt more manageable.

Personal Loans: Personal loans are available from online lenders, local banks, and credit unions and can be used for virtually any purpose. These loans are typically unsecured (meaning no collateral is required) and come with fixed interest rates and set terms. Depending on your lender, you may be able to get funding within a day or so.

The Takeaway

Borrowing against your 401(k) can provide short-term financial relief but there are some downsides to consider, such as borrowing limits, potential loss of growth, and penalties for defaulting.

It’s a good idea to carefully weigh the pros and cons before you take out a 401(k) loan. You may also want to consider alternatives, such as using non-retirement savings like an emergency fund or taking out a personal loan or a home equity loan or line of credit.

Think twice before turning to high-interest credit cards. Consider a SoFi personal loan instead. SoFi offers competitive fixed rates and same-day funding. See your rate in minutes.

FAQ

What is a 401(k) loan?

A 401(k) loan allows you to borrow money up to a certain amount from your retirement savings account and pay it back over time with interest. The money you repay goes back into your 401(k) account.

How do 401(k) loans work?

A 401(k) loan allows you to borrow money from your 401(k) account. Not every plan allows 401(k) loans, but many do. There are limits on how much you can borrow — generally up to 50% of your account balance or $50,000, whichever is less, within a 12-month period. In addition, you may have to get your spouse’s permission to take out a 401(k) loan, and you need to repay the amount you borrowed with interest typically within five years.

When should I consider taking a 401(k) loan?

It’s generally best not to touch money in a retirement savings account if possible so it can potentially keep growing for your future. However, in some situations it may make sense to take out a 401(k) loan — for instance, if you’re facing an immediate medical emergency or you’re trying to pay off extensive high-interest debt, such as credit card debt. If you have no other financial options, a 401(k) loan might be something to consider.

How do 401(k) loans differ from early 401(k) withdrawals?

With a 401(k) loan, you borrow money from your retirement account and must repay it over a specified period, typically within five years. The loan, plus interest, is repaid to your 401(k) account. An early 401(k) withdrawal, on the other hand, is when you withdraw money from your 401(k) before age 59½. These distributions generally count as taxable income. And because you’re under the age the IRS specifies for qualified retirement withdrawals, you typically will also have to pay a 10% penalty on the amount you took out.

There are some possible exceptions to the early withdrawal penalty. If you have a heavy and immediate financial need, such as medical expenses, for example, you may be able to avoid the 10% penalty on an early 401(k) withdrawal.

What are some alternatives to borrowing from my 401(k)?

Alternatives to borrowing from your 401(k) include taking the money from an emergency savings fund, taking out a home equity loan if you have equity in your house, taking out a personal loan, or negotiating with your creditors to see if they might be willing to put you on a payment plan.

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SOPL-Q225-001

College tuition inflation since 1980 has been rising. In fact, widely cited statistics have consistently shown college tuition rising faster than inflation.

It’s no secret: College tuition is on the rise, and it has been for years. According to the most recent data from the National Center for Education Statistics, during the 2021-2022 academic year, tuition and fees costs at undergraduate institutions were:

•   $9,700 at public institutions

•   $17,800 at private for-profit institutions

•   $38,800 at private nonprofit institutions

Between 2008-2009 and 2018-2019, costs rose 28% at public institutions and 19% at private nonprofit institutions. However, the costs for private for-profit institutions have reduced 6% in 2018-2019 compared to 2008-2009.

In comparison, public institutions cost $9,100 in 2010-2011, private for-profit was $19,400, and nonprofit institutions cost $34,000 in the same year, according to NCES , a subagency of the U.S. Department of Education.

Why has college tuition outpaced inflation, anyway? We’ll walk you through a complete guide to understanding college tuition vs inflation and the reasons college tuition has outpaced inflation over time.

What Is the College Tuition Inflation Rate?

First of all, inflation refers to a decrease in how much individuals can purchase with their money, based on increases in the prices of goods and services. According to Macrotrends, the general U.S. inflation rate for 2022 was 8%. Inflation peaked at 13.55% in 1980, at its highest levels since 1960.

Each college has its own tuition rate increase per year, so to get an accurate measure of an individual college’s tuition inflation rate, you can use the Bureau of Labor Statistics (BLS) inflation rate calculator to calculate the current inflation of college tuition rate for each institution based on previous tuition costs.

Ultimately, the average cost of tuition has increased nearly 180% over the past 20 years, even after accounting for inflation.

How Does Inflation Affect College Tuition?

When the cost of goods goes up, colleges and universities offset the increased cost of operating by increasing tuition costs.

The Higher Education Price Index (HEPI), which measures the price changes of items that allow universities to stay afloat, doesn’t align exactly with the Consumer Price Index, which refers to what consumers pay for goods.

It can be difficult to make an apples-to-apples comparison between rising tuition at colleges and universities and changes in inflation because the HEPI is affected by more than just the cost of goods. For example, administrators, professors, financial aid professionals, admission counselors, and others also require salary increases on top of the miscellaneous expenses associated with keeping college and university facilities running.

Why Is the Cost of College Rising?

There are other reasons that cause tuition, room, board, and fees to increase from year to year. In the next section, let’s explore the reasons that it becomes more expensive to run a school. We’ll discuss state funding availability, demand, and financial aid.

Less State Funding

Declining state funding has influenced tuition costs at state universities as health care and pensions increase for state employees.

As a direct result of the last two economic recessions, education appropriations remain 6% and 14.6% below 2008 and 2001 levels, respectively, according to the 2022 State Higher Education Finance (SHEF) report produced by the State Higher Education Executive Officers Association (SHEEO).

However, state funding for financial aid has increased steadily for two decades. State and local funding reached $100 billion for higher education for the first time in fiscal 2019.

More Demand

As demand rises, costs increase as well. More than five million more students attended U.S. colleges in 2017 than in 2000, though between fall 2010 and fall 2021, total undergraduate enrollment decreased by 15% (from 18.1 million to 15.4 million students), according to the most recent data from NCES.

Despite recent statistics, it’s still evident that the demand for higher education has continued to increase over the past few decades. The dependence on a highly skilled workforce and growing wage differences between college and high school graduates means more students choose to attend college and drive up the demand for higher education. Higher education prices must increase in response to a growing student population.

More Federal Aid

The 1987 Bennett hypothesis (named after President Ronald Reagan’s secretary of education, William Bennett), stated that colleges will raise tuition when financial aid increases, especially subsidized federal loans that offer low interest rates. In other words, the theory was that colleges can raise prices because federal financial aid will cover the excess costs and students can offset the cost increase with federal student loans.

Is the Bennett hypothesis still a worry today?

The New York Federal Reserve compiled a 2015 study that supports that finding. It found that student credit expansion of the past fifteen years has risen with college and university tuition.

Why Has College Tuition Outpaced Inflation?

It’s not easy to pinpoint one single reason for the rise in college tuition — you might be quick to blame governments that face deep deficits and cannot subsidize the full costs of higher education. However, the truth is that the costs of outpaced inflation are multifaceted.

Colleges often attempt to raise tuition to appear competitive with similar institutions, increasing costs across the board. University presidents also face enrollment demands and increases in HEPI also inflate budgets. That’s why high school students, together with their families, may want to carefully plan for the costs of attending a particular institution.

Some options for students who are looking into financing their education might include finding work during the summer, applying for financial aid, or looking into payment tuition plans.

College Tuition Inflation Since 1985

According to data from the NCES, since 1985 the average college tuition at all institutions has increased nearly $20,000 from $4,885 to $24,623 during the 2018-2019 school year. That number is even higher when considering the cost of attending a four-year institution, which in 1985 was $5,504 and during the 2018-2019 school year increased to $28,123

College Tuition vs Inflation

The increase in college tuition and fees have outpaced the rise of inflation for decades. According to Forbes, the cost of attending a four-year college or university during the 2021-2022 school year was increasing at double the rate of inflation. The cost of attending a two-year community college is increasing a third faster than the rate of inflation.

However, in light of the COVID-19 pandemic, this has changed slightly. From the 2020-2021 school year and the 2021-2022 school year, tuition and fees increased by about 0.6% on average, while overall prices in the U.S. increased by 3.2%, according to Bloomberg based on data from the BLS.

The Takeaway

College tuition has increased dramatically — increasing by nearly 180% in the past 20 years. The reasons for such an rise in tuition can be attributed to a variety of factors including less state funding, an increase in demand, and even an increase in the amount of federal aid awarded.

Despite the seeming downsides to inflation and college costs, SoFi can offer some major perks to help you pay for school with our private student loans. Note because private student loans don’t offer the same benefits as federal student loans (like income-driven repayment options), private student loans are generally considered only after students have carefully reviewed all other sources of funding and financial aid.

But, if private student loans seem like an option, you can check your rates and apply in minutes and easily add a cosigner if you so choose.^* Borrowers can choose from four flexible repayment options and there are no fees.

About the author

Melissa Brock

Melissa Brock is a higher education and personal finance expert with more than a decade of experience writing online content. She spent 12 years in college admission prior to switching to full-time freelance writing and editing. Read full bio.

Photo credit: iStock/TARIK KIZILKAYA

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