How to Budget on a Fluctuating Income

How to Budget on a Fluctuating Income

When you’re a self-employed, hourly, seasonal, or gig worker, your free-form schedule can give you a lot of freedom to choose where and when you work. However, it also often means your income is irregular, depending on how much work you do each month.

An inconsistent income makes it all the more important that you budget well to make sure that you can cover necessary expenses while still working toward your financial goals. To help you learn how to do just that, read on for advice on:

•   What an irregular income is?

•   Examples of fluctuating incomes.

•   Tips for budgeting with an irregular income.

What Is an Irregular Income?

Irregular income is money that you earn that does not follow a regular schedule. Some people are salary workers and know, down to the last penny, how much they will receive every week or every other week.

But others earn a fluctuating amount of money that can come from a variety of sources, including:

•   Freelance work

•   Contract work

•   Hourly work

•   Seasonal work

•   Commissions

•   Bonuses

•   Stock options, and other types or workplace compensation

Irregular income can fluctuate and at times be unpredictable, making budgeting more challenging. Perhaps you are a home stager who has a super busy season in the spring, full of projects, but things are fairly quiet at other times of year. Or maybe you are a registered nurse who some months takes on more shifts than others. These are examples of why your income can be up and down.

How to Budget With an Irregular Income

In many ways, how to make a budget when income varies is the same process you’d use if you had a regular paycheck. Start by figuring out your average income. Add up how much you made in the past 6 to 12 months and divide by the number of months. This should give you an idea of your typical monthly gross income.

If you work for yourself, taxes won’t be withheld from your paycheck. Be sure to account for these as you develop a budget. The amount you owe will depend on how much you make, but as a rule of thumb, you can subtract 25% to 30% — which should cover whatever taxes you likely owe — to arrive at your net income. Alternatively, you can make taxes a line item in your budget. You might pay these taxes quarterly or once a year, depending on your particular situation.

Next, determine what are considered your living expenses; the basics, such as rent, utilities, car payments, and groceries. Subtract this amount from your average net income. The money you have left represents your discretionary income, which you can spend on things like restaurants, travel, gifts, and entertainment. However, don’t overlook that this discretionary money can and should also be funneled into paying off debt and saving for the future, whether that means an emergency fund or a new car.

Your budget can then guide your spending. If, say, your housing or food costs go up, something else will have to come down. Or if you get hit with an unexpectedly high dental bill, you’ll need to figure out how to accommodate that as well.

Recommended: 7 Reasons Why Budgeting for Couples Is Important

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Tips for Budgeting With an Irregular Income

Once you’ve got an idea of how much you make each month and how much you spend, you can budget with a fluctuating income. Following these tips can help you stick to your budget and tweak as necessary as your income changes month to month.

Using the Zero-Based Budgeting Method

A zero-based budget works well for many people with irregular incomes because it assigns every dollar you earn to a specific purpose. Allocate income to necessary expenses first and then to discretionary spending categories. If there’s any money left over, make sure to assign that a purpose as well. For example, you may want to allocate extra to savings that month.

For this method, you can start with your average monthly income and adjust in real time if you are having a month where your earnings are higher or lower than expected. More on that in a minute.

Also know that there are a variety of budgeting methods worth considering, including the 50/30/20 budget rule and the envelope system. It can be useful to give more than one a try to find the one that works best for your personal habits.

Not Getting Overly Comfortable When You Make More Than Usual

Remember that months that are more flush with cash may be a temporary situation. Be mindful not to take on more financial responsibilities than you’ll be able to maintain if your income drops. For example, think twice before taking on costly loans, such as one for a new car. If you can’t afford the payments in leaner months, consider cheaper alternatives, like buying a used car.

It can also be wise, in months when you are feeling rich, to funnel some of those funds into savings for leaner months and future goals. Tempting as it may be to plan an impromptu beach weekend when your bank account balance is high, it may be better to reward yourself with a day by the shore plus a nice lunch instead.

Preparing for Months With Low Income

About those leaner months we just mentioned: If you know your income will vary from month to month, consider keeping a buffer of cash that can help protect you from shortfalls as your income varies. You might consider a buffer equal to the difference between your income in your highest earning month and your lowest earning month. If you dip into this cash reserve, be sure to replenish it in months in which you make more money.

This money, sometimes called a cash cushion, can see you through lower-income months and also protect you from overdraft and credit-card debt scenarios.

Making Adjustments to Your Budget When You Get Paid

Having an irregular income means you’ll need to take a more hands-on approach to budgeting throughout the month. As income rolls in, you can make adjustments to your budget. If you have a zero-sum budget, be sure to put that money to work immediately. For example, you may find you have more money than you thought to allocate to savings or discretionary categories.

If you don’t receive income you expected during the month, look for ways to make cuts to your budget or put off big purchases until another time.

Tracking All Expenses

When you track expenses, as you spend money in a certain category, you subtract it from the line item in your budget. That way, you’ll always know how much you have left to spend.

Keeping track of your spending throughout the month is critical. It not only helps you stay on budget, but understanding where you spend can enable you to tweak your future budgets and identify trends in spending. For example, you may notice you tend to spend more on clothing at certain times of year. You can then plan ahead for that expense or find ways to curb it.

Many people shy away from expense tracking because it feels time-consuming and, let’s face it, boring. But there are plenty of methods available to make it easier and fun (or almost). Consider using a customizable spreadsheet you find online. There are also plenty of apps that make it simple to track your spending data in real time, automatically categorize transactions, and even set and monitor goals. Technology can really make your life easier on this front.

Continue to Build Your Emergency Fund

You never see it coming: that pricey car repair or dental bill that can send even the best budget reeling. That’s where an emergency fund comes in, giving you cash to get through a challenging moment. (It also delivers peace of mind, which is a form of financial self care.) Experts recommend that you save three to six months’ worth of average expenses in a dedicated savings account. Often, online banks have top rates in what are known as high-yield savings accounts.

Your emergency fund should be separate from the cash buffer you keep from month to month to help you cover shortfalls in income. You don’t want your emergency fund to dwindle away on everyday expenses. It’s best to keep it aside in case something occurs that is truly an instance of when to use your emergency fund.

Investing Your Money

Make investing for your future a part of your financial plan, even when you are budgeting with an inconsistent income. Compounding interest can really help your funds along, so do start saving early and keep at it.

You may even want to include investing in a retirement account as part of your necessary expenses. It can be helpful to automate those savings. You can have a set amount sent from your checking account to your retirement account each month, regardless of which type of retirement plan you have.

Recommended: Tips for Creating a Financial Plan

The Takeaway

Whether self-employed or a seasonal or shift worker, many people have irregular income month to month. Though budgeting may not exactly be most people’s idea of fun, if you have a fluctuating income, it’s an important practice. By tracking your income, expenses, saving, and spending, you can likely avoid being caught short with regular budgeting. This, in turn, will help keep you out of debt and help your wealth grow.

Speaking of having your wealth grow, whatever your income may be month to month, SoFi can help. When you open a new bank account online with direct deposit, we won’t charge you any of the usual fees, plus you’ll earn an amazing 2.00% APY. Zero fees and a stellar APY are a true win-win. You’ll also enjoy easy tools that help you organize your financial life.

Bank better with SoFi.

FAQ

Will budgeting work if you have an irregular income?

You can build a budget with irregular income. However, you must be diligent about tracking both your income and your spending in real time to make sure you stay on top of your money. Online spreadsheets as well as budgeting apps can help you with this process.

What are examples of irregular income?

Irregular income can take many forms. Some examples include being a freelance worker (whether you are a web designer or a personal trainer), contractor worker, hourly or seasonal employee, or a person who works on commission.

What is the difference between regular income and irregular income?

Regular income is a set amount of money received at regular intervals, such as from a salaried job or a passive source like rental income. Irregular income, on the other hand, can arrive unpredictably and can fluctuate from month to month. It’s also important to note that those who earn irregular income may need to set aside money for taxes, unlike many workers who receive a regular paycheck.


Photo credit: iStock/andresr

SoFi® Checking and Savings is offered through SoFi Bank, N.A. ©2022 SoFi Bank, N.A. All rights reserved. Member FDIC. Equal Housing Lender.
SoFi members with direct deposit can earn up to 2.00% annual percentage yield (APY) interest on all account balances in their Checking and Savings accounts (including Vaults). Members without direct deposit will earn 1.00% APY on all account balances in Checking and Savings (including Vaults). Interest rates are variable and subject to change at any time. Rate of 2.00% APY is current as of 08/12/2022. Additional information can be found at http://www.sofi.com/legal/banking-rate-sheet
Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.
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HSA vs FSA: The Similarities and Differences

A health savings account (HSA) and a flexible savings account (FSA) both serve to set aside funds for qualified medical expenses and help you save money on taxes.

The main difference between an HSA vs FSA? Anyone can have an HSA as long as they are enrolled in a high-deductible health plan (HDHP). An FSA can only be offered by an employer to employees.

There are additional benefits and limitations to consider when comparing an FSA vs. HSA. Here, you’ll learn:

•   What is a health savings account (HSA)?

•   What are the pros and cons of an HSA?

•   What is a flexible spending account (FSA)?

•   What are the pros and cons of an FSA?

•   What are the differences between an HSA vs. an FSA?

•   How to choose between an HSA and an FSA?

What Is a Health Savings Account (HSA)?

There are several types of savings accounts designed to help people put away pre-tax dollars for medical expenses. But they all sound so similar, including:

•   HSAs, or health savings accounts

•   FSAs, or flexible savings accounts

•   HRAs, or health reimbursement arrangements

•   MSAs, or medical savings accounts

It’s easy to get confused.

An HSA (health savings account) enables employees and freelancers to accumulate tax-free funds to be used for current and future medical purposes, including copays, glasses, teeth cleanings, and more.

To qualify for an HSA, you must be enrolled in a high-deductible health plan (HDHP). While an HDHP often has the benefit of lower monthly premiums, you could end up paying a lot of dough out-of-pocket before meeting its high deductible. An HSA can help bridge the gap between your high deductible and out-of-pocket medical expenses.

What’s more, the funds in an HSA belong to you, travel with you when you change jobs, and can roll over year after year. They are not “use it or lose it” accounts. They may also earn interest or other earnings, which are not considered taxable interest. Another point to note: After age 65, you may use the funds for non-medical expenses, though the money withdrawn will be taxable in that situation.

Recommended: How Does a Medical Savings Account Work?

2022 HSA Contribution Limits

As of 2022, the maximum contribution limits for a health savings plan (HSA) is $3,650 for individuals and $7,300 for families with high-deductible health plans.

Advantages of an HSA

HSAs definitely have their upside. Saving tax-free dollars for unexpected medical costs can provide peace of mind. But there are many other benefits of using an HSA, including:

•   Covering out-of-pocket medical expenses. You can use your HSA funds for a myriad of healthcare costs, as long as they are qualified expenses approved by the IRS.

•   Family healthcare expenses. Your HSA cash can be spent on any family member’s medical cost as long as they’re on your HDHP.

•   Rollover contributions. Unused contributions don’t disappear at the end of the year. They stay in your HSA, growing and accumulating tax-free interest.

•   It’s portable. You can change jobs or careers and keep your HSA. The funds stay with you, not your employer.

•   Investments. You can choose to have your HSA money invested in specific mutual funds once you reach a minimum requirement balance.

•   Retirement funds. After the age of 65, you can use HSA funds for retirement without penalty as you please—be that medical expenses or a trip to Tahiti.
Lower your taxable income. Since HSA contributions go into your account pre-taxes, you could end up owing less to Uncle Sam.

Disadvantages of an HSA

Fair is fair: Now you should know the potential downsides of having an HSA. The cons include:

•   Penalties for non-qualified expenses. Before the age of 65, any money spent on unapproved purchases will be viewed as taxable income. The IRS can impose a hefty 20% penalty on any unqualified expenditures.

•   Account fees. HSAs may charge a low monthly service fee, typically no more than $5 per month. If your HSA participates in mutual fund investments, there may be an annual management fee.

•   Monetary fluctuations. If you choose to invest your HSA money in mutual funds, your balance can rise and fall with the market.

•   Record-keeping for your taxes. HSA contributions and expenses must be reported to the IRS. Keeping tabs on those transactions can be a pain.

Recommended: Tips for Paying Off Outstanding Debt

What Is a Flexible Savings Account (FSA)?

A flexible savings account, or FSA, is a tax-free account used to help cover out-of-pocket medical expenses. There are two big differences between a flexible spending account vs. a health savings account:

•   An FSA is available to all, not only those enrolled in an HDHP

•   FSAs are only offered through an employer’s benefit package.

Maximum contribution limits to a flexible savings account for 2022 are $2,850 per individual.

Advantages of an FSA

Like an HSA, having a flexible savings account or FSA offers many advantages, including:

•   Covering medical expenses. You can use your pre-tax funds on copays, prescriptions, over-the-counter meds, essential dental care, contact lenses, and more.

•   Contributions can come right from your paycheck. You can choose to have pre-tax contributions taken out of your earnings and deposited into your FSA account.

•   Funds are available immediately. If you enroll in an FSA on January 1st, and pledge to contribute $2,400 over the year, paying $200 a month, the $2,400 becomes available for you to use right away.

Disadvantages of an FSA

There are some cons of having an FSA vs. HSA. Ironically, a flexible spending account can be rather inflexible when it comes to certain situations.

The drawbacks of a flexible spending account can include:

•   Use it or lose it. In many cases, if you don’t use your FSA funds by the end of the year, you will forfeit the remaining balance. Some employers may allow certain amounts to be rolled over or a grace period to spend the money.

•   You leave, it stays. Typically, if you quit or change jobs, the money in your FSA stays with your employer.

Key Differences Between HSAs and FSAs

While both HSAs and FSAs offer tax-advantaged ways to pay for medical expenses, they do vary considerably. Here’s a breakdown of the primary differences in an HSA vs. FSA:

Health Savings Account (HSA) Flexible Spending Account (FSA)
HSAs are created and controlled by the employee or self-employed worker. FSAs can only be obtained through an employer’s benefits package.
Contributions go where you go, travel with you from job to job or even during times of unemployment. Contributions can only be used while a person is employed at a company.
To qualify for an HSA, you must be enrolled in a HDHP. To qualify for an FSA, the health plan provided by the employer does not have to be an HDHP.
Contribution limits are higher for an individual and family. Employers can also contribute. Lower contribution limits, but a spouse can also contribute to their own FSA if their employer offers one.
Contributions rollover over year-to-year. Some employers may allow a rollover of some unused funds, but most expire at the end of the year.
HSA funds can be used, tax-free, on qualified expenses after the age of 65. They can be used on non-qualified expenses but are then subject to income tax. FSA is a salaried benefit. After you retire, you are likely to forfeit any unused account funds.
HSA contributions can be invested into mutual funds. Money in an FSA cannot be put toward an employee’s personal investments.

How to Choose Between an FSA and HSA

The choice between an FSA and HSA may not be up to you. Many employers offer only one or the other. If you’re a freelance gig worker or make money from home and have a high-deductible health plan, you can qualify for an HSA, but not a flexible spending account.

If you were to find yourself in a position to debate an FSA vs. HSA (say, you were deciding whether to stay self-employed with an HSA or take a full-time job which offered an FSA), ask yourself:

•   Do I want an account that stays with me as I change jobs and into retirement?

•   Is enrolling in a high-deductible health plan worth it in order to have an HSA?

•   Do I want my contributions to be invested?

•   How much do I estimate spending on out-of-pocket medical expenses for myself or my family?

Recommended: Beginner’s Guide to Health Insurance

Can You Have Both an HSA and an FSA?

It is unlikely that you can contribute to both an HSA and an FSA at the same time, unless you have an HSA that is traveling with you from a past job, or your employer offers a limited-purpose FSA to cover specific costs for vision and dental. You can ask your HR representative if such an option exists.

Using HSA and FSA Funds

Typically, setting up an HSA is simple, as is activating and using an FSA. The accounts can come with a debit card and online features, so you can spend money on qualified purchases, check your balance, and contribute and transfer funds just like you’d do with a traditional checking account.

The Takeaway

FSAs and HSAs are very different vehicles, though both of them can help you use pre-tax earnings on out-of-pocket medical costs. Health savings accounts, or HSAs, are only available to those enrolled in high deductible health plans, while FSAs are only possible if your employer offers them. Whichever plan you might be eligible for, it can be wise to look into these accounts since they do offer avenues to make one’s healthcare costs more affordable and optimize your budget.

Another way to enhance your money is with smarter banking. SoFi can help with that. Open a bank account with direct deposit, and you’ll earn a top-notch 2.00% APY, and pay no account fees, so your money can grow faster.

Bank better with SoFi.

FAQs

Is HSA or FSA better?

An FSA and HSA both offer ways to set aside tax-free funds to use on qualified medical expenses. However, you usually don’t have the choice of picking one: Only people enrolled in a high-deductible health plan can open an HSA, and only people whose employers offer an FSA can start one.

Can I have both an FSA and HSA?

You can have an FSA and HSA, but you typically can’t contribute to both at the same time unless you have a limited-purpose FSA that covers specific vision and dental costs.

Can you use an HSA for dental?

You can use HSA funds for qualified dental and orthodontic expenses, including cleanings, sealants, and braces.

What can you spend FSA money on?

Qualifying FSA expenses typically include copays, deductibles, prescriptions, over-the-counter drugs, acne treatments, eye and vision care, alternative medicines, and more.

Photo credit: iStock/zimmytws

SoFi® Checking and Savings is offered through SoFi Bank, N.A. ©2022 SoFi Bank, N.A. All rights reserved. Member FDIC. Equal Housing Lender.
SoFi members with direct deposit can earn up to 2.00% annual percentage yield (APY) interest on all account balances in their Checking and Savings accounts (including Vaults). Members without direct deposit will earn 1.00% APY on all account balances in Checking and Savings (including Vaults). Interest rates are variable and subject to change at any time. Rate of 2.00% APY is current as of 08/12/2022. Additional information can be found at http://www.sofi.com/legal/banking-rate-sheet
External Websites: The information and analysis provided through hyperlinks to third-party websites, while believed to be accurate, cannot be guaranteed by SoFi. Links are provided for informational purposes and should not be viewed as an endorsement.
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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What Is a Cashier’s Check & How Do You Get One?

What Is a Cashier’s Check?

Checks may not be as common as they once were, but there’s one kind of check that remains a gold standard in financial transactions: a cashier’s check.

If you’ve never heard of one before or are not sure how they work, you are probably not alone. Cashier’s checks aren’t typically used in most people’s daily banking.

Guaranteed by the bank, these checks are used for special kinds of transactions. They are typically a faster and more secure way to make a payment than using a credit card or writing a personal check. You may need to use one when you’re making a large purchase, putting a downpayment on a home, or completing another major transaction.

Read on to learn more about this financial tool, including answers to these questions:

•   What is a cashier’s check?

•   When should you use a cashier’s check?

•   How much are fees for a cashier’s check?

•   How can you get a cashier’s check?

•   Are there cashier’s check scams?

Here’s the lowdown.

How Does a Cashier’s Check Differ From Other Checks?

Unlike a personal check, a cashier’s check is a check that is issued by the bank or credit union, rather than the buyer (or payer).

Sometimes called an “official bank check,” the funds from a cashier’s check are drawn against the bank’s account rather than the payer’s personal account. This means the bank stands behind the check and guarantees that the recipient, or payee, can deposit or cash it and receive the promised funds.

Here are some more specifics:

•   The person who deposits a cashier’s check generally runs a much lower risk of having the check bounce. In addition to the frustration this can trigger, bounced checks can lead to hefty fees for both parties in the transaction.

•   Cashier’s checks are also considered more secure than personal checks because they are generally harder to forge. Cashier’s checks will have several security measures in place, such as watermarks and color-changing ink, making the possibility of a counterfeit more rare.

•   Cashier’s checks are typically faster than a personal check in terms of when the money also gets transferred to another account. With personal checks, the money doesn’t leave a person’s bank account until the payee cashes the check. That could be days, weeks, or sometimes never (in the event the check gets lost).

   But, when a person goes to the bank to get a cashier’s check, the amount is immediately transferred out of their account and into the hands of the bank. You can think of a cashier’s check like a prepaid check.

The Original Check

Curious about how cashier’s checks came into being? They date as far back as the 1500s in Holland. As an international center of trade, Amsterdam was home to merchants and banks, and many of them didn’t want to lug around bags of cash to conduct business.

Instead, banks held onto customer’s money and when they needed to pay for something, the teller (then called the “cashier”) at the bank would write a check or bill for that amount.

As they say, the rest is history. Check writing was adopted across the continent and evolved from there. Soon, cashiers weren’t the only people writing checks; account holders could too. Then we evolved to having today’s checkbooks.

Recommended: A Complete Guide to Ordering Checks

When to Use a Cashier’s Check

Cashier’s checks can be used in a variety of transactions, but they’re most likely to be used in one of the following scenarios:

High Dollar Payments

Because of their relative security, cashier’s checks are typically used for larger ticket transactions and payments between people (or businesses) that don’t know each other. For instance, if you were buying a used car from a stranger who listed it online, a regular check might not be sufficient. A cashier’s check could be a better option.

Instead of hoping that a buyer has funds available in their checking account, a person can be reasonably confident that a bank has enough cash on hand to pay what’s needed.

Real Estate Transactions

Cashier’s checks are often used in real estate transactions because they’re generally paid out faster than personal checks. The money is guaranteed, and the transaction is more secure.

These checks are often required when a person is making a down payment on a home. Also, a landlord might ask for a cashier’s check for the security deposit on a rental.

In Lieu of Cash

Not unlike ancient merchants, people might use cashier’s checks today to avoid dealing with stacks of cash.

If someone buys something pricey off an online second-hand marketplace, like a boat, the seller might ask for payment to be made in a cashier’s check instead of cash, so they don’t have to count the bills.

When Personal Checks Are Not Accepted

When personal checks are not accepted at a business, the store still might accept a cashier’s check. It can be worth asking if you find yourself in this situation and don’t want to pay in cash.

Cashier’s Check Fees

Cashier’s checks typically aren’t free. You’ll likely have to pay for the privilege of having one created for you. Depending on the policy of the bank or credit union, the cost of getting a cashier’s check can run around $10.

The fee is due at the time of writing the check. In order to cover that cost, the payer will need to have the extra money in cash or available in their bank account, so it can be directly deducted from the account.

There usually is no fee involved for depositing a cashier’s check, however.

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How to Get a Cashier’s Check

Wondering where to get a cashier’s check? You can get one at a bank or credit union, either in person or online.

If you’re going to a brick and mortar bank location, getting the cashier’s check issued shouldn’t take more than a few minutes, provided you have all the required information and documents.

Most banks will only write cashier’s checks for customers who have an account with them. If a credit union member wants a cashier’s check, they can usually get one from any credit union, not just the one they bank with, but ask beforehand to be sure.

If you don’t have a bank account, you may be able to have a cashier’s check written at a financial institution, but you will likely have to bring the funds in the form of cash. For large amounts, this can obviously be challenging.

Some online banks allow their customers to request a cashier’s check online. However, this isn’t as speedy as the process inside a bank branch. Customers will need to request the check, then wait for it to be mailed to them.

The process of getting a cashier’s check will vary based on a person’s bank or credit union. However, a person will generally need:

•   Money in their account. Remember, a cashier’s check immediately deducts funds from the payor’s checking account. That means they’ll need to have the funds available when they write the check. Alternatively, some banks and credit unions allow customers to bring in cash to be converted to a cashier’s check.

•   A valid ID. Typically, a person needs their license, passport or other government-issued photo ID to confirm their identity.

•   Payment information. A person will need to tell the bank exactly how much the check is for. It is important to have the precise amount because that number is printed on the check and cannot be changed.

You also need the name of the payee (the person or business the check should be payable to), and any other details (for example, you may want to add a “memo” or note on the check, such as a reference number).

The Difference Between Cashier’s Checks and Money Orders

Similar to a cashier’s check, money orders are guaranteed funds.

However, money orders can be purchased at many different locations. This includes banks and credit unions as well as post offices, grocery stores, drug stores, and check cashing companies.

On average, money orders have lower fees than cashier’s checks — often customers will only pay a few dollars per order. But money orders also have a limit on their value, they can typically only be made up to $1,000. If you’re trying to put a down payment on a house or buy a used car, this may not cover the amount needed.

If a person doesn’t have a bank account, they may choose to use money orders when transactions require secured funds.

Money orders may seem preferable to cashier’s checks, since they are often cheaper and available in more locations. However, one of the most significant differences between the two is availability of funds.

While cashier’s checks and money orders both guarantee funds, money orders will typically take a little longer to deposit. Generally, with a cashier’s check, a person can expect up to $5,000 within a day. However, with a money order, only $200 may be available within 24 hours after it’s deposited.

Additionally, if the transaction is over $1,000, it might not make sense to use money orders. For example, if someone needs $5,000 in certified funds and the money orders cost $3 each, it would cost $15 in fees. Contrast that with a single cashier’s check, where it might just cost $10 in fees.

Both cashier’s checks and money orders are secure methods of payments, but when the payee needs the funds immediately, they might require a cashier’s check.

Beware of Cashier’s Check Scams

When they’re legitimate documents issued by a bank or credit union, cashier’s checks are relatively safe. If you are selling something of value, you can typically view a cashier’s check with confidence because the bank promises to pay — not just the person who hands you the check.

Unfortunately, not all cashier’s checks are legitimate.

There’s a common scam, according to the Federal Deposit Insurance Corporation (FDIC) , involving what appear to be cashier’s checks. Here’s how they usually unfold:

•   The fraudster sends payment in the form of a cashier’s check for more than the agreed upon amount. The scammer will ask you, the payee, to cash it anyway and simply send the excess money back to them (or to somebody else).

•   Because your bank assumes the check is valid, it allows you to withdraw the funds. You likely would go ahead and send the overage back, as directed.

•   The check is then discovered to be fake, your bank reverses the deposit, and you have been cheated out of that overage amount. Some banks also charge the depositor a returned item fee, even if the account doesn’t overdraw.

Once a victim of this type of fraud sends money to a thief or spends the money, they often have no recourse other than to try and find the scammer themselves — which may not be easy, and might require hiring private help.

Your bank typically does not help. Local police often lack the resources to track down a scammer who may be in another country.

Another kind of bank fraud to watch out for: forged or fake cashier’s checks. With a good printer and advanced graphic-editing skills, some forged cashier’s checks can fool even a seasoned bank teller.

To help combat potential fraud when receiving a cashier’s check from a stranger, it’s a good idea to inspect it prior to depositing it. Look for typos, a bank phone number (check that it works), and common security features like watermarks and a security thread (a thin embedded strip you can detect when the check is held up to light).

Payees can also play it safe by waiting for the check to be completely verified and deposited before spending it (which can take up to two weeks for some cashier’s checks).

Another safeguard is to only accept exact payments in a cashier’s check. If you must take a check for more than the amount due, you may want to inform the seller that you’ll wait at least two weeks before returning any of the money.

Recommended: How to Verify a Check Before Depositing

The Takeaway

Cashier’s checks are checks that banks issue and guarantee, and they are often needed for large purchases, like a car, or the down payment on a house. These checks are printed by your bank or credit union and include the name of the recipient (or payee) and the amount of the check.

When compared to personal checks, cashier’s checks are generally more secure for sellers because the checks shouldn’t bounce. But sellers need to be on the lookout for fakes, which can cause serious problems.

Cashier’s checks might be the norm for some transactions, but there are other secure ways to send money. With a Checking and Savings online bank account with SoFi, users can send money quickly and securely to anyone right from the app. All you need to initiate a transfer, is the receiver’s phone number or email.

That’s not the only advantage to having an online bank account with SoFi. Our Checking and Savings, when opened with direct deposit, will pay you a super competitive interest rate which could help your money grow faster.

With no account fees and up to 2.00% APY, you’ll earn more interest in one week than you would in one year in a big bank’s checking or savings account — so you can get the most out of your money.

FAQ

How can you get a cashier’s check?

Cashier’s checks are available both online and in-person from your financial institution. You will need to be able to verify your ownership of your account as well as provide details on the amount of the check and exactly to whom it should be written.

What’s the purpose of a cashier’s check?

A cashier’s check is a fast and secure form of payment, typically used for big-ticket items like the down payment on a house or buying a car or boat. With these checks, the bank, not the account holder, is guaranteeing the funds, making them significantly more reliable than standard checks.

How safe are cashier’s checks?

Because cashier’s checks are guaranteed by the bank writing them, they are a very secure form of payment. That said, it’s important to be aware of the scams out there in which forged and fraudulent documents that look like cashier’s checks are used. Educate yourself about these scams so you can avoid getting cheated.


Photo credit: iStock/TARIK KIZILKAYA

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.
SoFi® Checking and Savings is offered through SoFi Bank, N.A. ©2022 SoFi Bank, N.A. All rights reserved. Member FDIC. Equal Housing Lender.
SoFi members with direct deposit can earn up to 2.00% annual percentage yield (APY) interest on all account balances in their Checking and Savings accounts (including Vaults). Members without direct deposit will earn 1.00% APY on all account balances in Checking and Savings (including Vaults). Interest rates are variable and subject to change at any time. Rate of 2.00% APY is current as of 08/12/2022. Additional information can be found at http://www.sofi.com/legal/banking-rate-sheet
External Websites: The information and analysis provided through hyperlinks to third-party websites, while believed to be accurate, cannot be guaranteed by SoFi. Links are provided for informational purposes and should not be viewed as an endorsement.
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Credit Card Promotional Interest Rates: Understanding Special Offers on Credit Cards

Some credit cards offer a promotional interest rate, as low as 0% APR, for purchases and/or balance transfers. Often, these promotional interest rates are offered for a limited period of time when you apply for a new card, though some issuers offer promotional rates for existing cardholders as well.

If you have a large purchase coming up, or an existing credit card balance that you want to transfer over, these cards can save you a significant amount of interest. You’ll just want to make sure to pay off the full balance by the end of the promotional period, as your interest rate will likely jump significantly when your promotional APR expires.

Recommended: Does Applying For a Credit Card Hurt Your Credit Score

What Are Credit Card Promotional Interest Rates?

A credit card promotional interest rate is an interest rate that is offered for a limited amount of time, as a promotion. During the promotional period, you’ll be charged a lower interest rate than your typical interest rate.

It’s common for credit cards to offer these introductory promotional interest rates for new members when you open a credit card account. However, it’s also possible for issuers to offer promotional interest rates to existing cardholders.

Recommended: How to Avoid Interest On a Credit Card

How Credit Card Promotional Interest Rates Work

One common scenario for how credit card promotional interest rates work is that an issuer might offer a 0% promotional interest rate on purchases and/or balance transfers for a certain period of time. When you’re using a credit card during the promotional interest period, you won’t pay any interest.

It’s important to note that there are two major types of promotional interest rates, and they vary slightly. With a 0% interest promotion, you won’t pay any interest during the promotional period. If there’s any balance remaining at the end of the promotional period, you’ll begin paying interest at that time. With a deferred interest promotional rate, on the other hand, you’ll pay interest on any outstanding balance back to the date of the initial purchase.

Benefits of Credit Card Promotional Rates

As you may have guessed, there are certainly upsides to taking advantage of credit card promotional interest rates. Here’s a look at the major benefits.

Low Interest Rate During the Promotional Period

One benefit of credit card promotional interest rates is the ability to take advantage of a low or even 0% interest rate during the promotional period. Having access to these promotional rates can give you added flexibility as you plan your financial future.

Ability to Make Balance Transfers

One possibility to maximize a credit card promotional rate is if you have existing consumer debt like a credit card balance. By using a balance transfer promotional interest rate, you can transfer your existing balance and save on interest. This can help lower the amount of time it takes to pay off your debt.

Can Pay For a Large Purchase Over Time

If your credit card has a 0% promotional interest rate on purchases, you can take advantage of that to pay for a large purchase over time. That way, you can spread out the cost of a large purchase over several months rather than needing to pay it off within one billing period.

Just make sure to pay your purchase off completely before the end of the promotional period to avoid paying any interest.

Drawbacks of Credit Card Promotional Rates

There are downsides to these offers to consider as well. Specifically, here are the drawbacks of credit card promotional interest rates.

Deferred Interest

You need to be careful if your credit card promotional rate is a deferred interest rate, rather than a 0% interest rate. Because of how credit cards work with a deferred interest rate promotion, you’ll pay interest on any outstanding balance at the end of the promotional period — back to the date of the initial purchase. This amount will get added to your existing balance, driving it higher.

Penalty Interest Rates

You still have to make the minimum monthly payment on your credit card during the promotional period. If you don’t make your regularly scheduled payment, the issuer may cancel your promotional interest rate. They may even impose an additional credit card penalty interest rate that’s higher than the standard interest rate on your card.

Recommended: When Are Credit Card Payments Due

May Encourage Poor Spending Habits

Establishing good saving habits and living within your means is an important financial concept to live by. While it may not always be possible, it’s generally considered a good idea to save up your money before making a purchase. While a 0% interest promotional rate means you won’t pay any interest, it can contribute to a mindset of buying things you don’t truly need.

Recommended: Tips for Using a Credit Card Responsibly

How Long Do Credit Card Promotional Interest Rates Last?

By law, credit card promotional interest rates must last at least six months, but it is common for them to last longer. You may see introductory interest rates lasting 12 to 18 months, or even longer.

Regardless of how long your promotional period lasts, make sure you have a plan to pay your balance off in full by the end of it. Credit card purchase interest charges will kick in once your promotional period is over.

Recommended: What is a Charge Card

Zero Interest vs. Deferred Interest Promotions

Both 0% interest rates and deferred interest rates are different kinds of promotional rates where you don’t pay any interest during the promotional period. However, they come with some key differences:

Zero Interest Deferred Interest
Often marketed with terms like “0% intro APR for 15 months” Often marketed as “No interest if paid in full in 6 months”
No interest charged during the promotional period No interest charged during the promotional period
Interest charged on any outstanding balance starting at the end of the promotional period At the end of the promotional period, interest is charged on any outstanding balance, back-dated to the date of the initial purchase

What to Consider When Getting a Card With a Zero-Interest or Deferred Interest Promotion

One of the top credit card rules is to make sure you pay off your credit card balance in full, each and every month. But if you’re carrying a balance with a promotional credit card rate, you’ll want to make sure you understand if it’s a 0% rate or a deferred interest promotion.

With a 0% promotional rate, you’ll start paying interest on any balance at the end of the promo period. But with a deferred interest promotional rate, you’ll pay interest on any balance, back-dated to the date of the initial purchase.

In either case, the best option is to make sure that you have a plan in place to pay off the balance by the end of the promotional period.

Paying off Balances With Promotional Rates

You’ll want to have a gameplan for how to pay off your balance before the end of the promotional period. That’s because at the end of the promotional period, your credit card interest rate will increase significantly.

If you still are carrying a balance, you will have to start paying interest on the balance. And if you were under a deferred interest promotional rate, that interest will be calculated back from the initial date of purchase.

Watch Out for High Post-Promotional APRs

Using a 0% promotional interest rate can seem like an attractive option, but it can lull you into a false sense of financial security. You should always be aware that the 0% interest rate won’t last forever. Your interest rate will go up at the end of the promotional period, and if you’re still carrying a credit card balance, you’ll start paying interest on the balance.

Exploring Other Credit Card Options

There are some other credit card options besides getting a card with a promotional interest rate. For instance, you might look for a credit card that offers cash back or other credit card rewards with each purchase.

Before focusing on credit card rewards or cash back, however, you’ll want to make sure that you first focus on paying off your balance. Otherwise, the interest that you pay each month will more than offset any rewards you earn.

If you’re carrying a balance, you can also attempt to get a good credit card APR by making on-time payments and asking your issuer to lower your interest rate. By simply securing a good APR, you won’t have to worry about it expiring and then spiking like you would with a promotional APR.

Recommended: Can You Buy Crypto With a Credit Card

The Takeaway

Some credit cards offer promotional interest rates to new and/or existing cardholders. These promotional interest rates could be a 0% interest rate for a specific period of time, or a lower interest rate to encourage balance transfers.

While taking advantage of promotional interest rates can be a savvy financial move if you have existing consumer debt or need to make a large purchase, you’ll want to make sure you have a plan to pay off your balance in full before the promotional period ends. That way, you avoid having to pay any interest.

Another option can be to sign up for a cash back credit rewards card like the SoFi credit card. If you open a credit card with SoFi, you can earn 2% unlimited cash back rewards when redeemed to save, invest, or pay down eligible SoFi debt. Cardholders earn 1% cash back rewards when redeemed for a statement credit.1 Plus, for a limited time, new credit card holders who also sign up for a SoFi Checking and Savings with direct deposit can start earning 3% cash back rewards on all eligible credit card purchases for 365 days*. Offer ends 12/31/22

Earn cash back rewards with the SoFi Credit Card.

FAQ

Will my interest rate spike after a promotional deal ends?

Yes, generally credit card promotional interest rates last only for a specific number of months. The way credit cards work is to charge interest on balances that are not paid off. So, while your credit card may charge 0% or a lower promotional rate for a period of time, the interest rate will rise once the promotional period is over and will apply to any outstanding balance on the card.

How does promo APR work?

Promotional APR offers are generally put forward by credit card companies as a way to entice new applicants. Cards may offer a 0% introductory APR for a certain number of months on purchases and/or balance transfers. Once the promotional period is over, your interest rate will rise to its normal level.

Should you close a credit card with a high interest rate?

Having a credit card with a high interest rate will not negatively impact your credit or your finances if you’re not carrying a balance. So, simply having a high interest rate is not a reason, in and of itself, to close a credit card. But if you have a balance on a credit card with a high interest rate, you might want to consider doing a balance transfer to a card with a promotional 0% interest rate while you work to pay it off.

Is my credit card’s promotional rate too good to be true?

Promotional interest rates are a legitimate marketing strategy used by many credit card companies. While you shouldn’t treat them as a scam, you also need to make sure that you are aware of the terms of the promotional rate and how long the rate is good for. Make a plan to completely pay off your balance by the end of the promotional period before your interest rate increases.


Photo credit: iStock/Jakkapan Sookjaroen

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.
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
.

The SoFi Credit Card is issued by The Bank of Missouri (TBOM) (“Issuer”) 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.
1See Rewards Details at SoFi.com/card/rewards.
You will need to maintain a qualifying Direct Deposit every month with SoFi Checking and Savings in order to continue to receive this promotional cash back rate. Qualifying Direct Deposits are defined as deposits from enrolled member’s employer, payroll, or benefits provider via ACH deposit. Deposits that are not from an employer (such as check deposits; P2P transfers such as from PayPal or Venmo, etc.; merchant transactions such as from PayPal, Stripe, Square, etc.; and bank ACH transfers not from employers) do not qualify for this promotion. A maximum of 36,000 rewards points can be earned from this limited-time offer. After the promotional period ends or once you have earned the maximum points offered by this promotion, your cash back earning rate will revert back to 2%. 36,000 rewards points are worth $360 when redeemed into SoFi Checking and Savings, SoFi Money, SoFi Invest, Crypto, SoFi Personal Loan, SoFi Private Student Loan or Student Loan Refinance and are worth $180 when redeemed as a SoFi Credit Card statement credit.

Promotion Period: 4/5/2022-12/31/2022. SoFi reserves the right to exclude any Member from participating in the Program for any reason, including suspected fraud, misuse, or if suspicious activities are observed. SoFi also reserves the right to stop or make changes to the Program at any time.

Eligible Participants: All new members who apply and get approved for the SoFi Credit Card, open a SoFi Checking and Savings account, and set up Direct Deposit transactions ("Direct Deposit") into their SoFi Checking and Savings account during the promotion period are eligible. All existing SoFi Credit Card members who set up Direct Deposit into a SoFi Checking & Savings account during the promotion period are eligible. All existing SoFi members who have already enrolled in Direct Deposit into a SoFi Checking & Savings account prior to the promotion period, and who apply and get approved for a SoFi Credit Card during the promotion period are eligible. Existing SoFi members who already have the SoFi Credit Card and previously set up Direct Deposit through SoFi Money or SoFi Checking & Savings are not eligible for this promotion.

New SoFi Checking and Savings customers and existing Checking and Savings customers without direct deposit are eligible to earn a cash bonus when they set up direct deposits of at least $1,000 over a consecutive 30-day period. Cash bonus will be based on the total amount of direct deposit. Entry into the Program will be available 4/5/22 to 5/31/22. Full terms at sofi.com/banking. SoFi Checking and Savings is offered through SoFi Bank, N.A. Member FDIC.

SoFi members with direct deposit can earn up to 2.00% annual percentage yield (APY) interest on all account balances in their Checking and Savings accounts (including Vaults). Members without direct deposit will earn 1.00% APY on all account balances in Checking and Savings (including Vaults). Interest rates are variable and subject to change at any time. Rate of 2.00% APY is current as of 08/12/2022. Additional information can be found at http://www.sofi.com/legal/banking-rate-sheet.

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Guide to Choosing a Rewards Credit Card

A rewards credit card allows cardholders to earn incentives for purchases they already make. While the potential rewards credit card benefits are apparent, maximizing these benefits requires determining which rewards credit card is best for you. That’s because different rewards credit cards offer different types of rewards and have varying criteria for how to earn them.

Read on to learn more about how these cards work and how to choose a rewards credit card that suits your spending habits.

Recommended: Can You Buy Crypto With a Credit Card

What Is a Rewards Credit Card?

A rewards credit card offers cardholders bonuses based on their spending. Bonuses can come in many forms, including airline miles, cash back, or points.

The benefits of a rewards credit card will vary based on the card type. For instance, one cash back credit card may offer a flat percentage back on all purchases, while another may offer higher rates in certain categories, such as gas or groceries, and a lower rate across other areas. Meanwhile, another rewards credit card could offer cardholders one or two points for every dollar they spend using the card, which they could then redeem for airline tickets or hotel stays.

Recommended: What is the Average Credit Card Limit

How Rewards Credit Cards Work

Rewards credit cards operate similarly to how credit cards work traditionally, with the bonus of rewards earned based on spending. These cards offer access to a revolving line of credit that cardholders can use to make payments. Cardholders can use the card to make purchases as long as they stay under their credit limit. Anytime the cardholder makes a payment on the card, their revolving credit is restored for the amount of their payment.

Where rewards credit cards differ from other types of credit cards is that a portion of each purchase will go toward the card’s designated bonus, whether that’s cash back rewards or points to use for a hotel stay. Card issuers pay out rewards on a specific term, such as by billing period, on a monthly cycle, or based on spending. Once the rewards hit the user’s account, they can redeem them.

There are a number of ways that cardholders can redeem the credit card rewards they earn. This could include as a statement credit, for merchandise or gift cards, for stays at hotels and resorts, toward airline tickets, as a direct deposit to a bank account, or in the form of a check mailed to the cardholder.

Recommended: When Are Credit Card Payments Due

Types of Credit Card Rewards Programs

Rewards credit cards break down into six broad categories based on the earning and redemption processes.

Cash Back

With cash back rewards cards, users get a percentage of “cash back” on every purchase made with their card. Cash back rewards rates are typically around 1% to 2% of every purchase, but some cards may offer higher returns based on the spending category. For example, SoFi’s credit card is offering 3% cash back for the year.

Cardholders can redeem cash back rewards in several ways, including as:

•   A credit against the card’s balance

•   Gift cards from select retailers

•   Donations to charity

•   A check sent by mail or direct deposit

Travel Rewards

Credit card issuers also offer general travel cards, where cardholders can earn points or miles through their spending that they can then put toward all manner of travel expenses. This could include everything from car rentals to hotels to flights, effectively allowing the cardholder to use credit card rewards to travel for less.

Typically, general travel cards offer points or miles on any purchase, often at a rate of 1 or 2 miles or points per dollar spent. However, general travel rewards cards may offer 2x or 3x points on specific spending categories, such as dining out or travel.

With general travel cards, users can typically redeem points through the issuer’s booking platform or transfer the value to a partner. Unlike co-branded cards that may restrict where cardholders can redeem their points, general travel cards usually allow redemption at a variety of airlines or hotels.

Points

Credit cards that offer rewards points can provide access to a variety of rewards, including options for cash back or travel redemption. Generally, a base rate of 1 point per dollar spent is offered.

However, the value of points can vary depending on the card issuer and how the cardholder redeems their points. Reward point cards could be redeemed for gift cards, travel, donations, or cash, depending on the issuer.

Gas

Gas cards help users save money on filling up the tank. Typically, these cards only offer rewards or redemptions for purchasing gas at a gas station. A cardholder could redeem their rewards as a statement credit or a discount at the pump.

Hotel or Airline

Hotel and airline-branded credit cards reward users when they spend with a particular company. For instance, booking nights at the same hotel brand could earn a cardholder points, bumping up their status, or give them access to room upgrades or a free night’s stay.

Similarly, airline credit cards reward users for traveling on their airline. They also can include opportunities for status upgrades, and being a loyal airline traveler could lead to receiving perks like lounge access in the airport or free bag check.

Retail

Retail credit cards is a broad designation that encompasses any credit card reward tied to a specific retailer or store. Rewards vary based on the card issuer and the store. However, they could include point-of-sale discounts with every purchase or the chance to earn points to use toward discounts and gift cards at the store.

Factors to Consider When Comparing Rewards Credit Cards

There’s a wide range of reward programs to take advantage of, and the policies of these programs vary from credit card issuer to issuer. This is why it’s important to take the time to compare rewards credit cards. Before applying for any rewards card, it’s worth looking at each of the following factors.

Annual Fees

Some rewards credit cards include an annual fee. This fee could be as low as $50, while other cards’ annual fees may range closer to $700 a year.

It’s important to consider whether the rewards you earn from the card will offset the cost of a card’s annual. Depending on how often someone uses the card, and how frequently they redeem rewards, they could determine that the fee is worth it.

Additionally, it’s worth looking into whether the card offers a lucrative opening bonus offer that essentially cancels out the annual fee, at least for the first year.

Recommended: How to Avoid Interest On a Credit Card

Interest Rates

Interest rate, or annual percentage rate (APR), is the amount of interest a person will pay on the money they borrow from the credit card issuer. If the credit card holder carries a balance month to month, they may owe interest charges on their outstanding balance.

Currently, the average APR is around 17%, though APRs on rewards cards tend to be on the higher end. A high APR on a credit card could translate to steep interest charges if the cardholder carries a balance. As such, keep an eye on the interest rate when comparing cards.

Recommended: What is a Charge Card

Tiered vs. Fixed Rewards

Tiered vs. fixed refers to the way the card structures its rewards, which is another important consideration to keep in mind.

With tiered rewards, a credit card offers different points or values based on the category of purchase. For example, a travel card may offer more points for a travel-related purchase as opposed to groceries.

Fixed rewards, on the other hand, offer the same rate for every purchase. An example of this is a cash back rewards card that gives cardholders 2% cash back on every purchase, no matter the spending category.

The type of rewards structure that’s right for you will depend on your spending habits. If you know you spend mostly in one category, you could find that a tiered rewards card that prioritizes that category is the right fit. But if your spending doesn’t align with the highest rewards categories, fixed rewards may pay off more.

Cashback Rewards Caps

When researching cash back rewards cards, keep an eye on the fine print around rewards caps. Some cards may cap redemption after a certain amount of spending.

For example, it may offer 3% cash back on purchases up to a certain dollar value, then only offer 1% once the cardholder hits that amount.

If you’re between two cards, the one with the higher cap — or better yet, no cap at all — could help you determine which one will win out.

Guide to Choosing the Best Rewards Credit Card for You

Rewards credit cards sound exciting, but with a little research, the question, “which rewards credit card is best for me?” inevitably comes up. While no two cardholders are the same, many can approach the search for the perfect card by asking the same questions.

Recommended: Tips for Using a Credit Card Responsibly

Analyzing Your Spending Habits

Where or what a person spends the most on will directly impact which rewards card is the best fit for them.
Here’s an example of how that would play out in the decision between credit card miles or cash back rewards. If someone prioritizes travel and lives near an airport that’s a central hub for one particular airline, they may choose to get an airline credit card that rewards their travel spending with airline miles for future flights.

However, if someone travels very little, they may benefit more from earning cash back on their everyday spending rather than airline miles.

To figure out where you spend the most, look at your credit card and bank statements from the last quarter. Whichever spending category comes up the most may be the best fit for a rewards card. On the other hand, if there are no clear patterns, a standard cash back card may be the right fit.

Checking Your Credit Score

Checking credit score may give credit card applicants a healthy dose of reality. Most rewards credit cards require a good or excellent credit score, which means a score of 670 or above. Those with a credit score lower than 670 may not be able to qualify for a rewards credit card.

Recommended: Does Applying For a Credit Card Hurt Your Credit Score

Pros and Cons of Rewards Credit Cards

Credit card rewards may sound too good to be true, and in some ways, they are. Here are some rewards credit card benefits and drawbacks:

Pros of Rewards Credit Cards Cons of Rewards Credit Cards
Rewards for everyday spending Often charge annual fees
Opportunity to earn more in certain categories, depending on the card Tend to have a higher APR
May come with additional perks like travel insurance or free credit monitoring Generally require a high credit score to qualify

Making the Most of Your Rewards Card

Ready to reward regular spending? Keep these final tips in mind make the most of your rewards credit card:

•   Spend within your means. It may feel tempting to overspend when every purchase means more points, but overspending can lead to debt, interest charges, and even a negative impact on credit score.

•   Aim to snag the bonus. Most rewards credit cards offer an introductory bonus when the cardholder hits a certain spending threshold within a specified period. Plan purchases strategically to hit this bonus.

•   Plan card opening around large purchases. Planning a wedding, buying a house, or making a large purchase? It may be the perfect time to open a new card, as a few large charges could mean hitting the bonus.

•   Use rewards wisely. Rewards are only really redeemed when they’re spent. Take time to read up on the fine print around redemption, as there’s often a strategy associated with getting the best value out of card rewards. That may mean redeeming them for a gift card of the highest conversion rate or booking travel through the card issuer’s platform to make miles stretch further.

The Takeaway

Rewards credit card benefits can make them very enticing for many credit card holders. However, consider a card with benefits that “pay” for themselves, meaning the benefits fit within the cardholder’s lifestyle and suit their existing spending habits. A card with a high annual fee and rarely used benefits likely isn’t worth someone’s time or money.

If a cash back credit card seems like the right fit, consider applying for the SoFi Credit Card. SoFi cardholders earn 2% unlimited cash back rewards when redeemed to save, invest, or pay down eligible SoFi debt. Cardholders earn 1% cash back rewards when redeemed for a statement credit.1 For a limited time, new credit card holders who also sign up for a SoFi Checking and Savings with direct deposit can start earning 3% cash back rewards on all eligible credit card purchases for 365 days*. Offer ends 12/31/22.

FAQ

What are the benefits of having a rewards credit card?

The main rewards credit card benefit is earning rewards — whether points, miles, or cash back — from everyday spending. Rewards credit cards can also offer additional perks, such as free credit monitoring, travel insurance, and purchase protection.

Are credit card rewards taxable?

In most cases, credit card rewards are not taxable, as they’re considered rebates or discounts. However, if a credit card reward is given without the user doing any spending to earn it, then those rewards may be considered taxable income.

What credit score do I need to get a rewards credit card?

Most rewards credit cards require a good or excellent credit score in order to qualify. This is typically 670 or higher.

What can I do with credit card rewards?

You can redeem credit card rewards for cash, statement credits, hotel and airline bookings, store discounts, or gift cards. Ultimately, what you’re able to do with your credit card rewards will depend on the type of card you have.


Photo credit: iStock/Hiraman

You will need to maintain a qualifying Direct Deposit every month with SoFi Checking and Savings in order to continue to receive this promotional cash back rate. Qualifying Direct Deposits are defined as deposits from enrolled member’s employer, payroll, or benefits provider via ACH deposit. Deposits that are not from an employer (such as check deposits; P2P transfers such as from PayPal or Venmo, etc.; merchant transactions such as from PayPal, Stripe, Square, etc.; and bank ACH transfers not from employers) do not qualify for this promotion. A maximum of 36,000 rewards points can be earned from this limited-time offer. After the promotional period ends or once you have earned the maximum points offered by this promotion, your cash back earning rate will revert back to 2%. 36,000 rewards points are worth $360 when redeemed into SoFi Checking and Savings, SoFi Money, SoFi Invest, Crypto, SoFi Personal Loan, SoFi Private Student Loan or Student Loan Refinance and are worth $180 when redeemed as a SoFi Credit Card statement credit.

Promotion Period: 4/5/2022-12/31/2022. SoFi reserves the right to exclude any Member from participating in the Program for any reason, including suspected fraud, misuse, or if suspicious activities are observed. SoFi also reserves the right to stop or make changes to the Program at any time.

Eligible Participants: All new members who apply and get approved for the SoFi Credit Card, open a SoFi Checking and Savings account, and set up Direct Deposit transactions ("Direct Deposit") into their SoFi Checking and Savings account during the promotion period are eligible. All existing SoFi Credit Card members who set up Direct Deposit into a SoFi Checking & Savings account during the promotion period are eligible. All existing SoFi members who have already enrolled in Direct Deposit into a SoFi Checking & Savings account prior to the promotion period, and who apply and get approved for a SoFi Credit Card during the promotion period are eligible. Existing SoFi members who already have the SoFi Credit Card and previously set up Direct Deposit through SoFi Money or SoFi Checking & Savings are not eligible for this promotion.

New SoFi Checking and Savings customers and existing Checking and Savings customers without direct deposit are eligible to earn a cash bonus when they set up direct deposits of at least $1,000 over a consecutive 30-day period. Cash bonus will be based on the total amount of direct deposit. Entry into the Program will be available 4/5/22 to 5/31/22. Full terms at sofi.com/banking. SoFi Checking and Savings is offered through SoFi Bank, N.A. Member FDIC.

SoFi members with direct deposit can earn up to 2.00% annual percentage yield (APY) interest on all account balances in their Checking and Savings accounts (including Vaults). Members without direct deposit will earn 1.00% APY on all account balances in Checking and Savings (including Vaults). Interest rates are variable and subject to change at any time. Rate of 2.00% APY is current as of 08/12/2022. Additional information can be found at http://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.
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
.

The SoFi Credit Card is issued by The Bank of Missouri (TBOM) (“Issuer”) 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.
1See Rewards Details at SoFi.com/card/rewards.
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