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If you’re lucky enough to find yourself in possession of a bundle of cash that isn’t immediately needed to pay bills, you have some thinking to do. How to use that money? Whether it came your way via an on-the-job bonus, an inheritance, or an unexpected refund, you have the opportunity to put it to work for you in a variety of ways.

Instead of going on a shopping spree, you could deploy the funds to improve your financial situation and build wealth. Options include paying down debt, contributing to retirement goals, and beyond. Read on to learn the full story.

The Opportunity of Extra Money

At some point, you may find some extra money heading your way. Perhaps you get a bonus for wrangling a complicated project at work. Or you didn’t realize that you’d overpaid your taxes one year. Or maybe an inheritance comes your way.

When funds turn up that you weren’t expecting, it may be tempting to buy a bunch of cool items you’ve been admiring or to take friends and family out to a lavish meal or away for a weekend. But then, once that cash is gone, there’s no getting it back.

Instead, you might look at the money as a means to enrich your financial standing. (Or use most of it that way, and go shopping with a small amount of it.)

A windfall can be a once-in-a-blue-moon opportunity to pay off debt or plump up your emergency fund. It can help you boost your retirement savings or kick your savings for a future goal into high gear.

Yes, it takes discipline to put that money to work vs. splashing out with it at your favorite store. But doing so can have a long-term positive impact on your finances.

1. Build a Solid Emergency Fund

If your emergency fund is low (or nonexistent), you might use your new windfall to build it up.

Having an emergency fund gives you a financial cushion, along with the sense of security that comes with knowing you can handle a financial set-back (such as a job loss, medical expenses, or costly car or home repair) without hardship.

Having this buffer can also help you avoid having to rely on credit cards for an unexpected expense and then falling into a negative spiral of high interest debt.

How Much to Save in an Emergency Fund

A general rule of thumb is to keep three to six months’ of monthly expenses in cash as an emergency fund. Two-income households may be able to protect themselves with three months’ worth of savings. If you’re single, however, you may want to aim closer to having six months’ worth of living expenses saved up.

Consider keeping your emergency fund in a separate high-yield savings account, such as a money market account, online saving account, or a checking and savings account. These options typically offer higher interest rates than a standard savings account, yet allow you to access the money when you need it.

2. Tackle High-Interest Debt

While mortgage loans and car loans tend to offer lower interest rates since they’re secured by collateral, the same can’t be said of unsecured debts, such as credit card balances, student loans, and personal loans. Credit card debt can be especially hard to pay off, given that the current average interest rate is over 20%.

If you carry any credit card or other high-interest debt, you might want to use your windfall to jumpstart a strategic debt payoff plan, such as the debt avalanche or debt snowball method, in order to pay it off as quickly as possible.

Strategies for Paying Down Debt

The avalanche method involves ranking your debts by interest rate. You then put any extra money you have towards paying off the debt with the highest interest rate (while continuing to pay the minimum on other debts). After the balance with the highest interest rate has been completely paid off, you move on to the next highest interest-rate balance (again, putting as much money as you can toward it), and then move down the list until your debt is repaid.

With the snowball method, you focus on paying off your smallest debt first (while paying the minimum on your other debts). Once that balance is paid off, you take the funds you had previously allocated to your smallest debt and put them toward the next-smallest balance. This cycle repeats until all of your debt is repaid.

Using your extra cash to pay off debt has added benefits. You may build your credit score as your credit utilization ratio (the amount of available credit you’ve used vs. your credit limit) goes down.

In addition, once you clear your debt, you won’t have to budget for debt payments anymore, which is essentially getting extra cash all over again.

3. Invest in Retirement Accounts

Here’s another idea for what to do with extra money. You might use it to grow your retirement accounts. There are a couple of options to consider here.

401(k) and Employer Match

Does your employer offer a 401(k) with matching contributions? If so, this can be a powerful tool to help you save for retirement.

Not only does a 401(k) help lower your taxes (since this money comes out of your salary before taxes are deducted), your employer’s matching contributions are essentially free money and can provide a nice boost to your retirement savings.

If you’re not currently taking full advantage of matching funds, you may want to adjust your contributions to help ensure you’re making the most of this benefit. And if a windfall comes your way, you may want to deposit it right into your account.

Start or Fund an IRA

What do you do if you don’t have a company plan or you’ve hit your contribution limit there? You might consider using your new influx of cash to open up (or add to) an individual retirement account (IRA).

While retirement may feel a long way off, starting early can be a smart idea, thanks to the magic of compound earnings (that’s when the money you invest earns interest/dividends, those earnings then get reinvested and also grow).

There is also a possible immediate financial benefit to investing in an IRA: Just as with a 401(k), your IRA contributions can possibly reduce your taxable income, which means that any money you put in this year can lower your tax bill for this year.

You’ll want to keep in mind, however, that the federal government places limitations on how much you can contribute each year to retirement funds.

Recommended: IRA vs. 401(k): What’s the Difference?

4. Explore Additional Investment Options Money

A little windfall can offer a nice opportunity to buy investments that can possibly help you create additional wealth over time.

Stock Market Investments

For long-term financial goals (outside of retirement), you might consider opening up a brokerage account. This is an investment account that allows you to buy and sell investments like stocks, bonds, and funds like mutual funds and exchange-traded funds (ETFs).

A taxable brokerage account does not offer the same tax incentives as a 401(k) or an IRA but is much more flexible in terms of when the money can be accessed.

Though all investments come with some risk, generally the longer you keep your money invested, the better your odds of overcoming any down markets. Your investment gains can also grow exponentially over time as your earnings are compounded. Worth noting: Past performance doesn’t guarantee future return, and while your money may be insured against broker-dealer insolvency, it is not insured against loss.

While investing can seem intimidating, a financial planner can be a helpful resource to help you create an investment strategy that takes into consideration your goals and risk tolerance.

Real Estate Investments

Another option might be to look into real estate investments. One possibility: REIT investing, which stands for Real Estate Investment Trust. This is a kind of company that operates or owns income-generating properties.

You can buy shares of REITs as a way of investing in different aspects of the real estate market, and you can do so for small amounts vs. buying an actual property. In this way, REITs can make it possible for people to affordably invest in real estate projects, including those involving large-scale construction.

5. Save for Future Goals

Still wondering what to do with extra money? If you already have a solid emergency fund and your retirement account is growing nicely, you may want to think about what large purchases you are hoping to make in the next few years. That could be buying a new car, accruing a down payment for a home, doing a renovation project, or going on a family vacation.

A lump sum of cash can be a great way to jumpstart saving for your goal or, if you’re already saving, to quickly beef up this fund.

Short-Term vs. Long-Term Goals

When thinking about goals, it can be helpful to divide them into short-term goals and long-term ones. Typically, short-term goals are ones you want to achieve within a year, while long-term ones are those that have a longer runway to save.

So a short-term goal might be saving for a vacation next year, and a long-term one could be accumulating enough money for a down payment on a property.

Creating a Savings Plan

For things you want to buy or do in the next few months or years, consider setting up multiple bank accounts so you have a separate savings account that is safe, earns competitive interest, and will allow you to access the money when you’ve reached your goal.

Some good options include a high-yield savings account at a bank, an online savings account, a checking and savings account, or a certificate of deposit (CD).

Keep in mind, though, that with a CD, you typically need to leave the money untouched for a certain period of time or else pay a penalty.

The options directly above may also be a good place to put your extra money as you save up for a longer-term goal. But you might also look into whether there are suitable investments (see #4 on this list) that involve a bit more risk but offer potentially higher reward.

The Takeaway

Wondering what to do with a lump sum of extra money is a good problem to have.

Some options you might want to consider include: setting up an emergency fund, paying down high-interest debt, starting a savings account earmarked for a large purchase, or putting the money into your retirement fund or another type of long-term investment.

If you are looking for a place to bank your funds for a future goal, compare account features, such as the annual percentage yield (APY) offered and fees assessed.

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.

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

SoFi members with direct deposit activity can earn 4.60% annual percentage yield (APY) on savings balances (including Vaults) and 0.50% APY on checking balances. Direct Deposit means a deposit to an account holder’s SoFi Checking or Savings account, including payroll, pension, or government payments (e.g., Social Security), made by the account holder’s employer, payroll or benefits provider or government agency (“Direct Deposit”) via the Automated Clearing House (“ACH”) Network during a 30-day Evaluation Period (as defined below). Deposits that are not from an employer or government agency, including but not limited to check deposits, peer-to-peer transfers (e.g., transfers from PayPal, Venmo, etc.), merchant transactions (e.g., transactions from PayPal, Stripe, Square, etc.), and bank ACH funds transfers and wire transfers from external accounts, do not constitute Direct Deposit activity. There is no minimum Direct Deposit amount required to qualify for the stated interest rate.

SoFi members with Qualifying Deposits can earn 4.60% APY on savings balances (including Vaults) and 0.50% APY on checking balances. Qualifying Deposits means one or more deposits that, in the aggregate, are equal to or greater than $5,000 to an account holder’s SoFi Checking and Savings account (“Qualifying Deposits”) during a 30-day Evaluation Period (as defined below). Qualifying Deposits only include those deposits from the following eligible sources: (i) ACH transfers, (ii) inbound wire transfers, (iii) peer-to-peer transfers (i.e., external transfers from PayPal, Venmo, etc. and internal peer-to-peer transfers from a SoFi account belonging to another account holder), (iv) check deposits, (v) instant funding to your SoFi Bank Debit Card, (vi) push payments to your SoFi Bank Debit Card, and (vii) cash deposits. Qualifying Deposits do not include: (i) transfers between an account holder’s Checking account, Savings account, and/or Vaults; (ii) interest payments; (iii) bonuses issued by SoFi Bank or its affiliates; or (iv) credits, reversals, and refunds from SoFi Bank, N.A. (“SoFi Bank”) or from a merchant.

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

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

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

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

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

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

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 .

SOBK1023033

In your financial life, overdrafting your bank account is bad enough; no one likes to feel as if they’ve run out of money. But being charged an overdraft fee can dig you even deeper into the hole.

That’s why it can make sense to take some simple steps to avoid overdraft fees. You may be able to get a reprieve by contacting your bank or by linking accounts, among other moves.

In this guide, you’ll learn more about overdrafting and the charges involved, plus smart ideas for how to avoid overdraft fees.

What Is an Overdraft Fee?

If you pay out more than is in your bank account, your bank may go ahead and process the payment you’ve initiated, taking your balance into negative territory. They will likely charge you for this privilege (that is, letting you spend more than you have), and that is an overdraft fee.

How Much Do Overdraft Fees Cost?

Overdraft fees aren’t cheap. The cost can vary somewhat depending on the bank or financial institution, but they generally run around $35.

It’s important to note that the overdraft fee is generally per overdraft. So if you overdraft your account and don’t realize you overdrafted, you might make multiple purchases and incur a fee on each one.

And these fees can add up quickly. At $35 a pop, just three small purchases could set you back over $100.

Some banks may also charge extended overdraft fees (sometimes called continuous or sustained fees) if your account doesn’t go back into positive territory within a few days.

It’s no wonder that Americans paid $7.7 billion in overdraft and the related non-sufficient funds (NSF) fees each year.

However, a bit of hope: Over the last year or two, some banks are beginning to lower their overdraft fees. For instance, Bank of America reduced their fees to $10, and some financial institutions, often online banks, don’t charge any fees for, say, the first $50 of overdraft.

10 Ways to Avoid Overdraft Fees

Next, consider these ways to avoid overdraft fees. These strategies can keep overdraft fees from accumulating — or ever being charged in the first place.

1. Keep an Eye on Your Balances

How often do you monitor your balance typically? It’s a good idea to make a habit of checking your accounts weekly or even more frequently to make sure your balances aren’t too low.

This can be done quickly online, via mobile app, when you take money out of the ATM, and/or by calling the bank and getting an automated update on your account.

2. Maintain a Cushion

One simple way to avoid overdraft fees is to keep a cash cushion in your checking account. A cushion means you have a little more stashed in your account than you typically spend each month in order to cover unexpected or forgotten charges.

This cash cushion can prevent overdraft. You might even add it as an item on your budget to make sure it gets replenished if you use it up.

3. Set up Balance Alerts

An easy way to help avoid unexpected overdrafts, plus those high overdraft fees, is to set up some automatic alerts.

•   One that is particularly helpful is a low balance alert, which means you will be notified (by text, email, or cell phone notification) whenever your balance falls below a certain amount.

You could then immediately transfer money from savings, or hold off on making any purchases until another paycheck comes in.

•   Another useful alert you may be able to set up is the overdraft alert. This means you would be notified whenever you overdraft your account.

This alert won’t help you avoid the initial overdraft fee, but it could stop you from continuing to make payments and incurring more overdraft fees.

4. Opt Out of Overdraft Coverage

It is possible to prevent your bank from using the automatic overdraft. You just need to opt out of overdraft coverage.

Customers typically have to “opt-in” to a bank’s overdraft protection program, which many do without thinking much about it when they open their accounts.

This gives the institution permission to clear a transaction even if there is not enough money to cover it in the account. If you’re unsure about whether you’re enrolled in an overdraft program when you opened your account, you can contact your bank to find out whether you have this coverage or not.

There are pros and cons of overdraft coverage. If you have overdraft coverage, you may want to consider opting out. Without overdraft coverage for debit card purchases and ATM withdrawals, you will not be able to overdraft.

Instead, if you try to withdraw more than you have in the account, your charge will simply be declined — no money will be withdrawn from your account, and no fees will be triggered. This may help some people stay more mindful and accountable about their spending.

Keep in mind, though, that opting out of overdraft coverage programs typically does not protect you from fees charged for bounced checks.

5. Link to Another Account

Next on the list of how to avoid overdraft fees: Connect your accounts.

Your bank or financial institution might offer an overdraft protection service that is different from overdraft coverage. This service, which typically involves signing a contract to set up, will link your checking account to another account at the same institution.

Then, in the event that there’s not enough cash in your checking account to cover a transaction, the needed money would then be transferred from the linked account to cover it.

It’s important to remember, however, that some savings accounts have a limit of six withdrawals per month. Also, there may be a fee involved for the funds transfer, but these charges are typically lower than overdraft fees.

Another perk of overdraft protection is that it can help you avoid the awkwardness of having your transaction denied.

Recommended: Can You Overdraft Your Savings Account?

6. Be Careful About Where You Use Your Debit Card

Here’s another way to avoid incurring overdraft fees:

•   You may want to use something other than your debit card to check into a hotel or rent a car. These companies may put a hold on your card equal to or sometimes greater than the full amount of your bill.

In this case, money wouldn’t actually be withdrawn from your account, but it also wouldn’t be available for you to use. If you use your debit card to make another purchase and don’t realize that the hold is tying up your money, you may put yourself at risk for overdrafting.

If you’re planning to use your debit card to book a hotel or rent a car, you might want to check company policies in advance.

•   You may also want to avoid using your debit card to make lots of small purchases. These might be harder to keep track of and could add up quickly, making it more difficult for you to know how much money is flowing out of your account.

If you lose track of your spending, this too could put you more at risk for overdrafting.

7. Use Prepaid Debit Cards

Another tactic for avoiding overdraft fees is to do your spending with prepaid debit cards. These cards are often branded with a credit card logo and can be bought in a variety of sums. They come preloaded with that amount of money, and you spend until the cash value is gone. In this way, overdrafting isn’t a possibility. This might help some people stick to their budget.

8. Schedule Payments Carefully

You might also eyeball when payments are due, and see how that dovetails (or doesn’t) with your paycheck schedule. For instance, you might be more likely to overdraft your account if your credit card payment is due a couple of days before your paycheck hits. If that’s the case, you might try contacting your credit card issuer and see if they could move your due date slightly to better accommodate your cash flow. Many companies will do that.

9. Use Mobile Banking Apps

Here’s one more way to avoid overdraft fees: Use a mobile bank app, which can let you see your balance, pending payments, and spending in one click glance at your mobile device.

This can make it easy to eyeball how your money looks and avoid overspending.

10. Consider a Bank With No Overdraft Fees

Some banks are recognizing what a pain point overdraft fees can be for consumers. You may find that some are lowering their charges, and others are actually providing fee-free overdraft coverage. This may be limited to a certain amount (such as covering the first $50 of an overdraft) and may require the customer to get back to a positive balance within a certain period of time (say, until your next direct deposit hits). It can be wise to shop around for this feature; you may find it more often at online vs. traditional banks.

What to Do If You Overdraft

If you overdraw your account, here are some steps to take:

•   The best first step is generally to transfer money into the account right away. You might still be able to prevent an overdraft fee.

You may then want to see if your provider has a daily cutoff time or deadline for adding money to an account to correct a negative balance that same day to avoid fees.

Even if you miss the cutoff, transferring money into the account soon can prevent other fees. That’s because leaving a balance negative for several days can sometimes result in an extended overdraft fee.

•   If you are charged an overdraft fee, however, that doesn’t automatically mean you are stuck paying it. It doesn’t hurt to negotiate to try to have the fee reimbursed.

You can try to get overdraft fees waived by calling the bank and politely asking if they will remove the charge—if it’s your first offense, you might prevail. You may also want to ask your bank if it has a formal forgiveness program. Some institutions have policies to waive the first fee charged each year or if a customer is experiencing economic hardship.

The Takeaway

Overdrafting is when you try to spend more money from your checking account than you actually have in that account. Banks will often let your charge go through instead of declining it, but then will charge you an overdraft fee that can be around $35. These fees can add up quickly, especially if you don’t realize you overdrafted your account and continue to make purchases.

But there are a few simple ways to avoid hefty overdraft fees, such as opting out of overdraft coverage, setting up an automatic low-balance alert, linking your accounts, keeping a little cushion in your account, or banking where you get a level of no-fee overdraft coverage.

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.

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

SoFi members with direct deposit activity can earn 4.60% annual percentage yield (APY) on savings balances (including Vaults) and 0.50% APY on checking balances. Direct Deposit means a deposit to an account holder’s SoFi Checking or Savings account, including payroll, pension, or government payments (e.g., Social Security), made by the account holder’s employer, payroll or benefits provider or government agency (“Direct Deposit”) via the Automated Clearing House (“ACH”) Network during a 30-day Evaluation Period (as defined below). Deposits that are not from an employer or government agency, including but not limited to check deposits, peer-to-peer transfers (e.g., transfers from PayPal, Venmo, etc.), merchant transactions (e.g., transactions from PayPal, Stripe, Square, etc.), and bank ACH funds transfers and wire transfers from external accounts, do not constitute Direct Deposit activity. There is no minimum Direct Deposit amount required to qualify for the stated interest rate.

SoFi members with Qualifying Deposits can earn 4.60% APY on savings balances (including Vaults) and 0.50% APY on checking balances. Qualifying Deposits means one or more deposits that, in the aggregate, are equal to or greater than $5,000 to an account holder’s SoFi Checking and Savings account (“Qualifying Deposits”) during a 30-day Evaluation Period (as defined below). Qualifying Deposits only include those deposits from the following eligible sources: (i) ACH transfers, (ii) inbound wire transfers, (iii) peer-to-peer transfers (i.e., external transfers from PayPal, Venmo, etc. and internal peer-to-peer transfers from a SoFi account belonging to another account holder), (iv) check deposits, (v) instant funding to your SoFi Bank Debit Card, (vi) push payments to your SoFi Bank Debit Card, and (vii) cash deposits. Qualifying Deposits do not include: (i) transfers between an account holder’s Checking account, Savings account, and/or Vaults; (ii) interest payments; (iii) bonuses issued by SoFi Bank or its affiliates; or (iv) credits, reversals, and refunds from SoFi Bank, N.A. (“SoFi Bank”) or from a merchant.

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

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

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

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

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

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

SOBK1023032

Graduate school can help you pursue your academic and professional interests, expand your connections, improve your marketability, and increase your earnings. But it often comes with a high price tag.

If you’re thinking about investing in your future by attending graduate school, you may be wondering, does FAFSA cover graduate school?

In short, yes. Just like undergrads, graduate students can fill out the Free Application for Federal Student Aid (FAFSA) every year in order to qualify for federal grants, work-study, and federal student loans.

Read on to learn more about getting financial aid — and other types of funding — to help pay for graduate school.

Do You Have to Fill Out FAFSA for Graduate School?

While filling out the FAFSA is not required to attend graduate school, students who are interested in receiving federal student aid as graduate students will need to fill out and submit the form.

You may be familiar with the FAFSA from your years as an undergraduate student. The process of getting financial aid for graduate school is basically the same, with eligibility largely determined by financial need.

However, there is one notable difference: Graduate students are considered independent students for FAFSA purposes, so you aren’t required to provide any information about your parents’ finances. Another difference: For the 2024–25 FAFSA form, if you’re married, you’ll need to provide your spouse’s information.


💡 Quick Tip: You can fund your education with a low-rate, no-fee private student loan that covers all school-certified costs.

Grad School Financial Aid Eligibility

To be eligible for financial aid in graduate school you must meet basic FAFSA requirements. These include being a U.S. citizen (or qualifying noncitizen) enrolled or accepted in an eligible degree or certificate program. If you have any criminal convictions, have previously defaulted on a student loan, or owe a Pell Grant overpayment, that could affect your eligibility for federal aid.

FAFSA doesn’t have a maximum income cutoff, so it’s worth applying even if you have a steady income. There is also no age cutoff for financial aid, so you can complete and submit the form whether you graduated college recently or many years ago.

Some financial aid is awarded on a first-come, first-served basis, so it’s generally a good idea to fill out the FAFSA as soon as possible after its release. Due to an overhaul (and simplification) of the form, the FAFSA for the 2024-25 academic year will be available in December 2023 —- a delay from the usual October 1. Be sure to submit your FAFSA form by the earliest financial aid deadline of the schools to which you are applying, which is typically early February.

Here’s a look at what type of financial aid you may be eligible for as a graduate student.

Grants

Your financial aid package for graduate school may include federal and state grants based on your field of study, interest, or type of school.

For example, if you’re studying education, you might be eligible for the Teacher Education Assistance for College and Higher Education, or TEACH Grant. The TEACH grant provides up to $4,000 a year to education students who will teach in a low-income school or high-needs field after graduation.

Graduate students can also qualify for federal Fulbright Grants and Iraq and Afghanistan Service Grants. However, grad students are generally not eligible for the Pell Grant or Federal Supplemental Educational Opportunity Grant (FSEOG) Grant, which are largely reserved for undergraduates.

You can learn about state-based grant opportunities by contacting the department of education for your state, as well as the state where the graduate school is located.

Many graduate schools also offer grants based on financial need or academic excellence. These grants generally don’t need to be repaid, although there may be specific stipulations, such as maintaining a certain GPA.

Recommended: Grants For College – Find Free Money for Students

Work-Study

You may be familiar with work-study programs from your time as an undergraduate student. Graduate students are also eligible for the Federal Work-Study Program, which provides part-time jobs to students who demonstrate financial need.

Work-study is available to both full- and part-time students, though your graduate school must participate in the Federal Work-Study Program. Your school’s financial aid office can give you more details about the work-study program and the types of jobs available to you. Your program may also offer assistantships or teaching roles to help you pay for school (more on that below).

Federal Student Loans

The federal student loans you can access in graduate school are slightly different from those you can take out in undergraduate school. For example, you cannot take advantage of Direct Subsidized Loans, which are loans in which the government pays the interest while you are in college and during the six month grace period after you graduate. Direct Subsidized Loans are only available to undergraduate students with demonstrated need.

Here’s a look at the two types of federal loans available to grad students.

Direct Unsubsidized Loans

Federal Direct Unsubsidized Loans are loans made to eligible undergraduate, graduate, and professional students, but eligibility is not based on financial need. And, unlike a Direct Subsidized Loan (which is need-based), the government does not pay the interest while you’re in school or for six months after graduation. Interest will accrue while you are attending grad school and get added to your loan balance.

The interest rate is higher on Direct Unsubsidized student loans for graduate students than it is for undergraduate students.

If you are a graduate or professional student, you can borrow up to $20,500 each year in Direct Unsubsidized Loans. The interest rate is fixed at 7.05% for loans first disbursed between July 1, 2023, and July 1, 2024.

Grad PLUS Loans

If you need to borrow more than the annual limit for Direct Unsubsidized Loans to pay for grad school, you can also access a Federal Grad PLUS loan, which is also called a Direct PLUS Loan.

These federal loans are exclusively for graduate/professional students and parents of dependent undergraduate/professional students. Eligibility is not based on financial need, but a credit check is required. Borrowers who have an adverse credit history must meet additional requirements to qualify.

Grad Plus Loans are the most costly type of federal loan. For loans disbursed between July 1, 2023, and July 1, 2024, the interest rate is a fixed 8.05%. You’ll also pay a one-time disbursement fee of 1.057%.

Grad Plus Loans come with higher borrowing limits than other types of federal loans. You can borrow up to the cost of attendance of your graduate school program minus other financial assistance you get.

To apply for a Grad PLUS Loan, you need to fill out the Direct PLUS Loan Application.

Tips on Filling Out FAFSA as a Grad Student

Filling out the FAFSA as a graduate student is similar to filling out the form as an undergrad. However, your dependency status will differ because you’re no longer considered a dependent student. As a result, you typically do not need to input your parents’ information onto the FAFSA. You’ll only need to supply information about your (and if, you’re married, your spouse’s) income and assets, the graduate schools you want to receive your FAFSA information, and then sign and submit your form.

When Will You Hear Back?

It typically takes the education department three to five days to process the FAFSA if you submitted electronically; seven to 10 days if you mailed in a paper form.

If you provided a valid email address, you’ll receive an email notification that includes a link to your electronic Student Aid Report (SAR) at fafsa.gov. You’ll get a paper SAR through postal mail if you didn’t provide a valid email address. You’ll want to review your SAR carefully to make sure it’s complete and accurate and correct/update information if necessary.

The graduate schools you apply to will then review your FAFSA information and other documents and send you a financial aid award letter that details the scholarships, grants, and federal student loans you are eligible to receive. You may receive your financial aid award not long after you receive your acceptance letter to the graduate school. However, every school is different, so it’s a good idea to ask the admission or financial aid office of your school for more information.

Average Disbursed Amount

The average graduate student loan debt balance (from graduate school alone) is $78,118, according to the Education Data Initiative.

The maximum amount you can borrow under the Federal Direct Unsubsidized Loan program for graduate school is $20,500 a year, with a maximum lifetime limit of $138,500 (including undergraduate loans).

In comparison, a Grad PLUS Loan allows you to borrow up to the cost of attendance, minus any other financial aid received.

FAFSA for Grad School vs Undergrad

Graduate school financial aid is similar to undergraduate financial aid, but there are a few key differences. Here’s a look at how the two compare.

Alternatives to Federal Aid

Federal aid isn’t the only way to pay for graduate school. Here’s a look at some other sources of funding.

Private Student Loans

Private student loans are offered by banks, credit unions, and online lenders. Unike federal student loans for graduate students (which come with fixed interest rates), private student loans may have fixed or variable rates.

Interest rates are set by the lender, so it can pay to shop around to find the best deal on a private student loan for grad school. Generally borrowers with excellent credit qualify for the lowest rates.

Similar to Grad Plus loans, you can usually borrow up to the full cost of attendance from a private lender. However, Grad Plus Loans come with a disbursement fee, while private lenders generally don’t charge this fee. If you have excellent credit (or can recruit a cosigner who does), you could potentially pay less with a private graduate student loan than a Grad Plus Loan. Keep in mind, though, that private student loans don’t offer the same protections (like access to forgiveness programs and income-based repayment plans) that come with federal student loans.


💡 Quick Tip: Master’s degree or graduate certificate? Private or federal student loans can smooth the path to either goal.

Grants and Scholarships

You’ll be eligible for federal, state, and institutional grants by filling out the FAFSA. However, there are also funding opportunities available outside this system. Many private organizations have created grants and scholarships to help graduates pursue an education in the fields they support.

Look for scholarships and grants from professional associations in your field. Your graduate school department or career department can often help you find scholarships based on your qualifications. There are also several scholarship websites to help you find money for graduate school, including Fastweb and Scholarships.com.

Fellowships and Assistantships

Graduate fellowships and assistantships can both help you pay for graduate school but they work in different ways.

A fellowship is like a scholarship that you can use for any costs you incur as a student. These programs are often available from professional organizations relating to your major. With a fellowship, you may perform research activities on campus or outside of your school.

An assistantship, on the other hand, is typically school-based and more likely to directly provide full or partial tuition waivers. Some assistantships also come with living stipends. An assistantship typically involves doing work on campus, usually related to your major. You might get a research job, which often entails assisting a tenured professor on an upcoming study, or you could secure a teaching job, which gives you the chance to serve as an assistant or professor at the school.

Employer Tuition Assistance

If you work for an employer that offers tuition assistance, your company may cover some or all of the costs of your graduate or professional education as long as you meet the program’s eligibility requirements.

You may even be able to access tuition assistance through a part-time job. Your human resources office will have details about tuition assistance, qualifications, and reimbursement procedures.

The Takeaway

Just like undergrads, grad students can qualify for financial aid to pay for school. Your grad school aid package might include grants, work-study, and federal loans.

As a grad student, you can take out more in federal loans than you could as an undergrad, which may make it easier to attend a more expensive school. It’s generally a good idea to tap lower-cost Direct Unsubsidized Loans before considering PLUS Loans.

Other sources of funding for grad school include: private grants, scholarships, fellowships, assistantships, and private student loans.

If you’ve exhausted all federal student aid options, no-fee private student loans from SoFi can help you pay for school. The online application process is easy, and you can see rates and terms in just minutes. Repayment plans are flexible, so you can find an option that works for your financial plan and budget.

FAQ

How much can FAFSA disburse for graduate school?

As a graduate student, you can borrow up to $20,500 in unsubsidized federal loans each year. Grad PLUS Loans are also an option, and allow students to borrow up to the cost of attendance for graduate school.

Graduate students may also qualify for grants (which don’t need to be repaid) and work-study by filling out the FAFSA.

Is it harder to qualify for financial aid as a graduate student?

Not necessarily. While there are fewer need-based aid options for graduate students, your university or graduate program might provide merit- or research-based assistance. In addition, many private and nonprofit organizations offer scholarships and grants for graduate students.

Do you need to make a new FAFSA account for graduate school?

No, you do not need to make a new FAFSA account for graduate school. If you created an FSA ID as an undergraduate, you can use the same ID to apply for financial aid for graduate school.

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