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You have likely heard of credit unions and how they can be an option to banks. But what exactly are they? In a nutshell, credit unions operate differently than banks (clients are actually shareholders), they may be smaller and offer more personalized service, and they can sometimes pay better interest rates.

If you are trying to figure out the kind of financial institution that suits you best, you may wonder, “How do credit unions compare to banks?” Here, you’ll learn some of the key ways credit unions vs. banks stack up, including:

•   What is a credit union?

•   What are the pros and cons of banks?

•   What are the pros and cons of credit unions?

What Is a Credit Union?

Credit unions are financial institutions like banks, and they offer products you’d expect such as checking and savings accounts, loans, debit cards, checks, money orders, and more. They can provide apps and online access, just as banks do. Credit unions may charge fewer fees, often with no minimum or a very low minimum deposit to open an account.

One difference between a credit union and a bank is that credit unions are run as co-ops, meaning each member has a stake in the business. Just like buying stock in a company, you own a small piece of the credit union when you join.

Here are some more features of credit unions:

•   These organizations are typically smaller than big banks and specific to certain locations, while offering similar services.

•   As nonprofits, credit unions are usually designed to serve their members, generally paying higher overall interest rates on deposits and with lower fees and penalties.

Typically, credit unions serve people only within their geographic area, and you need to be a member. Some credit unions have specific requirements for membership, but most make it easy to meet the qualifications, such as:

•   Where you work, or your industry

•   Where you live

•   Where you attend school or worship

•   Which organizations you are a member of.

Pros and Cons of Traditional Banks

If you currently bank with a large financial institution with a well-known name, you might be hesitant to switch banks and, in particular, move your accounts to a smaller, seemingly less popular credit union. Here are some of the upsides and downsides of keeping your money at a traditional bank.

Pros of Banks

Consider these benefits:

•   One of the biggest overall benefits of choosing a traditional bank might be that they generally offer a larger array of financial products, including checking and savings accounts, loans, and more. They can be your one-stop shopping for many financial needs.

•   They often have extensive networks of brick-and-mortar branches, possibly both nationally and internationally.

•   They usually have large ATM networks as well.

•   Traditional banks are likely to be insured by FDIC (Federal Deposit Insurance Corporation), adding a layer of security in the very rare event of a bank failure.

•   Bigger banks can be quicker to adopt new technology, such as launching mobile check deposit.

Cons of Banks

In terms of the downsides:

•   Traditional banks may not offer as high interest rates as online banks or credit unions do.

•   Similarly, traditional banks vs. online banks and credit unions often charge higher fees.

•   A big bank may not provide as specialized, personalized services as credit unions do. Credit unions may provide ATM fee reimbursement, financial literacy seminars, and other perks.

•   Most credit unions are insured by the National Credit Union Administration, or NCUA, vs. FDIC, which helps protect funds in the event of a financial institution failing.

Pros and Cons of Credit Unions

Now, take a look at the upsides and downsides of credit unions.

Pros of Credit Unions

On the plus side, credit unions can offer the following:

•   Credit unions offer many of the same services as traditional banks, satisfying a range of client needs.

•   They typically offer higher interest rates on deposit accounts because profits go back to the members.

•   The fees are often lower than at big banks, both on deposit accounts and other financial products. For instance, credit union vs. bank mortgages may have less costly fees.

•   Credit unions are typically known for personalized service and may offer financial literacy classes and more to support their members.

Cons of Credit Unions

Now, some of the minuses:

•   Membership is required. It’s possible that a person may not qualify to become a member/shareholder.

•   Credit unions are typically local or regional; there may not be many options in a given area. Shared branch credit unions may, however, offer greater reach.

•   They may not offer the kind of 24/7 accessibility and extensive customer service options as traditional banks.

•   While many services are offered, they may not have all the bells and whistles that a traditional bank offers, such as peer-to-peer payment platforms (say, Zelle) or a state-of-the-art app.

Recommended: Do Credit Unions Help You Build Your Credit Score?

Credit Union vs. Bank

Here’s a comparison of how credit unions vs. banks stack up.

Business Model and Pricing

Banks are for-profit enterprises while credit unions are not. Typically, banks may charge higher fees and interest rates to borrow money. They may have higher minimum deposit requirements as well and lower annual percentage yields (APYs) on deposit accounts.

Membership Requirements

Banks are open to all who can apply for and be approved for services. Credit unions, however, have requirements to join and become a shareholder. They might cater to members of the military or employees in a certain industry. Or they might simply charge a small fee. But there will be some requirement to be met.

Services

Banks are known for having a full array of services: various kinds of accounts, loans, and other financial products. Credit unions usually have diverse offerings but may not offer quite the breadth as they tend to be smaller institutions.

Customer Care

Credit unions may have the edge here; they are known for personalized attention and coaching to help members gain financial literacy and reach their money goals. A large traditional bank may not be able to take such interest in each client.

Accessibility

Traditional banks may offer many physical branches, 24/7 customer service, and a national and even international network of locations and ATMs. Credit unions are likely smaller and local, with more limited access.

Technology Tools

Larger traditional banks tend to be more advanced in terms of technological innovation than credit unions. They may have state-of-the-art websites, apps, and services like peer-to-peer payment platforms.

Here’s how these bank vs. credit union differences look in chart form:

Traditional Banks	Credit Unions
A for-profit business that may charge higher fees and interest rates on loans; lower APYs on deposits	A non-profit that puts profits to work for members and usually offers lower fees and interest rates on loans, plus higher APYs on deposits
No membership requirements beyond perhaps initial deposits	May need to meet certain location, employment, or other membership requirements
Full array of financial products and services	Basic array of financial products and services
May not offer intensive personalized attention	Known for personalized customer care and financial literacy coaching
Likely to have 24/7 access and a national or global network of branches and ATMs	May not have 24/7 access to services or a network of branches
Advanced technology, including apps and P2P services	Less technologically advanced

Finding the Right Credit Union

If you think a credit union may be the right fit for you but are unsure where to start, you could ask your co-workers or neighbors if they use one and if they like it. Since a credit union is a local financial institution, word-of-mouth can make for valuable research.

You could also search in your geographic area making sure to check the eligibility requirements, and nationally, if you’re able to use a different local branch as part of the network. Then, joining is just like opening up any other bank account if you meet the membership credentials. Additionally, a credit union account allows you to do most tasks online or over the phone.

Opening a Bank Account

You may decide that a bank vs. a credit union better meets your needs. If so and you are shopping for a new place to deposit your funds, your decision may come down to finding one with easy access, low fees, and a competitive APY.

Traditional banks may charge ATM and overdraft fees — as do credit unions. And although both often provide overdraft protection by pulling from a savings account, there is also the risk that you’ll be charged a fee.

If you are looking to try a new financial institution, consider SoFi Checking and Savings, which is an account that allows you to save, spend and earn, all in one place. It has no account fees and offers a competitive APY. Plus, you’ll receive free access to 55,000+ ATMs worldwide and you can send money right from the app to almost anyone with our P2P transfers.

Bank smarter with SoFi Checking and Savings!

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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.

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Who needs a vacation? You do! The average American has almost 10 unused vacation days sitting around, according to a recent Qualtrics survey.

Why don’t we take those days off that we earned? There are a variety of reasons, such as work deadlines, childcare issues, and, of course, money…or lack thereof. Travel can get expensive, especially if you are craving a trip that involves a pricey plane ticket.

But whether your travel dreams have you strolling through Paris, eating dozens of flaky croissants, or cozied up in a cabin at a stunning state park, there’s a method to making it possible. Smart budgeting and saving tactics can help you gather the funds you need to use the PTO that’s coming to you.

Read on to learn:

•   How much to save for vacation

•   How to start a vacation fund

•   How to grow your travel fund.

The Importance of Emergency Savings

Sure, it can be tempting to pick up on a whim and travel somewhere, without even glancing at your checking account. But that can be somewhat risky business, financially speaking. And so can prioritizing a vacation fund when you don’t have much money in the bank.

Before you think about funding a vacation, you should consider saving for life’s emergencies first. And a prime way to do that is by establishing a healthy amount of money in your emergency fund.

To build an emergency fund, a general rule of thumb is to have enough money to cover at least three to six months’ worth of expenses socked away. It’s totally okay to start off with a small fund and build your way up over time. Even depositing $20 per paycheck into the fund can be a wise start. This account may be for a true emergency, such as a car breaking down, an unexpected move, paying rent after being laid off, or a visit to the emergency room. What isn’t a good use for your emergency fund? A sale on plane tickets to Hawaii doesn’t count, sorry to say.

Beyond emergency funds, it may be a good idea to ensure you’ve paid off any high-interest debt before allocating your money toward a vacation.

How Much to Save for Vacation

Once your emergency reserves are on good footing, you can take the first step in saving for a vacation by opening a separate account earmarked for travel. Keeping it in the same bank as the rest of your money could allow you to easily keep track of how much you’ve saved. It can also make it a bit simpler to transfer extra cash into your vacation account.

•   Pro tip: Many financial institutions will let you name the account, which is seriously worth doing. It might be harder to be motivated to contribute to account XXX924 than your “Valentine’s Day in Paris” Fund. Go ahead, and give it a good name so you know what you’re working towards.

•   Another smart move is to automate savings. You can set up automatic deposits into this account each week or month, depending on your pay cycle and what you’re comfortable with. You could even allocate a specific amount to be auto deposited right from your paycheck. That way, it’s like you never even hit your checking account, where it can tempt you to go shopping and have a fancy dinner. You won’t see the money until you’re ready to go on vacation.

Now, about how much to save. Here are a couple of approaches to try:

•   Some people like to establish an amount of their paycheck to siphon off into travel savings. Perhaps it’s 5% of your take-home pay, or an amount like $50. Once it hits a certain figure ($500 or $1,000), you can then dig in and start your specific planning.

•   For many, though, building a budget makes the dream real. You can scout out transportation and lodging costs, among other items by doing online research. You can add food, entertainment, excursions, and other potential expenses and come up with the figure you’ll need. Then divide that by how long you have to save, and you’ve determined your monthly savings goal.

   So if you need $2,400 for your trip and have eight months till the date you want to travel, you’ll need to set aside $300 per month.

Doing Some Research on Your Dream Vacation

As briefly mentioned, research can be the foundation of your trip planning. And it’s often a really fun enterprise, whether you are a moodboard or a Pinterest sort of person. Decide what kind of vacation you want to have — be it a surf, snow, hiking, adventure, leisure, city, or country escape — then start looking into destinations that suit your desires. Maybe a friend took a cool 30th birthday trip to Iceland that you want to emulate, or you are in search of a few budget-friendly spring break destinations. Start searching! Some guidelines:

•   Once you pick a spot, you can look at things like average hotel pricing, average food cost, transportation costs (including the flight, drive, boat, or train there as well as a car rental, taxi, or ridesharing service for when you’re there), average excursion cost, and add in a bit extra for entertainment expenses.

•   Don’t forget to budget for hidden fees, such as resort fees, rental fees, and taxes. You may want to call the hotel’s concierge to get those numbers if they aren’t displayed, as they can add up rather quickly. Also, you may want to ensure your number crunching includes an “extra” slush fund for those “just in case” moments.

•   If hotels look to be a bit too pricey in your intended destination, you could always look for cost-cutting accommodations. There are always hostels, and some are adding amenities these days that make them less barebones.

•   You might consider places that will let you stay for free in exchange for services. You could try signing up on websites like Rover to swap dog sitting services in exchange for a free place to stay. Websites like Mind My House also bring together people looking for house sitters and those looking for accommodations. Check out the listings and see if any fit your vacation needs.

Recommended: Tips for Finding Travel Deals

Saving Consistently into Your Travel Fund

If you have an estimate of how much it will cost, now you just have to figure out how to save for a vacation. Consider these ideas:

•   Dividing your projected vacation cost by the months you have to save and stashing cash away is a tried-and-true method. By doing so, you can watch your trip fund grow and get you closer to your trip.

•   Some people like to use round-up apps or the “change jar” method to also boost their savings.

How to start a vacation fund is simple: You make that first deposit, But next, learn some other ways to keep building towards your travel goal.

Using Windfalls to Your Advantage

While working toward your vacation, you could use any financial windfalls to your advantage. Consider these sources:

•   A tax refund

•   A bonus at work

•   A raise at your job

•   Proceeds from selling your stuff, like electronics, kitchenware, or clothes you no longer need or use.

Putting this money into where you keep a travel fund is a great way to boost your savings.

Adding a Side Hustle to Your Routine

You could always create a windfall for yourself by taking on a low-cost side hustle as you save for your vacation.

Working a side job or taking on freelance work you have the skillset for could help you save money faster to get the vacation show on the road. And the best part is, if you save using your side gig money, you won’t even need to touch your savings or primary paycheck.

Some pointers:

•   Think about what you’re after: Something that will help your career in the long-term, or perhaps something that will simply earn you a bit of quick cash?

•   If you’re hoping it could help your career growth, you could try tackling a side job that’s connected to your goals. For example, if you’re hoping to be a writer, scout article writing or copywriting gigs. Want to be a photographer? Build a website and offer your services.

•   If it’s just quick cash you need, think local and urgent. Could you sub in at a busy cafe on weekends or do odd-jobs through various apps like TaskRabbit or Fiverr?

•   Decide how much you’re willing to put into a side hustle. Often, side gigs require you to work before or after your regular nine-to-five, which could mean giving up your nights and weekends. But, again, all that extra work could pay off for either your career or your short-term goals.

Making a Little Extra Cash While on Vacation

You could always try putting your assets to work for you while you’re away to help pay for your vacation. If you own your home or apartment or your landlord allows it, you might rent your space on websites like Airbnb or VRBO. You may be able to earn a hefty sum.

Have a car? That can be rented out on websites like Turo, too.

The Takeaway

If you’re planning a vacation, dreaming about it and planning where you’ll go and what you’ll see can be a fun pursuit. But you’ll also need to save for it. That can be accomplished by saving from your paycheck, stashing away any windfalls, and putting energy towards earning additional money.

As you save, you need a good place to keep your cash securely and help it grow. The SoFi Checking and Savings Account can be a smart option. You’ll be able to easily keep track of progress on each of your vaults (including one that’s your vacation fund), you’ll enjoy a competitive annual percentage yield (APY), and other benefits. And when it’s time to travel, you can use ATMs within the Allpoint® Network without any fees.

SoFi Checking and Savings: The smart, simple way to save.

FAQ

How does a vacation fund work?

A travel fund is an account that helps you save the amount needed to take a trip. Typically, you add to it regularly (manually or by automatically depositing some of your paycheck) until you reach your goal amount. Having the money in an interest-bearing account can help you grow your money more quickly.

Where should I put vacation money?

If you want to grow your trip fund money, it’s wise to put it in a savings account where it’s liquid but earning interest. Look for a secure bank that offers a healthy annual percentage yield (APY). These high-interest or high-yield accounts are often found with no fees and low or no minimum balance requirements at online banks. Because these banks don’t have bricks-and-mortar locations, they can pass the savings onto customers.

What is a reasonable vacation budget?

A reasonable vacation budget will depend on your particular plans. Are you going to a lavish resort in the Mediterranean for two weeks or to a cabin at a local park for the weekend? Whatever your travel style may be, making a budget is critical. By researching transportation, lodging, food, entertainment, and excursion costs in advance, you can likely figure out your savings goal.

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

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.

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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Buying your first house is a major move, even if the home itself is tiny. Becoming a homeowner can be a great way to start putting down some roots and building equity. And just because it’s called a “starter home” doesn’t necessarily mean you’re twenty-something when you go shopping for one. For many people, the purchase of a first, maybe-not-forever house can come years or decades later.

But what exactly makes a good starter home? How do you know when to jump into the housing market? There are many variables to factor in, such as price, location, type of home, the sort of mortgage you’ll get, your personal finances, and more.

Read on to learn answers to such questions as:

•   Why should you buy a starter home?

•   Should you buy a starter home or wait?

•   How do you buy a starter home?

What Is a Starter Home?

The first step in deciding “Should I buy a starter home?” is understanding what exactly that “starter home” term means. A starter home is loosely defined as a smaller property that a first-time buyer expects to live in for just a few years.

The home could be a condo, townhouse, or single-family home. But generally, when you purchase a starter home, you anticipate outgrowing it — maybe when you get married or have a couple of kids, or because you want more space, a bigger yard, or additional amenities.

A starter house could be brand-new, a fixer-upper, or somewhere in between, but it’s usually priced right for a buyer with a relatively modest budget.

That modest budget, though, may need to be loftier than in years past. The 2022 price of a starter home was $325,000, according to Realtor.com, up 48% from $220,000 in 2019.

That might sound a little intimidating, but remember, that’s the median price. Depending on where you live, there may be entry-level homes selling at significantly lower price points.

Recommended: What Is Housing Discrimination?

How Long Should You Stay in a Starter Home?

Unless you’re a big fan of packing and moving — not to mention the often-stressful process of selling one home and then buying another, or buying and selling a house at the same time — you may want to stay in your starter home for at least two to five years.

There can be significant financial reasons to stick around for a while:

•   Home sellers are typically responsible for paying real estate agents’ commissions and many other costs. If you haven’t had some time to build equity in the home, you might only break even or even lose money on the sale.

•   You could owe capital gains taxes if you’ve owned the home for less than two years and you sell it for more than you paid.

Of course, if there’s a major change in your personal or professional life — you’re asked to relocate for work, you grow your family, or you win the lottery (woo-hoo!) — you may need or want to sell sooner.

What Is a Forever Home?

A forever home is one that you expect to tick all the boxes for many years — maybe even the rest of your life. It’s a place where you plan to put down roots.

A forever home can come in any size or style and at any cost you can manage. It might be new, with all the bells and whistles, or it could be a 100-year-old wreck that you plan to renovate to fit your home decorating style and vision.

Your forever home might be in your preferred school district. It might be close to friends and family — or the golf club you want to join. It’s all about getting the items on your home-buying wish list that you’ve daydreamed about and worked hard for.

At What Age Should You Buy Your Forever Home?

There’s no predetermined age for finding and moving into a forever home. Some buyers plan to settle in for life when they’re 25 or 30, and some never really put down roots.

But according to data from the 2022 Home Buyers and Sellers Generational Trends Report from the National Association of Realtors® Research Group, buyers in the 57 to 66 age range said they expected to live in their newly purchased home longer than buyers from other age groups, with an expectation of 20 years of residence.

Younger buyers (ages 23 to 31) and older buyers (75 to 90) said they expected to stay put for 10 years.

The median expectation for buyers of all ages was 12 years.

Recommended: First-Time Homebuyer’s Guide

Benefits of Buying a Starter Home

Are you contemplating “Should I buy a starter home?” Here are some of the main advantages of buying a starter home:

•   Becoming a homeowner can bring stability to life. A starter home comes with a feeling of “good enough for now” that, for some buyers, is just the right amount of commitment without feeling stuck in the long term.

•   Buying a starter home is also a great way to try on aspects of homeownership that renters take for granted, like making your own repairs and mowing your own yard. The larger the house, the more work it usually brings. With a starter home, you can start small.

•   Buying a starter home is also an investment that could see good returns down the road. While you live in the home, you’ll be putting monthly payments toward your own investment instead of your landlord’s. Depending on market conditions, you could make some money when you decide to trade up, either through the equity you’ve gained when you sell or recurring income if you choose to turn it into a rental property.

•   Homeowners who itemize deductions on their taxes may take the mortgage interest deduction. Most people take the standard deduction, which for tax year 2022 (filing by Tax Day 2023) is:

◦   $25,900 for married couples filing jointly

◦   $12,950 for single taxpayers and married individuals filing separately

◦   $19,400 for heads of households

•   Some homeowners who itemize may be able to do better than the standard deduction. For instance, in some states, a homestead exemption gives homeowners a fixed discount on property taxes. In Florida, for example, the exemption lowers the assessed value of a property by $50,000 for tax purposes.

Downsides of Starter Homes

Next, consider the potential disadvantages of snagging a starter home:

•   While the idea of buying a home just big enough for one or two is a romantic one, the reality of finding a starter home that’s affordable has gotten tougher.

   The outlook has been so bleak, especially in some larger cities, that some Millennials are opting out of the starter-home market altogether, choosing instead to rent longer or live with their parents and save money.

   Who can blame Millennials for taking a different approach to homeownership than their parents? The older members of this generation came of age during the financial crisis of 2008-09, which included a bursting housing bubble that put many of their parents — and even some of them — underwater on a mortgage they may not have been able to afford in the first place.

•   When thinking about whether you should buy a starter home, know that it may require a lot of sweat equity and cash. If you buy a bargain-priced first home, you may be on the hook for spending much of your free time and cash to restore it.

•   Another con of buying a starter home is the prospect of having to go through the entire home-buying process again, possibly while trying to sell your starter home, too. Keeping your house show-ready, paying closing costs, going through the underwriting process, packing, moving, and trying to time it all so you avoid living in temporary lodging is a big endeavor that, when compared with the relative ease of moving between apartments, can be seen as not worth the effort.

•   In some circumstances, you may have to pay capital gains taxes on the sale of your starter home when you move up.

If you aren’t ready to jump into a starter home, an alternative could be a rent-to-own home.

How to Find Starter Homes for Sale

Are you ready to start the hunt? Here are some tips for finding a starter home:

•   Work with an experienced real estate agent who knows your market and spends their days finding homes in your price range.

•   Rethink your house criteria. If you are buying a starter home and figured you’d shop for a three-bedroom, you may find more options and less heated competition if you go for a two-bedroom house.

•   Take a big-picture view. If you’re a young couple with no kids yet, maybe you don’t need to purchase in the tip-top school district. After all, you are at least several years away from sending a little one to their first day of school Or, if prices are super-high for single-family houses, could buying a condo or a townhome work well for a number of years?

   You might also look into purchasing a duplex or other type of property.

Average U.S. Cost of a Starter Home

As noted above, the typical cost of a starter home in the U.S. was $325,000. Keep in mind, however, that there is a huge variation in costs. A rural home may be much less expensive than shopping for a starter home that’s within short commuting distance of a major city, like New York or San Francisco.

Is Buying a Starter Home Worth It?

Deciding whether a starter home is worth it is a very personal decision. One person might be eager to stop living with their parents and be ready to plunk down their savings for a home. Another person might have a comfortable rental in a great town and be reluctant to take on a home mortgage loan as they continue to pay down their student loan debt.

When you consider the pros and cons of starter homes listed above, you can likely decide whether buying a starter home is worth it at this moment of your life.

Tips on Buying a Starter Home

If you’re tired of renting or living with your parents but don’t have the cash flow necessary for anything more than a humble abode, a starter home could be a great way to get into real estate without breaking the bank. Some pointers on how to buy a starter home:

•   Before you buy any home — starter or otherwise — it’s important to sit down and crunch the numbers to see how much home you can realistically afford. Lenders look at your debt when considering your debt-to-income ratio (DTI), but they aren’t privy to other regular monthly expenses, such as child care or kids’ activity fees. Be sure to factor those in.

•   You also may want to look at how much you can afford for a down payment. While a 20% down payment isn’t required to purchase a home, most non-government home loan programs do require some down payment.

   It’s possible to buy a home with a small down payment: The average first-time homebuyer puts down about 6% of a home’s price as a down payment, according to the latest data from the National Association of Realtors (NAR).

   In addition, putting down less than 20% means you may have to pay private mortgage insurance (PMI).

•   You’ll want to explore different mortgage loan products as well, possibly with a mortgage broker. You’ll have to decide between adjustable and fixed rate offerings, 20-year vs. 30-year mortgages, and different rates. You may also be in a position to buy down your rate with points. Getting a few offers can help you see how much house you can afford, as can using an online mortgage calculator.

•   The decision to purchase a starter home is about more than just money, though. You may also want to consider your future plans and how quickly you might grow out of the house, whether you’re willing to live where the affordable houses are, and if you’ll be happy living without the amenities you’ll find in a larger house.

•   Other factors to consider are your current state of financial health and your mental readiness for a DIY lifestyle (which includes your willingness to fix your own leaky toilet or pay a plumber.)

•   If you’re ready to make the leap, there are plenty of home ownership resources available to help you get started on the path to buying your starter home. Your first step might be to check out a few open houses and to research mortgage loans online.

The Takeaway

Buying a starter home can be a good way to get your foot in the door of homeownership, but it’s important to consider your financial situation and your plans for the next two to five years or more before buying a starter house.

Are you house hunting and mortgage shopping? SoFi offers fixed-rate mortgage loans with as little as 3% down for first-time homebuyers, plus competitive rates and variable terms.

SoFi Mortgage Loans: The smart, simple source for financing.

FAQ

How much money should you have saved to buy a starter home?

The average down payment is about 6% of the home purchase price. That number can help you see how much you want to have in the bank, though mortgage loans may be available with as little as 3% down or even zero down if you are shopping for a government-backed mortgage. Worth noting: If your down payment is under 20%, you may have to pay private mortgage insurance.

What is considered a good starter home?

A good starter home will likely check off some of the items on your wish list (square footage, location, amenities, etc.) and will not stretch your budget too much. You want to be able to keep current with other forms of debt you may have as well as pay your monthly bills (which will likely include mortgage, property tax, home maintenance, and more). That financial equation may help you decide whether to buy a starter home or wait.

How much do people spend on a starter home?

As of 2022, the average price for a starter home in the U.S. was $325,000. However, prices will vary greatly depending on location, size, style, and condition.

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

SoFi Mortgages
Terms, conditions, and state restrictions apply. Not all products are available in all states. See SoFi.com/eligibility for more information.

*SoFi requires Private Mortgage Insurance (PMI) for conforming home loans with a loan-to-value (LTV) ratio greater than 80%. As little as 3% down payments are for qualifying first-time homebuyers only. 5% minimum applies to other borrowers. Other loan types may require different fees or insurance (e.g., VA funding fee, FHA Mortgage Insurance Premiums, etc.). Loan requirements may vary depending on your down payment amount, and minimum down payment varies by loan type.

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SoFi loans are originated by SoFi Bank, N.A., NMLS #696891 (Member FDIC). For additional product-specific legal and licensing information, see SoFi.com/legal. Equal Housing Lender.

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

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

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It goes without saying that getting hit with a credit card fee isn’t anyone’s preferred way to spend their money. If possible, you probably want to dodge those charges so you can use that cash elsewhere, perhaps putting it towards the bill itself or buying yourself a great meal.

One common type of credit card fee is a returned payment fee. This is when you get charged with a fee because your credit card payment doesn’t go through and is returned by the bank.

Fortunately, this charge can easily be avoided. Read on to learn the ropes, including:

•   What is a returned payment fee?

•   What happens if a credit card payment is returned?

•   Who charges a returned payment fee?

•   What are tips for avoiding a returned payment fee?

What Is a Returned Payment Fee?

A returned payment fee is a one-time penalty a credit card issuer charges you when a credit card payment you make online or via phone or check gets declined by the bank.

How much is a returned payment fee? If you don’t have enough funds in your bank account to cover the bill or the credit card issuer isn’t able to process your transaction for a number of reasons, you might be charged a returned payment fee of anywhere from $25 to $40 by the credit card issuer.

How Credit Card Returned Payment Fees Work

Here’s how credit card returned payment fees work: Say you set up a $200 autopay for your next monthly credit card bill, which is due on the 21st of the month. If when that date arrives, your account only has $185 in it (perhaps you had an emergency car repair to pay for), the autopay to your credit card will not go through properly since you don’t have enough money in the linked bank account. That’s when you get charged a returned payment fee, in addition to still owing the credit card company your monthly payment.

Typically, a credit card returned payment fee will be included in your next credit card statement.

Worth noting: You may well incur other fees. Your bank might charge you a separate non-sufficient funds fee. The average non-sufficient funds fee is $34.

Generally, this could impact your credit score if a returned payment doesn’t go through before your statement due date, which results in you being late on your payment or missing it altogether.

What Happens If a Credit Card Payment Is Returned?

If your credit card payment doesn’t go through due to lack of funds in your bank account or for some other reason, the credit card issuer will charge you with a returned payment fee. In some instances, they will make a second attempt to collect your payment before assessing you for this kind of fee.

What happens if the payment goes through after you are charged a returned payment fee? The credit card issuer might still charge you and collect the fee.

How Long Does It Take for a Returned Payment to Be Refunded?

You may be able to get a returned payment fee waived. This is most likely to occur if this is the first time you have missed an on-time payment.

Another scenario: Mistakes happen, and if you believe that you are wrongly or incorrectly charged for a returned payment, you can contact your credit card issuer to discuss and/or dispute the charge.

Typically, any credit card refunds appear on your statement in three to seven business days.

Recommended: What Is Credit Card Processing?

Who Charges a Returned Payment Fee?

The credit card issuer typically charges a returned payment fee. This is a separate and different charge than a non-sufficient fee, which is charged by the financial institution where you hold your account.

Types of Returned Payment Fees

In many cases, you can get hit with a returned payment on a credit card. The credit card issuer will charge this fee if there’s not enough funds in your bank account to cover the payment or if the transaction fails to go through for some other reason.

The other main type of returned payment fee is charged by a financial institution when your check bounces or you don’t have enough money in your bank to cover a transaction on your debit card. This is also known as a non-sufficient funds fee.

Beyond those fees, you might also be assessed a returned payment fee on other kinds of accounts, such as a gym that charges a recurring fee, a streaming service, or a car leasing company.

Recommended: Guide to Choosing a Credit Card

Tips for Avoiding Credit Card Returned Payment Fees

Here, some tactics to help you avoid returned payment fees from your credit card:

•   Always double-check that you have enough money in the bank to cover the payment. Some people like to keep a cash cushion in your account to help prevent overdrafts.

•   It might be wise to have a separate checking account to use on discretionary spending and another one for recurring monthly bills, such as credit card payments.

•   To make sure you stay in the green, consider moving money from your main checking account to a sub account whenever you make a charge on your credit card. For instance, if you spend $30 on dinner, then move $30 into the sub account. That way, when it’s time to make a credit card payment, the money will be ready.

•   If you’re having trouble with autopay on a credit card payment, consider making several manual payments throughout the billing cycle. For instance, split the payment in half and make two separate, manual payments.

Other Credit Card Fees

Here are other common credit card costs and fees:

•   Interest fees. If you keep a balance on your credit card, you’ll be charged interest on the outstanding balance. Your balance, plus the APR (annual percentage rate), which is the interest rate plus any tacked-on fees, can fluctuate in tandem with the prime rate, impacting how much you pay on interest on a card.

That interest (and other fees) are among the key ways that credit cards make money.

•   Annual fee. Some cards might charge an annual fee, which is billed on your anniversary month. So if you opened a credit card in March, then you’ll be charged an annual fee every March as long as you keep the card open. Some issuers might waive the credit card annual fee the first year you open your card.

•   Late fees. If you’re late on making a payment, you could get charged a late fee on your credit card. This fee depends on the credit card issuer and can be anywhere from $15 to $35 for a single charge.

•   Foreign transaction fee. If you use your card in another country or make a purchase from a company that’s not based in the U.S., you might be charged a foreign transaction fee. These fees are anywhere from 1% to 3% of the amount. Some travel cards and international credit cards don’t have a foreign transaction fee.

You might also opt for a conventional credit card that doesn’t charge any foreign transaction fees, which can help you save when you’re abroad.

•   Balance transfer fee. If you’re moving the balance from one credit card to another, there’s likely a balance transfer fee. This is a one-time fee that is either a flat fee or a percentage of the transfer amount, which is anywhere from 3% to 5%. Balance transfers are usually a tactic to save on interest fees, so you’ll want to make sure the savings is greater than any fees.

The Takeaway

A credit card returned payment fee can feel like a nuisance at best and a financial strain at worst. Fortunately, with a bit of vigilance and planning on your part, returned payment fees — and credit card fees in general — can be avoided.

When shopping for a credit card, you’ll also want to see what the card offers in terms of perks. With the SoFi Credit Card, you’ll enjoy 2% unlimited cash back rewards, which you can use in a variety of ways to meet your personal and financial goals.

Spend smarter with the SoFi Credit Card.

FAQ

What happens when a payment is returned?

When a payment is returned and your card card issuer is unable to process a payment, they usually charge you with a returned payment fee. In some cases, they might make a second attempt to collect the money before hitting you with a fee.

Is a returned payment a late payment?

A returned payment and a late payment are two different things and, in the case of fees, two different kinds of charges. A returned payment fee is charged when there is an issue with your payment and the payee is unable to receive the funds. If you are able to make a payment to a payee but it happens after the due date, it could result in a late payment fee on your account.

What should I do about returned credit card payments?

If a credit card payment gets returned, then you should aim to make your payment as soon as possible. Or, contact your credit card issuer if they might be able to waive it, especially if it’s your first time having this problem. Also take steps to avoid this scenario in the future.

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Photo credit: iStock/FreshSplash

¹See Rewards Details at SoFi.com/card/rewards.

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.

The SoFi Credit Card 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.

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

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If you spot a pending credit card transaction that isn’t correct or isn’t even yours, canceling it will likely be your top priority. And for good reason: It’s often wise to act quickly when dealing with this kind of financial situation rather than waiting to see how things work out. You want to take action so that the charge gets canceled before it’s posted to your credit card account.

Otherwise, it may take a few more steps to dispute the transaction or navigate the refund process with the merchant. Which could wind up changing your available credit for a period of time. Also, there could be the shadow of credit card fraud hanging over this kind of situation.

Here, you’ll learn how to spring into action if you’re in this situation, including:

•   What are pending charges on a credit card?

•   How can I cancel a pending transaction?

•   When do I contact my credit card issuer or bank?

•   Are there consequences to canceling a pending transaction?

What Are Pending Charges?

Pending charges or transactions are purchases on your credit (or debit card) that have not yet officially been posted to your account. When you use plastic to pay for something, the retailer will issue a charge which can take time to clear. Or, if there’s a pre-authorized payment (say, you’re paying a deposit at a hotel to cover any incidental charges), it may show up on a credit card as a pending transaction.

These charges may then stay pending until posted, which can take up to several days. It could take longer if the merchant needs to complete tasks such as shipping the item you’ve purchased or adding the tip amount on a meal.

While these charges are pending, they won’t accrue interest if you’re using a credit card, nor will it count as part of the outstanding balance. However, it can affect your overall available balance and how much you can spend.

Not familiar with pending charges? No worries. In many cases you may not see pending transactions since credit and debit card issuers process them fairly quickly.

Can I Cancel Pending Transactions?

In many cases, you may not be able to stop a pending transaction because they haven’t been posted yet. That’s an aspect of how credit cards function; there can be a lag time as the charge works its way through processing.

Credit card issuers tend to help their cardholders dispute a transaction once it’s posted. So if you see a pending charge that looks incorrect, you may have better luck contacting the retailer in question to resolve the matter. This might yield the best results in terms of how to cancel a pending charge on your credit card.

However, there may be some scenarios when it may make better sense to talk to your bank or credit card company instead, such as unfamiliar or unauthorized transactions. In this case, you might be dealing with fraud, and your financial institution or the card issuer should be able to offer guidance.

Recommended: Guide to Canceling a Credit Card Payment

When to Contact the Merchant

You just read that, in general, it’s better to contact the merchant first if you want to cancel a pending transaction. But now, consider some of the reasons why you might want to get those charges struck from your account:

You Were Accidentally Charged Twice

Sometimes mistakes happen, and a merchant can process a purchase twice. It could even be a tech glitch where you pressed the “purchase” button on an online order and wound up with two orders (or more) instead of one.

If you notice two identical transactions on the same day and from the same merchant, you’re most likely double charged. In this case, it’s better to contact the merchant immediately so they can cancel the extra charge and don’t ship you excessive products.

You Changed Your Mind

Whether it’s buyer’s remorse or you suddenly realize you already have the item you just bought, it’s not unusual to change your mind. The sooner you can contact the merchant, the more likely the pending transaction can get canceled. That way, you don’t have to worry about going through extra steps, like receiving the item, then returning it, and waiting for how long a credit card refund takes.

You Haven’t Gotten the Item Yet

Perhaps you purchased an item a while ago, and it still hasn’t arrived. Maybe you no longer want it or aren’t interested in waiting any longer. (Maybe you bought a gift for a friend’s birthday which is coming right up.) If the merchant hasn’t sent it by the time you contact them, you may be able to get the pending change canceled.

How to Contact the Merchant

If you find yourself in any of these situations, here are some suggested next steps:

•   Have all relevant information ready when you contact the merchant, such as the total purchase amount, transaction date, and the order number. If you have a receipt, have that handy as the merchant may request to see it or ask for any information on that receipt. Don’t forget to note down what you said on the phone as a record or in case you need to escalate the situation.

•   Even if the merchant grants your request, hold into any relevant documentation until you don’t see the pending transaction anymore.

•   If your request is denied or ignored, you can wait until the credit card transaction is posted to request a refund or dispute it with your credit card company or bank.

When to Contact Your Credit Card Issuer or Bank

Though you generally won’t be able to dispute a pending transaction, there are several scenarios in which you may be able to do so.

You Don’t Recognize a Transaction

It’s a bad feeling when you see a pending charge that’s for an item or service you know isn’t yours. If you believe the pending transaction is due to fraud, it’s better to contact your credit card company or bank immediately to get it resolved.

The Amount of the Transaction Is Suspicious

What if you do recognize a transaction but there’s something off about the details? For instance, say you went to a flea market and swiped your card to buy yourself a necklace, but the pending charge is $100 higher than what you know the merchant said they were charging you. This might be a time to reach out to your bank or card issuer.

You Weren’t Able to Cancel a Recurring Purchase With The Merchant

If you had a recurring payment (say, a monthly gym membership) and canceled the agreement, the merchant should honor your request if you’ve followed their terms. In the unfortunate situation that you’ve done this but still see a pending transaction and the merchant is nonresponsive, it’s probably better to cancel it through your credit card company or bank. They will likely be able to show you how to stop a pending transaction.

Recommended: Guide to Choosing a Credit Card Company

How to Contact Your Credit Card Issuer or Bank

Each company may have its own method for handling requests for pending transactions. Some pointers:

•   To start, you might call your bank or credit card company and let them know your situation. They can then transfer you to the relevant department or customer representative. Email and chat with a customer service representative are often other convenient methods.

•   Jot down a record of whom you speak with and when.

•   As with disputing a pending transaction with the merchant, you will need to provide information such as receipts, interactions you’ve tried to have with the merchant, and the transaction amount you’re disputing.

•   Be prepared to create a paper trail. You may need to file a formal dispute which you will either fill out and send in or a representative can do so for you and then send you a copy. Additional steps may be taken to secure your account or to close it and open a new one if there’s been credit card fraud.

•   If you have had fraudulent activity, you may want to set up fraud alerts with the big credit reporting agencies. That way, you can be on alert if anyone tries to open an account in your name.

Consequences of Canceling a Pending Transaction

Even if you successfully cancel a pending transaction, it could still take several days for it to be removed from your account. In the meantime, it could affect your overall available balance.

Those using a credit card will want to watch what their available balance is when making purchases to ensure they’re not at risk of going over their credit card limit.

If you’re waiting for a pending transaction to be canceled on your debit card, don’t count on that money being available in your bank account just yet. It can be better to err on the side of caution. For instance, should you spend money you think you have and there isn’t enough in your account, you could have your transaction denied. Or you could go into overdraft and face paying a fee.

The Takeaway

When paying with plastic, there may be times that your account shows a pending charge that you want to cancel. In some situations, it’s best to reach out directly to the merchant who charged you; in others, contacting your financial institution or the card issuer will be your best move. It’s wise to stay aware of charges on your account so you can spot anything that’s amiss and deal with it swiftly.

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

FAQ

How do I stop a pending debit transaction?

You can stop a pending debit card transaction by contacting the merchant and canceling the purchase. Or you can try contacting your bank if you don’t recognize the transaction, you suspect fraud is involved, or the merchant is unresponsive.

Can you cancel a payment while it’s pending?

You may be able to cancel a pending payment transaction in some cases. Contacting the merchant directly can be the best route. Many credit card companies may have you wait until the payment is posted before allowing you to dispute it.

Can I tell my bank to stop a pending transaction?

You can tell your bank to stop a pending transaction if you have a legitimate reason to do so, such as if the merchant ignores or denies your request or you suspect fraudulent activity.

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Photo credit: iStock/Lemon_tm

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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