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No one wants to see their hard-earned cash sitting in the bank and earning a minuscule amount of interest. Instead, most people want their money to work hard and grow at a healthy rate over time.

Achieving that may be as simple as switching banks or even just swapping account types. Or trying a couple of other smart financial moves that can help you build your wealth.

Read on to learn smart strategies that may help you earn more interest than you are currently.

What Is Interest?

Interest is the percentage paid when money is borrowed or loaned out. Here are a couple of examples.

💡 Quick Tip: Banish bank fees. Open a new bank account with SoFi and you’ll pay no overdraft, minimum balance, or any monthly fees.

How Do You Earn Interest?

When you deposit money into a bank account, you are, in effect, loaning them the money. They pay you interest in return.

The financial institution can use that money in any number of ways, including lending it out to others. Say you deposit $10,000 in a savings account that earns a 3.00% interest rate. The bank could then use some of your money and that of other depositors to make a $100,000 mortgage loan at 7.00% to a borrower.

The difference between the 7.00% they are charging the person with the home loan and the 3.00% they are paying you and other savings account holders is one of the ways banks make money. And it’s also a good example of how and why you earn interest on your deposit.

How Does Interest Work?

Interest can work in a couple of different ways.

Here’s an example of what a $10,000 savings account would look like at the end of a year if you earned 3.00% simple interest:

$10,000 principal + $300 interest = $10,300 at the end of the year.

However, if that interest was compounded daily, by the end of the year, you would have:

$10,000 principal + $304.53 interest = $10,304.53 at the end of the year.

While it doesn’t sound like much, over time, the difference is amplified. If you’re wondering how to make money with interest, consider what those numbers would look like after 10 years:

Simple interest: $13,000
Compound interest: $13,498.42

It can be wise to check with financial institutions and see how often interest is compounded. The more frequent the compounding, the more your money will grow.

Recommended: Compound Interest Calculator

7 Ways to Gain Interest on Your Money

Now that you understand what interest is, consider these seven ways you might help your money grow faster thanks to the power of interest.

1. High-Interest Savings Accounts

Want to earn more interest on savings? Some banks offer high-interest or high-yield savings accounts that can pay higher rates than traditional savings accounts, while still providing fairly easy access to your money.

How big a difference can this make? When comparing annual percentage yield (APY), regular savings accounts are paying an average of 0.42% APY as of December 16, 2024 while high-yield accounts are offering about 3.00% APY.^[1] When looking for a good interest rate for a savings account, most people would rather snag the latter.

Some high-interest accounts may limit you to six withdrawals or transfers per month, which was previously required by the Federal Reserve. While this Regulation D rule has been suspended since the coronavirus pandemic, some banks will still charge fees or have other penalties for more than six withdrawals, so be sure to check.

You can often find high-interest savings accounts at online-only banks. Because these institutions tend to have lower operating costs than brick-and-mortar banks, they often offer higher rates than traditional banks. They may also be less likely to charge monthly fees.

A high-yield savings account can be a great place to build an emergency fund or save for a vacation or home repair while providing safety and liquidity.

2. Rewards Checking Accounts

Checking accounts are traditionally used for storing money that you use frequently, and they typically don’t pay much, if any, interest. However, some banks offer rewards checking accounts. These may pay higher interest rates than traditional checking and savings accounts. For instance, while some standard checking accounts may pay little or no interest, rewards accounts may offer an APY of around 0.50%, or 1.00%, or more.

However, there may be some restrictions. For instance, the balance that earns the elevated rate may be limited. In addition, you may have to meet certain direct deposit or debit card transaction requirements each month to earn the higher rate.

Like other checking accounts, rewards checking accounts are highly liquid and typically come with check-writing privileges, ATM access, and debit cards. Plus, deposits can be withdrawn at any time.

If you’re considering a rewards checking account, however, you may want to first make sure you can meet any requirements.

3. Credit Unions

Another of the best ways to earn interest on your money is to consider joining a credit union.

Unlike banks, credit unions are owned by the people (or members) who hold accounts at the credit union. Because of this, these financial institutions work for the benefit of account holders instead of shareholders.

In some cases, that can translate into lower fees, better account perks, and higher interest rates. To join a credit union, you typically need to live or work in a certain geographic area or work for a certain employer.

If you have a credit union near you, you may want to check the rates it offers and see if you can get a good deal.

4. Money Market Accounts

A money market account is a type of deposit account that usually combines the features of both checking and savings accounts. This kind of account often requires a higher minimum balance to open than a standard savings account and typically earns a higher interest rate.

Some money market accounts also come with a debit card or checks (which you generally won’t find with savings accounts), but financial institutions may require that they not be used more than six times per month. Some will charge a fee if you go over that number.

It can also be a good idea to ask about other fees, such as monthly account fees and penalties, before opening one of these accounts.

Recommended: Guide to Deposit Interest Rates

5. Certificates of Deposit

Certificates of deposit (CDs), which are a kind of time deposit, typically offer higher interest rates than traditional savings accounts in exchange for reduced withdrawal flexibility.

When you put money in a CD, you agree to leave the money in the account for a set period of time, known as the term. If you withdraw your deposit before the term expires, you’ll usually have to pay an early withdrawal penalty.

One benefit of CDs is that you typically lock in a set interest rate when you open the CD. Even if market rates drop, you’ll keep earning the same rate. On the other hand, if rates rise, you’ll be stuck earning the lower rate until the CD matures.

One way to work around this is to open several CDs that mature at different times, a technique known as CD laddering. Having a mix of short- and long-term CDs allows you to take advantage of higher interest rates, if they bump up, but still have the flexibility to take advantage of higher rates in the future.

A CD ladder also helps with the lack of liquidity that comes with CDs. Because of the staggered terms of the certificates, one is likely to be coming due (or available) if you need to use the cash.

6. Bank Bonuses

Many banks offer special bonuses from time to time; these can be a way to boost the earnings on your money. You may want to keep your eyes open for high-yield savings accounts that offer a sign-up bonus or an interest rate bonus. These incentives can boost your earnings, though you may have to maintain a high minimum balance in the account to earn the higher rate.

You may want to keep your eyes open for high-yield savings accounts that offer a sign-up bonus.

Some banks also offer cash bonuses to customers who open new checking accounts. While this may also come with some requirements, such as setting up direct deposit and/or keeping your account open for a certain number of months to earn the bonus, it can be another good way to increase the income you earn on your bank deposits.

7. Bonds or Bond Funds

Another way to gain interest on your money could be with bonds, which are loans that the government or companies issue. These pay investors interest on a regular basis until the bond hits its maturity date.

These investments, however, are not insured by the Federal Deposit Insurance Corporation (FDIC) or National Credit Union Administration (NCUA) the way an account is at a bank or credit union. U.S. savings bonds are backed by the government, but bonds may carry risk.

Type of Account	Pros	Cons
High-Interest Savings	Higher interest	May have withdrawal limits
Rewards Checking	Higher interest, unlimited withdrawals, checks, and a debit card	May have requirements such as a certain number of debit card or ATM transactions
Credit Union	Higher interest	May need to live in a certain area or work in a certain profession to open an account
Money Market	Higher interest; checking account privileges such as a debit card and checks	May charge fees and/or limit number of transactions
Certificates of Deposit	Higher interest, guaranteed interest rate	Money must be kept on deposit for a specific time period or else penalties can be assessed
Bank Bonuses	Higher interest and/or cash to add to your account	Not offered by all banks; may have minimum deposit requirements or rate may decrease after introductory period
Bonds	Pay interest to grow your investment	May not be insured

Other Ways to Make Your Money Work For You

If you’re planning to park your cash for at least five years or so and you are willing to take some risk, you may want to consider investing your money in the market.

While an investment may have the potential to generate a higher return, all investments come with the risk that you could lose some or all of your money.

You may better weather this risk by investing for the long term, which essentially means only investing funds that you would not likely need to touch for maybe five years or longer, so that the market has time to recover from downturns.

There are a variety of ways to start investing. If your employer offers a 401(k), that can be one of the easiest ways to start investing. Another option for retirement is opening an individual retirement account (IRA).

You could also open a brokerage account to help you target your financial goals. This is a taxable account, typically opened with a brokerage firm, that allows you to buy and sell investments like stocks, bonds, and mutual funds.

If you’re ready to start investing, you may want to speak with a qualified financial advisor who can help you establish your savings goals and risk tolerance and help you develop a personalized investment strategy.

Creating a SoFi Savings Account Today

If you’re looking to make more interest on your money, you may be able to increase returns by opening a high-yield account at SoFi.

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.

Better banking is here with SoFi, NerdWallet’s 2024 winner for Best Checking Account Overall.* Enjoy 3.30% APY on SoFi Checking and Savings with eligible direct deposit.

FAQ

What does it mean to “gain interest”?

Gaining interest is similar to earning interest. It means that your money (the principal) is growing over time thanks to the interest rate being paid. The exact amount it grows will be determined by the interest rate, how long it sits, and how frequently (if at all) the interest is compounded.

How can you make money with interest rates?

You can earn interest through various types of accounts. High-yield savings and high-yield checking accounts typically offer better rates than traditional ones. Money market accounts, which combine features of checking and savings accounts, may offer higher interest rates, but often come with certain restrictions. Certificates of deposit (CDs) provide a fixed interest rate for money locked in for a set time period. You may also consider investing in bonds, which provide periodic interest payments until the bond matures.

How much interest does $10,000 earn in a year?

How much interest $10,000 will earn in one year will depend on the interest rate and how often the interest is compounded, if at all. If the interest rate is 3.00%, without compounding, it would earn $300. With daily compounding, it would earn $304.53. If the interest rate were 7.00%, the account holder would have $700 in interest at the end of the year with simple interest, and $725.01 with daily compounding.

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Article Sources

1. FDIC. National Rates and Rate Caps – June 2025.

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

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.

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.

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

Deposits that are not from an employer, payroll, or benefits provider or government agency, including but not limited to check deposits, peer-to-peer transfers (e.g., transfers from PayPal, Venmo, Wise, etc.), merchant transactions (e.g., transactions from PayPal, Stripe, Square, etc.), and bank ACH funds transfers and wire transfers from external accounts, or are non-recurring in nature (e.g., IRS tax refunds), do not constitute Eligible Direct Deposit activity. There is no minimum Eligible Direct Deposit amount required to qualify for the stated interest rate. SoFi Bank shall, in its sole discretion, assess each account holder's Eligible Direct Deposit activity to determine the applicability of rates and may request additional documentation for verification of eligibility.

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

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

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.

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.
Third Party Trademarks: Certified Financial Planner Board of Standards Center for Financial Planning, Inc. owns and licenses the certification marks CFP®, CERTIFIED FINANCIAL PLANNER®

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

SOBNK-Q225-100

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Missing a credit card payment can happen to anyone. But a credit card late payment may also come with certain consequences, such as late fees, interest accrued on the credit card balance, and potential negative impacts to your credit score. The longer you go without paying your bill, the more consequences you may experience.

Here’s a look at what happens if you miss a credit card payment and solutions to help prevent this from happening in the first place.

When Is a Credit Card Payment Considered Late?

As soon as you fail to pay your credit card bill by the due date, it’s considered past due. Your credit card company may send you notices about it in the form of calls, emails, letters, or texts. You could also face some financial consequences for being late.

What Happens if You Make a Late Credit Card Payment?

Here are some of the ways that not paying your credit card bill on time could impact you.

The Credit Card Balance Could Increase

Even if you didn’t use the card to make new purchases during a particular billing cycle, making a late payment could still potentially increase your balance in a few different ways.

With even the first missed due date, the credit card company can charge a late fee of up to $30. If you miss another payment within the next six billing cycles, the late fee can go up to $41.

The silver lining here is that the late fee can’t be more than the minimum amount due on the account. So, for instance, if your minimum payment is $25, your late fee won’t exceed $25.

There’s also a chance the creditor could increase your interest rate if your payment is late by a certain number of days. Increasing your interest, or annual percentage rate, will also increase your total credit card balance because that new, higher rate (generally referred to as a “penalty APR”) will apply to the entire unpaid balance.

Not all credit card companies have penalty APRs for late payments, so check with your credit card company to verify.

Recommended: What Is APR on a Credit Card?

Your Credit Score Might Be Affected

Your credit score includes information about your credit history, such as your payment history and the standing of your accounts, so a late payment could have a negative impact.

Generally, creditors send information to credit bureaus using different codes to indicate if a payment is current or late. Since there is no credit code for payments that are one to 29 days late, they may use a “current” code.

Once the payment is more than 30 days late, however, creditors generally use the “late” code to denote that the payment is delinquent. But different creditors will send different codes at different times so there’s no way to know for sure when you will see the late payment reflected in your credit report.

Creditors may not report a late payment to credit bureaus until a full billing cycle has gone by with no repayment (typically 30 days). So, for example, if your payment’s due date was the 11th and you paid on the 13th, there’s a chance your credit won’t take a hit.

Although every situation is different, a late payment might end up staying on your credit report for several years. And because credit history is just one factor used to determine your credit score, it’s hard to predict exactly how a late payment will impact your overall score.

The Balance Could Be Charged Off

Another consequence of not paying your credit card bill is that the credit card company may not allow you to continue to use your card for other purchases until your account is in good standing.

What’s more, if your payment is 180 days past due, the credit card company can close your account and charge off the balance. “Charging off” means the credit card company will permanently close the account and write it off as a loss, but the debtor still owes the balance remaining.

Sometimes, credit card companies will attempt to recover what’s owed through their own collection department, but charged-off debts are sometimes sold to third-party collection agencies, which then attempt to get payment from the debtor.

Credit card companies do have leeway to work with their customers. Under FDIC regulations governing retail credit, the creditor can help customers who have had financial setbacks — like job loss or the death of a family member — get back on track.

This leniency is typically shown to people who are willing and able to repay their outstanding debt, and the FDIC encourages creditors to proceed with this step with a structured repayment plan and to monitor the progress of the plan.

How to Resolve a Credit Card Late Payment

Say it’s a few days or more past your credit card bill’s due date, and you haven’t made a payment. Now what? Follow this advice.

Make a Payment Right Away

If the payment just slipped your mind, don’t panic. Paying the credit card balance in full immediately helps avoid accruing interest charges and potentially saves your credit score from dropping. Alternatively, you might want to ask your credit card company about arranging a payment plan to minimize the damage.

Negotiate Fees

Even though your credit score may not drop because of one missed payment, you may incur late fees or a penalty interest rate (or, more accurately, a penalty APR as mentioned above), which will likely increase your total balance.

However, sometimes credit card companies are willing to work with customers to waive those fees. Calling your credit card company to request a waiver of late fees could be a first step, especially if your account is up to date and you’re not a repeat offender.

If your credit card company seems unwilling to change your rate back to the original amount, you might consider asking if they will do so once you show responsible payment history.

Automate Your Credit Card Payments

To help prevent any late payments in the future, you may want to consider setting up autopay to cover the minimum payment on your credit cards.

This way, if a payment slips your mind, you shouldn’t face any late payment consequences. Setting your bill to be automatically paid in full a few days before the payment is due can ensure you pay your balance in time.

If you would prefer not to sign up for autopay, many credit card companies have an option to sign up for notifications that remind you when your payments are due.

Getting Out of Credit Card Debt

To avoid late credit card payments once and for all, you may want to consider solutions for getting out of credit card debt entirely. Strategies depend on your unique financial situation, of course, but here are some you might want to explore.

Budget to Get Out of Debt

Creating a budget can help you better manage your money so you know what you have coming in and going out. You can use either a simple spreadsheet or a spending tracker app to simplify your efforts.

Once you have a handle on how much extra money you can put toward your debt, you may want to select a debt repayment strategy, such as the snowball method or avalanche method.

With the snowball method, the focus is on paying off the smallest debt balance first and then moving on to the second smallest debt balance, and so on, while still making minimum payments on all debt. This type of method is meant to give a psychological boost.

The avalanche method tackles the debt with the highest interest rate. Since you’re starting with the most expensive debt, this strategy can be a big money saver in the long run.

Open a Balance Transfer Credit Card

If your credit is in good standing, opening a balance transfer credit card could be a solution. Usually, these types of credit cards come with low or 0% APRs for a certain period.

Some companies may offer up to 21 months of interest-free payments during the promotional period. But it’s important to note that while the introductory period might be interest-free, you may still have to pay a balance transfer fee between 3% and 5%.

Ideally, you would pay your credit card balance in full by the time the introductory period is over, which would allow you to avoid interest payments on the debt.

Keep in mind, however, many balance transfer credit cards have restrictions. For example, if you make a late payment, you may lose your introductory rate.

Another limitation may be that your introductory APR only applies to the transferred balance and all other transactions may have a higher rate.

Before taking out another line of credit, understand that it can impact your total credit score. Credit scores are calculated using several factors, including credit history and new credit, both of which could be affected when opening a new account.

Consolidate Debt with a Personal Loan

Another option may be to combine separate payments into one credit card consolidation loan, hopefully for a reduced interest rate. While a loan doesn’t erase your debt, it can help you focus on one monthly payment, which might enable you to pay down your debt faster.

As you compare rates, it’s important to understand how a new loan could pay off in the long run. If your monthly payment is lower because the term for a personal loan is longer, for example, it might not be a good strategy, because it means you may be making more interest payments and therefore paying more over the life of the loan.

You can use an online personal loan calculator to get an idea of how much interest you could save by using a personal loan to pay off debt.

Recommended: 11 Types of Personal Loans & Their Differences

The Takeaway

Late credit card payments can come with consequences, like late fees, interest, or a temporary hit to your credit score. And the longer your bill goes unpaid, the more consequences you may experience. Fortunately, there are ways to resolve a late payment, starting with making a payment as soon as you realize one is overdue, setting up autopay, and other tactics. If this kind of debt has become an issue, you might consider a personal loan to consolidate your debt.

Think twice before turning to high-interest credit cards. Consider a SoFi personal loan instead. SoFi offers competitive fixed rates and same-day funding. See your rate in minutes.

SoFi’s Personal Loan was named a NerdWallet 2026 winner for Best Personal Loan for Large Loan Amounts.

FAQ

Can you go to jail for not paying credit card bills?

No, you can’t be arrested for not paying your credit card bills.

What happens if you never pay your credit card bill?

There are some serious potential ramifications for not paying your bills. The delinquency may be noted on your credit report, which can damage your credit score. You could even face a civil lawsuit if the debt goes unpaid.

Can my creditor garnish my wages for not paying my credit card?

Yes, if your credit card debt has been sold to a debt collector, and the collector has a court judgment, then they can garnish your bank account or wages.

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SoFi Loan Products
SoFi loans are originated by SoFi Bank, N.A., NMLS #696891 (Member FDIC). For additional product-specific legal and licensing information, see SoFi.com/legal. Equal Housing Lender.

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

SoFi Relay offers users the ability to connect both SoFi accounts and external accounts using Plaid, Inc.’s service. When you use the service to connect an account, you authorize SoFi to obtain account information from any external accounts as set forth in SoFi’s Terms of Use. Based on your consent SoFi will also automatically provide some financial data received from the credit bureau for your visibility, without the need of you connecting additional accounts. SoFi assumes no responsibility for the timeliness, accuracy, deletion, non-delivery or failure to store any user data, loss of user data, communications, or personalization settings. You shall confirm the accuracy of Plaid data through sources independent of SoFi. The credit score is a VantageScore® based on TransUnion® (the “Processing Agent”) data.

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 .

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

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

This article is not intended to be legal advice. Please consult an attorney for advice.

Third Party Trademarks: Certified Financial Planner Board of Standards Center for Financial Planning, Inc. owns and licenses the certification marks CFP®, CERTIFIED FINANCIAL PLANNER®

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The U.S. debt ceiling — sometimes called the debt limit — is the legal limit on how much money the U.S. federal government can borrow to fund government operations.

U.S. government debt comes from bonds issued to individuals, businesses, and foreign governments, as well as intragovernmental loans. As of January 2025, the U.S. government owed some $36.1 trillion — meaning it had reached the current debt ceiling.

Because the government is now poised to exceed the debt limit, the cap on federal borrowing will need to be lifted in order to allow the government to meet its obligations. As of Q3 2025, lawmakers were anticipating a new debt ceiling later this year, to avoid the risk of default.

The U.S. has never defaulted on its debts, and doing so could roil markets here and abroad. If lawmakers don’t raise the debt ceiling, the U.S. could see a credit downgrade, a potential spike in interest rates, which could impact the value of the dollar and could destabilize markets.

What Is the Debt Ceiling?

All governments borrow money to fund various obligations. The United States has the largest debt obligation in the world, as of June 2025, with some $36.1 trillion in outstanding loans it has borrowed from individual investors, governments (like Japan, China, the U.K.), businesses, and even from itself, via intragovernmental loans.

The debt ceiling is set by the Department of the Treasury, and reflects the allowable amount the government can borrow to fund obligations such as interest payments on current debt, national programs like Social Security and Medicare, military salaries, and much more.

Recent Changes to the Debt Ceiling

Lawmakers suspended the debt ceiling from June of 2023 through January of 2025, when it was re-set to match the amount of the U.S. debt obligation at that time: some $36.1 trillion.

Because the debt ceiling only authorizes borrowing to cover existing obligations, and it does not allow for new spending, the government began 2025 in anticipation of another fight over whether to raise the debt ceiling yet again.

When federal spending bumps up against this limit, as it is right now, Congress must vote to raise the debt ceiling. And there is ongoing concern about whether it’s sustainable to continue to issue new debt.

The current debt ceiling of $36.1 trillion represents about 122% of the nation’s gross domestic product, or GDP, and grows by about $1 trillion every quarter.


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What Does the Debt Ceiling Mean for Investors?

In the last 65 years, Congress has either raised, extended, or changed the debt ceiling 78 times to allow for increased borrowing and reliable debt payments to Treasury bondholders. That’s largely because the U.S. government has always honored and repaid its debts, and thus owning U.S. government bonds has long been considered a safe haven for investors looking for stable securities.

The debt ceiling isn’t simply about bond payments, however. It’s a reflection of the financial stability of the U.S. If the government were forced to default on its obligations, this would not only be a historical event, the likely downgrade of U.S. creditworthiness could spark upheaval in markets worldwide.

The Debt Ceiling, the Economy and Securities

For example, a downturn in demand for government bonds would push up interest rates, which could spur inflation and lower the value of the dollar — with a decline in equity markets as well.

•   Higher interest rates would spell higher inflation.

•   Higher inflation impacts the value of the dollar.

•   Equity markets here and abroad could react negatively to a higher rate environment, fuelling volatility.

Although the current trade environment is in flux, if a default came to pass these combined factors have the potential to spark a financial crisis.

What Is the Status of the Debt Ceiling?

While precedent suggests that lawmakers will likely vote to increase the debt ceiling in 2025, it’s unclear how the current debt ceiling debate will pan out. Some potential outcomes:

•   Congress could vote to raise the debt limit, as it has done since the debt ceiling was first created in 1917 (see more on the history of the debt ceiling below).

•   Both political parties could negotiate a way forward, by agreeing to cut spending while also raising the debt ceiling.

•   The president could use his executive powers to bypass the debt ceiling.

Finally, although very unlikely, as noted above, the government could default on its debts. This has never occurred, and would be unprecedented — potentially leading to a global financial crisis.

Recommended: Who Owns the U.S. National Debt?

Where Did the Debt Ceiling Come From?

Congress first enacted the debt ceiling in 1917, at the beginning of World War I, through the Second Liberty Bond Act. That act set the debt ceiling at $11.5 billion. The creators of the debt ceiling believed it would make the process of borrowing easier and more flexible.

In 1939, as World War II loomed on the horizon, Congress established a debt limit of $45 billion that covered all government debt.

Before the creation of the debt ceiling, Congress had to approve loans individually or allow the Treasury to issue debt instruments for specific purposes. The debt ceiling granted the government greater freedom to borrow funds via issuing bonds, allowing it to spend as needed. And over time the ceiling was often raised, and rarely contested.

The debt ceiling has, however, become a partisan pain point in recent years.

Benefits and Drawbacks of the Debt Ceiling

The debt ceiling has several advantages. It allows Congress to fund government operations, and it simplifies the process of borrowing. It also, theoretically, serves as a way to keep government spending in check because the federal government should consider the debt ceiling as it passes spending bills.

However, there are also some drawbacks. Congress has consistently raised the debt ceiling when necessary, which some analysts claim dampens the legislative branch’s power as a check and balance. And if Congress does not increase the debt ceiling, there is a risk that the government will default on its loans, lowering the country’s credit rating and making it more expensive to borrow in the future.

Recent Overview of the Debt Ceiling and Congress

In the last 15 years, Congress has found itself embroiled in partisan battles over raising the debt ceiling. For example, during the Obama administration, there were two high-profile debt ceiling standoffs between the president and Congress.

In 2011, some members of Congress threatened to allow the U.S. government to hit the debt ceiling if their preferred spending cuts were not approved.

This standoff led Standard & Poor’s, a credit rating agency, to downgrade U.S. debt from a AAA to a AA+ rating.

Moreover, in 2013 there was a government shutdown when members of Congress would not approve a bill to fund the government and raise the debt ceiling unless the president made their preferred spending cuts. This standoff ended after 16 days when Congress finally approved a spending package and a debt ceiling increase partially due to the potential for a further downgrade of U.S. debt.

More recently, after a showdown in Congress in June 2023, lawmakers voted to suspend the debt ceiling altogether, until January 1, 2025.

Then, the debt ceiling was reinstated on January 2, 2025, reflecting the amount of outstanding debt from January 1, and setting the stage for another standoff. On May 16, Moody’s downgraded the U.S. credit rating one notch, from Aaa to Aa1.


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What Happens If Congress Fails to Raise the Debt Ceiling?

The current debate centers on finding a long-term solution for raising the debt ceiling. If the executive and legislative branches can not reach an agreement, there could be several consequences.

Potential Consequences for the Economy and Markets

•   The government will swiftly run out of cash if it cannot issue more bonds. At that point, the money the government has coming in would not cover the millions of debts that come due each day. The government may default, at least temporarily, on its obligations, such as pensions, Social Security payments, and veterans benefits.

•   A U.S. government default could also have a ripple effect throughout the global economy. Domestic and international markets depend on the stability of U.S. debt instruments like Treasuries, which are widely considered among the safest investments.

•   Interest rates for Treasury bills could rise, and interest rates across other sectors of the economy could follow suit, raising the borrowing cost for home mortgages and auto loans, for example.

•   A default could also create stock volatility in global equity markets, turmoil in bond markets, and push down the value of the U.S. dollar.

Recommended: What Is the U.S. Dollar Index?

What Are Extraordinary Measures?

When the government hits the debt limit, there are certain “extraordinary measures” it can take to continue paying its obligations. For example, the government can suspend new investments or cash in on old ones early. Or it can reduce the amount of outstanding Treasury securities, causing outstanding debt to fall temporarily.

These accounting techniques can extend the government’s ability to pay its obligations for a very short amount of time.

Once the government exhausts its cash and these extraordinary measures, it has no other way to pay its bills aside from incoming revenue, which doesn’t cover all of it. Revenue from income tax, payroll taxes, and other sources only cover about 80% of government outlays, according to the U.S. Treasury.

Can Congress Get Rid of the Debt Ceiling?

As noted above, the debt ceiling debate has become fertile ground for partisan fighting in Congress, but theoretically, it doesn’t have to be that way. For example, Congress could give responsibility for raising the debt ceiling to the president, subject to congressional review, or pass it off to the U.S. Treasury.

Congress could also repeal the debt ceiling entirely, which it came close to doing in mid-2023.

The Takeaway

A failure to raise the debt ceiling and a subsequent default on U.S. government debt obligations could have a significant impact on financial markets, from increased volatility to a decline in the value of the dollar to a lower national credit rating or even a recession. Given such consequences, it’s likely that Congress will continue to find ways to raise the debt ceiling, although political battles around the issue may continue.

Even if the debt ceiling continues to go up, the growing national debt could lead to economic instability, according to some economists. It’s hard to predict, since the debt ceiling has been raised about 100 times since World War I, when it was first established, and the U.S. has yet to face grave consequences as a result.

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FAQ

How much is the U.S. debt in 2025?

The U.S. government currently owes well over $36 trillion in debt to investors, businesses, other governments, and even itself via intragovernmental loans.

Who is the U.S. most in debt to?

The Federal Reserve is the largest domestic holder of U.S. debt, because it keeps Treasuries as part of monetary policy. Foreign countries also hold large amounts of U.S. debt, with Japan, China, and the U.K. in the top three.

Can the U.S. ever get out of debt?

While it might be possible, getting out of debt would require substantial changes to policies and programs and could take decades to accomplish.

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Photo credit: iStock/William_Potter

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