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A budget is an important tool to help you balance your income and your spending, keep your savings on track, and help you avoid debt. But like many good things, it sometimes goes off the rails. A person might start a budget with the best of intentions but then find it hard to stick to it. Or they might encounter an emergency expense and have a hard time getting back in the groove.

Learn what the common pitfalls are and how to avoid common budgeting mistakes to help your financial life thrive.

10 Budgeting Mistakes to Avoid

Here are 10 of the most common budget mistakes people make. Get familiar with them as a way to steer clear of them.

1. Not Having a Budget

Some people make the budget error of…not having a budget at all. Maybe it seems too hard, too time-consuming, or too boring; you’d rather be watching a hot new streaming series or playing with your dog.

Nevertheless, if you don’t create and follow a budget, you’re missing out on major benefits:

•   You may not save enough in your bank account for your future

•   You may feel stressed about reaching your long-term goals

•   You might spend beyond your means, which could land you in debt and strain on your financial resources.

Recommended: Common Financial Mistakes First-Time Parents Make

2. Not Tracking Spending

Tracking your spending can be one of the more tedious tasks required for budgeting, but it’s also an incredible, truth-revealing tool. How else would you know when you are above or below your limits? You risk blowing past your limit by overspending in some categories, meaning you’ll have less (or none) for other categories. For example, overspend on eating out, and you might have less to put toward your retirement savings. Fortunately, there are an array of expense-tracking apps (many are free) that can help simplify this process.

3. Not Having Emergency Savings

The general recommendation is to save three to six months’ worth of expenses in a dedicated emergency fund. This is money you can draw on in case of emergency medical expenses and car repairs, for instance. It also provides a cash cushion should you lose your job, giving you time to get back on your feet without going into debt.

Not having an emergency fund can torpedo your budget, requiring you to draw money from other categories to cover unexpected expenses, or requiring you to take on debt.

If you don’t have a rainy day fund yet, it may be wise to set up automatic deductions monthly. Even as little as $25 can begin building a buffer. Keep your emergency cash in a separate savings account so you aren’t tempted to touch it. And if you need to dip into the account, be sure to budget additional savings until you are able to replenish it.

4. Not Considering Cheaper Alternatives

Budgeting doesn’t necessarily mean giving things up. Sometimes it can mean looking for cheaper alternatives. For example, you could swap out a pricey gym membership for one at a more budget-friendly place instead. Instead of renewing the same car insurance you’ve always had, you could shop around online for a better deal. You might even call your credit card issuer to request a lower interest rate or try to negotiate a medical bill. All of these options can free up cash in your budget that can go toward meeting other goals.

5. Thinking That You Can’t Have Fun While on a Budget

One of the reasons people don’t budget is it can feel like a real slog and a buzzkill. They assume that in order to budget successfully, they have to give up doing things they like. However, that’s not necessarily true. While a budget ensures that your necessary expenses are taken care of first, it can also provide discretionary funds that can be used however you want, from going to see a movie to booking a weekend getaway.

You may also consider making budgeting more fun by rewarding yourself when you meet certain goals. For example, you may want to treat yourself when you pay off a credit card. Just be sure you’ve already earmarked funds to pay for your reward.

6. Saving for Too Many Things Simultaneously

Another budgeting mistake involves trying to save for too many things at once. In this situation, it’s easy to stretch yourself thin. You might start to feel like you’re spinning your wheels and are unable to follow your budget.

A solution can be to narrow your focus. To prioritize your savings, first consider wants versus needs. For example, you may want to drill down on a single need, like building an emergency savings fund, rather than upgrading your mobile phone (which is a want, after all). Once your need is taken care of, then you can consider allocating funds for a want. Delaying gratification a bit can be a valuable tool when successfully managing your money.

7. Not Adjusting Varying Expenses Every Month

Some expenses, like rent and utility bills, are relatively fixed. Others, like how much you spend on groceries can vary from month to month. If you don’t compensate for that fluctuation, you may be making a budget mistake.

If you notice you are suddenly spending more each month in a certain category, be sure to adjust your budget accordingly, or look for ways to cut back on spending in that category. To protect yourself in times of high inflation, it can be especially important to monitor this. Your food, gas, and heating expenses may well run high for a while.

8. Not Taking Into Account One-Time Expenses

One-time expenses can be real budget busters if you don’t plan for them ahead of time. Estimate the cost of the expense, and spread out your savings over a couple of months.

For example, if you plan to attend a wedding that will cost $800, you could start saving $200 a month four months in advance so you don’t end up footing the bill all at once. Or let’s say you know you’ll be needing a set of new tires soon; start stashing away cash in advance so you don’t get hit with a major bill that sends your budget spiraling. Another category many budgeters overlook is gifts; birthday and holiday presents can add up, so remember to set aside funds to afford them without a hiccup.

9. Having an Unrealistic Budget

It’s easy to be optimistic and have the best intentions when you create your budget, but make sure it’s something you can realistically stick to. Otherwise, you may have a budget mistake on your hands.

You may be overly optimistic, for instance, if you allocate 20% of your take-home pay toward one goal. If you oversave in one area, like for a downpayment on a home, for example, it may mean that you could incur credit card debt in order to buy necessities like groceries. Be honest with yourself about how much you spend and how much you can save.

10. Having the Wrong Budget Method for You

There is no one-size-fits all budgeting strategy. As we mentioned above, there are a number of different budgeting strategies you can use to help you build and stick to your budget. The best one is the one that works for you. Just because a budget strategy sounds good when you first learn about it or your best friend swears by it doesn’t mean it will work for you. It’s a budgeting error to cling to a system that isn’t working. If the technique you are using isn’t right for you, acknowledge that, and try something else.

The Takeaway

Now you know what is a common mistake made in budgeting; 10 of them, in fact. By avoiding these pitfalls, you give yourself a better chance of sticking to your budget, saving money in your bank account, and meeting your financial goals. What’s more, you’re far less likely to be derailed by debt, and interest payments that could eat into your ability to save and manage your money.

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

FAQ

What are some pitfalls of budgeting?

Budgeting pitfalls that can derail your financial goals include failing to have a budget, not tracking your expenses, forgetting to account for varying monthly expenses, and not building up an emergency fund.

What is improper budgeting?

Improper budgeting can occur if your budget is incomplete, if it’s overly ambitious (not recognizing how much you actually spend, for instance), or if you don’t update it with new sources of income or expenses, you’re not budgeting correctly.

Why do people fail in budgeting?

A budget may fail for a variety of reasons, such as trying to achieve too ambitious a goal or too many goals at once; not tracking your expenses; and sticking with a budgeting strategy that doesn’t fit your needs. If the latter is the case, try multiple strategies to find the one that suits you best.

Photo credit: iStock/Prostock-Studio

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

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

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.

4.60% APY
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 recurring deposit of regular income to an account holder’s SoFi Checking or Savings account, including payroll, pension, or government benefit payments (e.g., Social Security), made by the account holder’s employer, payroll or benefits provider or government agency (“Direct Deposit”) via the Automated Clearing House (“ACH”) Network during a 30-day Evaluation Period (as defined below). Deposits that are not from an employer or government agency, including but not limited to check deposits, peer-to-peer transfers (e.g., transfers from PayPal, Venmo, etc.), merchant transactions (e.g., transactions from PayPal, Stripe, Square, etc.), and bank ACH funds transfers and wire transfers from external accounts, or are non-recurring in nature (e.g., IRS tax refunds), do not constitute Direct Deposit activity. There is no minimum Direct Deposit amount required to qualify for the stated interest rate.

As an alternative to direct deposit, 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.

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

SOBK-Q224-1945831-V1

Many people are feeling the pain of the current economy, which has made it more difficult to buy a home or a car, and even afford everyday necessities like groceries and gas. While fears of recession have eased, inflation has proven sticky, interest rates remain high, and economic growth slowed in the first quarter of 2024.

Whether we head into an official recession or not, it’s important to understand that downturns are a normal part of economic cycles. There are also steps you can take when the economy is slowing to safeguard your financial health and avoid being significantly affected by a recession. Here are some key strategies to consider taking now, as well as actions you may want to avoid should the economy take a turn for the worse.

What Happens During a Recession?

A recession is a significant decline in economic activity that is spread across the economy and lasts more than a few months. One rule of thumb is that two consecutive quarters of negative gross domestic product (GDP) growth indicates a recession, but a number of formulas are typically used to determine recessions.

During a recession, several economic indicators show a downturn: Employment rates drop, consumer spending decreases, business revenues fall, and overall economic confidence wanes. This environment can lead to higher unemployment rates, decreased consumer confidence, and a general slowdown in economic activity.

Recessions are part of the economic cycle, which is characterized by peaks of growth followed by downturns. These phases of contraction can be triggered by various factors, including high inflation, rising interest rates, decreased consumer spending, or unexpected global events like a pandemic. Understanding the mechanics of a recession can help you take proactive steps to protect your finances and minimize the negative effects.

How to Prepare Your Finances for a Recession

Recessions are an inevitable part of any economy. But you can avoid some of the negative impacts by anticipating challenges early and preparing for the future.

Take Stock of Your Finances

High prices across the board have already forced many consumers to cut back on their budget for basic living expenses, such as groceries and travel. Even if you’ve made some spending adjustments, however, it’s a good idea to check in on your finances. You can do this by scanning the last few months of financial statements and assessing your average monthly spending and average monthly take-home income.

If you find that your spending is close to your earnings (meaning you’re not saving) or it’s higher (meaning you’re going backwards), you’ll want to comb through your discretionary spending and find places to cut. This can free up funds to boost saving and pay more than the minimum on any debt.

Build a Safety Net

Hard as it may be to find extra cash right now, it’s important to make sure you are putting funds aside each month toward building your emergency fund. This fund will serve as a financial cushion if you experience a job loss or get hit with any unexpected expenses. If you already have an emergency fund, consider increasing it to provide extra security during uncertain economic times.

The general rule of thumb is to keep at least three to six months’ worth of living expenses in a separate, easily accessible account. But if that feels like an overwhelming goal, it’s fine to start slow — even transferring $50 a month to your safety net can add up significantly over time. To benefit from the upside of the Fed’s multiple rate hikes, choose an account that pays a competitive annual percentage yield (APY), such as a high-yield savings account.

Pay Down High-Interest Debt

Here’s the bad news about higher interest rates: The national average credit card rate is now 27.70%, which makes credit card balances a significant financial burden. As a result, you’ll want to check rates on all of your credit cards and other debts. Any variable rates may have gone up. Next step? Pay as much as you can on your highest interest rate balances first to whittle down that debt; it’s the kind that can unfortunately snowball during tough economic times.

You might also look into balance transfer credit card offers. They can provide a period of no or low interest, during which you can pay down that debt. Another option is to consolidate high interest debt with a lower interest personal loan. You might also look into a nonprofit debt counseling program.

Once you’ve eliminated high-cost obligations, you’ll be better prepared to manage any potential financial bumps in the road.

Stay Your Investment Course

When it comes to your long-term investments, such as 401(k)s and other retirement accounts, you’ll want to continue making your contributions (or, if you’re not, consider starting), and not worry too much about market volatility. If you have a diversified portfolio, you generally don’t want to change your strategy out of fears of a looming recession.

For perspective, consider the most recent downturn: The Dow Jones fell nearly 3,000 points on March 16, 2020, which was the largest decline in one day in U.S. stock market history. Yet, the market rebounded quickly and set new records in late 2020 and early 2021. Investors who sold in a panic didn’t see any of those record-breaking returns.

If rising expenses are making it impossible for you to keep up with 401(k) contributions, try to contribute at least the minimum necessary to get any matching funds your employer offers. That’s free money, and you don’t want to miss out.

Recommended: How Much Should I Contribute to My 401(k)?

Recession-Proof Your Career

Recessions often involve layoffs and a significant rise in unemployment. This is something you’ll want to keep in mind, especially if you work in an industry that typically suffers downturns in a recession. Reducing debt and building emergency savings, as mentioned above, are two important steps you can take to prepare for the financial shock of a layoff.

In addition, you may want to take some steps to recession-proof your career. Start by updating your resume and LinkedIn page. If you notice any gaps in your skill set, you may want to explore getting the extra education, skills, or training you may need to protect your livelihood. It’s also smart to refresh connections within your professional network, looking both within and outside your organization. Having a strong professional network and staying adaptable can provide opportunities even during economic downturns.

What to Avoid Doing During a Recession

Here’s a look at what not to do if the nation slips into a recession.

Panic

While the term “recession” can be panic-inducing, you’ll want to avoid making any rash decisions. Economists use the word recession simply to indicate that the economy is contracting, not growing. Not all recessions lead to double-digit unemployment or severe stock market losses.

That said, the stock market often experiences significant volatility during a recession, which can lead to fear and panic-selling. As mentioned above, selling investments hastily could result in substantial losses. It’s often wiser to focus on your long-term investment strategy and avoid making impulsive decisions based on short-term market movements. Market downturns can also present buying opportunities for long-term investors.

Tap Your Retirement

Withdrawing from your retirement accounts should generally be considered a last resort during a recession. Early withdrawals can incur penalties and taxes, and reduce the funds available for your future. You’ll want to explore other options, such as cutting discretionary spending, picking up a side gig for an extra income stream, or using your emergency fund, before tapping into retirement savings. Protecting your retirement funds is crucial for long-term financial security.

Accumulate New Debt

Taking on new debt during a recession can increase financial stress and vulnerability. Ideally, you want to avoid making large purchases or using credit cards for nonessential expenses. It can also be a good idea to delay significant financial commitments, such as buying a home or car, until the economic situation improves. You’ll likely be better off focusing on maintaining a healthy debt-to-income (DTI) ratio and preserving your financial flexibility.

Become a Cosigner

Cosigning a loan for someone else during a recession can expose you to significant financial risk. If the primary borrower defaults, you will be responsible for the debt, which can strain your finances and damage your credit score. During uncertain economic times, it’s best to avoid taking on additional financial liabilities that are beyond your control.

Take Your Job for Granted

Job security can be fragile during a recession, so it’s important not to take your employment for granted. Stay proactive in your role by demonstrating your value to your employer. Consider taking on additional responsibilities, seeking feedback, and continuously improving your skills. Being an indispensable employee can increase your chances of retaining your job during economic downturns.

Recommended: The History of US Recessions: 1797-2020

The Takeaway

Preparing for a recession involves taking proactive steps to protect your financial health and avoid common pitfalls. Smart moves to take when a downturn may be looming include: building an emergency fund, reducing debt, continuing to save for retirement, and recession-proofing your career. Equally important is knowing what to avoid, such as panic selling, accumulating new debt, and tapping into your 401(k) or IRA.

Economic downturns are never pleasant and often painful. But with some thoughtful planning and the steps outlined above, you can protect your finances and better position yourself when the economy bounces back.

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.

Photo credit: iStock/tolgart

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 recurring deposit of regular income to an account holder’s SoFi Checking or Savings account, including payroll, pension, or government benefit payments (e.g., Social Security), made by the account holder’s employer, payroll or benefits provider or government agency (“Direct Deposit”) via the Automated Clearing House (“ACH”) Network during a 30-day Evaluation Period (as defined below). Deposits that are not from an employer or government agency, including but not limited to check deposits, peer-to-peer transfers (e.g., transfers from PayPal, Venmo, etc.), merchant transactions (e.g., transactions from PayPal, Stripe, Square, etc.), and bank ACH funds transfers and wire transfers from external accounts, or are non-recurring in nature (e.g., IRS tax refunds), do not constitute Direct Deposit activity. There is no minimum Direct Deposit amount required to qualify for the stated interest rate.

As an alternative to direct deposit, 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.

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.

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.

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

SOBK-Q224-1920564-V1

Safe deposit boxes are storage units located in banks that offer a secure way to store important items you may not want to keep at home, such as critical documents, collectibles, and family heirlooms.

Due to the growth of online banking and digital storage, safe deposit boxes aren’t as popular as they once were. However, there are some situations where these boxes can be useful. Here are key things to know about safe deposit boxes.

What Is a Safe Deposit Box?

A safe deposit box (also called a safety deposit box) is a secure locked box, usually made of metal, that stays in the safe or vault of a federally insured bank or credit union. They are typically used to keep valuables, important documents, and sentimental keepsakes protected from theft or damage.

Safe deposit boxes often come in two different sizes, usually 3” by 5” or 10” by 10,” and can be rented for an annual fee. In exchange for the fee, banks provide security measures to protect your valuables, such as alarms and surveillance cameras. In addition, the safe deposit boxes are stored in vaults that are designed to withstand natural disasters such as fires, floods, hurricanes, and tornadoes.

Unlike a bank account, however, the contents of a safe deposit box are not protected by the Federal Deposit Insurance Corporation (FDIC) or National Credit Union Administration (NCUA). As a result, there is still a small risk that you could lose the items in your container due to theft or damage.

Recommended: What Are the Differences Between FDIC and NCUA Insurance?

What You Should and Shouldn’t Keep in a Safe Deposit Box

Safe deposit boxes can be a good place to keep hard-to-replace documents and small valuables that you won’t need to access frequently. However, you generally don’t want to keep any items that you may need to grab in a hurry in the box, and certain items are prohibited.

Here’s a breakdown of things to keep — and not to keep — in a safe deposit box.

Items Typically Kept in a Safe Deposit Box

•   Important documents: Documents that are difficult to replace and often needed for legal purposes are commonly stored in safe deposit boxes. These include: birth certificates, marriage licenses, car titles, divorce records, citizenship papers, property deeds, and mortgage documents.

•   Valuables: Jewelry, rare coins, stamps, and other valuable collectibles can be safely stored away from potential theft.

•   Financial Instruments: Stock certificates, bonds, and other financial instruments that require safekeeping can be securely stored in a safe deposit box.

•   Backup data: You might store external hard drives or USB drives containing sensitive personal or business information here to protect against data loss.

•   Personal keepsakes: Irreplaceable items like family heirlooms, photos, and memorabilia can be stored to ensure they don’t get lost or damaged.

Items to Avoid Putting in a Safe Deposit Box

•   Cash: While you may be tempted to store some cash in your safe deposit box, you’re likely better off putting the money in a high-yield savings account at a bank or credit union, which will allow your money to grow. The cash will also be insured (up to certain limits) by the FDIC or NCUA.

•   Original copies of wills: Original wills should not be stored in a safe deposit box because they may be difficult to access immediately after the owner’s death, delaying probate. You might instead store a copy of a will.

•   Durable power of attorney: Similar to wills, these documents might be needed quickly in emergencies, and delays could cause significant issues. Consider storing a copy.

•   Passport: If you need to travel urgently, accessing your passport from a bank vault could be problematic due to limited bank hours.

•   Frequently used items: Any items you need regular access to should not be kept in a safe deposit box due to limited accessibility.

•   Prohibited items: Banks and credit unions generally prohibit the storage of firearms, explosives, weapons, hazardous materials, illegal substances (such as drugs), alcohol, perishable items, and cremated remains.

How Much Does a Safe Deposit Box Cost?

Rental fees vary by the box’s size and financial institution. The average cost to rent a box at a commercial U.S. bank runs between $15 and $350 per year. Additional costs may include fees for lost keys or late payments.

Some banks and credit unions will offer discounts on a safe deposit box cost if you have a relationship with the bank. In some cases, an institution may offer free access to a safe deposit box as a perk to their customers.

How to Get a Safe Deposit Box

To rent a safe deposit box, you’ll generally need to follow these steps:

1.    Research your options. Not all banks and credit unions offer safe deposit boxes. You’ll want to find an institution that both provides this service and is conveniently located.

2.    Meet the requirements. Many banks require you to be an existing customer with a checking or savings account. However, some banks may allow noncustomers to rent boxes for an additional fee.

3.    Provide identification. You’ll need to bring valid identification, such as a driver’s license or passport, to verify your identity. If you plan to allow another person access to your safe deposit box, they will need to be present and show ID as well.

4.    Sign a rental agreement. You (and, if applicable, your corenter) will need to sign a rental agreement outlining the terms and conditions of the box rental.

5.    Make a payment. You generally need to pay the initial rental fee upfront. Some banks may offer discounts for long-term rentals or automatic payments.

6.    Get your key. Upon completing the paperwork, you will receive a key to your safe deposit box. The bank retains a second key. Both keys are required to access the box. If the bank offers keyless access, they will likely scan your finger or hand.

Keep in mind that every time you wish to access your safe deposit box, you’ll need to present your photo ID, as well as your key (if it’s not keyless). The bank may also require your signature before allowing you to open your box.

Recommended: How Long Does It Take to Open a Bank Account?

How Safe Is a Safe Deposit Box?

Safe deposit boxes are generally very secure. They are housed in a bank vault, which offers robust protection against theft, fire, flood, and other disasters. Banks employ multiple layers of security, including surveillance cameras, alarms, and restricted access to the vault area.

When you rent a safe deposit box, the bank typically gives you a key to use. The bank also retains a second “guard key” which must be used by a bank employee in tandem with your key. Some banks now use a keyless biometric entry system, where you scan your finger or hand instead.

However, it’s important to note that the contents of a safe deposit box are not insured by the bank or the FDIC. As a result, you may need to obtain separate insurance or add a rider to your homeowners or renters insurance for coverage.

Recommended: Are Online Savings Accounts Safe?

Pros and Cons of Safe Deposit Boxes

Safe deposit boxes can be a good way to protect your valuables. Here are some of the upsides of renting one:

•   Security: Safe deposit boxes offer a high level of security, since they are stored in areas with limited access and stepped-up surveillance.

•   Environmental protection: They can protect your valuables from environmental damage, such as a flood or fire.

•   Privacy: The contents of a safe deposit box are known only to the renter, offering a high degree of privacy.

•   Organization: Safe deposit boxes help keep important documents and valuables in one secure location, making it less likely you will misplace them.

But safe deposit boxes also come with downsides. Here are some to consider:

•   Limited access: Access is restricted to bank hours, which can be inconvenient, especially in an emergency.

•   Cost: There is an ongoing rental fee, which varies based on the size of the box.

•   Not insured: Contents are not insured by the bank or FDIC. Separate insurance may be needed for valuable items.

•   Delayed access for loved ones: In the event of the renter’s death, accessing the box may require legal processes that could delay access to important documents.

Recommended: Different Types of Savings Accounts You Can Have

The Takeaway

If you’re looking for a safe place to stash vital papers or valuable possessions, you might consider renting a safe deposit back at a brick-and-mortar bank or credit union. Items stored in these containers are protected against theft, loss, or damage due to a flood, fire, or other disaster.

But the protection has limits: Unlike regular bank accounts, safe deposit boxes are not insured by the FDIC. Also keep in mind that safe deposit boxes aren’t ideal for items you may need to grab in a hurry, since access is limited to banking hours.

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

FAQ

What can I use instead of a safe deposit box?

Alternatives to a safe deposit box include:

•   A fire-rated personal home safe: This can offer protection from environmental damage (such as fire or flood). However, a thief could potentially steal the whole safe.

•   Digital storage solutions: Cloud services can securely store important documents and data backups.

•   An attorney’s office: For legal documents, a trusted lawyer’s office may offer secure storage.

•   Private vault facility: These are a viable alternative to a safe deposit box but tend to cost more.

Can safe deposit boxes be jointly shared?

Yes. When you open a safe deposit box, you can designate one or more corenters who will have equal access to the box. This is useful for couples, business partners, or family members who need shared access to important documents and valuables. Each renter typically receives a key, and all corenters’ signatures are required on the rental agreement.

Is it safe to keep money in a safe deposit box?

While it is physically safe to keep money in a safe deposit box, it is not recommended. Cash stored in a safe deposit box does not earn interest and is not insured by the Federal Deposit Insurance Corporation (FDIC). You’re generally better off keeping cash in a high-yield savings account or other insured financial instrument that offers safety, liquidity, and interest earnings.

Do banks know what you put in a safety deposit box?

No. The contents of a safe deposit box are private, and bank employees do not have access to the items stored inside. When you rent a safe deposit box, you receive a key, and the bank retains a second key. Both keys are required to open the box, but only you can open it and see its contents. This ensures privacy and confidentiality.

Photo credit: iStock/AlexSecret

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 recurring deposit of regular income to an account holder’s SoFi Checking or Savings account, including payroll, pension, or government benefit payments (e.g., Social Security), made by the account holder’s employer, payroll or benefits provider or government agency (“Direct Deposit”) via the Automated Clearing House (“ACH”) Network during a 30-day Evaluation Period (as defined below). Deposits that are not from an employer or government agency, including but not limited to check deposits, peer-to-peer transfers (e.g., transfers from PayPal, Venmo, etc.), merchant transactions (e.g., transactions from PayPal, Stripe, Square, etc.), and bank ACH funds transfers and wire transfers from external accounts, or are non-recurring in nature (e.g., IRS tax refunds), do not constitute Direct Deposit activity. There is no minimum Direct Deposit amount required to qualify for the stated interest rate.

As an alternative to direct deposit, 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.

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.

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.

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

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If you’re a parent, you’ve likely already begun to worry about how you’re going to pay for your kid’s college tuition. But what percentage of parents pay for college? It may be less than you expect. Learn more, and tips for helping to afford college.

What Percent of Parents Pay for Their Children’s College Education?

About half of families (53%) have a plan to pay for college, and of those, 61% say borrowing will likely be part of how they help their child afford higher education, according to Sallie Mae’s How America Pays for College 2023.

But the reality is, even a percentage of the total college bill can be tough for most families to pay. How much exactly should parents be saving? Average yearly tuition, fees, and living expenses per student, per year, currently rings in at $38,270, according to the Education Data Initiative. (As you might guess, private colleges can be significantly more expensive than in-state public universities.)

To put it another way, the typical family plans to contribute to the total college cost of almost $160,000 for four years, meaning they could aim to save tens of thousands of dollars to help their kiddos with college.


💡 Quick Tip: Ready to refinance your student loan? With SoFi’s no-fee loans, you could save thousands.

What Student Loans Are Available to Parents?

Parents considering borrowing a student loan to pay for their child’s education can choose between a federal Parent PLUS Loan, or explore options available at private lenders.

According to the same Sallie Mae survey, parents’ income and savings account for nearly 50% of college costs. Other sources of funding include scholarships, grants, or student loans borrowed by the student. Parents can also borrow a loan to help their students pay for college. Approximately 41% of families report borrowing to help fund their child’s education.

Recommended: The Differences Between Grants, Scholarships, and Loans

Parent PLUS Loans

Parent PLUS Loans, as mentioned, are a type of federal student loan available for parents of dependent undergraduate students.

To apply, parents or their students must first fill out the Free Application for Federal Student Aid (FAFSA®). Then, the parent can apply for the PLUS Loan directly on the federal aid website. There will be a credit check to review any adverse credit history, but approval typically won’t be dependent on factors like the applicant’s credit score or debt-to-income ratio.

Parent PLUS Loans have a fixed interest rate that is set annually by Congress. For loans disbursed between July 1, 2024 and July 1, 2025, the rate is 9.08%.

Direct PLUS Loans carry an origination fee. For the 2024-25 school year, the origination fee is 4.228%.

Private Parent Loans

Private loans for parents are available from private financial institutions including banks and credit unions. These lenders generally review factors like the applicant’s credit score, income, and those for any cosigner. Private lenders determine their own interest rates, terms, and repayment plans.

Compare annual percentage rates among lenders to help you decide whether a fixed or variable interest rate would be best for your financial situation. Some private lenders charge an origination fee, while others do not.

Saving for Future College Costs

It can seem insurmountable to even think about saving in the range of $40,000 for each year for college costs on top of all your other financial responsibilities. One recommendation is to pay off your own student loans before putting significant amounts of money into college savings. Some parents find that refinancing their own student loans if they haven’t yet paid them off may allow them to save money — giving them more financial wiggle room to start saving up for future educational expenses.

How can refinancing help you save on your student loans so you can start saving for your kids’ education? Student loan refinancing allows you to trade in all your student loans for one new loan with a potentially lower interest rate and more favorable repayment terms.

But refinancing your student loans has, like many things in life, both pros and cons. Consider if the benefits outweigh any potential negatives. For example, you may be able to secure a more competitive interest rate and lower your monthly costs. However, refinancing federal loans will eliminate access to borrower protections or benefits. So, if you are using one of these benefits — such as pursuing Public Service Loan Forgiveness — refinancing may not make sense.

In addition, if you refinance for a longer term, you may well pay more interest over the life of the loan, which is why you should read up on the topic with student loan refinancing guides and other resources.

When you refinance your student loans, the lender looks at your current financial situation, including your credit score, income, and future earning potential (among other factors) to calculate an interest rate that could potentially be lower than what you might be paying to the federal government or a private student loan lender.

Refinancing Options

If you are interested in refinancing student loans with bad credit, know that it may be more challenging to secure a competitive interest rate. It’s possible to find a lender and refinanced loans that meet your needs, but you may need to shop around. Be patient as you go through the process.

You might also consider adding a cosigner to your application. A student loan cosigner is someone who agrees to take on responsibility for the loan if you, the primary borrower, is unable to make payments in the future.

If you’re unable to add a cosigner or just want to focus on refinancing without a cosigner, you might want to take some time to focus on building your credit. A few tips on building credit include making monthly payments on-time, keeping your debt-to-income ratio low, and checking your credit report regularly to remove any errors.

On top of potentially saving on interest rates, refinancing your student loans can consolidate multiple student loan payments into one monthly payment. This can simplify your money management and bill paying.

Furthermore, if you’re able to shorten your loan term through student loan refinancing, you could pay off your student loans even faster, further reducing the amount of interest you’d pay over the course of your loan. Those savings can be converted into savings for your child’s future education — hopefully saving them from having to take out too many student loans themselves.

Recommended: Student Loan Refinancing Calculator

Tips for Saving for College

There are a few options to help parents maximize their savings. In fact, one of the main benefits of saving up for college while your child is still fairly little is that you have time on your side.

•   If you can sock away even small amounts of money over time, depending on where you put it, you give that money a chance to earn interest or dividends over time — and potentially increase the amount you’ll have to put toward your child’s tuition payments.

•   Once you’ve decided to start saving up a college fund, you’ll have to choose where exactly you want to save that money. While some parents choose to set aside cash in a regular savings account, the relatively low interest rates on most standard savings accounts mean that your money may not grow as much as you’d like over time. A high-yield savings account with compound interest can help your funds grow.

•   Many parents consider a government-sponsored savings program in order to net some serious tax benefits, or even to start investing in order to grow money over time.

•   When it comes to government savings plans, you can choose from a 529 college savings plan, which offers generous tax benefits, or a Coverdell Education Savings Account, which allows you to invest in stocks and bonds to cover educational expenses.

The Takeaway

Most parents plan to contribute to their child’s college costs. Starting to save today can help you save as much as possible for future educational expenses. If you have your own student loans from your college days, one option to create some wiggle room in your budget is to refinance those loans to a lower interest rate.

If you are considering refinancing as one strategy to help you save more for your child’s college fund, take a look at what SoFi offers.

Looking to lower your monthly student loan payment? Refinancing may be one way to do it — by extending your loan term, getting a lower interest rate than what you currently have, or both. (Please note that refinancing federal loans makes them ineligible for federal forgiveness and protections. Also, lengthening your loan term may mean paying more in interest over the life of the loan.) SoFi student loan refinancing offers flexible terms that fit your budget.

FAQ

How many families fill out the FAFSA?

In the most recent year studied, about 70% of families reported completing the FAFSA.

What percent of parents borrow money to help pay for college?

According to the most recent Sallie Mae data, 61% of families say they will borrow to help pay for a child’s college expenses.

What are the pros and cons of refinancing student loans?

On the plus side, refinancing student loans could yield a more competitive rate and lower monthly payments. That could potentially lower your costs. However, when you refinance federal student loans, you lose federal protections, such as forbearance, and, if you refinance for a longer term, you could wind up paying more interest over the life of the loan.

SoFi Student Loan Refinance
If you are a federal student loan borrower, you should consider all of your repayment opportunities including the opportunity to refinance your student loan debt at a lower APR or to extend your term to achieve a lower monthly payment. Please note that once you refinance federal student loans you will no longer be eligible for current or future flexible payment options available to federal loan borrowers, including but not limited to income-based repayment plans or extended repayment plans.