How to Make End of Year Donations

Tax-Deductible or Not? Your Guide to End-of-Year Donations

At the end of the year, when holiday celebrations and expressions of gratitude are in full swing, many people think about making a charitable donation. If you donate to a qualifying organization, not only can your funds do good, they may also be deductible when you pay your taxes.

Maybe it’s the animal shelter around the corner from your home, or perhaps it’s a scholarship fund at your alma mater that does amazing work. Whatever pulls at your heart and makes you feel like you’re doing the right thing can be a good cause for donations. The organization you give your money to benefits. Read on to learn if your contribution could also lower your tax bill.

What Qualifies as Charitable Giving?

In the eyes of the Internal Revenue Service (IRS), a charitable donation is a gift of money, property, or other asset that you give to a qualifying organization, known as a 501(c)(3).

To find out if an organization you’d like to support is eligible to receive tax-deductible contributions, you can search for it on the IRS’s database .

You may want to keep in mind that money or assets given to political campaigns or political parties do not qualify as tax-deductible donations. In fact, no organization that qualifies as a 501(c)(3) can participate in political campaigns or activities.

Organizations that engage in political activities without bias, however, can still sometimes qualify. So, a group can educate about the electoral process and remain within guidelines. They just have to go about it in a nonpartisan way.

Can I Deduct My Year-End Charitable Donation?

In tax years 2024 and 2025, charitable donations can only be deducted by tax filers who itemize their deductions. That means that rather than take the standard deduction on their income tax return, they chose the more complicated path of listing all of their eligible expenses.

Recommended: 26 Tax Deductions for College Students and Other Young Adults

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How Much of a Charitable Donation Is Tax-Deductible?

The IRS sets limits on how much of a charitable contribution you can deduct from your taxes, and these are frequently updated. The amount is typically expressed in terms of the percentage of your adjusted gross income (AGI) that you may claim.

In 2024 and 2025, this limit for cash contributions (say, money debited from your checking account) is 60% of a person’s AGI. The top figure is 20%-50% of AGI if you make a non-cash contribution, such as stock shares or a vehicle. The exact figure will vary with both the type of organization to which you are making the donation as well as the kind of item you are donating.

Of course, you are welcome to donate as much as you like. Just keep in mind that any charitable giving above those figures is not eligible for a deduction at tax time.

Recommended: How to Reduce Taxable Income for High Earners

Tips for Making End-of-Year Donations

To ramp up both the impact and benefit of a charitable donation, here are some strategies you may want to keep in mind:

Making a Timely Donation

Don’t lose track of your timing: The deadline for charitable donations is December 31. If you’re looking to deduct the donation in the current tax year, you will want to make sure your charity has ownership of whatever asset you are donating by the close of business on the 31.

You may also want to make sure that your preferred payment method is accepted by the charity so it doesn’t get kicked back and cause delays. Putting a reminder in your calendar for, say, mid-December can be a good way to make sure you don’t run late with your giving. (Of course, you also want to make sure you don’t miss the tax-filing deadline come April, either.)

Taking Advantage of Company Matching Programs

Your place of employment might have a matching program for charitable giving. They might, for example, match your donation amount dollar for dollar up to a certain amount. If so, it could significantly bump up the amount you could otherwise afford to give.

If you’re unsure about whether your company has a program, it can be worth reaching out to your HR department for further information.

Giving Rewards on Your Credit Card

If you are making a contribution on a budget, you might consider donating credit card rewards you earn, such as hotel points or airline miles. This can be a great way to use points or other rewards that would otherwise just expire. Many credit card companies, hotels, and airlines will make it easy to give your rewards to nonprofit organizations.

Donating Assets from Your Brokerage Account

If you’re looking to lower your taxes, you may want to consider donating assets from your brokerage account to a nonprofit. This may take some time and planning, but the benefits of donating an over-allocated position that’s outperforming can be worth it.

You may be able to receive tax advantages and rebalance your portfolio, while also helping an organization increase its assets.

Recommended: What Tax Bracket Am I In?

Setting up a Recurring Donation

You can get a headstart on next year by creating a recurring contribution now. Many organizations allow you to donate monthly through their websites using a credit card, so you might be able to earn rewards at the same time. By establishing your donation plans now, you won’t have to even think about end-of-the-year giving next year.

Keeping Good Records

If you want to deduct your donation on your taxes, you’ll want to make sure you have the right receipts to back up the transaction.

You’ll want to keep records of your donations. For cash donations under $250, you’ll either need a bank record (like a canceled check or bank statement) or a written acknowledgment from the charity which includes the date and amount of your contribution. (The exception is goods dropped off at, say, a clothing donation bin.)

For cash donations over $250, a bank record isn’t insufficient. Instead, you’ll need something in writing from the charity which includes the date and amount of your donation.

If you are making noncash donations valued at $500 or more, you’ll need to fill out one or more of the IRS Form 8283 . If the donation exceeds $5,000 in value (say, if you gift a car you no longer need to a favorite local organization), you’ll also need to get a written appraisal from a qualified appraiser. In addition, know that donations of $250 or more will also require what is known as a “contemporaneous written acknowledgment.” This is a document that describes the property, states whether the organization provided the donor with goods or services as a result of the contribution,and share an estimate of the value of any such goods or services provided.

Speaking with a Professional

Working with a personal accountant can help answer any questions you may have about how tax laws will impact your tax contribution, as well as help you make the most strategic and efficient charitable donation.

Recommended: Are 401(k) Contributions Tax Deductible? Limits Explained

The Takeaway

Giving can be a good idea for a number of reasons. In addition to helping a nonprofit organization meet its operating costs for the year, you can feel good about what you are doing with your money, and you may also benefit from tax deductions.

Giving can also help you get the new year started on the right foot. If you’re looking for other ways to get your financial life in order, consider a new bank account.

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


Better banking is here with SoFi, NerdWallet’s 2024 winner for Best Checking Account Overall.* Enjoy up to 4.00% APY on SoFi Checking and Savings.

FAQ

Should donations be deductible?

Charitable contributions are usually tax-deductible, but there can be limitations as well as exceptions, so it can be wise to inquire in advance. Contributions can often take the form of cash, artwork, cars, and other items of value.

Are charitable contributions no longer tax-deductible?

Charitable contributions can be tax-deductible. However, they must be claimed as itemized deductions; you would do so on Schedule A of IRS Form 1040. Keep in mind that there’s a limit on charitable cash contributions: For 2024, it’s 60% of the taxpayer’s adjusted gross income.

Can you deduct $300 in charitable contributions without itemizing?

The short answer is no. Currently, you must itemize charitable contributions in order to claim them as deductions.


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SoFi Bank reserves the right to grant a grace period to account holders following a change in Direct Deposit activity or Qualifying Deposits activity before adjusting rates. If SoFi Bank grants you a grace period, the dates for such grace period will be reflected on the APY Details page of your account. If SoFi Bank determines that you did not have Direct Deposit activity or $5,000 in Qualifying Deposits during the current 30-day Evaluation Period and, if applicable, the grace period, then you will begin earning the rates earned by account holders without either Direct Deposit or Qualifying Deposits until you have Direct Deposit activity or $5,000 in Qualifying Deposits in a subsequent 30-Day Evaluation Period. For the avoidance of doubt, an account holder with both Direct Deposit activity and Qualifying Deposits will earn the rates earned by account holders with Direct Deposit.

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

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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.

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How to Fund an IRA

Saving for retirement is important. But it can be challenging to put away money for the future when you have a lot of right-now financial commitments to take care of. Almost half of all American households report they have no retirement account savings, according to the Federal Reserve’s latest Survey of Consumer Finances.

However, it’s better to start with a small amount of savings than not to save at all. And the sooner you begin, the more time your savings will have to grow. One way to help kickstart retirement savings is with an IRA, a type of account designed specifically to help you save for retirement.

If you’re wondering how to fund an IRA, read on to find out about some potential methods that could help you contribute to an IRA.

Before You Start, Know Your Contribution Limits

First things first, it’s important to be aware that IRAs have contribution limits set by the IRS, and those limits often change annually. In 2024 and 2025, you can contribute up to $7,000 in an IRA, or up to $8,000 if you’re 50 or older.

IRAs also come with potential tax benefits, which vary depending on the type of IRA you have. With a traditional IRA, contributions may be tax-deductible. For instance, if you and your spouse don’t have access to an employer-sponsored retirement plan, you can deduct the full amount contributed to a traditional IRA on your tax return in the year you make the contribution, regardless of your income.

And, even if you or your spouse is covered by an employer-sponsored retirement plan, the IRS still allows you to deduct a portion of your contribution.

With a Roth IRA, the contributions are made with after-tax money, which means they are not tax deductible. You can only fund a Roth IRA in years when your income falls below a certain limit.

In 2024, if you’re married and filing jointly, you can contribute the full amount to your Roth IRA if your modified adjusted gross income (MAGI) is less than $230,000. If your MAGI is between $230,000 and $240,000, you can contribute a reduced amount, and your income is over $240,000, you can’t contribute to a Roth. Those who are single can contribute the full amount if their MAGI is below $146,000, or a reduced amount if it’s between $146,000 and $161,000. They cannot contribute at all if their MAGI is more than $161,000.

In 2025, if you’re married and filing jointly, you can contribute the full amount to your Roth IRA if your modified adjusted gross income (MAGI) is less than $236,000. If your MAGI is between $236,000 and $246,000, you can contribute a reduced amount, and your income is over $246,000, you can’t contribute to a Roth. Those who are single can contribute the full amount if their MAGI is below $150,000, or a reduced amount if it’s between $150,000 and $165,000. They cannot contribute at all if their MAGI is more than $165,000.

💡 Quick Tip: Did you know that opening a brokerage account typically doesn’t come with any setup costs? Often, the only requirement to open a brokerage account — aside from providing personal details — is making an initial deposit.

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6 Ways You Can Fund an IRA

After you decide which type of IRA is right for you, your next step is to contribute to it. Here are some suggestions for how to fund an IRA.

1. Use Your Tax Refund

If you expect to get a tax refund, consider using that money to open an IRA, or to contribute to your IRA if you already have one. If you don’t want to contribute the entire refund, you could contribute a portion of it. Minimum amounts to open an IRA vary by institution, so do a bit of research to find the right account for the amount of money you currently have.

2. Take Advantage of Tax Deductions

You may be able to get a bigger tax refund next year by deducting your contributions to a traditional IRA this year, as long as you are eligible for the deduction. You can then use the bigger refund to fund your IRA next year.

3. Contribute “New” Money

If you get a raise or a bonus at work, or if a relative gives you money for your birthday, consider contributing all or part of it to your IRA. Just be sure to stay below the annual IRA contribution limit throughout the course of the year.

4. Make Small Monthly Contributions

You can contribute to your IRA throughout the year so if you open an account with, say, $100 (as mentioned earlier, how much you need to open an IRA depends on the institution), you can then make a monthly contribution to the account. Even if you put only $50 a month into the account, by the end of the year you would have $600. Increase that monthly contribution to $100, and you’re up to $1,200.

5. Set Up Automatic Contributions

Automating your contributions will allow you to save for retirement without thinking about it. You can even set up your automatic contribution so that it comes out of your bank account on payday. That can make it easier to put away funds for retirement. After all, you won’t be tempted to spend money that you don’t actually see in your bank account.

6. Roll Over Your 401(k) When You Leave a Job

When you change jobs, you generally have three options for your old 401(k). You could leave it with your old employer, roll it over to your new 401(k) if that’s available to you, or rollover your 401(k) into an IRA account.

You may want to review the fees associated with your 401(k) in order to understand what you are paying by leaving it with your old plan or rolling it over into your new 401(k).

Possible benefits of rolling your old 401(k) over to an IRA may be things like lower fees, expanding your choice of investment options, or a managed solution that invests your money for you based on your goals and risk tolerance.

The Takeaway

If you haven’t started saving for retirement, or if you haven’t been saving enough, it’s not too late to begin. No matter what stage of your life you’re in, you can create a plan to help you achieve your retirement goals, which could include contributing to an IRA.

You can fund an IRA by using your tax refund, making contributions automatic, or contributing a bonus, raise, or monetary gift you receive. No matter how you choose to contribute, or how much you contribute, the important thing is to get started with retirement saving to help make your future more secure.

Ready to invest for your retirement? It’s easy to get started when you open a traditional or Roth IRA with SoFi. SoFi doesn’t charge commissions, but other fees apply (full fee disclosure here).

FAQ

How can I put money into my IRA?

There are many different ways to fund an IRA. For instance, if you get a tax refund, you could contribute that money to your IRA. You can also contribute funds from a bonus or raise you might get at work, or from birthday or holiday money from a relative. In addition, you can set up automatic contributions so that a certain amount of money goes directly from your bank account to your IRA on payday. That way, you won’t be tempted to spend it.

Can I contribute to an IRA on my own?

Yes. As long as you have earned income, you can open and fund a traditional or Roth IRA. This is true even if you have a 401(k) at work. There is a limit to the amount you can contribute to an IRA, however, which is $7,000 (or $8,000 if you are 50 or older) in 2024.

What is the best way to fund a traditional IRA?

One of the best ways to fund a traditional IRA is to use your tax refund. This is “found” money, rather than money you’re taking out of your bank account, so if you contribute it to your IRA you likely won’t even miss it. Also,consider this: By making a contribution to your traditional IRA, you may be able to deduct it from your taxes, which means you might get an even bigger refund next time around. And then you can use that bigger refund to fund your IRA next year.


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.

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

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How Do Credit Cards Work? Beginner’s Guide

How Does a Credit Card Work: In-Depth Explanation

There are millions of credit card accounts in the United States alone, and it’s estimated that 90% of adults in the U.S. have at least one credit card. Yet, many people don’t have a firm grasp on the basics of what a credit card is and how credit cards work.

If you have a credit card account, or plan on ever using one, it’s important to understand the fundamentals of credit cards. This ranges from what a credit card is to how credit card interest works to how credit cards relate to credit scores.

Key Points

•   Credit cards allow users to borrow money for purchases, with repayment typically due monthly.

•   Interest is charged on unpaid balances, and rates vary based on creditworthiness.

•   Credit card companies report payment history to credit bureaus, impacting credit scores.

•   Rewards programs offer cash back, points, or miles for spending, with varying terms.

•   Late payments can result in fees and increased interest rates, negatively impacting credit scores.

What Is a Credit Card?

A credit card is a type of payment card that is used to access a revolving line of credit.

Credit cards differ from other types of loans in that they offer a physical payment card that is used to make purchases. Traditionally, credit cards are made of plastic, but an increasing number of credit card issuers now offer metal cards, usually for their premium accounts that offer travel rewards.

But a credit card account is much more than a plastic or metal payment card. A credit card account is a powerful financial tool that can serve many purposes. Here’s a closer look:

•   It can be a secure and convenient method of payment anywhere that accepts credit card payments. It also can be used to borrow money in a cash advance or to complete a balance transfer.

•   Credit cards can offer valuable rewards, such as cash back and travel rewards like points or miles. Cardholder benefits can also include purchase protection and travel insurance policies.

•   If used responsibly, a credit card can help you to build your credit score and history, which can open up new borrowing opportunities.

•   Of course, credit cards can also damage your credit when used irresponsibly. If you rack up debt on your credit card, it can be hard to get it paid off and get back in the clear (here, for instance, is what happens to credit card debt when you die).

Recommended: Does Applying For a Credit Card Hurt Your Credit Score?

How Do Credit Cards Work?

Credit cards offer a line of credit that you can use for a variety of purposes, including making purchases, completing balance transfers, and taking out cash advances. You can borrow up to your credit limit, and you’ll owe at least the minimum payment each month.

You can apply for a credit card from any one of hundreds of credit card issuers in the U.S. Card issuers include national, regional, and local banks, as well as credit unions of all sizes. Card issuers will approve an application based on the credit history and credit score of the applicant, among other factors.

There are credit cards designed for people with nearly every credit profile, from those who have excellent credit to those with no credit history or serious credit problems. As with any loan, those with the highest credit score will receive the most competitive terms and benefits.

Once approved, you’ll likely receive a credit limit that represents the most you can borrow using the card. Whether your limit is above or below average credit card limit depends on a variety of factors, including your payment history and income.

The credit card is then mailed to the account holder and must be activated before use. You can activate a credit card online or over the phone. So long as your account remains in good standing, it will be valid until the credit card expiration date.

Once activated, the card can be used to make purchases from any one of the millions of merchants that accept credit cards. Each card is part of a payment network, with the most popular payment networks being Visa, Mastercard, American Express, and Discover. When you make a payment, the payment network authenticates the transaction using your card’s account number and other security features, such as the CVV number on a credit card.

Every month, you’ll receive a statement from the card issuer at the end of each billing cycle. The statement will show the charges and credits that have been made to your account, along with any fees and interest changes being assessed.

Your credit card statement will also show your balance, minimum payment due, and payment due date. It’s your choice whether to pay your minimum balance, your entire statement balance, or any amount in between. Keep in mind that you will owe interest on any balance that’s not paid back.

If you don’t make a payment of at least the minimum balance on or before the due date, then you’ll usually incur a late fee. And if you pay more than your balance, you’ll have a negative balance on your credit card.

Recommended: Tips for Using a Credit Card Responsibly

Credit Card Fees

There are a number of potential fees that credit card holders may run into. For example, some credit cards charge an annual fee, and there are other fees that some card issuers can impose, such as foreign transaction fees, balance transfer fees, and cash advance fees. Cardholders may also incur a late fee if they don’t pay at least the minimum due by their statement due date.

Often, however, you can take steps to curb credit card fees, such as not taking out a cash advance or making your payments on-time. For a charge like an annual fee, cardholders will need to assess whether a card’s benefits outweigh that cost.

3 Common Types of Credit Cards

There are a number of different kinds of credit cards out there to choose from. Here’s a look at some of the more popular types.

Rewards Credit Cards

As the name suggests, rewards credit cards offer rewards for spending in the form of miles, cash back, or points — a rewards guide for credit cards can give you the full rundown of options. Cardholders may earn a flat amount of cash back across all purchases, or they may earn varying amounts in different categories like gas or groceries.

The downside of these perks is that rewards credit cards tend to have higher annual percentage rates (APRs), so you’ll want to make sure to pay off your full balance each month.

Balance Transfer Credit Cards

Balance transfer cards allow you to move over your existing debt to the card. Ideally, this new card will have a lower interest rate, and often they’ll offer a lower promotional rate that can be as low as 0% APR. However, keep in mind that this promo rate only lasts for a certain period of time — after that, the card’s standard APR will kick back in.

Secured Credit Cards

If you’re new to credit or trying to rebuild, a secured credit card can be a good option. Generally, when we talk about credit cards, the default is an unsecured credit card, meaning no collateral is involved. With a secured credit card, you’ll need to make a deposit. This amount will generally serve as the card’s credit limit.

This deposit gives the credit card issuer something to fall back on if the cardholder fails to pay the amount they owe. But if you’re responsible and get upgraded to a secured credit card, or if you simply close your account in good standing, you’ll get the deposit back.

How Does Credit Card Interest Work?

The charges you make to your credit card are a loan, and just like a car loan or a home loan, you can expect to pay interest on your outstanding credit card balance.

That being said, nearly all credit cards offer an interest-free grace period. This is the time between the end of your billing period and the credit card payment due date, typically 21 or 25 days after the statement closing date. If you pay your entire statement balance before the payment due date, then the credit card company or issuer will waive your interest charges for that billing period.

If you choose not to pay your entire statement balance in full, then you’ll be charged interest based on your account’s average daily balance. The amount of interest you’re charged depends on your APR, or annual percentage rate. The card issuer will divide this number by 365 (the number of days in the year) to come to a daily percentage rate that’s then applied to your account each day.

As an example, if you had an APR of 15.99%, your daily interest rate that the card issuer would apply to your account each day would be around 0.04%.

As an example, if you had an APR of 24.99%, your daily interest rate that the card issuer would apply to your account each day would be around 0.07%.

Recommended: Average Credit Card Interest Rates

Credit Cards vs Debit Cards

Although they look almost identical, much differs between debit cards vs. credit cards. Really, the only thing that debit cards and credit cards truly have in common is that they’re both payment cards. They both belong to a payment network, and you can use them to make purchases.

With a debit card, however, you can only spend the funds you’ve already deposited in the checking account associated with the card. Any spending done using your debit card is drawn directly from the linked account. Because debit cards aren’t a loan, your use of a debit card won’t have any effect on your credit, positive or negative.

But since it isn’t a loan, you also won’t be charged interest with a debit card, nor will you need to make a minimum monthly payment. You will, however, need to make sure you have sufficient funds in your linked account before using your debit card.

Another key difference between credit cards vs. debit cards is that credit card users are protected by the Fair Credit Billing Act of 1974. This offers robust protections to prevent cardholders from being held responsible for fraud or billing errors. Debit card transactions are subject to less powerful government protections.

Lastly, debit cards rarely offer rewards for spending. They also don’t usually feature any of the travel insurance or purchase protection policies often found on credit cards. You likely won’t be on the hook for an annual fee with a debit card, which is a fee that some credit card issuers do charge, though you could face overdraft fees if you spend more than what’s in your account.

To recap, here’s an overview of the differences between credit cards and debit cards:

Credit cards

Debit cards

Can be used to make purchases Yes Yes
Can be used to borrow money Yes No
Must deposit money before you can make a purchase No Yes
Must make a minimum monthly payment Yes No
Can provide purchase protection and travel insurance benefits Often Rarely
Can offer rewards for purchases Often Rarely
Can help or hurt your credit Yes No
Can use to withdraw money Yes, with a cash advance Yes

Pros and Cons of Using Credit Cards

Beyond knowing what a credit card is, it’s important to familiarize yourself with the pros and cons of credit cards. That way, you can better determine if using one is right for your financial situation.

To start, notable upsides of using credit cards include:

•   Easy and convenient to use

•   Robust consumer protections

•   Possible access to rewards and other benefits

•   Ability to avoid interest by paying off monthly balance in full

•   Potential to build credit through responsible usage

However, also keep these drawbacks of using credit cards in mind:

•   Higher interest rates than other types of debt

•   Temptation to overspend

•   Easy to rack up debt

•   Various fees may apply

•   Possible to harm credit through irresponsible usage

How to Compare Credit Cards

Since there are hundreds of credit card issuers, and each issuer can offer numerous individual credit card products, it can be a challenge to compare credit cards and choose the one that’s right for your needs. But just like purchasing a car or a pair of shoes, you can quickly narrow down your choices by excluding the options that you aren’t eligible for or that clearly aren’t right for you.

Start by considering your credit history and score, and focus only on the cards that seem like they align with your credit profile. You can then narrow it down to cards that have the features and benefits you value the most. This can include having a low interest rate, offering rewards, or providing valuable cardholder benefits. You may also value a card that has low fees or that’s offered by a bank or credit union that you already have a relationship with.

Once you’ve narrowed down your options to a few cards, compare their interest rates and fees, as well as their rewards and benefits. You can find credit card reviews online in addition to user feedback that can help you make your final decision.

Important Credit Card Terms

One of the challenges to understanding how credit cards and credit card payments work is understanding all of the jargon. Here’s a small glossary of important credit card terms to help you to get started:

•   Annual fee: Some credit cards charge an annual fee that users must pay to have an account. However, there are many credit cards that don’t have an annual fee, though these cards typically offer fewer rewards and benefits than those that do.

•   APR: This stands for annual percentage rate. The APR on a credit card measures its interest rate and fees calculated on an annualized basis. A lower rate is better for credit card users than a higher rate.

•   Balance transfer: Most credit cards offer the option to transfer a balance from another credit card. The card issuer pays off the existing balance and creates a new balance on your account, nearly always imposing a balance transfer fee.

•   Card issuer: This is the bank or credit union that issues the card to the cardholder. The card issuer the company that issues statements and that you make payments to.

•   Cash advance: When you use your credit card to receive cash from an ATM, it’s considered a cash advance. Credit card cash advances are usually subject to a much higher interest rate and additional fees.

•   Chargeback: When you’ve been billed for goods or services you never received or that weren’t delivered as described, you have the right to dispute a credit card charge, which is called a credit card chargeback. When you do so, you’ll receive a temporary credit that will become permanent if the card issuer decides the dispute in your favor.

•   Due date: This is the date you must make at least the credit card minimum payment. By law, the due date must be on the same day of the month, every month. Most credit cards have a due date that’s 21 or 25 days after the statement closing date.

•   Payment network: Every credit card participates in a payment network that facilitates each transaction between the merchant and the card issuer. The most common payment networks are Visa, Mastercard, American Express, and Discover. Some store charge cards don’t belong to a payment network, so they can only be used to make purchases from that store.

•   Penalty interest rate: This is a separate, higher interest that can apply to a credit card account when the account holder fails to make their minimum payment on time.

•   Statement closing date: This is the last day of a credit card account’s monthly billing cycle. At the end of this day, the statement is generated either on paper or electronically, or both. This is the day on which all the purchases, payments, fees, and interest are calculated.

Credit Cards and Credit Scores

There’s a lot of interplay between credit cards and your credit score.

For starters, when you apply for a new credit card, that will affect your score. This is because the application results in a hard inquiry to your credit file. This will temporarily ding your score by a few or several points, and it will remain on your credit report for two years, though the effects on your credit don’t last as long.

Further, how you use your credit card can impact your credit score — either positively or negatively. Having a credit card could increase your credit mix, for instance, which can have a positive impact. Or, closing a longstanding credit card account may shorten the age of your accounts, resulting in a negative impact to your score.

Making timely payments is key to maintaining a healthy credit score, as is keeping a low credit utilization rate (the amount of your overall available credit you’re currently using). If you max out your credit card or miss payments, that won’t bode well for your credit score. Conversely, staying on top of payments can be a great step toward building your credit.

The Takeaway

Credit cards work by giving the account holder access to a line of credit. You can borrow against it up to your credit limit, whether for purchases and cash advances. You’ll then need to pay back the amount you borrowed, plus interest, which is typically considered to be a high rate vs. other forms of credit. For this reason, it’s important to spend responsibly with a credit card.

Whether you're looking to build credit, apply for a new credit card, or save money with the cards you have, it's important to understand the options that are best for you. Learn more about credit cards by exploring this credit card guide.

FAQ

How does a person shop for a credit card?

To shop for a credit card, start by looking at your credit score to determine what cards you may be able to qualify for. Then, decide what kind of card is best for your needs, such as a card that has a low interest rate, one that will allow you to build credit, or a card that offers rewards. Finally, compare similar products from competing card issuers to assess which is the most competitive offer available to you.

Can I use my credit card abroad?

Yes, most credit card payment networks are available in most countries. As long as you visit a merchant that accepts cards from the same payment network that your card belongs to, then you’ll be able to make a purchase.

How do you use a credit card as a beginner?

If you’re new to credit and working to build your score, you’ll want to make sure you’re as responsible with your card as possible. Pay your bill on time, and aim to pay in full if you can to avoid interest charges. Use very little of your credit limit — ideally no more than 30%. And make sure to regularly review your credit card statements and your credit report. But don’t let any of that scare you away from using your card either — it’s important to regularly use your card for small purchases to get your credit profile built up.

How do credit cards work in simple terms?

Credit cards offer access to a line of credit. You can borrow against that, up to your credit limit, for a variety of purposes, including purchases and cash advances. You’ll then need to pay back the amount you borrowed.

How do payments on a credit card work?

At the end of each billing cycle, you’ll receive a credit card statement letting you know your credit card balance, minimum payment due, and the statement due date. You’ll then need to make at least the minimum payment by the statement due date to avoid late fees and other consequences. If you pay off your full balance, however, you’ll avoid incurring interest charges. Otherwise, interest will start to accrue on the balance you carry over.


Photo credit: iStock/Katya_Havok

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

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

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

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

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

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What Is an FSA Debit Card?

Guide to FSA Debit Cards

If you have a flexible spending account, an FSA debit card allows you access these pre-tax dollars you’ve set aside. With an FSA debit card, you can pay for qualifying medical purchases without having to file a reimbursement claim through your employer.

In other words, an FSA debit card can make your healthcare spending that much easier. But it’s important to understand the full story on how these cards work to make sure you get the most out of one.

This guide will coach you through that, including:

•   What is an FSA debit card?

•   How can you get an FSA debit card?

•   How do you use an FSA debit card?

•   What are the pros and cons of an FSA debit card?

•   When should you use your regular debit card instead?

Read on and you’ll learn the best FSA debit card practice so you can benefit from the money in your flexible spending account.

What Is an FSA Debit Card?

An FSA debit card will typically come with your flexible spending account, which is a tax-advantaged account offered through an employer’s benefit package. The funds in your FSA can be used to help cover out-of-pocket medical expenses.

For 2025, once you’re enrolled in an FSA account, you can contribute up to $3,300 (an increase of $100 from the 2024 limit). If you’re married and your spouse has a plan through their employer, your spouse can also contribute up to $3,300 to that plan. This would allow you to jointly contribute up to $6,600 for your household.

An FSA debit card looks and performs like a bank debit card, but it is connected to your flexible savings account, not your checking. You can only use it to pay for qualified medical and dental expenses not covered by your health insurance.

Worth noting: You may wonder what an HSA vs. FSA is. Though they sound alike, a flexible spending account works differently than a health savings account (HSA). You can only get an FSA through an employer; freelancers and self-employed individuals are not eligible. Also, HSAs are only available to those who are enrolled in a high deductible health plan, or HDHP.

Recommended: Benefits of Health Savings Accounts

Ways That You Can Use an FSA Debit Card

There are quite a few FSA rules and regulations dictating what you can spend your untaxed funds on.

The list of FSA-eligible expenses is extensive, covering everything from co-pays to bandages. Here are just some of the things you may be able to use your FSA debit card for:

•   Medical copays and deductibles

•   Prescription medications

•   Approved over-the-counter drugs, such as allergy, cough, and pain medications

•   Testing kits, including those for COVID-19 and cholesterol

•   Crutches, canes, and walkers

•   Dental expenses, including crowns and dentures

•   Vision expenses, including glasses and contact lenses

•   Fertility treatments

•   Hospital and ambulance fees

•   Lab fees

•   Acupuncture, chiropractic treatments, and massage therapy.

Ways That You Cannot Use an FSA Debit Card

An FSA debit card can be a convenient way to pay for medical fees, prescriptions, and other health-related items your health insurance doesn’t cover. But not all wellness-related expenses are covered. Here are some things you cannot use an FSA card for, including:

•   Groceries. Although diet is an important part of a healthy lifestyle, your FSA card won’t pay for, say, organic beef and green beans.

•   Cosmetic procedures. Expenses for electrolysis, face lifts, hair transplants, and the like are typically not covered.

•   Dining out. You can’t use an FSA debit card at a restaurant, even if it’s a vegan or “health food” eatery

•   Vitamins and nutritional supplements, unless you can prove they were prescribed by a physician

•   Getting cash. Unlike with a debit card, you will not be able to use an FSA card to withdraw cash funds from your account.

Recommended: Guide to Practicing Financial Self-Care

Process of Getting an FSA Debit Card

The steps to getting an FSA debit card are pretty straightforward:

•   Sign up for an FSA account offered by your employer. There is typically an “open season,” a window of time during the year when you are eligible to enroll.

•   Make a contribution or set up a contribution commitment for the account. These accounts are typically pre-funded, by the way, which is a nice perk. What that means: If you enroll in an FSA on January 1st and pledge to contribute $2,400 over the year, paying $200 a month, the $2,400 becomes available for you to use right away.

•   Wait for your FSA debit card. Once you enroll and contribute to your FSA account, the debit will be sent to your address. This can take 7 to 10 business days.

Recommended: HSA vs. HRA: What’s the Difference?

Pros and Cons of FSA Debit Cards

If you are someone who anticipates having frequent out-of-pocket healthcare expenses, a flexible spending account and an FSA debit card can be convenient. It can be a good way for you to save pre-tax dollars and put them toward those expenditures.

However, it’s worthwhile to consider both the upsides and downsides to having an FSA debit card:

Pros of having an FSA account and debit card

•   Easy access to tax-free funds to spend on qualifying medical expenses. You can use the FSA card like a debit card to make payments.

•   Online shopping. You can use your FSA debit card for online shopping, as long as it’s with a vendor that accepts the FSA card. Amazon, CVS, and other online shopping sites identify which items are FSA eligible, making shopping even simpler.

•   Avoiding pesky paperwork. Using the FSA debit card means you don’t have to keep track of receipts and file a reimbursement report with your employer.

•   No cash out-of-pocket. With an FSA debit card, you’ll avoid a trip to the ATM or having to use your personal debit card, and you won’t have to wait for a reimbursement. What’s more, you can avoid using a credit card for some health-related expenses, thereby possibly avoiding hefty interest charges, too.

Cons of having an FSA debit card

Here are some potential downsides to using an FSA debit card:

•   Contributions are use-it-or-lose-it. In many cases, if you don’t use your FSA funds by the end of the year, you will forfeit the remaining balance. Some employers may allow for a grace period to spend the money or for certain amounts to be rolled over. But this aspect is probably the biggest drawback of having an FSA account and debit card.

•   If you leave, the money stays. Usually, if you quit or change jobs, the money you contributed to your FSA stays with your employer.

•   No reward perks. You won’t get any bonus miles or other award points from swiping an FSA debit card.

Recommended: Beginner’s Guide to Health Insurance

FSA Debit Card vs Traditional Debit Card

An FSA debit card and personal debit card from your bank or credit union share a number of features. Both provide access to funds for in-person purchases, and you should have no issues using a debit card online nor an FSA debit card.

But there are some distinct differences between an FSA debit card and traditional debit card, including:

FSA Debit Card Traditional Debit Card
FSA debit cards can only be used to purchase qualifying medical expenses Debit cards from a bank can be used to purchase just about anything
With an FSA debit card, it’s a good idea to keep the receipts from your purchases, in case you need them for your employer or the IRS Debit card purchases are personal, and typically don’t require reporting to the IRS
Account funds attached to an FSA debit card can expire at the end of the year There’s no time limit for spending your own personal account money
FSA debit card purchases don’t usually come with any reward perks or bonus points With some debit cards, you can build up reward points and bonus miles with every purchase
You can only use FSA debit cards at stores and medical locations that accept them You can use your debit card at almost any store, venue, or medical facility that accepts card payments
You cannot get cash with your FSA card You can get cash with your traditional debit card, whether at an ATM or other location

Recommended: What Is a Debit Card?

The Takeaway

Using an FSA debit card can be a hassle-free way to pay for qualifying, out-of-pocket medical expenses. These cards function much like a traditional debit card, helping you pay for health-related items with the pre-tax dollars that are in your account. However, if you have one of these cards, it’s wise to know the pros and cons so you can use it most effectively.

3 Money Tips

1.    If you’re saving for a short-term goal — whether it’s a vacation, a wedding, or the down payment on a house — consider opening a high-yield savings account. The higher APY that you’ll earn will help your money grow faster, but the funds stay liquid, so they are easy to access when you reach your goal.

2.    If you’re creating a budget, try the 50/30/20 budget rule. Allocate 50% of your after-tax income to the “needs” of life, like living expenses and debt. Spend 30% on wants, and then save the remaining 20% towards saving for your long-term goals.

3.    When you overdraft your checking account, you’ll likely pay a non-sufficient fund fee of, say, $35. Look into linking a savings account to your checking account as a backup to avoid that, or shop around for a bank that doesn’t charge you for overdrafting.

Better banking is here with SoFi, NerdWallet’s 2024 winner for Best Checking Account Overall.* Enjoy up to 4.00% APY on SoFi Checking and Savings.

FAQ

Can you be denied an FSA debit card?

If you qualify for an FSA account through your employer and the account comes with an FSA debit card, there’s little chance you would be denied one, unless you have missed the deadline for the enrollment period.

Is it good to have an FSA debit card and a traditional debit card?

It’s wise to have an FSA debit card and a traditional debit card. You can only use an FSA debit card to pay for qualifying medical expenses at vendors who will accept it.. You will likely need a standard debit card to pay for groceries, clothes, and life’s other expenses.

Can I withdraw cash with an FSA debit card?

Unlike with a traditional debit card, you cannot withdraw cash with an FSA debit card.

Does a bank provide an FSA debit card?

An FSA debit card is not provided by a bank, but rather through a vetted healthcare FSA vendor chosen by your employer.


Photo credit: iStock/praetorianphoto

SoFi® Checking and Savings is offered through SoFi Bank, N.A. ©2024 SoFi Bank, N.A. All rights reserved. Member FDIC. Equal Housing Lender.
The SoFi Bank Debit Mastercard® is issued by SoFi Bank, N.A., pursuant to license by Mastercard International Incorporated and can be used everywhere Mastercard is accepted. Mastercard is a registered trademark, and the circles design is a trademark of Mastercard International Incorporated.


SoFi members with direct deposit activity can earn 4.00% annual percentage yield (APY) on savings balances (including Vaults) and 0.50% APY on checking balances. Direct Deposit means a recurring deposit of regular income to an account holder’s SoFi Checking or Savings account, including payroll, pension, or government benefit payments (e.g., Social Security), made by the account holder’s employer, payroll or benefits provider or government agency (“Direct Deposit”) via the Automated Clearing House (“ACH”) Network during a 30-day Evaluation Period (as defined below). Deposits that are not from an employer or government agency, including but not limited to check deposits, peer-to-peer transfers (e.g., transfers from PayPal, Venmo, etc.), merchant transactions (e.g., transactions from PayPal, Stripe, Square, etc.), and bank ACH funds transfers and wire transfers from external accounts, or are non-recurring in nature (e.g., IRS tax refunds), do not constitute Direct Deposit activity. There is no minimum Direct Deposit amount required to qualify for the stated interest rate. SoFi members with direct deposit are eligible for other SoFi Plus benefits.

As an alternative to direct deposit, SoFi members with Qualifying Deposits can earn 4.00% APY on savings balances (including Vaults) and 0.50% APY on checking balances. Qualifying Deposits means one or more deposits that, in the aggregate, are equal to or greater than $5,000 to an account holder’s SoFi Checking and Savings account (“Qualifying Deposits”) during a 30-day Evaluation Period (as defined below). Qualifying Deposits only include those deposits from the following eligible sources: (i) ACH transfers, (ii) inbound wire transfers, (iii) peer-to-peer transfers (i.e., external transfers from PayPal, Venmo, etc. and internal peer-to-peer transfers from a SoFi account belonging to another account holder), (iv) check deposits, (v) instant funding to your SoFi Bank Debit Card, (vi) push payments to your SoFi Bank Debit Card, and (vii) cash deposits. Qualifying Deposits do not include: (i) transfers between an account holder’s Checking account, Savings account, and/or Vaults; (ii) interest payments; (iii) bonuses issued by SoFi Bank or its affiliates; or (iv) credits, reversals, and refunds from SoFi Bank, N.A. (“SoFi Bank”) or from a merchant. SoFi members with Qualifying Deposits are not eligible for other SoFi Plus benefits.

SoFi Bank shall, in its sole discretion, assess each account holder’s Direct Deposit activity and Qualifying Deposits throughout each 30-Day Evaluation Period to determine the applicability of rates and may request additional documentation for verification of eligibility. The 30-Day Evaluation Period refers to the “Start Date” and “End Date” set forth on the APY Details page of your account, which comprises a period of 30 calendar days (the “30-Day Evaluation Period”). You can access the APY Details page at any time by logging into your SoFi account on the SoFi mobile app or SoFi website and selecting either (i) Banking > Savings > Current APY or (ii) Banking > Checking > Current APY. Upon receiving a Direct Deposit or $5,000 in Qualifying Deposits to your account, you will begin earning 4.00% APY on savings balances (including Vaults) and 0.50% on checking balances on or before the following calendar day. You will continue to earn these APYs for (i) the remainder of the current 30-Day Evaluation Period and through the end of the subsequent 30-Day Evaluation Period and (ii) any following 30-day Evaluation Periods during which SoFi Bank determines you to have Direct Deposit activity or $5,000 in Qualifying Deposits without interruption.

SoFi Bank reserves the right to grant a grace period to account holders following a change in Direct Deposit activity or Qualifying Deposits activity before adjusting rates. If SoFi Bank grants you a grace period, the dates for such grace period will be reflected on the APY Details page of your account. If SoFi Bank determines that you did not have Direct Deposit activity or $5,000 in Qualifying Deposits during the current 30-day Evaluation Period and, if applicable, the grace period, then you will begin earning the rates earned by account holders without either Direct Deposit or Qualifying Deposits until you have Direct Deposit activity or $5,000 in Qualifying Deposits in a subsequent 30-Day Evaluation Period. For the avoidance of doubt, an account holder with both Direct Deposit activity and Qualifying Deposits will earn the rates earned by account holders with Direct Deposit.

Members without either Direct Deposit activity or Qualifying Deposits, as determined by SoFi Bank, during a 30-Day Evaluation Period and, if applicable, the grace period, will earn 1.20% APY on savings balances (including Vaults) and 0.50% APY on checking balances.

Interest rates are variable and subject to change at any time. These rates are current as of 12/3/24. There is no minimum balance requirement. Additional information can be found at https://www.sofi.com/legal/banking-rate-sheet.

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

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

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

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Does Paying Utilities Build Credit?

Does Paying Utilities Build Credit?

It is possible to use your utility bill payment history to help build credit. However, utility bills, like your gas, water, and power bills, aren’t automatically reported to the credit bureau agencies. To get them reported — and thus to have your utility bills affect your credit score — you’ll typically need to work through a third-party company that reports your utility bill payments so they show up on your credit report.

If you’re interested in making this happen, read on, and also learn other options to help establish your credit score.

Key Points

•   Utility companies typically don’t report payment activities to credit bureaus unless the bills are delinquent.

•   Third-party services can report utility payments for a fee and occasionally for free.

•   If a service reports utility payments to the credit bureaus, on-time payments can help build a credit score.

•   Late payments that are reported to the credit bureaus can damage credit scores.

•   Using a credit card to pay for utilities can help build credit, as can using a service to report other payment activity (such as rent) to the bureaus.

How Do Utility Bill Payments Appear on My Credit Report?

Utility bill payments typically do not automatically appear on your consumer credit report. That’s because they’re not considered credit accounts. When you pay for utilities, you are paying for a service, rather than opening and maintaining a line of credit, or borrowing money that you then repay over time.

However, utility bill payments can appear on your credit report if you work with a third-party service that does the reporting on your behalf. These services typically charge a small monthly fee, but there are companies that offer this free of charge. If you’re paying utility bills on time, then getting that information reported to the credit bureaus could help to build credit.

Recommended: What Is a Charge Card?

How Do Utility Bill Payments Affect Your Credit Score?

While utility bill payments don’t appear on your credit report, they still can ding your credit score if you fall behind on payments, and the balance you owe becomes delinquent and goes to collections. Under the Fair Credit Reporting Act, debt can linger on your credit report for up to seven years. Because your payment history makes up a lion’s share of your credit score, a debt that enters collections and then remains on your report can have a significant impact on your credit score.

On the flipside, utility bills also have the potential to build credit. As mentioned, this could occur if you sign up to have your utility payments reported to the three major credit bureau agencies, and you consistently make your payments on time. To ensure this happens, you might consider setting up automatic bill payments.

Utility bills could also help build your credit score if you opt to pay bills with a credit card. Staying on top of your credit card payments is a key determinant of your credit score though, so just make sure to pay off your statement balance on time and in full when it becomes due. That way, you’ll avoid late payment consequences and also dodge paying interest on the utility bill payments charged to your card.

By making credit card payments when they are due, you’ll avoid late payment consequences and also dodge paying interest on the utility bill payments charged to your card.

Can Late Utility Bill Payments Affect Credit?

Late utility bill payments can hurt your credit if you miss enough payments for your account to enter “delinquent” status, after which it would get sent to collections or get handled as a charge-off. If this happens, that information can stay on your credit report for up to seven years. (It can be wise to check your credit report at least once a year, to make sure that it properly reflects your history.)

Similarly, if you sign up for a credit reporting service but then are late on making payments, that late payment activity could negatively impact your score. Often services will not report late payments for utility bills too.

Still, given the potential consequences of late payments, organizing your bills is a good idea to help ensure you pay on time and don’t lose track of due dates.

Recommended: How to Avoid Interest on a Credit Card

What Other Bills Help You Build Credit?

Your payment of the following bills will generally show up on your credit report and as such will have an impact on your credit score:

•   Car payments

•   Credit card payments

•   Student loan payments

•   Mortgage payments

Similarly to your utility bills, some bills have the potential to impact your credit, but don’t automatically show up on your credit report. However, you may be able to sign up for a credit reporting service or pay them using your credit card to have them help build your score. These types of bills include your rent payments, insurance payments, and bills for services like internet and cable.

Other Ways to Build Credit

Beyond your utility bills, there are other ways you can establish credit. This includes:

•   Opening one of the different types of credit cards and then using it responsibly.

•   Taking out an auto loan to pay for your next car.

•   Getting a secured card, which is easier to qualify for than a traditional credit card because it requires a deposit.

•   Taking out a personal loan and then staying on top of payments.

•   Becoming an authorized user on the credit card account of someone with a solid credit history and responsible credit usage.

•   Getting your timely rent payments reported to the credit bureaus.

•   Taking out a credit-builder loan, which gives you the funds once you pay it off.

Recommended: Tips for Using a Credit Card Responsibly

The Takeaway

While paying utilities doesn’t automatically establish credit, it can help your score if you work with a third-party service to have your payment activity reported and pay those bills on time. There are other ways you can build credit from scratch as well, such as taking out a personal loan or opening a credit card account, and then handling payments responsibly.

Whether you're looking to build credit, apply for a new credit card, or save money with the cards you have, it's important to understand the options that are best for you. Learn more about credit cards by exploring this credit card guide.

FAQ

What is the impact of paying your utility bills early on your credit score?

Typically, utility bills are not reported to the credit bureaus and therefore don’t impact your credit score. However, if you work with a third-party service, you could have your utility bills reported. In this instance, paying your utility bills on time could help build your score.

Are utility bill payments reported to a credit reporting service?

Utility bill payments can be reported to a credit reporting service if you sign up for an account and opt in to have your utility bills reported. You might need to pay a monthly fee for this service though.


Photo credit: iStock/tommaso79

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.

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