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You can typically use a debit card when traveling in another country as long as the merchant accepts transactions from the card issuer. Debit cards are especially useful when withdrawing cash from ATMs internationally, but cash and credit cards may make more sense for other purchases abroad.

Here’s what to know about using a debit card internationally.

Do Debit Cards Work Internationally?

Yes, typically, you can use a debit card internationally. This means you can spend money directly from your checking account, rather than run up a balance on your credit card.

One of the facts about debit cards is that they are usually linked to a processing network, such as Visa or Mastercard, which allows them to be used anywhere cards in that network are accepted. Visa and Mastercard are almost universally accepted anywhere you can pay with plastic.

However, some networks are not accepted internationally, so it’s a good idea to carry cards from more than one issuer, as well as cash, when traveling abroad. If you don’t have a card from another issuer, you may want to look into getting one. When you find a new card that suits you, you can typically apply for a debit card online.

Before you leave on your trip, be sure you have details like the customer service phone numbers in case you were to lose your cards or be the unfortunate victim of a pickpocket (see more safety tips below).

Are There International Fees on Debit Cards?

While you can typically use your debit card in another country, there are fees you may be charged, depending on your card and bank.

Foreign Transaction Fees

When using your debit card internationally, just like using your credit card internationally, you may have to pay foreign transaction fees. Though these fees vary by bank and card issuer, they are usually around 1 to 3% of any transaction abroad. If you want to avoid foreign transaction fees, you can look for a bank account offering a debit card without these fees.

Out-of-Network ATM Fees

Debit cards are ideal for taking cash out of an ATM. If your bank offers in-network ATMs in foreign countries, you can avoid many ATM fees by withdrawing money from those specific ATMs. However, you may still be charged foreign transaction fees.

Dynamic Currency Conversion (DCC) Fees

You may be given the option by an ATM when making a withdrawal or by a merchant when making a purchase to pay or withdraw money in local or U.S. currency. If you opt for the latter, it is known as dynamic currency conversion (DCC), and you will likely face an upcharge, possibly a steep one. It’s usually wiser to opt for local currency when given the choice.

What to Do Before You Travel to Another Country

Traveling to another country is exciting, but there’s a lot to do before you hop on that plane. These are some of the important financial moves to make before traveling internationally.

•   Informing your bank: Banks and credit unions offer a number of services to prevent fraud. Unexpected transactions in foreign countries can be a red flag to your financial institution; in attempting to protect you from fraud, they may decline the transaction or freeze your card. It’s a good idea to let your bank and/or credit card issuer know where and when you’ll be traveling so there aren’t any interruptions to your banking service.

     It can also be wise to note international customer service numbers for your bank and credit cards in a safe place but not in your wallet in case you were to lose your wallet or be robbed while traveling. You can then spring into action quickly to report losses.

•   Safeguarding your card. Place your debit card in a place where thieves can’t easily access it, such as in a pocket inside your jacket, rather than in a purse or backpack.

•   Exchanging your money: You’ll want cash in the local currency for your trip, but it’s a good idea to exchange currency before setting out on your travels. Airport kiosks, hotels, and train stations have notoriously high exchange rates; you’ll likely get a better rate if you exchange in advance with a bank or credit union near your home.

     That said, you don’t want to carry too much cash on you when traveling in another country, meaning you’ll need to exchange money as you go. You can avoid high exchange rates abroad by getting cash from an in-network ATM using your debit card.

Recommended: Pros and Cons of Using a Debit Card Online

7 Tips for Safely Using Your Debit Card in Another Country

Taking your debit card with you abroad offers convenience, but it’s important to prioritize safety when withdrawing and spending money in another country. Here are a few tips for safely using your debit card internationally:

1. Set Up Travel Alerts With Your Bank

Avoid becoming stranded in another country without access to your funds by notifying your bank about your travels in advance. This should prevent them from freezing your card because of unusual activity.

Additionally, set up transaction alerts so that you’ll be notified any time your card is used. You can typically set up these alerts by logging in to your account on your bank’s online portal.

Many banks automatically send out fraud alerts immediately if they suspect fraudulent activity on your account. Check with your financial institution to make sure they provide this service.

2. Always Pay in the Local Currency

As mentioned above, paying in the local currency is generally much less expensive than paying in U.S. dollars. If you choose U.S. currency, this triggers dynamic currency conversion in which the merchant’s bank sets the exchange rate, often with a hefty upcharge. This can add 6% or more to your bill. If you pay in the local currency, your bank or card network service does the conversion instead.

3. Bring a Backup Credit Card for Emergencies

In case your debit card is lost or stolen, or it’s not accepted for payment at certain places, it’s wise to bring a credit card with you when traveling internationally as another form of payment you can use.

Ideally, you might carry with you a credit card, a debit card, and cash in the foreign currency so you have different payment options and types of backup funding.

4. Stick to ATMs Located Inside Banks

Practice ATM safety. When using your debit card to withdraw funds at an ATM, go to an ATM inside a bank. These machines are more secure and help protect against card skimmers. Independent ATM machines, like those you might find on the street in tourist areas, often offer high exchange rates and hidden fees.

Use the bank’s ATM during banking hours, if possible. That way, if you have a problem with the ATM machine, you can ask someone who works at the bank for help. Avoid using an ATM at night. And bring someone with you, if you can.

5. Connect Your Card to a Mobile Wallet

Adding your debit card to your mobile or digital wallet adds another layer of safety. Mobile wallets typically require you to authenticate with a code or fingerprint or facial recognition to use them. And card skimmers don’t work on digital credit cards.

Once you connect to a digital wallet with your card, the wallet uses a tokenized number rather than your account number for transactions. And sensitive data on the card is typically encrypted and unreadable.

6. Know Your Daily Withdrawal Limits

When you’re using your debit card to take out cash from an in-network ATM, be sure to keep your ATM withdrawal limits in mind. Banks typically put a limit on how much you can withdraw in one day, with amounts ranging from about $500 to $1,000. Check the limit your bank imposes before you leave on your trip.

7. Monitor Your Accounts Regularly Using Your Banking App

Keep tabs on your bank accounts while traveling by downloading and using your bank’s app. That way you can stay on top of all transactions to make sure there is no suspicious activity going on, and you can report any fraud to your bank immediately. Just avoid using the app on public wifi and use secure networks instead.

Can You Withdraw Money at an International ATM?

Yes, you can use your debit card in another country to withdraw money from an international ATM. That is a top reason to bring your debit card with you when traveling overseas. Before traveling, you can research which ATMs are in your bank’s network in the country you’re visiting — and even make a list of their locations so you know where to go during your trip.

While using an in-network ATM may help you avoid ATM fees, some banks and card issuers may still charge foreign transaction fees. If you’ll be traveling for a while — several months, say — or you are overseas for work for an extended period of time or travel very frequently, you may want to consider opening a bank account in another country so that you can avoid foreign transaction fees and have an easier time doing daily banking tasks.

What to Do If Your Debit Card Does Not Work?

If you’re in a foreign country and your debit card isn’t working, don’t panic. There are a few things you can do to ensure you can safely spend your money abroad, including:

•   Calling your financial institution. Making an international call might be expensive, but talking to someone at your bank can usually rectify any issue with your debit card. Also, some financial institutions have numbers to use when traveling internationally. It can be wise to jot that information down in advance so it’s handy.

•   Using another form of payment. If you’re in the midst of a transaction, it might make sense (at least temporarily) to pay with a credit card or cash. Then, when you’re back at your hotel or another quiet place, you can resolve your debit card issues.

•   Finding a U.S. embassy. As a last resort, if you have no way of getting money and are stranded abroad, find a U.S. Embassy or Consulate. In emergencies, they may be able to help you get money transferred or wired to you from family or friends at home; in very dire cases, they may offer temporary loans to certain travelers.

The Takeaway

You can typically use your debit card overseas to make purchases and/or withdraw cash at an ATM. Just keep in mind that not all U.S. debit cards are accepted internationally, and your bank may charge a foreign transaction fee. If you use an ATM that is not in your bank’s network, you may also get hit with an ATM fee.

If you’re looking for a new banking partner, it’s a good idea to consider not only interest rates but also any fees you may encounter both at home and abroad.

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.

FAQ

Is it better to use cash instead of a debit card internationally?

When traveling internationally, it’s a good idea to have a mix of payment methods: cash, credit cards, and debit cards. Some financial professionals advise using credit cards and cash for purchases and relying on your debit card for ATM transactions.

Can I use my debit card in all countries?

In most cases, you can use your debit card in other countries, as long as the merchant takes them and accepts cards with your logo. Visa and Mastercard are the most universally accepted, with American Express and Discover following behind. When you use your debit card abroad, you may have to pay foreign transaction fees and ATM fees.

Is it better to use a credit card or debit card internationally?

When traveling abroad, you may want to prioritize payment methods that do not charge foreign transaction fees, whether that’s a credit card or a debit card. However, it’s a good idea to carry both kinds of cards (plus cash). Financial professionals generally recommend using a credit card for cash for purchases and utilizing a debit card to withdraw more money at ATMs as needed.

How do I avoid international fees on my debit card?

To avoid international fees on your debit card, use or switch to a bank that doesn’t charge foreign transaction fees or out-of-network foreign ATM fees. Otherwise, use ATMs in your bank’s network whenever possible. Also, be sure to complete all your ATM transactions in local currency rather than U.S. dollars to avoid dynamic currency conversion fees.

What happens if my debit card is lost or stolen abroad?

If your credit card is lost or stolen abroad, report it immediately via your bank’s mobile app or by calling the bank’s international customer service number to freeze or lock the card. This will prevent anyone from using the debit card. Check your account to make sure there have been no unauthorized transactions. If you suspect the card was stolen, file a police report and get a copy of it as documentation in case you need it for your bank. Finally, request a replacement debit card. Many card issuers can send it to you abroad via expedited shipping.

Photo credit: iStock/Anchiy

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Annual percentage yield (APY) is variable and subject to change at any time. Rates are current as of 5/28/26. 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 transaction fees for outgoing wire transfers, Instant Transfers, and global remittance transfers. Our fee policy is subject to change at any time. See the SoFi Bank Fee Sheet for details at sofi.com/legal/banking-fees/.
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SOBNK-Q226-159

Broadly speaking, the best way to build credit is actually quite straightforward: Be the kind of borrower you’d want to lend to. While that might sound simple, it isn’t always second nature to know exactly how to go about doing that. For instance, you might know it’s critical to make payments on time, but you might not be aware that it’s important to keep your unused credit cards open.

If you’re setting out on your journey toward building credit, here’s a rundown on how to build credit, with 10 strategies you can stick to.

Strategies for Building Credit

1. Acquire Credit

Perhaps the first crucial step in how to build credit is to acquire credit accounts. For someone who doesn’t have a credit history of their own, getting a cosigner or becoming an authorized user on an established cardholder’s account can help you get started. You might also consider a secured credit card or applying for a credit card designed specifically for students. Or you can look into a credit-builder loan.

In the long run, however, you’ll be in a much stronger position if you can borrow in your name alone. Establishing credit of your own can make it easier to borrow in the future for such things as an auto loan, a personal loan, or even a mortgage.

2. Pay Bills Consistently and on Time

Timely payments are crucial, and making at least the minimum payment each month on a revolving credit line can make a positive impact on your credit score.

That’s because payment history makes a bigger impact on a person’s credit score than anything else. A borrower’s credit score summarizes their health and strength as a borrower, and payment history makes up 35% of that score on a credit rating scale. So, the most important rule of credit is this: Don’t miss payments.

Many lenders will actually allow you to customize due dates so they line up with pay dates, and most let you set up automatic payments from a checking or savings account. Take the time to find what works for you to make your payments in a timely fashion.

Recommended: When Are Credit Card Payments Due?

3. Manage Your Credit Utilization Rate

The further away a person is from hitting their credit limit, the healthier their credit score will be, in most circumstances. A borrower’s debt-to-credit ratio, also known as the credit utilization rate, should ideally be no more than 30%. Higher utilization rates can negatively affect a person’s credit score.

Paying revolving credit lines in full each month can have a positive impact on your credit score because doing so essentially lowers your credit utilization rate. Additionally, keeping tabs on your credit utilization rate before continuing to swipe is key to using a credit card wisely.

4. Keep Unused Credit Cards Open

Lenders want to see accounts maintained in good standing for a long time. As such, a credit history looks better when it has a solid number of accounts in good standing that have been open for a while. When debt accounts are closed, that history ends, and eventually closed accounts drop off your credit report entirely.

To keep this from happening, avoid closing old credit cards, even if you’re not using them anymore. You might consider using these accounts to automate a few bills, like car insurance or a monthly subscription account, to avoid account closure due to inactivity.

5. Diversify Your Credit Mix

Having a diverse mix of credit products can also have a positive impact on a person’s credit, accounting for 10% of a credit score calculation. Opening at least one credit card is a good step for most borrowers. Using a personal loan to finance a large purchase with a relatively low interest rate, and paying off that personal loan on time, can also have a positive impact on a person’s credit. Student loan refinancing can be another way to diversify your credit mix, while potentially lowering your interest rate.

However, while having a mix of credit can help your standing as a borrower, it’s not a good idea to open a line of credit that’s not needed just to increase your mix of credit types. Instead, stick to applying only for credit you actually need and that you’re confident you can afford to pay off.

6. Check Your Credit Report

It’s recommended to check your credit reports from the three major credit bureaus (Equifax®, Experian®, and TransUnion®) at least once a year. Doing a regular review of your reports is a good way to monitor your overall credit health and understand the impacts of different activities. It’s also important to make sure that everything listed in your credit report is accurate and flag any errors or fraudulent activity.

Where Can You Track Your Credit Score?

You can get a free copy of your credit report every 12 months from each of the three major credit bureaus. Request your copy online by visiting AnnualCreditReport.com. Note that you can also request a copy anytime you experience an adverse action based on your credit report (such as being denied for a loan), among other circumstances.

Checking your credit score is even easier. While it’s not included in your credit report, you can get your current score from your credit card company, financial institution, or on a loan statement. Another option is to use a free credit score service or site. If you’re tracking changes to your credit score, it’s helpful to know how often your credit score updates and then check in accordingly.

7. Limit Credit Applications

When making major life changes, such as starting a job, getting married, or having children, sometimes multiple lines of credit might be helpful to get through it all. Financial institutions understand that, but they also know that, historically, people who borrow a lot of money at once from multiple sources tend to have more difficulty paying it back. Spreading out credit applications over time whenever possible typically has a lower impact on your overall credit score.

Recommended: What Is the Average Credit Card Limit?

8. Avoid Overspending

Perhaps one of the most effective ways to ensure you keep building your credit in the right direction is to only spend what you can afford to pay off. This will help you more easily maintain a lower credit utilization rate, and it can prevent you from racking up a balance and falling into a debt spiral.

Plus, if you pay off your balance in full each month, as opposed to only making the minimum payment, you can avoid incurring interest charges. This is a perk that’s foundational to what a credit card is.

9. Get Credit for Other Bills You Pay

If you’re early in your credit building journey, it can help to get credit for other payments you’re making on time, such as your rent payment, utility bills, or even streaming services fees. For instance, Experian Boost adds on-time payments in other accounts to your Experian credit report. There’s also a plethora of rent-reporting services out there that will report your timely rent payments to the credit bureaus.

10. Pay Off Any Existing Debt

Another important strategy toward building credit is to pay down any debt you may currently have. Especially important when it comes to the time it takes to build credit, saying goodbye to existing debt allows you to lower your credit utilization rate, which in turn builds your credit score. There are a number of tactics out there for paying off debt, from a debt consolidation loan to a balance transfer credit card.

What Is a “Good” Credit Score?

A credit score within the range of 670-739 is considered good under the FICO Score, the credit scoring model most commonly used by lenders. Very good is considered anywhere from 740-799, while excellent is 800 and above.

Keep in mind, however, that these exact credit score ranges can vary a bit from model to model. For instance, in the VantageScore® range, a score of 661-780 is considered good. Generally though, anything in the mid to upper 600s is within the range of a good credit score.

How Long Does It Take to Build Your Credit Score?

According to Experian, one of the three major credit bureaus, it generally takes around six months of data to generate an initial credit score. Credit card issuers typically don’t report account activity until the end of the first billing cycle, so it’s worth waiting a month or two before you check in on the status of your score. If you’re anxious to ensure your activity counts, it’s also a good idea to check with your issuer to make sure they report to the credit bureaus.

What Can You Do With “Good” Credit?

The importance of having good credit can’t be overstated. By building credit, you’ll have easier access to borrowing opportunities in the future, whether that’s an auto loan for a new car or a mortgage for a new home. A better credit score also allows you to secure better terms, such as lower interest rates and a higher borrowing capacity.

The Takeaway

As you can see, there are a number of ways to build credit. First and foremost, you’ll want to make sure you’re following the tenets of responsible credit usage, as these are arguably the best ways to build credit. From there, you can consider additional credit building strategies, such as ensuring that your on-time rent and utility payments count toward your score.

Looking for a new credit card? Consider credit card options that can make your money work for you. See if you're prequalified for a SoFi Credit Card.

FAQ

How long does it take to build credit?

Once you open your first credit account, it generally takes around six months to start building a credit score. Credit card issuers generally report account activity at the end of your first billing cycle.

How do I establish credit with no credit history?

There are several ways to establish credit if you have no credit history. Some strategies to explore include becoming an authorized user on a friend or family member’s credit card account, applying for a secured credit card, applying for a retail card, taking out a credit-builder loan, and reporting your on-time rent and utility payments to the credit bureaus.

How can I improve my credit as quickly as possible?

Though it takes time to build credit, there are some steps you can take. For starters, work on paying down credit cards with high balances. And be sure to pay your bills on time, every time. If you’re having trouble keeping track of due dates, consider setting up autopay or calendar reminders for yourself.

SoFi Credit Cards are 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.

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.

SOCC-Q226-028

A certificate of deposit (CD) is a type of savings account that locks up your money for a set period of time, known as the term. In exchange, the bank pays a fixed annual percentage yield (APY), which is often higher than what you could earn with a traditional savings account.

When opening a CD, you can generally choose between a short-term CD (one year or less), mid-term CD (two to three years), or long-term CD (four years or longer). While longer-term CDs have historically offered higher rates, this isn’t always the case. Understanding the differences between short- and long-term CDs can help you choose the right option for your savings goals and interest-rate outlook.

How Do CDs Work?

A certificate of deposit (CD) is a specialized savings account that pays a fixed interest rate on a lump-sum deposit for a predetermined period. Unlike a regular savings account, you generally can’t add money after making your initial deposit.

At the end of the CD term, known as the maturity date, you can withdraw your original deposit plus all the interest earned. If you take no action, many banks will automatically roll your money into a new CD of the same length at the current market rate.

If you withdraw money before the maturity date, you’ll typically face an early withdrawal penalty. That’s why it’s important to choose a term that balances earning potential with your need for access to the funds. Some banks offer no-penalty CDs, but these accounts often come with lower APYs.

Are CDs Insured?

Yes. CDs offered by banks are generally insured by the Federal Deposit Insurance Corporation (FDIC) for up to $250,000 per depositor, per account ownership category (such as single, joint, or trust account), per insured institution. CDs held by a federally insured credit union receive similar protection from the National Credit Union Administration (NCUA).

This coverage protects your deposits (up to certain limits) if the bank or credit union fails, making CDs one of the safest places to keep cash.

What Is a Short-Term CD?

Short-term CDs have terms of one year or less. Common options include three-month, six-month, and one-year CDs.

A short-term CD gives you greater flexibility because you’ll regain access to your money quickly. While these CDs often pay lower rates than longer-term CDs, that’s not always the case. In some interest-rate environments, banks may offer higher yields on short-term CDs because they expect rates to decline or don’t want to commit to elevated rates for many years.

Even if rates are similar to those offered by long-term CDs, your money remains invested for a year or less, limiting how much interest you can earn. You’ll also need to decide relatively quickly whether to spend or reinvest the funds.

Pros and Cons of Short-Term CDs

Short-term CDs come with both benefits and drawbacks.

Pros:

•   Competitive yields: Short-term CDs often pay more than traditional savings accounts and may occasionally outpace long-term CD rates.

•   Low risk: They provide a safe place to hold money for near-term goals while earning a guaranteed return.

•   Greater liquidity: You’ll regain access to your funds sooner, allowing you to respond to changing rates or financial needs.

Cons:

•   May offer lower rates: If interest rates are rising, longer-term CDs may provide higher APYs.

•   Early withdrawal penalties: Taking money out before maturity could cost you several months worth of interest.

•   More frequent decisions: You’ll need to determine how to reinvest or use the money when the CD matures.

What Is a Long-Term CD?

A long-term CD typically has a term of four years or longer. In exchange for keeping your money on deposit for several years, you’ll receive a fixed interest rate for the entire term.

Long-term CDs have historically paid higher APYs than short-term CDs, though the yield curve can occasionally invert and make shorter maturities more attractive. Even when rates are similar, a longer term allows you to lock in a rate for years, which can be beneficial if interest rates decline.

The tradeoff is reduced flexibility. Accessing your money before maturity usually means paying an early withdrawal penalty.

Long-term CDs may be a good fit if you have a distant savings goal, don’t expect to need the money soon, and want to lock in today’s rates for several years.

Pros and Cons of Long-Term CDs

As with short-term CDs, long-term CDs come with both advantages and disadvantages.

Pros:

•   Potentially higher yields: Longer terms have traditionally offered higher APYs.

•   Protection against falling rates: You can continue earning the same rate even if market rates decline.

•   Built-in savings discipline: Early withdrawal penalties can discourage you from tapping your savings prematurely.

Cons:

•   Less flexibility: Your money remains tied up for years.

•   Higher minimum deposit: Some banks require significant deposits to qualify for their best long-term CD rates.

•   Interest-rate risk: If rates rise significantly, you could be stuck earning less than newly issued CDs.

Recommended: Money Market Account vs CD

Comparing a $20K Investment: Short-Term vs. Long-Term CDs

As of June 2026, average rates on six-month CDs are slightly higher than average rates on five-year CDs. Even so, the longer time horizon allows a five-year CD to generate substantially more interest.

It’s also important to distinguish between national average rates and best rates available. While national average CD APYs currently range between 1.25% and 1.38%, some online banks and credit unions are paying closer to 4.00% APY.

Here’s a look at $20,000 in a short- and long-term CD at the average national rate and average top rate.

National Average Rates

Average Top CDs Rates

Key Differences Between Short- and Long-Term CD Rates

How to Choose Between a Short-Term and Long-Term CD

The right CD term depends on your goals, your need for flexibility, and your expectation for interest rates.

A short-term CD may make sense if:

•   You may need access to the money within the next year.

•   You want higher yields than a traditional savings account without locking up funds for several years.

•   Short-term rates are currently equal to or higher than long-term rates

•   You believe interest rates could rise and want the flexibility to reinvest later at higher yields.

A long-term CD may make sense if:

•   You’re saving for a goal several years away, such as a home purchase or college expenses.

•   Long-term CDs are offering attractive yields.

•   You’re confident you won’t need the money before maturity.

•   You expect interest rates to decline and want to lock in today’s rates.

The CD Ladder Strategy: Getting the Best of Both Worlds

To get the benefits of both short- and long-term CDs, you might consider a laddering strategy. This gives you regular access to your funds while letting you lock in the potentially higher interest rates offered by longer-term CDs.

With a five-year ladder, you divide your money among five CDs with maturities of one, two, three, four, and five years.

For example, if you have $10,000 to invest, you could put $2,000 into each CD. As the one-year CD matures, you would reinvest those funds into a new five-year CD at the best available rate. The following year, the two-year CD matures and is also rolled into a new five-year CD, and so on.

Eventually, you’ll have five separate five-year CDs, with one maturing each year. This approach gives you regular access to a portion of your money while allowing most of your savings to benefit from (often higher) longer-term rates. It can also help you take advantage of changing interest rates over time.

The Takeaway

A CD can be a smart way to earn a guaranteed return while keeping your money protected (up to federal insurance limits). In exchange for a fixed interest rate, however, you’ll typically need to leave your funds untouched until the CD matures or risk paying an early withdrawal penalty.

While longer-term CDs have historically offered higher yields, that’s not always the case. Comparing rates across different terms and institutions can help you find the best opportunity. Depending on your goals and need for liquidity, you may also want to compare CDs with high-yield savings accounts, which provide easier access to your money without early withdrawal penalties.

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.

FAQ

Are short-term or long-term CD rates higher right now?

As of mid-2026, short-term CD rates are slightly higher than long-term CD rates at many banks and credit unions. This is the opposite of what typically happens since longer-term CDs have historically paid more. CD rates change over time, however, so it’s a good idea to compare APYs across multiple terms before opening an account.

Can I withdraw my money early from a long-term CD?

Yes, you can generally withdraw money from a long-term CD before it matures, but you’ll typically pay an early withdrawal penalty. Depending on the bank and the length of the term, the penalty may equal several months or even a year’s worth of interest. Some institutions offer no-penalty CDs, though they often pay lower rates.

How much interest will a $20K short-term CD make?

The amount you earn depends on the CD’s term and APY. For example, a six month CD paying 4.00% APY would generate about $400 in annualized interest, or roughly $200 over the six month term. Lower rates or shorter terms would result in less interest. A CD calculator can help you estimate your potential earnings before opening an account.

Is it better to put money in a high-yield savings account?

It depends on your goals. A high-yield savings account gives you easier access to your money and generally doesn’t charge early withdrawal penalties. A CD, however, locks in a fixed rate and may provide higher returns, especially if interest rates fall. If flexibility is your priority, a high-yield savings account may be the better option. If you can leave the money untouched for a set period, a CD may offer more certainty.

SoFi® Checking and Savings is offered through SoFi Bank, N.A. ©2026 SoFi Bank, N.A. All rights reserved. Member FDIC. Equal Housing Lender.

Annual percentage yield (APY) is variable and subject to change at any time. Rates are current as of 5/28/26. 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.
^Early access to direct deposit funds is based on the timing in which we receive notice of impending payment from the Federal Reserve, which is typically up to two days before the scheduled payment date, but may vary.

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

We do not charge any account, service, or maintenance fees for SoFi Checking and Savings. We do charge transaction fees for outgoing wire transfers, Instant Transfers, and global remittance transfers. Our fee policy is subject to change at any time. See the SoFi Bank Fee Sheet for details at sofi.com/legal/banking-fees/.

SOBNK-Q226-134

A letter of credit is a document from a bank or financial institution guaranteeing that a buyer’s payment to a seller will be made on time and for the correct amount. As part of a sales agreement, a seller may require the buyer to deliver a letter of credit before a deal takes place.

Letters of credit are often vital in international trade, where the two parties involved may not be familiar with one another. Letters of credit facilitate new trade and timely payments.

Read on to learn more, including:

•   What a letter of credit is

•   How a letter of credit works

•   What the different types of letters of credit are

•   The pros and cons of letters of credit

•   How to get a letter of credit

What Is a Letter of Credit in Banking?

A letter of credit in banking is a document that a bank issues to a seller that guarantees payment from the customer for an order or service. The bank where the buyer’s business account is held usually assumes responsibility for the payment for the goods. However, the conditions laid out in the letter of credit must be fulfilled. If the buyer is unable to fulfill the purchase, the bank must pay the seller the purchase amount. The bank or financial institution charges the buyer a fee for guaranteeing the payment and issuing the letter.

Letters of credit are common in international trade situations because various factors can affect cross-border transactions. For example, the deal might involve different legal frameworks, a lack of familiarity between the parties involved, and geographic distance.

If you’re a buyer who is planning to be involved in international trade, you’ll likely want to open a bank account that can provide you with a letter of credit when you need it.

How a Letter of Credit Works

When used properly, letters of credit can work to minimize credit risk and help facilitate international trade. A vendor selling products or services overseas may want assurance that a buyer will pay, perhaps because the buyer is new to them or is a new business.

So how does a letter of credit work? It serves as a guarantee from a bank that payment will be made to the vendor once the requirements are met. The letter lays out the conditions of payment, such as the amount, the timing of the payment, and the delivery specifications. The letter may also help the business placing the order build their credit.

The bank charges the buyer a fee for issuing a letter of credit (anywhere from 0.5%-3% of the amount of the deal). It also does the due diligence to verify the buyer’s creditworthiness and requires collateral or security from the buyer as a payment guarantee. In essence, the bank acts as a third party facilitating the deal.

Recommended: Why Is Having a Good Credit Score Important?

Types of Letters of Credit

Here are five types of letters of credit:

•   Commercial letter of credit: This is a method in which the issuing bank pays the seller directly. For a standby letter of credit, which is a secondary method of payment, the bank only pays the seller if the buyer cannot transfer funds.

•   Revolving letter of credit: With this type, the bank guarantees payment for a number of transactions, such as a series of merchandise shipments, within a set period of time.

•   Traveler’s letter of credit: With this kind of letter, travelers can make withdrawals in a foreign country because the issuing bank guarantees to honor those withdrawals.

•   Confirmed letter of credit: A seller using a confirmed letter of credit involves a secondary bank — typically the seller’s bank — to guarantee payment if the first bank fails to pay.

•   Irrevocable letter of credit: This is a letter of credit that can’t be changed or canceled unless all parties agree.

Letter of Credit Example

Here’s an example of a letter of credit: A bank provides commercial and standby letters of credit, with processing times varying depending on the institution and the transaction. The funds are secured through deposits at the bank, and the terms are renewable. These documents can help reassure parties doing business internationally, especially with new businesses or clients who have recently started a business.

The Money Behind a Letter of Credit

So where do the payment funds for a letter of credit originate? The party paying for the goods or services typically deposits funds in advance with the bank that issues the letter of credit to cover the payment. Alternatively, the amount might be frozen in the payer’s account, or the payer might borrow from the bank using a line of credit.

When Does Payment Happen?

Payment usually occurs when the seller has completed all the stipulations in the letter of credit. For example, the seller might have to deliver the goods to a specific address or onto a ship for transportation if it involves international trade. In the latter case, shipping documents would serve as proof that the requirements for payment have been fulfilled and would then trigger the payment transaction.

What to Watch Out For

Here are some common mistakes sellers may make when relying on a letter of credit for payment:

•   Failing to check all of the requirements in the letter of credit

•   Failing to understand the documents required for the deal

•   Failing to confirm whether the time limits for delivery and payment are reasonable

•   Failing to meet the time limits

•   Failing to get the necessary proof-of-delivery documents to the bank

Letters of Credit Terminology

Here are some terms and phrases to know if you’re looking to use a letter of credit:

•   Advising bank: This is the bank that informs the seller that the letter of credit has been completed. The advising bank is also called the notifying bank.

•   Applicant: This is the party or buyer of products or services who applies for the letter of credit from the bank

•   Beneficiary: This is the party or seller who will receive payment. The seller usually requests a letter of credit to guarantee payment.

•   Confirming bank: This is the bank that guarantees the payment of the required funds to the seller. If a third party is involved, the confirming bank is often the seller’s bank.

•   Freight forwarder: This is the shipping company that provides the transportation documents to the seller.

•   Intermediary: These are companies that link buyers and sellers and may use letters of credit to ensure transactions are executed.

•   Issuing bank: This is the bank that issues the letter of credit.

•   Negotiating bank: If a third party is involved, the negotiating bank works with the beneficiary and the other banks involved. They likely determine the letter of credit requirements and complete the transaction.

•   Shipper: This is the transportation company that ships goods.

•   Standby letter of credit: This is a secondary letter of credit that’s used when a deal requirement has not been met. For example, if payment does not occur within the specified timeframe, a standby letter of credit would then be used to help guarantee that the deal goes through.

Pros and Cons of Letters of Credit

A letter of credit provides security for both parties involved in a trade, but it can also add costs and time to business transactions.

How to Get a Letter of Credit

Getting a letter of credit usually requires a few steps. It’s wise to get the necessary paperwork together first. Various documents will usually be listed as requirements for a trade, such as a shipping bill, a commercial invoice, insurance documents, a certificate of origin, and a certificate of inspection.

Here are the steps typically taken to obtain a letter of credit:

1.   The buyer and seller come to an agreement on the sale terms and the use of a letter of credit.

2.   The buyer contacts their bank, where they have a checking account, and requests a letter of credit, providing the necessary documents.

3.   The issuing bank prepares the letter based on the terms of the sales agreement and sends it to the confirming bank or advising bank, which is typically in the seller’s home country.

4.   The confirming bank verifies the terms and forwards the letter to the seller.

5.   The goods can then be shipped, and the exporter sends documentation to the advising or confirming bank.

6.   Document verification and settlement of payment can then occur.

When to Use a Letter of Credit

A letter of credit is beneficial for sellers entering into a new or international trade relationship. It can provide assurance that the seller will receive payment, because the issuing bank guarantees payment once the requirements have been met. Sellers may also use the guarantee of payment to borrow capital to fulfill the buyer’s order.

The Takeaway

A letter of credit is usually requested by an exporter or seller to minimize credit risk. The buyer of the goods or services applies to a bank and requests a letter of credit based on the sales agreement. This document helps guarantee that payment will be made. It can provide reduced financial risk when conducting international trade or doing business with a new customer.

Another path to financial stability is choosing the right bank account. Whether you’re looking for a business account or a personal account, it’s wise to shop around to find the best banking fit for your needs.

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.

FAQ

How much does a letter of credit cost?

A typical fee for a letter of credit is 0.5% to 3% of the deal amount. However, the rate will vary depending on the country and other factors.

How do you apply for a letter of credit?

Once the terms of a trade are agreed upon between the buyer and the seller, the buyer contacts their bank to request a letter of credit. They then gather the required documentation and fill out an application with that bank.

Why do you need a letter of credit?

The parties involved in a trade typically use a letter of credit to minimize risk. For the seller, a letter of credit can guarantee payment for goods once certain requirements have been met, and it confirms the buyer’s creditworthiness as a trade partner.

What is the difference between a letter of credit and a line of credit?

A letter of credit guarantees payment to a seller once the agreed conditions are met, while a line of credit allows a borrower to access funds up to a set limit. A letter of credit is typically used in trade transactions, whereas a line of credit is used for ongoing borrowing needs.

Who pays for a letter of credit?

The buyer typically pays the fees associated with a letter of credit. These fees are charged by the issuing bank for guaranteeing payment and may vary depending on the transaction size and risk level.

Photo credit: iStock/Lesia_G

SoFi® Checking and Savings is offered through SoFi Bank, N.A. ©2026 SoFi Bank, N.A. All rights reserved. Member FDIC. Equal Housing Lender.

^Early access to direct deposit funds is based on the timing in which we receive notice of impending payment from the Federal Reserve, which is typically up to two days before the scheduled payment date, but may vary.

Annual percentage yield (APY) is variable and subject to change at any time. Rates are current as of 5/28/26. 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 transaction fees for outgoing wire transfers, Instant Transfers, and global remittance transfers. Our fee policy is subject to change at any time. See the SoFi Bank Fee Sheet for details at sofi.com/legal/banking-fees/.
*Awards or rankings from Forbes are not indicative of future success or results. This award and its ratings are independently determined and awarded by their respective publications.

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

SOBNK-Q126-087