You may have heard of no-limit credit cards and wondered how they work. What are referred to as no-limit cards typically mean that there is not a preset spending limit, as you find with most cards. Rather, your limits may fluctuate over time, and each purchase is evaluated on a case-by-case basis for approval. As long as you are using the card responsibly and regularly paying down your balance, you shouldn’t have any problems with purchases being declined.
• Technically, no-limit credit cards do not exist; some cards, however, have no preset spending limit.
• Transactions are evaluated based on financial information and history, and spending limits may change.
• High income and an excellent credit score can improve approval chances.
• Maintaining a relationship with the bank can increase approval likelihood.
• Luxury credit cards often have no preset spending limits.
Do No-Limit Credit Cards Exist?
While most credit cards do come with specific credit limits, there are cards that intentionally have no preset spending limit. Those card holders never have to worry about managing their available credit. Instead, the issuer will evaluate each purchase as it’s made to determine whether to approve it. The issuer may also provide a tool where you can check beforehand to see if a purchase will be approved.
Where Does the Idea of No Limit Cards Come From?
To “average” people who stick to a budget and pay their bills each month, there is something aspirational about a magical no-limit credit card. If you have an average credit limit, you might wonder what it is like to not be encumbered with one. Pop culture plays into this common desire to know what it would be like to be obscenely rich and not have to worry about money.
The Myth of the Black Credit Card With No Limit
In pop culture, the no-limit credit card always seems to be black, and there are indeed ultra-luxury black credit cards. For example, American Express has the Centurion Card, which is a black credit card that is only available by invitation. But while the Centurion card (and other similar cards) don’t come with a preset spending limit, that doesn’t mean there is no limit at all.
Rather, purchases may be approved in real time, based on factors such as current balance and spending limit, income indicators, and size of the purchase.
If your card is stolen, you may be at a higher risk before you notice
A high credit limit can help your credit utilization ratio, when used responsibly
A higher credit limit could mean more debt to pay down
A higher spending limit may allow you to earn rewards like unlimited cash back
What Does It Take to Have a High Limit Credit Card?
Most credit card issuers use a variety of factors when deciding both whether to approve you for a credit card and what credit limit to extend. Here are a few factors that may come into play:
A Good Credit Score
Most cards that come with no preset spending limit are considered premium or luxury credit cards. That means that you will likely need good or excellent credit to be approved.
Some of the factors that build or maintain a good credit score include always paying your bills on time, having a long history of responsible credit usage, using a mix of credit products, and not making too many applications for credit in a short period of time. In addition, keeping your credit utilization ratio low is wise as that also shows that you aren’t relying too heavily on credit.
A High Income
Another factor that can help you to get a high limit on a credit card is a relatively high income. Banks generally use an applicant’s income as one factor in determining a credit limit for a card. If you have a low annual income, a bank may be hesitant to issue you a credit card with a high spending limit.
An Existing Relationship With the Bank
Many banks are interested in building a relationship with their customers, especially ones they consider to be high-value. Showing that you are a loyal customer can encourage a bank to extend you additional credit. Ways to build your relationship with a bank might include opening checking or savings accounts, taking advantage of their credit card rewards program, or responsibly using existing accounts with them.
The Takeaway
While some credit cards come without a preset spending limit, all credit cards have some limitations in place. There is no publicly available credit card that will allow you to spend and spend with no checks and balances or consequences. If you have a card with no preset spending limit, the issuer will decide on a case-by-case basis whether to approve each purchase.
Whether you're looking to build credit, apply for a new credit card, or save money with the cards you have, it's important to understand the options that are best for you. Learn more about credit cards by exploring this credit card guide.
FAQ
Is there a credit card that has no limit?
There aren’t really credit cards with no limit at all, but there are credit cards that don’t have a preset spending limit. Instead, the credit card issuer will evaluate your overall financial information to determine whether to approve any purchases. This might include your income, net worth, relationship to the bank, and previous spending and payment history.
How do people get no-limit credit cards?
Most cards that come with no preset spending limit are luxury credit cards, which means that you’ll typically need to have good or excellent credit. Having a high income is another factor that can improve your odds of being approved. You might also consider strengthening your relationship with the issuing bank, like opening a checking account or other credit cards.
What does no-limit credit card mean?
A no-limit credit card generally does not mean a credit card with absolutely no limit at all. Instead, many times people are referring to a credit card with no preset spending limit. When you have a card with no preset spending limit, you won’t have a specific available credit or credit limit. Instead, the card issuer will determine whether to approve each transaction based on your overall financial information and/or past spending history.
Photo credit: iStock/Delmaine Donson
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 .
Third-Party Brand Mentions: No brands, products, or companies mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third-party trademarks referenced herein are property of their respective owners.
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Credit card interest and fees are tax-deductible in some cases. That means every dollar you pay in credit card interest might reduce a dollar of your taxable income.
If that sounds too good to be true, there is a catch — credit card interest and fees are typically only considered tax-deductible if they are legitimate business expenses. If you don’t run a business or the interest and fees were not incurred in the operation of a business, you generally won’t be able to deduct them on your tax return.
• Credit card interest and fees are tax-deductible if they are legitimate business expenses.
• Personal credit card interest and fees are never tax-deductible.
• Separating business and personal expenses is crucial for accurate tax deductions.
• Avoiding credit card interest can save more money than the tax deduction benefit.
• Consult a tax advisor for specific questions about credit card interest and fees.
How Credit Card Interest Works
When you make a purchase with a credit card, you don’t have to pay for it right away. Instead, you are borrowing the money for the duration of your statement (usually one month). At the end of your statement balance, you must make at least a minimum payment. But if you don’t pay the full statement amount, you will be charged credit card interest on any outstanding balance.
Charging this interest is one way that issuers fund credit card perks and benefits like credit card rewards.
Business credit card interest may be tax-deductible in certain situations. Generally speaking, in order to deduct any expenses, they must be incurred in the regular operation of the business. The IRS does not have requirements about what type of credit card is used, as long as the interest is incurred on business expenses.
You may be able to deduct credit card interest on a personal credit card used for business purchases. However, most credit card agreements prohibit the use of personal credit cards for business purposes on a regular basis.
Not surprisingly, you cannot typically deduct credit card interest on personal expenses charged to a business credit card. And if you pay for personal and business expenses with the same credit card, you may not be able to deduct the full amount of interest. Consult with your accountant or tax advisor if you have questions about what can and cannot be deducted.
Personal Credit Card Interest
Personal credit card interest is not tax-deductible under any circumstances. You cannot deduct interest that you pay for personal expenses on a credit card. That’s one more reason to always pay your credit card statement in full, each and every month. That way you aren’t charged any credit card interest.
Just like credit card interest, the deductibility of credit card fees largely depends on whether they are for business expenses.
Business Credit Card Fees
Credit card fees that are incurred as business expenses are generally considered deductible. This includes credit card annual fees, overdraft fees, foreign transaction fees, late fees, and balance transfer fees. As long as the credit card is used for business purposes, any fees charged by the credit card issuer will be tax-deductible.
💡 Quick Tip: When using your credit card, make sure you’re spending within your means. Ideally, you won’t charge more to your card in any given month than you can afford to pay off that month.
Personal Credit Card Fees
In contrast, personal credit card fees are not generally considered deductible. Any fees that you are charged by your credit card issuer that are not business expenses cannot be deducted from your taxable income.
While it’s important to understand that you may be able to deduct credit card interest and fees if they are business expenses, avoiding credit card interest may be the more prudent thing to do. If you are in a 30% tax bracket, that means deducting one dollar of interest will save you 30 cents. But if you pay your balance in full, you won’t be charged any interest and save the full dollar.
The Takeaway
Some credit card fees and interest is deductible on your annual tax return. Generally speaking, you cannot deduct personal credit card interest or fees. You may be able to deduct interest and fees if they are legitimate business expenses. Keeping your business and personal expenses separate can help you determine which fees and interest you may be able to deduct.
Whether you're looking to build credit, apply for a new credit card, or save money with the cards you have, it's important to understand the options that are best for you. Learn more about credit cards by exploring this credit card guide.
FAQ
Can you deduct credit card interest as business expense?
As credit card interest rates rise, the amount of interest that you’re charged each month on any unpaid balances also rises. So you may be wondering if you can deduct credit card interest from your taxable income. The good news is that as long as the interest is a legitimate business expense, you can generally deduct the interest.
Are credit card fees tax-deductible?
It’s important to understand how different credit card-related items affect your taxes. Credit card rewards are generally not considered taxable, while some credit card fees may be tax-deductible. You may be able to deduct most credit card fees as long as they are considered legitimate business expenses. Personal credit card fees are not generally considered deductible.
Can you write off personal credit card annual fees?
No, in nearly all cases, you cannot take a tax deduction for personal credit card fees. Only credit card fees that are legitimate business expenses are tax-deductible. However, it’s important to understand that the IRS does not make any distinction between what might be marketed as a “personal” card or a “business” credit card.
Photo credit: iStock/Cameron Prins
Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.
Tax Information: This article provides general background information only and is not intended to serve as legal or tax advice or as a substitute for legal counsel. You should consult your own attorney and/or tax advisor if you have a question requiring legal or tax advice.
Determining how long your retirement savings will last can be a complicated, highly personal calculation. It’s based on how much you’ve saved, how you’ve chosen to invest your money, your Social Security benefit, whether you have other income streams — and more.
And even when you have all the information at your fingertips, it can be hard to make an accurate calculation, because life is fraught with unexpected events that can impact how much money we need and how long we’re going to live.
Taking those caveats into account, though, it’s still important to make an educated estimate of how much money you’re likely to accumulate by the time you retire, as well as how much you’re likely to spend.
Key Points
How long retirement savings might last depends on savings, investments, Social Security, and other income sources.
The 4 Percent Rule to calculate how much may be needed for retirement suggests a 4% or 4.5% initial withdrawal rate, adjusted for inflation annually.
The Multiply by 25 Rule estimates retirement savings by multiplying desired annual income in retirement by 25.
The Replacement Ratio helps estimate post-retirement income needs based on pre-retirement income.
Strategies to extend retirement savings include reducing fixed expenses, maximizing Social Security benefits, maintaining health, and continuing to work full-time or part-time for a few additional years to earn extra income.
What Factors Affect My Retirement Savings?
Here are some of the many variables that can come into play when deciding how long your retirement savings might last.
Retirement Plan Type
Whether it’s a defined-benefit plan like a pension, or a defined contribution plan like an employer-sponsored 401(k), 403(b), or 457, the kind of account you contribute to will likely have an impact on how much and what method you use to save for retirement.
Pension Plan
With a pension plan, retirement income is usually based on an employee’s tenure with the company, how much was earned, and their age at the time of retirement. Pensions can be a reliable retirement savings option when available because they reward employees with a steady income, typically once per month.
One potential downside, however, is that pension plans can be terminated if a company is acquired, goes out of business, or decides to update or suspend its employee benefits offerings. Indeed, pension plans are far less common compared with defined-contribution plans like 401(k)s and 403(b)s and the like.[1]
401(k) Plan
With a 401(k) plan, participants can contribute either a percentage of or a predetermined amount from each paycheck. The money is deposited pre-tax, and the account holder generally owes taxes when they withdraw the money in retirement.
In some cases, the funds employees contribute are matched by their employer up to a certain amount (e.g. the employer might contribute 50 cents for every dollar up to 6%).
Unlike a pension plan, the amount of retirement funds the participant saves in a 401(k) is based on how much they personally contributed, whether they received an employer match, the rate of return on their investments, and how long they’ve had the plan.
IRA or Roth IRA
An Individual Retirement Account, or IRA, is a retirement savings account that’s not sponsored by an employer. Individuals with earned income can open an IRA. There are different types of IRAs, including traditional and Roth IRAs, which each have their own tax treatments.
For both traditional and Roth IRAs, you can contribute a certain amount a year; the amount frequently changes annually. For 2025, individuals can contribute up to $7,000, or $8,000 if they’re age 50 or older.
There are no income limits for a traditional IRA, so account holders can contribute up to the limit. Contributions are made with pre-tax dollars, and a certain amount can be deducted from your income taxes, depending on your income, tax-filing status, and whether you (or your spouse, if applicable) are covered by a workplace retirement plan. You pay taxes on your withdrawals from a traditional IRA in retirement.
On the other hand, a Roth IRA has limits on contributions based on filing status and income level. Contributions are made with after-tax dollars and withdrawals from the account are tax-free in retirement.
Other types of retirement plans like Employee Stock Ownership Plans (ESOP) and Profit Sharing Plans are less common and have their own unique benefits, drawbacks, and details. For example, with an ESOP you get shares of company stock purchased for you, with no investment on your behalf, and these plans are designed so that you receive fair market share for the stock when you leave the company. However, because an ESOP only holds shares of company stocks, there is no diversification. You’ll also owe income tax on the distributions.
Social Security
Social Security is a federally run program used to pay people ages 62 and older a continuing income. Social Security benefits are structured so that the longer you wait to claim your benefit check, the higher the amount will be. If you wait until your full retirement age — 67 for anyone born in 1960 or later, and between ages 66 and 67 for those born from 1943 to 1959 — to start collecting benefits, you’ll receive the full benefit amount. However, if you start collecting benefits at age 62, for instance, you’ll only receive about 70% of your full benefit.[2]
Expected Rate of Return on Investments
If a person puts money into a defined-contribution plan or makes investments in stocks, bonds, real estate, or other assets, there are a number of return outcomes that could affect their retirement savings.
An investment’s performance is about more than just appreciation over time. Learning how to calculate the expected rate of return on the investment can help you get a clearer picture of what the payoff will look like when it’s time to retire.
Unexpected Expenses
One never really knows what retired life might bring. Lots of unexpected expenses could arise.
An extensive home repair or renovation or maybe even a costly relocation to another state or country might make an unforeseen dent in retirement funds.
A major medical incident or the factoring in of long-term care can be another unexpected expense, as are caregiver costs if you or a family member need help.
Some seniors are surprised to learn that health care can get costly in retirement and Medicare may not always be free. Many of the services they might need could require out-of-pocket payments that eat into savings.
As much as individuals might not want to imagine such scenarios, there could be the chance of a divorce during retirement, which could cause a redraft of the savings plan.
Creating a budget to estimate expenses is a great way to get ahead of any surprising financial setbacks that could sneak up down the line.
Inflation
Inflation can take a hefty toll on retirement savings. Even average rates of inflation might have a significant impact on how much retirement funds will actually be worth when they’re withdrawn. For example, $1,500 in January 2021 had the same buying power as $1,810.12 in October 2024.[3]
Understanding how inflation can affect your retirement savings might ensure you have enough funds padded out to support you for the long haul.
Market Volatility and Investment Losses
Regardless of financial situation or age, checking in on retirement accounts and the climate on Wall Street could help clarify how market swings might affect your retirement savings.
Retirees with defined contribution plans might suffer financial losses if they withdraw invested funds during a volatile market. Not panicking and having enough emergency funds to cover 3 to 6 months of living expenses can help you weather the storm.
Talking to an investment advisor about rebalancing an investment account portfolio to reduce risk is another option for getting ahead of this unexpected savings speedbump.
Ways to Calculate How Much You Might Need to Retire
Are you on track for retirement? That’s something that can be calculated in many ways, which vary in efficacy depending on who you ask.
Here are a few formulas and calculations you can use to consider how much to save for retirement:
The 4 Percent Rule
The 4 Percent Rule, first used by financial planner William Bengen in 1994, assesses how different withdrawal rates can affect a person’s portfolio to ensure they won’t outlive the funds. According to the rule, “assuming a minimum requirement of 30 years of portfolio longevity, a first-year withdrawal of 4 percent, followed by inflation-adjusted withdrawals in subsequent years, should be safe [for retirement].” Bengen has since adjusted the rule to 4.5% for the first year’s withdrawal.
The jury is out on whether 4% is a safe withdrawal rate in retirement, but some financial professionals have noted that the rule is rigid and some flexibility may be called for, though it is ultimately up to each investor and their specific situation.[4]
The Multiply by 25 Rule
This one can get a little controversial, but the Multiply by 25 rule, which expanded upon Bengen’s 4% Rule with the 1998 Trinity Study, involves taking a “hoped for” annual retirement income and multiplying it by 25 to determine how much money would be needed to retire.
For example, if you’d like to bring in $75,000 annually without working, multiply that number by 25, and you’ll find you need $1,875,000 to retire. That figure might seem scary, but it doesn’t factor in alternate sources of income like Social Security, investments, etc.
However, it’s based on a 30-year retirement period. For those hoping to retire before the age of 65, this could mean insufficient funds in the later years of life.
The Replacement Ratio
The Replacement Ratio helps estimate what percentage of someone’s pre-retirement income they’ll need to keep up with their current lifestyle during retirement.
The typical target in many studies shows 70-85% as the suggested range, but variables like income level, marital status, homeownership, health, and other demographic differences all affect a person’s desired replacement ratio, as do the types of retirement accounts they hold.
Also, the Replacement Ratio is based on how much a person was making pre-retirement, so while an 85% ratio might make sense for a household bringing in $100,000 to $150,000 per year, a household with higher earnings — say $250,000 — might not actually need $212,000 each year during retirement. A way to supplement this calculation could be to estimate how much of your current spending will stay the same during retirement.
Social Security Benefits Calculator
By entering the date of birth and highest annual work income, the Consumer Financial Protection Bureau’s Social Security Calculator can determine how much money you might receive in estimated Social Security benefits during retirement.
Other Factors To Calculate
Expected Rate of Returns
Determining the rate of return on investments in retirement can help clarify how long your savings could last. An investment’s expected rate of returns can be calculated by taking the potential return outcomes, multiplying them by the likelihood that they’ll occur, and totaling the results.
Here’s an example: If an investment has a 50% chance of gaining 30% and a 50% chance of losing 20%, the expected rate of returns would be 50% ⨉ 30% + 50% ⨉ 20%, which is an estimated 25% return on the investment.
Home Improvement Costs
If a renovation is looking like it will be necessary down the line, you might calculate how much that home repair project could cost and factor it into your retirement planning.
Inflation
You might also consider using an inflation calculator to uncover what your buying power might really be worth when you retire. To do the calculation, you could assume an annual inflation rate of around 2% to 3%, which is what most central banks consider to be modest and balanced.
Making Retirement Savings Last Longer
If you’re still wondering how long your savings will last or seeking potential ways to make it last longer, a few of these strategies could help:
Lower Fixed Expenses
Unexpected expenses are likely to creep up regardless of how much you save, but by lowering fixed expenses like mortgage and rent payments (by downsizing to a less expensive house or rental) as well as food, insurance, and transportation costs, you might be able to slow the spending of your savings over time. Setting a budget is a solid way to see this in black and white.
Maximize Social Security
While opting into Social Security benefits immediately upon eligibility at 62 might sound appealing, it could significantly reduce the benefit over time, as noted above. With smaller cost of living adjustments later in life, a lengthy retirement (people are living longer than ever before) could mean less money when you need it the most.
Stay Healthy
Unexpected medical expenses might still occur, but by safeguarding health and well-being earlier in life, you may be able to avoid costly chronic conditions like high blood pressure, diabetes, or heart disease.
Keep Earning
Whether it’s staying in the full-time workforce for a couple more years or starting a ride-share side hustle during retirement, continuing to bring in money can help you stretch your savings out a little longer.
The Takeaway
Everyone wants a secure retirement. An important step in your retirement plan is calculating how long your savings will likely last. While there is no way to know for sure, this is such an important step in long-term planning that many different methods and strategies have evolved to help people feel more in control.
There are investment strategies, tax strategies, and income strategies that can help you create a forecast of how you’re doing now, and how your retirement savings may play out in the future. Because there are so many risks and variables — from the markets to an individual’s own health — just having a basic calculation will prove useful.
Prepare for your retirement with an individual retirement account (IRA). It’s easy to get started when you open a traditional or Roth IRA with SoFi. Whether you prefer a hands-on self-directed IRA through SoFi Securities or an automated robo IRA with SoFi Wealth, you can build a portfolio to help support your long-term goals while gaining access to tax-advantaged savings strategies.
Help grow your nest egg with a SoFi IRA.
🛈 While SoFi does not offer 401(k) plans at this time, we do offer a range of Individual Retirement Accounts (IRAs).
INVESTMENTS ARE NOT FDIC INSURED • ARE NOT BANK GUARANTEED • MAY LOSE VALUE
SoFi Invest is a trade name used by SoFi Wealth LLC and SoFi Securities LLC offering investment products and services. Robo investing and advisory services are provided by SoFi Wealth LLC, an SEC-registered investment adviser. Brokerage and self-directed investing products offered through SoFi Securities LLC, Member FINRA/SIPC.
For disclosures on SoFi Invest platforms visit SoFi.com/legal. For a full listing of the fees associated with Sofi Invest please view our fee schedule.
Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.
Tax Information: This article provides general background information only and is not intended to serve as legal or tax advice or as a substitute for legal counsel. You should consult your own attorney and/or tax advisor if you have a question requiring legal or tax advice.
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.
Investing money in an individual retirement account (IRA) can be an important part of saving for retirement. Among the types of IRAs you might have are traditional IRAs and Roth IRAs. With a traditional IRA, you can often deduct your contributions in the year you make them and pay tax on your withdrawals. A Roth IRA works in the opposite way — contributions are generally not tax-deductible, and your earnings and withdrawals can be tax-free.
Because of the way taxes on withdrawals from IRAs work, it’s important to be aware of your IRA basis. When you withdraw money from a traditional or Roth IRA, you may only need to pay tax on withdrawals that exceed your basis.
Key Points
IRA basis represents the contributions to an IRA that were not tax-deductible in the year they were made.
Roth IRA basis includes all contributions made to the account because no Roth IRA contributions are tax-deductible.
Traditional IRA basis is the total of all contributions that were not tax-deductible in the year they were made. It does not include deductible contributions.
Accurately tracking IRA basis can prevent having to pay tax or a penalty on qualified withdrawals.
IRA basis is not generally tracked by the IRS. IRA account holders are responsible for accurately tracking the basis.
🛈 SoFi Invest members currently do not have access to a feature within the platform to view IRA basis.
What Is a Roth IRA Basis?
The total amount that you’ve contributed to your Roth IRA over the years is considered your Roth IRA basis. Because Roth IRA contributions are not deductible in the year that you make them, you can withdraw your contributions at any time without tax or penalty.
Is a Roth IRA Basis Different From a Traditional IRA Basis?
Calculating your traditional IRA basis is a bit different than calculating your Roth IRA basis. Understanding these differences in large part comes down to understanding what an IRA is and how various types of IRAs work.
When calculating your Roth IRA basis, you add up all of the contributions you make. This is because no Roth IRA contributions are tax-deductible.
With a traditional IRA, on the other hand, often some contributions are deductible in the year that you make them. So your traditional IRA basis only includes contributions that were not tax-deductible in the year that you made them.
Contributing to a Roth IRA can be a great way to invest and save for retirement, because your earnings and withdrawals are tax-free, as long as you make qualified distributions.
Your Roth IRA basis is easy to calculate, since it’s the net total of any contributions that you make, minus any distributions.
What Are the Rules of a Traditional IRA Basis?
If you open an IRA and opt for a traditional IRA instead of a Roth, it’s important to be familiar with the rules of a traditional IRA basis. Your basis in a traditional IRA is the total of all non-deductible contributions you made, as well as any non-taxable amounts included in rollovers, minus all of your non-taxable distributions.[1]
How Is IRA Basis Calculated?
When you start saving for retirement, you’ll want to make sure that you are accurately calculating your IRA basis. The exact formula for calculating your IRA basis varies slightly based on whether you have a traditional or Roth IRA.
Contributions to a Roth IRA are never tax-deductible. That means that you will use the sum of all of your contributions to calculate your Roth IRA basis.
Traditional IRA Basis Formula
Calculating your Traditional IRA basis works in a slightly different fashion. Because many contributions to traditional IRAs are tax-deductible in the year you make them, you don’t include all of your contributions when calculating your basis. Instead, you will only use the contributions that are NOT tax-deductible when calculating your traditional IRA basis. If all of your traditional IRA contributions are tax-deductible, then your basis will be $0.
Why Is Knowing Your IRA Basis Important?
You want to know what your IRA basis is because it represents the amount of money that you can withdraw from your IRA without tax or penalty. Not knowing your IRA basis is a retirement mistake you can easily avoid.
Generally, any qualified IRA withdrawals up to your tax basis are tax- and penalty-free, while withdrawals above your tax basis may be subject to income tax and/or a 10% penalty if the funds are withdrawn early. While it is usually not a good idea to withdraw money from your retirement accounts until necessary, knowing your basis can help you make an informed decision.
The Takeaway
Understanding your IRA basis is an important part of investing and planning for your retirement. Your IRA basis is the amount that you can typically withdraw from your account without having to pay income tax and/or a penalty.
At its simplest, you can calculate your IRA basis by adding up all of your non-tax-deductible contributions and subtracting any previous distributions. For your Roth IRA basis, you can use all of your contributions, while for traditional IRAs you can only use the value of any contributions that you did not deduct from your taxes.
FAQ
Do I have an IRA basis?
Everyone with an IRA has an IRA basis, although it’s possible that your IRA basis may be $0 if all of your contributions to a traditional IRA were tax-deductible. Your IRA basis is the net total of your non-tax-deductible contributions minus any distributions. For a Roth IRA, you use the value of all your contributions (because none of your contributions are tax-deductible), while with a traditional IRA, it’s only the contributions that were not tax-deductible.
How do I find my IRA basis?
Your IRA basis is the sum of any non-tax-deductible contributions that you make to an IRA minus any distributions that you take from your account. Your IRA basis is not generally reported anywhere. So if you don’t know your basis, you will need to calculate it based on your historical contributions and distribution amounts.
Who keeps track of your IRA basis?
The IRS does not generally keep track of your IRA basis — you are responsible for making sure your IRA basis is accurately calculated. If you use an accountant, they may calculate and track your IRA basis. You’ll want to make sure that you are accurately tracking your basis so that you can correctly pay any taxes you owe on IRA distributions.
INVESTMENTS ARE NOT FDIC INSURED • ARE NOT BANK GUARANTEED • MAY LOSE VALUE
SoFi Invest is a trade name used by SoFi Wealth LLC and SoFi Securities LLC offering investment products and services. Robo investing and advisory services are provided by SoFi Wealth LLC, an SEC-registered investment adviser. Brokerage and self-directed investing products offered through SoFi Securities LLC, Member FINRA/SIPC.
For disclosures on SoFi Invest platforms visit SoFi.com/legal. For a full listing of the fees associated with Sofi Invest please view our fee schedule.
Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.
Tax Information: This article provides general background information only and is not intended to serve as legal or tax advice or as a substitute for legal counsel. You should consult your own attorney and/or tax advisor if you have a question requiring legal or tax advice.
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.
Bank accounts are essential tools for managing your money and achieving financial goals. Whether you’re looking to streamline everyday transactions, save for future expenses, or build wealth over time, there’s a type of bank account designed for each purpose.
In fact, most Americans rely on these financial tools regularly. According to SoFi’s April 2024 Banking Survey of 500 U.S. adults, 88% of respondents reported having a checking account, while 71% said they had a savings account. These numbers reflect how foundational these accounts are to everyday life.
Understanding the differences among account types can help you choose the right combination for your needs. Below, we explore seven common types of bank accounts, their features and benefits, and how they can fit into your financial plan.
Key Points
• Checking accounts provide quick access to funds for everyday spending and transactions.
• Savings accounts allow you to store money for emergencies and short-term goals while earning interest.
• Certificates of deposit offer fixed interest rates and guaranteed returns but lock up funds for a set period of time.
• Brokerage accounts allow for diverse investments with potential for growth but also come with market risk.
7 Types of Bank Accounts Explained
Choosing the right mix of bank accounts can make it easier to manage your money and bring you closer to your goals. Here’s a rundown of the different types of bank accounts, how they differ, and how each can support your financial journey.
1. Checking Account
A checking account is often the hub of your financial life, where your income flows in and your day-to-day spending flows out.
Key features:
• Opening a checking account is typically quick and easy, and these accounts are widely available through traditional banks, credit unions, and online banks.
• Checking accounts typically come with a debit card and checks for convenient spending.
• Checking accounts are typically insured by the Federal Deposit Insurance Corporate (FDIC) or National Credit Union Administration (NCUA) for up to $250,000 per account holder, per ownership category (such as single accounts, joint accounts, or trust accounts), per insured institution.
• Some checking accounts charge monthly fees, but offer ways to waive them, such as maintaining a certain minimum balance or setting up direct deposit.
Because checking accounts usually pay little or no interest, they geneally work best for short-term storage and daily use, rather than long-term saving.
2. Savings Account
Savings accounts are designed to help you set aside money for future use while earning interest.
Key features:
• Savings accounts generally earn more interest than checking accounts, especially high-yield savings accounts found at online banks. In SoFi’s survey, 23% of respondents said they have a high-yield savings account.
• Savings accounts are typically FDIC- or NCUA-insured.
• Savings accounts are ideal for short-term money goals or emergency funds, rather than day-to-day spending.
How People Use Their Savings Accounts
Purpose
% of Respondents
Emergency savings
77%
Specific goals (e.g., vacation)
52%
To earn interest
48%
Source: SoFi’s April 2024 Banking Survey
• Savings accounts usually don’t come with checks or debit cards, making the funds less accessible than money stored in a checking account.
• While the federal regulation that limited withdrawals from savings accounts to six per month was suspended in 2020, some banks still have savings account withdrawal limits, and will assess fees if customers exceed those limits.
• Some savings accounts require a minimum balance and will charge a monthly maintenance fee if your balance goes below that threshold.
A savings account can be a good place to build your emergency fund and/or save for a short-term goal, such as a vacation, a new car down payment, or a home renovation.
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*Earn up to 4.00% Annual Percentage Yield (APY) on SoFi Savings with a 0.70% APY Boost (added to the 3.30% APY as of 12/23/25) for up to 6 months. Open a new SoFi Checking and Savings account and pay the $10 SoFi Plus subscription every 30 days OR receive eligible direct deposits OR qualifying deposits of $5,000 every 31 days by 3/30/26. Rates variable, subject to change. Terms apply here. SoFi Bank, N.A. Member FDIC.
3. Checking and Savings Account
Some financial institutions, especially online banks, offer hybrid checking and savings accounts that combine characteristics of both types of accounts.
Key features:
• Checking and savings accounts at online banks typically offer higher annual percentage yields (APYs) compared to traditional savings accounts.
• These accounts allow convenient access to funds — you can spend through debit cards, checks, and mobile payments, similar to a traditional checking account.
• Online banks often have fewer and/or lower fees compared to traditional banks.
• Checking and savings accounts are typically FDIC- or NCUA-insured.
• These accounts often come with conveniences like automatic savings tools and budgeting insights that can make it easier to track spending and saving.
Having checking and savings features combined within one account can help simplify managing your finances and make it easier to monitor your overall financial picture.
Alternatively, you can open both a checking and a savings account at the same financial institution or at two different banks, then link the accounts for easy transfers. Having multiple bank accounts can help you manage both daily transactions and short- to mid-term savings effectively. In SoFi’s survey:
• 31% of respondents said they had two checking or savings accounts
• 20% had three accounts or more
• 37% had just one checking or savings account
4. Certificate of Deposit
A certificate of deposit (CD) is a type of savings account that locks in your money for a set period of time in exchange for a fixed interest rate.
Key features:
• Term length typically ranges from a few months to several years or longer. Longer terms tend to come with higher interest rates, although this isn’t always the case.
• CDs typically have a minimum deposit, often starting at $500 and up.
• Withdrawing funds early typically results in penalties, unless it’s a no-penalty CD. No-penalty CDs generally offer lower interest rates than traditional CDs.
• CDs are usually FDIC- or NCUA-insured.
CDs can work well if you’re saving for specific, near-term goals. For example, If you’re saving for a down payment on a house or a car purchase within the next few years, a CD with a matching term can help you reach that goal with guaranteed earnings.
5. Money Market Account
A money market account (MMA) is a type of savings account that offers some of the conveniences of a checking account.
Key features:
• MMAs typically offer better interest rates than traditional savings accounts.
• MMAs usually come with a debit card and checks, making it easy to access your funds.
• Like other types of savings accounts, MMAs may be subject to monthly withdrawal limits, and you may get hit with fees if you exceed those limits.
• Some MMAs charge monthly maintenance fees, though you may be able to waive them by maintaining a certain minimum balance or setting up direct deposits.
• MMAs are usually FDIC- or NCUA-insured.
An MMA can be a good option for those who want interest and some level of liquidity, yet don’t require frequent access to their funds.
6. Brokerage Accounts
A brokerage account is a type of investment account that allows you to buy and sell investments like stocks, bonds, exchange-traded funds (EFTs), and mutual funds.
Key features:
• Brokerage accounts provide access to a wide range of investment options, allowing for diversification based on your financial goals and risk tolerance.
• Unlike retirement accounts, which often have rules about contributions and withdrawals, you can typically contribute as much as you want to a brokerage account and withdraw funds whenever you need them without penalty.
• While there is potential for growth in a brokerage account, it also involves market risk. The value of your investments can fluctuate, and you could potentially lose some or all of your invested principal.
• Fees vary; full-service brokerages may charge higher fees for personal support, while DIY or automated platforms offer lower-cost options.
The flexibility of accessing your money without penalties makes a brokerage account worth considering for medium- to long-term financial goals, like a down payment on a home, a car purchase, or a wedding.
7. Retirement Accounts
Retirement accounts, such as individual retirement accounts (IRAs) and 401(k)s, are designed to help individuals save for retirement in a tax-advantaged way.
Key features:
• The primary draw of retirement accounts is their tax benefits. Depending on the specific type of account, these benefits can include tax-deferred growth or tax-free withdrawals.
• There are limits on how much you can contribute to retirement accounts that are set annually by the IRS and can vary depending on the type of plan and your age.
• 401(k) plans are offered by many employers, sometimes with matching contributions, which is effectively free money toward retirement.
• IRAs (traditional or ROTH) are available to eligible individuals and may offer tax deductions or tax-free growth depending on the type.
• Contributions are typically locked in until retirement age, early withdrawals may result in penalties and taxes.
Retirement planning involves a number of factors, including:
• Age and desired retirement date
• Contribution limits
• Expected return
• Risk tolerance
Consulting with a financial advisor can help determine the best retirement account for your situation.
Finding Accounts That Work for You
Different types of bank accounts serve different roles in a well-rounded financial strategy. It’s common — and often wise — to maintain a combination of accounts to support everyday spending, short-term savings, and long-term investing.
For example you might choose to have:
• A checking account for bills and everyday spending
• A savings or money market account for an emergency fund
• A brokerage account for investing and building wealth
• A retirement account for long-term financial security
When selecting where to open these accounts, consider factors like interest rates, fees, accessibility, customer service, and mobile tools.
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The Takeaway
Understanding the main types of bank accounts can help you create a strong foundation for your financial future. Checking accounts are designed for everyday money management, while savings accounts are primarily for storing money for short-term goals while earning interest. Accounts like CDs, brokerage accounts, and retirement plans can support longer-term strategies.
By choosing the right combination of accounts and using them strategically, you can simplify money management, earn more on your deposits, and move confidently towards your financial goals.
Interested in opening an online bank account? When you sign up for a SoFi Checking and Savings account with eligible 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.
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FAQ
What are the most common types of bank accounts?
The most common types of bank accounts include checking accounts, savings accounts, money market accounts, and certificates of deposit (CDs). Checking accounts are ideal for daily transactions like paying bills or making purchases. Savings accounts earn interest and are a good place to store funds for emergencies and short-term goals. Money market accounts combine features of checking and savings, often with higher interest rates. CDs lock in your money for a fixed term with a guaranteed return. Each serves different financial needs and goals.
What are the two most common types of bank accounts?
Two of the most common types of bank accounts are checking and savings. A checking account is designed for frequent use, offering easy access to your money through debit cards, checks, and online banking. A savings account, on the other hand, is intended for storing money and earning interest over time. It can help you build an emergency fund or save for specific goals while keeping your money accessible but separate from daily spending.
What is the best kind of bank account to open?
The best kind of bank account to open depends on your financial goals. If you need easy access to your money for daily expenses, a checking account can be ideal. For saving money and earning interest, a savings account can be a good choice. If you want higher interest rates and can meet balance requirements, consider a money market account. For longer-term savings with a fixed return, a certificate of deposit (CD) can be a smart option. Many people benefit from having both checking and savings accounts.
Photo credit: iStock/hemul75
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Annual percentage yield (APY) is variable and subject to change at any time. Rates are current as of 12/23/25. 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.
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