Are Certificates of Deposit (CDs) Taxable?

Are Certificates of Deposit (CDs) Taxable?

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

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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 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 up to 4.60% APY on SoFi Checking and Savings.

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.


Photo credit: iStock/pinstock

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 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 (“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, or are non-recurring in nature (e.g., IRS tax refunds), do not constitute Direct Deposit activity. There is no minimum Direct Deposit amount required to qualify for the stated interest rate.

As an alternative to direct deposit, 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.


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.


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.

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Guide to the CD Barbell Strategy

Guide to the CD Barbell Strategy

With the CD barbell strategy, you invest in short-term and long-term certificates of deposit, and don’t invest any of your money in medium-term CDs — a strategy that may help maximize income and minimize risk.

CDs have different terms, and generally the longer the term, the higher the interest rate. When you invest money in a longer-term CD, you can take advantage of their higher rates. The downside with a long-term CD is that your money is tied up for a longer period of time. You have more liquidity with a short-term CD, but you will typically earn a lower return.

By splitting your money between short-term and long-term CDs, the idea is to capture the best of both worlds. Find out if a barbell CD strategy makes sense for you.

What Is a Certificate of Deposit (CD)?

A certificate of deposit is a time deposit account that offers a guaranteed return that’s typically higher than a savings or money market account.

With a CD, you invest a lump sum upfront (called the principal). Your money earns a specified interest rate for a specific period of time (known as the term). Most CDs are insured against loss by the FDIC (Federal Deposit Insurance Corporation) or the NCUA (National Credit Union Association) for up to $250,000. Certificates of deposit are considered a type of cash equivalent.

CDs typically pay a higher rate than standard deposit accounts because the account holder agrees not to withdraw the funds until the CD matures. If you deposit $5,000 in a 5-year CD, you cannot withdraw the $5,000 (or the interest that you’ve earned) without incurring an early withdrawal penalty until the end of the five years.

If you do need access to your money before the end of the term, you might consider a certificate of deposit loan, where the bank gives you a loan with the money in the CD serving as collateral.

💡 Quick Tip: Help your money earn more money! Opening a bank account online often gets you higher-than-average rates.

What Is the Certificate of Deposit (CD) Barbell Strategy?

The longer the term of the CD, the higher the interest rate you’ll typically earn, but the longer your money will be tied up. The CD barbell strategy is one way that you can attempt to get the benefits of both long- and short-term CDs. By dividing your money between these two types of CDs, you will blend the higher interest rates from long-term CDs with the accessibility of short-term certificates of deposit.

In addition to the CD barbell strategy, there are a variety of different strategies for investing in CDs, including the bullet strategy, which involves buying several CDs that mature at about the same time and the CD ladder strategy, which consists of opening multiple CDs of different term lengths.

So if you’re wondering where to store short term savings, you have several different options to choose from.

Real Life Example of the CD Barbell Strategy

If you want to start investing in CDs and are interested in learning more about the CD barbell strategy, here is one example of how it could work. Say you have $10,000 that you want to invest using the CD barbell strategy.

•   You invest $5,000 in a 3-month CD earning 1.50%

•   You invest $5,000 in a 5-year CD earning 5.35%

Your total return would be 3.42% (the average of 1.50% and 5.35%). That’s less than you would get if you put all of your money in a long-term CD, but more than if you put it all in a short-term CD. Depending on your financial goals, you can adjust the terms of your CDs and the amount you put in each half of the barbell.

With the CD barbell strategy, when your short-term CD expires, you could choose to take the proceeds and reinvest it in a new short-term CD.

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Open a SoFi Checking and Savings Account with direct deposit and get up to a $300 cash bonus. Plus, get up to 4.60% APY on your cash!


Benefits of the CD Barbell Strategy

Here are a few of the benefits of the CD barbell strategy:

Higher Returns Than Investing Only in Short-Term CDs

Because half of your money is invested in long-term CDs that pay a higher return, you’ll get a higher return than if you invested only in short-term CDs. This can make it a viable investment strategy if you need access to some of your money but also want higher returns.

More Liquidity Than Investing Only in Long-Term CDs

Another benefit of the CD barbell strategy is that you have easier access to your money than if you invested only in long-term CDs. Half of your money is in short-term CDs, which means that if you need access to your money after a few months, you can withdraw the money in your short-term CD when it matures without penalty.

Drawbacks of the CD Barbell Strategy

Here are a few of the drawbacks of the CD barbell strategy:

Excludes Medium-Term CDs

The barbell CD strategy focuses solely on short-term and long-term CDs, excluding medium-term CDs. Depending on your financial situation, you might find it worthwhile to include medium-term CDs as part of your investment strategy.

Ties Up Some of Your Money

When you invest in a long-term CD that won’t mature for several years, you won’t have penalty-free access to that money until the end of the CD’s term. While long-term CDs do typically come with higher returns than CDs with shorter terms, you need to make sure that you won’t have a need for that money until the CD matures.

Barbell CD Strategy vs CD Laddering

Barbell CD Strategy

CD Laddering

Includes only short-term and long-term CDsUses short-term, medium-term, and long-term CDs
Insured by the FDIC or NCUA up to $250,000Insured by the FDIC or NCUA up to $250,000
You’ll have access to some of your money each time your short-term CD expiresAccess to your money varies depending on the terms of the CDs you ladder with

When Should I Use a Certificate of Deposit Strategy?

If you decide you need a long-term savings account, you might want to consider a certificate of deposit strategy like the CD barbell strategy.

CDs with different terms come with different interest rates, so there can be advantages to splitting up your money. Rather than putting all of your savings into one CD, you can distribute your money to a few different CDs as a way to diversify your potential risk and reward.

The Takeaway

CDs come with different lengths or terms, and the longer the term, usually the higher the interest rate that you’ll earn. A CD barbell might make sense if you want the benefit of having some of your money in a higher-interest CD, while keeping the rest of it more liquid (although at a lower rate).

Using a CD strategy like the CD barbell strategy is one potential way to get higher returns with long-term CDs while still being able to access some of your money by using shorter-term CDs as well. You will, however, have your money tied up for a longer period of time, so there is a tradeoff that you’ll need to consider.

If you’re looking for better interest rates for your cash while maintaining easy access to your money, you might want to consider other options, such as a high-yield bank account. Do some investigating to see what savings strategy makes the most sense for you.

Interested in opening an online bank account? When you sign up for a SoFi Checking and Savings account with 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 up to 4.60% APY on SoFi Checking and Savings.

FAQ

Why is it called a barbell strategy?

The CD barbell strategy is so named because you are investing in CDs at either end of the spectrum of possible terms, with nothing in the middle. This is similar to the shape of a barbell that has weights on either end but nothing in the middle.

Does the CD barbell strategy make more money than CD laddering?

With CD laddering, you usually invest an equal amount of your money in CDs that mature each year. Whether the CD barbell strategy makes more money than CD laddering will depend on exactly how you divide your money into different CD terms, as well as how interest rates change over the life of your CD strategy.

Does the CD barbell strategy make more money than the bullet CD strategy?

The bullet CD strategy is an investment strategy where you buy CDs that all mature at the same date. Which of these two CD strategies makes more money will depend on a couple of factors. The first is how interest rates change over time, and the second is exactly how you divide up your investments.


Photo credit: iStock/hachiware

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. ©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.


4.60% APY
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 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 (“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, or are non-recurring in nature (e.g., IRS tax refunds), do not constitute Direct Deposit activity. There is no minimum Direct Deposit amount required to qualify for the stated interest rate.

As an alternative to direct deposit, 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.


*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.

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Guide to Sinking Funds

Understanding Sinking Funds

It may sound like a negative thing, but a sinking fund is money that’s saved toward a specific goal. Governments and businesses can use sinking funds to hold reserve cash to fund future expenses, but this kind of account also has a place in personal finance as you build wealth and achieve goals.

What sinking funds are is a way to earmark and stash money so you can, say, buy a new car or take an amazing vacation. Understanding how sinking funds work can help you decide if you need to include them in your budget.

What Is a Sinking Fund?

A sinking fund is money that’s earmarked to pay planned expenses that fall outside of your regular budget. In accounting, a sinking fund is used to save money to pay debt or replace an asset that is declining in value. The name, which can admittedly sound negative, may be derived from the idea of sinking, or paying off, a debt.

As mentioned, individuals, businesses, and even governments can use sinking funds to hold money in reserve for future expenses. For example, the U.S. Treasury Department maintains a sinking fund for unused appropriations.

For an individual, the meaning shifts somewhat. A sinking fund can help you be financially prepared to pay certain expenses that are on the horizon. In this way, it can help you avoid having to turn to high-interest credit cards or loans to cover expenses that don’t fit into your monthly budget. Being able to avoid debt is one of the main reasons why saving is important.

💡 Quick Tip: Typically, checking accounts don’t earn interest. However, some accounts do, and online banks are more likely than brick-and-mortar banks to offer you the best rates.

Examples of s Sinking Fund

A sinking fund can be used to save money for a variety of expenses. Some of the most common sinking funds categories include:

•   Vehicle maintenance and repairs

•   Pet care

•   Home maintenance and repairs

•   Birthdays, holidays, and other special occasions

•   Wedding expenses

•   Baby expenses

Those are just a few of the things you might need a sinking fund for. The number of sinking funds you choose to establish can depend on your financial goals. You might create one for, say, a down payment on a home or a trip to Bali. It’s up to you.

You can set up separate accounts for each goal and, if you like, automate savings into each. You might add $25 per pay period to one, $100 to another. By setting up recurring transfers to occur right after your paycheck hits your checking account, you can help your savings grow with minimal effort.

Recommended: Should I Pay off Debt Before Buying a House?

Benefits of a Sinking Fund

Setting up sinking funds can offer some advantages if you have planned or recurring expenses.

•   You can use them to create a structured plan for saving toward various expenses or financial goals.

•   Depending on where you keep your sinking funds, you may be able to earn a decent rate of interest on your deposits.

•   Sinking funds ensure that when a planned expense comes due, you have the money to pay it. You can avoid dipping into your emergency fund or using a credit card.

Drawbacks of a Sinking Fund

Sinking funds can help you to be consistent with saving, but there are some potential drawbacks.

•   You have to be organized and disciplined when setting up a fund or multiple funds.

•   If you’re also saving or investing in other accounts, you may have trouble keeping track of what is sinking fund money and what isn’t.

•   Saving in multiple sinking funds could leave you spread thin financially if you’re not careful about budgeting.

Get up to $300 when you bank with SoFi.

Open a SoFi Checking and Savings Account with direct deposit and get up to a $300 cash bonus. Plus, get up to 4.60% APY on your cash!


How to Create a Sinking Fund

Getting started with sinking funds isn’t that difficult. Here are a few simple tips for using sinking funds to save toward planned expenses.

List Your Sinking Fund Categories

The first step in creating a sinking fund is deciding what categories to include. A good way to choose sinking fund categories is to review your spending for the last six months to a year. Look for expenses that may recur periodically, like biannual or annual insurance premiums or annual home maintenance.

From there, consider what savings goals you might be working toward that are one-time expenses. That may include a wedding, a down payment on a home, a vacation, new furniture, or something else you only expect to pay for once. You can then use your recurring expenses and planned expenses to create your sinking fund categories.

Determine Your Savings Target

Next, decide how much you need to save toward each expense or goal on your sinking fund list. Assign an overall dollar amount first, then determine how much you need to save monthly, based on when you plan to spend the money.

Say you want to save $1,000 for a trip you’d like to take in a year. You’d divide the total by 12, and your savings goal would be $83.33 per month.

Decide Where to Keep Sinking Funds

Once you know what you need to save each month, you can choose where to keep your sinking funds. Again, this may be a single savings account or money market account, or a savings account with multiple subaccounts.

Certificate of deposit (CD) accounts are usually not the best place to keep sinking funds. They require you to leave money in them untouched for a set maturity term to avoid a penalty. However, you may be able to find an add-on CD account that is a work-around to this. These accounts may allow you to increase the funds on deposit; check with a financial institution that offers this product for more details.

Set Up Automatic Transfers

If you’ve opened sinking fund accounts, you can take the final step and link them to your checking account. You can then schedule recurring automatic transfers from checking to your sinking fund account each month to grow your savings automatically.

You might want to set up your automatic deductions for payday. It can be helpful to have the money whisked out of your checking account and into savings before you see it and think about spending it.

Sinking Funds vs Emergency Funds

You may be tempted to dip into your emergency fund for some expenses, like, say, buying a new mobile phone. However, a sinking fund may be a better option. While a sinking fund and an emergency fund are both designed for saving, they serve very different purposes.

With a sinking fund, you’re setting aside money regularly that you plan to spend at some point. (In the example of a new phone, maybe your current one is starting to have some glitchiness, and you know a new model will be released in six months with lots of bells and whistles.) Some sinking fund expenses may be one-time; others may be recurring.
An emergency fund, on the other hand, is designed to hold emergency cash in case you have an unexpected expense that you need to cover. Emergency funds are there for those “uh-oh” moments, when your hot water heater conks out or you get hit with a major dental bill.

Starting an emergency fund while also having sinking funds can be a good idea. When you have both, you have money set aside to pay foreseen and unforeseen expenses. And just like sinking funds, one of the benefits of having an emergency fund is that you’re less reliant on high-interest credit cards to pay for things.

Sinking Funds vs Savings Accounts

Sinking funds and savings accounts can refer to the same thing. For example, you might hold your sinking funds in a high-yield savings account at an online bank. But it’s also possible that you have other savings accounts that are not specifically used for sinking funds. Sinking funds usually have a specific goal, which can help you get motivated to save money.

Saving funds can be more general. If you have kids, you might set up savings accounts for them to teach them the value of money. Or you might have a savings account that you treat as a slush fund, where you keep money that you haven’t earmarked toward any specific goal.

If you have both sinking funds and savings accounts, it’s important to track what money goes where. That way, you can ensure that you’re saving enough in your sinking funds and not shortchanging any of your planned expenses.

Recommended: Smart Short-Term Financial Goals to Set for Yourself

Where Can You Keep a Sinking Fund?

When deciding where to keep a sinking fund, accessibility matters. You need to be able to add money to your sinking fund and withdraw it when needed. For that reason, you might open an online bank account to hold your sinking funds.
With an online savings account, you can earn interest on deposits and link your account to checking for easy transfers.

Some banks allow you to open a main savings account with multiple subaccounts. You might choose this option if you’d like to be able to add money to individual sinking funds for specific expenses. Subaccounts can allow you to see all of your sinking fund money in one place while keeping goals separate.

A money market account is another candidate for holding sinking funds. These accounts can earn interest like a savings account, but they may offer check-writing abilities or debit card access, which you typically don’t get with a savings account.

Just be sure to check if your bank limits the number of withdrawals you’re allowed to make from a money market account. For some people, this factor (if it exists) can be a deal breaker.

The Takeaway

A sinking fund can help you stay on track when saving for planned expenses. You can use sinking funds to save for a wide range of expenses, without having to dip into other savings, your emergency fund, or breaking out your plastic. It can be a helpful way to organize your finances and meet your money and lifestyle goals.

Where to keep money in a sinking fund? Someplace that bears interest but is easily accessible can work well.

Interested in opening an online bank account? When you sign up for a SoFi Checking and Savings account with 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 up to 4.60% APY on SoFi Checking and Savings.

FAQ

What is a sinking fund in simple terms?

A sinking fund is a type of account that has a specific goal (such as a down payment on a house or debt repayment). Funds are typically added to it regularly.

How much should you have in a sinking fund?

If your sinking fund is an emergency fund, you should aim to have at least enough money to cover three to six months’ worth of standard living expenses. Otherwise, it’s up to you to set the purpose of a sinking fund (a Peloton bike or a trip to Yellowstone?) and how much you want to save.

What is considered a healthy sinking fund?

A healthy sinking fund has enough money to cover any planned expenses you might have on the horizon. The size of your sinking fund will depend on which expenses you’re planning for, how often you’re saving for those expenses, and how much you’re saving toward them each month.


Photo credit: iStock/whitebalance.oatt

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 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 (“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, or are non-recurring in nature (e.g., IRS tax refunds), do not constitute Direct Deposit activity. There is no minimum Direct Deposit amount required to qualify for the stated interest rate.

As an alternative to direct deposit, 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.


*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.

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What Is an International Bank Account Number (IBAN)?

Guide to International Bank Account Numbers (IBANs)

International Bank Account Numbers (IBANs) are standardized numbers that play a key role in overseas banking. They identify bank accounts so that international financial transfers can be completed quickly and accurately.

Here, you’ll learn more about IBANs, how they work, and how they differ from other banking numbers.

What Is an International Bank Account Number (IBAN)?

An International Bank Account Number, or IBAN, is a one-of-a-kind identifier that banks use to refer to a specific bank account in any of 80+ countries around the world. In turn, banks use that info to quickly move money between accounts in different countries.

While IBANs are useful in sending and receiving funds, they aren’t used for withdrawing funds or for transferring ownership of accounts.

💡 Quick Tip: Make money easy. Open a bank account online so you can manage bills, deposits, transfers — all from one convenient app.

How Does an IBAN Work?

An IBAN is a standardized numbering system that includes up to 34 alphanumeric characters to identify accounts for transactions. While the length of an IBAN varies by country, the sequence remains the same to ensure proper routing:

•   Country code (two letters)

•   Check digits (two digits); this validates the routing numbers and accounts. It is sometimes referred to as a control code.

•   Basic Bank Account Number (BBAN); this is an alphanumeric sequence that’s up to 28 characters long and represents a country-specific bank account number (which could represent different types of bank accounts, such as checking or savings).

While the format is standardized around the globe, the length of the code varies depending on the country.
It’s worthwhile to note that when using an IBAN to send or receive payments, there might be a processing fee or commission on the transfer.

IBANs are very much a part of the daily financial flow today. You may not have had international transactions in mind when you took the time to open a bank account, but they are becoming quite common. For instance, you might do business with a vendor overseas or shop online from a company based on another continent.

IBAN Example

Here is an invented example of an IBAN:

•   GB 28 2021 6126 1431 9576 17

This would be for a UK bank. It begins with GB for “Great Britain” and has 22 characters.

Here are other examples:

Albania: AL 35 2021 1109 0000 0000 01234567
Denmark: DK 95 2000 0123 4567 89
Spain: ES 7921 0008 1361 01234 56789

Recommended: All You Need to Know About Wire Transfer Fees

IBAN vs. SWIFT Code

BBoth IBANs and SWIFT codes (aka Society of Worldwide Interbank Financial Telecommunications) are globally recognized and accepted banking transfer identifiers. They play a part in making sure a transfer goes through successfully, and they help keep international finance running smoothly.

They are not, however, the same set of digits. The main difference between an IBAN and a SWIFT code lies in what they identify. Whereas a SWIFT code identifies the financial institution, the IBAN points to a specific bank account. Both work in tandem to help a transaction proceed.

To provide a bit more detail, here are a few other key differences between IBANs and SWIFT codes:

•   While an IBAN works more to identify a bank, branch, and bank account numbers, SWIFT identifies a particular bank during a transaction.

•   SWIFT Codes are issued by the Society of Worldwide Interbank Financial Telecommunications, which is a member-owned cooperative. The SWIFT banking system is a messaging network that enables financial institutions around the world to talk to one another securely. IBANs, on the other hand, are issued directly by the financial institutions.

•   Whereas IBANs are alphanumeric codes that are up to 34 digits, SWIFT codes include alphanumeric code that’s either 8 or 11 characters.

Get up to $300 when you bank with SoFi.

Open a SoFi Checking and Savings Account with direct deposit and get up to a $300 cash bonus. Plus, get up to 4.60% APY on your cash!


Do All Countries Use IBANs?

While more than 80 countries use IBANS, not every nation does. IBANs are generally used in the majority of banks in the Eurozone and other European countries. Parts of the Middle East, the Caribbean, and North Africa also use IBANs.

Some countries, such as Austria, Croatia, France, and the Netherlands make IBANs mandatory. Other countries don’t require the use of IBANs, but it is recommended. These include Albania, Brazil, Costa Rica, and the Virgin Islands.

Lastly, there are countries that don’t use IBANs. China, New Zealand, Canada, and the U.S. fall into this camp.

Recommended: What You Need to Know About Foreign Currency Bank Accounts

When Is an IBAN Number Required?

An IBAN number is typically required for international banking transactions. It allows for the accurate transfer of funds between accounts in different countries.

If, say, you need to make a payment to a business in South America or you have bought an item at an auction in Europe, you would likely need the recipient’s IBAN to complete the transaction. With that information, the money could be moved from your checking account to the payee’s account.

How Do I Find an IBAN?

If IBANs are available in both the country you live in and in the recipient’s country, you can obtain an IBAN by reaching out to your bank or checking on your bank statement. The person you’d like to send or receive money from will also need to to get their IBAN by contacting their bank or looking at their bank statement.

If you live in the U.S. and need an IBAN to complete an international transaction, the payee will typically share their banking details for the transfer of funds, including their IBAN.

Worth noting: The IBAN website also has a handy tool to calculate your IBAN code based on your country, bank code, and account number.

The Takeaway

While the U.S. doesn’t use the IBAN (International Bank Account Number) system, when you are sending funds overseas, you’ll need the other party’s IBAN. This number contains vital information that will help the money get to the intended account in another country safely and quickly. In this way, IBANs play an important role in keeping international financial transactions flowing.

If you’re looking to open a bank account closer to home (meaning in the U.S.), see what SoFi offers.

Interested in opening an online bank account? When you sign up for a SoFi Checking and Savings account with 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 up to 4.60% APY on SoFi Checking and Savings.

FAQ

What is the IBAN number for the USA?

The U.S. does not identify bank accounts by IBANs. Instead, we use routing numbers and account numbers.

Is an IBAN the same as an account number?

An account number is specific to the individual and identifies their account, while an IBAN layers in more information. It’s an alphanumeric sequence that contains such information as an account number, along with a bank code, bank branch code, and location code.

How many digits are in an IBAN?

IBANs vary in length depending on the particular country. They can include up to 34 alphanumeric characters.

Which countries don’t use an IBAN?

Among the countries that don’t use IBANs are the U.S., Canada, China, and New Zealand. Additionally, there are some countries that suggest using IBANs, but don’t make it mandatory.


Photo credit: iStock/tolgart

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 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 (“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, or are non-recurring in nature (e.g., IRS tax refunds), do not constitute Direct Deposit activity. There is no minimum Direct Deposit amount required to qualify for the stated interest rate.

As an alternative to direct deposit, 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.


*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.

External Websites: The information and analysis provided through hyperlinks to third-party websites, while believed to be accurate, cannot be guaranteed by SoFi. Links are provided for informational purposes and should not be viewed as an endorsement.

Third-Party 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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11 Work-From-Home Jobs Great for Retirees

11 Work-From-Home Jobs Great for Retirees

Call it the Great Unretirement. Millions of Americans who are of retirement age are still working. According to one recent analysis of U.S. Census Bureau data, 22% of people aged 65 or older are still clocking hours professionally, with almost one in four of those being self-employed.

The reasons for working past age 65 can vary: The desire to stay engaged and challenged is one; the realities of needing to bring in income to keep pace with inflation and rising expenses is another.

No matter what your motivation, there are opportunities for seniors to work, including home-based ones. Here, learn about some of the most popular career paths to pursue later in life, from the privacy and comfort of your home.

11 Work-at-Home Jobs for Retirees

Consider these 11 work-at-home jobs for seniors; one or more may suit your skills and interests. Hours will vary, depending on how much time you have available and how much demand there is. Given that these are online jobs, you will probably need your own computer and headset or earbuds. Some companies may provide workers with tech gear.

1. Instructor

The online learning industry is booming: It’s expected to grow 20% year over year from now through 2030. Being an online instructor can therefore be a fast-growing job opportunity, too.

Almost anything you’ve mastered can be turned into an online course: baking, strength training, or traveling on the cheap. Whether it’s a hobby or a profession, you might be able to convert it to profit in an online course that students can purchase. Sites like Teachable and Coursera allow would-be teachers to set up an account and create courses that could provide passive income for years.

•   Median pay: $30.33/hour

•   Qualifications: Will depend on what you are teaching; in some cases, simply your own experience and knowledge is enough. In others, you may need credentials, such as post-grad degrees or proven success in a particular realm (whether gardening or fundraising).

2. Consultant

Using the skills you cultivated during your career can be a wise way to earn money when you’re a senior. If you happen to have years of experience in a field such as business or design, taking on clients as a consultant can be a great way to share your expertise and bring in income. Sites like LinkedIn and Indeed can also help, allowing you to search for job opportunities by location, contract status, and experience level.

•   Median pay: $47.73

•   Qualifications: You’ll need to show that you are qualified to advise on a topic based on a track record of business success. Using your professional and personal network to find clients can also be important.


💡 Quick Tip: Want to save more, spend smarter? Let your bank manage the basics. It’s surprisingly easy, and secure, when you open an online bank account.

Tutor

If you have the skills to teach but don’t want to do all the back-end work of creating and selling a course, look for jobs tutoring online. Tutors are hired not only by U.S. schools, individuals, and companies but also by international ones, making it potentially a flexible and lucrative path.

•   Median pay: $18.80

•   Qualifications: These will vary with the opportunity. Some people may be able to tutor simply based on having deep knowledge of a topic or having aced a subject in school. Others may require teaching licenses and credentials.

4. International English Teacher

The more interconnected the world becomes, the more important it is for people around the world to be able to speak a common language. If you are a native English speaker or if you speak English really well, you may qualify to teach English to students around the world. For this role, you’ll likely need to get a certificate, but once you are qualified, you can apply for jobs teaching online or even set up your own business.

How much you earn as a teacher can depend on whether you are teaching individuals or working with a larger agency, which may have deeper pockets.

•   Median pay: $26

•   Qualifications: These will vary. Some people in more informal settings may not need credentials. Otherwise, it can be vital to have a valid state teaching license and either a TEFL or CELTA certificate, reflecting that you are trained and ready to teach English to others.

5. Customer Support Agent

Customer support agents work with a business’ clients on the phone, through a chat function, on social media, or even through email to address questions. They typically help customers with things like making returns, processing exchanges, and resolving billing problems.

Agents must have good communication skills, empathy, solid problem-solving skills, and enough technical aptitude to use the company’s customer support system.

•   Median pay: $18.80

•   Qualifications: Depending on the job, you may need prior customer service experience. Typically, companies will offer training.

Recommended: How to Earn Residual Income

6. Technical Support Agent

This role is similar to customer support, except you will be solving customers’ technical issues, often with a device, a website, or an app. For example, the customer might need help changing their billing address on an app they use, or they could require guidance on using software they bought. You will need some technical know-how, but often companies train employees and provide a knowledge database for them to use to help resolve customer problems.

•   Median pay: $21.13

•   Qualifications: Varies depending on the company doing the hiring. It is common for businesses to train their agents to know the ins and outs of their product or service so they can help clients.

7. Travel Agent

Booking travel may seem to be a self-service online task these days, but there are still plenty of travel businesses that need employees. These might include travel companies that work with corporate clients or medical centers that help patients with travel logistics. Some of these hire and train individuals to manage travel booking.

Also, if you have expertise in a certain kind of travel (such as multigenerational travel to Disney properties or budget travel), you might be able to offer travel agent services on that front.

Being organized and having good customer service skills is important in this position, and having experience with the intricacies of travel arrangements can help. Some jobs, including more lucrative ones, may require specific credentials or knowledge of travel software.

•   Median pay: $20.64

•   Qualifications: Will depend upon the job. Some may hire those without specific travel experience but with good people skills; others may want candidates to be a certified travel associate.

8. Virtual Assistant

A virtual assistant tackles all kinds of tasks, from scheduling appointments to writing emails to updating clients’ social media accounts. Virtual assistant jobs can be great part-time gigs for seniors at home because they often only require the skills you already use to manage your own life. If you’re particularly good at management and working with executives, you can snag lucrative clients and really see your retirement earnings soar.

•   Median pay: $24

•   Qualifications: Will vary depending on the particular job. Some clients may seek prior administrative assistant experience; others may want an individual who is familiar with certain travel booking software.

9. Bookkeeper

Obviously, having experience in the bookkeeping field can be an asset for this role. You can help small business clients who don’t have the budget for a full-time bookkeeper or a big accounting firm manage their finances. These businesses could include local restaurants, small shops, or individual medical practitioners.

•   Median pay: $24.31

•   Qualifications: Some companies will train employees; others will want those who are already familiar with software such as QuickBooks, so it can be wise to train up on your own time. While a degree in business or accounting can be a plus, on-the-job learning may be possible, regardless of your degree.

10. Tax Preparer

Tax preparers can be employed by firms like H&R Block, who train them before tax season, or independently, working directly with clients. A lot of tax preparation is formulaic, but to serve clients well, it is key to be familiar with all the rules that change from year to year.

Also, this tends to be a seasonal job, with crunch time leading up to Tax Day in April.

•   Median pay: $18

•   Qualifications: As noted, the company you work for may train you in proper practices, and it’s important to keep on top of the latest tax code changes.

11. Data Entry Specialist

If you can type quickly and have an eye for detail, data entry may be for you. It can be a precise and rote job, putting information into spreadsheets and forms. You can generally land a data entry role without any experience, but if you go for a position in a field where you have expertise — say law, medical records, insurance, or consumer packaged goods — the pay is likely to be higher than elsewhere. That can help pad out your savings account or pay bills.

•   Median pay: $20

•   Qualifications: As noted, jobs may be available without related experience.

Recommended: 11 Benefits of Having a Side Hustle

Spotting a Scam

As with all things online, there’s always a possibility that something may not be quite as it seems, and that includes online job postings. Remote working opportunities are especially susceptible to fraud because everything is typically conducted digitally, via email and Zoom, so you don’t know if the person really is who they claim to be. Sadly, there are a substantial number of scams that target seniors.

As you look for remote opportunities, be cautious of listings that seem too good to be true. Offering a generous amount of money for very little work or requiring payment before work can begin are red flags. So too are job offers that involve an upfront overpayment for you to purchase supplies. Investigating opportunities thoroughly and familiarizing yourself with the latest job-related scams can help prevent you from being victimized. No one wants to have to recover from being scammed.

The Takeaway

Opportunities for seniors and retirees to beef up their savings and retirement investments through remote online work are abundant and varied. It may be necessary to spend some time searching to find gigs that tap your interests and skills and offer a suitable schedule and pay. Some jobs might include bookkeeper, tutor, and travel agent.

And when you do find the perfect remote gig to supplement your retirement income, find the right bank to partner with for storing, spending, and saving your funds.

Interested in opening an online bank account? When you sign up for a SoFi Checking and Savings account with 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 up to 4.60% APY on SoFi Checking and Savings.

FAQ

Are there any work-from-home jobs for seniors that don’t require upfront costs?

Yes, most legitimate work-from-home jobs do not require upfront costs. Many companies will train employees. In fact, the request for upfront costs could signal that you are dealing with a scam vs. a legitimate job opportunity.

How much would a retiree expect to make while working from home?

The pay scale for remote work for retirees can vary tremendously. Many jobs pay around $20 an hour, though some offer less compensation. Opportunities that require specialized qualifications can pay significantly more.

What are some good work-from-home jobs for seniors?

There are an array of work-from-home jobs for seniors, such as being a business consultant, tutor, tax preparer, or customer service representative.


Photo credit: iStock/FG Trade

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 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 (“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, or are non-recurring in nature (e.g., IRS tax refunds), do not constitute Direct Deposit activity. There is no minimum Direct Deposit amount required to qualify for the stated interest rate.

As an alternative to direct deposit, 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.


*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.

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