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Car refinancing is a financial tool that allows you to change the terms of your existing auto loan. It can offer benefits such as lowering your monthly car payment and reducing the interest you pay, but it also comes with potential drawbacks, such as added costs and longer loan terms. Below, we’ll explore what car refinancing entails, its advantages and disadvantages, and alternative options to help you make the best choice for your financial situation.

What Is a Car Refinance?

Car refinancing involves replacing your current car loan with a new one, typically from a different lender. You use the new loan to pay off the balance of your existing loan, and you begin repaying the new lender based on updated terms.

The main goal of car refinancing is typically to secure better loan terms, such as a lower interest rate, reduced monthly payments, or a shorter loan term. But refinancing also comes with costs and risks, so it’s important to weigh the benefits and drawbacks carefully before you jump in.

Pros of Refinancing a Car Loan

Here’s a look at some of the key benefits of refinancing your current auto loan.

You May Reduce Your Rate.

A major pro of refinancing is the potential to secure a lower interest rate. If interest rates have decreased since you took out your original loan or your credit score has improved, refinancing could help you score a better rate and lower the total interest you pay over the loan’s life. Also, if you took out dealer financing and didn’t shop around for a loan when you bought your car, you may be paying a higher rate than necessary. Reducing your interest rate by just two or three percentage points could help you save over the life of your loan.

Recommended: Smarter Ways to Get a Car Loan

You Can Lower Your Monthly Payment.

Refinancing can also decrease your monthly payments, either by lowering your interest rate, extending the loan term, or both. This can free up funds in your budget for other expenses, providing much-needed financial relief. It can also keep you from falling behind on your payments, which can lead to late fees and negatively impact your credit.

Just keep in mind that going with a longer term can also have drawbacks, as it can incur higher overall costs (more on that below).

You Might Be Able to Access Quick Cash.

Some lenders offer cash-out auto refinance loans using your car’s equity (the value of your car minus the amount you owe on it). On top of the new loan that pays off your current one, you receive a lump sum of cash based on your equity. For example, if your car is worth $15,000 and you have $8,000 left on your loan, you might get a refinance loan for $11,000 and take $3,000 in cash. You’ll pay interest on the full $11,000, and cash-out refis come with some risks, so, in general, you should only consider this option for financial emergencies or to pay off high-interest debt.

You Can Change Your Loan Terms.

Refinancing may allow you to switch from a variable interest rate to a fixed rate, offering more stability and predictability. It can also allow you to modify your loan term to better suit your financial circumstances. For example, if your income has increased or your monthly expenses have decreased since you took out the original loan, you might be able to refinance for a shorter term and pay off your loan earlier than you originally planned.

You Can Remove a Cosigner.

If your initial auto loan required a cosigner, refinancing can allow you to remove them once your financial situation improves. This can simplify your financial obligations and release your cosigner from sharing responsibility for your auto loan.

Cons of Refinancing a Car Loan

If you are debating whether to refinance your car loan, you’ll also want to keep these potential downsides in mind.

You Could Pay More in Interest.

If you refinance to a longer loan term to lower your monthly payment, you’ll likely end up paying more in interest over the life of the loan. Even scoring a lower interest rate may not make up for the additional months of interest you’ll pay. While the short-term relief may be helpful, it may not be worth the added cost.

Refinancing Comes With Fees.

Refinancing is generally not free. Your new lender may charge an application or origination fee, and your current lender may charge a penalty for paying off your loan early. In addition, your state may charge a fee to re-register your car or transfer the title after refinancing. These fees can diminish or eliminate the potential savings of refinancing.

You Could End Up Upside Down.

Refinancing to extend the term of your car loan or cash out equity could put you in a position of owing more than what your car is worth. This is known as negative equity or being upside-down on a loan. This can be problematic if you need to sell the car or if it’s totaled in an accident.

For example, if you want to trade in or sell your vehicle, you’ll need to cover the difference between what the buyer/dealer pays and what you owe your lender before you can transfer the title. If your car is totaled, your insurance agency will pay out the value of your vehicle. However, you’ll still owe the full amount of the loan (a higher amount) to your lender.

It Can Impact Your Credit Score.

Refinancing triggers a hard credit inquiry, which will appear on your credit reports and can temporarily lower your credit score. While the impact is usually minor and short-lived, it’s important to consider if you’re planning other financial moves, such as getting a mortgage or personal loans, in the near future.

There Are Limited Savings for Older Loans.

Generally, if you have less than 24 months remaining on your car loan, the potential savings from refinancing may not justify the effort and cost. You typically pay the most interest in the first few years of the loan, which limits the benefit of refinancing toward the end of the repayment period.

Alternatives to Car Refinancing

If refinancing doesn’t align with your financial goals, there are other ways to manage your car-related debt.

Balance-Transfer Credit Card

If your lender allows it, you may be able to transfer your auto debt to a balance-transfer credit card. If you can qualify for a transfer card with a 0% introductory rate and pay off the balance within the promotional timeframe (typically 12 to 21 months), you could save significantly on interest. You might even earn rewards from your new credit card in the process.

However, balance transfers often come with fees, usually 3% to 5% of the transferred amount. And if you fail to pay off the balance before the promotional period ends, the interest rate can jump, potentially costing you more than your original loan. This option generally works best for small loan balances and disciplined borrowers.

Personal Loan

A personal loan can be used for a variety of expenses, including paying off your car loan. These loans often come with fixed interest rates and predictable payment schedules, making them a possible alternative to auto refinancing. Going this route also gives you the option of applying for more than you need to pay off the car loan and using any additional cash you borrow for other expenses.

However, personal loans often have higher interest rates than auto loans, particularly for borrowers with average or below-average credit scores. Before opting for a personal loan, you’ll want to compare rates and calculate whether this approach would save you money compared to your existing loan.

Recommended: Personal Loan Savings Calculator

The Takeaway

Car refinancing can be a smart financial move under the right circumstances, such as securing a lower interest rate or reducing your monthly payments. However, it’s not without potential downsides, including fees, extended loan terms, and the risk of negative equity.

If refinancing doesn’t seem like the best fit for your situation, alternatives such as balance-transfer credit cards or personal loans may offer other ways to manage your car loan or give you more financial flexibility.

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

FAQ

What are the advantages of refinancing your car?

Refinancing your car offers several advantages, such as lowering your interest rate, which reduces the total cost of the loan. It can also decrease your monthly payments by extending the loan term, improving your cash flow. In addition, refinancing provides an opportunity to change your loan terms, such as switching from a variable to a fixed interest rate or removing a cosigner from the loan. However, refinancing also comes with costs and risks, so you’ll want to weigh the pros and cons before you proceed.

When should you refinance a car loan?

You might look into refinancing your car loan when interest rates have dropped, your credit score has improved, or you need to lower your monthly payments. Refinancing can also be a good option if you want to adjust your loan terms for more stability, such as moving from a variable to a fixed interest rate. However, it’s important to consider potential fees and ensure that the savings outweigh the costs before you proceed.

How soon can you refinance your car loan after purchase?

You can refinance your car loan as early as a few months after purchase, but it can be a good idea to wait at least six months to a year. This timeframe allows your credit score to recover from any temporary drop (due to the original lender’s hard credit inquiry). It also gives you time to establish consistent payments on the loan and shows potential refinance lenders that you are a responsible borrower. Also, some lenders require six to 12 months of on-time payments to even consider a refinancing application.

About the author

Julia Califano

Julia Califano is an award-winning journalist who covers banking, small business, personal loans, student loans, and other money issues for SoFi. She has over 20 years of experience writing about personal finance and lifestyle topics. Read full bio.

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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.

SOPL-Q126-049

It might seem strange to think about having a relationship with money. But it makes sense when you consider that everyone has feelings about money and those feelings can deeply impact our financial behavior.

Your parents, friends, and life experiences have likely helped you develop different perceptions and biases about money. Those attitudes can influence the financial decisions — both large and small — that you make throughout your life. These decisions, in turn, can have a significant impact on your financial health.

When you have a healthy relationship with money, you feel confident, in control, and satisfied with your financial situation. An unhealthy relationship with money, on the other hand, can lead to avoidance, impulsiveness, anxiety, and increased levels of stress. Indeed, in a March 2025 Bankrate survey, 43% of U.S. adults said money has a negative impact on their mental health, including effects like stress, anxiety, depression, and loss of sleep, at least occasionally.

Exploring and understanding your relationship with money can be the first step to improving that relationship and enhancing your financial (and overall) well-being.

Why the Psychology of Money Matters

It’s almost impossible to separate money and emotions. Those feelings may come from the way we grew up and what our parents showed us and told us about money. Or they may come from what we’ve learned about money over the years. Regardless of their roots, negative emotions — like fear, guilt, jealousy and shame — can get in the way of making smart financial decisions. Some examples of how this can play out:

•   The market plummets and fear tells you to get out — which is likely the opposite of what you should do.

•   You’re living paycheck to paycheck but guilt tells you that you should take the kids on vacation anyway.

•   You’ve racked up a lot of credit card debt but feel so ashamed about overspending, you freeze up and avoid your finances altogether.

•   A friend posts photos of their beautifully decorated home on social media and jealousy prompts you to buy furniture you can’t afford.

Emotions aren’t necessarily bad, however. Positive emotions, such as gratitude, serenity, and compassion, can inform our financial habits and decisions in positive ways. Feeling grateful for the money we earn can help us establish a disciplined savings plan. A sense of responsibility and optimism helps motivate long-term financial planning.

The more you understand how emotions impact your relationship with money, generally the easier it is to manage your wealth to achieve your goals.

Finding Your Money Personality Type

Money management habits tend to fall into five financial personality types. Your money “type” can impact your relationship with money and the decisions you make about how to spend, save, and invest it. Often, we fall into a combination of types and not just one. You may find you identify with one or more of these money mindsets.

The Spender

Spenders have no qualms about buying things. They like spending money on material items and experiences that bring them joy, whether it’s the latest iPhone or a vacation in Hawaii.

Spenders are generous with their friends and likely to support charitable causes. However, they often make spontaneous spending decisions and tend to live beyond their means. Many spenders are also investors and aren’t afraid of a risky portfolio.

Potential pitfalls: If you spend everything you make, you can end up going broke. Also, if you spend impulsively (rather than plan your purchases), your spending may not line up with what you truly value.

The Saver

Unlike spenders, savers don’t like to part with money. They continually sock away their paychecks, sometimes with no actual goal in mind. Saving simply makes them feel more secure in life.

Savers don’t keep up with the latest trends and will happily shop around, comparing prices to find the best deal. They will often drive used cars, pay their credit card balance in full each month, and watch their bank accounts grow. Savers tend to be conservative investors.

Potential pitfalls: If you save everything you make, you’re going to miss out on a lot of experiences that can bring happiness and purpose to your life. You could possibly live your whole life without spending much of what you’ve worked so hard to save.

The Avoider

Avoiders don’t like to deal with finances and don’t spend much time thinking about money. It isn’t because they don’t care about money — their head-in-the-sand approach to finance often stems from anxiety about money or a feeling that they don’t deserve to have money.

Avoiders will generally ignore their accounts so that they don’t have to think about money. They tend to let bills pile up and have difficulty making money decisions. Just the idea of going through their financial statements and budgeting makes them feel uneasy.

Potential pitfalls: That lack of attention can result in overdrawn accounts, late payments, and racked-up debt. Avoidance may also mean missed long-term opportunities such as not signing up for a 401(k) match.

The Gambler

These folks are willing to make giant leaps of faith with their money, whether it’s investing in crypto or spending more than they can afford on a home (because it’s bound to go up in value). The thrill of risk and the promise of reward bring them pleasure.

Gamblers also tend to be instinct-driven and don’t pay much attention to sound financial advice. Their risk-taking doesn’t necessarily come from a place of irresponsibility but rather strong gut feelings and a sense of optimism that everything — including their finances — will turn out fine in the long run.

Potential pitfalls: Gamblers are willing to lose it all – and they just may, which can be a huge problem if they are the primary earner in a household. They may also compensate for losses by borrowing against their retirement money or children’s college fund.

The Risk Averse

Unlike gamblers, risk-averse people prize security, financial stability, and planning. Fear of losing money or that they are not doing a good enough job managing their money is at the heart of this money type. A volatile stock market stresses them out, and they’ll spend hours finding the source of a $1.90 error on their bank statement. Above all, the risk-averse wants to be in control.

This group is usually very organized about money, which serves them well. They also tend to prefer safe investments and will be thorough in their research prior to investing.

Potential pitfalls: A more conservative, risk-averse approach can hold you back from worthwhile opportunities to grow your money. Problems can arise if you are too risk-averse to make sound long-term investments.

6 Ways to Improve Your Relationship with Money

Like all relationships, cultivating a good relationship with money takes time and effort. Below are six tips that can help you build a better relationship with money and feel more satisfied — and less stressed — about your financial situation.

1. Examine Your Behaviors

Take a look at your money patterns in the past few months to a year. Are you spending more than you are taking in each month? Have you been making impulsive purchases or investment decisions? Are you avoiding financial decisions, such as how much to contribute to your retirement account?

If you’re unsure what your patterns look like, you may want to track your spending for a few months to get an idea of what money is coming in and going out of your accounts. An easy way to do this is to link your accounts to a budget planning or money tracker app. These tools automatically categorize your spending and provide a bird’s eye view of your finances. This can help you quickly spot trends in your financial behavior.

2. Consider How Emotions Have Impacted Your Financial Decisions

For many people, emotions surrounding money are most acute when they are faced with a big financial decision. It might be when you’re buying a home or making another major purchase, such as a car, or when choosing how to invest your money.

Think back to what emotions you’ve felt while making important financial decisions. Were you focused on what you wanted when you made a large recent purchase, as opposed to what you actually needed? Did your decision line up with your long-term financial goals? Were you gambling on the next big investment trend hoping for a huge reward?

If you see that your emotions are causing you to make poor choices, consider how you can work through those emotions in future scenarios.

3. Set Some Financial Goals

One of the best ways to manage your relationship with money is to know what you want to accomplish financially. If you aren’t working towards anything specific, you may spend more than you should, or the opposite — never reap the rewards of your hard work.

Keep in mind that you can have multiple financial goals with different timelines. Consider where you’d like your finances to be in one year, three to five years, and 10 or more years. Here are some examples of goals you might set:

•   Short-term: Building an emergency fund, buying a new car, or going on vacation

•   Mid-term: Paying off credit card and student debt or putting a down payment on a home

•   Long-term: Saving for a child’s education or growing your nest egg with retirement planning

Once you’ve come up with a list of achievable and measurable goals, you’ll want to create an action plan to make them happen. This could mean cutting cable to save extra monthly cash, setting up a recurring monthly transfer from your checking to your savings account, and/or contributing more to your 401(k).

4. Communicate with Your Partner

Talking honestly and positively about finances with your significant other can help you have a healthier relationship with that person and also with money. Sharing how you feel about money and the attitudes you learned from your own family can help you and your partner understand each other better.

To get started, you may want to sit down together and talk about what money means to you, what your parents taught you about money, what you want to accomplish with it, and what your fears about money are. Having an understanding of your partner’s beliefs and perceptions can help you avoid conflict and set the stage for healthy discussions about your joint finances. You and your partner can then work together towards shared goals.

You may also want to set up a weekly or monthly money meeting with your partner to go over current challenges and anticipate future needs.

5. Talk to a Financial Planner

Working with a professional can be an effective way to take emotions out of your financial decision-making. A financial planner will generally assess your current financial situation, then work with you to develop an individualized financial plan. They can help you set and work towards long-term financial goals, create a budget, build wealth through an investment portfolio, and put protections in place to help secure your future.

6. Review What Resources Your Employer Might Offer

Many companies now offer a range of financial wellness tools and resources that workers can use to strengthen their finances and make sure they’re on the right path for long-term goals. These benefits might include help with student loan repayment, a 401(k) with employer matching, and access to free financial planning and coaching.

If you work for a company that has a benefits portal, that can be a good place to start to see what’s open to you. Ideally, you don’t want to leave anything (money or support) on the table.

The Takeaway

Everyone feels emotions about money. Exploring and understanding your relationship with money can help you take steps to overcome emotional obstacles, reduce money stress, and build a more secure financial future.

Sofi at Work offers a variety of financial wellness and financial education resources to help employees make objective decisions about money and build a positive foundation for financial success.

Photo credit: iStock/stockfour

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SOAW-Q226-001

If you are renting a home, renters insurance can cover your personal belongings against things such as fire damage or theft. In exchange for that protection, you pay a premium to your insurance provider.

Finding affordable renters insurance might be a priority if you’re living on a tight budget. Numerous companies offer affordable renters insurance that can provide you with the coverage you need for less money.

What Is Renters Insurance and How Does It Work?

What is renters insurance? If you live in an apartment, the owner of the building likely has landlord insurance, which covers damage to the property. This doesn’t offer protection to you as a tenant or your property. For this, you need renters insurance, which is also sometimes referred to as tenant insurance.

You’re typically not obligated to buy a policy unless your landlord requires renters insurance as part of your lease agreement. If you live with roommates, each of you can individually decide if you want to have this coverage.

Personal insurance planning is important for protecting yourself financially. Having renters insurance is a good idea if you’re concerned about your personal possessions being damaged or stolen, or about other situations that could result in financial losses.

Recommended: What Does Renters Insurance Cover?

What’s Included in Renters Insurance Coverage?

If you’re paying for renters insurance, it’s important to know what’s covered and what’s not, as this varies depending on the insurer and your level of coverage. Generally, renters insurance offers three layers of protection:

•   Personal property

•   Liability

•   Additional living expenses

The personal property coverage in a renters insurance policy is designed to protect your belongings against damage from wind, smoke, fire, vandalism, theft, explosions, and other disasters listed in the policy. Some types of water damage are covered, but you may need to purchase separate coverage for flood and earthquake damage.

Personal liability coverage protects you against lawsuits related to any injuries sustained by other people on your property. For example, if you host a party at your apartment and someone trips and injures their ankle, your liability protection could pay their medical bills.

Additional living expenses coverage can pay your costs if your apartment is damaged and becomes unlivable. Your policy can reimburse you for hotel expenses, meals, or temporary housing until you can move back in.

Renters insurance can cover you at home and away. If you take personal belongings on a trip, for example, and they’re damaged by a covered danger, you can get reimbursed for them through your policy.

How Much Does Renters Insurance Cost?

If you’re searching for affordable renters insurance for apartments, it’s important to understand the costs involved. But just how much is renters insurance?

There are two costs to consider: premiums and deductibles. Your renters’ insurance premium is the amount you pay to the insurance company, typically monthly, to receive coverage. Your insurer bases your premium on several factors, including your location, your deductible, your coverage limits, and your claims history.

According to a 2026 Forbes report, the average premium for renters insurance is $153 a year for a policy with $15,000 of personal property coverage. A policy with $30,000 of personal property coverage costs an average of $202, and a policy with $50,000 costs an average of $269. Costs can vary widely by state. For $15,000 of personal property coverage, renters pay the highest rate in Rhode Island, where it averages $346 per year, and the lowest in Wyoming, where premiums average $89 annually.

If you make a successful claim, you’ll also pay a renters insurance deductible. This is the amount you pay before the insurance company pays toward your covered damages. In this aspect, renters insurance is no different from auto, health, or homeowners insurance.

Different types of deductibles have different costs. Opting for a higher deductible typically results in a lower monthly premium, but you should make sure the deductible you choose will be easily affordable on your budget if you file a claim.

Recommended: Cheapest Renters Insurance Companies: Find Affordable Coverage

Most Affordable Renters Insurance Policies

Some renters’ insurance policies are more budget-friendly than others. When evaluating affordability, it’s important to consider the premium and deductible, as well as the coverage you’re getting in return.

To help you in your search, take a look at the average annual premiums for 10 large renters insurance companies that operate across various U.S. states. The rates are for a tenant with $30,000 in personal property coverage and $100,000 in liability coverage.

Source: Quadrant Information Services

*USAA renters policies are available only to active military, veterans, some federal workers, and their families.

None of these policies cost more than $18 per month but remember that these are baseline quotes generated using a hypothetical scenario. Your actual quotes will depend on where you live, the coverage limits and deductible you choose, and your claims history. Your insurance company may also consider your credit score when calculating your premium. Adding optional coverage, such as bed bug endorsement or cyber insurance, can raise your premium costs.

How Do You Find Affordable Renters Insurance?

Finding affordable renters insurance for apartments means doing some comparison shopping. You generally have two options for purchasing renters insurance: traditional insurers and online insurance companies.

Traditional insurance companies offer face-to-face interactions and personalized advice. They may also have the local knowledge needed to understand specific risks and insurance needs where you live.

Online insurers allow you round-the-clock access to quotes and customer service and often offer competitive rates due to their lower operational costs. It may also be easier to compare different insurance options online.

When comparing your options for affordable renters insurance, ask yourself these questions:

•   Can I bundle renters insurance with an existing insurance policy?

•   How much coverage do I need?

•   What kind of premiums and deductibles will fit my budget?

•   How easy would it be to file a claim if necessary?

•   What kind of customer support is available?

•   Are there any discounts or other incentives that could save me money?

•   What is the insurer’s overall reputation?

Reading online reviews of renters insurance companies can give you an idea of their pros and cons and how likely their customers are to recommend them. You can also get free quotes online to estimate your total costs before purchasing a policy.

The Takeaway

If you’re renting an apartment and something unexpected happens, having the right renters insurance coverage in place can give you financial protection against specific risks. Policies typically have three parts: property coverage in case of damage or theft, liability coverage in case someone sustains injuries on your property, and loss of use in case you need to find housing elsewhere while repairs are made to your rental. The national average premium for renters insurance is $171 annually.

Looking to protect your belongings? SoFi has partnered with Lemonade to offer renters insurance. Policies are easy to understand and apply for, with instant quotes available. Prices start at just $5 per month.

FAQ

What does renters insurance cover?

Renters insurance covers your personal belongings if they are damaged, stolen, or destroyed. It also provides liability protection if someone is injured in your rental and can cover temporary living expenses if your home becomes uninhabitable.

How can I find the most affordable renters insurance?

To find the most affordable policy, compare quotes from multiple insurers, consider coverage limits, and look for discounts or bundling options. Generally, increasing your deductible will decrease your premium, but make sure you keep it within budget.

Is basic renters insurance enough for most people?

Basic renters insurance often provides sufficient protection for typical personal belongings and liability. Review your specific needs to ensure adequate coverage for high-value items or special circumstances.

Photo credit: iStock/fizkes

Auto Insurance: Must have a valid driver’s license. Not available in all states.
Home and Renters Insurance: Insurance not available in all states.
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SoFi Insurance Agency, LLC. (“”SoFi””) is compensated by Experian for each customer who purchases a policy through the SoFi-Experian partnership.

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

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

SOPRO-Q126-069

It can be a good move to keep one to two months’ worth of living expenses in your checking account, plus a buffer of about 30% of that amount.

For some people, that will be a stretch. For others, the preference may be to keep more there. While you may like to see a healthy balance in your checking account, you want to have “just enough” on deposit (or enough to meet the minimum balance requirement).

Here’s why: A checking account typically pays low or even no interest, so additional funds are better stowed elsewhere, so your money can grow. Read on to learn more about this topic and how to determine the right amount to keep in your checking account.

What Is a Checking Account?

First things first: A checking account is a type of deposit account held at a traditional bank, online bank, or credit union. It provides a secure spot for your funds, since most banks and credit unions are covered by Federal Deposit Insurance Corporation (FDIC) or National Credit Union Administration (NCUA) insurance, and it can be the foundation of your daily financial life.

For instance, your paycheck can land there by direct deposit, you can withdraw funds from your account by using an ATM or making a transfer, and more. And you will likely have a debit card linked to the account, which allows you to easily spend as you stock up at the supermarket or grab a coffee.

A few other details to note:

•   Checking accounts typically allow you unlimited transactions, but they probably earn no or very low interest. The average checking account currently earns 0.07% in interest, according to the FDIC. You may see a higher return by opening a high-yield checking account or premium account.

•   Some checking accounts are available fee-free, but they may have minimum deposit requirements and some surcharges. It’s wise to read the fine print on an account you currently have or are contemplating opening to know the full story.

If you’re curious as to how much others keep in their checking accounts, the Federal Reserve’s most recent Survey of Consumer Finances (based on 2022 data) found that Americans keep a median balance of $8,000 in their transaction accounts, which include checking and savings accounts, among others. The average amount in checking and other transaction accounts is $62,410, but that number’s pulled up by those with higher net worth.

Factors to Consider

When deciding how much money you should keep in a checking account, there’s no one-size-fits-all number. Instead, consider these factors.

Monthly Expenses and Income

To determine how much cash to keep in your checking account, you’ll first want to tally your monthly income and expenses — those two numbers are vital. For example, if you net $8,000 a month in pay and your usual expenses (housing, utilities, food, health care, discretionary spending, etc.) are $7,000 a month, you might want to aim for a balance of $10,000 to $15,000 in the account at any time.

This would give you one to two times your monthly expenses, plus a little overage. That overage is important, as it’s your buffer in case your spending were to increase one month (say, a large dental bill). You don’t want to wind up in overdraft.

If you need help tallying or tweaking your monthly expenses vs. income, there are a variety of budgeting methods that can help you.

Upcoming Large Expenses

When deciding how much money to keep in your checking account, you may want to account for any major expenses coming your way. Perhaps you pay your homeowners’ insurance annually, or your partner’s big birthday is coming up. You’ll want enough money accessible to cover these expenses.

Savings Goals

On the other hand, you don’t want to let too much cash just sit in your account when it could be working harder for you. You can transfer any excess funds into a savings account where you will likely find much higher interest rates.

For instance, the average savings account earns 0.39% interest as of February 2026, which is an improvement over checking’s 0.07%. Also, online-only banks may offer close to 3.00% to 4.00% APY for their savings accounts. Higher interest (and more frequent compounding) may help boost your savings over time for a summer vacation, a new car, or a down payment on a house.

In addition, you may want to prioritize stockpiling some money in an emergency fund, which financial experts say should have at least three to six months’ worth of living expenses in it.

Account Fees and Requirements

As you compare checking accounts, be sure to drill down on account fees and requirements. Fees can nibble away at your money, and there are quite a number that can be assessed. There are account maintenance fees, overdraft fees (averaging close to $27.00 per transaction, according to a recent survey), out-of-network ATM fees, and more. Read the fine print (or look at your statement if you already have an account) to see where you stand. Then you can make a choice that helps you avoid bank fees.

Also note that there may be requirements for your account, such as keeping a certain amount on deposit or using your debit card a certain amount per month. If you don’t meet the guidelines, you could wind up paying more fees.

The Basic Living Expenses Approach

As mentioned above, one popular approach for how much money you should keep in a checking account is to have one to two months’ worth of living expenses on deposit.

Need help calculating that number? Tracking your expenses can be done fairly simply by reviewing a couple of months of your current checking account statements and totaling how much flowed out. Some accounts have a dashboard that makes it easy to see your spending.

Or you could add up your typical expenses the old-school way, using an online spreadsheet or pencil and paper. Include costs such as housing, transportation, food, utilities, clothing, health care, loan payments, credit card payments, dining out, entertainment, streaming services, insurance, and any other regular expenses.

If your usual expenses were, say, $6,000 a month, you might want to keep somewhere between $8,000 and $14,000 in your checking account.

Recommended: Checking vs Savings Accounts: A Detailed Comparison

Earning Interest vs Liquidity

Another way to look at how much money you should keep in your checking account is to balance two financial forces: earning interest and liquidity.

Typically, in order to pay out higher interest, a financial institution needs to feel confident that money will be accessible for them to use for other business purposes. That is why savings accounts, which used to allow only a limited number of transactions per month (incidentally, some banks still enforce this guideline), will typically pay a higher interest rate.

Similarly, a certificate of deposit (CD) will likely pay more interest than a checking account, because the customer agrees to keep their funds in the account for a specific period of time.

The other side of the coin is liquidity, meaning that you can access money on demand, without fees or penalties. This is what a checking account excels at. You may not earn much (or any) interest, but you know you can withdraw funds and pay bills from it as often as you like.

For this reason, you probably want to keep just enough cash in checking to pay bills without overdrafting, while moving any additional funds into savings (perhaps earmarked as an emergency fund) to reap a higher interest rate.

Recommended: Checking Account Pros and Cons

Tips for Right-Sizing Your Balance

As you fine-tune the amount of money you keep in your checking account, try these tactics.

Track Spending Closely

You may think you know how much your monthly expenses are, but tracking the exact amount can be a very helpful exercise as you think about your bank account balances. For instance, you may not be accounting for spending such as gifts for friends and family, subscriptions, prescription medications that refill every three months, contact lenses, and charitable donations.

Some banks provide tools to help you track your spending, or some apps and websites can also give you a full picture. As you comb through your spending, you may also find places where you can easily trim some money.

Automate Savings Transfers

One way to make sure you are building your savings is to set up automatic transfers from your checking account to your savings. This can be a seamless, no-effort way to make sure money doesn’t just sit in checking.

You might automate your money by having recurring transfers from checking to savings right after you are paid. This can help you avoid spending when you see money piling up in your checking account, and it moves money to where it can earn interest.

Take Advantage of Personal Finance Apps

As noted above, there are personal finance apps that can help you manage your money. First, check your current bank, as it may offer helpful tools. There are also paid apps available for budgeting, typically ranging from around $2.00 to $25.00 a month.

Or you might want to take advantage of round-up apps that can help build your savings as you spend. These round up the price of purchases to the next dollar and send the difference into your savings account (or investments) so it can help build your wealth, bit by bit.

The Takeaway

Keeping slightly more than one to two months’ worth of living expenses in your checking account can be a good rule of thumb. Any additional funds can work harder for you when transferred to a savings account, where they can earn interest and help your money grow.

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

Is too much money in a checking account a bad idea?

While not exactly a bad idea, keeping too much money in your checking account could mean you are missing out on the potential opportunity to earn more interest and help your money grow. Consider different ways, including banking round-up apps and automatic transfers, to move funds into higher interest-bearing accounts.

What is the average checking account balance?

The average transaction account balance (which includes checking and savings accounts) is over $62,410, but that skews high due to the balances of those who are wealthier. The median figure is $8,000.

What does it mean for money to be liquid?

When money is liquid, that means it can be accessed on demand. For example, cash in the bank is liquid; the equity you have in real estate is not, since it would require effort to secure funds related to that investment.

Photo credit: iStock/JLco – Julia Amaral

^Early access to direct deposit funds is based on the timing in which we receive notice of impending payment from the Federal Reserve, which is typically up to two days before the scheduled payment date, but may vary.

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 3/31/26. 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.
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 Checking & Savings 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.

*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.

SOBNK-Q126-045

If you’re planning to shoulder all or some of the cost of your child’s college education, you’re giving your child a wonderful gift. And that’s just how the Internal Revenue Service (IRS) sees it — as a gift. Depending on the amount you offer and whether you give it directly to your child or to the school, you could get hit with an additional expense, known as the gift tax.

Whenever you give someone money as a gift, you automatically become subject to the gift tax. Whether you actually need to pay that tax, however, will depend on the size of the gift, who is receiving it, and what it was used for. Here are some things to keep in mind if you want to give your child money for college but avoid paying any additional taxes.

What Is the Gift Tax?

According to the IRS, the gift tax is “a tax on the transfer of property by one individual to another while receiving nothing, or less than full value, in return. The tax applies whether or not the donor intends the transfer to be a gift.”

That’s a lot of words to essentially mean that if you give someone a gift of property, including money, without getting something of equal value in return, it may be considered a gift. And if you’re gifting, it might be subject to the gift tax. In general, the gifter is responsible for paying the gift tax costs.

Before you start worrying if you’ll have to pay a gift tax on the $100 bill you slipped into your niece’s graduation card, it’s important to know that the gift tax generally only affects large gifts.

This is because there’s an annual exclusion for the gift tax, which means that gifts up to a certain amount aren’t subject to it. For 2026, the federal annual gift tax exclusion is $19,000 per person, and if you and your spouse both gift money, the annual exclusion is $38,000.

💡 Quick Tip: You’ll make no payments on some private student loans for six months after graduation.

Gifting Your Money Directly to Your Children

Children aren’t treated differently when it comes to the gift tax, which means that whether you’re gifting your neighbor money for being really great all those years or transferring $20K to your child’s bank account to help them pay for college, the gifts are treated in the same way by the tax code.

This means that a gift you make to your child for the purpose of paying tuition or covering educational expenses may be subject to the gift tax if the gift exceeds $19,000 in 2026 (if you’re single) or $38,000 (if you’re married and making a joint gift).

With the average cost of attendance at a private university now averaging $58,628 per academic year, it’s conceivable that you would end up giving your child a cash gift that exceeds the annual gift tax exemption.

One way around this is to gradually put money aside every year in a 529 account. Gifters can contribute up to $19,000 in 2026 to a 529 account per person per year, with no risk of getting hit with a gift tax. That means a married couple could gift up to $38,000 per account per year in 2026 without paying a gift tax.

Recommended: Paying for College: A Parent’s Guide

Paying College Expenses Directly

In addition to the annual exclusion limit, the IRS waives the gift tax on gifts used to pay tuition expenses. There’s no limit on how much you can pay, but the caveat is that you have to give the money directly to your student’s school. Otherwise, any amount over the annual exclusion limit will be subject to the gift tax.

This means that, in some cases, it may save you some cash to pay the school directly rather than first giving the money to your child and having them use it for tuition. It’s important to consider all your options, as gifted tuition payments may impact the student’s need-based aid.

Other Ways to Pay for College

If you don’t have enough savings or would rather not deplete your savings to pay for your child’s tuition and expenses, here are some other ways to help your child cover the cost of college.

Help Your Student Complete the FAFSA

Submitting the FAFSA is a critical step when it comes to getting federal student aid. While the FAFSA is the student’s responsibility, when a student is considered a dependent for FAFSA purposes, parents play a large role in the application process. As a result, you, as a parent, can help make the process faster and easier.

The FAFSA is a gateway to several forms of financial aid, including grants, scholarships, work-study, and federal student loans, so it’s worth filling out even if you don’t think you’ll qualify for aid. Many colleges also use the FAFSA when awarding institutional (merit-based) aid, and some states use the form for certain state-based aid.

Take Out a Parent Loan

If your student has a gap in funding after tapping financial aid, including federal student loans, you might next look into parent student loans. You have two options: federal Parent PLUS Loans and private student loans. The best one for your situation generally depends on your credit history.

Here’s what to consider when looking at Parent PLUS Loans vs. private student loans.

Parent PLUS Loans

With Parent PLUS Loans, you can borrow up to the cost of the child’s attendance each year, minus any financial assistance that has been awarded, with no other limit on the amount borrowed. This is true regardless of the parents’ income. However, starting July 30, 2026, parents will only be able to borrow up to $20K per year or $65K total per student.

For Parent PLUS Loans first disbursed on or after July 1, 2025, and before July 1, 2026, the interest rate is 8.94%, which is higher than the rate for the previous 2023-2024 and 2024-2025 periods. There’s also a loan fee of 4.228%. As federal loans, however, Parent PLUS loans have access to multiple government-sponsored repayment plans and forgiveness programs.

Parent PLUS loans aren’t subsidized, so interest begins to accrue on the outstanding loan balance as soon as funds are disbursed and continues to accrue even if you choose to defer making payments on the loan until after your child graduates from college.

Recommended: What Percentage of Parents Pay for College?

Private Student Loan for Parents

If you have good or excellent credit, you may be able to qualify for a private student loan for parents that has a lower interest rate than a Parent PLUS Loan. Depending on your credit, you could potentially see a difference of 2% or more. Over the course of a 10-year repayment period, that lower interest rate can add up to significant savings. Keep in mind, though, that private loans don’t offer the same protections and benefits that automatically come with federal education loans.

If you’re considering private student loans, be sure to check your rates with multiple lenders to find the right loan for you. You can typically browse rates without any impact on your credit score — prequalification typically involves a soft credit check.

💡 Quick Tip: Need a private student loan to cover your school bills? Because approval for a private student loan is based on creditworthiness, a cosigner may help a student get loan approval and a lower rate.

The Takeaway

Giving money to your child for their college education is considered a taxable gift in the eyes of the IRS. However, parents can give up to $19,000 in cash to a child individually and $38,000 jointly in 2026 without getting hit with a gift tax. Parents can also pay for tuition directly to the college to avoid getting hit with a gift tax.

You can reduce how much you’ll need to chip in for your child’s college expenses by helping them fill out the FAFSA. This will give them access to scholarships, grants, work-study, and federal 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

Is paying for my child’s college tuition considered a gift?

Paying for your child’s college tuition isn’t considered a taxable gift by the Internal Revenue Service as long as the payments are made directly to an accredited college or university. If you prefer to give money directly to your child, you can give them up to $19,000 a year as an individual in 2026 without being subject to the gift tax.

What is the best way to give my grandchild money for college?

Grandparents can open a section 529 plan naming their grandchild as the beneficiary, or they can contribute to an existing account. Using a 529 plan can help set aside funds while avoiding the gift tax, so long as individual contributions don’t exceed the exclusion limit. Withdrawals can be used to pay for college expenses.

Do parents get a tax break for paying college tuition?

There are two tax credits parents can apply for — the American Opportunity Tax Credit or the Lifetime Learning Credit. You can only claim one credit per student per year.

Is there a maximum amount that can be contributed to my child’s college tuition?

Ultimately, it’s your choice how much you contribute, but there are some thresholds to keep in mind. For example, under federal regulations, a qualified tuition plan, also known as a section 529 plan, contributions cannot exceed the amount necessary to provide for the qualified education expenses of the beneficiary. But if your contributions in 2026 total more than $19,000, you’ll be subject to gift tax. If you pay an institution directly, you won’t have to pay gift tax, no matter how much you contribute.

About the author

Julia Califano

Julia Califano is an award-winning journalist who covers banking, small business, personal loans, student loans, and other money issues for SoFi. She has over 20 years of experience writing about personal finance and lifestyle topics. Read full bio.

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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. Not all repayment options may be available for all loans. 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 current as of 3/2/2026 and is subject to change. SoFi Private Student loans are originated by SoFi Bank, N.A. Member FDIC. NMLS #696891. (www.nmlsconsumeraccess.org).

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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.

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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