SoFi

If you earn more than $10 in interest on a certificate of deposit (CD), you generally have to report it as taxable income on your tax return. The tax rate you pay on CD interest will be the same as the rate you pay on your ordinary income, which will depend on your marginal tax bracket.

While CDs are considered a safe and reliable investment, and generally pay a higher-than-average interest rate, you’ll want to factor in taxes when you consider how much you’ll really make on your investment. Here’s a closer look at how CDs are taxed, the impact of early withdrawal penalties, and strategies to potentially avoid taxes on CD earnings.

How Are CDs Taxed?

A certificate of deposit (CD) is a type of savings account that pays a fixed annual percentage yield (APY) that’s usually higher than a traditional savings account. In exchange, you agree to leave your money untouched for a set period of time (the CD’s term), which can be anywhere from a few months to several years. On the CD’s maturity date, you can access both the principal and interest earned.

Like any savings account, including high-yield savings accounts, the interest you earn on CDs is typically taxed as ordinary income, whether you receive the money in cash or reinvest it in a new CD. The interest earned is subject to federal income tax and, in some cases, state and local taxes, in the year it is paid.

The bank or financial institution where the CD is held will usually report the interest income to both you and the Internal Revenue Service (IRS) using Form 1099-INT if the interest earned exceeds $10 in a given year. Box 1 shows all the taxable interest paid to you during the calendar year by that financial institution. Even if you don’t receive a 1099-INT form from the bank, you’re required to report interest earnings of $10 or more on your tax return.

The amount of tax you owe on CD interest depends on your marginal tax rate. For example, if you are in the 24% tax bracket, the interest earned on your CD will be taxed at 24%. It’s important to note, however, that CDs held within tax-advantaged accounts, such as individual retirement accounts (IRAs), 401(k)s, or Roth IRAs, may have different tax treatments.

When Do You Pay Taxes on CDs?

Taxes on CD income are due in the year that the income was generated. Here’s a breakdown of how taxes are handled for both short-term and long-term CDs.

Paying Taxes on Short-Term CDs (One Year or Less)

If you purchase a short-term CD (such as a three-month or six-month CD) that matures the same year you purchased it, and it earns $10 or more, you’ll have to pay taxes on it for that tax year. If you invest in a short-term CD near the end of a calendar year and it matures in the following year, you’ll generally need to pay taxes on the interest you earn on two consecutive tax returns.

Regardless of whether you withdraw the money, transfer the money to a savings or checking account, or roll it into another CD, you have to pay tax on CD interest the year it was earned.

Paying Taxes on Long-Term CDs (More than One Year)

Interest earned on long-term CDs (those with terms longer than one year), must be reported and taxed in the year it is earned, even if the CD has not yet matured. This means you’ll pay taxes on a long-term CD over multiple years.

For example, if you opened a three-year CD with $10,000 on January 1, 2024, that pays 4.50% APY, the $450 in interest you earn in 2024 will be taxable in that year. The interest earned in 2025 and 2026 will be taxable in those tax years.

Recommended: CDs vs Savings Accounts Compared

Tax Impact of Early Withdrawal Penalties

CDs are designed to be held until maturity, and withdrawing funds early often incurs penalties. Early withdrawal penalties on CDs can range anywhere from 90 days’ to 365 days’ worth of interest. These penalties also have tax implications. Generally, the penalty amount is deductible on your tax return.

For instance, if you withdraw $10,000 from a CD and incur a $500 early withdrawal penalty, you can deduct the $500 penalty from your taxable income. Any early withdrawal penalties will be included in box 2 of your 1099-INT form from the issuing institution, labeled as “early withdrawal penalty.”

Recommended: Tax Credits vs Tax Deductions: What’s the Difference?

Can You Avoid Paying Taxes on CDs?

One strategy that can allow you to defer or eliminate taxes on CD interest is to open your CD inside a retirement account, such as a 401(k) or IRA. When you invest in a CD as part of your retirement account, your CD enjoys tax advantages and you may not be required to pay taxes on CD interest in the year it is earned.

In a traditional IRA or 401(k), for example, investments are made on a pre-tax basis and taxes are deferred until withdrawal, potentially at a lower tax rate. With a Roth IRA, you do pay income taxes on the money you put into the IRA, but the funds grow tax-free and qualified withdrawals are tax-free, provided certain conditions are met.

However, there are a number of rules surrounding retirement accounts, including eligibility requirements, contribution limits, and withdrawal restrictions, so you’ll want to consult a tax accountant before considering a tax-advantaged CD.

The Takeaway

Certificates of deposit (CDs) are a safe and reliable investment option, but understanding their tax implications is crucial for maximizing returns. Like other types of savings accounts, interest earned on CDs is generally taxable as ordinary income and must be reported annually. The timing of when taxes are due depends on when the interest is credited to your CD. Early withdrawal penalties can reduce taxable income, offering some relief. But paying a penalty also reduces your returns on a CD.

Before putting your money into a CD, it’s worth shopping around and comparing CD APYs with the current APYs for high-yield savings accounts. You may be able to find a better deal with fewer restrictions on your funds.

Interested in opening an online bank account? When you sign up for a SoFi Checking and Savings account with eligible direct deposit, you’ll get a competitive annual percentage yield (APY), pay zero account fees, and enjoy an array of rewards, such as access to the Allpoint Network of 55,000+ fee-free ATMs globally. Qualifying accounts can even access their paycheck up to two days early.

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

FAQ

Does cashing in a CD count as income?

Cashing in a certificate of deposit (CD) itself does not count as income, but the interest earned on the CD is considered taxable income. The bank reports the total interest earned on a CD in any given year on Form 1099-INT, which you must include in your taxable income for that year. This interest is subject to federal, and sometimes state and local, taxes. The principal amount you originally invested in the CD, however, is not taxed, only the interest earned on that principal.

How do I report CD interest on tax returns?

You’ll need to report interest earned on a certificate of deposit (CD) on your federal tax return using Form 1040, specifically on the line designated for interest income.

To determine how much interest you need to report, you simply refer to Form 1099-INT, which you should receive from the bank holding your CD. This form details the interest income earned over the year. If you have multiple 1099-INT forms, you’ll need to combine the total interest and report it as a single amount. For state taxes, you’ll want to include this interest according to your state’s tax guidelines, which may vary.

Are any CDs tax free?

Most CDs are not tax-free, but certain strategies can minimize taxes on CD interest. CDs may be placed in a tax-deferred retirement account, such as a 401(k) or individual retirement account (IRA). In this case, taxes on earnings may be deferred until retirement or distribution. A CD held in a Roth IRA can grow tax-free and withdrawals are tax-free, provided certain conditions are met.

There are many rules surrounding retirement accounts, however, including eligibility requirements, contribution limits, and withdrawal restrictions, so you’ll want to consult a tax accountant before considering a tax-advantaged CD.

---

About the author

---

Photo credit: iStock/pinstock

Annual percentage yield (APY) is variable and subject to change at any time. Rates are current as of 12/23/25. There is no minimum balance requirement. Fees may reduce earnings. Additional rates and information can be found at https://www.sofi.com/legal/banking-rate-sheet

Eligible Direct Deposit means a recurring deposit of regular income to an account holder’s SoFi Checking or Savings account, including payroll, pension, or government benefit payments (e.g., Social Security), made by the account holder’s employer, payroll or benefits provider or government agency (“Eligible Direct Deposit”) via the Automated Clearing House (“ACH”) Network every 31 calendar days.

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

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

See additional details at https://www.sofi.com/legal/banking-rate-sheet.
SoFi Checking and Savings is offered through SoFi Bank, N.A. Member FDIC. The SoFi® Bank Debit Mastercard® is issued by SoFi Bank, N.A., pursuant to license by Mastercard International Incorporated and can be used everywhere Mastercard is accepted. Mastercard is a registered trademark, and the circles design is a trademark of Mastercard International Incorporated.

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

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

Tax Information: This article provides general background information only and is not intended to serve as legal or tax advice or as a substitute for legal counsel. You should consult your own attorney and/or tax advisor if you have a question requiring legal or tax advice.

SOBK-Q224-1916744-V1

Read more

A depository institution is a financial institution into which consumers can deposit funds and where they will be safely held. Banks and credit unions are typical examples of these institutions.

Learning about how these institutions work and their pros and cons can build your financial literacy.

What Is a Depository Institution?

A depository institution is a place or entity — such as a bank — that allows consumers and businesses to deposit money, securities, and/or other types of assets. There, the deposit is kept safely and may earn interest.

To share a bit more detail, depository institutions are financial institutions that:

•   Engage in banking activities

•   Are recognized as a bank by either the bank supervisory or monetary authorities of the country it is incorporated in

•   Receive substantial deposits as a part of their regular course of business

•   Can accept demand deposits

In the U.S., all federally insured offices of the following are considered to be depository institutions:

•   Commercial banks

•   Mutual and stock savings banks

•   Savings or building and loan associations

•   Cooperative banks

•   Credit unions

•   International banking facilities of domestic depository institutions

How Do Depository Institutions Work?

A depository can receive funds from consumers and businesses via such means as:

•   Cash

•   Direct deposit

•   Teller or ATM deposits

•   Checks

•   Electronic transfers

The depository institution holds these funds, and they are insured by the Federal Deposit Insurance Corporation (FDIC) for up to $250,000 per depositor, per ownership category, per insured financial institution. If the institution is a credit union, funds will be similarly protected by the National Credit Union Administration, or NCUA vs. FDIC.

Funds are accessible on demand (aka demand deposits rather than time deposits), and the depository institution is required to keep a certain amount of cash in its vault to ensure it has funds available for clients.

Customers are able to earn interest on different types of deposits. The depository institution also earns interest; it’s one of the ways financial institutions make money. It does so by lending money on deposit to their customers in the form of different types of loans. (For instance, some of the money on deposit might earn the account holder 2% interest, while the bank then uses the funds for a mortgage that charges 6.00% interest. There’s a good profit margin there for the depository institution.)

Recommended: What Is a Community Development Financial Institution?

Types of Depository Institutions

To better understand the purpose depository institutions serve, let’s look at some examples.

Credit Unions

Credit unions may offer many of the same services as banks, but they are owned by account holders, who are also sometimes called members. These institutions are not nonprofits. The profits that the credit union earns are paid to members in the form of dividends or are reinvested into the credit union. To put it another way, the depositors are partial owners of the credit union. You often need to live in a certain area or work at a certain profession to keep your money at a credit union.

Commercial Banks

Commercial banks are what many of us visualize when we hear the term “bank,” whether we are thinking of a major bank with hundreds of brick-and-mortar branches or an online-only entity. They are usually owned by private investors and are for-profit organizations.

Commercial banks tend to offer the most diverse services of all depository institutions, from personal banking to global banking services such as foreign exchange-related services, money management, and investment banking. The offerings may depend on how large the institution is and which customer segments it serves (say, consumers and different types of businesses).

Savings Institutions

Savings institutions are the banks that serve local communities and loan institutions. Local residents deposit their money in these institutions, and in return, they can access credit cards, consumer loans, mortgages, and small business loans.

It’s possible to set up a savings institution as a corporation or as a financial cooperative. The latter makes it possible for depositors to have an ownership share in the saving institution.

Recommended: What Is an Intermediary Bank?

Depository Institutions vs Repositories

Repositories and depositories are two different things despite the fact that their names sound almost the same. Here’s some of the key differences.

•   Depositories hold cash and other assets, but repositories hold abstract things such as intellectual knowledge, files, and data.

•   Depositories are usually credit unions, banks, and savings institutions, while repositories are typically libraries, data-storage facilities, and information-based websites.

Depository Institutions vs Non-Depositories

Unlike depository institutions, non-depository institutions don’t accept demand deposits. These are some of the differences between these two types of institutions:

•   Depository institutions accept deposits and store them for safekeeping. Non-depository institutions, on the other hand, provide financial services but can’t accept demand deposits for safekeeping.

•   Depository institutions are FDIC- or NCUA-insured, while non-depository institutions can be SEC-insured or have another type of insurance.

•   Credit unions and banks are commonly depository institutions. Non-depository institutions are often brokerage firms and insurance companies.

Pros of Depository Institutions

Depository institutions have a few benefits to note:

•   Money is safe and FDIC- or NCUA-insured

•   Accounts can earn interest on time deposits such as certificates of deposit (CDs) and possibly other deposits

•   Helps keep the economy healthy by allowing depository institution to lend out deposits and earn interest

•   Reduced risk of assets being lost or stolen

Cons of Depository Institutions

There are a few downsides to depository institutions. Consider these points:

•   Limited growth potential of deposited funds compared to investments, money market accounts, and CDs

•   Banks, credit unions, and savings institutions may charge fees for holding funds

•   Minimum account balance may be required

Tips for Choosing a Depository Institution

When it comes time to choose a depository institution, it can help to keep the following things in mind when comparing different options.

•   Type. Carefully consider if a credit union, saving institution, or commercial bank is the right fit. Some commercial banks have brick-and-mortar locations, while others offer all of their services online. Online banks usually pay higher interest rates on savings and charge fewer and/or lower fees, since they don’t have the overhead associated with operating branch locations. Credit unions also tend to offer higher interest rates and lower fees as they are not-for-profit as commercial banks are.

•   Features. Look for a depository institution that offers perks and services that suit your needs. Special features may include high interest rates, early access to direct-deposit paychecks, cash back deals, fee-free ATMs, and free access to credit scores.

•   Fees. Shop around to see which depository institution has the lowest and/or fewest fees, such as account maintenance fees and overdraft fees. As noted above, credit unions tend to charge lower and/or fewer fees than commercial banks, as do online banks.

•   Convenience. If you like to bank locally and know your bank tellers and officers, choosing an institution that has branches in your neighborhood is a wise move. If you prefer the seamlessness of banking 24/7 by app, however, you might opt to open an online savings account.

Recommended: What Is an Online Savings Account?

The Takeaway

Commercial banks, credit unions, and savings institutions are all examples of depository institutions. Depository institutions can be places to safely store funds that can then easily be accessed. Funds will typically be insured by either the FDIC or NCUA up to their usual limits of $250,000 per depositor, per ownership category, per insured institution.

Looking for a bank to deposit your money in that pays a great APY?

Interested in opening an online bank account? When you sign up for a SoFi Checking and Savings account with eligible direct deposit, you’ll get a competitive annual percentage yield (APY), pay zero account fees, and enjoy an array of rewards, such as access to the Allpoint Network of 55,000+ fee-free ATMs globally. Qualifying accounts can even access their paycheck up to two days early.

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

FAQ

What is the difference between a bank and a depository?

There is no difference between a bank and a depository. A bank is a type of depository institution. Credit unions and saving institutions can also be depositories.

What are the types of depository institutions?

There are three main types of depository institutions. Commercial banks, credit unions, and savings institutions are all types of depository institutions.

Are commercial banks depositories?

Yes, commercial banks are one kind of depository institution where consumers can securely stash their money.

---

About the author

---

Photo credit: iStock/Mikhail Bogdanov

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

Annual percentage yield (APY) is variable and subject to change at any time. Rates are current as of 12/23/25. There is no minimum balance requirement. Fees may reduce earnings. Additional rates and information can be found at https://www.sofi.com/legal/banking-rate-sheet

Eligible Direct Deposit means a recurring deposit of regular income to an account holder’s SoFi Checking or Savings account, including payroll, pension, or government benefit payments (e.g., Social Security), made by the account holder’s employer, payroll or benefits provider or government agency (“Eligible Direct Deposit”) via the Automated Clearing House (“ACH”) Network every 31 calendar days.

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

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

See additional details at https://www.sofi.com/legal/banking-rate-sheet.
*Awards or rankings from NerdWallet are not indicative of future success or results. This award and its ratings are independently determined and awarded by their respective publications.

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.

SOBK-Q224-1939889-V1

Read more

The term “growth savings account” or “grow savings account” generally refers to a savings account that earns more than the average interest rate for a savings account. This allows your money to grow faster, just for sitting in the bank.

But are these accounts always a good bet? Important points to consider are:

•   What is a growth savings account?

•   How do growth savings accounts work?

•   The pros and cons of a growth savings account

•   How to open a growth savings account.

What Is a Growth Savings Account?

Growth savings accounts are similar to regular savings accounts, except that they tend to pay a higher annual percentage yield (APY), which represents how much an account holder will earn in interest over the course of a year.

More commonly referred to as a high-yield savings account, these accounts can pay 10 to 20 times more than the average APY for a savings account, while keeping those funds safe and accessible.

You may get the best interest rate on a growth savings account at an online bank or credit union versus a traditional, brick-and-mortar, bank. However, even at their best, the APYs on these savings accounts generally lag behind what you could earn by investing in the market over time. That makes growth savings accounts best suited for your emergency fund and money you’re saving for a short-term goal, like a vacation or large purchase.

How Do Growth Savings Accounts Work?

Growth savings accounts work in the same way as regular savings accounts. You open the account at a bank or credit union, deposit money into the account, and begin to earn interest on your balance. You can continue adding money to the account, either by making a deposit at a branch or ATM, transferring money from a linked account, or via mobile check deposit or direct deposit.

Savings accounts are typically insured up to $250,000 by the Federal Deposit Insurance Corporation (FDIC) at banks and the National Credit Union Administration (NCUA) at credit unions. So you can’t lose your money (up to certain limits) even if the bank were to go out of business.

Savings accounts allow easy access to your money when you need it, though some institutions may limit the number of withdrawals or transfers you can make to six or nine per month.

Recommended: How High-Yield Savings Accounts Work

Pros of a Growth Savings Account

Here’s a look at some of the advantages that come with opening a growth or high-yield savings account.

Higher Interest Rates

Because these savings accounts can offer higher interest rates, the money held in the account tends to grow faster than money held in traditional savings accounts. When determining what is a good interest rate, it’s a good idea to also look into minimum balance requirements. You may see that you need to keep your balance above a certain threshold to earn the highest available rate.

Accessible Form of Growth

Putting money in a savings account can be a great way to earn interest while keeping that money liquid, meaning you can access it as soon as you need it. You don’t need to sell off investments or wait until a particular maturity date to withdraw the money.

Recommended: CDs vs Savings Accounts Compared

Good Way to Build an Emergency Fund

Because these funds are fairly accessible, a growth savings account can be a great place to build an emergency fund. That way, the emergency fund can continue to grow until it might be needed.

Cons of a Growth Savings Account

There are also some downsides to growth savings accounts worth keeping in mind before opening one.

Limited Growth Opportunity

Yes, growth savings accounts typically earn more interest than traditional savings accounts. However, when considering your long-term savings options, there may be more strategic investments that can enhance growth over time. If, for instance, you’re saving for retirement, which is a few decades away, you might take a look at the stock market for growth.

Withdrawal Limits

Growth savings accounts generally provide easier access to funds than keeping money in investments. That said, you may only be able to make a certain number of withdrawals or transfers per month (such as six or nine) or risk running into fees. While the Federal Reserve withdrew this rule during the pandemic, banks are allowed to continue imposing those limits, so it’s a good idea to check.

Earnings Are Taxable Income

The interest earned in a growth savings account can count as taxable income. By contrast, the money you put into a Roth Individual Retirement Account (IRA) grows tax-free.

Pros of Growth Savings Accounts	Cons of Growth Savings Accounts
Higher interest rates	Accessible form of growth
Good way to build an emergency fund	Limited growth opportunity
Possible withdrawal limits	Earnings are taxable income

Recommended: What is a Roth IRA and How Does it Work?

Choosing a Growth Savings Account

When you’re looking for ways to earn more interest on your money, a growth or high-yield savings account might be a good option. It’s a good idea to shop around to find the best fit for your needs. Here are a few factors to keep in mind when looking for a new savings account:

•   APYs

•   Minimum balance requirements

•   Fees

•   Account features

•   Mobile app

•   Other product and service offerings

How to Open a Growth Savings Account

While each banking institution will have its own process, opening a growth savings account typically includes the following steps:

•   Fill out the application. When filling out a savings account application, you’ll usually provide details like your name, Social Security number, proof of address (say, from a utility bill), and government-issued photo ID.

•   Choose the account type. There may be different savings account types, such as an individual account or a joint account (to share with a spouse or family member). Select the kind that’s right for your needs.

•   Designate beneficiaries. It’s important to choose a beneficiary for your growth savings account, just as you might select a beneficiary for a 401(k) plan. This is the person who would receive the account’s funds if you were to become incapacitated or pass away.

•   Deposit funds. Some banks require a minimum initial deposit, so you may need to make that deposit to open the account.

•   Create login information. To set up your online account, you’ll need to create login information such as a username and password. Be sure to create a unique and complex password with at least one capital letter, number, and symbol.

While there may be another step or two in some situations, that’s how to open a bank account.

The Takeaway

Growth savings accounts generally offer higher interest rates than traditional savings accounts, which can help your money grow faster. In some cases, however, these accounts may come with monthly fees and/or require you to maintain a certain minimum balance to earn the higher rate, so it pays to shop around.

Interested in opening an online bank account? When you sign up for a SoFi Checking and Savings account with eligible direct deposit, you’ll get a competitive annual percentage yield (APY), pay zero account fees, and enjoy an array of rewards, such as access to the Allpoint Network of 55,000+ fee-free ATMs globally. Qualifying accounts can even access their paycheck up to two days early.

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

FAQ

How do growth savings accounts work?

Growth savings accounts function similarly to traditional savings accounts. The only difference between these account types is that growth savings accounts tend to have higher interest rates.

What does “growth account” mean?

A growth account — also known as a high-yield account — typically offers a higher interest rate than a traditional savings account. This higher interest rate leads to more growth on deposited funds.

How much interest does a growth savings account earn?

These days, a growth or high-yield savings account can earn as much as 5% APY.

---

About the author

---

Photo credit: iStock/Eoneren

Annual percentage yield (APY) is variable and subject to change at any time. Rates are current as of 12/23/25. There is no minimum balance requirement. Fees may reduce earnings. Additional rates and information can be found at https://www.sofi.com/legal/banking-rate-sheet

Eligible Direct Deposit means a recurring deposit of regular income to an account holder’s SoFi Checking or Savings account, including payroll, pension, or government benefit payments (e.g., Social Security), made by the account holder’s employer, payroll or benefits provider or government agency (“Eligible Direct Deposit”) via the Automated Clearing House (“ACH”) Network every 31 calendar days.

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

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

See additional details at https://www.sofi.com/legal/banking-rate-sheet.
SoFi Checking and Savings is offered through SoFi Bank, N.A. Member FDIC. The SoFi® Bank Debit Mastercard® is issued by SoFi Bank, N.A., pursuant to license by Mastercard International Incorporated and can be used everywhere Mastercard is accepted. Mastercard is a registered trademark, and the circles design is a trademark of Mastercard International Incorporated.

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

Tax Information: This article provides general background information only and is not intended to serve as legal or tax advice or as a substitute for legal counsel. You should consult your own attorney and/or tax advisor if you have a question requiring legal or tax advice.

SOBK-Q224-1885549-V1

Read more

Everyone likes to win big. So what if saving money could offer the potential to win more money? Such a scenario is possible, thanks to prize-linked savings accounts that combine a normal savings account with an opportunity to win prize money.

What Is a Prize-Linked Savings Account?

A prized-linked savings account is essentially a savings account that gives account holders the opportunity to win prizes. In addition to their presence in the U.S., are found in other countries, including Germany, Argentina, and Japan.

The way that prize-linked savings accounts work is they allow account holders to enter raffles to earn cash prizes. If you have one of these prize accounts, how would you enter? By making deposits into a savings account. Currently, these types of accounts are offered by financial institutions such as credit unions in more than 30 different states.

These savings accounts earn a nominal amount of interest and aren’t a solid replacement for a traditional savings account or a high-yield savings account in the long run.

However, prize-linked savings accounts may be good for short-term savings. They’re designed to encourage people with low- or moderate-income levels to save more.

Recommended: Checking Accounts vs. Savings Accounts: Key Differences to Know

Types of Prize-Linked Savings Accounts

To make it easier to understand how prize-linked savings accounts work, here are a few real-life examples of these savings accounts that are available domestically.

Save to Win

Save to Win allows participating credit unions to hold savings promotion raffles. Every qualifying $25 an account holder deposits into a Save for Win account earns them an entry into a drawing for cash prizes. Save to Win says it awards more than $200,000 in prizes every year.

Lucky Savers

Lucky Savers is designed to motivate New Yorkers to save by rewarding smart savings habits. This program is exclusive to credit unions and is formatted as a 12-month share certificate with unlimited deposit capabilities. Opening this account requires a $25 initial deposit. Then, for every $25 in month-over-month balance increase, account holders earn one entry into monthly and quarterly prize drawings.

WINcentive

WINcentive® Savings is another credit union-exclusive program. This program in Minnesota offers prize drawing entries for every $25 an account holder saves for up to four entries each month. Prize drawings occur monthly, quarterly, and annually. In 2023, $100,000 in cash prizes were awarded to account holders.

Are Prize-Linked Savings Accounts (PLSAs) Legal?

Prize-linked savings accounts are legal in approximately 32 states that have enacted legislation to allow these types of accounts. In response to concerns surrounding prize-linked savings programs, Congress passed the American Savings Promotion Act which authorizes banks and thrifts (a financial institution specializing in savings accounts and mortgages) to conduct savings promotion raffles. It also excludes these raffles from the prohibition against financial institutions dealing in lotteries.

Pros of Opening a Prize-Linked Savings Account

Depending on your circumstances and financial goals, a prize account can offer a number of advantages. The pros of these savings accounts are:

•   Prize-linked savings accounts can incentivize individuals to save more money. Programs have found the amount of savers and savings amounts increase when there is a prize incentive.

•   It’s possible to win money that can help offset monthly expenses or may be large enough to be the equivalent of a small lottery prize.

•   It’s possible to win prize money without any of the typical risks that come with gambling or buying lottery tickets. These accounts are designed so that the account holder gets to keep their savings whether they win a prize or not.

Cons of Opening a Prize-Linked Savings Account

Along with the benefits, there are disadvantages to prize-linked savings accounts. These include:

•   Prize-linked savings accounts earn little to no interest. The chance of winning money may not be worth forgoing a bank account with a higher yield.

•   Winning any prize money at all is not guaranteed and not predictable, like a steady stream of interest earnings is.

•   These prize-linked savings accounts are often cheaper for financial institutions to offer than traditional savings accounts. For this reason, they might not promote the better savings options an account holder might have.

Opening a Prize-Linked Savings Account

If you want to open a prize-linked savings account, these are the steps you’ll generally take.

1.    Find a credit union that offers prize-linked savings accounts. These accounts aren’t available in all states and are more commonly found at credit unions.

2.    Apply to open a prize-linked savings account. The applicant will usually need to provide two forms of identification during the application process.

3.    Make a deposit. Most prize-linked savings accounts have small initial minimum-deposit requirements.

Are There Taxes on PLSAs?

There are tax requirements surrounding prize-linked savings account winnings. Sure, you can go and spend money from your savings account that’s been plumped up thanks to a cash prize. However, anyone who wins money from one of these accounts should be prepared to pay taxes on their winnings according to state and federal laws.

Alternatives to a Prize-Linked Savings Account

Because there’s no guarantee that you will win any money with a prize-linked savings account, you may want to consider these other savings options that can offer a more guaranteed return.

•   High-yield savings accounts. High-yield savings accounts are savings accounts with high interest rates. Often, high-yield savings accounts are found at online banks. Because online banks don’t have to spend a lot of money on brick-and-mortar banking locations, they may be able to offer higher interest rates, lower fees, or other bank account bonuses. High-yield savings accounts also allow consumers to take advantage of compound interest.

Learn more: Basics of High Yield Savings Accounts

•   Money market account. Money market accounts are savings accounts that tend to have a higher annual percentage rate (APY) than traditional savings accounts do, but they may have withdrawal limits. Check with your financial institution to see if there is a cap on the number of withdrawals you can make per month.

•   Certificate of deposit. A certificate of deposit (CD) generally has a minimum deposit requirement. It also has a set timeframe during which you can’t withdraw your money from the CD without having to pay a penalty fee. CDs may have higher interest rates than both savings accounts and money market accounts.

The Takeaway

The potential to win prize money through a prize-linked savings account can make saving more appealing for some consumers. That being said, these accounts tend to have much lower interest rates than traditional savings accounts, and there is no guarantee the account holder will ever win any money. Before opening one, carefully consider if a prize-linked savings account can meet your needs or if you would be better off with a different financial vehicle, such as a high-yield savings account instead.

FAQ

Are prize-linked savings accounts legal?

Yes, prize-linked savings accounts are legal in about 32 states. Congress passed the American Savings Promotion Act in 2014, which authorizes banks and thrift banks to conduct savings promotion raffles.

Is a lottery account safe?

Lottery accounts are generally a safe way to save money. There is no actual gambling involved with a prize-linked savings account. These accounts are designed so that account holders get to keep all of their savings whether or not they win prize money.

How do I open a lottery account?

The process of opening a prize-linked savings account is the same as opening a normal savings account. Once someone finds a credit union that offers this type of savings account, they will apply and provide all of the information and identifying documentation required during the application process. Then they will make an initial deposit.

---

About the author

---

Photo credit: iStock/Tevarak

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.

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

3.30% APY
Annual percentage yield (APY) is variable and subject to change at any time. Rates are current as of 12/23/25. There is no minimum balance requirement. Fees may reduce earnings. Additional rates and information can be found at https://www.sofi.com/legal/banking-rate-sheet

Eligible Direct Deposit means a recurring deposit of regular income to an account holder’s SoFi Checking or Savings account, including payroll, pension, or government benefit payments (e.g., Social Security), made by the account holder’s employer, payroll or benefits provider or government agency (“Eligible Direct Deposit”) via the Automated Clearing House (“ACH”) Network every 31 calendar days.

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

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

See additional details at https://www.sofi.com/legal/banking-rate-sheet.
This article is not intended to be legal advice. Please consult an attorney for advice.

Tax Information: This article provides general background information only and is not intended to serve as legal or tax advice or as a substitute for legal counsel. You should consult your own attorney and/or tax advisor if you have a question requiring legal or tax advice.

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

SOBK-Q224-1927357-V1

Read more

Putting cash into a savings account can be one way to help your money grow, not only by stashing it away so you don’t spend it, but also by potentially earning interest as it sits in the account. One type of interest-earning savings account you might want to0 consider is a tiered-rate savings account.

The interest rate that a tiered-rate savings account earns typically increases as the amount of your savings increases — which can make saving cash even more motivating.

What Is a Tiered-Rate Savings Account?

A tiered-rate savings account is a savings account that has multiple interest rates that can be applied, depending on the amount of money in the account.

The way tiered-rate savings accounts generally work is that as the account holder’s savings grow, their interest rate on the savings account also rises. Interest rates for these accounts are offered on a tiered scale with the largest balances getting the highest interest rates.

A tiered savings account might encourage customers to save more money as they work towards earning the highest possible interest rate. It may also keep account holders loyal to their current bank with a long-term account.

How Do Tiered-Rate Savings Accounts Work?

If you open a bank account that’s a tiered-rate account, the higher your balance is, the higher your interest rate is likely to be. That means as your balance grows, your interest rate has the potential to rise, and your savings may grow more quickly.

Tiered-rate accounts offer account holders different “tiered” interest rates that correspond with different account balances. For example, if a bank offers a tiered-rate savings account they may give a 0.05% interest rate for savings account amounts up to $25,000. For savings ranging from $25,000 to $100,000 they may raise that interest rate to 1.00%.

Tiered-rate savings accounts tend to have a minimum balance threshold needed to open an account for the first time. Typically, a minimum daily balance must also be maintained. In addition, these accounts may require that their holders make a minimum amount of monthly transactions, such as making deposits or transferring money to another account.

Characteristics of Tiered-Rate Accounts

The following features are typically associated with tiered-rate accounts:

•   Interest rates rise as account balances grow

•   Minimum initial deposit and ongoing balance requirements

•   Minimum monthly transaction requirements

Pros of Tiered-Rate Savings Accounts

These are some of the advantages to having a tiered-rate savings account:

Opportunity to Earn Higher Interest Rate on Savings

Tiered-rate savings accounts typically offer higher interest rates than traditional savings accounts do — especially for motivated savers who work to increase their account balances.

Potential for Money to Increase Quicker

Because interest rates can be higher with tiered-rate savings accounts, it’s possible for money held in these accounts to grow faster than it might in other types of savings account, as long as it remains in the account. Because of the effect of compound interest, your money could make more money.

Cons of Tiered-Rate Savings Accounts

There are also some disadvantages of tiered-rate savings accounts that are worth keeping in mind.

Putting Money Elsewhere May Be Better to Build Wealth

The interest rates offered by tiered-rate accounts tend to deliver a lower return when compared to some other investments over time, such as investing in the stock market. While investing in stocks is considered far riskier than earning interest in a savings account, investors could potentially see a higher return over the long term from stocks. This could be helpful when saving for long-term goals like retirement.

Need a Larger Account Balance for the Highest Rates

To secure the best interest rates through a tiered-rate savings account, account holders may need to keep a large sum of money in their savings account. If someone doesn’t have that amount of money, they may find that a standard savings account is better for them.

Here is a chart comparing the pros and cons of tiered-rate accounts:

Pros of Tiered-Rate Accounts	Cons of Tiered-Rate Accounts
Opportunity to earn higher interest rates on savings	Putting money elsewhere may be better for building wealth
Potential for money to increase more quickly	Need a larger account balance for the highest rates

Alternatives to Tiered-Rate Savings Accounts

If you’re looking to earn money on your savings, there are a few different vehicles you can consider for earning competitive interest on your funds.

•   High-yield savings accounts: High-yield savings accounts are similar to standard savings accounts, but they earn much higher interest rates. High-yield savings accounts are often found at online banks. These financial institutions don’t have to finance bricks-and-mortar branch locations, so they may pass along the savings to their customers in the form of higher interest rates, lower fees, and/or special bonuses.

•   Money market accounts: Money market accounts are typically insured by the Federal Deposit Insurance Corporation (FDIC) or National Credit Union Administration (NCUA) like savings accounts. They tend to have higher annual percentage yields (APYs) than traditional savings accounts. There is, however, a potential downside: Money market accounts may have significantly higher minimum deposit and balance requirements, and they might also have withdrawal limits much like some savings accounts do.

•   Certificate of deposit (CD): Certificates of deposit vs. savings accounts can be a wise choice for some consumers. CDs are time or term deposits, meaning the money stays in the account for a specific period of time (typically six months to a few years, though longer and shorter terms are available). If you withdraw the funds before the maturity date, or the end of the term, you will likely pay a penalty fee. Because of the time commitment involved, CDs may offer higher interest rates than savings accounts and money market accounts.

The Takeaway

If an individual has a sizable amount of money to deposit, they may find that a tiered-rate savings account could be a good option. This type of account offers a way to earn a higher interest rate the more the account holder has in the account.

If, however, a person is just starting their savings journey, a traditional savings account may be a better fit. Either way, an aspiring savings account holder should evaluate such variables as interest rate, minimum deposit and balance requirements, and account fees. That can help them find the right savings account for their 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.

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

FAQ

What is tiered APY?

Tiered-rate accounts offer account holders different tiered APY, or annual percentage yield, which is how much you will earn on your cash over the course of a year. The amount of money an account holder has on deposit will qualify them for a certain tier or level. Typically, the more money on deposit, the higher your APY.

What is tiering in banking?

Tiering in banking refers to tiered-savings accounts, which provide account holders with different interest rates based on the balance in their savings account. Usually, the higher someone’s account balance is, the higher their interest rate is.

Is a tiered interest rate good?

A tiered interest-rate structure tends to benefit savers who have high account balances because the more money you have on deposit, the higher your interest rate. If someone has a smaller amount of savings, a traditional or high-yield savings account with a single interest rate may be more advantageous to them.

---

About the author

---

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.

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

3.30% APY
Annual percentage yield (APY) is variable and subject to change at any time. Rates are current as of 12/23/25. There is no minimum balance requirement. Fees may reduce earnings. Additional rates and information can be found at https://www.sofi.com/legal/banking-rate-sheet

Eligible Direct Deposit means a recurring deposit of regular income to an account holder’s SoFi Checking or Savings account, including payroll, pension, or government benefit payments (e.g., Social Security), made by the account holder’s employer, payroll or benefits provider or government agency (“Eligible Direct Deposit”) via the Automated Clearing House (“ACH”) Network every 31 calendar days.

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

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

See additional details at https://www.sofi.com/legal/banking-rate-sheet.
*Awards or rankings from NerdWallet are not indicative of future success or results. This award and its ratings are independently determined and awarded by their respective publications.

SOBK-Q224-1927417-V1

Read more