Should I Buy a New or Used Car in 2021?

Should I Buy a New or Used Car? Pros and Cons

If you’re wondering whether to get a new or used car in the year ahead, there isn’t one single answer. Each car shopper’s situation is likely to vary, and you need to make the decision that best suits your needs and your budget. Factors like the features you’re seeking in a car, price, insurance costs, and depreciation may come into play.

To help you decide where to spend your cash if you plan to buy some wheels, read on. You’ll learn the pros and cons of new and used cars, plus tips for making your choice.

Key Points

•   Choosing between a new or used car involves evaluating multiple factors like features, price, depreciation, and insurance.

•   New cars provide the latest features and warranties but depreciate quickly and are costly.

•   Used cars are more budget-friendly and depreciate more slowly, though they might have reliability issues.

•   The purchase decision often hinges on price and depreciation, with new cars losing value faster.

•   Personal preferences can dictate the better value; new cars for features and warranties, used cars for cost savings.

Pros and Cons of Buying a New Car

For some people, there’s nothing that can compete with the allure of a bright and shiny new car. However, it’s important to consider the pluses and minuses before making your purchase.

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Pros:

•   Pristine condition

•   Latest features

•   Warranty and service benefits

•   Multiple financing choices

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Cons:

•   Immediate depreciation

•   Higher price

•   Higher insurance costs

•   Limited ability to negotiate

Pros

•   Pristine condition: With a new car, you don’t have to kick as many tires. New vehicles arrive on dealer showroom floors (and at online auto sales platforms) in pristine condition with very few miles on the odometer, so you don’t have to spend time checking for vehicle inefficiencies and maintenance or repair issues.

•   Latest features: Some people may feel “the newer the car, the better.” Here’s why: The auto industry is doing wonders with new vehicle construction, with features like better gas mileage, longer ranges in the case of EV vehicles, and technological advancements that improve vehicle performance. Those upgrades come most notably in car safety, cleaner emissions, and digital dashboards that improve driving enjoyment.

•   Warranty and service benefits: New car owners are typically offered a manufacturer’s warranty when they buy a new car, which typically grades out better than third-party warranty coverage on a used car. Additionally, extended car warranties may be available, and auto dealers are more likely to offer services like free roadside assistance or free satellite radio to lock down a new car sale. Those services and features are harder to get with used vehicles.

•   Multiple financing choices: It’s often easier to get a good financing deal with a new car vs. a used car. That’s because the vehicle hasn’t been driven and should have no structural problems, maintenance, or repair issues. That’s important to auto loan financers, who place a premium on avoiding risk.

Next, learn about the potential downsides of buying a new car.

Cons

Some disadvantages of a new car purchase might sway a buyer’s decision.

•   Immediate depreciation: The moment you drive a new car off the dealer lot, it loses several thousand dollars in value, plus an estimated 20% in the first year of ownership and then 15% annually for the next few years afterward, which is not a fun fact when you are making car payments at the same level month after month.

•   Higher price: Saving up for a car is a big undertaking, and you may owe a lot of money on a new vehicle. The average price for a new car is $47,452 as of late 2024, which is a significant figure.

•   Higher insurance costs: Auto insurers typically deem new cars as being more valuable than used cars and assign auto insurance premiums accordingly. Also, since new cars cost more, auto insurers prefer to see new auto drivers get full coverage and not minimum coverage.

•   Less room to negotiate: New car models may be less negotiable in price than used ones. Because they are the latest shiny new thing, demand may be higher and inventory lower. A dealership may be less likely to knock down the price for this reason, while they might do so on a used car sitting on the same lot.

Recommended: 10 Personal Finance Basics

Pros and Cons of Buying a Used Car

Used cars offer buyers value and savings, which are attractive benefits to drivers who may not have a big budget, but still want to drive a quality vehicle. However, there are other benefits and downsides to consider as well.

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Pros:

•   Lower price

•   Slower depreciation rate

•   Your down payment may go further

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Cons:

•   Reliability issues

•   Fewer options

•   Maintenance costs

Pros

•   Lower price: No doubt about it, most used cars sell for significantly less than a new car with the same make and model. You learned above that the average new car is retailing for just under $50,000. How about used cars? The average is currently about $25,571, a considerable savings.

•   Slower depreciation rate: New cars tend to lose value quickly, as noted above, especially if they’re not properly cared for. But used cars tend to depreciate more slowly, especially if they’ve had regular maintenance, and their sustained value makes them a good resale candidate if the owner wants another vehicle, but still wants to make a good deal when selling the vehicle.

•   Your down payment may go farther: Buyers who can manage a robust down payment on a used vehicle can bypass a good chunk of the debt incurred in purchasing the vehicle. It comes down to simple math — if a buyer purchases a $25,000 used vehicle with a down payment of $15,000, there’s only $10,000 left to pay on the vehicle. If a buyer purchases a new vehicle for $48,000, and puts $15,000 down, that buyer still owes $33,000 on the auto loan. Buying a used car could leave more money in your budget to put in a high-yield savings account for emergencies or another purpose.

Cons

When deciding whether to buy a used car or not, these potential disadvantages may also be worth considering.

•   Reliability issues: With a used car, an owner may be getting a quality vehicle — or maybe not. A used car may have spent years on the roads and highways, incurring a fair share of dings, dents, and general wear and tear that may have aged it prematurely, particularly if it hasn’t been maintained well.

•   Fewer options: You may not get the exact make and model you want. The options can dwindle when it comes to buying a used car. Whereas auto dealers can offer a wide range of makes, models, and colors for a new vehicle, those choices can be significantly limited with a used car, truck, or SUV. That could mean that a used vehicle buyer may have to compromise on different factors, in contrast to someone who is buying new and can often get their dream car, down to the last detail.

•   Maintenance costs: You may pay more for vehicle maintenance. Auto repairs often cost more over time and become more frequent, too, as a car ages. So you may well pay more for maintenance and repairs with a used car. With a very old car, finding parts to complete repairs may also be a challenge. In other words, it may take more time and have you spending more from your checking account to keep the car running.

Is It a Better Value to Buy a New or Used Car?

As noted above, there’s no one-size-fits-all answer to whether a new or used car is the better value, but often, a used car is considered a better value. This is because, with a used car, depreciation has already occurred, meaning the price is lower. In this way, you may be able to get more car for the money you’ve earmarked for this purchase, and the car could have a better resale value. Insurance costs may be lower as well.

Is It Easier to Get Approved for a New or Used Car?

In general, it’s considered easier to get approved for a new car loan vs. one for a used car. That’s because new cars are thought to be less risky since they are new, without wear and tear issues. Their value is thought to be simpler to determine.

It’s worthwhile to consider how your credit score could impact which loan offers you might qualify for:

•   If you have very good or excellent credit (say, 781 or above), your interest rate as of late 2024 would typically be close to 5.08% APR (annual percentage rate) for a new car or 7.41% APR for a used car.

•   If you have good to very good credit (between 661 and 780), your APR for a new car would be close to 6.70% APR and 9.63% APR for a used car.

•   If you have a credit score that’s in the fair range to lower good range (between 601 and 660), you’d likely be assessed an APR of close 9.73% APR for a new car and a 14.07% APR for a used car.

•   If your credit score was between 501 and 600 (in the lower section of the fair range), you may have a more difficult time accessing financing and could expect to be charged close to 13.00% APR for a new car and 18.95% APR for a used car.

•   Have a lower score, in the 300 to 500 range (poor)? You might expect to face challenges getting financing. Those who do offer you a loan could charge close to 15.43% APR for a new car and 21.55% APR for a used car.

Consider Buying a New Car If…

As you make your decision between buying a new or used car, you likely will have your own set of needs and preferences. Here’s when buying new may be your best option:

•   If you can afford what is likely to be the higher price tag of buying a new car and loftier insurance costs (as noted above), then you may want to go ahead and buy the latest model.

•   You want the latest bells and whistles: If you feel you need an auto with certain new features (whether it’s the design or a safety system), then you may opt for this year’s model.

•   If you are financing your purchase, you may be able to get a more favorable APR when buying a new vs. used vehicle. Doing research on how to get a car loan can help you prepare for this path.

Consider Buying a Used Car If…

For some people, though, buying used can be the wiser choice. For instance:

•   If you have a fixed budget, a used car will generally offer a lower price and possibly lower insurance costs, too.

•   Is there a feature you need but can’t afford in a brand new car? A used car may suit your needs. For instance, if you really need a vehicle with a third row of seats but can’t afford one brand new, that may lead you to a used car.

•   If you want to avoid the steep depreciation that comes with buying a new car, a used car may work better for you. It may help to know your car will retain much of its purchase price in the coming years. This could be helpful if, say, you know you’ll be selling the car in a year or two and want to forecast how much you’ll net to put in an online bank account.

By weighing your choices on these fronts, you will likely be able to make the right move, both in terms of the car you buy and how well it fits into the type of budget you use.

As you would with any major purchase decision, you’ll want to shop around, check the book value of preferred vehicles, and look at the car’s maintenance and repair history to ensure it’s in good condition. You may also want to make sure it’s inspected by a trusted mechanic.

Recommended: How to Automate Your Finances

The Takeaway

The choice between a new and used car likely will depend upon your personal preferences and financial situation. New cars may have the latest features and lower maintenance and financing costs, but they tend to be pricier and trigger higher insurance costs. And they will depreciate rapidly. A used car will usually have a lower sticker price but maintenance costs and higher rates on financing should be noted.

As you think about car financing that best suits your needs, you may want to make sure that your banking partner is the right one, too, and is helping your money work harder for you.

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

Better banking is here with SoFi, NerdWallet’s 2024 winner for Best Checking Account Overall.* Enjoy up to 3.80% APY on SoFi Checking and Savings.

FAQ

Do used cars require more maintenance vs. new cars?

You may pay more for maintenance on a used car vs. a new one. Typically, older cars need more work than their younger counterparts.

Are used cars a better deal than new cars?

Used cars can be more affordable than new ones, from the sticker price to the insurance costs, and because they don’t depreciate as rapidly as new cars, they can be a better deal.

What are options to buying a new or used car?

Buying a certified pre-owned car, which has been vetted to be in very good condition, or leasing a car are other options you might consider when thinking about buying a new or used car.

Photo credit: iStock/Ivanko_Brnjakovic


SoFi® Checking and Savings is offered through SoFi Bank, N.A. ©2025 SoFi Bank, N.A. All rights reserved. Member FDIC. Equal Housing Lender.
The SoFi Bank Debit Mastercard® is issued by SoFi Bank, N.A., pursuant to license by Mastercard International Incorporated and can be used everywhere Mastercard is accepted. Mastercard is a registered trademark, and the circles design is a trademark of Mastercard International Incorporated.


SoFi members with direct deposit activity can earn 3.80% 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 3.80% APY on savings balances (including Vaults) and 0.50% APY on checking balances. Qualifying Deposits means one or more deposits that, in the aggregate, are equal to or greater than $5,000 to an account holder’s SoFi Checking and Savings account (“Qualifying Deposits”) during a 30-day Evaluation Period (as defined below). Qualifying Deposits only include those deposits from the following eligible sources: (i) ACH transfers, (ii) inbound wire transfers, (iii) peer-to-peer transfers (i.e., external transfers from PayPal, Venmo, etc. and internal peer-to-peer transfers from a SoFi account belonging to another account holder), (iv) check deposits, (v) instant funding to your SoFi Bank Debit Card, (vi) push payments to your SoFi Bank Debit Card, and (vii) cash deposits. Qualifying Deposits do not include: (i) transfers between an account holder’s Checking account, Savings account, and/or Vaults; (ii) interest payments; (iii) bonuses issued by SoFi Bank or its affiliates; or (iv) credits, reversals, and refunds from SoFi Bank, N.A. (“SoFi Bank”) or from a merchant. SoFi members with Qualifying Deposits are not eligible for other SoFi Plus benefits.

SoFi Bank shall, in its sole discretion, assess each account holder’s 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 3.80% APY on savings balances (including Vaults) and 0.50% on checking balances on or before the following calendar day. You will continue to earn these APYs for (i) the remainder of the current 30-Day Evaluation Period and through the end of the subsequent 30-Day Evaluation Period and (ii) any following 30-day Evaluation Periods during which SoFi Bank determines you to have 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.

Separately, SoFi members who enroll in SoFi Plus by paying the SoFi Plus Subscription Fee every 30 days can also earn 3.80% APY on savings balances (including Vaults) and 0.50% APY on checking balances. For additional details, see the SoFi Plus Terms and Conditions at https://www.sofi.com/terms-of-use/#plus.

*Awards or rankings from NerdWallet are not indicative of future success or results. This award and its ratings are independently determined and awarded by their respective publications.

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

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

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Understanding and Avoiding Common Bank Fees

Many people figure that paying bank fees is simply an unavoidable part of life. Recent surveys say the average American shells out anywhere from $167 to $288 per year in fees. But take note: Some or even all of those may be avoidable.

For many financial institutions, fees are a way that banks make money. They can help cover the cost of being in business, and they can also cover situations that require more of their team’s time (say, dealing with an overdrafted account).

However, these charges can become expensive for many customers, and they can eat away at any interest earned. That can foil a customer’s efforts to grow their wealth.

Next, learn about the specific fees that many banks assess and how you can lower or avoid them.

Costs vary by institution. Checking accounts may also charge other fees, including account inactivity fees, early account closure fees, check ordering fees, and debit card replacement fees. Before opening a new bank account, always read the fee schedule closely.

Key Points

•   Some checking accounts charge fees which can eat away at your money on deposit.

•   Strategies to avoid fees include maintaining minimum balances, using in-network ATMs, meeting direct deposit or debit card usage requirements, or choosing a fee-free bank.

•   Monthly maintenance fees can often range from $5 to $12.

•   Nonsufficient funds (NSF) fees average $17.72, while overdraft fees, averaging $27 in 2024, should be capped at $5 as of October 2025.

•   Out-of-network ATM fees average $4.77, while paper statements cost about $2 per month.

1. Monthly Maintenance Fees

Average monthly maintenance fee: $5 to $15

One of the most ubiquitous fees banks charge for checking and savings accounts is the monthly maintenance or service fee. This is a fee you pay each month to cover the cost of account management and customer service. These fees typically run between $5 and $15 per month and are usually automatically deducted from your account.

How to avoid monthly maintenance fees: Some banks offer account holders ways to get these monthly service fees waived. Common waiver requirements include: maintaining a certain minimum monthly balance, completing a certain number of debit card transactions per month, or receiving a specified amount of money via direct deposit for each statement period.

2. ATM Fees

Average out-of-network ATM fee: $4.73

Both traditional and online-only banks typically offer a network of ATMs where you can make deposits and withdrawals free of charge. If you deposit or withdraw money at an ATM outside your bank’s network, however, the bank will typically charge you am atm fee. On top of that, the owner of the ATM will likely also tack on a charge. On average, total combined ATM fees run close to $5.

How to avoid ATM fees: To reduce how much you could pay in ATM fees, planning ahead might help. You could research locations of in-network ATMs and only make withdrawals there. Or use an ATM that’s in-network to get cash before you go shopping or out to eat at a cash-only location so you don’t have to use whichever ATM is nearby.

Here’s another idea for avoiding ATM fees: Many grocery stores and some big box stores will let you get cash back when you make purchases there. This could be another way to circumvent ATM fees.

3. Overdraft Fees

Average overdraft fee: $26.61

How to avoid overdraft fees: Many banks offer overdraft protection as an add-on service. If you choose to opt in, the bank will allow transactions to go through, even if you don’t have sufficient funds in your account to cover them. Depending on the type of overdraft protection you sign up for, the bank may lend you the money to cover the overage, or they may pull funds from a linked account. This can avoid NSF fees, late fees, and bounced check fees, but can trigger an overdraft fee.

Recommended: Overdraft vs. NSF Fees

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

No account or monthly fees. No minimum balance.

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4. Nonsufficient Funds (NSF) Fees

Average nonsufficient funds fee: $20

Nonsufficient funds (NSF) fees, also known as insufficient funds or returned item fees, can occur when a bank declines to make an electronic payment or cash a check that would bring your checking account to a negative balance. Instead, the transaction gets denied or returned unpaid and the bank will typically charge you an NSF fee (also known as a returned item fee). The average NSF fee is currently around $20.

If you don’t opt in to have overdraft protection on an account, banks typically decline, or bounce, the transaction if there aren’t enough funds to cover a transaction.

Besides the problems associated with a bounced check (that is, the payee not getting their funds), there is typically a returned item fee, averaging around $30 for each occurrence. And, unfortunately, sometimes a returned item fee can take an account balance to the point where another check may bounce, causing the situation to become increasingly worse.

How to avoid nonsufficient funds fees: Many banks allow you to sign up for text alerts that let you know when your balance has fallen below a certain level. When you get the alert, you can avoid making a debit card purchase that will overdraw your account. You can also quickly transfer funds to cover any impending automatic payments or outstanding checks.

5. Wire Transfer Fees

Average wire transfer fee: $20+ for domestic; $35+ for international

If you use your checking account to send or receive a wire transfer, you’ll typically pay a wire transfer fee. Fees vary by institution, but they are usually at least $20 for domestic transfers and $35 or more for international transfers. Some banks don’t charge you for incoming wire transfers (when someone sends you money), but others charge a wire transfer fee whether you are sending or receiving funds.

How to avoid wire transfer fees: A few ideas on avoiding these fees, if your financial institution charges them: Ask your bank if they will waive the surcharge; in some cases, they may. Use a payment service like Zelle, or, if you often make and receive international payments, you might look into getting a multicurrency or foreign currency bank account.

6. Inactivity Fees

Average inactivity fee: $5-$20

If you have a bank account that you don’t use often, you might get charged what’s known as an inactivity fee or a dormancy if it sits untouched for a while. There are varying state laws that specify when a bank must turn dormant funds over to the state, as a form of unclaimed funds. Dormancy fees try to trigger account holders into action so that this handoff of funds to the government doesn’t happen.

Inactivity fees can typically range from $5 to $20, and the amount of time that must elapse before they are assessed will vary.

How to avoid inactivity fees: To avoid these fees, it’s wise to only have as many accounts as you can frequently manage. If you have an account you barely use, it can be a smart move to close it and transfer any funds to an active account.

7. International Transactions Fees

Average international transaction fee: 1% to 3% of the transaction amount

If you travel outside of the U.S. and use your debit card to make a purchase or withdraw funds at an ATM, you may get hit with an international (or foreign) transaction fee. These fees are typically up to 3% of the purchase or withdrawal amount.

How to avoid international transaction fees: To help mitigate or avoid these bank fees (especially if you are a frequent traveler), you could check with your bank to see if it charges these fees. If it does, you might consider opening an account at a financial institution that doesn’t.

Also, perhaps your bank has affiliate banks in regions where you’re traveling, and you could withdraw from those ATMs without paying the additional international fees. You could also ask if your bank reimburses fees that you’ve paid.

You could exchange US dollars to foreign currency before you leave the country, perhaps eliminating the need for ATM withdrawals while traveling. Your bank might do this with no fees. However, then you do risk loss or theft of your funds.

Recommended: Can You Use Your Debit Card in Another Country?

8. Paper Statement Fees

Average paper statement fee: $2 per statement

Many banks have shifted to e-statements in an effort to reduce waste and save on printing and mailing costs. If you choose to receive paper statements for your checking account, you may get hit with a monthly surcharge, which is often around $2.

How to avoid paper statement fees: Switching to electronic statements can help you avoid monthly paper statement fees. Banks typically allow you to sign up for this option through their online banking platforms. If you prefer a paper format, you can always print out your e-statements.

How Are Checking Account Fees Changing Over Time?

Along with the rising cost of many consumer goods and services, many checking account fees have also increased in recent years. This includes monthly account maintenance fees and ATM fees, along with higher balances required to avoid the fees. But there is some good news: Two common checking account fees — overdraft and NSF fees — have been moving in the other direction.

According to Bankrate’s annual checking account and ATM fee study, the average overdraft fee in 2023 was $26.61, down 11% from $29.80 in the previous year. In that same time period, the average NSF fee dropped a full 25%, from $26.58 in 2022 to a record low of $19.94 in 2023.

Despite the drop in average amounts, overdraft and NSF fees are still charged by 91% percent of accounts and 70% of accounts, respectively, according to the survey.

The Takeaway

Many checking accounts charge fees for everything from keeping your account open to overdrafts to ATM usage. Fortunately, you can avoid many of these charges by keeping a certain minimum balance in your account, signing up for direct deposits, going paperless, or looking for a bank that charges lower, or no, fees for checking accounts.

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


Better banking is here with SoFi, NerdWallet’s 2024 winner for Best Checking Account Overall.* Enjoy up to 3.80% APY on SoFi Checking and Savings.

FAQs

Are there fees for checking accounts?

Yes, checking accounts often come with various fees, including monthly maintenance fees, overdraft fees, ATM fees, and fees for paper statements or nonsufficient funds. These fees vary by bank and can add up over time if you’re not careful. Some banks offer fee-free checking accounts, but these might have specific requirements like maintaining a minimum balance or setting up direct deposits.

How do you avoid checking account fees?

You may be able to avoid or minimize checking account fees by:

•   Maintaining the required minimum balance

•   Signing up for direct deposit

•   Using your debit card a certain number of times per month

•   Using in-network ATMs

•   Opting for electronic statements

•   Setting up low-balance alerts (to avoid overdraft and nonsufficient funds fees)

•   Choosing a bank that offers fee-free checking accounts

What is the most common checking account fee?

The most common checking account fees include:

•   Monthly maintenance fees (these may be avoidable by keeping a certain minimum balance or signing up for regular direct deposits).

•   Fees for using out-of-network automatic teller machines (ATMs)

•   Overdraft fees

•   Nonsufficient fund (NSF) fees


SoFi® Checking and Savings is offered through SoFi Bank, N.A. ©2025 SoFi Bank, N.A. All rights reserved. Member FDIC. Equal Housing Lender.
The SoFi Bank Debit Mastercard® is issued by SoFi Bank, N.A., pursuant to license by Mastercard International Incorporated and can be used everywhere Mastercard is accepted. Mastercard is a registered trademark, and the circles design is a trademark of Mastercard International Incorporated.


*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.

SoFi members with direct deposit activity can earn 3.80% 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 3.80% APY on savings balances (including Vaults) and 0.50% APY on checking balances. Qualifying Deposits means one or more deposits that, in the aggregate, are equal to or greater than $5,000 to an account holder’s SoFi Checking and Savings account (“Qualifying Deposits”) during a 30-day Evaluation Period (as defined below). Qualifying Deposits only include those deposits from the following eligible sources: (i) ACH transfers, (ii) inbound wire transfers, (iii) peer-to-peer transfers (i.e., external transfers from PayPal, Venmo, etc. and internal peer-to-peer transfers from a SoFi account belonging to another account holder), (iv) check deposits, (v) instant funding to your SoFi Bank Debit Card, (vi) push payments to your SoFi Bank Debit Card, and (vii) cash deposits. Qualifying Deposits do not include: (i) transfers between an account holder’s Checking account, Savings account, and/or Vaults; (ii) interest payments; (iii) bonuses issued by SoFi Bank or its affiliates; or (iv) credits, reversals, and refunds from SoFi Bank, N.A. (“SoFi Bank”) or from a merchant. SoFi members with Qualifying Deposits are not eligible for other SoFi Plus benefits.

SoFi Bank shall, in its sole discretion, assess each account holder’s 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 3.80% APY on savings balances (including Vaults) and 0.50% on checking balances on or before the following calendar day. You will continue to earn these APYs for (i) the remainder of the current 30-Day Evaluation Period and through the end of the subsequent 30-Day Evaluation Period and (ii) any following 30-day Evaluation Periods during which SoFi Bank determines you to have 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.

Separately, SoFi members who enroll in SoFi Plus by paying the SoFi Plus Subscription Fee every 30 days can also earn 3.80% APY on savings balances (including Vaults) and 0.50% APY on checking balances. For additional details, see the SoFi Plus Terms and Conditions at https://www.sofi.com/terms-of-use/#plus.

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

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

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How to Save for Retirement

Between paying for your regular expenses including groceries, rent or mortgage, student loans, and bills, it can seem nearly impossible to find a few dollars left over for saving for retirement — especially when that might be decades away. However, building up a nest egg isn’t just important, it’s urgent. The sooner you start, the more financially secure you should be by the time retirement rolls around.

So, how to save for retirement? Finding a solid retirement plan to suit your needs may be easier than you think. Here are 10 ways to save for retirement to help make those golden years feel, well, golden.

This article is part of SoFi’s Retirement Planning Guide, our coverage of all the steps you need to create a successful retirement plan.


money management guide for beginners

Assess Your Retirement Goals and Needs

When it comes to saving for retirement, first do an inventory of your current financial situation. This includes your income, savings, and investments, as well as your expenses and debts. That way you’ll know how much you have now.

Next, figure out what you want your retirement to look like. Are you wondering how to retire early? Do you plan to travel? Move to a different location? Pursue hobbies like tennis, golf, or biking? Go back to school? Start a business?

You may not be able to answer these questions quickly or easily, but it’s important to think about them to determine your retirement goals. Deciding what you want your lifestyle to look like is key because it will affect how much money you’ll need for retirement saving.

💡 Quick Tip: Before opening an investment account, know your investment objectives, time horizon, and risk tolerance. These fundamentals will help keep your strategy on track and with the aim of meeting your goals.

Get a 1% IRA match on rollovers and contributions.

Double down on your retirement goals with a 1% match on every dollar you roll over and contribute to a SoFi IRA.1


1Terms and conditions apply. Roll over a minimum of $20K to receive the 1% match offer. Matches on contributions are made up to the annual limits.

Determine How Much You’ll Need to Retire

Now the big question: How much money will it take for you to retire comfortably? You may also be wondering, when can I retire? There are several retirement savings formulas that can help you estimate the amount of your nest egg. And there are various calculators that can help generate an estimate as well.

While using a ballpark figure may not sound scientific, it’s a good exercise that can help lay the foundation for the amount you want to save. And it may inspire you to save more, or rethink your investment strategy thus far.

As an example, you can use the following basic formula to gauge the amount you might need to save, assuming your retirement expenses are similar to your present ones. Start with your current annual income, subtract your estimated annual Social Security benefits, and divide by 0.04.

Example

Let’s say your income today is $100,000, and you went on the Social Security website using your MySSA account (the digital dashboard for benefits) to find out what your monthly benefits are likely to be when you retire: $2,000 per month, or $24,000 per year.

$100,000 – $24,000 = $76,000 / 0.04 = $1.9 million

That’s the target amount of retirement savings you would need, theoretically, to cover your expenses based on current levels. Bear in mind, however, that you may not need to replace 100% of your current income, as your expenses in retirement could be lower. And you may even be contemplating working after retirement. But this is one way to start doing the math.

10 Ways to Save For Retirement

So, how to save money for retirement? Consider the following 10 options part of your retirement savings toolkit.

1. Leverage the Power of Time

Giving your money as much time to grow as you possibly can is one of the most important ways to boost retirement savings. The reason: Compounding returns.

Let’s say you invest $500 in a mutual fund in your retirement account, and in a year the fund gained 5%. Now you would have $525 (minus any investment or account fees). While there are no guarantees that the money would continue to gain 5% every year — investments can also lose money — historically, the average stock market return of the S&P 500 is about 10% per year.

That might mean 0% one year, 10% another year, 3% the year after, and so on. But over time your principal would likely continue to grow, and the earnings on that principal would also grow. That’s compound growth.

2. Create and Stick to a Budget

Another important step in saving for retirement is to create a budget and stick to it. Calculating your own monthly budget can be simple — just follow these steps.

•   Gather your documents. Gather up all your bills including credit cards, loans, mortgage or rent, so that you can document every penny coming out of your pocket each month.

•   List all of your income. Find your pay stubs and add up any extra cash you make on the side using your after-tax take-home pay.

•   List all of your current savings. From here, you can see how far you have to go until you reach your retirement goals.

•   Calculate your retirement spending. Decide how much money you need to live comfortably in retirement so that you can establish a retirement budget. If you’re unsure of what your ideal retirement number is, plug your numbers into the formula mentioned above, or use a retirement calculator to get a better idea of what your retirement budget will be.

•   Adjust accordingly. Every few months take a look at your budget and make sure you’re staying on track. If a new bill comes up, an expensive life event occurs, or if you gain new income, adjust your budgets and keep saving what you can.

3. Take Advantage of Employer-Sponsored Retirement Plans

Preparing for retirement should begin the moment you start your first job — or any job that offers a company retirement plan. There are many advantages to contributing to a 401(k) program (if you work at a for-profit company) or a 403(b) plan (if you work for a nonprofit), or a 457(b) plan (if you work for the government).

In many cases, your employer can automatically deduct your contributions from your paycheck, so you don’t have to think about it. This can help you save more, effortlessly. And in some cases your employer may offer a matching contribution: e.g. up to 3% of the amount you save.

Starting a 401(k) savings program early in life can really add up in the future thanks to compound growth over time. In addition, starting earlier can help your portfolio weather changes in the market.

On the other hand, if you happen to start your retirement savings plan later in life, you can always take advantage of catch-up contributions that go beyond the 2024 annual contribution limit of $23,000 and 2025 annual contribution limit of $23,500. Individuals 50 and older are allowed to contribute an additional $7,500 a year to a 401(k), to help them save a bit more before hitting retirement age. For 2025, those aged 60 to 63 may contribute an additional $11,250 instead of $7,500, thanks to SECURE 2.0.

If you have a 403(b) retirement plan, it’s similar to a 401(k) in terms of the contribution limit and automatic deductions from your paycheck. Your employer may or may not match your contributions. However, the range of investment options you have to choose from may be more limited than those offered in a 401(k).

With a 457(b) plan, the contribution limit is similar to that of a 403(b). But employers don’t have to provide matching contributions for a 457(b) plan, and again, the investment options may be narrower than the options in a 401(k).

4. Add an Individual Retirement Account (IRA) to the Mix

Another strategy for how to save for retirement, especially if you’re one of the many freelancers or contract workers in the American workforce, is to open an IRA account.

Like a 401(k), an IRA allows you to put away money for your retirement. However, for both 2024 and 2025, the maximum contribution you can put into your IRA caps at $7,000 ($8,000 for those 50 and older).

Both the traditional IRA and 401(k) offer tax-deductible contributions. Roth IRAs are another option: With a Roth IRA, your contributions are taxed, which means your withdrawals in retirement will be tax free.

You control your IRA, not a larger company, so you can decide which financial institution you want to go with, how much you want to contribute each month, how to invest your money, and if you want to go Roth or traditional.

For those who can afford to invest money in both an IRA and a 401(k), and who meet the necessary criteria, that’s also an option that can boost retirement savings.

5. Deal With Debt

Should you save for retirement or pay off debt? And, more specifically, if you’re dealing with student loans, you may be wondering, should I save for retirement or pay off student loans? That is a financial conundrum for modern times. A good solution to this problem is to do both.

Just as it can be helpful to create a budget and stick to it, it can be helpful to create a loan repayment plan as well. Add those payments to your monthly budgeting expenses and if you still have dollars left over after accounting for all your bills, start socking that away for retirement.

If your student loan debt feels out of control, as it does for many Americans, you may want to look into student loan refinancing. By refinancing your student loan, you could significantly lower your interest rate and potentially pay off your debt faster. Once the loan is paid off, you will be able to reallocate that money to save for retirement.

6. Add Income With a Side Hustle

Working a side gig in your spare time can seriously pay off in the future, especially when you consider that the average side hustle can bring in several hundred dollars a month, according to one survey.

There are several things to consider when thinking of adding an extra job to your résumé, including evaluating what you’re willing to give up in order to make time for more work. But, if you can put your skills to use — such as copy editing, photography, design, or consulting — you can think about this as less of a side hustle and more of a way to hone your client list.

A side hustle should be one way to save for retirement that you’ll enjoy doing. And it could help if you find yourself dealing with a higher cost of living and retirement at some point.

7. Consider Putting Your Money in the Market

There’s no one best way to save for retirement — sometimes a multi-pronged approach can work best. If you already have a budget and an emergency savings account, and you’re maxing out your contributions to your 401(k), 403(b), 457, or IRA, then investing in the market could be another way to diversify your portfolio and potentially help build your nest egg. For instance, historically, stocks have been proven to be one of the best ways to help build wealth.

Putting your money in the market means you’ll have a variety of options to choose from. There are stocks, of course, but also mutual funds, exchange-traded funds, and even real estate investment trusts (REITs), which pool investor assets to purchase or finance a portfolio of properties.

However, investing in any of these assets, and in the market in general, comes with risk. So you’ll want to keep that in mind as you choose what to invest in. Consider what your risk tolerance is, how much you’re investing, when you’ll need the money, and how you might diversify your portfolio. Carefully weighing your priorities, needs, and comfort level, can help you make informed selections.

Once you have your asset allocation, be sure to evaluate it, and possibly rebalance it, to stay in line with your goals each year.

8. Automate Your Savings

Setting up automated savings accounts takes the thought and effort out of saving your money because it happens automatically. It could also help you hit your financial goals faster, because you don’t have to decide to save (or agonize over giving in to a spending temptation) and then do the manual work of putting the money into an account. It just happens like clockwork.

Enrolling in a 401(k), 403(b), or 457 at work is one way to automate savings for retirement. Another way to do it is to set up direct deposit for your paychecks. You could even choose to have a portion of your pay deposited into a high-interest savings account to help increase your returns.

9. Downsize and Cut Costs

To help save more and spend less, pull out that monthly budget you created. When you look at your current bills vs. income, how much is left over for retirement savings? Are there areas you can be spending less, such as getting rid of an expensive gym membership or streaming service, dialing back your takeout habit, or shopping a bit less?

This is when you need to be very honest with yourself and decide what you’re willing to give up to help you hit that target retirement number. Finding little ways to save for retirement can have a big impact down the road.

10. Take Advantage of Catch-Up Contributions

If you’re getting closer to retirement and you haven’t started saving yet, it’s not too late! In fact, the government allows catch-up contributions for those age 50 and older.
A catch-up contribution is a contribution to a retirement savings account that is made beyond the regular contribution maximum. Catch-up contributions can be made on either a pre-tax or after-tax basis.

For 2024 and 2025, catch-up contributions of up to $7,500 are permitted on a 401(k), 403(b), or 457(b). And again, for 2025, those aged 60 to 63 may contribute an additional $11,250 (instead of $7,500).

💡 Quick Tip: Look for an online brokerage with low trading commissions as well as no account minimum. Higher fees can cut into investment returns over time.

Common Retirement Savings Mistakes to Avoid

These are some of the biggest retirement pitfalls to watch out for.

•   Not having a retirement plan in place. Neglecting to make any kind of plan means you’ll likely be unprepared for retirement and won’t have enough money for your golden years.

•   Failing to take advantage of employer-sponsored plans. If you haven’t enrolled in one of these plans, you’re potentially leaving free money on the table. Sign up for a 401(k), 403(b), or 457(b) to tap into employer-matching contributions, when available.

•   Underestimating how much money you’ll need for retirement. Financial specialists typically advise having enough savings to last you for 25 to 30 years after you retire.

•   Accumulating too much debt. Try to avoid taking on too much debt as you get closer to retirement. And work on paying down the debt you do have so you won’t be saddled with it when you retire.

•   Taking Social Security too early. It’s possible to file for Social Security at age 62, but the longer you wait (up until age 70), the higher your benefit will be — approximately 32% higher, in fact.

The Takeaway

It’s never too early to start planning for retirement. And there are many ways to start saving, and set up a system so that you’re saving steadily over time. You can contribute to a retirement plan that your employer offers; you can set up your own retirement plan (e.g. an IRA); and you can choose your own investments.

The most important thing to remember is that you have more control than you think. While your retirement vision may change over time, starting to save and invest your nest egg now will give you a head start.

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).

Easily manage your retirement savings with a SoFi IRA.

FAQ

What is the fastest way to save for retirement?

Take a two-pronged approach: First, invest as much as you can in your employer-sponsored retirement account like a 401(k). You’ll likely get some matching contributions from your employer, as well as tax advantages. You can invest up to $23,000 in a 401(k) in 2024 and $23,500 in a 401(k) in 2025, plus an extra $7,500 if you are 50 or older. (In 2025, those aged 60 to 63 can contribute an extra $11,250, instead of $7,500.)

Second, if you qualify you can also set up and invest in a Roth IRA. You can contribute up to $7,000 annually to a Roth IRA in 2024 and 2025 ($8,000 if you’re 50 or older).

Having these two accounts could really help you start building up your retirement savings.

How much do I need to save for retirement?

To estimate how much you need to save for retirement, use this retirement savings formula: Start with your current income, subtract your estimated Social Security benefits, and divide by 0.04. That’s the approximate amount of total retirement savings you’ll need, based on your current income and expenses. You can try other calculators or formulas that might indicate that you’ll need less in retirement. It all depends.

Financial professionals typically advise having enough savings for 25 to 30 years’ worth of retirement.

How do I save for retirement without a 401(k)?

If you don’t have a 401(k), you can set up another type of tax-advantaged account for retirement, such as a traditional IRA and/or a Roth IRA. With a traditional IRA, the money grows tax free and is taxed when you withdraw it during retirement.

A Roth IRA, on the other hand, doesn’t provide a tax break upfront, but the funds you withdraw after age 59 ½ are tax free, as long as you’ve had the Roth IRA account for at least five years. You can contribute up to $7,000 a year to both types of IRAs for 2024 and 2025 ($8,000 if you’re 50 or older).

What is the average monthly income for a person who is retired?

The average monthly retirement income for a person who is retired, adjusted for inflation, is $4,381, according to a 2022 U.S. Census report.

How do taxes affect retirement income?

You will need to pay taxes on any withdrawals you make from tax-deferred investments like a 401(k) or traditional IRA. You will also have to pay federal taxes on a pension, if you have one. At the state level, some states tax pensions and some don’t. Additionally, you might have to pay tax on a portion of your Social Security benefits, depending on your overall income.

How can I supplement my income in retirement?

In addition to any retirement plans and pensions you have plus Social Security, you can supplement your retirement income with such strategies as: making investments generally considered to be safe, like investing in CDs (certificate of deposit), getting a part-time job or starting a small business, or renting out any additional property you might own, such as a vacation cabin, to make some extra money.


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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Can You Contribute to Both a 401(k) and an IRA?

“Can I contribute to a 401(k) and IRA?” It’s a question many individuals ask themselves as they start planning for their future. The short answer is yes, it’s possible to have a 401(k) or other employer-sponsored plan at work and also make contributions to an individual retirement plan, either a traditional or a Roth IRA.

If you have the money to do so, contributing to both a 401(k) and an IRA could help you fast track your retirement goals while enjoying some tax savings. But your income and filing status may affect the amounts you are allowed to contribute, in addition to the tax benefits you might see from a dual contribution strategy.

Read on to learn more about the guidelines and restrictions for having these two types of accounts and to answer the question “Can I contribute to a 401(k) and IRA?”

Key Points

•   It is possible to contribute to both a 401(k) and an IRA for retirement savings.

•   401(k) plans are employer-sponsored and allow both employee and employer contributions.

•   IRAs are individual retirement accounts that anyone can set up for themselves.

•   Contribution limits and tax benefits vary for 401(k)s and IRAs based on income and filing status.

•   Having both types of accounts can provide flexibility and help optimize taxes and distribution strategies.

Introduction to Retirement Savings Accounts

Although both IRAs and 401(k)s are retirement savings accounts, there are some important differences to know. The main one is that a 401(k) is an employer-sponsored retirement plan that allows both the employee and employer to contribute to the account.

IRAs are Individual Retirement Accounts that anyone can set up for themselves. There are two main types of IRAs: traditional and Roth.

Here’s a closer look at key differences between 401(k) plans and IRAs.

Understanding the Basics of 401(k)s and IRAs

A 401(k) is an employer-sponsored retirement plan. Employees sign up for a 401(k) through work and their contributions are automatically deducted directly from their paychecks. The money contributed to a 401(k) is tax deferred, which means you are not taxed on it until you withdraw it in retirement. Some employers match employees’ contributions to a 401(k) up to a certain amount.

An IRA is a tax-advantaged savings account that you can use to put away money for retirement. Money in an IRA can potentially grow through investment. While there are different types of IRAs, two of the most common types are traditional IRAs and Roth IRAs. The main difference between the two is the way they are taxed.

With a Roth IRA, you make after-tax contributions, and those contributions are not tax deductible. However, the money can potentially grow tax-free, and typically, you won’t owe taxes on it when you withdraw it in retirement (or at age 59 ½ and older). Individuals need to fall within certain income limits to open a Roth IRA (more about that later).

With a traditional IRA, your contributions are made with pre-tax dollars. Your contributions may lower your taxable income in the year you contribute. The money in a traditional IRA is tax-deferred, and you pay income taxes on it when you withdraw it. Traditional IRAs tend to have fewer eligibility requirements than Roth IRAs.

The Importance of Investing in Your Future

Retirement might seem like a long way off, but it’s vital to keep in mind that saving for it now can help you to meet your lifestyle needs and goals in your post-working years.

As you start planning your retirement savings, it’s a good idea to determine the estimated age you can retire, as the timing can influence other choices — like how much you choose to save, and what investments you might pick.

There are plenty of resources available online, including SoFi’s retirement calculator to help you determine potential retirement timelines and scenarios.

💡 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.

Can I Contribute to a 401(k) and an IRA?

This is a good question to ask if you’re just getting started on your retirement planning journey. For example, if you’re already contributing to a plan at work, you may be wondering if you can also save money in an IRA.

Or maybe you opened an IRA in college but now you’re starting your career and have access to a 401(k) for the first time. You may be unsure whether it makes sense to keep making contributions to an IRA if you’ll soon be enrolled in your employer’s retirement plan.

Having a basic understanding of how 401(k)s and IRAs work can help you make the most of these accounts when mapping out your retirement strategy.

Get a 1% IRA match on rollovers and contributions.

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1Terms and conditions apply. Roll over a minimum of $20K to receive the 1% match offer. Matches on contributions are made up to the annual limits.

Rules and Regulations for Multiple Retirement Accounts

There is no limit to the number of retirement accounts you can have. However, there are IRS rules about how much you can contribute to these accounts. And if you have multiples of the same type of retirement account, like two IRAs, you need to stay within the overall limit for both accounts combined. In other words, there is one single annual contribution limit for multiple IRAs.

In many cases, it may be beneficial to have more than one retirement account type. Brian Walsh, CFP® at SoFi says multiple accounts allow you have “added flexibility to optimize your taxes and your overall distribution strategy in 30, 40, or 50 years.”

Key Takeaways for Dual Contributions

When contributing to a 401(k) and an IRA you’ll want to remember these important points:

•   You can contribute up to the limit on your workplace 401(k) and up to the limit on your IRA annually.

•   If you have multiples of the same type of retirement account, such as two IRAs, you cannot exceed the single annual contribution limit across the accounts.

•   If you have a 401(k) at work, the tax deduction on your contributions for a traditional IRA may be limited, or you may not be eligible for a deduction at all.

2024 and 2025 Contribution Limits for 401(k) and IRA Plans

The IRS sets annual contribution limits for 401(k) and IRA plans and those limits change each year. These are the contribution limits for 2024 and 2025.

401(k) Contribution Limits and Considerations

As noted, a 401(k) plan may be funded by employer and employee contributions. Here are the annual 401(k) contribution limits for 2024:

•   $23,000 for employee contributions

•   $7,500 in catch-up contributions for employees age 50 or older

•   $69,000 limit for total employer and employee contributions ($76,500 including catch-up contributions for those 50 and older)

These are the annual 401(k) contribution limits for 2025:

•   $23,500 for employee contributions

•   $7,500 in catch-up contributions for employees age 50 or older

•   $11,250 (instead of $7,500) in catch-up contributions for employees aged 60 to 63

•   $70,000 limit for total employer and employee contributions ($77,500 including catch-up contributions for those 50 and older; $81,250 for those aged 60 to 63)

IRA Contribution Limits and Income Thresholds

IRAs are funded solely by individual contributions. Here are the annual contribution limits for traditional and Roth IRAs for 2024:

•   $7,000 for regular contributions

•   $1,000 catch-up contributions for those age 50 and older

And here are the annual contribution limits for traditional and Roth IRAs for 2025:

•   $7,000 for regular contributions

•   $1,000 catch-up contributions for those age 50 and older

These limits apply to total IRA contributions, as mentioned earlier. So if you have more than one IRA, the most you could add to those accounts combined in 2024 is $7,000 — or $8,000 if you’re 50 or older.

The Intricacies of IRA Contributions

There are some rules about IRA contributions that it’s vital to be aware of. For instance, you can’t save more than you earn in taxable income in your IRA. That means if you earn $4,000 for a year, you can only contribute $4,000 in your IRA.

Plus, as discussed above, the most you can contribute, whether you have one IRA or multiple IRAs, is the annual contribution limit.

And finally, the type of IRA you have affects the portion of your contributions (if any) you can deduct from your taxes.

Traditional vs Roth IRA: What You Need to Know

The main difference between a traditional IRA and a Roth IRA is how and when you are taxed. There are also some eligibility requirements and deduction limits.

IRA Deduction Limits and Eligibility Requirements

Traditional IRAs offer the benefit of tax-deductible contributions. The money you deposit is pre-tax (meaning, you don’t pay taxes on those funds), and contributions grow tax-deferred. You pay tax when making qualified withdrawals in retirement.

However, if either you or your spouse is covered by a retirement plan at work and your income is higher than a certain level, the tax deduction of your annual contributions to a traditional IRA may be limited.

Specifically, if either you or your spouse has a workplace retirement plan, a full deduction of the amount you contribute to an IRA in 2024 is allowed if:

•   You file single or head of household and your modified adjusted gross income (MAGI) is $77,000 or less

•   You’re married and file jointly, or a qualifying widow(er), with an MAGI of $123,000 or less

For 2025, you can take a full deduction of your yearly contributions to a traditional IRA if:

•   You file single or head of household and your modified adjusted gross income (MAGI) is $79,000 or less

•   You’re married and file jointly, or a qualifying widow(er), with an MAGI of $126,000 or less

A partial deduction is allowed for incomes over these limits, though it does eventually phase out entirely.

Roth IRAs allow you to make contributions using after-tax dollars. This means you don’t get the benefit of deducting the amount you contribute from your current year’s taxes. The upside of Roth accounts, though, is that you can typically make qualified withdrawals in retirement tax-free.

But there’s a catch: Your ability to contribute to a Roth IRA is based on your income. So how much you earn could be a deciding factor in answering the question, can you have a Roth IRA and 401(k) at the same time.

You can make a full contribution to a Roth IRA if:

•   In 2024, you file single or head of household, or you’re legally separated, and have a modified adjusted gross income of less than $146,000. For 2025, your MAGI must be less than $150,000 to make the full contribution.

•   In 2024, you’re married and file jointly, or are a qualifying widow(er), and your MAGI is less than $230,000. For 2025, you need a MAGI less than $236,000 to be able to make a full contribution.

The amount you can contribute to a Roth IRA is reduced as your income increases until it phases out altogether.

💡 Quick Tip: The advantage of opening a Roth IRA and a tax-deferred account like a 401(k) or traditional IRA is that by the time you retire, you’ll have tax-free income from your Roth, and taxable income from the tax-deferred account. This can help with tax planning.

How Contributing to Both a 401(k) and an IRA Affects Your Taxes

Both 401(k) plans and IRAs can offer tax benefits. Here are the key tax benefits to know when contributing to these plans:

•   401(k) contributions are tax-deductible

•   Traditional IRA contributions can be tax-deductible for eligible savers

•   Roth IRA contributions are not tax deductible, but Roth plans allow you to make tax-free withdrawals in retirement

Understanding the Tax Implications

You might choose to contribute to a Roth IRA and a 401(k) if you anticipate being in a higher tax bracket when you retire. By paying taxes now, rather than when you’re in the higher tax bracket later, you could limit your tax liability.

However, if you expect to be in a lower tax bracket when you retire, you may want to opt for a traditional IRA so that you pay the taxes later.

Strategies for Minimizing Taxes on Withdrawals

Both 401(k) plans and IRAs are designed to be used for retirement, which is why the taxes you pay are deferred (and why these accounts are typically called tax-deferred accounts). As such, early withdrawals from 401(k) plans are discouraged and you may trigger taxes and a penalty when taking money from these plans prior to age 59 ½.

Here are the most important things to know about withdrawing money from 401(k) plans or traditional and Roth IRAs:

•   Withdrawals from 401(k) and traditional IRA accounts are subject to ordinary income tax at the time you withdraw them. If you withdraw funds before age 59 ½, you would owe taxes and a 10% penalty — although some exceptions apply (e.g. an emergency or hardship withdrawal).

•   Roth IRA contributions and earnings are treated somewhat differently. Withdrawals of original contributions (not earnings) to a Roth IRA can be made tax- and penalty-free at any time.

•   If you withdraw earnings from a Roth account prior to age 59 ½, and if you haven’t owned the account for at least five years, the money could be subject to taxes and a 10% penalty. This is called the five-year rule. Special exceptions may apply for a first-time home purchase, college expenses, and other situations.

In addition to taxes, a 10% early withdrawal penalty can apply to withdrawals made from 401(k) plans or IRAs before age 59 ½ unless an exception applies. But the IRS does allow for several exceptions. In terms of what constitutes an exception, the IRS waives the penalty in certain scenarios, including total and permanent disability of the plan participant or owner, payment for qualified higher education expenses, and withdrawals of up to $10,000 toward the purchase of a first home.

You might also avoid the penalty with 401(k) plans if you meet the rule of 55. This rule allows you to withdraw money from a 401(k) penalty-free if you leave your job in the year you turn 55, although you would still owe ordinary income taxes on that money. This scenario also has some restrictions, so you may want to discuss it with your plan administrator or a financial advisor.

Finally, once you reach a certain age, you are required to withdraw minimum amounts from 401(k) plans and traditional IRAs or else you could be charged a significant tax penalty. These are known as required minimum distributions or RMDs.

The IRS generally requires you to begin taking RMDs from these plans at age 73 (as long as you reached age 72 after December 31, 2022). The amount you’re required to withdraw is based on your account balance and life expectancy, and many retirement plan providers offer help calculating the exact amount of your required distributions.

This is critical, because if you don’t take RMDs on time you may trigger a 50% tax penalty on the amount you were required to withdraw.

RMDs are not required for Roth IRAs.

Choosing Between a 401(k) and an IRA

If you are deciding between a 401(k) and an IRA, there are a number of factors you’ll want to weigh carefully before making a decision.

Factors to Consider When Making Your Choice

Overall, IRAs tend to offer more investment options, and 401(k)s allow higher annual contributions. If your employer matches 401(k) contributions up to a certain amount, that’s another important consideration. Additionally, you’ll want to think about the tax advantages and implications of each type of account.

Comparing Benefits and Drawbacks of Each Plan

Both 401(k)s and IRAs have advantages and disadvantages. It’s important to consider all variables in determining which account is best for your situation.

401(k)

IRA

Pros

•   Larger contribution limits than IRAs.

•   Employers may match employee contributions up to a certain amount.

•   Wide array of investment options.

•   A traditional IRA may allow tax deductions for contributions for those who meet the modified adjusted income requirements.

Cons

•   Limited investment options.

•   Potentially high fees.

•   Contribution amount is much smaller than it is for a 401(k).

•   Roth IRAs have income requirements for eligibility.

Neither plan is necessarily better than the other. They each offer different features and possible benefits. If your employer doesn’t offer a 401(k) plan, you may want to set up a traditional or Roth IRA depending on your personal financial situation. And if you’re already contributing to a 401(k), you may still want to think about opening an IRA.

The Combined Power of a 401(k) and IRA

Instead of investing in only an IRA or your company’s retirement plan, consider how you can blend the two into a powerful investment strategy. One reason this makes sense is that you can invest more for your retirement, with the additional savings and potential growth providing even more resources to fund your retirement dreams.

How to Strategically Invest in Both Accounts

Since employers often match 401(k) contributions up to a certain percentage (for instance, your company might match the first 3% of your contributions), this boosts your overall savings. The employer match is essentially free money that you could get simply by making the minimum contribution to your plan.

Now imagine adding an IRA to the picture. Remember, with an IRA you have flexibility when investing. With a 401(k), you have limited options when it comes to investment funds. With an IRA, you’re able to decide what you’d like to invest in, whether it be stocks, bonds, mutual funds, exchanged-traded funds (ETFs), or other options.

To strategically invest in both accounts, consider contributing to 401(k) and IRA plans up to the annual limits, if you can realistically afford to. Make sure this is feasible given your budget, spending, and other financial goals you may have such as paying down debt or saving for your child’s education. And do some research into how this approach may affect your retirement tax deductions.

Not everyone is able to max out both retirement fund options, but even if you can’t, you can still create a powerful one-two punch by making strategic choices. First, think about your company-matching benefit for your 401(k). This is a key benefit and it makes sense to take as much advantage as you can.

Let’s say that your company will match a certain percentage of the first 6% of your gross earnings. Calculate what 6% is and consider contributing that much to your 401(k) and opening an IRA with other money you can invest this year.

And, if you end up having even more money to invest? Consider going back to your 401(k). There still may be value in contributing to your 401(k) beyond the amount that can be matched — for the simple reason that company-sponsored plans allow you to save more than an IRA does.

Now, let’s say you have a 401(k) plan but your employer doesn’t offer a matching benefit. Then, consider contributing to an IRA first. You may benefit from having a wider array of investment choices. Once you’ve maxed out what you can contribute to your IRA, then contribute to your 401(k).

These are all just options and examples, of course. What you ultimately decide to do depends on your financial and personal situation.

Long-term Growth Potential

By investing in both a 401(k) and IRA, you are taking advantage of employer-matched contributions and diversifying your retirement portfolio which can help manage risk and may potentially improve the overall performance of your investments in aggregate.

In addition, while a 401(k) offered by your employer may have limited investment options to choose from, with an IRA, you have more access to different investment options. That could, potentially, help grow your money for retirement, depending on what you invest in and the rate of return of those investments.

Plus, by contributing to both kinds of retirement accounts, you are likely putting more money overall into saving for retirement.

Step-by-Step Guide to Contributing to Both 401(k) and IRA

If you’ve decided to open and contribute to both a 401(k) and an IRA, here’s how to get started.

Eligibility Verification and Contribution Processes

To determine if you’re eligible to contribute to a 401(k), find out if your employer offers such a plan. Your HR or benefits department should be able to help you with this.

If a 401(k) is available, fill out the paperwork to enroll in the plan. Decide how much you want to contribute. This will typically either be a set dollar amount or a percentage of your paycheck that will usually be automatically deducted. Next, select the type of investment options you’d like from those that are available. You could diversify your investments across a range of asset classes, such as index funds, stocks, and bonds, to help reduce your risk exposure.

Individuals with earned income can open an IRA — even if they also have a 401(k). First, decide what type of IRA you’d like to open. A traditional IRA generally has fewer eligibility requirements. A Roth IRA has income limits on contributions. So, in this case, you’ll need to find out if you are income-eligible for a Roth.

You can typically open an IRA through a bank, an online lender, or a brokerage. Once you’ve decided where to open the account and the type of IRA you’d like, you can begin the process of opening the account. You’ll need to supply personal information such as your name and address, date of birth, Social Security number, and employment information. You’ll also need to provide your banking information to transfer funds into the IRA.

Next decide how much to invest in the IRA, based on the annual maximum contribution amount allowed, as discussed above, and choose your investment options. Remember, diversifying your investments across different asset classes and investment sectors can help manage risk.

Examples of Diversified Retirement Portfolios

To build a diversified portfolio, one guideline is the 60-40 rule of investing. That means investing 60% of your portfolio in stocks and 40% in fixed income and cash.

However, that formula varies depending on your age. The closer you get to retirement, the more conservative with your investments you may want to be to help minimize your risk.

No matter what your age, make sure your investments are in line with your financial goals and tolerance for risk.

The Takeaway

Not only is it possible to have a 401(k) and also a traditional or Roth IRA, it might offer you significant benefits to have both, depending on your circumstances. The chief upside, of course, is that having two accounts gives you the option to save even more for retirement.

The main downside of deciding whether to fund a 401(k) and a traditional or Roth IRA is that it can be a complicated question: You have to consider your ability to save, your risk tolerance, and the tax implications of each type of account, as well as your long-term goals. Then, if you decide to move ahead with both types of accounts, you can work on opening them up and contributing to them.

Ready to invest in your goals? It’s easy to get started when you open an investment account with SoFi Invest. You can invest in stocks, exchange-traded funds (ETFs), mutual funds, alternative funds, and more. SoFi doesn’t charge commissions, but other fees apply (full fee disclosure here).

Invest with as little as $5 with a SoFi Active Investing account.

FAQ

Can you max out both a 401(k) and an IRA?

Yes, you can max out both a 401(k) and an IRA up to the annual amounts allowed by the IRS. For 2024 that’s $7,000 for an IRA ($8,000 if you’re 50 or older), and $23,000 ($30,500 if you’re 50 or older) for a 401(k). For 2025, it’s $7,000 for an IRA ($8,000 if you’re 50 or older), and $23,500 for a 401(k) or ($31,000 if you’re 50 or older; $34,750 if you’re aged 60 to 63).

How do employer contributions affect your IRA contributions?

Employer contributions to a 401(k) don’t affect your IRA contributions. You can still contribute the maximum allowable amount annually to your IRA even if your employer contributes to your 401(k). However, having a retirement plan like a 401(k) at work does affect the portion of your IRA contributions that may be deductible from your taxable income. In this case, the deductions are limited, and potentially not allowed, depending on the size of your salary.


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INVESTMENTS ARE NOT FDIC INSURED • ARE NOT BANK GUARANTEED • MAY LOSE VALUE

SoFi Invest encompasses two distinct companies, with various products and services offered to investors as described below: Individual customer accounts may be subject to the terms applicable to one or more of these platforms.
1) Automated Investing and advisory services are provided by SoFi Wealth LLC, an SEC-registered investment adviser (“SoFi Wealth“). Brokerage services are provided to SoFi Wealth LLC by SoFi Securities LLC.
2) Active Investing and brokerage services are provided by SoFi Securities LLC, Member FINRA (www.finra.org)/SIPC(www.sipc.org). Clearing and custody of all securities are provided by APEX Clearing Corporation.
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Neither the Investment Advisor Representatives of SoFi Wealth, nor the Registered Representatives of SoFi Securities are compensated for the sale of any product or service sold through any SoFi Invest platform.


Investment Risk: Diversification can help reduce some investment risk. It cannot guarantee profit, or fully protect in a down market.

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.

Exchange Traded Funds (ETFs): Investors should carefully consider the information contained in the prospectus, which contains the Fund’s investment objectives, risks, charges, expenses, and other relevant information. You may obtain a prospectus from the Fund company’s website or by email customer service at https://sofi.app.link/investchat. Please read the prospectus carefully prior to investing.
Shares of ETFs must be bought and sold at market price, which can vary significantly from the Fund’s net asset value (NAV). Investment returns are subject to market volatility and shares may be worth more or less their original value when redeemed. The diversification of an ETF will not protect against loss. An ETF may not achieve its stated investment objective. Rebalancing and other activities within the fund may be subject to tax consequences.

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Average Cost of Car Insurance in Arizona

Average Cost of Car Insurance in Arizona

When you’re shopping for car insurance in Arizona, it can help to know the average cost of coverage. That way, you can compare the figure to the quotes you’re receiving.

Of course, a number of factors can influence how much you pay for car insurance. Besides geography, insurers may consider your driving record, age, gender, credit score, car type, and level of coverage. Rates can also vary by insurance company, which is why it makes sense to shop around.

Here’s a look at the average cost of car insurance in Arizona and how different factors may impact how much drivers there pay for protection.

Key Points

•   Arizona drivers pay an average of $1,626 annually for car insurance, which is lower than the national average of $2,068.

•   Insurance rates in Phoenix are the highest among Arizona cities.

•   Younger drivers, particularly males, face higher insurance premiums.

•   Arizona drivers with poor credit scores typically pay more for car insurance.

•   Accidents or traffic violations can lead to increased insurance rates.

How Much Does Car Insurance Cost in Arizona?

Drivers in Arizona pay an average of $1,626 per year for car insurance coverage, according to a 2025 U.S. News & World Report analysis of cheap car insurance companies. This is lower than the national average of $2,068 per year.

Average Car Insurance Cost in Arizona Per Month

The average monthly cost of car insurance in Arizona is $135.50. That’s lower than the national monthly average of $172.33. As the chart below shows, the amount you pay can vary by insurer.

Company Average Cost per Month Average Annual Cost
Allstate $176.92 $2,123
Farmers Insurance $158.50 $1,902
Geico $103.33 $1,240
Mercury $129.92 $1,559
Nationwide $128.33 $1,540
Progressive $114.25 $1,371
State Farm $111.08 $1,333
The General $252.92 $3,035
Travelers $90.42 $1,085
USAA $102.33 $1,228

Source: U.S. News & World Report

Average Car Insurance Cost in Arizona By City

Where you live can impact how much you’ll pay for car insurance. That’s because when determining how much to charge for coverage, insurers often take into account local rates of traffic, accidents and crime. As a general rule, people living in cities tend to pay more for car insurance than those living in small towns or rural areas. And as the chart below shows, that amount can also fluctuate depending on which city you call home. Here are estimates for five of the biggest cities in Arizona:

Recommended: Does Auto Insurance Roadside Assistance Cover Keys Locked in a Car?

City Average Annual Cost
Chandler $1,938
Mesa $1,976
Phoenix $2,251
Scottsdale $1,958
Tucson $1,879

Source: Insure.com

Recommended: Does Auto Insurance Roadside Assistance Cover Keys Locked in a Car?

Average Car Insurance Cost in Arizona By the Age and Gender of the Driver

Your age can impact premium prices. In general, younger, newer drivers tend to pay higher premiums because they tend to have more accidents than older, more experienced drivers. Gender can play a role in costs, too. Women often pay lower premiums than men because they tend to get into fewer severe accidents.

Age of Driver Average Annual Cost for Male Drivers Average Annual Cost for Female Drivers
17 $6,324 $5,527
25 $2,026 $1,901
60 $1,452 $1,336

Source: U.S. News and World Report

Average Car Insurance Rates After an At-Fault Accident

Your driving record matters, and car insurance rates can go up after an accident or traffic violation. For example, drivers in Arizona with one accident on their record pay an average rate of $2,373 per year for coverage, or $747 more than the state average. One speeding ticket can boost a driver’s average annual rate to $2,035, or $409 higher than the state average. And one driving under the influence (DUI) offense may raise the average annual rate to $2,412, or $786 higher than the state average.

Average Car Insurance Costs for Good and Bad Credit

Some states prohibit insurance companies from pulling your credit report, but it’s allowed in Arizona — and the results could impact how much your coverage costs. Drivers with bad credit could end up paying hundreds more per year for car insurance. An analysis from LendingTree found that drivers with poor credit pay an average of $4,088 per year for full coverage insurance, while those with good credit pay around $2,096.

What Else Affects Your Car Insurance Cost?

Let’s look at other factors that can impact how much someone pays for car insurance.

Insurance History

Drivers who allow their coverage to lapse may be more likely to cancel their policy, so having a reliable history with one insurer may qualify you for a lower rate. In fact, it’s possible you’ll get a better quote when switching car insurance carriers than if you purchased insurance after going a few years without it.

Make and Model of the Car

When setting a rate, insurance companies often consider how expensive it would be to repair or replace the driver’s car. The higher these costs are, the more the driver will likely pay for coverage. However, if you have a newer car that’s equipped with more safety features, you may be eligible for a lower rate.

Marital Status

Married drivers may qualify for more discounts than single drivers, since insurers often place them in a different risk category.

Amount of Coverage

How much car insurance do you need? The answer depends on a number of factors, including your state’s minimum car insurance requirements, your budget, and your lifestyle. As a rule of thumb, the more coverage you have, the more expensive your policy will likely be.

Recommended: How to Get Car Insurance

How to Get Affordable Car Insurance

The cost of coverage varies by insurer. To find affordable coverage, it’s a good idea to shop around and compare quotes from various online insurance companies.

But first, you’ll want to figure out how much car insurance you need. Keep in mind your state’s minimum car insurance requirements as well as additional coverage you may need.

Looking to lower your car insurance? There are several strategies to consider. You may want to explore different policy options; look for bundling opportunities, such as getting your home and auto insurance from the same company; ask about possible discounts: and consider whether a policy with a higher deductible makes sense for you.

The Takeaway

Drivers in Arizona pay an average of $1,626 per year for car insurance, which is lower than the national average of $2,068 per year. But as in most states, the amount you pay in Arizona can depend on a wide range of factors, such as your age, gender, driving record, credit score, and even where you live. You can search online insurance companies and compare multiple car insurance rates.

When the unexpected happens, it’s good to know you have a plan to protect your loved ones and your finances. SoFi has teamed up with some of the best insurance companies in the industry to provide members with fast, easy, and reliable insurance.

Find affordable auto, life, homeowners, and renters insurance with SoFi Protect.

FAQ

How much is full coverage car insurance in Arizona?

The average cost of car insurance is $1,626 annually, which breaks down to $135.50 monthly. Your costs may be different, depending on your age, gender, driving record, credit scores, the city or town you live in, and more.

Is $300 per month a lot for car insurance in Arizona?

In many cases, the average monthly cost for coverage is below $300. But premium amounts vary based on a number of factors. A 17-year-old male driver, for example, could very well pay more than $300 per month because of his age and lack of driving experience.

How much car insurance should I have in Arizona?

Arizona requires the following minimum coverage limits: $25,000 for one person who sustains injury or death in an accident; $50,000 for two or more people sustaining injury or death; and $15,000 for property damage (other people’s). You can have more than that amount but not less.


Photo credit: iStock/twildlife

Auto Insurance: Must have a valid driver’s license. Not available in all states.
Home and Renters Insurance: Insurance not available in all states.
Experian is a registered trademark of Experian.
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.

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