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A certificate of deposit (or CD) is considered a type of savings account, but a CD locks up your money for a fixed time period in exchange for a higher rate of interest than a standard savings account.

While a savings account allows you to access your cash at any time, you typically purchase a CD for a set period of time during which you can’t withdraw the funds without paying a penalty. Typical CD terms can vary from one month to five years, but can be even longer.

Here’s a closer look at how CDs work, how they compare to other savings vehicles, and their pros and cons.

Is a Certificate of Deposit Just a Savings Account?

A CD has some similarities to a savings account, but several differences. It’s a financial product designed to help consumers save their money, and because CDs typically pay a fixed rate of interest, they can offer savers a predictable return over time.

However, unlike a savings account, CD holders aren’t able to access the funds in their account whenever they feel like it — at least not without paying an early withdrawal penalty, (in most cases). CD holders are also not allowed to deposit more money into an existing CD, generally speaking, although they can buy another CD.

In exchange for giving up the ability to freely withdraw the money in a CD, the institution rewards CD holders with higher interest rates than they’d see in a typical savings account.

What Is APY vs Interest Rate?

An annual percentage yield, or APY, on a CD or savings account tells you how much interest you’ll earn on your money over one year. It includes the interest on the initial deposit, plus the interest on the interest that accumulates, which is called compound interest. An interest rate, on the other hand, only accounts for interest earned on the original amount.

An APY helps you avoid complicated calculations and compare different savings options to find the best yield. Longer term CDs generally pay higher APYs. However, that is not always the case, so it’s important to shop around and compare APYs and terms to find the best CD for your needs.

What Is a Jumbo CD?

A jumbo CD requires a higher minimum deposit than that required by regular CDs, typically $100,000 or more. In return for tying up a large sum of money, jumbo CDs tend to pay higher rates.

Like regular CDs, jumbo CDs are considered risk-free investments, as they’re typically insured up to $250,000 by the Federal Deposit Insurance Corp. (FDIC). CDs offered by credit unions have the same protection under the National Credit Union Administration (NCUA).

Recommended: Are Certificates of Deposit Worth It?

How Does a Certificate of Deposit Work?

When a customer goes to open a CD they’ll be asked to put down a lump sum, often a minimum of $500 to $1,000.

The initial deposit placed in a CD is called the principal, because it is essentially a loan the consumer is offering to the bank. The interest the customer collects is what the bank pays for the privilege of borrowing their money.

Certificates of deposit also carry a “term,” much like a loan does; the term is the amount of time the funds must be left in the CD in order to glean the advertised interest rate. The term might be as short as a few months or as long as a decade. The day the term is over is also known as the CD’s maturity date.

Long story short: When opening a CD, a customer deposits a set amount of money for a set amount of time and agrees to leave it untouched in return for a relatively high fixed APY they’ll earn on the principal once the CD matures.

But how high, exactly, are the rates we’re talking about?

Certificate of Deposit Rates

Certificates of deposit are attractive savings options because they usually offer higher rates than the traditional savings accounts, but are also a lower-risk option than, for example, investing in the stock market.

Since funds in CDs are FDIC-insured, account holders can rest with some assurance that their cash won’t simply disappear (as it might when invested in shares of a company).

As of February 2025, the national average rate for a normal savings account is 0.61% APY, whereas the national average rate for a 12-month CD is 1.83% APY. The national average rate for a 60-month CD is about 1.53%. Online banks typically offer higher rates for savings accounts, and it’s possible to find CDs with higher than the average rates by shopping around.

But it’s possible to find CDs with even higher rates than that by shopping around.

Certificate of Deposits: Fine Print

There are a few more things it’s important to know about CDs before deciding to open one.

Generally, CDs automatically renew once the term is up if the account holder doesn’t take the money out. The bank will typically roll over the existing CD into a new CD with the same term, though the APY may be different. (For example, a one-year CD whose funds aren’t collected on the maturity date would be rolled over into a new one-year CD.)

Most financial institutions offer CD holders a grace period, or a fixed amount of days after the maturity date, during which the account holder can decide whether to withdraw the funds, transfer them to a new account or CD, or allow them to roll over.

Finally, but importantly, most CDs are generally subject to an early withdrawal penalty, which is incurred if the money is accessed prior to the maturity date. Early withdrawal penalties are determined by each financial institution. Depending on the policy, account holders could lose out on interest, or even lose some of their principal deposit.

Recommended: Reasons Why It’s So Hard to Save Money Today

Certificates of Deposit: Pros and Cons

CDs can play an important role in an overall savings strategy because they balance growth and risk management. But as with any financial product, CDs have both drawbacks and benefits, which should be considered carefully before opening one.

Pros of CDs

•   Because CDs are FDIC-insured, they’re a relatively low risk account. The FDIC insures up to $250,000, which means if an FDIC-insured institution goes out of business, account holders with a CD would receive their principal and interest, up to $250,000.

•   Higher interest rates are available for CDs than for traditional savings accounts, making it easier to see a higher return on investment.

•   For savers who are worried about spending down their savings, a CD provides a safe place to place cash, where it’s locked up for a certain period of time.

Cons of CDs

•   Although CDs carry higher interest rates than some other types of savings vehicles, they don’t have the same kind of earning potential that stock market investments can have. By investing your money in a CD you’re losing out on potentially much higher market returns (but you’re also protected from market risk).

•   CD holders generally don’t have the ability to withdraw their money at any time, at least without being subject to a penalty. That makes a certificate of deposit a poor choice for certain savings goals, like an emergency fund, which should be readily available.

•   Savers will owe taxes on the earnings in the account, which effectively lowers the amount you earn. Be sure to take this into consideration shopping around for the best APY.

Where to Open a Certificate of Deposit

Certificates of deposit are available from a wide variety of financial institutions, including national and regional banks, credit unions, and some online-only financial institutions.

Shopping around can help ensure consumers find the best rates and most favorable terms for their needs.

That said, there are also some alternatives to opening a certificate of deposit that are worth considering carefully.

Alternatives to Opening a Certificate of Deposit

Although CDs can be a great way to earn interest, they’re far from the only high-interest account option out there. Here are a few options to mull over.

High-Yield Savings Accounts

Although typical savings accounts offer a relatively low interest rate, high-yield savings accounts are available from some banks. This option helps consumers combine growth potential with the ability to access their money as they need it, and can be a good alternative to CDs for those who aren’t ready to lock away their money for many months or years.

Certain high-yield accounts may offer a higher APY. However, there may be fine print involved requiring that savers meet certain terms in order to maintain that rate, such as making a minimum number of transactions per month or maintaining a minimum account balance.

It’s a good idea to review all the account terms carefully before opening any kind of financial account.

Money Market Accounts

Money market accounts are another option which, similarly to CDs, tend to offer higher interest rates than your typical savings account does. And unlike CDs, money market account holders are generally allowed to write checks or process debit transactions against their funds, which are still covered by FDIC insurance.

While money market accounts can earn higher interest rates than traditional savings accounts, there may be monthly restrictions on the number of deposits and withdrawals. Money market accounts may also require a high minimum balance in order to avoid monthly fees.

Stock Market Investments

Finally, for consumers focused on growing their money in the long-term, investing in the stock market can provide a lot of potential for growth. Historically, the S&P 500 — an index tracking 500 of the largest corporations in the U.S. — has seen an average annual return of 11.7% over the last decade.

Of course, an investment account is very different from a savings account or CD in that there is no FDIC insurance on the funds. Investments in the stock market are vulnerable to market fluctuation, and there’s no guarantee that investments will be safe and make money. It is important to remember that investments have no guarantee and are subject to potential losses.

That said, many financial professionals and advisors still recommend long-term investing as one of the best ways to grow wealth over time and as a part of an overall plan for long-term financial goals like retirement.

The Takeaway

A CD is a type of savings account that pays a fixed interest rate on money held for an agreed-upon period of time. Investing in a CD can be a good choice if you’re looking to put aside money for a set period of time and earn more than you could in a regular savings account. If you’d prefer to have more access to your funds, however, a money market account or high-yield savings account could be a better choice.

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.

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-Q125-011

There’s nothing like the convenience and freedom of having a car at your disposal when traveling, but it can definitely add to the cost of a trip.

What’s more, it can be hard to know just how much a car rental will add to the bottom line because the daily rate you see advertised may wind up not reflecting the amount you will pay once surcharges are added to the bill.

But with some smart strategies, you can control the costs of renting a car. These include uncovering special offers and deals, knowing which day of the week is cheapest to rent a car, and avoiding those pricey add-ons that you don’t truly need.

12 Tips to Save Money on Car Rentals

These tactics can help you save money the next time you rent some wheels while traveling.

1. Understanding All Those Add-On Costs

At first glance, advertised deals on car rentals can seem inexpensive.

The sticker shock may come once you’re actually at the counter. That’s because, in addition to the base rate of a rental car, costs may include:

•   Additional driver cost. Are you going to be the only driver or will you be sharing driving duties with someone else? If someone else will be driving, it’s a good idea to add them to the rental to potentially avoid liability if something were to happen if someone else were behind the wheel.

•   Fuel Purchase Option (FPO). This option allows a renter to pay for the full tank of gas at the time of rental and return the tank empty. It may be cheaper to fill the tank yourself. However, if you are the kind of person who likely returns a car close to the deadline and is racing to catch a flight, the FPO can save time and might be worth it.

•   Fuel and Service. If you forgo the FPO and don’t return the car with a full tank, you will likely be charged for the cost of fuel, as well as a fee for the refueling service.

•   Insurance. Insurance can include Loss Damage Waiver, Liability Insurance, Personal Accident Insurance, and Personal Effects Coverage. This insurance may or may not be necessary, depending on your existing car insurance coverage or the possibility of coverage via the credit card used for the reservation.

•   Premium Emergency Roadside Service. This service can provide roadside assistance in the event of an emergency.

•   Additional fees and taxes. Fees and taxes are not optional and can add up. Taxes and fees are dependent on where you rent your vehicle (different states have different taxes). There is typically an additional fee for cars rented at an airport or a hotel, which can add to your bill and take a bite out of your checking account.

•   Toll fees. This typically includes not only the cost of driving on toll roads, but also convenience fees for having a transponder included in your rental to seamlessly pay those charges.

By knowing which charges can crop up and scanning for them, you may be able to avoid those extra costs. (Think of how many people opt for online banks vs. traditional ones to save on fees; it’s the same “do your research and save” principle at work.)

Recommended: How to Save Money on Gas

2. Considering Your Insurance Coverage

One way to get the cheapest possible deal on a rental car is to make sure you’re not doubling up on insurance coverage.

Find out what your car insurance covers. It may cover collision damage, and your homeowner’s or renter’s insurance may cover personal items that could be stolen from your vehicle.

But the disadvantage would be that if the worst were to happen, you would need to file a claim through your personal insurance, which could cause your rate to increase.

As noted above, your credit card’s car rental coverage may be a money-saving option. This can be a good travel hack that allows you to waive the insurance offerings from a rental car company yet not need to use your personal car insurance to file a claim.

Some pointers:

•   If you are renting a car with a credit card, as many people do, find out if your card has the coverage you need. You can check your card’s benefits to see if it includes primary car rental coverage. If it does, it’s a good idea to read the fine print for exactly what the insurance covers, as well as any coverage limits.

•   Calling your credit card company, as well as your car and home insurance companies, with any questions can give you a full picture of whether or not added car rental insurance is necessary for your situation.

You may also be able to waive roadside service if you have a membership to another roadside assistance company.

3. Looking Beyond Airports and Hotels

Because of the fees associated with renting from an airport or hotel — which can add as much as 26% to your total bill — it may be cheaper to rent from an outpost within the city.

The flip side is that it’s less convenient, and you may need to take a taxi or use a rideshare service to get to and from the car rental agency.

Comparing costs of rentals both at the airport and within 20 miles (adding in the cost of getting to that other location) can help you assess whether giving up some convenience will pay off.

4. Signing Up for Loyalty Programs

Before you rent a car, it can be helpful to sign up for several loyalty programs across rental companies. (To avoid junk mail, consider creating a separate email address to register for loyalty programs.)

Some rental car programs will give you an automatic percentage off just for being a member. Other rental car programs may give additional perks, such as upgrades or separate lines at the agency, which can help you avoid the hassle.

5. Using Your Memberships

There are various ways to snag a reduced price on your car rental, including working your memberships.

Many big-box stores and wholesale clubs have ties with rental car companies that can net you significant discounts if you’re a member. Auto clubs (like AAA), trade associations, unions, as well as AARP, may also offer rental car perks and discounts, including insurance on rental cars.

Shop around, and don’t be surprised if the most enticing deals and ways to spend less emerge from an unexpected source.

6. Booking Early

Reserving a car as soon as you know your travel dates can be a money-wise move. Here’s why: Rental car companies often keep a limited number of cars in their fleets. As a result, they need to estimate demand several weeks ahead of time. To encourage customers to book early and help them manage their pool of vehicles, they may offer lower rates when you reserve in advance vs. last-minute.

Booking a car in advance can help you not only get a better deal but also help to ensure you’ll get the car you want. This can help you avoid paying for a Suburban when all you need is an economy car.

If you do book early, consider searching prices again right before your trip.

•   If you find a better deal last-minute, you may be able to request a price adjustment from your original agency.

•   Or you may be able to cancel your current reservation and book a cheaper reservation at another company.

Before you book, you may want to read through the cancellation policy and make sure there is no penalty for canceling.

7. Shifting Your Dates

Prices of rental cars can fluctuate based on demand, and these fluctuations can sometimes be significant.

Of course, you can’t always change the days of your trip. But as a frugal traveler, you may want to weigh the cost-benefit of not having a rental car for a few days to score a lower rate.You could reap significant savings.

The cheapest day to rent a car can vary depending on market demand, but you may see lower rates on weekdays versus weekends, according to AAA.

8. Noting Any Damage Before You Drive Away

You may be eager to get on the road, but it’s a good idea to do your due diligence and make sure you point out and/or document any damage to the car when you receive it. Consider the following:

•   No matter how minor a scratch or ding, you could get charged for the damage unless you account for it on your rental agreement prior to driving away.

•   You may be asked to mark damage on the car rental agreement, but you may also want to take photos as well. That way, there is less likely to be any dispute about the extent of any damage or markings.

Recommended: Different Ways to Earn More Interest on Your Money

9. Paying Tolls in Cash if You Can

Rental car companies commonly tack on fees for using their transponder (the gizmo that lets you whiz past toll booths), in addition to the toll itself.

You may also have to pay a daily convenience fee for having the transponder even if you don’t use it.

To avoid using the rental company’s transponder, try these hacks:

•   Pay cash at tolls that still accept it. For cashless tolls, you may be able to pay online later.

•   It may also be possible to use your own transponder. Some transponders (such as E-ZPass) can be used in multiple states, so it could be worth doing your research beforehand to see if your personal transponder is accepted.

•   For a longer-term rental, you might consider buying a transponder or toll pass that is accepted in the state where you’ll be driving. In many cases, the fee for the pass goes into your account as credit for tolls.

10. Bringing Your Own Car Seat

Rental car companies may offer infant and child car seat rental options, but the additional charges can add up. You might pay $10 to $15 per day, per seat, plus tax, up to a cap of $84, give or take.

In addition to the cost, you may not necessarily know the size and reliability of a rental car seat.

Obviously, it is not always convenient to bring your own seat, but it may be a better bet when possible. Even though car seats are bulky, airlines typically don’t charge baggage fees on them.

11. Think Small and Simple

This one may be obvi, but renting a larger or premium car will likely jack up your costs considerably. Though this is a no-brainer, it’s easy to creep into higher pricing tiers as you scroll through the options and see a cool SUV or convertible next to that economy sedan you originally thought you wanted to book.

For example, a recent search on Kayak found that rental cars can range from $22 to $150 a day or more in Los Angeles, depending on the company, location, and car itself (from compacts to SUVs, from minivans to luxurious convertibles). That’s a major difference!

Recommended: How to Make Money Fast

12. Let One Person Do the Driving

It’s not always possible, of course, to have a single driver (say, if you’re criss-crossing the United States), but for shorter distances, having just one driver can help you save money.

Many rental car agencies will add $3 to $11 or more a day for an additional driver who is not a spouse, domestic partner, or business partner. This can vary by state and have a maximum charge per rental period So, if you are on a trip with a friend and the distances are fairly short (perhaps zipping between Miami and the Florida Keys), having just one driver can help cut rental car costs.

The Takeaway

Car rentals often end up costing more than you expect, due to add-on costs and the details of when and where you rent a vehicle. To get the best deal on a rental, it’s a good idea to do some research in advance so you can get the best rates and opt out of the extras you don’t need.

You can also explore other ways to get a good deal, such as looking for discounts through clubs and organizations you already belong to, shifting your dates slightly, and trying other clever hacks. This can help you keep more money in the bank vs. overspending on your wheels.

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

How can you get a discount on a rental car?

Strategies for getting a discount on a rental car include comparing prices using online aggregator sites, booking early, being flexible about when and where you pick up and drop off the vehicle, and looking for memberships (like AAA) and perks (like credit card points) that can help you lower costs.

Is it cheaper to rent a car by the week or by the day?

It’s typically cheaper to rent a car by the week. You may even find that paying to rent a car for a week when you only need the vehicle for five days is more affordable than renting it for five single days.

How can you get around car rental fees?

It’s important to do your research about what fees may be added and see how you can minimize them. For instance, does your car insurance or your credit card offer insurance coverage when you rent a car? Can you bring your own car seat vs. renting one if traveling with a child? Can you avoid the surcharge often charged when you rent at the airport by instead taking a short cab or bus ride to another location? These moves can help lower costs.

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.

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

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

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

SOBNK-Q125-025

Whether from parents, friends, or financial advisors, you have probably heard plenty of people say that you should be saving money. But did you ever stop and consider why exactly saving money is so important?

Saving money is truly a smart move: It can help you achieve your financial aspirations, prepare for the future, and weather unexpected events. It can even help you earn money without doing anything at all. When you look at it in a big-picture way, saving can also relieve a lot of money stress from your life.

Reasons Why Saving Money is Important

It can be hard to get motivated to save money just because it’s the “responsible” thing to do. But you may see the appeal once you understand the huge advantages that saving offers. Here are a few.

Peace of Mind

If money is tight, you may find yourself worrying how you will pay the rent or other critical bills if an extra unexpected expense were to suddenly come up, as they often do. After all, cars break down, and dental work can crop up. Or what if your kid discovers a passion for soccer and wants to go to a pricey summer camp.

Having savings in the bank (whether that’s an online bank or a traditional one) can provide the sense of security that comes with knowing you can get through these kinds of moments without hardship. You’ll be able to have that back-up money to afford many of life’s expenses that crop up. By saving, you may also worry less about tomorrow, knowing that you have stashed away some cash. That means you can breathe a little easier.

Avoiding Debt

When you have money in the bank, you can make purchases, planned or not, with the money that’s on deposit. That means you can avoid using high-interest credit cards or potentially taking out a personal loan or a home equity line of credit (HELOC) to pay for things.

That can help you avoid debt, which can help save a significant amount of cash in the long run.

Expanding Your Options

Generally, the more money you have saved, the more control you can have over your life and your financial security.

If you’re unhappy with where you live, for instance, having some savings can open up the possibility of moving to a more desirable location or putting a down payment on a new home.

If you dislike your job, having a cushion of cash in your savings account might afford you the option of leaving that job even before you have another one lined up.

Money certainly does not solve all problems, but having savings can give you a little bit of breathing room and allow you to take positive steps in your life.

Having Financial Freedom

Another benefit of savings is that you are on a program that can give you financial freedom. If you stick to a plan of stashing 10% or 20% into savings, as many financial experts recommend, you can avoid living paycheck to paycheck and have more financial freedom.

For example, with adequate savings, you might be able to take a sabbatical from work and pursue a passion project. You might have enough cash to start your own business or retire early. Or you might plan a luxe anniversary celebration somewhere tropical. Savings can enable your dreams.

Recommended: Guide to Improving Your Money Mindset

Saving for Big Purchases

Having a savings account is a great way to afford big purchases without racking up credit card debt and the high interest that goes along with it or turning to other expensive financing options.

Say you want to take your kids on a Disney vacation or you really need that second car. Or maybe there’s a designer bag that you’re totally in love with. By putting money aside in a savings account and earning interest on those funds, you can be in a position to buy your wish-list item outright, rather than borrowing funds to do so. (To see how your money can grow when in an interest-bearing account, you might use an online savings account interest calculator.)

Saving Money for Emergencies

Here’s another reason why it is important to save money: Life has its twists and turns. One minute, everything is humming along nicely, the next, your car needs $2,000 worth of repairs. Or the hot water-heater conks out or you lose your job. These situations and others can put a real strain on your finances.

That’s why financial experts generally recommend building up an emergency fund of at least three to six months’ worth of living expenses to prepare for any financial surprises.

It can be hard to prioritize this, but saving for an emergency fund is important. To help make it happen, you might set up an automatic transfer from your checking into savings the day after payday. This can painlessly, seamlessly whisk money to your emergency fund so it doesn’t sit in savings, tempting you to spend it. Whether the amount is $15 or $150, just do it. Every bit helps.

Recommended: Emergency Fund Calculator

Earning Interest

Savings accounts come with interest, which is the bank’s way of thanking you for keeping your money with them, where they can use it until you withdraw it.

Here’s an example: That can help your savings along. If you have $5,000 in a savings account with a 3.00% APY earning compound interest monthly, that would give you an extra $152 at the end of the year. Add $20 per month to the account and let it sit for five years, and you’ll have a total of $7,101. Nice! That’s cash in your account for doing absolutely nothing.

Reducing Your Taxes

Here’s the part about how saving money makes you money, beyond interest you’ll earn. If you save money into certain tax-advantaged retirement vehicles, not only do you have that nest egg for later in life, but you can lower your tax liability.

By putting money into your employer’s 401(k), if available, you can lower the income on which taxes are assessed. If you are self-employed, there are various retirement accounts that may allow you to put pretax dollars away for the future.

When you save money this way, you could even challenge yourself to put the tax savings back into a savings account. That’s a way to increase your money in the bank another notch or two.

Giving Back

Another reason why saving money is important is it can enable you to give back to others. When you have a cash cushion and aren’t living paycheck to paycheck, you have the opportunity to help those around you.

That might involve sending a few hundred dollars to a relative who has a big dental bill and is struggling to pay it. Or you might make a charitable donation to a medical research cause, a disaster fund, or a local after-school program that you love. The choice is yours, but having a healthy savings account can make it possible.

Benefiting from Compound Interest

Another big incentive to save, as mentioned above, is the power of compound interest.

Compound interest means you earn a return not just on the amount you originally put away, but also on the interest that accumulates.

Over time, that means you can end up with much more than you started with. And the earlier you start saving, the more your money grows, since compound interest is able to work its magic over a longer time horizon.

You saw an example above that involved putting money into a savings account at a bank. Here’s another example: A person who starts putting $100 per month towards retirement at age 25 will wind up putting $12,000 more of their money into their retirement fund by age 65 than the person who started saving $100 per month at age 35.

But because of compound interest (and assuming a 7.00% annual rate of return), the person who started at 25 will wind up with over $120,000 more at age 65 (way more than the extra $12,000 they deposited).

How to Get Started with Saving

If you’re convinced that saving is the right move, how do you actually do it? The key is to make a budget and make sticking to it easy.

This doesn’t have to be intimidating. The key is to get familiar with what you spend, what you earn, and what your goals are.

Here are some steps you could take to help get started.

Figuring Out What You’re Saving for

Is it a long-term goal, like retirement or your kids’ college tuition? A short-term goal, like an emergency fund? Or a medium-term goal, like a wedding or home renovation? It can help to get a sense of how much you need to stash away and by when.

The point of this is twofold:

•   First, you can divide the amount you need by the months left until your deadline to get a clear picture of how much you’ll need to save each month.

•   Second, you will know where to put your money. If your goal is less than a couple of years away, you may want to keep your savings in an online savings account, a certificate of deposit (CD), or money market account.

These options might help you earn more interest than a standard savings account but still allow you to access your money when you need it.

If your goal is in the distant future, you might consider investing the money in a retirement account, 529 college savings plan, or brokerage account so that it could have the chance to grow over time. All investments, however, come with risk, and growth is not guaranteed.

Sticking to a Budget

You don’t really know where your money is going unless you track it. That’s why for a month or two, you may want to take note of all your daily and monthly expenses.

Next, you’ll want to tally up your net monthly income, meaning what goes into your account after the different types of taxes and deductions are taken out.

The difference between your monthly income and your expenses (everything from rent to student loan payments to food and dining out) is what you have left over to save. If there’s not enough left over, you can work on finding ways to cut spending or increase your income. You might try following the 50/30/20 budget rule to help guide your spending and saving.

Putting Savings on Autopilot

If you’re manually putting cash away every month, it can be easy to fall behind.

For one thing, you may forget to move money into savings regularly amid your busy schedule. And, unless you protect the money in advance by transferring it to a different account, you may accidentally spend it.

One way to avoid this is to set up automated savings through your bank account or retirement plan.

If you’re putting away the amount you identified you need for your goal, you may get there without even thinking about it.

Recommended: The Different Types of Savings Accounts

Common Places to Save Your Money

Where to put your money as you save? Consider these options:

•   Traditional savings account: You could put your money in a savings account at a financial institution, whether at a bank or credit union.

•   High-yield savings account: These accounts are likely to pay a much higher interest rate than a conventional savings account while offering the same convenience and security. They are often found at online banks.

•   CD: A CD gives you a specific rate of interest but you must agree to keep your money in the account (that is, not withdrawing any of it) for a specific term, whether that’s several months or years. Withdrawing earlier could trigger penalties.

•   Investments: There are many options here, such as Treasury bills and bonds. These can earn healthy returns and are typically considered safe places to keep money.

A quick note: While typically it’s a savings account that earns interest, some checking accounts earn a bit of interest, too. This can be especially true if you deposit your money in a checking account at an online bank. While it may not offer a high rate of interest, earning some money on what you keep in your checking account can contribute toward building your wealth.

The Takeaway

It’s important to save money for a variety of reasons. It can provide peace of mind, open up options that improve your quality of life, increase your wealth due to compound interest, and possibly lower your tax liability, and may even allow you to retire early. Many people earn wealth through a combination of working and savvy saving. Having the right banking partner can be part of the process.

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 are the benefits of saving money?

There are many benefits of saving money: It helps you save for your future, cover unexpected expenses, make major purchases, and have financial freedom. What’s more, the money you save can help make you more money, thanks to compounding interest and lowering your tax bill.

What are common things to save money for?

Common things to save money for are an emergency fund, retirement, a big purchase (like a car, a vacation, or the down payment on a home), and educational expenses, among others.

What happens if you don’t save money?

If you don’t save, you may lack financial security and the ability to meet certain aspirations. For instance, you wouldn’t have a retirement fund and would therefore have to keep working indefinitely. You wouldn’t have money for a big purchase like a car or a home or your child’s education. Plus you wouldn’t be able to handle some expenses, whether planned or unexpected, and might have to take out a loan or use credit cards, which means you are paying for the privilege to borrow funds. That takes away from your earnings.

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.

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

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

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

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 Trademarks: Certified Financial Planner Board of Standards Center for Financial Planning, Inc. owns and licenses the certification marks CFP®, CERTIFIED FINANCIAL PLANNER®

SOBNK-Q125-034

If you ever see the phrase “ACH hold” when checking on your bank account, it can be helpful to know that this means funds are on hold, anticipating a completed electronic transfer.

ACH, which is short for Automated Clearing House, is a system that enables the electronic transfer of funds between accounts at different financial institutions. Both businesses and individuals may use this method to move money between bank accounts. When you grant a business or government the right to conduct an ACH debit (which is the electronic removal of funds from your bank account), you may see those words “ACH hold” on funds in your account, telling you that verification is taking place.

This may cause you to wonder if your bank account and financial affairs are in good shape. But there’s usually no need to worry. Here’s what you need to know about ACH holds on your account.

What Is an ACH Hold?

So what does ACH hold mean? When a company or institution that you have authorized to make a withdrawal from your account submits an ACH debit, your bank will receive and acknowledge the transaction. At that point, the bank might place an ACH hold on your account. Here’s what is happening:

•   While there is a hold on your bank account for the amount of the ACH debit, you will not be able to use those funds for a purchase.

•   During the ACH hold, the bank is verifying that you have the funds in your account to cover the requested debit.

•   Once confirmed, your bank will deduct the money from your account.

•   If there are not adequate funds for a transaction, it could be rejected.

In such an instance, the ACH hold simply makes the funds you will owe unavailable before they are actually debited from your account.

On the flip side, you may sometimes notice a pending ACH credit in your account. Here’s a bit of detail about what that may represent:

•   If you open your mobile banking app a day before payday, you might see the pending direct deposit, but the funds are not yet available.

•   This means your employer has sent the money through ACH, but your bank has simply placed a hold until it can verify the transaction and push the funds through to your account.

Understanding Automated Clearing House

ACH stands for Automated Clearing House, a U.S.-based network governed by Nacha (National Automated Clearing House Association). The system enables businesses and individuals to electronically debit (take money from) or credit (put money into) accounts.

ACH credit transfers are quite common today. For instance:

•   Examples of a company or government agency putting funds into an individual’s or company’s account include direct deposit payments from an employer to an employee, social security benefits, and tax refunds.

•   As an individual, you likely utilize ACH debit as well. If you have connected your online bank account to a peer-to-peer or P2P payment app like Venmo or Apple Cash and you utilize standard transfers, you are likely using ACH debit when you pay friends and family.

•   You may also use ACH when you enable autopay for bills each month, such as your mortgage, rent, or utilities. When you sign up for this kind of payment, those companies are using ACH debit to withdraw the necessary funds to cover your monthly payment.

But money does not go directly from one account to another. Before your direct deposit paycheck reaches your bank account — or your automatic payment reaches your landlord or the electric company — it goes through the clearing house, which batches payments multiple times a day. That means ACH payments are not immediate, though they can be same-day.

Recommended: What Happens if a Direct Deposit Goes to a Closed Account?

How Does an ACH Hold Work?

When an ACH hold turns up in your account, here are the steps that are typically going on behind the scenes:

1.    The ACH request is sent to your bank to debit or credit funds from/to your account.

2.    The bank receives the request and begins work.

3.    The bank puts a hold on the funds.

4.    The bank ensures the funds are available.

5.    The transaction is completed.

Recommended: ACH vs. Check: What Are the Differences?

How Long Does an ACH Hold Last?

There is not a set time that an ACH hold will last. ACH transfers are often processed in batches throughout the day, so if a transfer misses one batch, it likely waits for the next one. For this reason, ACH transfers typically occur in one or two business days.

For this reason, it’s unlikely a hold would last any longer than 24 to 48 hours.

Tracking Your ACH Hold

But what happens if the days are passing and an ACH hold doesn’t clear? This can be a major inconvenience, whether the transaction involved is an incoming paycheck or an outgoing bill payment.

Unfortunately, as the customer, you will not be able to resolve this on your own. You will need to to contact the bank and make an inquiry, giving them the pertinent details. This will likely include your account number, the amount of the ACH, and how long you have seen the hold in your account. If you are able to see any other specifics under a section such as “transaction details,” those can be helpful as well.

Tracking an ACH hold can be a wise move if a couple of days have passed (say, you are on day three) and the funds in question still have not cleared. Usually, by this point, the transfer would either have taken place or been rejected.

Why Do Banks Perform an ACH Hold?

ACH holds allow banks to verify that funds are in place before approving the transaction. For example, say your account has $100 in it, but a bill collector has initiated an ACH debit for $500. It will be in the bank’s best interest to place the hold on your account. Once the bank realizes that your account does not have the funds to complete the transaction, it will likely reject the ACH transfer.

This protects the bank’s assets, but it means you have an unpaid bill. In this example, you may also have to pay late fees in addition to the funds you owe. What’s more, the bank might charge you an ACH return fee. These fees can certainly add up.

It is a good idea to monitor your account closely and set up low-balance alerts. As a best practice, you might want to keep track of scheduled automatic payments via calendar reminders so your account balance is always high enough to cover charges.

Unauthorized ACH Holds

ACH holds can benefit you as well as your bank. For example, if you monitor your checking account closely and notice a pending ACH transaction that you weren’t expecting, you can contact your bank to learn more about the transaction.

If a person or entity is attempting to debit your account without your authorization, this could mean that your banking details have been compromised. Your bank will be able to help you with next steps to protect you from fraud.

Another scenario to consider: The Consumer Finance Protection Bureau (CFPB) advises that you can stop electronic debits via ACH by payday lenders. These payday loans are a way to get an advance on your paycheck. To curtail unauthorized account deductions, you must revoke their payment authorization (or ACH authorization) by calling and writing to the loan company and your financial institution or by issuing a stop payment order. Visit the CFPB website for sample letters .

Note: Stopping payment via ACH debit does not cancel your contract with payday lenders. You must still pay off the full balance of your loan, but you can work with the lender to determine an alternate method.

Keep in mind, however, that an ACH hold is typically part of a financial institution’s processing protocol and the end user (you) likely isn’t able to intervene. That said, if you’d like to try to remove the hold or cancel the transaction, you may contact your bank’s customer service representative to see if anything can be done.

Also, you can follow the steps above to revoke ACH authorization if the hold reflects an unauthorized transaction. That step may or may not cancel the pending transaction but can help curtail future debits that you don’t want to take place.

The Takeaway

ACH (or Automated Clearing House) holds work to protect banks during transfer processing. While delays may seem annoying at times, there are also pros to ACH holds for account holders. When a company initiates an ACH debit from your account, the hold allows the bank to confirm that funds are available to complete the transaction, which can ensure good flow of finances. Such holds also give you an opportunity to identify any unauthorized ACH debits, which is definitely a plus.

Having a bank that looks out for your best interests is also a major plus. If you’re looking for a new banking partner, see what SoFi has to offer.

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

How long can a bank hold an ACH transfer?

When an entity, such as your employer or the government, issues you a direct deposit via Automated Clearing House (ACH) transfer, your bank must generally make the funds available for withdrawal by the next business day. However, weekends and bank holidays do not count as business days, so it may take a few days to get your money even after an ACH transfer has gone through.

How long does it take an ACH check to clear?

Financial institutions may be able to process Automated Clearing House (ACH) transfers in one to two business days or on the same day. However, a bank or credit union might hold onto transferred funds once it receives them, generally until the next business day.

What is the ACH hold check order fee?

Financial institutions may be able to process Automated Clearing House (ACH) transfers in one to two business days or on the same day. However, a bank or credit union might hold onto transferred funds once it receives them, generally until the next business day.

Photo credit: iStock/max-kegfire

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

External Websites: The information and analysis provided through hyperlinks to third-party websites, while believed to be accurate, cannot be guaranteed by SoFi. Links are provided for informational purposes and should not be viewed as an endorsement.

SOBNK-Q125-019

When applying for financial aid to fund their college educations, students and their parents are often introduced to words they’d never heard of before. To help you learn the lingo, here are definitions of important financial aid terms, plus information about different ways to pay for college.

Award Letter

A financial aid award letter goes by a few different names: merit letter, award letter, a financial aid offer, or a financial aid package. But no matter what you call it, once a student fills out a FAFSA, they’ll receive one of these letters from each college that accepts them. A typical letter will list a student’s cost of attendance, expected family contribution, awarded grants and scholarships, work-study details, and federal student loans. Many schools now provide this information electronically.

Bursar, Student Accounts, or Student Financial Services

The bursar is the office responsible for managing student billing and payments at a college or university. This department handles tuition, fees, and other charges, ensuring that students’ accounts are up to date.

The student accounts office oversees the financial records of enrolled students, including tuition payments, fees, and any outstanding balances. This office ensures that students meet their financial obligations and may assist with setting up payment plans, issuing statements, and explaining charges on a student’s account.

Student financial services is a broader department that combines financial aid, student accounts, and sometimes the bursar’s office to provide comprehensive support. This office helps students understand financial aid packages, manage tuition payments, and explore funding options such as scholarships, grants, and loans.

Cost of Attendance

A student’s cost of attendance (COA) is the total of all costs to attend college in a given year. This includes tuition, room and board, book and supplies, loan fees, costs associated with studying abroad or managing a disability, and more.

The COA is different from an invoice a college may send a student, which is more comprehensive. The COA figure is used to determine how much financial aid a student may be eligible to receive. Anyone who receives a form of financial assistance is not responsible for paying the full COA.

CSS Profile

The CSS Profile (College Scholarship Service Profile) is an online financial aid application used by many colleges, universities, and scholarship programs to determine a student’s eligibility for nonfederal financial aid. Unlike the FAFSA, which is used for federal aid, the CSS Profile provides a more detailed analysis of a family’s financial situation, including income, assets, and expenses. Administered by the College Board, the application helps institutions award need-based grants, scholarships, and institutional aid.

Demonstrated Need

Demonstrated need is the difference between the cost of attendance (COA) at a college or university and a student’s Student Aid Index (SAI), as determined by financial aid applications like the FAFSA or CSS Profile.

Schools use this figure to determine a student’s eligibility for need-based financial aid, including grants, scholarships, and subsidized loans. The higher the demonstrated need, the more financial assistance a student may qualify for, though the amount awarded varies by institution and available funding.

Enrollment Status

Enrollment status refers to a student’s classification based on the number of credit hours they are taking in a given academic term, which can affect financial aid eligibility, loan repayment, and other benefits.

Common statuses include full-time, half-time, and part-time, with full-time students typically taking at least 12 credit hours per semester.

FAFSA (Free Application for Federal Student Aid)

FAFSA is the official government form that students must fill out to be eligible for federal student loans and grants. Filling the FAFSA out does not guarantee that a student will receive aid, but it must be completed annually in order to be considered for the upcoming academic year. The information provided will be used to calculate a student’s Student Aid Index (below).

Recommended: Who Qualifies for FAFSA? Find Out if You Do

FAFSA Submission Summary

FAFSA submission summary (formerly known as the Student Aid Report or SAR) is a document provided to students after they submit the Free Application for Federal Student Aid (FAFSA). It summarizes the information reported on the FAFSA, includes the Student Aid Index (SAI), and indicates potential eligibility for federal financial aid.

Financial Aid

Financial aid refers to funding provided to students to help cover the cost of higher education, including tuition, fees, books, and living expenses. It can come from various sources, such as the federal government, state agencies, colleges, and private organizations.

Recommended: FAFSA Grants and Other Types of Financial Aid

Financial Aid Office

The financial aid office is a department within a college or university that assists students in understanding, applying for, and managing financial aid. It provides guidance on available aid options, including grants, scholarships, loans, and work-study programs. The office helps students complete required forms like the FAFSA and CSS Profile, determines eligibility for aid, and processes disbursements.

Financial Aid Officer

A financial aid officer is a professional at a college or university who helps students and families navigate the financial aid process. They assist with completing applications like the FAFSA and CSS Profile, determine eligibility for grants, scholarships, and loans, and provide guidance on payment options.

Financial aid officers also explain award packages, help students understand borrowing responsibilities, and offer advice on managing education costs.

529 Savings Plan

A 529 savings plan is a tax-advantaged investment account designed to help families save for future education expenses. Contributions grow tax-free, and withdrawals for qualified education costs — such as tuition, fees, books, and room and board — are also tax-free. These plans are sponsored by states, educational institutions, or agencies, but funds can typically be used at eligible schools nationwide.

Grant

Grants are used to help fund a qualifying student’s college education, and unlike loans, they typically don’t need to be paid back. They are often based on financial need and are available from private and public organizations. Some grants have criteria that a student must meet, such as maintaining a certain grade point average or declaring a certain major.

Loan

A student loan is a type of financial aid designed to help students cover the costs of higher education, including tuition, fees, books, and living expenses. These loans can come from federal or private lenders, with federal loans typically offering lower interest rates and more flexible repayment options.

Recommended: Private Student Loans

Merit Aid

Merit-based assistance is based upon a student’s abilities and accomplishments. This can include their grade point average, athletic achievements, or another skill. Financial need is not typically taken into account. Students generally receive merit-based aid directly from the college.

Need-Based Financial Aid

Need-based assistance is provided to students based on their financial needs, and is commonly offered by federal and state governments, colleges, and other organizations. There are three types of federally granted need-based financial aid: Pell Grants, work-study programs, and Subsidized Direct Student Loans.

To qualify for federal need-based aid, a student must fill out the FAFSA. Colleges may require additional information for non-federal aid. Simply applying for need-based aid does not mean a student will receive it, though applying early may potentially improve their chances.

Need-Blind Admission

Need-blind admission is a policy used by some colleges and universities where an applicant’s financial need is not considered during the admissions process. This means that students are admitted based on their academic qualifications and achievements, without regard to their ability to pay for tuition or other expenses.

Schools with a need-blind policy often provide financial aid packages to help cover the cost of attendance for admitted students, regardless of their financial background. This approach aims to ensure that all qualified applicants, regardless of financial resources, have equal access to higher education.

Net Price

The net price of college refers to the amount a student and their family will actually pay for college after accounting for financial aid, scholarships, and grants. Unlike the sticker price or listed tuition fees, the net price subtracts any aid offered by the school, making it a more accurate reflection of the cost a student will need to cover.

Net Price Calculator

A net price calculator is an online tool provided by colleges and universities to help prospective students estimate the amount they may need to pay for college after financial aid is applied. By inputting financial information, such as family income, assets, and other relevant details, students can receive an estimate of their net price, including tuition, fees, and potential financial assistance in the form of grants, scholarships, and work-study.

Outside Scholarship

An outside scholarship is a financial award for education that comes from sources other than the college or university a student plans to attend. These scholarships can be offered by private organizations, foundations, corporations, or government agencies and are typically based on criteria such as academic achievement, community service, or specific interests.

Recommended: SoFi’s Scholarship Search Tool

Priority Date

A priority date refers to the deadline set by colleges or financial aid programs for submitting the FAFSA or other required financial aid forms to receive maximum consideration for aid. Students who apply by the priority date are more likely to qualify for limited funding sources, such as grants, scholarships, or work-study opportunities.

Reserve Officers’ Training Corps (ROTC)

The Reserve Officers’ Training Corps (ROTC) is a college-based program that prepares students for military service as commissioned officers while allowing them to earn a degree. ROTC programs are available for the Army, Navy, and Air Force, and students typically commit to military service after graduation in exchange for financial assistance.

ROTC can significantly reduce or eliminate student loan debt by providing scholarships that cover tuition, fees, and sometimes room and board. Additionally, ROTC graduates who serve in the military may qualify for student loan repayment programs, where a portion of their loans is paid off in exchange for active-duty service.

Recommended: Does ROTC Pay for College?

Residency Requirements

Residency requirements refer to the criteria a student must meet to be considered a resident of a particular state for tuition and financial aid purposes. These requirements vary by state and typically include factors such as the length of time a student has lived in the state, proof of permanent residency (e.g., driver’s license, voter registration), and financial independence from out-of-state parents.

Scholarship

A scholarship is a type of funding awarded to students to help them pay for a college education. They are available through federal and state government sources, colleges, private and public organizations, and more.

Unlike loans, scholarships typically don’t need to be repaid. They can be based on need or merit, or a combination of the two. There is a wide range of scholarship possibilities, so it can be worthwhile for the student to research their options and apply for ones that seem to be a good match.

Recommended: Finding Scholarships for Current College Students

Student Aid Index (SAI)

The Student Aid Index (SAI), formerly Expected Family Contribution, is a number colleges use to determine a student’s eligibility for financial aid. It’s calculated using a formula that considers a family’s income, savings, investments, benefits, family size, and more.

Recommended: How the Middle Class Affords College

Transcript

A transcript is an official record of a student’s academic performance and coursework completed at a school, college, or university. It typically includes details such as courses taken, grades received, credit hours earned, and cumulative GPA.

There are two types of transcripts: Official and unofficial. An official transcript is a certified record of a student’s academic history, issued by the school with an official seal or signature, often sent directly to institutions or employers. An unofficial transcript contains the same information but lacks official authentication and is typically used for personal reference.

Undergraduate

An undergraduate is a student who is pursuing a postsecondary education program that leads to an associate or bachelor’s degree. Undergraduates typically complete general education courses along with coursework specific to their chosen major. Unlike graduate students, they have not yet earned a bachelor’s degree and are in the early stages of higher education.

Work-Study

The federal government’s work-study program provides college students who have demonstrable financial need with part-time jobs to help them earn money for their college education. The program attempts to match a student with work in their area of study or in jobs that benefit the community. Students who are interested in this program should check with their colleges of choice to see if they participate.

Private Student Loans at SoFi

When it comes to how to pay for college, it helps to understand all the available options and how they may be combined. Students and their parents may have money to contribute to help cover the expenses. Scholarships and grants can reduce the bill and typically don’t need to be paid back, while work-study opportunities allow students to earn money to cover some expenses while in college. And lastly, students can rely on both federal and private student loans.

If you’ve exhausted all federal student aid options, no-fee private student loans from SoFi can help you pay for school. The online application process is easy, and you can see rates and terms in just minutes. Repayment plans are flexible, so you can find an option that works for your financial plan and budget.

FAQ

What is a cosigner?

A cosigner helps assure lenders that someone will pay back the loan. Their income and financial history are factored into the loan decision, and their positive credit standing can benefit the student’s loan application.

What’s the difference between a student loan lender and a student loan servicer?

Lenders lend borrowers money to help cover school-related costs. Servicers send borrowers their monthly bill, process payments, field customer service requests, and handle other administrative tasks.

How do I calculate my college costs?

There are several online tools to help students estimate the potential cost of attending college. Net price calculators, for instance, are available on a school’s website and give cost estimates based on basic personal and financial information provided by the student.

SoFi Private Student Loans
Please borrow responsibly. SoFi Private Student loans are not a substitute for federal loans, grants, and work-study programs. We encourage you to evaluate all your federal student aid options before you consider any private loans, including ours. Read our FAQs.

Terms and conditions apply. SOFI RESERVES THE RIGHT TO MODIFY OR DISCONTINUE PRODUCTS AND BENEFITS AT ANY TIME WITHOUT NOTICE. SoFi Private Student loans are subject to program terms and restrictions, such as completion of a loan application and self-certification form, verification of application information, the student's at least half-time enrollment in a degree program at a SoFi-participating school, and, if applicable, a co-signer. In addition, borrowers must be U.S. citizens or other eligible status, be residing in the U.S., Puerto Rico, U.S. Virgin Islands, or American Samoa, and must meet SoFi’s underwriting requirements, including verification of sufficient income to support your ability to repay. Minimum loan amount is $1,000. See SoFi.com/eligibility for more information. Lowest rates reserved for the most creditworthy borrowers. SoFi reserves the right to modify eligibility criteria at any time. This information is subject to change. This information is current as of 4/22/2025 and is subject to change. SoFi Private Student loans are originated by SoFi Bank, N.A. Member FDIC. NMLS #696891 (www.nmlsconsumeraccess.org).

SoFi Loan Products
SoFi loans are originated by SoFi Bank, N.A., NMLS #696891 (Member FDIC). For additional product-specific legal and licensing information, see SoFi.com/legal. Equal Housing Lender.

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