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Even if you’re not the worrying type, there certainly is a lot of financial stress right now, enough to keep even the most stoic person up at night.

Inflation has been hitting 40-year highs; the supply-chain disruptions of the pandemic have led to ongoing scarcity and labor shortages. Chances are, you are shelling out more for groceries, gas, and other essentials.

Rising interest rates are threatening to price some people out of the housing market and can make credit card debt harder to eliminate. What’s more, rumblings of a recession and consequently job cuts fill the news. More than 80% of Americans surveyed are concerned about hard times ahead.

If you’re feeling as if you want to hide under the covers (or the bed itself), it’s understandable. But don’t: Life goes on. The economy is cyclical, and America recovered from a serious downturn that hit in late 2007. One smart move to make right now is to work on managing your money stress so you can keep calm and carry on — and stay on track with your goals.

Here, you’ll learn steps you can take to tackle financial goals during this or any other challenging moment in our economic history.

Steps to Help Relieve Financial Stress

While there’s no one-size-fits-all solution to wranging money stress, there are strategies that can help most people feel more in control of their finances. Try one or more of these tips, and see what works best for you.

1. Tackle One Decision (or Problem) at a Time

Part of the problem with money stress is that it can snowball. You may feel overwhelmed and try to tackle too much, too soon. Pace yourself, and don’t try to solve all your issues at once. Otherwise you can become burned out and make less wise decisions.

“Our willpower is like a muscle. Similar to how your muscles get tired at the end of a workout, the strength of your willpower fades as you make more decisions. Researchers often refer to this phenomenon as decision fatigue,” writes James Clear, the author of the best-seller Atomic Habits.

A good first step to lowering your financial stress can be to figure out what’s making you feel most anxious. Is it your spending, your student loans, your mortgage, or saving for the future?

Once you identify the key source of your stress, you’re better able to move forward with fixing it. Do so methodically, one worry at a time, to avoid making too many decisions, too fast.

2. Create a Budget

A major facet of money stress can involve feeling out of control in terms of your finances. There’s a simple solution to that: making and sticking to a budget. In one recent survey, 85% of respondents credited budgeting with getting them out of debt or had helped them stay out of debt.

Creating a personalized — and realistic — budget can be key to unburdening yourself from your money stress. This way, you don’t even need to think about your cash flow, because you’ll know where every single cent you make is going.

To create a line-item budget that captures your cash flow, you first need to know your post-tax income plus your basic living (housing, food, car payment, insurance, and any debt payments you might have). Also calculate how much you are spending on what are known as wants vs. needs: entertainment, clothing, takeout food.

Finally, list your income and savings goals. From here, you should be able to adjust and figure out how to increase your savings goals based on how much you have left over after necessary spending.

You can then choose among a variety of methods to budget, such as the envelope system, the 50/30/20 budget rule, and zero-based budgeting. As you decide which is best for you, consider the ways you might manage your budget, such as:

•   Pen and paper

•   Online spreadsheet, like budgeting with Excel

•   Mobile apps, including ones offered by your financial institution

•   A money journal

•   Consulting with a financial advisor

3. Prepare for the Unexpected with an Emergency Fund

One way to allay your financial stress is to know that you have some back-up funds in case you really need them. By saving an emergency fund, you know that no matter what happens, you’ll have it covered.

A healthy emergency fund should be stocked with at least three to six months’ worth of expenses. And since you already created a budget, you know exactly how much money you’re going to need each month.

It’s OK to start small with an emergency fund; even $25 a month will be a start. Consider setting up an automatic transfer on payday from checking to a linked saving account so you aren’t tempted to spend that amount.

Also consider keeping what’s known as a cash cushion of a few hundred dollars in your checking account, if possible. This money is there in case you, say, get hit with a higher than usual bill or forget about an automatic deduction. With a cash cushion, you’ll avoid those hefty NSF (nonsufficient funds) and overdraft fees.

4. Deal With Debt

Even in the best of times, debt can cause worry and stress. It may feel like a weight that is always hanging over you. During moments of inflation and high interest rates…ouch. It can make the anxiety more intense.

Take steps to reduce the debt and the stress; think of it as a form of financial self-care. Shop around for a better interest rate on your credit cards. Rates are currently around 15% on existing accounts and 19% on new offers; both are considerable numbers. Call your credit card issuer and see if you can get a lower rate; if not, look into other offers, including low- or no-interest balance transfers. Or you might take out a lower-interest personal loan to pay off your debt. Taking control of this debt can help you sleep better at night.

Similarly, if you have student debt, see if you can minimize it by extending your student loan repayment term and paying less each month. Or see if student loan refinancing could help you qualify for a lower interest rate, which could also mean your loans could cost you less money.

5. Just Say No to Splurging

When we’re stressed, there are a lot of ways to relax or blow off steam — and many of them cost money. Retail therapy, a big night out, a weekend getaway: Sure, they are all wonderful, but if you are dealing with financial stress, they aren’t a good option. They can add to any debt you are carrying and give you less cash for daily life.

Have a talk with yourself about this fact; how you will feel the morning after you splurge. Imagine the guilt and discomfort, and avoid it. Some other techniques for better spending habits:

•   Don’t window-shop or pit-stop at your favorite stores. That’s just putting temptation in your path.

•   If you see something you feel you must have, even though it’s not a true need, wait for a while (anywhere from 24 hours to 30 days) before buying it. You may find that the urge cools.

•   Set aside some “fun money” in your budget for low-cost treats. Buy yourself a fancy coffee on Friday morning to reward yourself for a week of hard work. Take yourself to the beach one afternoon. Climb a mountain, and savor the view. Get a 10-minute massage at a nearby day spa.

6. Add a Second Income Stream

Sometimes it’s not about subtracting spending from your daily life, but rather it’s about adding more cash to your pocket. There are many benefits to a side hustle: Picking one that fits into your current lifestyle without taking up too much of your free time can really add value to your wallet and your life.

Before choosing a gig, think about what you’d like to do. Perhaps you’d like to put your writing skills to use by freelancing on the side, or you’d want to offer up your services a few hours a week as a social media consultant.

Maybe you really love driving around on weekends, in which case working for a ride-sharing app might be for you. Or you could walk dogs. Or sell your suitable-for-framing travel photos online.

And why not resell any possessions you aren’t using anymore? Items in good, gently used condition could easily enrich someone else’s life (not to mention the environment, by staying out of landfill). There are dozens of places to sell your stuff: For clothes, try a local second-hand store near you, such as Crossroads or Buffalo Exchange. For furniture and other goods, try listing on eBay, Etsy (yes, it’s for more than crafts), Craigslist, or Nextdoor.

7. Reframe Your Financial Stress

Lastly, but importantly, try not to be mired in worry. Take a big picture view: Our country has seen and survived many economic downturns, and there are likely more in our future. That context can help you breathe a bit better.

Also, practice gratitude. Refocus on what is good in your life, whether that’s friends, family, your health, living in a neighborhood you love, or seeing improvement in your pursuit of a hobby, whether that’s playing guitar or pickleball.

And don’t forget to lean on those close to you for support. Let them know you are dealing with financial stress, and ask how they manage theirs. In addition to getting reassurance and comfort, you may learn some new strategies.

You might also consider consulting with a financial therapist if you need guidance; these professionals combine psychology and financial planning skills to help you manage your money.

💡 Recommended: Learn how to prepare and survive a recession with this guide.

The Takeaway

Money worries can get the best of us, especially in challenging times, such as when inflation and interest rates are high and there’s talk of a recession. To manage financial stress, it’s wise to take steps to improve your cash situation — say, by budgeting, building up an emergency fund, and lowering interest rates. It’s also a good idea to work on your emotional wellness by slowing down your decision making, avoiding temptation and the subsequent guilt, and seeking support from those close to you.

At SoFi, we’re doing our part to help you minimize your financial stress. When you open an online bank account with us, we’re dedicated to helping you grow your money faster and budget better. When you sign up for our Checking and Savings with direct deposit, you’ll earn a hyper competitive APY and pay zero fees. Plus you’ll have full access to simple tools for understanding where you’re spending and optimizing your money management.

Better banking is here with SoFi, NerdWallet’s 2024 winner for Best Checking Account Overall. Enjoy up to 4.60% APY on SoFi Checking and Savings.

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SoFi® Checking and Savings is offered through SoFi Bank, N.A. ©2023 SoFi Bank, N.A. All rights reserved. Member FDIC. Equal Housing Lender.
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.

SoFi members with direct deposit activity can earn 4.60% annual percentage yield (APY) on savings balances (including Vaults) and 0.50% APY on checking balances. Direct Deposit means a deposit to an account holder’s SoFi Checking or Savings account, including payroll, pension, or government payments (e.g., Social Security), made by the account holder’s employer, payroll or benefits provider or government agency (“Direct Deposit”) via the Automated Clearing House (“ACH”) Network during a 30-day Evaluation Period (as defined below). Deposits that are not from an employer or government agency, including but not limited to check deposits, peer-to-peer transfers (e.g., transfers from PayPal, Venmo, etc.), merchant transactions (e.g., transactions from PayPal, Stripe, Square, etc.), and bank ACH funds transfers and wire transfers from external accounts, do not constitute Direct Deposit activity. There is no minimum Direct Deposit amount required to qualify for the stated interest rate.

SoFi members with Qualifying Deposits can earn 4.60% APY on savings balances (including Vaults) and 0.50% APY on checking balances. Qualifying Deposits means one or more deposits that, in the aggregate, are equal to or greater than $5,000 to an account holder’s SoFi Checking and Savings account (“Qualifying Deposits”) during a 30-day Evaluation Period (as defined below). Qualifying Deposits only include those deposits from the following eligible sources: (i) ACH transfers, (ii) inbound wire transfers, (iii) peer-to-peer transfers (i.e., external transfers from PayPal, Venmo, etc. and internal peer-to-peer transfers from a SoFi account belonging to another account holder), (iv) check deposits, (v) instant funding to your SoFi Bank Debit Card, (vi) push payments to your SoFi Bank Debit Card, and (vii) cash deposits. Qualifying Deposits do not include: (i) transfers between an account holder’s Checking account, Savings account, and/or Vaults; (ii) interest payments; (iii) bonuses issued by SoFi Bank or its affiliates; or (iv) credits, reversals, and refunds from SoFi Bank, N.A. (“SoFi Bank”) or from a merchant.

SoFi Bank shall, in its sole discretion, assess each account holder’s Direct Deposit activity and Qualifying Deposits throughout each 30-Day Evaluation Period to determine the applicability of rates and may request additional documentation for verification of eligibility. The 30-Day Evaluation Period refers to the “Start Date” and “End Date” set forth on the APY Details page of your account, which comprises a period of 30 calendar days (the “30-Day Evaluation Period”). You can access the APY Details page at any time by logging into your SoFi account on the SoFi mobile app or SoFi website and selecting either (i) Banking > Savings > Current APY or (ii) Banking > Checking > Current APY. Upon receiving a Direct Deposit or $5,000 in Qualifying Deposits to your account, you will begin earning 4.60% APY on savings balances (including Vaults) and 0.50% on checking balances on or before the following calendar day. You will continue to earn these APYs for (i) the remainder of the current 30-Day Evaluation Period and through the end of the subsequent 30-Day Evaluation Period and (ii) any following 30-day Evaluation Periods during which SoFi Bank determines you to have Direct Deposit activity or $5,000 in Qualifying Deposits without interruption.

SoFi Bank reserves the right to grant a grace period to account holders following a change in Direct Deposit activity or Qualifying Deposits activity before adjusting rates. If SoFi Bank grants you a grace period, the dates for such grace period will be reflected on the APY Details page of your account. If SoFi Bank determines that you did not have Direct Deposit activity or $5,000 in Qualifying Deposits during the current 30-day Evaluation Period and, if applicable, the grace period, then you will begin earning the rates earned by account holders without either Direct Deposit or Qualifying Deposits until you have Direct Deposit activity or $5,000 in Qualifying Deposits in a subsequent 30-Day Evaluation Period. For the avoidance of doubt, an account holder with both Direct Deposit activity and Qualifying Deposits will earn the rates earned by account holders with Direct Deposit.

Members without either Direct Deposit activity or Qualifying Deposits, as determined by SoFi Bank, during a 30-Day Evaluation Period and, if applicable, the grace period, will earn 1.20% APY on savings balances (including Vaults) and 0.50% APY on checking balances.

Interest rates are variable and subject to change at any time. These rates are current as of 10/24/2023. There is no minimum balance requirement. Additional information can be found at https://www.sofi.com/legal/banking-rate-sheet.

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

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

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Sooner or later, most of us hit that moment where we need some cash — and fast. Maybe a major car repair or medical bill arrives, you get laid off, or you simply overspend for a period of time: All are ways that you can unfortunately find yourself in a hole financially.

A particularly expensive (or unlucky) month might make a credit card cash advance seem appealing. But before you go ahead and get a bundle of bills from your credit card issuer, read up on the consequences of doing so.

Here you’ll learn:

•   How to get a cash advance from a credit card

•   Why people use cash advances

•   The costs involved in getting cash from your credit card

•   How personal loans vs. cash advances compare

Can You Get Cash Back from a Credit Card?

Yes, it’s possible to get a cash advance on a credit card. But just because you can do something doesn’t always mean you should.

A credit card cash advance is a stopgap for a financial emergency that can come with high costs to a person’s immediate financial situation. Furthermore, if not paid back quickly, it may also affect their credit history in the long term.

While a cash advance is certainly easy (it’s similar to making an ATM withdrawal), there are typically better and more affordable options for most financial needs.

A credit card cash advance is used to get actual cash against a credit card account’s cash limit, which might be different from the credit limit. It’s essentially a loan from the credit card issuer. Here’s how it usually works:

•   You put your credit card into an ATM, enter the card’s PIN, and choose an amount to withdraw. The cash is then dispensed for you to use as you see fit.

•   If you don’t know the card’s PIN, a cash advance can be completed by going into a bank or credit union with the credit card and a government-issued photo identification.

•   A cash advance check directly from the credit card company — sometimes included with mailed monthly billing statements — can also be used to get a cash advance.

Recommended: How to Increase Your Credit Limit

Why Do People Use Cash Advances?

Why use a cash advance from a credit card? The bottom line: convenience and speed. ATMs are plentiful in most towns, and it takes just a few minutes to complete the process of getting a cash advance at an ATM. There’s no approval process required either.

Some people may assume they don’t have enough time to access other kinds of credit. This isn’t always true, however. For instance, funds obtained through an unsecured personal loan are sometimes available in just one to five days after approval of the loan.

As fast and simple as a credit card cash advance may seem, however, there are significant costs involved. We’ll go into those costs next. Realizing the financial impact of these withdrawals may encourage a person to look elsewhere for funds.

Recommended: 39 Passive Income Ideas to Build Wealth

Cost of Withdrawing Cash from a Credit Card

A cash advance is an expensive way to borrow money. To put it in perspective, they’re just a step up from payday loans (which typically have much higher interest rates than credit card cash advances, extra fees, and short repayment terms).

The cost of getting a cash advance from a credit card can be quite high because they are treated differently than regular credit card purchases. Here’s a closer look at how these expenses can pile up.

Cash Advance Fee

It’s typical for credit cards to have a fee specifically for cash advances. This fee can be anywhere from 3% to 5% of the total amount of the cash advance. This fee is added to the account balance immediately — there is no grace period.

Higher APR

The average APR, or annual percentage rate, a credit card issuer typically charges for a cash advance is quite a bit higher than normal purchase charges. Currently, the average credit card interest rate on purchases ranges from 15% to 19%. But what is the APR for a cash advance? The rate is likely to be between 17% and a whopping 29%, according to recent research.

What’s more, unlike interest charged on regular purchases, there is no grace period for the interest to start accruing on a cash advance. It starts accumulating immediately and increases the account balance daily.

ATM Fee

Getting a credit card cash advance from an ATM may also mean incurring an extra fee charged by the ATM owner, if that’s not the financial institution that issued your credit card. These fees can range from $1.50 to $3.50 or even up to $10. As you see, the ATM fee can increase the charges for a cash advance, which often add up quickly.

Payment Allocation Rules

If you’re thinking that a cash advance can be paid off first and then the interest rate will revert to the lower rate charged on regular purchases, guess again. While federal law dictates that any amount more than the minimum payment made must go toward the highest interest rate debt, the minimum payment amount is typically applied at the credit card issuer’s discretion. This might well work in the card issuer’s favor, not yours.

A Hypothetical Scenario

You might be wondering just what a cash advance looks like in actual dollars and sense, so let’s consider this scenario. Say a person is carrying a credit card balance of $1,000 with an APR of 20%.

Perhaps they are trying to financially survive a layoff and need funds, so they find out how to get a cash advance on their credit card and take out $1,000 with a 25% APR. When they receive the billing statement, they pay $1,000 toward their credit card balance.

The minimum payment due amount of $35 is applied to the regular purchases that are accruing interest at a rate of 20%. The remainder, $965, is applied to the cash advance balance that’s getting charged a 25% interest rate.

In order to completely get rid of that 25% APR, the account holder would have to pay the full $2,000 balance.

The cash advance will only be paid off when the entire credit card balance is paid in full, which means they could be setting themselves up with higher interest charges for a long time to come.

Waiting until the next monthly statement is available will just increase the amount due. Every day the cash advance accrues interest, it costs the cardholder more money. The faster the balance is paid off, the less interest will accrue.

Using a credit card interest calculator can be enlightening when figuring out how much purchases or cash advances will really cost with interest applied and how much time it might take to pay them off.

Personal Loans vs Cash Advances

Now you understand how to get a cash advance from a credit card and the expenses involved. So what are the alternatives to this kind of a cash advance? Ask friends or family for a loan? Find ways to make money from home?

While those options are certainly acceptable, an unsecured personal loan might also be an option for some people. These loans can allow you to get funds at a lower interest rate that you can use to pay off your high-interest debt. Here’s how they usually work:

•   An application for a personal loan online can typically be completed in minutes and, if approved, the borrower may possibly get the funds within a couple of days. Personal loans can be used for a variety of reasons.

•   Some common uses for personal loan funds are debt consolidation, wedding expenses, unexpected medical expenses, and moving expenses, to name a few. It’s even possible to use a personal loan to pay off that credit card cash advance, which may cost you a lot less in the long run.

There are several benefits to personal loans that are worth knowing about:

•   Personal loans are likely to offer a more manageable interest rate on the money borrowed than the typical interest rate on a credit card cash advance. Of course, the personal loan’s interest rate will depend on the borrower’s creditworthiness, but it’s likely to be lower than the one tied to a credit card cash advance.

•   When personal loans are used to pay off a cash advance, they can simplify a person’s debt. With a single personal loan, there is only one interest rate to keep track of, as opposed to juggling two high interest rates: one for the cash advance and one for regular purchases charged to the credit card.

•   Credit card debt is revolving debt, which means that the borrower’s credit limit can be used, repaid, then used again, as long as the borrower is in good standing with the lender. A personal loan, however, is installment debt, and has fixed payments and a fixed end date. Unlike the revolving debt of a credit card, the funds from a personal loan can only be used once, and then they have to be repaid.

Personal Loans and Credit Scores

Another upside of choosing a personal loan over a credit card cash advance is that responsibly managing a personal loan might positively impact the borrower’s credit score.

One factor that goes into calculating a FICO® Score is the percentage of available credit being used, the credit utilization ratio, and it accounts for 30% of a person’s total score.

In the hypothetical scenario above, if the borrower had a $3,000 credit limit on their credit card, by using $2,000 of their total available credit, their credit utilization rate would be a whopping 66% (if that one credit card was the only account appearing on their credit report).

It’s fairly typical that credit card users continue to make charges on their accounts, which is likely to keep their credit utilization ratio high.

Installment debt, such as a personal loan, is looked at in a slightly different way in credit score calculations. Making regular payments on an installment loan may carry slightly greater weight than might someone’s credit utilization rate in calculating their credit score. Thus, making regular payments on a personal loan is likely to demonstrate responsible borrowing as the balance is paid down.

As you’ve now learned, considering a variety of funding sources when you need money fast is a smart money move. When you do so, a credit card cash advance may well be seen as a last-resort maneuver.

The Takeaway

Life can certainly deliver some unexpected financial challenges now and then — moments when you need cash quickly, for instance, but don’t have any available. While a cash advance from your credit card may seem like a fast, simple solution, tread carefully. There are significant costs associated with this withdrawal which could leave you with more long-term debt than you’d like. It’s probably wise to explore your options first.

While money management can be tricky at times, partnering with the right financial institution can help improve your financial life. For example, when you open an online bank account with SoFi, you’ll find convenient tools to track your spending and grow your savings (which might help you build an emergency fund). What’s more, when you open a Checking and Savings account with direct deposit, you’ll enjoy a competitive APY and you won’t have to pay any account fees.

Better banking is here with SoFi, NerdWallet’s 2024 winner for Best Checking Account Overall. Enjoy up to 4.60% APY on SoFi Checking and Savings.

FAQ

What is a credit card cash advance?

A credit card cash advance is a quick, convenient way to access cash using your credit card. You insert it into an ATM or visit a bank branch to obtain the cash. However, this will likely involve your owing significant fees and being assessed a considerable interest rate on the money you have borrowed.

What are the costs of a credit card cash advance?

A credit card cash advance will involve a fee that’s typically 3% to 5% of the total loan amount. In addition, there may be an ATM fee of several dollars. The money that you are advanced begins to accrue interest right away, and this usually is at a higher rate than your rate on purchases. What is a cash advance APR usually? Between 17% and 29%.

What is the difference between a credit card cash advance and checking account withdrawals?

A credit card advance is significantly different from a checking account withdrawal. With a credit card advance, you are quickly getting access to cash from your credit card issuer. It is a form of a loan, and your interest rate will likely be between 17% and 29% until it’s fully repaid. With a checking account withdrawal, you are accessing your own money, so there’s no interest fee involved, though you might be charged a few dollars if you use an out-of-network ATM for the transaction.

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

SoFi® Checking and Savings is offered through SoFi Bank, N.A. ©2023 SoFi Bank, N.A. All rights reserved. Member FDIC. Equal Housing Lender.
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.

SoFi members with direct deposit activity can earn 4.60% annual percentage yield (APY) on savings balances (including Vaults) and 0.50% APY on checking balances. Direct Deposit means a deposit to an account holder’s SoFi Checking or Savings account, including payroll, pension, or government payments (e.g., Social Security), made by the account holder’s employer, payroll or benefits provider or government agency (“Direct Deposit”) via the Automated Clearing House (“ACH”) Network during a 30-day Evaluation Period (as defined below). Deposits that are not from an employer or government agency, including but not limited to check deposits, peer-to-peer transfers (e.g., transfers from PayPal, Venmo, etc.), merchant transactions (e.g., transactions from PayPal, Stripe, Square, etc.), and bank ACH funds transfers and wire transfers from external accounts, do not constitute Direct Deposit activity. There is no minimum Direct Deposit amount required to qualify for the stated interest rate.

SoFi members with Qualifying Deposits can earn 4.60% APY on savings balances (including Vaults) and 0.50% APY on checking balances. Qualifying Deposits means one or more deposits that, in the aggregate, are equal to or greater than $5,000 to an account holder’s SoFi Checking and Savings account (“Qualifying Deposits”) during a 30-day Evaluation Period (as defined below). Qualifying Deposits only include those deposits from the following eligible sources: (i) ACH transfers, (ii) inbound wire transfers, (iii) peer-to-peer transfers (i.e., external transfers from PayPal, Venmo, etc. and internal peer-to-peer transfers from a SoFi account belonging to another account holder), (iv) check deposits, (v) instant funding to your SoFi Bank Debit Card, (vi) push payments to your SoFi Bank Debit Card, and (vii) cash deposits. Qualifying Deposits do not include: (i) transfers between an account holder’s Checking account, Savings account, and/or Vaults; (ii) interest payments; (iii) bonuses issued by SoFi Bank or its affiliates; or (iv) credits, reversals, and refunds from SoFi Bank, N.A. (“SoFi Bank”) or from a merchant.

SoFi Bank shall, in its sole discretion, assess each account holder’s Direct Deposit activity and Qualifying Deposits throughout each 30-Day Evaluation Period to determine the applicability of rates and may request additional documentation for verification of eligibility. The 30-Day Evaluation Period refers to the “Start Date” and “End Date” set forth on the APY Details page of your account, which comprises a period of 30 calendar days (the “30-Day Evaluation Period”). You can access the APY Details page at any time by logging into your SoFi account on the SoFi mobile app or SoFi website and selecting either (i) Banking > Savings > Current APY or (ii) Banking > Checking > Current APY. Upon receiving a Direct Deposit or $5,000 in Qualifying Deposits to your account, you will begin earning 4.60% APY on savings balances (including Vaults) and 0.50% on checking balances on or before the following calendar day. You will continue to earn these APYs for (i) the remainder of the current 30-Day Evaluation Period and through the end of the subsequent 30-Day Evaluation Period and (ii) any following 30-day Evaluation Periods during which SoFi Bank determines you to have Direct Deposit activity or $5,000 in Qualifying Deposits without interruption.

SoFi Bank reserves the right to grant a grace period to account holders following a change in Direct Deposit activity or Qualifying Deposits activity before adjusting rates. If SoFi Bank grants you a grace period, the dates for such grace period will be reflected on the APY Details page of your account. If SoFi Bank determines that you did not have Direct Deposit activity or $5,000 in Qualifying Deposits during the current 30-day Evaluation Period and, if applicable, the grace period, then you will begin earning the rates earned by account holders without either Direct Deposit or Qualifying Deposits until you have Direct Deposit activity or $5,000 in Qualifying Deposits in a subsequent 30-Day Evaluation Period. For the avoidance of doubt, an account holder with both Direct Deposit activity and Qualifying Deposits will earn the rates earned by account holders with Direct Deposit.

Members without either Direct Deposit activity or Qualifying Deposits, as determined by SoFi Bank, during a 30-Day Evaluation Period and, if applicable, the grace period, will earn 1.20% APY on savings balances (including Vaults) and 0.50% APY on checking balances.

Interest rates are variable and subject to change at any time. These rates are current as of 10/24/2023. There is no minimum balance requirement. Additional information can be found at https://www.sofi.com/legal/banking-rate-sheet.

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 .

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Whether it’s angling the perfect shot in a game of pool or telling a crush how you really feel, everyone wishes they could have a second chance from time to time — and money matters are no exception. Sometimes in life, things just … happen and don’t go the way one might hope. And sometimes, those circumstances can wreak havoc on our personal finances in a lasting way.

You probably already know that bureaus like Experian, TransUnion, and Equifax track your credit history. But you might not know that consumer reporting agencies track your banking history, too. And in the same way that having a poor credit history can hurt your chances of receiving credit in the future, having a poor checking history can make it harder to get a bank account.

There is a product on the market for folks who have a less-than-perfect track record with banking — in fact, there are several options. Read on to learn all about this, including:

•   What is second chance banking?

•   How do second chance bank accounts work?

•   Where can you get second chance banking?

Who Is a Second Chance Banking For?

Before we define second chance checking accounts, let’s take a step back and talk about why they exist in the first place. This means understanding a bit about ChexSystems.

What is ChexSystems? Think of it as the banking equivalent of a credit bureau. It catalogs information on consumers’ banking histories, including basics like name, contact information and Social Security number, as well as information on account closures, bounced checks and overdrafts, unpaid balances, suspected fraud, and more.

When a customer applies for a new checking account at a bank or credit union, the institution may look up the ChexSystem report to determine whether or not it’s willing to extend its services. Negative report items — such as unpaid overdrafts, involuntary account closures, or a high number of recent inquiries — can cause a bank to refuse regular checking services to the client.

That’s where second-account checking comes in. A second-chance bank account is one where the bank offering the account is willing to overlook a less-than-stellar banking history. This means a client can continue to use a bank account while rebuilding their ChexSystem report.

While this type of account isn’t available at all banks, it is available at many, including some major traditional and online banks, like Wells Fargo, Chime, and Varo.

In other words, an imperfect banking history doesn’t have to mean living an unbanked existence — which is good news, as we live in an increasingly cashless world.

How Does Second Chance Banking Work?

Here’s how second chance banking operates: much like any other regular checking account. The account holder deposits money into the second chance checking account, which they can then access using a debit card or making a withdrawal at an ATM.

Specific account features will depend on which institution is offering the account. For example, some banks may offer free paper checks or convenient mobile banking to give customers a bird’s-eye view of their finances.

On the other hand, some banks may impose monthly service fees or minimum opening deposits, and may not allow second chance checking account holders to use paper checks. And although checking account interest rates are notoriously low, it’s unlikely your second chance checking account will grow any interest at all.

That’s why, as when opening any other kind of bank account, it’s important to review the fine print closely to ensure you know what you’re getting into before you apply. If you need to use paper checks to pay rent, for example, an account where they’re not allowed won’t work — and there are other accounts available that will offer the service you need.

Applying for one of these accounts typically works in the same way as opening a bank account of any kind.

•   The bank will ask for a variety of personal information, and you may be asked to verify your identity with a form of official identification like a driver’s license or Social Security card.

•   You can do this in person or entirely online.

•   Depending on the institution, you may be required to put down a minimum initial deposit. However, in many cases, you will find second chance checking with no opening deposit, meaning the account will be 100% free.

•   You may need to wait a few business days for your application to process, and then you should be in!

💡 Recommended: How to Set Up a Bank Account

Once you’ve opened a second chance checking account, you can use it as normal to pay bills, restaurant tabs, and grocery store totals — whatever expenses come up in your day-to-day life. Meanwhile, the negative items that might be on your ChexSystems report will slowly vanish. Most records fall off after five years.

If you’re interested in cleaning up your ChexSystems report, know this:

•   Consumers also have the right, under the Fair and Accurate Credit Transaction Act (FACTA), to request a free ChexSystems report once a year. A request can be made by phone, mail, fax, or online form, allowing review of the report for any incorrect negative items and disputing them.

•   If you do dispute something on your record, the investigation will generally take about a month. You will receive a letter in the mail notifying you of the results.

Thus, over time, it’s possible to clean up a ChexSystems record — which can unlock the ability to pursue other types of banking services, including high-interest deposit accounts.

Recommended: Guide to Reopening a Closed Bank Account

Pros and Cons of Second Chance Banking

While second chance banking does provide a valuable service, there are some drawbacks to these accounts as well. Here are the pros and cons of second chance checking accounts.

Pros:

•   Allows clients to use a checking account even without a perfect banking history.

•   Gives account holders time to rebuild their banking history and let negative items fall off their ChexSystems report.

•   In many cases, second chance checking accounts are free and don’t require a minimum opening deposit.

Cons:

•   Some accounts may assess monthly fees and have minimum opening deposits — and may not offer waivers.

•   The account may have limited capabilities (such as an inability to use paper checks or to access overdraft protection).

•   The account is unlikely to offer interest growth on account balances.

Alternatives to Second Chance Banking

Second chance checking accounts are a solid option for those who might not be able to open a traditional checking account because of their banking history. But they’re not the only alternative. Here are two options:

•   Prepaid debit cards. Many banks offer prepaid debit cards that can be used to pay bills and other expenses without using cash. It works like a gift card: Clients load the card with a certain amount of money, which they can then use as they see fit. The cards are also reloadable, making them a fair option for working around the handicap of not having a bank account.

   What’s more, many prepaid debit cards don’t require a credit check to open. This makes them a viable choice for those with poor credit histories as well as poor ChexSystems reports.

   That said, there are pros and cons of prepaid debit cards. In terms of downsides, they often include a variety of fees — such as monthly maintenance fees, activation fees, and reloading fees — which can eat into the user’s balance and make them unsustainable for long-term use.

•   Cash. Others who find themselves unbanked might try to simply pay their way through life using cash. After all, you can get a paycheck cashed at the nearest major grocery store or Walmart.

   However, there are downsides: Check-cashing services generally come with a fee. Plus, many utility companies, landlords, and other bill collectors don’t accept cash as payment. And if your cash is lost or stolen, there’s no reliable way to get it back. It’s gone.

This Digital Account Might Be an Answer

SoFi offers a product that can be helpful to anyone with dollars to manage.

SoFi offers a product that can be helpful to anyone with money to manage. SoFi Checking and Savings® is an online bank account that puts your finances under your control from the comfort of your smartphone or web browser — and signing up is super simple. Your money will earn a competitive APY, plus you’ll pay no account fees. There are no ATM fees either within the Allpoint network of 55,000-plus worldwide locations.

Ready to see if SoFi Checking and Savings can help you get your money right? Find out more and apply today.

FAQ

What is second chance banking?

Second chance banking is a kind of account that serves people who may not have a perfect banking record. If you have negative items on your ChexSystems record, you may still qualify for an account.

What is a second chance bank account?

A second chance account is one that can be opened even if you have a less than perfect history with banking. It may have some downsides (monthly fees plus no overdraft protection, for example) but it allows people to get back in the game and have checking privileges.

Who is second chance banking for?

Second chance banking is for people who have negative items in their banking history. These typically include unpaid overdrafts, involuntary account closures, and other events which show the account holder did not use their privileges responsibly.

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SoFi members with direct deposit activity can earn 4.60% annual percentage yield (APY) on savings balances (including Vaults) and 0.50% APY on checking balances. Direct Deposit means a deposit to an account holder’s SoFi Checking or Savings account, including payroll, pension, or government payments (e.g., Social Security), made by the account holder’s employer, payroll or benefits provider or government agency (“Direct Deposit”) via the Automated Clearing House (“ACH”) Network during a 30-day Evaluation Period (as defined below). Deposits that are not from an employer or government agency, including but not limited to check deposits, peer-to-peer transfers (e.g., transfers from PayPal, Venmo, etc.), merchant transactions (e.g., transactions from PayPal, Stripe, Square, etc.), and bank ACH funds transfers and wire transfers from external accounts, do not constitute Direct Deposit activity. There is no minimum Direct Deposit amount required to qualify for the stated interest rate.

SoFi members with Qualifying Deposits can earn 4.60% APY on savings balances (including Vaults) and 0.50% APY on checking balances. Qualifying Deposits means one or more deposits that, in the aggregate, are equal to or greater than $5,000 to an account holder’s SoFi Checking and Savings account (“Qualifying Deposits”) during a 30-day Evaluation Period (as defined below). Qualifying Deposits only include those deposits from the following eligible sources: (i) ACH transfers, (ii) inbound wire transfers, (iii) peer-to-peer transfers (i.e., external transfers from PayPal, Venmo, etc. and internal peer-to-peer transfers from a SoFi account belonging to another account holder), (iv) check deposits, (v) instant funding to your SoFi Bank Debit Card, (vi) push payments to your SoFi Bank Debit Card, and (vii) cash deposits. Qualifying Deposits do not include: (i) transfers between an account holder’s Checking account, Savings account, and/or Vaults; (ii) interest payments; (iii) bonuses issued by SoFi Bank or its affiliates; or (iv) credits, reversals, and refunds from SoFi Bank, N.A. (“SoFi Bank”) or from a merchant.

SoFi Bank shall, in its sole discretion, assess each account holder’s Direct Deposit activity and Qualifying Deposits throughout each 30-Day Evaluation Period to determine the applicability of rates and may request additional documentation for verification of eligibility. The 30-Day Evaluation Period refers to the “Start Date” and “End Date” set forth on the APY Details page of your account, which comprises a period of 30 calendar days (the “30-Day Evaluation Period”). You can access the APY Details page at any time by logging into your SoFi account on the SoFi mobile app or SoFi website and selecting either (i) Banking > Savings > Current APY or (ii) Banking > Checking > Current APY. Upon receiving a Direct Deposit or $5,000 in Qualifying Deposits to your account, you will begin earning 4.60% APY on savings balances (including Vaults) and 0.50% on checking balances on or before the following calendar day. You will continue to earn these APYs for (i) the remainder of the current 30-Day Evaluation Period and through the end of the subsequent 30-Day Evaluation Period and (ii) any following 30-day Evaluation Periods during which SoFi Bank determines you to have Direct Deposit activity or $5,000 in Qualifying Deposits without interruption.

SoFi Bank reserves the right to grant a grace period to account holders following a change in Direct Deposit activity or Qualifying Deposits activity before adjusting rates. If SoFi Bank grants you a grace period, the dates for such grace period will be reflected on the APY Details page of your account. If SoFi Bank determines that you did not have Direct Deposit activity or $5,000 in Qualifying Deposits during the current 30-day Evaluation Period and, if applicable, the grace period, then you will begin earning the rates earned by account holders without either Direct Deposit or Qualifying Deposits until you have Direct Deposit activity or $5,000 in Qualifying Deposits in a subsequent 30-Day Evaluation Period. For the avoidance of doubt, an account holder with both Direct Deposit activity and Qualifying Deposits will earn the rates earned by account holders with Direct Deposit.

Members without either Direct Deposit activity or Qualifying Deposits, as determined by SoFi Bank, during a 30-Day Evaluation Period and, if applicable, the grace period, will earn 1.20% APY on savings balances (including Vaults) and 0.50% APY on checking balances.

Interest rates are variable and subject to change at any time. These rates are current as of 10/24/2023. There is no minimum balance requirement. Additional information can be found at https://www.sofi.com/legal/banking-rate-sheet.

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As a parent, it can be hard to think beyond the day-to-day issues of raising kids, and make time to focus on a financial plan for your children. Fortunately, there are many resources these days to help parents lay the foundation for a solid investment plan for their kids.

From saving for college to — believe it or not — getting a leg up on retirement, there are simple steps parents can take to set their youngster on the path to financial security. And it’s not a cliché to say there’s no time like the present. Why? Because when your kids are young time is on your side, and theirs, in a really big way.

Why Invest for Your Child?

Why create an investment plan for kids? In a word: Time. The power of time combined with money helps to create the kind of financial growth that many adults can only dream of. And as the parent of a young child, or even a teenager, you can harness the power of time to help their money grow.

The technical name for the unbeatable combination of time + money is known as compound interest. That’s a fancy way of saying that when money earns interest, over time that money plus interest earns more interest.

A simple example: If you deposit $1,000, and it earns 5% per year, that’s $50 ($1,000 x 0.05 = $50). So at the end of one year you’d have $1,050.

And that amount also earns 5%, which means the following year you’d have $1,152.50 ($1,050 x 0.05 = $52.50 + $1,050). Then that amount would earn 5% the following year… and so on. You get the idea. It’s money earning more money.

Benefits of Investing for Your Child Early On

There are other benefits to investing for your kids when they’re young. In addition to the snowball effect of compound interest, you have the ability to set up two or three different investment plans for your child to capture that potential long-term growth.

You can have a college savings plan. You can open an IRA for your child (individual retirement account). And you can set up savings accounts as well.

Even small deposits in these accounts can benefit from the impact of compound interest over time, helping to secure your child’s financial future in more than one area. And what parent doesn’t want that?

Are There Investment Plans for Children?

Yes, there are a number of investment plans for kids these days. Depending on your child’s age, you may want to open different accounts at different times.

Investing for Younger Kids

One way to seed your child’s investing plan is by opening a custodial brokerage account, established through the Uniform Gifts to Minors Act (UGMA) or the Uniform Transfers to Minors Act (UTMA). Many traditional brokerages offer low- or no-fee custodial accounts, including Ally Bank, Charles Schwab, Merrill Edge, TD Ameritrade, and Vanguard.

While the assets belong to the minor child until they come of age (18 to 21, depending on the state), they’re managed by a custodian, often the parent. But opening and funding a custodial account can be a way to teach your child the basics of investing and money management.

There are no limits on how much money you place in a custodial account, though parents may still want to keep the $16,000 gift tax exclusion in mind when making contributions each year.

Investing for Teens

Some brokerages also offer accounts for minor teens, under age 18. The teenager can trade and make investment decisions and the parent can monitor the account.

If your teenager has earned income, from babysitting or lawn mowing, you can also set up a custodial Roth IRA for your child. More on retirement options below.

Starting a 529 Savings Plans

Saving for a child’s college education is often top of mind when parents think about planning for their kids’ futures.

A 529 plan is a tax-advantaged savings plan that encourages saving for education costs by offering a few key benefits. While contributions to some plans are made with after-tax dollars, the money invested inside the plan can grow and compound tax-free. In some states, you can deduct your 529 contributions.

Withdrawals from the account to cover qualified educational expenses — including tuition, room and board, lab fees, and textbooks — can be made without incurring any tax.

All 50 states, as well as state agencies and educational institutions sponsor 529 plans. You do not have to choose the plan that is offered in your home state — you can shop around to find the plan that’s the best fit for you. Your child will be able to use the funds to pay for college in whichever state they choose.

💡 Need more convincing? Here are the benefits of a 529 College Savings Plan

How to Fund a 529 Plan

First let’s consider the two types of 529 plans. Contributions to either type of 529 plan are considered gifts, so deposits up to $16,000 per person are covered by the annual gift-tax exclusion.

Prepaid Tuition Plans

A prepaid tuition plan allows you to prepay tuition and fees at certain colleges and universities at today’s prices. Such plans are usually available only at public schools and for in-state students. Only a few are accepting new applicants.

The main benefit of this plan is that you could save big on the price of college by prepaying before prices go up. The risk is that your child may not attend a participating college or university, so the prepaid tuition plan may pay less than if the beneficiary attended a participating school. Some plans, like the Florida Prepaid Tuition plan, can be used to cover qualified education expenses in or out of state.

Education Savings Plans

The second type of 529 plan is the more common one. It’s an education savings plan, where the money saved grows tax free and can be withdrawn tax free to pay for qualified educational expenses, as noted above.

Contributions are flexible, meaning you can save monthly, quarterly, annually, or deposit a lump sum. Beyond parents making regular payments, 529 plans can be a great way for the extended family to give a meaningful gift on birthdays or holidays.

Contributions are not deductible on the federal level, but many states provide tax benefits for saving in a 529 plan, such as deducting contributions from state income taxes or giving matching grants. Check your local tax laws to see if you qualify.

Investing Your 529 Funds

Once you make contributions, you can invest your funds. You will likely have a range of investment options to choose from, including mutual funds and exchange-traded funds (ETFs), which vary from state to state.

Many 529 plans also offer the equivalent of age-based target-date funds, which start out with a more aggressive allocation (e.g. more in stocks), and gradually dial back to become more conservative as college approaches.

How to Spend 529 Funds

You might want to plan to save only the amount you’ll need to cover education costs. Money in the plan can only be used for qualified educational expenses, so you don’t want to overfund the plan and end up having extra money and nothing to spend it on.

If necessary, you could always transfer the account to a second child who can use the money. You could even use it yourself. But non-qualified withdrawals from 529 plans are subject to income tax and a 10% penalty on the earnings portion of the withdrawal.

Thinking Ahead to Retirement Accounts

You can’t have an online retirement account until you have earned income, and your child likely won’t start working until he or she is a teenager at the earliest. However, it’s never too early to start planning for retirement.

It’s worth being aware that as soon as your child is working, you are able to open a custodial IRA, as discussed above. The assets inside the IRA belong to your child, but you have control over investing them until they become an adult.

When to Choose a Savings Account for Your Child

Investing is a long-term proposition. Investing for long periods allows you to take advantage of compound interest, and helps you ride out whatever short-term volatility may occur in the stock market. But sometimes you want a safer place to keep some cash for your child — and that’s when opening a savings account is appropriate.

If you think you’ll need the money you’re saving for your baby or child in the next three to five years, consider putting it in a high-yield savings, which offers higher interest rates than traditional savings accounts. Or an online bank account like SoFi Checking and Savings that earns 4.60% APY.

You might also want to consider a certificate of deposit (CD), which also offers higher interest rates than traditional saving vehicles.

The only catch with CDs is that in exchange for this higher interest rate, you essentially agree to keep your money in the CD for a set amount of time, from a few months to a few years.

While these savings vehicles don’t offer the same high rates of return you might find in the market, they are a less risky option and offer a steady rate of return.

Working With SoFi Invest

When saving for long-term goals for your child, having an investing plan might make sense. Whether you want to save for college, get ahead on retirement, or just set up a savings account for your kids, now is the time to start. In fact, the sooner the better, as time can help money grow (just as it helps children grow!).

Being a busy parent means you want an easy, secure, and reliable place to start — and SoFi checks all those boxes. When you open a brokerage account it allows you to take a hands-on approach to investing. If your child is old enough to use a mobile device or laptop, they can follow along as you make different choices, whether that’s trading stocks, opening an IRA, or exploring exchange-traded funds (ETFs).

Even better, SoFi members have access to complimentary financial advice from professionals. Set up your child’s financial future today!

Learn more about how to invest your money and put it to work with SoFi Invest.

FAQ

Can a child have an investment account?

A parent or other adult can open a custodial brokerage account for a minor child. While the custodian manages the account, the funds belong to the child. Some brokerages offer youth accounts for teens.

What is the best way to invest money for a child?

The best way is to get started sooner rather than later. Perhaps start with one goal — i.e. saving for college — and open a 529 plan. Or, if your child has earned income from a side job, you can open a custodial Roth IRA for them.

What is a good age to start investing as a kid?

When your child shows an interest in investing, or when they have a specific goal, whether that’s at age 7 or 17, that’s when you’ll have a willing participant. Ideally you want to invest when they’re younger, so time can work in your favor.

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