SoFi

Many people love showing their holiday spirit with Christmas lights, whether just a strand of twinkle lights around a window or going all-out like the Griswolds.

While these lights are festive, it’s worth noting that they aren’t free. In fact, the cost of running holiday lights rose 13% last year, costing the average household $15.48 vs. $13.41 the prior year.

In this economy, every dollar can count, so if you want to learn how much it costs to run Christmas lights for a month and how to reduce that expense, read on.

Here, you’ll learn more about:

•   How much do Christmas lights cost to run?

•   How much does it cost to run Christmas lights for a month?

•   How can you save money on your holiday light electric bill?

Factors Affecting the Cost of Running Christmas Lights

Running Christmas lights uses energy, which can translate to higher utility bills. How much of an increase you see in your electric bill can depend on a number of factors, including:

•   How many strands of lights you use

•   The type of bulbs used in each strand

•   The number of hours you run your lights each day

•   How many days you run Christmas lights for

•   Where you live and what you pay per kilowatt hour for electricity.

All of these things can influence how large your Christmas lights electric bill turns out be once January rolls around. Understanding what you could wind up paying can help if affordably celebrating the holidays is your goal.

Keep in mind that other costs can drive up electric bills during the holidays, apart from Christmas lights. If you’re using the oven more often to prepare holiday meals, for example, that can result in a higher electric bill. You may also see a bigger bill if colder weather means the heat is kicking on more often or your kids are home all day using electronics more while school is out. Lowering your energy bill may require a multifaceted approach.

How Much Electricity Do Christmas Lights Use?

The amount of energy used by Christmas lights can depend on the type of bulb and the number of bulbs per strand. The most popular options for Christmas lights include incandescent mini lights, mini LED lights, and ceramic C7 lights.

So which type of bulb uses the most energy?

The simplest answer is to look at the wattage of Christmas lights, based on bulb size and number of bulbs per strand. For example:

•   With C7 lights, for instance, you’re typically getting 25 lights per strand.

•   With mini LED lights, you’ll normally have 50 bulbs for a 14-foot strand and 100 bulbs per 32-foot strand.

•   With mini icicle lights, you often have 300 bulbs for a 26-foot strand.

Here’s how the average wattage for each one compares, though note that incandescent bulbs stopped being manufactured and sold in August 2023 (some people may still own and use strands of these, however):

•   C7 lights: 5 watts

•   C9 incandescent lights (2-¼” long): 7 watts

•   Mini incandescent lights: 0.4 watts

•   Mini LED lights: 0.07 watts

Between those three options, mini LED lights draw the least amount of energy per strand while C7 lights draw the most.

LEDs possibly lowering energy costs by up to 90% vs. the other options. Switching to LEDs could be a way to save money daily during the holidays.

Also note that you’d need four strands of C7 lights to equal the same number of bulbs in just one strand of incandescent or LED mini lights. This is important to understand because it can affect the number of kilowatt hours used and your overall energy costs.

Recommended: 23 Tips on Saving Money Daily

Cost of Running Christmas Lights

So how much do Christmas lights cost to run for a month? Or longer? Calculating your estimated cost of running Christmas lights matters when trying to lower your electric bill during the winter months. Again, what you’ll pay can depend on a variety of factors, including where you live and how much electricity costs.

The average household pays $0.17 cents per kilowatt hour for electricity, according to the U.S. Department of Energy, but prices may be significantly higher or lower in different parts of the country due to cost of living differences.

If you live in Connecticut, for example, you might pay an average of $0.21 cents per kilowatt hour. People living in Florida, however, might pay an average of $0.11 cents per kilowatt hour. Residents of Hawaii typically pay the most, currently spending $0.32 cents per kilowatt hour.

Here’s how to figure out how much you’ll pay for Christmas lighting:

•   Multiply the wattage of the lights by the hours per day the lights will be on, then divide by 1,000 to find kilowatt hours per day

•   Multiply kilowatt hours per day by your cost of electric usage to get the cost per day

•   Multiply the cost per day by the number of days your lights will be on

Calculating the Cost of Christmas Lights

Now, for how much does it cost to run Christmas lights? Here’s a look at what it would cost to run C7 lights, C9, and mini incandescent lights, and mini LED lights for six hours a day for 30 days, using a price of $0.14 cents per kilowatt hour. Here’s what you’d pay for each one:

Keep in mind that these costs are for just one strand of lights, as noted. If you string together several strands on your tree, frame your windows with lights, and then drape your shrubs or street-facing windows outdoors with more, your costs will of course go up.

Also, in terms of what the average person spends on Christmas lights, it can vary by a state’s cost of living, as well as by what kind of bulbs are used. Louisiana residents who run LED lights, for example, would likely spend the least, since they are paying just over nine cents per kilowatt hour (currently the lowest rate in the US) and they would be using energy-saving bulbs. Meanwhile, Hawaiians who opt for incandescent bulbs would probably spend the most, since their bulbs use a considerable amount of power and they currently pay the highest national rate for energy of almost 33 cents per kilowatt hour.

Tips to Save on Your Christmas Lighting Bill

If you’re looking for ways to lower your energy bill when you start plugging in your holiday lights, follow this advice.

Embracing Energy-Efficient LEDs

As mentioned, the wattage of Christmas lights plays an important part in determining how much you pay for electric bills over the holidays. Between C7 lights, incandescent lights and LED lights, LED lights are highly energy-efficient. According to the Department of Energy, residential LEDs that are ENERGY STAR rated use up to 75% less energy and last 25 times longer than incandescent lights.

People who use LED Christmas lights tend to pay far less than those using incandescent bulbs or C7 lights. So it follows that an easy way to save money on your electric bill and reduce energy usage would be to use mini LED lights as often as possible. Aside from that, LED bulbs emit less light and are less likely to overload sockets, making them a potentially safer option for Christmas lighting compared to other types of bulbs.

So if you still have some incandescent bulbs in your box of Christmas decorations, you may want to think about swapping them out for LEDs. (You won’t find incandescents made or sold in the US anymore either.)

Benefits of Solar-Powered Outdoor Lights

You might consider using solar-powered outdoor lights on your house over the holidays. These strands depend upon energy collected by small panels that gather and hold energy from the sun during the day.

These strands don’t plug in and draw no electrical power. So they can be especially easy and economical to use over the holidays.

Battery-Operated Lights for Smaller Displays

If you like to create smaller displays, you might consider battery-powered strands of lights. There is a wide range of how long these lights will stay illuminated, but this can be a good unplugged option to try for small-scale displays. While you do have to pay for the batteries, it can be cheaper than plugging in lights for weeks on end.

Recommended: 18 Common Misconceptions About Money

The Takeaway

A higher-than-usual electric bill can put a damper on your holiday celebrations. Estimating your potential costs beforehand can help you manage utility expenses. And you can decide whether it’s worth it to invest a little money in upgrading your current Christmas lights to energy-efficient options.

Having the right banking partner, such as one with budgeting tools, can also help make tackling high utility bills after the holidays easier.

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.

FAQ

Do LED Christmas lights use a lot of electricity?

Compared to C7 lights or incandescent mini lights, LED Christmas lights use the least amount of energy. Specifically, they can use up to 90% less energy while lasting longer. LED Christmas lights also emit less heat and can be easier to install than other types of holiday lighting.

Do Christmas lights raise your light bill?

Holiday lights can raise your electric bill during the winter months. How much it costs to run Christmas lights can depend on several things, including the type of bulbs used, how many light strands you’re running, how long you turn the lights on for, and the average cost of energy per kilowatt hour in your area. Using timers and switching to energy-efficient bulbs can be helpful for reducing your Christmas lights electric bill.

Do Christmas trees use a lot of electricity?

Christmas trees can use a lot of electricity, depending on the type of lights you use, the number of strands on the tree, and how long you leave your tree plugged in each day. Using mini LED lights can reduce electric costs for Christmas tree lighting, while using C7 bulbs to light your tree could result in a higher energy bill.

Photo credit: iStock/BanksPhotos

SoFi® Checking and Savings is offered through SoFi Bank, N.A. ©2023 SoFi Bank, N.A. All rights reserved. Member FDIC. Equal Housing Lender.
The SoFi Bank Debit Mastercard® is issued by SoFi Bank, N.A., pursuant to license by Mastercard International Incorporated and can be used everywhere Mastercard is accepted. Mastercard is a registered trademark, and the circles design is a trademark of Mastercard International Incorporated.

SoFi members with direct deposit activity can earn 4.60% annual percentage yield (APY) on savings balances (including Vaults) and 0.50% APY on checking balances. Direct Deposit means a deposit to an account holder’s SoFi Checking or Savings account, including payroll, pension, or government 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, do not constitute Direct Deposit activity. There is no minimum Direct Deposit amount required to qualify for the stated interest rate.

SoFi members with Qualifying Deposits can earn 4.60% 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 Bank shall, in its sole discretion, assess each account holder’s Direct Deposit activity and Qualifying Deposits throughout each 30-Day Evaluation Period to determine the applicability of rates and may request additional documentation for verification of eligibility. The 30-Day Evaluation Period refers to the “Start Date” and “End Date” set forth on the APY Details page of your account, which comprises a period of 30 calendar days (the “30-Day Evaluation Period”). You can access the APY Details page at any time by logging into your SoFi account on the SoFi mobile app or SoFi website and selecting either (i) Banking > Savings > Current APY or (ii) Banking > Checking > Current APY. Upon receiving a Direct Deposit or $5,000 in Qualifying Deposits to your account, you will begin earning 4.60% APY on savings balances (including Vaults) and 0.50% on checking balances on or before the following calendar day. You will continue to earn these APYs for (i) the remainder of the current 30-Day Evaluation Period and through the end of the subsequent 30-Day Evaluation Period and (ii) any following 30-day Evaluation Periods during which SoFi Bank determines you to have Direct Deposit activity or $5,000 in Qualifying Deposits without interruption.

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

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

Interest rates are variable and subject to change at any time. These rates are current as of 10/24/2023. There is no minimum balance requirement. Additional information can be found at https://www.sofi.com/legal/banking-rate-sheet.

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

SOBK1023001

Many people love showing their holiday spirit with Christmas lights, whether just a strand of twinkle lights around a window or going all-out like the Griswolds.

While these lights are festive, it’s worth noting that they aren’t free. In fact, the cost of running holiday lights rose 13% last year, costing the average household $15.48 vs. $13.41 the prior year.

In this economy, every dollar can count, so if you want to learn how much it costs to run Christmas lights for a month and how to reduce that expense, read on.

Here, you’ll learn more about:

•   How much do Christmas lights cost to run?

•   How much does it cost to run Christmas lights for a month?

•   How can you save money on your holiday light electric bill?

Factors Affecting the Cost of Running Christmas Lights

Running Christmas lights uses energy, which can translate to higher utility bills. How much of an increase you see in your electric bill can depend on a number of factors, including:

•   How many strands of lights you use

•   The type of bulbs used in each strand

•   The number of hours you run your lights each day

•   How many days you run Christmas lights for

•   Where you live and what you pay per kilowatt hour for electricity.

All of these things can influence how large your Christmas lights electric bill turns out be once January rolls around. Understanding what you could wind up paying can help if affordably celebrating the holidays is your goal.

Keep in mind that other costs can drive up electric bills during the holidays, apart from Christmas lights. If you’re using the oven more often to prepare holiday meals, for example, that can result in a higher electric bill. You may also see a bigger bill if colder weather means the heat is kicking on more often or your kids are home all day using electronics more while school is out. Lowering your energy bill may require a multifaceted approach.

How Much Electricity Do Christmas Lights Use?

The amount of energy used by Christmas lights can depend on the type of bulb and the number of bulbs per strand. The most popular options for Christmas lights include incandescent mini lights, mini LED lights, and ceramic C7 lights.

So which type of bulb uses the most energy?

The simplest answer is to look at the wattage of Christmas lights, based on bulb size and number of bulbs per strand. For example:

•   With C7 lights, for instance, you’re typically getting 25 lights per strand.

•   With mini LED lights, you’ll normally have 50 bulbs for a 14-foot strand and 100 bulbs per 32-foot strand.

•   With mini icicle lights, you often have 300 bulbs for a 26-foot strand.

Here’s how the average wattage for each one compares, though note that incandescent bulbs stopped being manufactured and sold in August 2023 (some people may still own and use strands of these, however):

•   C7 lights: 5 watts

•   C9 incandescent lights (2-¼” long): 7 watts

•   Mini incandescent lights: 0.4 watts

•   Mini LED lights: 0.07 watts

Between those three options, mini LED lights draw the least amount of energy per strand while C7 lights draw the most.

LEDs possibly lowering energy costs by up to 90% vs. the other options. Switching to LEDs could be a way to save money daily during the holidays.

Also note that you’d need four strands of C7 lights to equal the same number of bulbs in just one strand of incandescent or LED mini lights. This is important to understand because it can affect the number of kilowatt hours used and your overall energy costs.

Recommended: 23 Tips on Saving Money Daily

Cost of Running Christmas Lights

So how much do Christmas lights cost to run for a month? Or longer? Calculating your estimated cost of running Christmas lights matters when trying to lower your electric bill during the winter months. Again, what you’ll pay can depend on a variety of factors, including where you live and how much electricity costs.

The average household pays $0.17 cents per kilowatt hour for electricity, according to the U.S. Department of Energy, but prices may be significantly higher or lower in different parts of the country due to cost of living differences.

If you live in Connecticut, for example, you might pay an average of $0.21 cents per kilowatt hour. People living in Florida, however, might pay an average of $0.11 cents per kilowatt hour. Residents of Hawaii typically pay the most, currently spending $0.32 cents per kilowatt hour.

Here’s how to figure out how much you’ll pay for Christmas lighting:

•   Multiply the wattage of the lights by the hours per day the lights will be on, then divide by 1,000 to find kilowatt hours per day

•   Multiply kilowatt hours per day by your cost of electric usage to get the cost per day

•   Multiply the cost per day by the number of days your lights will be on

Calculating the Cost of Christmas Lights

Now, for how much does it cost to run Christmas lights? Here’s a look at what it would cost to run C7 lights, C9, and mini incandescent lights, and mini LED lights for six hours a day for 30 days, using a price of $0.14 cents per kilowatt hour. Here’s what you’d pay for each one:

Keep in mind that these costs are for just one strand of lights, as noted. If you string together several strands on your tree, frame your windows with lights, and then drape your shrubs or street-facing windows outdoors with more, your costs will of course go up.

Also, in terms of what the average person spends on Christmas lights, it can vary by a state’s cost of living, as well as by what kind of bulbs are used. Louisiana residents who run LED lights, for example, would likely spend the least, since they are paying just over nine cents per kilowatt hour (currently the lowest rate in the US) and they would be using energy-saving bulbs. Meanwhile, Hawaiians who opt for incandescent bulbs would probably spend the most, since their bulbs use a considerable amount of power and they currently pay the highest national rate for energy of almost 33 cents per kilowatt hour.

Tips to Save on Your Christmas Lighting Bill

If you’re looking for ways to lower your energy bill when you start plugging in your holiday lights, follow this advice.

Embracing Energy-Efficient LEDs

As mentioned, the wattage of Christmas lights plays an important part in determining how much you pay for electric bills over the holidays. Between C7 lights, incandescent lights and LED lights, LED lights are highly energy-efficient. According to the Department of Energy, residential LEDs that are ENERGY STAR rated use up to 75% less energy and last 25 times longer than incandescent lights.

People who use LED Christmas lights tend to pay far less than those using incandescent bulbs or C7 lights. So it follows that an easy way to save money on your electric bill and reduce energy usage would be to use mini LED lights as often as possible. Aside from that, LED bulbs emit less light and are less likely to overload sockets, making them a potentially safer option for Christmas lighting compared to other types of bulbs.

So if you still have some incandescent bulbs in your box of Christmas decorations, you may want to think about swapping them out for LEDs. (You won’t find incandescents made or sold in the US anymore either.)

Benefits of Solar-Powered Outdoor Lights

You might consider using solar-powered outdoor lights on your house over the holidays. These strands depend upon energy collected by small panels that gather and hold energy from the sun during the day.

These strands don’t plug in and draw no electrical power. So they can be especially easy and economical to use over the holidays.

Battery-Operated Lights for Smaller Displays

If you like to create smaller displays, you might consider battery-powered strands of lights. There is a wide range of how long these lights will stay illuminated, but this can be a good unplugged option to try for small-scale displays. While you do have to pay for the batteries, it can be cheaper than plugging in lights for weeks on end.

Recommended: 18 Common Misconceptions About Money

The Takeaway

A higher-than-usual electric bill can put a damper on your holiday celebrations. Estimating your potential costs beforehand can help you manage utility expenses. And you can decide whether it’s worth it to invest a little money in upgrading your current Christmas lights to energy-efficient options.

Having the right banking partner, such as one with budgeting tools, can also help make tackling high utility bills after the holidays easier.

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.

FAQ

Do LED Christmas lights use a lot of electricity?

Compared to C7 lights or incandescent mini lights, LED Christmas lights use the least amount of energy. Specifically, they can use up to 90% less energy while lasting longer. LED Christmas lights also emit less heat and can be easier to install than other types of holiday lighting.

Do Christmas lights raise your light bill?

Holiday lights can raise your electric bill during the winter months. How much it costs to run Christmas lights can depend on several things, including the type of bulbs used, how many light strands you’re running, how long you turn the lights on for, and the average cost of energy per kilowatt hour in your area. Using timers and switching to energy-efficient bulbs can be helpful for reducing your Christmas lights electric bill.

Do Christmas trees use a lot of electricity?

Christmas trees can use a lot of electricity, depending on the type of lights you use, the number of strands on the tree, and how long you leave your tree plugged in each day. Using mini LED lights can reduce electric costs for Christmas tree lighting, while using C7 bulbs to light your tree could result in a higher energy bill.

Photo credit: iStock/BanksPhotos

SoFi® Checking and Savings is offered through SoFi Bank, N.A. ©2023 SoFi Bank, N.A. All rights reserved. Member FDIC. Equal Housing Lender.
The SoFi Bank Debit Mastercard® is issued by SoFi Bank, N.A., pursuant to license by Mastercard International Incorporated and can be used everywhere Mastercard is accepted. Mastercard is a registered trademark, and the circles design is a trademark of Mastercard International Incorporated.

SoFi members with direct deposit activity can earn 4.60% annual percentage yield (APY) on savings balances (including Vaults) and 0.50% APY on checking balances. Direct Deposit means a deposit to an account holder’s SoFi Checking or Savings account, including payroll, pension, or government 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, do not constitute Direct Deposit activity. There is no minimum Direct Deposit amount required to qualify for the stated interest rate.

SoFi members with Qualifying Deposits can earn 4.60% 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 Bank shall, in its sole discretion, assess each account holder’s Direct Deposit activity and Qualifying Deposits throughout each 30-Day Evaluation Period to determine the applicability of rates and may request additional documentation for verification of eligibility. The 30-Day Evaluation Period refers to the “Start Date” and “End Date” set forth on the APY Details page of your account, which comprises a period of 30 calendar days (the “30-Day Evaluation Period”). You can access the APY Details page at any time by logging into your SoFi account on the SoFi mobile app or SoFi website and selecting either (i) Banking > Savings > Current APY or (ii) Banking > Checking > Current APY. Upon receiving a Direct Deposit or $5,000 in Qualifying Deposits to your account, you will begin earning 4.60% APY on savings balances (including Vaults) and 0.50% on checking balances on or before the following calendar day. You will continue to earn these APYs for (i) the remainder of the current 30-Day Evaluation Period and through the end of the subsequent 30-Day Evaluation Period and (ii) any following 30-day Evaluation Periods during which SoFi Bank determines you to have Direct Deposit activity or $5,000 in Qualifying Deposits without interruption.

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

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

Interest rates are variable and subject to change at any time. These rates are current as of 10/24/2023. There is no minimum balance requirement. Additional information can be found at https://www.sofi.com/legal/banking-rate-sheet.

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

SOBK1023001

Restricted stock units, or RSUs, are a form of equity compensation offered to employees of a company. They’re similar to, but distinct from, employee stock options (ESOs).

You are probably pretty familiar with many of the standard offers in a job compensation package. When receiving an offer letter from a potential new employer, employees could typically receive a salary figure, paid vacation and sick day allowances, some type of health insurance, and, possibly, a retirement plan. RSUs and ESOs can be yet another part of that package.

What Is a Restricted Stock Unit?

Restricted stock units are a type of compensation offered to employees in the form of company stock. RSUs are not technically stock, though; they are a specific amount of promised stock shares that the employee will receive at a future date, or across many future dates.

Restricted stock units are a type of financial incentive for employees, similar to a bonus, since employees typically receive promised stock shares only when they complete specific tasks or achieve significant work milestones or anniversaries. Again, RSUs are different from employee stock options, too.

RSU Advantages and Disadvantages

Among the key advantages of RSUs are, as mentioned, that they provide an incentive for employees to remain with a company. For employers, other advantages include relatively small administrative costs, and a delay in share dilution.

As for disadvantages, RSUs can be included in income calculations for an employee’s income taxes (more on this below), and they don’t provide dividends to employees, either. They also don’t come with voting rights, which some employees may not like.


💡 Quick Tip: The best stock trading app? That’s a personal preference, of course. Generally speaking, though, a great app is one with an intuitive interface and powerful features to help make trades quickly and easily.

Know the Dates: Grant and Vesting

In the case of RSU stock, there are two important dates to keep in mind: the grant date and the vesting date.

Grant Date

A grant date refers to the exact day a company pledges to grant an employee company stock.

Employees don’t own granted company stock starting on the grant date; rather, they must wait for the stock shares to vest before claiming full ownership and deciding to sell, hold, or diversify stock earnings.

Vesting Date

The vesting date refers to the exact day that the promised company stock shares vest Employees receive their RSUs according to a vesting schedule that is determined by the employer. Factors such as employment length and specific job performance goals can affect a vesting schedule.

The employer that wants to incentivize a long-term commitment to the company, for example, might tailor the RSU vesting schedule to reflect the employee’s tenure at the company. In other words, RSUs would only vest after an employee has pledged their time and hard work to the company for a certain number of years, or the vested percentage of total RSUs could increase over time.

If there are tangible milestones that the employee must achieve, the employer could organize the vesting schedule around those specific accomplishments, too.

RSU Vesting Examples

Typically, the vesting schedule of RSU stock occurs on either a cliff schedule or a graded schedule. If you leave your position at the company before your RSU shares vest, you generally forfeit the right to collect on the remaining restricted stock units.

On a graded vesting schedule, an employee would keep the amount of RSUs already vested, but would forfeit leftover shares. If that same employee is on a cliff vesting schedule and their shares have not yet vested, then they no longer have the right to their restricted stock units.

Cliff Schedule

A cliff schedule means that 100% of the RSUs vest at once. For example, if you receive 4,000 RSUs at the beginning of your job, on a cliff vesting schedule you would receive all 4,000 on one date.

Graded Vesting Schedule

With a graded schedule, you would only receive a portion of those 4,000 RSUs at a time. For example, you could receive 25% of your RSUs once you’ve hit your two-year company anniversary, 25% more after five years at the company, 25% more after seven years, and the final 25% after 10 years.

Alternatively, a graded vesting schedule might include varying intervals between vesting dates. For example, you could receive 25% of your 4,000 total RSUs after three years at the company, and then the remainder of your shares (3,000) could vest every month over the next three years at 100 per month.

Are Restricted Stock Units Risky?

As with any investment, there is always a level of uncertainty associated with RSUs. Even companies that are rapidly growing and have appreciating stock values can collapse at any time. While you do not have to spend money to purchase RSUs, the stock will eventually become part of your portfolio (as long as you stay with the company until they vest), and their value could change significantly over time.

If you end up owning a lot of stock in your company through your RSUs, you may also face concentration risk. Changes to your company can not only impact your salary but the RSU stock performance. Therefore, if the company is struggling, you could lose value in your portfolio at the same time that your income becomes less secure.

Diversifying your portfolio can help you minimize the risk of overexposure to your company. A good rule of thumb is to consider diversifying your holdings if more than 10% of your net worth is tied up with your company. Holding over 10% of your assets with your firm exposes you to more risk of loss. When calculating how much exposure you have, include assets such as:

•   RSUs

•   Stock

•   Other equity-based compensation

Are Restricted Stock Units Reported on My W-2?

Yes, restricted stock units are reported on your W-2.

The biggest difference between restricted stock units and employee stock options lies in the way that the Internal Revenue Service taxes them. While you owe tax on ESOs the moment you decide to exercise your options, RSU stock taxation happens at the time of vesting. Essentially, the IRS considers restricted stock units supplemental income.

RSU Tax Implications

When your RSUs vest, your employer will withhold taxes on them, just as they withhold taxes on your income during every pay period. The market value of the shares at the time of vesting appears on your W-2, meaning that you must pay normal payroll taxes, such as Social Security and Medicare, on them.

In some cases, your employer will withhold a smaller percentage on your RSU stock than what they withhold on your wages. What’s more, this taxation is only at the federal level and doesn’t account for any state taxes.

Since vested RSUs are considered supplemental income, they could bump you up to a higher income tax bracket and make you subject to higher taxes. If your company does not withhold enough money at the time of vesting, you may have to make up the difference at tax time, to either the IRS or your state.

So, it might be beneficial to plan ahead and come up with a strategy to manage the consequences of your RSUs on your taxes. Talking to a tax or financial professional before or right after your RSU shares vest could help you anticipate future complications and set yourself up for success come tax season.

How to Handle RSUs

If you work for a public company, that means that you can decide whether to sell or hold them. There are advantages to both options, depending on your individual financial profile.

Sell

Selling your vested RSU stock shares might help you minimize the investment risk of stock concentration. A concentrated stock position occurs when you invest a substantial portion of your assets in one investment or sector, rather than spreading out your investments and diversifying your portfolio.

Even if you are confident your company will continue to grow, stock market volatility means there’s always a risk that you could lose a portion of your portfolio in the event of a sudden downturn.

There is added risk when concentration occurs with RSU stock, since both your regular income and your stock depend on the success of the same company. If you lose your job and your company’s stock starts to depreciate at the same time, you could find yourself in a tight spot.

Selling some or all of your vested RSU shares and investing the cash elsewhere in different types of investments could minimize your overall risk.

Another option is to sell your vested RSU shares and keep the cash proceeds.. This might be a good choice if you have a financial goal that requires a large sum of money right away, like a car or house down payment, or maybe you’d like to pay off a big chunk of debt. You can also sell some of your RSUs to cover the tax bill that they create.

Hold

Holding onto your vested RSU shares might be a good strategy if you believe your company’s stock value will increase, especially in the short term. By holding out for a better price in the future, you could receive higher proceeds when you sell later, and grow the value of your portfolio in the meantime.

RSUs and Private Companies

How to handle RSUs at private companies can be more complicated, since there’s not always a liquid market where you can buy or sell your shares. Some private companies also use a “double-trigger” vesting schedule, in which shares don’t vest until the company has a liquidity event, such as an initial public offering or a buyout.

The Takeaway

RSUs are similar to stock options for employees. Your specific financial goals, the amount of debt you may hold, the other types of investments you might be making, are all factors to consider when weighing the pros and cons of selling or holding your RSU shares.

Perhaps the most pertinent thing to keep in mind, though, is that everyone’s financial situation is different – as so is their respective investing strategy. If you have RSU shares, it may be worthwhile to speak with a financial professional for advice and guidance.

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).

FAQ

What is the difference between restricted stock units and stock options?

Restricted shares or restricted stock is stock that is under some sort of sales restriction, whereas stock options grant the holder the choice as to whether or not to buy a stock.

Do restricted stock units carry voting rights?

Restricted stock units do not carry voting rights, but the shares or stock itself may carry voting rights once the units vest.

How do RSUs work at private vs public companies?

One example of how RSUs may differ from private rather than public companies is in the vesting requirements. While public companies may have a single vesting requirement for RSUs, private companies may have two or more.

SoFi Invest®
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.
For additional disclosures related to the SoFi Invest platforms described above please visit SoFi.com/legal.
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.

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.

Claw Promotion: Customer must fund their Active Invest account with at least $25 within 30 days of opening the account. Probability of customer receiving $1,000 is 0.028%. See full terms and conditions.

SOIN0723123