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If you’re looking for a short-term place to park your cash while earning a competitive interest rate, certificates of deposits (CDs) are worth considering.

Traditional CDs often offer higher returns than standard savings accounts, which can help your money grow faster. However, there’s a catch: Your funds are locked in until the CD matures — anywhere from a few months to several years — and withdrawing early typically means paying a penalty.

No-penalty CDs offer a more flexible alternative. They function like traditional CDs but allow you to withdraw your money before maturity without incurring a fee. The tradeoff? These CDs can be harder to find and may offer lower interest rates compared to traditional options.

Here’s what you need to know to determine whether a no-penalty CD is the right fit, plus how it compares to other high-yield savings options.

No-Penalty CDs Explained

A no-penalty CD is a type of deposit account that’s structured like a traditional certificate of deposit (CD) in that money is placed into the account for a set period of time — usually around a year or less.

During that period, interest accrues, often at a higher rate than a standard savings account. That rate is locked in until the end of the CD term, also known as its maturity date.

Unlike traditional CDs, there is no fee or loss of earned interest if the money is withdrawn before the account matures. Funds usually need to be kept in the account for at least a week before they can be withdrawn. But as long as that short milestone is met, a no-penalty CD is a very flexible option.

No-Penalty CDs vs Traditional CDs

Opening one or more CDs can be an effective way to house your savings. It’s one of several ways to earn more interest than you might in a traditional savings account. But before deciding which CD to choose, it helps to understand the intricacies involved in each type.

With a traditional CD, money can’t be withdrawn from that account without incurring a penalty fee. Early withdrawal penalties for a CD vary, depending on the individual financial institution, but the penalty typically involves losing a certain number of days or months’ worth of interest.

The length of time varies by each bank or credit union, but depending on how early you withdraw your funds from a CD, you could possibly lose some of the principal or initial deposit.

For example, a bank may charge a CD early withdrawal penalty as 120 days (or four months) of interest payments. If the CD has only been open for three months, you’d not only lose the account’s accumulated interest but an additional month of daily interest would also be deducted before the cash could be withdrawn.

Generally, the farther away you are from the CD’s maturity date, the higher the penalty will be.

That’s why long-term CDs aren’t typically recommended to house short-term emergency savings. When that surprise expense pops up, it could end up costing money to access the funds.

Of course, every bank has different terms and conditions. Before opening any account, it’s important to understand all of the details to avoid getting caught off guard with unexpected charges.

Recommended: Passive Income Ideas

Pros and Cons of a No-Penalty CD

No-penalty CDs have both advantages and drawbacks. Here are some to consider:

Finding a No-Penalty CD

While no-penalty CDs aren’t as common as their traditional counterparts, some banks and credit unions offer them.

Shopping for a no-penalty CD is the same as evaluating any other financial product. In addition to comparing interest rates, it’s also a good idea to look at how much money you need to open the account, as well as the minimum time after depositing your money before withdrawals are allowed (typically around a week, but this can vary).

Some banks also offer tiered interest rates for no-deposit CDs, with higher rates offered for higher deposit amounts.

Whatever no-penalty CD you are considering, it’s smart to read the fine print. Some banks may advertise a “no-penalty CD” but are really offering something quite different, such as a 12-month CD that only allows you to withdraw your money penalty-free in the event of an emergency, such as a job loss.

Alternative Options

A no-penalty CD can be a great way to earn higher interest on your savings than you would get in a standard savings account yet still maintain flexibility.

It’s not the only option, however. Here are some others to consider.

High-Yield Checking Account

An interest-bearing checking account helps earn some extra cash on the money you use on a day-to-day basis. It’s one of the most flexible options because there are no transaction limits and both a checkbook and debit card can be linked to the account.

However, some banks charge a monthly account fee or require a certain minimum balance in order to qualify for interest. And interest rates on these accounts tend to be lower than other short-term savings options.

High-Yield Savings Account

High-yield savings accounts, typically offered by online banks and credit unions, generally come with a higher interest rate than a checking account or traditional savings account.

It’s easy to access your money, but withdrawals may be limited to six per month, and some institutions may charge fees for dropping below a certain minimum balance.

You can often find the best rates on high-yield savings accounts at online banks. These banks tend to have lower operating costs compared to traditional brick-and-mortar institutions, and will pass that savings on to customers in the form of higher rates and lower, or no, fees.

Online savings accounts typically allow you to deposit checks and move money back and forth between accounts but may have limits on how many withdrawals or transfers you can make per month.

Recommended: Different Types of Savings Accounts

Money Market Account

A money market account (MMA) is a type of savings account that offers some of the features of a checking account, such as checks and a debit card. These accounts may pay a higher rate than a traditional savings account, but usually have higher minimum deposit or balance requirements. Like other savings accounts, MMAs may limit the number of withdrawals you can make each month.

Cash Management Account

A cash management account (CMA) is a cash account offered by a financial institution other than a bank or credit union.

CMAs are designed to merge the services and features of checking, savings, and investment accounts, all into one offering.

Generally, when you put money into a CMA, it earns money (often through low-risk investing that is done automatically), while you can also access it for your daily spending.

This allows CMAs to function similarly to a traditional checking account, yet pay interest that is often higher than most savings accounts.

Some brokerage firms require a large minimum deposit to open a CMA, or may charge monthly fees if you balance dips below a certain threshold.

For people who are interested in streamlining their accounts, as well as saving for a short-term goal, a CMA can be a good option.

The Takeaway

If you’re looking for a higher return on your savings than you’re getting at the bank, but still want some liquidity, a no-penalty CD could be the right choice for your financial goals.

However, these CDs may offer lower interest rates than you would get with a traditional CD. So it’s a good idea to shop around for rates to see which bank is offering the best deal.

Other types of accounts that can help your savings grow include regular CDs, high-yield savings accounts, interest-bearing checking accounts, money market accounts, and cash management accounts

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

Are no-penalty CDs a good idea?

No-penalty certificates of deposit (CDs) can be a good idea if you value flexibility and the potential to access your funds without fees. They offer a middle ground between savings accounts and traditional CDs, often providing a slightly higher interest rate than regular savings while allowing for withdrawals without penalties.

How much will a $10,000 CD make in one year?

The amount a $10,000 certificate of deposit (CD) will make in one year depends on the interest rate. For example, at a 4.00% annual percentage yield (APY), it would earn $400 in interest over one year. CDs with lower rates will make less, while those with higher rates will yield more.

What is the difference between a high-yield CD and a no-penalty CD?

A high-yield CD is a certificate of deposit that offers one of the highest available rates on CDs. A no-penalty CD, on the other hand, allows you to withdraw funds without incurring early withdrawal penalties, offering more flexibility but often at a lower interest rate.

What is the biggest negative of putting your money in a CD?

The biggest negative of putting your money in a certificate of deposit (CD) is the lack of liquidity. Your funds are typically locked in for a set period, and early withdrawal can result in significant penalties. This limits your ability to access funds for emergencies or better investment opportunities.

SoFi Checking and Savings is offered through SoFi Bank, N.A. Member FDIC. 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.

Annual percentage yield (APY) is variable and subject to change at any time. Rates are current as of 11/12/25. There is no minimum balance requirement. Fees may reduce earnings. Additional rates and information can be found at https://www.sofi.com/legal/banking-rate-sheet

Eligible 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 (“Eligible Direct Deposit”) via the Automated Clearing House (“ACH”) Network every 31 calendar days.

Although we do our best to recognize all Eligible Direct Deposits, a small number of employers, payroll providers, benefits providers, or government agencies do not designate payments as direct deposit. To ensure you're earning the APY for account holders with Eligible Direct Deposit, we encourage you to check your APY Details page the day after your Eligible Direct Deposit posts to your SoFi account. If your APY is not showing as the APY for account holders with Eligible Direct Deposit, contact us at 855-456-7634 with the details of your Eligible Direct Deposit. As long as SoFi Bank can validate those details, you will start earning the APY for account holders with Eligible Direct Deposit from the date you contact SoFi for the next 31 calendar days. You will also be eligible for the APY for account holders with Eligible Direct Deposit on future Eligible Direct Deposits, as long as SoFi Bank can validate them.

Deposits that are not from an employer, payroll, or benefits provider or government agency, including but not limited to check deposits, peer-to-peer transfers (e.g., transfers from PayPal, Venmo, Wise, 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 Eligible Direct Deposit activity. There is no minimum Eligible Direct Deposit amount required to qualify for the stated interest rate. SoFi Bank shall, in its sole discretion, assess each account holder's Eligible Direct Deposit activity to determine the applicability of rates and may request additional documentation for verification of eligibility.

See additional details 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.

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.

We do not charge any account, service or maintenance fees for SoFi Checking and Savings. We do charge a transaction fee to process each outgoing wire transfer. SoFi does not charge a fee for incoming wire transfers, however the sending bank may charge a fee. Our fee policy is subject to change at any time. See the SoFi Bank Fee Sheet for details at sofi.com/legal/banking-fees/.

SOBNK-Q225-096

Mobile deposits to your account usually take around one or two business days to clear. This can make it a fast and convenient method to get funds into your bank account simply by using an app on your mobile device.

If you are experiencing delays, there could be an easy explanation for why that’s happening. Read on to learn more about how mobile deposits work and how to avoid delays in their clearing.

How Long Does a Mobile Check Take to Deposit?

Mobile deposit involves snapping a photo of a check and depositing it via your financial institution’s app. That means no visit to a bank branch or ATM is required to deposit a check. Once the account holder uploads their check to the mobile app, the funds usually do not become immediately available (as is the case with depositing cash). It typically takes one or possibly two business days for the funds to clear and become available for use.

In some cases, it can take a few days for the bank to verify the check. The amount of the check can impact this timeline, as can the rules and processes each bank has surrounding mobile deposits.

Typical Processing Times by Bank

How long does mobile deposit take? It varies. Here is the processing time for mobile deposit for several banks:

•   Bank of America: For those in Eastern and Central time zones, deposits by 5pm ET on a business day should be available the next business day; for those in Mountain and Pacific time zones, deposits by 8pm PT on a business day should be available by the next business day.

•   Chase Bank: Chase Bank’s cutoff time for processing mobile deposits is 11pm ET on business days, with funds generally available the next business day. Deposits submitted after 11pm ET or on a non-business day are processed the following business day.

•   Citi: For Citi Mobile deposits, the cut-off time is 6pm ET on a business day. Deposits made before this time are typically processed the same day, while those made after 6pm ET or on a non-business day (weekends or holidays) will be processed the next business day.

•   PNC Bank: Deposits made before 10pm ET on a business day are typically available the next business day. There’s also a PNC Express Funds option for immediate access, but it involves a fee of 2.50% of the check amount, with a minimum of $2 each for checks under $100.

•   SoFi: For mobile deposits of checks deposited by 5pm ET, a portion will be available the next business day and the remainder no later than the third business day. For large checks, a portion will be available on the next business day; the remainder will be available no later than the fifth business day.

•   Wells Fargo: For mobile deposit, Wells Fargo has a 9pm PT cutoff time. Deposits made before that should be available on the next day after the deposit; otherwise, expect the day after the deposit credit date or possibly longer.

What Factors Might Cause Mobile Deposit Delays?

As briefly noted, certain factors can slow down the mobile deposit process. Knowing how to avoid these delays with future deposits can help speed up the timeline.

Here are a few factors that can slow down deposits (or stop them all together if not fixed):

Deposit Limits and Bank Policies

Checks for large denominations, whether deposited to checking or savings accounts, often take longer to clear than a check that is for a smaller amount. It can require more time to verify that the check is good. You may find that checks in amounts over $5,000 or $5,500 take more time to become available. Exactly how long it takes for a large check to clear typically varies from bank to bank.

In addition, banks may only accept mobile deposits up to a certain limit per day or month. For instance, some banks cap mobile deposits at $7,500 per month for some types of accounts, while others may have up to $20,000 deposited via app in a given month.

Time of Deposit and Business Days

Your banking app and/or website will likely tell you what the cutoff time is for mobile deposits to be processed. For example, if you are making a mobile deposit at 10:15pm ET on a Monday night and the app says the processing cutoff time is 10pm ET, your deposit probably won’t be available on Tuesday. Rather, it will probably be available on Wednesday, one full business day later.

Recommended: How to Manage Your Money

Check Amount and Source

As noted above, checks in excess of $5,000 can take longer to process than smaller checks. You may also find that international and third-party checks take longer to be verified and be processed than standard domestic checks.

Also, delays may occur if your account is new or not in good standing.

The Takeaway

Mobile deposits typically clear in one or two business days if deposited before a bank’s cutoff time. Every institution is different, so it might be smart to confirm with your bank’s customer service. And by following a couple of quick checkpoints, you can likely avoid any hitches that could cause a delay. Because in today’s impatient world, there’s usually no need to wait very long to get access to 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

Are mobile check deposits available immediately?

It usually takes around one or two business days for deposits to go through. Following instructions from the bank carefully and noting deadlines regarding uploads can help you avoid delays.

How long does it take for a mobile deposit to go in?

How long it takes for a check to clear by mobile deposit is usually one or two business days via mobile deposit. However, this can be delayed if the check is for a large amount, is deposited after a bank’s cutoff time, or has issues with the way in which it was submitted.

Why is my mobile deposit taking so long?

Mobile deposit delays can be caused by a variety of factors such as using a blurry photo of the check, entering information incorrectly, or not endorsing the check properly. Double-check all key details before submitting the deposit to speed up the timeline. Also, international and third-party checks usually take longer to clear.

Are there limits to how much money can be deposited using mobile?

Some banks do have limits on how much money can be deposited via mobile in a given time period. In some cases, this will vary with the specific type of account you hold or it might be specific to your own banking profile. For instance, some banks allow for up to between $7,500 and $20,000 in mobile deposits monthly depending on a client’s particulars. Check with your financial institution for details.

What should I do if my mobile deposit doesn’t clear?

Contact your bank’s customer service and ask about the situation. This is why it’s always important to keep the paper check until you are sure it has cleared via mobile deposit. The bank can let you know whether there was an issue (say, with the upload of the image, the signature, or the check’s funding) and recommend next steps.

About the author

Jacqueline DeMarco

Jacqueline DeMarco is a freelance writer who specializes in financial topics. Her first job out of college was in the financial industry, and it was there she gained a passion for helping others understand tricky financial topics. Read full bio.

SoFi Checking and Savings is offered through SoFi Bank, N.A. Member FDIC. 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.

Annual percentage yield (APY) is variable and subject to change at any time. Rates are current as of 11/12/25. There is no minimum balance requirement. Fees may reduce earnings. Additional rates and information can be found at https://www.sofi.com/legal/banking-rate-sheet

Eligible 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 (“Eligible Direct Deposit”) via the Automated Clearing House (“ACH”) Network every 31 calendar days.

Although we do our best to recognize all Eligible Direct Deposits, a small number of employers, payroll providers, benefits providers, or government agencies do not designate payments as direct deposit. To ensure you're earning the APY for account holders with Eligible Direct Deposit, we encourage you to check your APY Details page the day after your Eligible Direct Deposit posts to your SoFi account. If your APY is not showing as the APY for account holders with Eligible Direct Deposit, contact us at 855-456-7634 with the details of your Eligible Direct Deposit. As long as SoFi Bank can validate those details, you will start earning the APY for account holders with Eligible Direct Deposit from the date you contact SoFi for the next 31 calendar days. You will also be eligible for the APY for account holders with Eligible Direct Deposit on future Eligible Direct Deposits, as long as SoFi Bank can validate them.

Deposits that are not from an employer, payroll, or benefits provider or government agency, including but not limited to check deposits, peer-to-peer transfers (e.g., transfers from PayPal, Venmo, Wise, 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 Eligible Direct Deposit activity. There is no minimum Eligible Direct Deposit amount required to qualify for the stated interest rate. SoFi Bank shall, in its sole discretion, assess each account holder's Eligible Direct Deposit activity to determine the applicability of rates and may request additional documentation for verification of eligibility.

See additional details 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.

We do not charge any account, service or maintenance fees for SoFi Checking and Savings. We do charge a transaction fee to process each outgoing wire transfer. SoFi does not charge a fee for incoming wire transfers, however the sending bank may charge a fee. Our fee policy is subject to change at any time. See the SoFi Bank Fee Sheet for details at sofi.com/legal/banking-fees/.
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.

SOBNK-Q225-104

A checking account can be a convenient place to store your cash and manage daily transactions. Among its benefits: You can usually make as many transfers in and out of the account as you like. Also, your funds are likely to be insured.
There are, however, some cons, too. You probably won’t earn much or any interest for parking your money in a checking account, and you may be hit with an array of fees that nibble away at your funds.

Here, take a closer look at checking account pros and cons so you can pick the right financial product to suit your needs.

What Is a Checking Account?

Simply put, a checking account is a safe place to stash funds and enable the flow of money in (what you earn and receive) and out (what you spend).

Whether held at a brick-and-mortar bank, an online bank, or a credit union, a checking account is often the hub of a person’s financial life. Your pay can be seamlessly direct-deposited, if you like.

For your everyday spending, you might schedule automatic payments for your mortgage and utilities, write a check when paying for a doctor’s appointment, and tap your debit card when treating yourself to a wine tasting with friends on the weekend.

Benefits of Checking Accounts

Here’s a closer look at the pros and cons of a checking account, starting with the upsides.

Security

Yes, you could stuff your money under the proverbial mattress, but with a checking account, you have a secure spot for it, where it can’t get lost, stolen, or damaged.

If your bank is insured by the FDIC (Federal Deposit Insurance Corporation) or, in the case of a credit union, the NCUA (National Credit Union Administration), your account will typically be covered up to $250,000 per depositor, per insured institution, for each account ownership category.

Easy Access to Cash

Checking accounts allow you to access your money quickly and easily, whether you need to pay for a meal or something unexpected, like a school donation. Setting up direct deposit allows your paychecks to be transferred directly into your checking or savings account, with some banks offering access to cash up to two days early.

You can then tap your funds by using your checking account’s debit card, writing checks, snagging some cash from the ATM, or making a transfer.

Pay Bills Conveniently

Here’s another benefit of a checking account: Having a checking account means you can get your bills taken care of without much effort. You might set up recurring payments to a car loan, for instance, or use a digital payment app to send money to your roommate, a friend, or your yoga teacher. You can also typically move funds quickly via wire transfer, which can be especially useful for international transactions, and other methods as well.

Debit Card for Purchases

When you open a checking account, you’re usually provided with a debit card that’s linked to the account. Similar to a credit card, you can typically use your debit card to pay in person or online for anything from this week’s groceries to a cool new pair of shades to a matcha latte.

Unlike a credit card, however, debit cards pull funds directly from your checking account. They usually only let you dip into funds you actually have on deposit, which can help you keep spending in check and stay on budget, not to mention avoid credit card debt.

Rewards

Some checking accounts come with rewards that can be a nice perk. For example, when you open an account, you might get a sign-up bonus. Who doesn’t like free money? Or your debit card may carry rewards, similar to those of a credit card, such as cash back.

Direct Deposit Benefits

Direct deposit can be a seamless way to get paid; in fact, more than 95% of Americans get paid this way, according to National Payroll Week. Direct deposit sends cash, ready to spend, straight into your bank account, so you don’t have to deal with depositing a check or cash.

FDIC Insurance Protection

As noted above, most financial institutions (but not all) are insured by either the FDIC or NCUA. In the very rare event of a bank failure, you would be protected from loss up to those limits of $250,000 per depositor, per account ownership category, per insured institution. Note: Some institutions offer programs that provide even more than $250,000 in insurance.

Cons of Checking Accounts

As you might guess, there are advantages and disadvantages to checking accounts, as is the case with most financial products. Checking accounts are designed to serve customers’ everyday, short-term money needs and can have a few potential downsides to consider.

Low or No Interest Earned

While your money is sitting in your checking account, it is probably earning very low, if any, interest. For instance, as of June 2025, the average interest checking account rate was a meager 0.07% of one percent, according to the FDIC. Translated into dollars and cents, that means that if you kept $5,000 in your checking account for a year, you would only earn $3.50 in simple interest.

That said, there are high-yield and premium checking accounts available that pay heftier interest rates. These may come with minimum deposit and balance requirements. Online-only banks frequently offer these accounts without those barriers, however, and with interest rates that are several times higher than the national average.

Potential Overdraft and Other Fees

Sooner or later, many people will try to transfer more money out of their checking account than they actually have on deposit. It could be a simple math error, or they might have forgotten about that on-the-fly payment they made to contribute to, say, a friend’s baby shower gift.

Not having enough money in your checking account can lead to overdraft fees. The average charge currently stands at a steep $25 to $35, with an average (as of 2024) of $27.08. Also, even if you have overdraft protection — meaning you have linked accounts so that money can be pulled from savings into checking to cover payments, if needed — you may still be charged a fee. However, it’s likely to be lower than an overdraft charge.

Also, check the fine print when signing up for a new checking account: There can be other fees, such as account maintenance and out-of-network ATM fees (more on those below).

Security Risks

While banks are extremely safe overall, there is always a small possibility of a security risk (such as a hack). Losing or having your debit card stolen and used without your authorization is another concern— and it can be a common one. A card thief could potentially gain access to the funds in your checking account.

It’s vital to report the issue within two days of noticing the card is missing so that you’ll be liable for no more than $50 in unauthorized usage. Otherwise, you could be liable up to $500 or more depending on the circumstances.

Minimum Balance Requirements

Some checking accounts require the account holder to maintain a certain balance to avoid monthly account fees. Or they might want account holders to keep a certain sum on deposit in order to earn a premium interest rate. Depending on the institution, this minimum deposit could be several hundred or more than a thousand dollars. If your balance dips below this amount, you could be hit with fees and/or lose your interest rate.

Recommended: Ways to Manage Your Money

When a Checking Account Makes Sense

Quite simply, checking accounts make sense for the vast majority of Americans. It typically serves as the hub of one’s daily financial life.

Some people, though, are unbanked, meaning they have not (or are not able) to access the usual banking services. If you are seeking a checking account and haven’t been able to secure one, you can try a few other options:

•   It might be easier to get an account at a credit union, if you qualify for one based on where you live, your profession, or other factors.

•   Your banking history may reveal some issues, such as multiple overdrafts, as tracked by ChexSystems (a kind of reporting agency for the banking industry). In this situation, you might qualify for a second-chance account. This kind of account may have higher fees and/or minimum balance requirements, but it can be a good way to show that you can handle an account responsibly. In some cases, a second-chance account can be a stepping stone to a standard checking account.

When Other Accounts May Be Better

There are some situations in which another kind of account could be better than a checking account. A few scenarios to consider:

•   If you are hoping to park your money for a while and earn interest vs. spend it, a savings account can be a good bet. Some savings accounts have limits on how many transactions can occur per month (check the fine print). Whether or not that applies, you will likely earn a higher interest rate than you would with a checking account. For instance, the current average interest rate for a savings account is 0.38% vs. 0.07% for checking.

•   For those who want their money to earn still more money, a high-yield savings account can offer still more earning potential. At the time of publication, some online-only banks were offering rates in the range of 4.5%.

•   A CD (or certificate of deposit) can be another way to earn a higher return on money you keep in a bank. However, these don’t offer the accessibility of a checking account. You agree to keep your funds on deposit in return for the bank guaranteeing a certain interest rate and are usually penalized if you withdraw funds before the end of your time.

•   For those who want spending power without a checking account, prepaid debit cards can deliver. You load funds onto them and can then spend or pay bills with them. They are typically backed by a major network, like Visa or Mastercard.

•   One other option is to use digital payment services, such as Venmo and PayPal. These can allow you to move funds to shop and otherwise spend without a bank account.

Checking Account Features To Consider

If you are looking for a checking account, you may want to focus on these three considerations:

ATM Access and Fees

Since accessibility is a key selling point of checking accounts, you likely want your money to be within easy and affordable reach. Check out a financial institution’s network of ATMs and make sure they are near your usual haunts.

Also see what the charges are for using an out-of-network bank: Certain banks (especially online-only ones) may waive those usual out-of-network fees that can ding you; these currently average $4.77 a pop.

Online/Mobile Banking

Today, it’s par for the course for financial institutions to provide online banking features and mobile banking apps, but some provide more robust, user-friendly digital services and offer them for free.

As you consider your options, you might look for a bank that helps you save automatically. A round-up function that nudges purchases up to the next whole dollar amount and adds the extra money to your savings can be valuable.

Also helpful are dashboards that allow you to see your money (earnings, spending, and savings) and credit score at a glance, for no extra charge. This feature can help you budget better.

Overdraft Protection

As mentioned above, many people have those “oops” moments and overdraw their accounts. Some banks will give you free overdraft protection up to a certain sum. For instance, they might cover up to $50 of your overdraft without charging you the standard fees. This can be a valuable feature when you are deciding which financial partner is right for you.

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Account Maintenance Fees

As noted above, some banks will charge monthly account maintenance fees for holding a checking account at their institution. It can be one of the ways that banks make money. These fees can range from, say, $5 to $12 a month or more, which can take a bite out of your budget.

You may find that some banks, especially online ones, offer no-fee checking accounts. Or a financial institution may waive fees if you keep a certain amount on deposit across your accounts or if you meet other requirements.

Customer Service and Support

Another factor to consider is the kind and quality of customer service and support a financial institution offers. Some people may gravitate toward online banks which typically have 24/7 online support by phone or text chat. Others may prefer banking with a traditional bank where they can meet in-person with team members. Consider what’s important to you to make the best decision for your news.

The Takeaway

For many people, a checking account can be a reliable hub for their personal finance needs. You can store your earnings securely and still easily access your money to pay bills and fund daily purchases.

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

Are checking accounts free?

Some are. You can often find free checking accounts from traditional and online-only banks as well as credit unions. While these accounts may be billed as “free,” keep in mind that some fees may apply, say, if you overdraft your account.

What happens if my checking is overdrawn?

If your checking account is overdrawn, that means you have tried to withdraw more money than you have in your account. This can lead to payments not being processed (a check bouncing, for example) and charges piling up. By linking a checking and savings account, you may be able to have funds automatically transferred from savings into checking to cover the shortfall. Your bank may charge you a fee, whether they cover the shortfall through overdraft protection or not.

Can I have multiple checking accounts?

There is usually no limit on how many checking accounts you can have. It can be convenient to have one for, say, your salary and your living expenses and another for a side hustle and related expenses.

Are checking accounts FDIC insured?

Most but not all checking accounts are FDIC-insured. You can look for this feature before opening an account. With FDIC insurance, you are covered for up to $250,000 per depositor, per account ownership category, per insured institution in the very rare event of a bank failure. Some banks have programs that offer even higher amounts of insurance.

Do checking accounts offer fraud protection?

Most banks will refund you if your account is hacked or your debit card is used without permission, provided you report it in a timely fashion. Check with your financial institution about their policies, but note that if you willingly sent money to an individual or business that turned out to be a scam, refunds are less likely.

Photo credit: iStock/SDI Productions

SoFi Checking and Savings is offered through SoFi Bank, N.A. Member FDIC. 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.

Annual percentage yield (APY) is variable and subject to change at any time. Rates are current as of 11/12/25. There is no minimum balance requirement. Fees may reduce earnings. Additional rates and information can be found at https://www.sofi.com/legal/banking-rate-sheet

Eligible 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 (“Eligible Direct Deposit”) via the Automated Clearing House (“ACH”) Network every 31 calendar days.

Although we do our best to recognize all Eligible Direct Deposits, a small number of employers, payroll providers, benefits providers, or government agencies do not designate payments as direct deposit. To ensure you're earning the APY for account holders with Eligible Direct Deposit, we encourage you to check your APY Details page the day after your Eligible Direct Deposit posts to your SoFi account. If your APY is not showing as the APY for account holders with Eligible Direct Deposit, contact us at 855-456-7634 with the details of your Eligible Direct Deposit. As long as SoFi Bank can validate those details, you will start earning the APY for account holders with Eligible Direct Deposit from the date you contact SoFi for the next 31 calendar days. You will also be eligible for the APY for account holders with Eligible Direct Deposit on future Eligible Direct Deposits, as long as SoFi Bank can validate them.

Deposits that are not from an employer, payroll, or benefits provider or government agency, including but not limited to check deposits, peer-to-peer transfers (e.g., transfers from PayPal, Venmo, Wise, 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 Eligible Direct Deposit activity. There is no minimum Eligible Direct Deposit amount required to qualify for the stated interest rate. SoFi Bank shall, in its sole discretion, assess each account holder's Eligible Direct Deposit activity to determine the applicability of rates and may request additional documentation for verification of eligibility.

See additional details 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.

We do not charge any account, service or maintenance fees for SoFi Checking and Savings. We do charge a transaction fee to process each outgoing wire transfer. SoFi does not charge a fee for incoming wire transfers, however the sending bank may charge a fee. Our fee policy is subject to change at any time. See the SoFi Bank Fee Sheet for details at sofi.com/legal/banking-fees/.
^Early access to direct deposit funds is based on the timing in which we receive notice of impending payment from the Federal Reserve, which is typically up to two days before the scheduled payment date, but may vary.


¹SoFi Bank is a member FDIC and does not provide more than $250,000 of FDIC insurance per depositor per legal category of account ownership, as described in the FDIC’s regulations. Any additional FDIC insurance is provided by the SoFi Insured Deposit Program. Deposits may be insured up to $3M through participation in the program. See full terms at SoFi.com/banking/fdic/sidpterms. See list of participating banks at SoFi.com/banking/fdic/participatingbanks.

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.

SOBNK-Q225-103

When your home energy usage peaks in the summer and winter, you could be surprised by a higher energy bill — and might have to scramble to cover the cost. Signing up for budget billing with your utility providers can eliminate these unexpected cost surges and make it easier for you to plan your monthly expenses.

However, budget billing may not be right for everyone. Below, we’ll explore what budget billing is, how it works, its benefits and drawbacks, and how to set up budget billing on your own — without any help from your provider.

Budget Billing Defined

Budget billing is an alternative, optional payment program for utilities like gas and electricity. By opting into budget billing, you will pay the same predictable amount each billing cycle, regardless of how much or how little energy you actually used.

With budget billing, you can avoid the roller coaster-like highs and lows of utility billing — where costs can skyrocket during sweltering summers and frigid winters. For many, this makes building a monthly budget much easier.

To opt into budget billing, call your utility provider or check out the website for information about what programs are available.

How Does Budget Billing Work?

Energy prices and usage fluctuate throughout the year. This can make it difficult to anticipate what your gas, electric, water, and other utility bills will be each month. Depending on where you live and how harsh the seasons are, you might be in for a surprise on a few bills each year.

Budget billing eliminates those bill fluctuations. Instead, your utility provider analyzes past energy usage for your residence (usually over the prior 12 or 24 months) to estimate an annual total. The company then divides that total into 12 identical payments for the upcoming year.

Of course, it’s unlikely that your energy consumption will be exactly the same as it was the previous year. And with inflation rates and unpredictable weather events, the price of electricity, natural gas, and oil could increase over time. To account for this, your utility provider will track your actual energy usage throughout the year and calculate what you would owe (sometimes called a “true-up amount”).

If you overpaid for the year, the provider may reimburse you for the amount you paid above your actual energy use or they might issue you a credit on an upcoming bill. If you underpaid for the year, you’ll typically have to pay the outstanding balance or the extra will be folded into your upcoming bills.

Either way, the utility provider will use the past year’s worth of data to calculate a new monthly equal billing amount for the year ahead. Some providers may update bill amounts quarterly, rather than annually. Be sure to ask your provider exactly how their budget billing works.

Recommended: Can You Change the Due Date of Your Bills?

Does Budget Billing Save You Money?

Budget billing does not save money on utility bills. It just makes your monthly payments more predictable. Some months, you will likely pay less than what you actually owe. In others, you could be paying more than what you would owe.

Having a predictable line-item in your budget may make it easier for you to handle other monthly expenses or keep you from needing to dip into your emergency fund to cover an especially high energy bill.

Factors That Impact Savings

So is budget billing worth it for eclectic and other utility bills? It can be. While the payment program itself doesn’t lower your energy costs, equal billing programs can still have a positive impact on your finances. Some factors to consider:

•   Energy efficiency: If you become more energy-conscious after enrolling and reduce your consumption, you could end up with a credit at year-end.

•   Rate fluctuations: If utility rates rise during your plan term, your fixed payments might be temporarily lower than actual usage costs.

•   Personal budgeting habits: Budget billing can help you avoid missed payments or overdraft fees, potentially saving you money indirectly.

Advantages of Budget Billing

Budget billing can offer several benefits to households looking for financial stability and easier budgeting. Here’s how it may help you out:

Easier Budget Management

Paying a fixed amount to your utility providers each month makes it easier to build — and stick to – a monthly budget. With predictable bills, you’ll know how much money to set aside each month for utilities. You’ll also know how much is left for other expenses, as well as for savings and retirement contributions, debt repayments, and investments.

Less Financial Stress

If seeing an unusually high total on an email statement or paper bill can send you into a panic, you may appreciate the stability afforded by budget billing. Budget billing won’t save you money, but when you know what to expect each month, you might rest a little easier.

Reducing Late Payment Penalties

If you receive a high energy bill that you can’t afford to pay, you may have to dip into emergency savings, or just pay the bill late. The latter could result in late payment penalties.

With budget billing, you won’t have to worry about a spike in your monthly energy bills and may feel comfortable putting the bill on autopay, which further ensures you never miss a payment.

Predictable Monthly Expenses

This predictability of budget billing supports overall financial planning. It can be particularly helpful for individuals on fixed incomes, such as retirees or those relying on government assistance.

💡 Quick Tip: Don’t think too hard about your money. Automate your budgeting, saving, and spending with SoFi’s seamless and secure mobile banking app.

Drawbacks of Budget Billing

As helpful as budget billing can be for some families, there are also some cons to consider:

Potential Fees

Some utility providers charge a fee to enroll in budget billing. On top of the startup fee, the provider may charge ongoing fees for the service. If that’s the case, budget billing will actually cost you more money than a traditional billing program. It’s a good idea to ask about fees before signing up for any new program.

Chance You Could Underpay

With budget billing, you can end up underpaying throughout the year and, in turn, owing money to your utility provider. This can occur if your actual energy consumption ends up being more than your budget plan accounts for, or if rates rise sharply during the year.

But if you didn’t pay enough each month, you’ll owe whatever remains. If it’s a sizable amount, you may have to rely on a credit card to cover other expenses or take money out of savings to pay off the bill. Many people enroll in budget billing to avoid such surprises to begin with, so this can be counter-productive.

Complacency

When you’re on a budget billing plan, you might get used to a relatively low electric bill in the summer and be tempted to blast the AC. Similarly in the winter, it could be tempting to get all toasty by cranking up the heat, since you won’t feel the financial repercussions of those decisions until much later.

If you don’t think you can be responsible with energy consumption without the threat of a high bill looming over you each month, budget billing may not be the right fit for you.

Possible End-of-Year Adjustment

At the end of the program — usually a year after it kicks off — the utility company will calculate what you actually owed for the year, based on your energy consumption. If you overpaid, you’ll get a credit on a future bill (nice!).

But if you didn’t pay enough each month, you’ll owe whatever remains. If it’s a sizable amount, you may have to rely on a credit card to cover other expenses or take money out of savings to pay off the bill. Many people enroll in budget billing to avoid such surprises to begin with, so this can be counter-productive.

Recommended: Money Management Guide

What Happens If You Are Billed Incorrectly?

Mistakes can happen with budget billing just like with standard billing. It’s important to know how to handle billing errors to protect your finances.

Steps to Resolve Billing Disputes

While every utility company’s dispute process varies slightly, here are the general steps to take if you have an energy billing concern or dispute:

•   Review your bill: Carefully examine the charges, usage history, and any billing adjustments.

•   Gather supporting documentation: If you think you’ve been billed incorrectly, you’ll want to collect previous bills, meter readings, and anything else you feel supports your claim.

•   Contact customer service: Reach out to your utility provider’s customer service department and clearly explain your issue or concern. Ask for clarification and, if necessary, request a correction or adjustment.

•   File a complaint: If your issue doesn’t get resolved, you may need to involve an external agency, such as an energy ombudsman or a regulatory body like the Public Utility Commission.

Can You Make Your Own Budget Billing System?

If your utility provider doesn’t offer budget billing — or if you prefer more control — you can create your own system.

DIY Budgeting Strategies for Utility Bills

By handling budget billing yourself, you can avoid any potential fees the utility provider might have charged you. You can also create a budget billing system for all of your utilities combined. Here’s how:

•   Track historical usage: Sign into your accounts and look at historical data to determine your average monthly cost for each utility. Combine those numbers to get your average total monthly utility costs. Use this amount when building your monthly budget.

•   Set up a separate utility fund: Open a savings account (ideally a ​​high-yield savings account) and deposit a fixed amount each month based on your average utility usage. If your first bill comes in and is less than your monthly budgeted amount, pay the bill and keep the extra funds in the account — you’ll need them later.

•   Automate savings: Set up automatic transfers to your utility fund for consistent budgeting.

•   Monitor your monthly usage: It’s a good idea to assess your usage every few months and adjust your contributions if it changes significantly.

This approach gives you the benefits of budget billing without relying on your utility provider.

Alternatives to Budget Billing

In addition to, or instead of, budget billing, there are other strategies to manage high utility costs and smooth out your expenses.

Energy Efficiency Programs

Many utility providers offer free home energy audits, rebates on energy-efficient appliances, and deals on HVAC systems and other home improvements. Reducing your overall energy usage can permanently lower your monthly bills.

Seasonal Savings Strategies

You can save on utility bills by lowering energy consumption during high-use seasons. Simple actions like sealing drafts around windows and doors, adjusting your thermostat, and turning off unused lights and electronics can lead to significant savings. For more sustained reductions, consider upgrading to LED lighting, installing a programmable thermostat, and adding insulation to key areas like the attic, walls, and crawl spaces.

The Takeaway

Budget billing is a helpful tool for households that want more predictable utility payments. While it doesn’t reduce your energy costs directly, it offers peace of mind, eases budgeting, and helps prevent missed payments. However, there are some downsides to consider. These include potential fees, underpayment risks, and the need for year-end reconciliations.

Before enrolling in a budget billing program, it’s a good idea to review the pros and cons and understand how it can affect your finances each year.

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

FAQ

Do all utility companies offer budget billing?

Not all utility companies offer budget billing, but many do — especially larger electric, gas, and water providers. Availability often depends on your location, the specific utility company, and your account history. Budget billing is typically offered to customers with a good payment record and at least 12 months of usage history. To find out if your provider offers this option, check their website or contact customer service directly for eligibility requirements and enrollment details.

Am I better off budget billing or not?

Budget billing can be helpful if you like a predictable utility bill each month. Knowing what you’ll spend may make it easier to budget for other expenses. However, budget billing does have its drawbacks, especially if the utility provider charges a fee for the service.

Can I budget bill for other areas of my budget besides utilities?

Yes, while budget billing is most common for utilities, you can apply similar strategies to other budget categories. For example, you can set aside a fixed monthly amount for irregular expenses like car maintenance, subscriptions, or annual insurance premiums. This method — often referred to as a “sinking fund” approach — helps smooth out large or seasonal costs over time, preventing expense spikes. Budgeting apps and spreadsheets can help you track and manage these monthly allocations effectively.

What happens if my actual energy usage is much higher than estimated?

If your actual energy usage exceeds the estimate used for budget billing, you’ll typically have to pay the difference during a reconciliation period — usually at the end of the billing year. Your utility provider may also adjust your monthly payment going forward to reflect your higher usage. While budget billing can help avoid seasonal spikes, it doesn’t eliminate your responsibility for actual costs, so it’s wise to monitor your usage and be prepared for possible adjustments.

Can I cancel budget billing if it doesn’t work for me?

Yes, most utility companies allow you to cancel budget billing at any time, though the process may vary. When you cancel, you’ll usually be billed for the difference between what you’ve paid and what you’ve actually used. This could result in a credit or a balance due. Be sure to ask your utility provider about any specific terms or timing considerations. If budget billing no longer aligns with your financial needs, switching back to regular billing is usually simple.

Photo credit: iStock/Milan_Jovic

SoFi Checking and Savings is offered through SoFi Bank, N.A. Member FDIC. 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.

Annual percentage yield (APY) is variable and subject to change at any time. Rates are current as of 11/12/25. There is no minimum balance requirement. Fees may reduce earnings. Additional rates and information can be found at https://www.sofi.com/legal/banking-rate-sheet

Eligible 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 (“Eligible Direct Deposit”) via the Automated Clearing House (“ACH”) Network every 31 calendar days.

Although we do our best to recognize all Eligible Direct Deposits, a small number of employers, payroll providers, benefits providers, or government agencies do not designate payments as direct deposit. To ensure you're earning the APY for account holders with Eligible Direct Deposit, we encourage you to check your APY Details page the day after your Eligible Direct Deposit posts to your SoFi account. If your APY is not showing as the APY for account holders with Eligible Direct Deposit, contact us at 855-456-7634 with the details of your Eligible Direct Deposit. As long as SoFi Bank can validate those details, you will start earning the APY for account holders with Eligible Direct Deposit from the date you contact SoFi for the next 31 calendar days. You will also be eligible for the APY for account holders with Eligible Direct Deposit on future Eligible Direct Deposits, as long as SoFi Bank can validate them.

Deposits that are not from an employer, payroll, or benefits provider or government agency, including but not limited to check deposits, peer-to-peer transfers (e.g., transfers from PayPal, Venmo, Wise, 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 Eligible Direct Deposit activity. There is no minimum Eligible Direct Deposit amount required to qualify for the stated interest rate. SoFi Bank shall, in its sole discretion, assess each account holder's Eligible Direct Deposit activity to determine the applicability of rates and may request additional documentation for verification of eligibility.

See additional details 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.

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.

We do not charge any account, service or maintenance fees for SoFi Checking and Savings. We do charge a transaction fee to process each outgoing wire transfer. SoFi does not charge a fee for incoming wire transfers, however the sending bank may charge a fee. Our fee policy is subject to change at any time. See the SoFi Bank Fee Sheet for details at sofi.com/legal/banking-fees/.

SOBNK-Q225-105

Living beyond your means can easily happen. Typically, it’s a case of your spending outstripping your earnings. This in turn means it’s hard to pay off debt and save for your financial goals.

Sound familiar? If you find yourself running out of money before the next payday, you could be leaving above your means.

Here, learn more about this issue and the warning signs. Then you can begin to take action and take control of your money.

What Does “Living Beyond Your Means” Mean?

Simply put, ”living above your means” means that you are spending more money than you are earning. People are able to do this by relying on credit cards, loans, and prior savings to cover their expenses. However, the process is not sustainable, and eventually overspending is likely to catch up to you.

Living beyond your means can also mean that you’re spending most or all of what comes into your checking account each month and, as a result, don’t have anything left over for saving or investing, such as building an emergency fund, saving for a short-term goal like buying a car or a home, or putting money away for retirement.

Here are ten red flags that you’re living a lifestyle you simply can’t afford — and tips for how to get back on track.

1. You Live Paycheck to Paycheck

One of the most obvious and common signs of living beyond your means is when there’s little to no money left after you pay your bills. If your paycheck disappears within days of receiving it, and you’re counting down the days until the next one, that’s a major warning sign.

Living paycheck to paycheck means you have no cushion for emergencies and would not be able to cover your living expenses if you were to lose your income. This puts you in a precarious situation, where any financial bump in the road could throw your entire financial life into disarray.

2. Your Credit Score Has Dropped

A declining credit score is often a silent but powerful indicator that you’re overspending. This drop can result from late payments, high credit utilization (the amount of credit you’re using compared to your total limit), or accumulating too much debt.

If you’re relying heavily on credit cards to cover basic living expenses — like groceries, gas, or other monthly bills — it likely means your spending has outpaced your income. Over time, this kind of borrowing not only hurts your score but also racks up interest charges that dig you deeper into the hole.

3. You’ve Stopped Your Retirement Contributions

If money is feeling a little tight, you may feel that now is not the time to worry about retirement. While this may seem like a short-term fix, it can significantly damage your long-term financial health.

Halting retirement contributions — even temporarily — means missing out on compound returns (when the returns you earn start earning returns of their own), employer matches, and overall portfolio growth. If you’re regularly suspending or avoiding savings altogether, it may indicate your current expenses are too high to support your financial goals.

4. A Big Portion of Your Income Goes to Housing

Housing is typically the largest monthly expense, but if your rent or monthly mortgage payment is above 30% of your monthly pre-tax income, you may be financially overextended.^[1] This can make it hard to have enough money leftover to cover other expenses, save, invest, and build wealth over time.

Staying below 30% can be difficult if you live in a region of the country where the cost of housing is high. Nevertheless, spending a lot more than a third of your income on housing can leave you “house poor,” and put your other financial obligations at risk.

5. Your Savings Account Isn’t Growing

If your savings balance has stayed flat — or worse declined — over the past few months, it’s a sign that your lifestyle is too costly. A lack of progress in savings makes it hard to handle unexpected events or set aside funds for the future.

Making regular deposits into a savings account, such as a high-yield savings account — in addition to your 401(k) or IRA — allows you to work towards your short- and medium-term financial goals, such as putting a downpayment on a home or a car or going on vacation.

6. You’ve Been Charged an Overdraft Fee More than Once This Year

An overdraft fee is charged when there’s not enough money in your account to cover a check or debit card payment. Overdrawing from your account often means the bank will lend you money to cover the overage. You’re then responsible for paying back that amount, as well as an overdraft fee, which can potentially be more than the overdrawn amount. (That said, there are some banks that offer no-fee overdraft protection.)

Mistakes happen, and a one-off overdraft isn’t necessarily an indicator of overspending. But repeat offenses can be a sign that you are living too close to the edge and don’t have a clear picture of how much money is going in and coming out of your account each month.

7. You’ve Never Set a Budget

A lack of budgeting can be a fundamental sign of living beyond your means. If you’ve never taken the time to outline your income, expenses, and saving goals, you may well be spending money in ways that aren’t sustainable.

Without a budget, it’s easy to underestimate your monthly expenses or overestimate what you can afford. You might think you’re managing fine but in reality you could be accruing debt, missing saving opportunities, or overspending in certain categories.

Many people think making and following a budget will be too complicated. But having a budget can actually simplify your spending decisions by letting you know exactly what you can and can’t afford. Having a budget also helps to ensure you have enough money to cover essentials, fun, and also sock some away in savings.

8. You’re Leasing a Car You Can’t Afford to Buy

Leasing a vehicle you would not be able to purchase outright or finance can be a major financial red flag. Leasing lets you rent a high-end lifestyle, but many people end up with leases they really can’t afford.

You might be covering your monthly auto payments, but if you can’t do that while meeting your other expenses and also putting money into savings, then your car is likely too expensive. Leasing also means you’re never building equity in a vehicle and may face additional costs for mileage or wear-and-tear penalties.

9. You’re Only Making Minimum Payments on Credit Cards

It’s fine to use your credit card to pay for everyday expenses and the occasional big purchase. But if you can’t pay off most of the balance each month, it’s a red flag that you’re living beyond your means.

While minimum payments keep your account in good standing and avoid late fees, most of the payment goes toward interest, which means they don’t address the underlying debt. Minimum payments are also designed to be small, so it takes much longer to pay off your balance, sometimes even years. This can trap you in a cycle of debt where you’re constantly paying off interest rather than reducing the principal, making it highly challenging to ever become debt-free.

10. You Don’t Have an Emergency Fund

Not having a stash of cash you can turn to in a pinch can be a sign that you’re living above your means. You may be gambling on the fact that nothing will go wrong. But life is unpredictable, and you could well get hit with an unexpected expense (like a major car repair or medical bill) at some point, or potentially lose your job.

Without savings to fall back on, you may be forced to rely on high-interest credit cards or loans, which can lead to debt that’s hard to repay. This financial strain can cause stress, damage your credit, and disrupt long-term goals like saving for retirement or buying a home. An emergency fund provides a buffer that protects your financial stability.

How to Live Below Your Means and Get Back on Track

Overspending can feel like a slippery slope — once you’re living above your means, it can be tough to stop the cycle. But financial recovery is entirely possible. The key is to learn how to live below your means and establish habits that promote long-term stability. Here’s how to get started:

1. Create a Realistic Budget

A solid budget is the foundation of any financial turnaround. Start by tracking all your income sources and listing every expense, from rent to streaming services. Categorize your spending into needs, wants, and goals/savings, then determine if you want to rejigger how much you are spending in each area.

One popular budgeting framework is the 50/30/20 rule. This divides your after-tax income into three categories: 50% for needs, 30% for wants, and 20% for savings and debt repayment beyond the minimum. This set-up ensures that your essential expenses are covered while also allowing for some “fun” spending and future financial security.

Recommended: 50/30/20 Budget Calculator

2. Reduce Unnecessary Expenses

To find room in your budget for saving and paying more than the minimum on debts, you may need to cut back on nonessential spending. For example, you might free up funds by cooking more and eating out less, getting rid of streaming services you rarely watch, and/or quitting the gym and working out at home.

To cut back on impulse purchases, you might institute the 30-day rule: When you feel the urge to buy something you want but don’t need, commit to waiting 30 days before making the purchase. If after the waiting period, you decide you truly want the item and it aligns with your financial goals, go ahead and buy it. There’s a strong chance, however, that the urge to buy it will have passed.

3. Build an Emergency Fund

Living paycheck to paycheck leaves little room for error. An emergency fund is your financial safety net — it prevents one unexpected bill from becoming a crisis.

Financial advisors often recommend setting aside at least three to six months’ worth of living expenses for emergencies. But you don’t have to come up with that entire sum overnight. Begin with whatever amount you can afford, even if it’s just $10 a week. Consider setting up an automatic transfer to a separate savings account earmarked for emergencies so you’re not tempted to spend it. Or, if your bank offers it, you might dedicate a savings vault within your account for emergency savings.

This buffer provides peace of mind and helps you avoid falling into debt when life throws curveballs.

The Takeaway

Living above your means doesn’t always look like luxury vacations or designer clothes. Often, it’s more subtle: relying on credit cards, skipping savings, or struggling to cover basic expenses. The good news is that these warning signs are not life sentences — they’re signals that you can change course.

Learning how to live within your means involves awareness, building a budget, and making one smart money decision at a time. With consistent effort, you can shift from financial survival to financial security — and ultimately, financial freedom.

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 the long-term impacts of living beyond your means?

Living beyond your means can lead to chronic debt, poor credit, and financial instability. Over time, high-interest credit card balances and loans can become unmanageable, making it difficult to build savings or qualify for major purchases like a home. This behavior often leads to stress, strained relationships, and limited future financial opportunities. Without change, it can also delay or prevent retirement, forcing individuals to work longer or rely on others for support later in life.

What are the first steps to take if I’m overspending?

The first step is to track your spending for a full month to understand where your money is going. Then, categorize your expenses and identify areas where you can cut back, such as dining out, subscriptions, or impulse purchases. Creating a realistic budget is crucial — allocate funds for needs, savings, and limited wants. Set financial goals and consider using a budgeting app or cash envelopes to stay disciplined. If overspending is tied to emotional triggers, you might benefit from speaking with a financial counselor.

How can I start saving if I have no extra money?

Start by reviewing your expenses and identifying small, nonessential costs to reduce or eliminate — like daily coffee runs or streaming services. Even setting aside just $5 to $10 a week adds up over time. You might also want to automate your savings (so money is transferred to a savings account before you can spend it) and boost your income through side gigs or selling unused items. The key is to start small and build momentum through consistency and gradual lifestyle adjustments.

What percentage of my income should go toward housing?

Financial experts generally recommend spending no more than 30% of your gross monthly income on housing. This includes rent or mortgage payments, property taxes, insurance, and utilities. Staying within this limit helps ensure you have enough left over for other essential expenses like food, transportation, savings, and debt payments. In high-cost areas, it may be harder to stay under 30%, but exceeding it by too much can strain your finances and reduce your ability to build long-term wealth.

What helpful resources exist if I’m struggling financially?

There are many free and low-cost resources available. Nonprofit credit counseling agencies, like the National Foundation for Credit Counseling (NFCC), offer budgeting help and debt management plans. Local community organizations often provide food assistance, utility aid, and housing support. Government programs like SNAP, Medicaid, and unemployment benefits can also offer relief during tough times. In addition, financial literacy websites, public libraries, and budgeting apps offer tools and guidance to help you regain control of your finances.

Photo credit: iStock/urbazon

SoFi Checking and Savings is offered through SoFi Bank, N.A. Member FDIC. 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.

Annual percentage yield (APY) is variable and subject to change at any time. Rates are current as of 11/12/25. There is no minimum balance requirement. Fees may reduce earnings. Additional rates and information can be found at https://www.sofi.com/legal/banking-rate-sheet

Eligible 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 (“Eligible Direct Deposit”) via the Automated Clearing House (“ACH”) Network every 31 calendar days.

Although we do our best to recognize all Eligible Direct Deposits, a small number of employers, payroll providers, benefits providers, or government agencies do not designate payments as direct deposit. To ensure you're earning the APY for account holders with Eligible Direct Deposit, we encourage you to check your APY Details page the day after your Eligible Direct Deposit posts to your SoFi account. If your APY is not showing as the APY for account holders with Eligible Direct Deposit, contact us at 855-456-7634 with the details of your Eligible Direct Deposit. As long as SoFi Bank can validate those details, you will start earning the APY for account holders with Eligible Direct Deposit from the date you contact SoFi for the next 31 calendar days. You will also be eligible for the APY for account holders with Eligible Direct Deposit on future Eligible Direct Deposits, as long as SoFi Bank can validate them.

Deposits that are not from an employer, payroll, or benefits provider or government agency, including but not limited to check deposits, peer-to-peer transfers (e.g., transfers from PayPal, Venmo, Wise, 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 Eligible Direct Deposit activity. There is no minimum Eligible Direct Deposit amount required to qualify for the stated interest rate. SoFi Bank shall, in its sole discretion, assess each account holder's Eligible Direct Deposit activity to determine the applicability of rates and may request additional documentation for verification of eligibility.

See additional details at https://www.sofi.com/legal/banking-rate-sheet.
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Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

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