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Congratulations! Someone close to you is going to be a parent, and you have the honor of throwing the baby shower. You are probably excited to come up with some great ideas for the food, the decor, the party favors, and more, and need to sort out the guest list. But along with these organizing responsibilities can come a steep price tag.

The truth is, though, with a bit of planning and creativity, you can host a very fun, very memorable party for the parents-to-be, their friends, and their family without breaking the bank. You might be able to find a venue that’s totally free, create the centerpieces yourself, and otherwise keep costs under control and on budget.

Read on for some inspiration.

Tips for Throwing a Great Baby Shower on a Budget

These inexpensive baby shower ideas can help you throw a memorable celebration for a mom-to-be and help her become better financially prepared for a baby.

Coming up with a Baby Shower Budget

Before you begin the planning process, it can help to determine the total you can spend on the event and then create a budget. You may also want to find out if family members from either side are willing to chip in financially or by offering to help make something for the party. When setting up your baby shower budget, you’ll likely want to include: the venue, invitations, decorations, food and drinks, entertainment and/or games, prizes and party favors.

Finding a Free (or Low-Cost) Venue

A baby shower doesn’t have to be at a fancy restaurant, hotel, or banquet hall to be festive. It could take place at your, or someone else’s, home. If you’re hosting a baby shower in warm weather. You might consider having it outdoors, such as in your backyard. You could even host a more casual shower with an outdoor barbeque or even a poolside party.

Other low-cost locales options include: a nearby park, the clubhouse of your (or someone else’s) apartment complex, or the meeting room at someone’s place of business.

Recommended: How to Save Money Daily

Limiting the Baby Shower Guest List

Generally, the more people you invite to the shower, the more money you will spend. To keep costs in check, you may want to consider limiting the invite list to the parent-to-be’s closest family and friends.

A smaller group not only cuts down on costs, but can also help to create a more intimate gathering that allows the guest of honor to spend time with each guest. It can be a good idea, however, to run the invite list by the expectant mom to be sure that you don’t exclude any important people.

Going Digital With Invitations

You can save money on baby shower invitations by using a digital service, such as Evite, Punchbowl, or Paperless Post. These sites and apps typically allow you to choose from a range of free baby shower invitation templates or, for a small fee, upgrade to a more elaborate design.

These sites also make it easy to keep track of responses. And, guests will likely appreciate the ability to RSVP with the click of a button. You may, however, want to send paper invites to older guests, particularly if they don’t use an email address often.

Ditching the Caterer

Feeding guests typically takes up the biggest portion of a baby shower budget. One way to help keep the cost of food down is to forgo the caterer and head to your local warehouse club (like Costco or Sam’s Club). You’ll likely be able to create a delicious spread of appetizers, finger foods, and desserts for a lot less than ordering trays from a catering company or restaurant.

Timing It Right

You can also cut down on food costs by not holding the shower right at lunch or dinner time. That way, guests won’t arrive expecting a full meal, and you’ll be able to serve a lighter menu that includes simple appetizers and snacks. A late-morning party can be particularly wallet-friendly. You might simply offer coffee, juice, fruit, and pastries. Or, you might opt for an afternoon tea and serve sweets and finger sandwiches.

Keeping the Cake Simple

Here’s another way to save money on food: A gourmet bakery cake can look beautiful, but it could easily bust your budget. To cut costs without sacrificing on taste, you might consider ordering a cake at your local grocery store’s bakery or the bakery at a wholesale club, then having it personalized (which the store will often do free of charge).

DIYing Centerpieces

It’s a basic rule of personal finance that you’ll pay more when you farm tasks out versus doing them yourself, whether that means doing car maintenance or decorating for a party.

Fresh flowers look lovely, but they can get expensive if you order arrangements from a professional florist. Instead, you may want to head to your local farmers market, grocery store, or warehouse club to find flowers at reasonable prices that fit your color scheme, then make your own centerpieces.

A simple way to get great results is to use flowers in the same color family (like shades of pink or all white). You can pick up vases at the dollar store, or go with Mason jars, which look trendy and can be used for other purposes after the shower is over.

Printing Decor and Games for Free

Instead of racking up a big bill at the party store, you may want to comb the web for free baby shower printables. You can likely find food signs, games (like baby shower bingo), decorations, and favor tags that you can simply print right from your computer.

Making Edible Favors

Another baby shower budgeting tip for beginners: Sweets can make great favors, and you can easily bake them yourself without spending a lot. You may also find that there is a family member who would be delighted to take on this task. Edible favors can be as simple as iced sugar cookies (in your color scheme) or as elaborate as cake pops that look like baby rattles.

Recommended: Passive Income Ideas

Considering a Virtual Baby Shower

If the guest of honor’s family and friends are spread out all over the country, having a virtual baby shower is one way to include everyone that’s important, and also keep costs down. You can set a celebratory mood by choosing a Zoom background that fits the theme of your shower, and also include a link so guests can download the background as well.

Friends and family can watch the mom-to-be open gifts that were sent to her ahead of time. (In fact, you might save so much by doing a virtual shower that you can be more lavish with gifts. That might help your guests of honor save for the new baby.)

You can also organize games throughout the virtual baby shower and create a digital guest book that attendees can sign and share their words of wisdom for the expecting parents.

The Takeaway

You can plan a memorable baby shower even on a limited budget. And, spending less doesn’t mean the event will be any less special.

Some easy ways to trim the cost of having a baby shower include: hosting the shower in your home or backyard, heading to your local warehouse club (for food, flowers, and even the cake), using free printables for decor and games, and giving homemade sweets as favors.

You can also make a baby shower more affordable by setting a budget and saving up enough money to cover it in advance (so you don’t end up relying on credit cards). Looking for a good place to build your party fund? Look for a bank account with low or no fees and a high interest rate.

Better banking is here with SoFi, NerdWallet’s 2024 winner for Best Checking Account Overall. Enjoy up to 4.60% APY on SoFi Checking and Savings.

Photo credit: iStock/vejaa

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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.

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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Checking accounts provide a useful foundation for many people’s daily financial lives, and some offer additional perks beyond the basics. Called rewards checking accounts, these financial vehicles can benefit customers in a variety of ways. Your money might earn interest, cashback, points, airline miles, or other bonuses (or even a combination of these).

For some, this kind of incentive is a good reason to stash their money at a particular financial institution versus another. However, some rewards checking accounts can involve fees and/or minimum balance requirements which may make them less enticing.

To help decide if a rewards checking account is right for you, read on for such information as:

•   What are rewards checking accounts?

•   How does a rewards checking account work?

•   How do you qualify for a rewards checking account?

•   What are reward checking accounts’ pros and cons?

What Is a Rewards Checking Account?

Simply put, a rewards checking account is one that rewards a person for opening and using the account. Those bonuses can take a variety of forms. Consider this:

•   A standard, no-frills checking account may have no monthly fees, minimum balance requirements, or minimum opening deposits. However, the perks are generally equally basic: a nonexistent or nominal annual percentage yield (APY), if any no ATM surcharge reimbursements, and often no signup bonus.

•   This kind of standard checking account can be attractive for some, but those seeking to earn money for their banking loyalty might prefer a rewards checking account instead.

•   Though the specific perks vary by account, you can typically find a checking rewards account that offers a higher interest rate or cash back. You might also be offered airline miles, a signup bonus, free identity theft protection, cell phone insurance, and reimbursement for ATM fees.

How Does a Rewards Checking Account Work?

Some checking accounts with rewards have criteria for earning perks each month. For instance, a bank may require you to:

•   Use your debit card for a minimum number of transactions each month

•   Maintain an average minimum account balance

•   Receive a set number of direct deposits equal to a specified value

•   Enroll in services like e-statements or online bill pay

If the reward is a higher APY, you will likely earn that in the form of monthly interest on your bank’s payment schedule, deposited directly into the account. If the checking reward is cash back, the bank may offer multiple ways to redeem the cash within the mobile app. Similar to cashback credit cards, you can often convert points into airline miles or other perks — or just receive cash in your account.

Perks of a Rewards Checking Account

The perks of a rewards checking account will vary by bank but might include:

Cash Back

Cash back is usually expressed as a percentage of the transactions made with a debit card; this might also be structured as points or even airline miles.

Interest

A rewards account may be an interest-bearing checking account. If so, it will offer an APY that is higher than the zero or the very low rate usually offered by most checking accounts.

Signup Bonus

A rewards checking account may pay a one-time bonus for signing up for a new checking account and meeting specific criteria.

ATM Fee Reimbursement

A rewards account may offer refunds for expenses incurred for using out-of-network ATMs.

Other Perks

Among the other rewards you may see offered are ways to earn airline miles, shopping discounts, cell phone insurance, and identity theft protection, among other options.

Some rewards checking accounts may offer a combination of these perks.

Who Should Use a Rewards Checking Account?

A rewards checking account can be a good option if you regularly use your debit card for purchases and keep a substantial amount of money in your checking account. If you do not have a rewards credit card, a rewards checking account can serve as an alternative way to earn money for spending money.

As mentioned, some banks have special requirements for members to earn rewards. Read terms and conditions carefully. If you cannot meet account requirements for the reward, the account might not be right for you, especially if there are monthly maintenance fees.

How to Qualify for a Rewards Checking Account

Qualifying for a rewards checking account may vary depending on the bank, but, as mentioned above, there tend to be common core requirements for earning rewards, such as:

•   A minimum number of debit card transactions in a month

•   An average daily minimum account balance

•   A minimum number (or value) of monthly direct deposits

If an account comes with a signup bonus, the bank likely has a set of requirements you’ll need to meet to snag that cash. This may include enrolling in direct deposit to get you started.

When considering a rewards checking account, it’s wise to read the fine print before opening to ensure you fully understand the requirements. Opening a checking account is typically a simple process, but you do want to make sure you understand the details before you sign up.

Pros of Rewards Checking Accounts

Here are some of the benefits of a rewards checking account, though perks will vary by program:

•   Earning potential: Whether through a higher-than-average APY or through cash back on debit card purchases, the main draw of a rewards checking account is often earning money (or more money) for doing the banking you would do anyway.

•   Tax implications: In general, the Internal Revenue Service (IRS) sees cash back as a rebate for or discount on something you purchased, so you won’t have to pay taxes on that money. Not a bad deal at all! However, if the reward for the account is a high interest rate or a signup bonus, you should expect to receive an IRS Form 1099 from your bank for that income.

•   Fees: Some rewards checking accounts charge monthly fees (some of which might be waivable), but other rewards checking accounts are noteworthy for being fee-free.

Recommended: Pros and Cons of No Interest Credit Cards

Cons of Rewards Checking Accounts

Depending on the individual and their financial style and goals, there may be some downsides to a rewards checking account:

•   Limits on rewards: Some bank programs cap the rewards at a set amount each month, meaning there could be a limit to the amount of cash back you can earn.

•   Better rewards elsewhere: Rewards credit cards may offer more cash back than a rewards checking account. However, these cards often have credit score requirements that make it more difficult to qualify. You probably need a credit score in the good to excellent range, meaning 670 or above.

•   Minimum balance requirements: Some banks have minimum balance requirements to earn the reward. If you cannot meet the requirement or do not wish to keep that much money in a checking account, the account might not be the right fit.

•   Fees: While some rewards checking accounts have no fees, others do charge monthly maintenance fees that can make the rewards less attractive or possibly even negate them.

Cashback Checking Accounts vs Credit Cards

You may be wondering whether a cashback checking account or credit card is the better fit for you. See how they stack up here:

Cashback Checking Account	Cashback Credit Cards
Provides a secure hub for daily finances	Provides a line of credit for purchases
May charge fees	Charges interest
Earn cashback typically through debit card use	Earn cashback typically through spending with credit card

Is a Rewards Checking Account Worth It?

A rewards checking account with cash back can be a good fit if the conditions to earn the perks are no problem for you.

•   You might already be in the habit of swiping your debit card for everyday purchases or this prospect doesn’t faze you. If so, then a rewards checking account with cash back might be worth it. It can be easy to manage a checking account like this and make your money work harder for you.

•   If you like to keep a large sum of funds in your checking account to cover automatic bill payments, you might enjoy the earning potential provided by a high-interest checking account even if it has a higher-than-usual balance requirement.

Is a Rewards Checking Account Right for You?

Each person has a unique financial situation and goals. Here are some considerations that may help you decide if a rewards checking account is right for you:

•   If you want to earn interest (or more interest) on cash you have sitting in your checking account, a rewards account might be a good choice for you.

•   If there are perks that you could reap for behaviors you engage in (swiping your debit card, receiving direct deposit) or don’t mind adopting, this kind of account could work well for you.

•   Not a person who has a rewards credit card? A rewards checking account could give you some of the same perks.

Opening a Checking Account With SoFi

Rewards checking accounts are checking accounts that offer special incentives to members, such as cash back on debit card purchases, high interest rates, or ATM fee reimbursements. SoFi could be the right bank for you if you’re looking for these kinds of perks.

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

Better banking is here with SoFi, NerdWallet’s 2024 winner for Best Checking Account Overall. Enjoy up to 4.60% APY on SoFi Checking and Savings.

FAQ

What are rewards in banking?

Rewards in banking refer to incentives and perks that account holders receive. They might be a signup bonus for a new account, a higher-than-average interest rate, or checking account cash back in the form of points, miles, or actual cash that can be deposited into your account or, for a credit card, applied toward your statement.

Why do banks offer points or rewards?

Banks offer points or rewards to entice consumers to choose their accounts or cards over competitors. Once you become a member, rewards ensure you continue to engage with the bank’s product, either by depositing more funds into your account or using your debit or credit card for more daily purchases.

Are bank rewards interest?

Bank rewards can come in the form of higher interest. For example, the current national average interest rate for a checking account is 0.43%, while rewards checking accounts may offer a higher than average interest rate, often 1.00% to 3.00% or higher. The interest that you earn is taxable, while cash back typically is not (it’s considered a rebate).

Can you earn points on a checking account?

Some checking accounts do allow you to receive points as a reward. For instance, you might receive one point for every dollar or two you spend with your debit card.

Are bank rewards worth it?

Whether or not bank rewards are worth it depends on your financial situation and preferences. Do you meet the criteria for a rewards checking account (such as swiping your debit card often enough or receiving a certain dollar amount of direct deposits)? Can you handle any requirements such as monthly minimum balance or account fees, if assessed? If so, earning interest or receiving other perks could be a smart, money-wise move.

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Photo credit: iStock/Feodora Chiosea

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.

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

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If you’re a Canadian age 18 or older, you may want to open a Tax-Free Savings Account (TFSA). Funds deposited in this kind of tax-advantaged account are not assessed any taxes on any interest earnings, capital gains, or dividends earned on contributions.

TFSAs can be opened at almost any major financial institution across Canada for those age 18 or older with a valid Social Insurance number, or SIN. They can be held in cash, mutual funds, government bonds, guaranteed investment accounts, and sometimes even publicly traded stocks.

In this guide, you’ll learn more about TFSAs, including:

•   What is a Tax-Free Savings Account?

•   How does a TFSA work?

•   How do you withdraw funds from a TFSA?

•   What are the pros and cons of TFSAs?

•   What are U.S. alternatives to TFSAs?

What Is a Tax-Free Savings Account?

TFSAs, or Tax-Free Savings Accounts, can be excellent tax-sheltered accounts that allow contributed funds to grow-tax free. That means no taxes on interest earnings, dividends, or capital gains. What’s more, funds can be withdrawn at any time without penalty for account holders. This is a key difference between TFSAs and retirement savings plans, which are designed to be held till a certain age.

If you compare a TFSA vs. RRSP (Registered Retirement Savings Plan), you’ll see that a TFSA allows you to withdraw your contributions and any subsequent earnings over time, tax-free. With an RRSP, a certain percentage of any withdrawals taken out prior to retirement may be withheld.

To look at this from a different angle, any funds contributed into a TFSA can be withdrawn on demand and are not subject to taxation or penalty, as long as all contributions remain beneath your overall TFSA contribution limit. This can make them a smart tax shelter for both short-term and long-term financing needs.

How Do TFSA Contributions Work?

Here’s the scoop on how TFSAs work:

•   Tax-Free Savings Accounts allow you to contribute a finite amount, set annually by the Canada Revenue Authority (CRA). As mentioned above, your funds within the TFSA can earn interest, earn dividends and even capital gains without being taxed. The 2023 contribution limit for TFSAs is $6,500. This makes them excellent financial vehicles when it comes to the important goal of saving for the future.

•   TFSA limits accumulate and carry over every year. This means that your contribution limits (commonly referred to as your “contribution room”) will stack up annually. This holds true whether or not you’ve completed a Canadian income tax return or even have an existing account at the time. In other words, if this year’s contribution limit is $6,000 and you only contribute $4,000, next year you can save an extra $2,000 over the limit to catch up. So if the limit for the following year was $6,000, your contribution room will be $8,000 (adding the $6,000 and the additional $2,000).

•   In fact, you’re allowed to make retroactive contributions for all of the cumulative annual contribution limits dating back to 2009, or when you first turned 18, whichever was more recent.

•   Make sure you keep track of your overall contributions, as accidentally overcontributing to the account can result in tax penalties. According to the CRA, overcontributions are subject to a 1% penalty tax on the overcontribution amount each month until it’s withdrawn from the account.

Contributing to a TFSA

To contribute to a TFSA, you’ll want to first figure out what your current annual contribution limit is and then calculate how much additional contribution room you have from years past where you didn’t hit the limit. By the way, there’s no earned income requirement for contributing to a TFSA.

To help you calculate your total TFSA contribution limit, check this table below that outlines all of the annual contribution limits since the program was established in 2009. You’ll also find a cumulative contribution limit to help you back-date your permitted total contribution amount.

Year	Annual Limit	Total Accumulated Limit
2009	$5,000	$5,000
2010	$5,000	$10,000
2011	$5,000	$15,000
2012	$5,000	$20,000
2013	$5,500	$25,500
2014	$5,500	$31,000
2015	$10,000	$41,000
2016	$5,500	$46,500
2017	$5,500	$52,000
2018	$5,500	$57,500
2019	$6,000	$63,500
2020	$6,000	$69,500
2021	$6,000	$75,500
2022	$6,000	$81,500
2023	$6,500	$88,000

If you turned 18 in 2009 or prior and have just begun making contributions this year, your total permitted lifetime contribution limit is $88,000. If you turned 18 after 2009, your contribution room (or limit) will be the sum of the cumulative amounts for all years starting from when you first turned 18.

How to Withdraw Money From a TFSA

When thinking about different types of savings accounts, you may wonder how a TFSA stacks up in terms of how you can withdraw funds. One important point: You can withdraw both contributions and earnings from your TFSA at any time, without fear of tax penalty.

Withdrawals from a TFSA are only logged when you transfer or take savings out of your account. So if you convert your investments into cash and the money remains in your account, this won’t be counted as a withdrawal.

You can withdraw any amount up to the entire balance of your TFSA account (though obviously, you’d like to avoid overdrafting a savings account). One of the best aspects of TFSA withdrawals is that the amount of any withdrawn contributions is automatically added back to your total TFSA contribution room for the following tax year.

However, if you reach your contribution limit in a given year, you won’t be able to make any additional contributions during that year, even if you decide to withdraw funds from the account. Contribution rooms are only recalculated after the beginning of the following year.

Withdrawals can typically be done easily online; check with your account holder for details.

Pros and Cons of a TFSA

Curious about the pluses and minuses of TFSAs? You’re in the right place.

Pros of a TFSA

Here are the main advantages of a TFSA:

•   Tax-exempt interest and investment earnings: TFSAs are excellent places to park excess savings to earn a higher rate of return without having to worry about taxes on interest and capital gains. These tax advantages can be a bonus vs. how savings accounts typically work.

•   Withdrawal and use flexibility: Unlike RRSPs which may incur a penalty when withdrawn prior to retirement, TFSAs have no restriction on the use of the underlying funds.

•   Contribution limits rise annually and do not expire: This means that you won’t miss out on any opportunities to add to your TFSA, even if you don’t have any income to add to your account in the current year.

•   Wide range of permitted investments: Unlike what the name suggests, funds deposited in a TFSA can be invested in stocks, bonds, mutual funds and other investments as permitted by the issuing institution.(Remember, though, that these investments may not be insured.)

•   Some insurance coverage: Deposits held in cash or GICs are insured by CDIC (Canada Deposit Insurance Corporation) to a maximum of $100,000, which is separate from other holdings by the same customer at the same member institution.

Cons of a TFSA

Yes, there are some downsides to be aware of with TFSAs. Consider these three points:

•   Non-deductible contributions: All contributions to TFSAs are made on an after-tax basis. As a result, TFSA contributions can’t be used to reduce your taxable income.

•   Day-trading is not permitted: The CRA discourages day-trading in your TFSA account. Depending on the frequency and type of trading activities within your account, it may declare your investment returns to be taxable business income if you’ve failed to follow the rules.

•   Not bankruptcy-remote: Unlike RRSPs which are protected from creditors, TFSAs are subject to the whims of any creditors that may seek to pull your assets back in court. This means that the funds in TFSA are fair game in bankruptcies.

•   Not always insured: If your TFSA funds are held in the market, they will not be insured by CDIC.

Opening a TFSA in 5 Steps

You can open a TFSA at most major financial institutions in Canada. They’re available at banks, credit unions, and even insurance companies. Some offerings may differ slightly in terms of their permitted investments, so it pays to shop around for the one that best suits your financial goals. Here are the five typical steps to opening a TFSA:

1. Shop Around

Research a financial institution that offers TFSAs; make sure it fits your needs and investing style. The following are the types of TFSA accounts available:

a.    Deposit

b.    Annuity

c.    Trust arrangement

d.    Self-directed TFSA.

2. Apply for a TFSA

Once you’ve decided on the right TFSA, contact your chosen institution directly and apply for an account. You may choose to do this in person or online. In some cases, the choice will be yours; in others, the financial institution will dictate how to do so.

3. Gather Documentation

As part of the application process, the institution (issuer) will ask for some personal information. Make sure to have the following items available:

a.    Birthdate

b.    Social Insurance number (SIN)

c.    Government-issued ID

4. Register Your Account

After you’ve provided all the necessary documentation and are approved, your issuer will register the account as a qualifying arrangement with the CRA.

5. Move Funds Into Your Account

You can then set up funds transfers or direct deposits into your TFSA account whenever you’re ready.

Congratulations, you now have a newly formed TFSA!

Keep in mind that while there’s no restrictions on the number of Tax-Free Savings Accounts you can have, your total contribution limit will be shared across all your accounts. Additional TFSAs will not increase your total contribution room.

All contributions will be reported to the CRA by your issuing institution, so remember to keep track of your contributions to avoid running afoul of the tax rules.

Alternatives to TFSAs Available in the US

If you are a U.S. citizen and are looking for an account that is similar to a TFSA, consider these options:

Roth IRA

A Roth IRA is similar to a TFSA in that it is a vehicle designed to help you save for retirement. The contributions grow tax-free; in addition, withdrawals are not taxed. However, contributions are made with after-tax dollars.

Roth 401(k)

If you are employed full-time, your company might offer a Roth 401(k). This is a savings fund that uses after-tax dollars. When you withdraw from the account when you retire, the money is tax-free.

The Takeaway

Anyone who can afford to should consider taking advantage of a Tax-Free Savings Account. TFSAs are versatile tax-advantaged accounts that can be used for both short-term and long-term savings needs. They provide an excellent tax-shelter for your investment earnings that can accumulate over time and be applied to a variety of needs. For those looking for a great savings vehicle, this could be it.

For those in need of a great day to day banking partner in the U.S., you may want to consider your options.

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

Better banking is here with SoFi, NerdWallet’s 2024 winner for Best Checking Account Overall. Enjoy up to 4.60% APY on SoFi Checking and Savings.

FAQ

Can you lose money in a Tax-Free Savings Account?

Yes, depending on the underlying investments, there’s a possibility that you may lose the principal on your investment. When the principal is invested in securities like stocks, bonds and mutual funds, it is not covered by the Canada Deposit Insurance Corporation (CDIC). However, any uninvested cash in your TFSA is insured for up to $100,000 under the CDIC.

How do tax-free savings work?

Interest, capital gains, and dividends earned in a Tax-Free Savings Account aren’t taxed as long as you adhere to guidelines set by the CRA. As long as you remain beneath the contribution limits and don’t run afoul of any TFSA rules, earnings from your TFSA account won’t be treated as income.

Keep in mind, some exceptions, like dividends earned from U.S.-based equities may still be considered taxable income. You’ll want to thoroughly review and understand the investment guidelines set by the CRA when planning your portfolio.

Is a Tax-Free Savings Account worth it?

Depending on your particular situation and goals, it can indeed be worth it. Your interest, dividends, and your capital gains will grow tax-exempt, and you won’t pay taxes on any withdrawals.

What does TFSA stand for?

The letters TFSA stand for tax-free savings account, which is used to refer to a savings vehicle available in Canada.

Are TFSAs available in the US?

TFSAs are not available in the U.S., only in Canada. However, there are other savings vehicles in the U.S. that may provide similar benefits.

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Photo credit: iStock/Vladimir Sukhachev

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.

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.

SOBK0723020

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FOMO spending stands for “fear of missing out,” meaning you are dropping dollars to keep up with what others are doing. That might mean anything from trying the skincare product a favorite celeb swears by to dining at the super-pricey new omakase place all your friends are raving about or even signing your toddler up for an enrichment class because your neighbor says it’s a fab headstart.

The fear of missing out can change how many people relate to their cash. It can trigger impulsive and compulsive spending and lead to “splashing out” on things they never had any intention of purchasing. In other words, it can motivate them to live (too) large and wind up with pricey credit card debt and little progress towards their savings goals.

If you’re wondering how to stop FOMO spending, know this: It doesn’t mean subsisting on ramen and never traveling. It does mean being mindful and meaningful so you don’t get caught up in trying to match what your free-spending friends may do. Here, you’ll learn more about FOMO spending and how not to overdo it.

Wait, Back Up—What Is FOMO?

FOMO, or Fear Of Missing Out, is a feeling of anxiety someone might experience about not being part of an event that is happening, usually triggered these days by seeing social media posts from friends enjoying an activity (from a Taylor Swift concert to a holiday in Croatia) and wishing you were part of the fun. While it’s certainly true that businesses employ FOMO tactics to get you to buy things, it’s not just a sales strategy.

Nick Hobson Ph.D., says “While the fear of missing out has always been there, the explosion of social media has launched our young people headfirst into the FOMO experience.”

For many people, social media can be their main community lifeline, and having the impression that you are not part of the “in” group is enough to trigger a stress response like FOMO.

FOMO Spending Definition

So how is FOMO spending defined? It’s when a fear of missing out propels you to spend money (perhaps too much money) to feel as if you are part of the crowd and keeping up with your peers.

Examples could be feeling as if two far-flung vacations a year are must-haves because that’s what your coworkers do. Or perhaps it means plunking down four figures on a designer bag because all your friends have one. At a smaller scale, it could mean joining the other moms every morning after drop-off for a fancy latte. It’s all part of feeling as if you’re on the same level as your peers…and it all can add up.

FOMO Spending to Keep Up with Peers

How widespread is FOMO spending? One recent study found that almost 40% of more than 1,000 Americans ages 18 to 34 said they have gone into debt just to keep up with their friends’ lifestyles. This is FOMO taken the financial extreme.

People may try to overcome FOMO by spending more than they have on things like travel, clothes, food, and going out. Whether it’s bigger “once-in-a-lifetime” experiences you can’t miss out on like trips, music festivals, or weddings, or even smaller events like dinner and drinks, FOMO spending can impact your finances and ability to build wealth over time.

•  FOMO spending often stems from peer pressure to buy something you can’t afford so that you can still participate in a group.

•  It could stem from feelings of insecurity; you want to show others that you fit in and do so by spending more than you might otherwise.

Unfortunately, this can add up to extra spending, money stress, and debt.

How Many People FOMO Spend?

As noted above, one recent study found that 40% of people admit to FOMO spending. And those are the ones willing to admit to it. The figure could be considerably higher.

One study found almost twice that percentage of people admitted to going into debt to keep up with their friends’ spending. That’s a startling figure and shows just how common FOMO spending can be.

4 Tips to Avoid FOMO Spending

Reining in FOMO spending can be hard, especially if your friends are truly living at a different income level than you. But odds are, some of your friend group might be in the same situation and are overspending in an effort to impress. You can avoid FOMO shopping or at least cut back on spending by trying these tips:

1. Suggest Free Alternatives

The first way to conquer FOMO spending is to simply stop spending! While it’s of course easier said than done, why not come up with a free alternative when a friend suggests plans?

Meeting for up for a $10 bubble tea at a cafe could just as easily turn into sitting on your couch with a homemade cup of joe. Friends want to go out to the movies or the mall? Suggest visiting a museum on a day they offer free admission instead.

2. Limit Your Card Usage and Carry Cash

Limiting your spending on credit or even debit cards and making the majority of your purchases with cash will drastically impact how often you impulse-spend on something when the feeling of FOMO creeps in.

If you only withdraw a certain amount before heading out to dinner or the bar, you’ll already have a pre-set budget that you know you feel comfortable spending. So maybe you only have one pricey cocktail or skip coffee and dessert: You can still have a great experience going out.

3. Create a Budget and Stick to It

Along the same lines, creating a monthly or even weekly budget may also help you cut down on FOMO spending. Your budget can and should include money for savings or big-ticket items like travel you know you have coming up. Having a budget can give you guardrails and help you focus on the big-picture rather than getting caught up in the FOMO moment.

By putting some money towards future goals and then calculating how much “fun” money you have left over after bills, you’ll know exactly when you’ve reached your limit. While making a budget might not help you eliminate FOMO spending altogether, you’ll at least give yourself more constraints if you limit yourself to a specific spending amount.

4. Lower Your Social Media Exposure

Ready for another way to stop spending so much? The endless scrolling on platforms like Facebook, TikTok, and Instagram offer some instant gratification, but social media is one of the main contributing factors of FOMO.

Targeted ads, influencers touting products, and even your own friends’ posts can all conspire to budget you toward spending too much. Seeing all the wonderful shiny things and exciting experiences out there can lead you to splurge (and often).

Many people find their guard is especially down at night, and that’s when they are likely to snap up skincare products, a new watch, or a hotel room overlooking the beach. If you can relate, trade in your laptop or phone time before bed for a good old-fashioned book or movie. You won’t wake up the next morning with that guilt about spending money.

If You Must Spend, Still Plan Ahead

You won’t be able to avoid FOMO spending all of the time, so it’s also important to have a strategy in place for making the best use of your time and money if the feeling kicks in.

Some people consider their fixed vs. variable expenses and build in a little extra spending money as part of their discretionary spending. If you know you have, say, a cash cushion of $100 or $200 a month, this can help with those moments when you decide you want to “keep up with the Joneses.” You can decide if this is the moment to splurge or not.

Delayed Gratification

If you have a sudden urge to buy something because of FOMO, try instead to write the item down, whether in a Notes app on your phone or even just a physical piece of paper, and come back to it 24 hours later.

This will help you avoid impulse purchases just because something is on sale, for instance, or your friend just bought it. You can evaluate in a day if it’s something you still really need. Some people even stretch that 24 hours out to a full month with what’s known as the 30-day spending rule.

Buying in Person

Nothing crushes the FOMO spending feeling more than forcing yourself to trek to an actual physical store to make a purchase.

Too many times, FOMO spending happens when you are online shopping and the ease of delivery right to your door doesn’t make you think twice about your purchase.

Making that easy impulse purchase into a chore can be a buzzkill that helps you save big-time.

Introducing SoFi Checking and Savings

Managing your money well can mean recognizing FOMO spending and seeing when it may fit with your budget and your money goals. It can take wisdom and discipline, but it can keep you out of debt and help you build wealth.

This is where the right banking partner comes in; one who can help you see the big picture on your spending and keep tabs on your cash flow. Like SoFi.

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

Better banking is here with SoFi, NerdWallet’s 2024 winner for Best Checking Account Overall. Enjoy up to 4.60% APY on SoFi Checking and Savings.

FAQ

How do you deal with FOMO buying?

Recognizing FOMO buying is the first step to minimizing it. You might avoid social media apps that trigger this kind of spending; find free alternatives to pricey outings your friends suggest; or tweak your budget to allow for small splurges and stick within those spending limits.

How can you stop being affected by FOMO?

Avoiding FOMO is a very personal thing. Some people avoid or even delete social media apps that trigger overspending; others have honest talks with their friend group about their financial limits; still others decide to sidestep certain outings with friends that they know will bust their budget and join them for low-cost get-togethers instead.

What is FOMO spending?

FOMO spending is when you buy an item or experience because you don’t want to miss out on something “everyone else is doing.” Some people may think of it as responding to peer pressure. You purchase, say, a status watch or take a pricey vacation not because you can comfortably afford it but because you want to “keep up with the Joneses.”

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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.

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.

SOBK0723053

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The definition of a U.S. Savings Bond is an investment in the federal government that helps to increase your money. By purchasing a savings bond, you are essentially lending money to the government which you will get back in the future, when the bond matures, with interest. Because these financial products are backed by the federal government, they are considered to be extremely low-risk. And, in certain situations, there can be tax advantages.

Here’s a closer look at these bonds, including:

•   What are savings bonds?

•   How do savings bonds work?

•   What are the different types of savings bonds?

•   How do you buy and redeem savings bonds?

•   What are the pros and cons of buying savings bonds?

Savings Bond Definition

First, to answer the basic question, “What is a savings bond?”: Basically, it is a loan issued by the U.S. Treasury and made to the U.S. government. Purchase a savings bond, and you are loaning the money you pay to the government. At the end of the bond’s 30-year term, you receive your initial investment plus the compounded interest.

You may withdraw funds before then, as long as the bond has been held for at least five years.

How Do Savings Bonds Work?

Savings bonds are issued by the U.S. Treasury. You can buy one for yourself, or for someone else, even if that person is under age 18. (That’s why, when you clean out your closets, you may find a U.S. Savings Bond that was a birthday present from Grandma a long time ago.)

You buy a savings bond for face value, or the principal, and the bond will then pay interest over a specific period of time. Basically, these savings bonds function the same way that other types of bonds work.

•   You can buy savings bonds electronically from the U.S. Treasury’s website, TreasuryDirect.gov . For the most part, it’s not possible to buy paper bonds anymore but should you run across one, you can still redeem them. (See below). Unlike many other types of bonds (say, some high-yield bonds), you can’t sell savings bonds or hold them in brokerage accounts.

How Much Are Your Savings Bonds Worth?

If you have a savings bond that has been tucked away for a while and you are wondering what it’s worth, here are your options:

•   If it’s a paper bond, log onto the Treasury Department’s website to find out the value.

•   If it’s an electronic bond, you will need to create (if you don’t already have one) and log onto your TreasuryDirect account.

Savings Bonds Interest Payments

For U.S. Savings Bonds, interest is earned monthly. The interest is compounded semiannually. This means that every six months, the government will apply the bond’s interest rate to grow the principal. That new, larger principal then earns interest for the next six months, when the interest is again added to the principal, and so on.

3 Different Types of Savings Bonds

There are two types of U.S. Savings Bonds available for purchase — Series EE and Series I savings bonds. Here are the differences between the two.

1. Series EE Bonds

Introduced in 1980, Series EE Bonds earn interest plus a guaranteed return of double their value when held for 20 years. These bonds continue to pay interest for 30 years.

Series EE Bonds issued after May 2005 earn a fixed rate. The current Series EE interest rate for bonds issued May 1, 2023 through October 31, 2023 will earn an annual fixed rate of 2.50%.

2. Series I Bonds

Series I Bonds pay a combination of two rates. The first is the original fixed interest rate. The second is an inflation-adjusted interest rate, which is calculated twice a year using the consumer price index for urban consumers (CPI-U). This adjusted rate is designed to protect bond buyers from inflation eating into the value of the investment.

When you redeem a Series I Bond, you get back the face value plus the accumulated interest. You know the fixed rate when you buy the bond. But the inflation-adjusted rate will vary depending on the CPI-U during times of adjustment.

The current composite rate for Series I Savings Bonds is 4.30% for I bonds issued from May 1, 2023 through October 31, 2023.

3. Municipal Bonds

Municipal bonds are a somewhat different savings vehicle but are worth a quick overview here, if only as a point of comparison. They are issued by a state, municipality, or country to fund capital expenditures. By offering these bonds, projects like highway or school construction can be funded.

Akin to loans that investors make locally to improve their area, these bonds (sometimes called “munis”) are exempt from federal and the majority of local taxes, making them perhaps more enticing to some investors. The market price of bonds will vary with the market, and they typically require a larger investment of, say, $5,000. Municipal bonds are available in different terms, ranging from relatively short (say, two to five years) to longer (the typical 30-year length).

How To Buy Bonds

You can buy Treasury Bonds directly through the United States Treasury Department online account system called TreasuryDirect, as noted above. This is a little bit different than the way you might buy other types of bonds. You can open an account at TreasuryDirect just as you would a checking or savings account at your local bank.

You can buy either an EE or I Savings Bond in any amount ranging up to $10,000 in penny increments per year. So, if the spirit moves you, go ahead and buy a bond for $49.99. The flexible increments allow investors to dollar cost average and make other types of calculated purchases.

That said, there are annual maximums on how much you may purchase in savings bonds. The electronic bond maximum is $10,000 for each type. You can buy up to $5,000 in Series I Bonds using a tax refund you are eligible for. Paper EE Series bonds are no longer issued.

If you are due a refund and you want to buy I Bonds, be sure to file IRS Form 8888 when you file your federal tax return. On that form you’ll specify how much of your refund you want to use to buy paper Series I bonds, keeping in mind the minimum purchase amount for a paper bond is $50, and the increments rise by $50. The IRS will then process your return and send you the bond that you indicate you want to buy.

The Pros & Cons of Investing in Savings Bonds

Here’s a look at the possible benefits and downsides of investing in savings bonds. This will help you decide if buying these bonds is the right path for you, or if you might prefer to otherwise invest your money or stash it in a high-yield bank account.

The Pros of Investing in Savings Bonds

Here are some of the upsides of investing in savings bonds:

•   Low risk. U.S. Savings Bonds are one of the lowest risk investments you could ever make. You are guaranteed to get back the entire amount you invested, known as principal. You will also receive interest if you keep the bonds until maturity.

•   Tax advantages. Savings bond holders don’t pay state or local taxes on interest at any time. You don’t have to pay federal income tax on the interest until you cash in the bond.

•   Education exception. Eligible taxpayers may qualify for a tax break when they use U.S. Savings Bonds to pay for qualified education expenses.

•   No fees. Unlike just about every other type of security, you won’t pay a fee, markup or commission when you buy savings bonds. They’re sold at face value, directly from the Treasury, so what you pay for is what you get. If you buy a $50 bond, for example, you’ll pay $50.

•   Great gift. Unlike most securities, people under age 18 may hold U.S. Savings bonds in their own names. That’s what makes them a popular birthday and graduation gift.

•   Patriotic gesture. Buying a U.S. Savings Bond helps support the U.S. government. That’s something that was important and appealed to investors when these savings bonds were first introduced in 1935.

The Cons of Investing in Savings Bonds

Next, consider these potential downsides of investing in savings bonds:

•   Low return. The biggest disadvantage of savings bonds is their low rate of return, as noted above. A very low risk investment like this often pays low returns. You may find you can invest your money elsewhere for a higher return with only slightly higher risk.

•   Purchase limit. For U.S. Savings Bonds, there’s a purchase limit per year of $10,000 in bonds for each series (meaning you can invest a total of $20,000 per year), plus a $5,000 limit for paper I bonds via tax refunds. For some individuals, this might not align with their investing goals.

•   Tax liability. It’s likely you’ll have to pay federal income tax when you cash in your savings bond, unless you’ve used the proceeds for higher education payments.

•   Penalty for early withdrawal. If you cash in your savings bond before five years have elapsed, you will have to pay the previous three months of interest as a fee. You are typically not allowed to cash in a bond before the one-year mark.

Here, a summary of the pros and cons of investing in savings bonds:

Pros of Savings Bonds	Cons of Savings Bonds
•   Low risk •   Education exception •   Possible tax advantages •   No fees •   Great gift •   Patriotic gesture	•   Low returns •   Purchase limit •   Possible tax liability •  Penalty for early withdrawal

When Do Savings Bonds Mature?

You may wonder how long it takes for a savings bond to mature. The EE and I savings bonds earn interest for 30 years, until they reach their maturity date.

Recommended: Bonds or CDs: Which Is Smarter for Your Money?

How to Cash in Savings Bonds

Wondering how and when to redeem a savings bond? These bonds earn interest for 30 years, but you can withdraw penalty-free after five years.

•   If you have a paper bond, you can cash it in at your bank or credit union. Bring the bond and your ID. Or go to the Treasury’s TreasuryDirect site for details on how to cash it in.

•   For electronic bonds, log into your TreasuryDirect account, click on “confirm redemption,” and follow the instructions to deposit the amount to a linked checking or savings account. You will likely get the money within two business days.

•   If you inherited or found an old U.S. Savings Bond, you may be able to redeem savings bonds through the TreasuryDirect portal or via Treasury Retail Securities Services.

Early Redemption of Bonds

If you cash in a U.S. Savings Bond after one year but before five years, you’ll pay a penalty that is the equivalent of the previous three months of interest. Keep in mind that for EE bonds, if you cash in before holding for 20 years, you lose the opportunity to receive the doubled value of the bond that accrues after 20 years.

The History of US Savings Bonds

America’s savings bond program began under President Franklin Delano Roosevelt in 1935, during the Great Depression, with what were known as “baby bonds.” This started the tradition of citizens participating in government financing.

The Series E Saving Bond contributed billions of dollars to financing the World War II effort, and in the post-war years, they became a popular savings vehicle. The fact that they are guaranteed by the U.S. government makes them a safe place to stash cash and earn interest.

The Takeaway

U.S. Savings Bonds can be one of the safest ways to invest for the future and show your patriotism. These bonds can be especially great gifts for minors. But they can also add a risk-free guaranteed return to your portfolio. While the interest rates are typically low, for some investors, knowing that the money is being securely held for a couple of decades can really enhance their peace of mind.

Another way to help increase your peace of mind and financial well-being is finding the right banking partner.

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

Better banking is here with SoFi, NerdWallet’s 2024 winner for Best Checking Account Overall. Enjoy up to 4.60% APY on SoFi Checking and Savings.

FAQ

What is a $50 savings bond worth?

The value of a $50 savings bond will depend on how long it has been held. You can log onto the TreasuryDirect site and use the calculator there to find out the value. As an example, a $50 Series I bond issued in 2000 would be worth more than $183 today.

How long does it take for a $50 savings bond to mature?

The full maturation date of U.S. savings bonds is 30 years.

What is a savings bond?

A savings bond is a very secure way of investing in the U.S. government and earning interest. Basically, when you buy a U.S. Savings Bond, you are loaning the government money, which, upon maturity, they pay back with interest.

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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.

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

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