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Underwriters are a bit like jurors: They soberly weigh the evidence and render a verdict. Unlike jurors, underwriters sometimes reach out to those they are, well, judging to obtain additional information, clarify a matter, or otherwise help the case for mortgage approval.

If the underwriter finds that you’re fiscally fit enough to take on a mortgage and that the amount you want to borrow is a manageable size, you’re on your way to a home purchase. So you want to put your best foot forward where the underwriter is concerned. By learning about underwriting, you’ll be prepared for the document-gathering and hurdles ahead.

What Is Mortgage Underwriting?

Underwriters protect a bank, credit union, or mortgage company by making sure that they only give loan approval to aspiring homeowners who have a good chance of paying the lender back.

If you’re wondering what is the underwriting process, here are some of their tasks:

•   Verify documents and financial information and make sure that enough savings exist to supplement income or contribute toward the down payment.

•   Check an applicant’s credit score and history and note any bankruptcies, late payments, significant debts, or other red flags.

•   Calculate the debt-to-income ratio by adding up monthly debt payments and dividing that number by monthly pretax income.

•   Request additional documents and ask questions if necessary. For example, if a homebuyer has had more than one job over the past year and their income is not consistent, an underwriter may want to see more assets.

5 Steps of the Mortgage Underwriting Process

The mortgage-seeking journey is a winding path that eventually arrives at the underwriter. Automated underwriting may approve your loan application, though a human underwriter will verify your application and documentation. If the software refers your application to manual underwriting, that’s usually a slower process.

Here are common steps leading to underwriting:

1. Explore Your Budget

Prequalifying for a mortgage is a quick move that will provide a ballpark budget for your home purchase, based on self-reported financial info. And you can employ a home affordability calculator to get a feel for your top price.

Think, too, about lending questions you’ll have during the mortgage process.

2. Get Preapproved for a Loan

Shop around for the best deal, and best-fitting loan, with a mortgage broker or direct lender. This is the time to submit documentation of your income, employment, assets, and debts and allow a hard pull of your credit score. What credit score is needed to buy a house? Much depends on whether you plan to use a conventional or government-backed mortgage loan (an FHA loan is more lenient).

A mortgage preapproval letter, often good for 30 to 90 days, indicates the lender’s willingness to lend you a particular amount at a tentative or locked interest rate. A preapproval letter also allows a buyer to act quickly in a seller’s market.

3. Find Your Home

Once you find a home that meets your needs, you’ll need to agree on a price. Ideally it is within the amount you’ve budgeted and been preapproved for.

4. Apply for the Loan

You may choose one of the lenders you gained preapproval from, or another lender, to apply for the mortgage. You’ll receive a loan estimate within three business days from each lender you apply with.

If you go with one of the former, you submitted documents in order to get preapproved. Still, the lender will likely ask for further documentation now that you’re ready to act on a purchase, and will take another look at your credit.

5. Wait for the Underwriting Verdict

A loan processor will confirm your information, and then it’s time for the underwriter to review your credit scores and history, employment history, income, debts, assets, and requested mortgage amount.

The underwriter will order an appraisal of the chosen property and get a copy of the title insurance, which shows that there are no liens or judgments. Finally, the underwriter will consider your down payment.

Then comes the decision on your mortgage application: approved, suspended (more documentation is needed), or denied. How long does underwriting take? The verdict could come in as little as a few days.

Required Information for Underwriting

Lenders are going to request a lot of documents from mortgage loan applicants.

Income verification. The lender will want to see W-2s from the past two years, your two most recent bank statements, and two most recent pay stubs. Those who are self-employed will need to document stable work and payments and ideally have a business website. Applicants will typically need to show evidence of at least two years of self-employment income in the same field.

Any additional income. Pension, Social Security, alimony, dividends, and the like all count.

Proof of assets. This can include checking and savings accounts, real estate you own, retirement savings, and personal property. A lender might want to see that a down payment and closing costs have been in an applicant’s account for a while.

Debts. Your debt-to-income ratio matters greatly, so list all monthly debt payments, each creditor’s name and address, account numbers, loan balances, and minimum payment amounts.

Gift letter. If you’ve received money from a family member or another person to put toward your home purchase, the lender will request a gift letter for the mortgage and proof of that funding in your account.

Rent payments. Renters will likely need to show evidence of payments for the past 12 months and give contact information for landlords for two years.

How Long Does Underwriting Take?

Underwriting may take a couple of days to more than a week. It all depends on how complicated someone’s finances are and how busy an underwriter is. Thankfully, underwriters typically do everything online these days, so an applicant can upload documents to a website or simply email them.

Can You Speed Up the Mortgage Underwriting Process?

Most of the methods used to speed up the underwriting process are not in the hands of the borrower but rather methods lenders can use to accelerate their review. An applicant can help ensure an efficient underwriting process by making sure they submit all the requested information and documents the first time around, thereby lessening the likelihood an underwriter will have questions.

How You Can Improve Your Chance of Being Approved

Before applicants try to get a mortgage, they can take a number of steps to improve their chances of getting approved.

Lighten the debt load. It’s critical to pay off as much debt as possible and to try to keep your credit utilization ratio below 30%, though some lenders like to see a ratio below 25%.

Applicants can pay off debt faster by making a budget (and sticking to it), using cash instead of credit cards to make purchases, and negotiating interest rates with creditors.

Look at credit reports. Applicants should also scour their credit reports and fix any mistakes so that their score is as high as possible. Federal law guarantees the right to access credit reports from each of the three major credit bureaus annually for free.

The reports show only credit history, not credit scores. There are ways to monitor your credit scores and track your money at no cost.

Attempt to boost income. Applicants may want to apply for higher-paying jobs or get to know the benefits of a side hustle so they can save more money.

Ask for a gift or loan partner. You could also ask a family member for a gift to put toward the down payment, or you could ask a relative with a stable credit history and income if they would apply for the loan as a co-borrower or cosigner.

With an underwriter extending a hand, a solution may be found that leads to approval.

The Takeaway

Ready to apply for a mortgage? Prepare for a probing look at your private life — the financial one — by an underwriter, who is gauging the risk of lending you a bundle of money. The underwriter looks at a homebuyer’s finances and history, the loan amount, and the chosen property and renders a verdict.

Looking for an affordable option for a home mortgage loan? SoFi can help: We offer low down payments (as little as 3% - 5%*) with our competitive and flexible home mortgage loans. Plus, applying is extra convenient: It's online, with access to one-on-one help.

SoFi Mortgages: simple, smart, and so affordable.

FAQ

How long does it take for the mortgage underwriter to make a decision?

Underwriting can take anywhere from a couple days to a few weeks, depending in part on the complexity of a mortgage applicant’s financial situation and how thorough applicants are in submitting requested documents.

Is underwriting the last step before closing?

Not quite. After the underwriter signs off on the loan, it’s likely that your lender will want to do a final verification of your employment status, credit score, income, or all of the above. You’ll then be sent closing documents to review, and you’ll need to arrange payment of the closing costs, usually via a cashier’s check or bank transfer. At that point, you should be headed to a closing.

How often do underwriters deny loans?

About one in 10 loan applications are denied, according to the Consumer Finance Protection Bureau. Denials are less common for conventional loan applicants than for those applying for Federal Housing Administration (FHA) loans. Denial rates tend to be higher for refinance applicants than for home purchasers.

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Terms, conditions, and state restrictions apply. Not all products are available in all states. See SoFi.com/eligibility for more information.

*SoFi requires Private Mortgage Insurance (PMI) for conforming home loans with a loan-to-value (LTV) ratio greater than 80%. As little as 3% down payments are for qualifying first-time homebuyers only. 5% minimum applies to other borrowers. Other loan types may require different fees or insurance (e.g., VA funding fee, FHA Mortgage Insurance Premiums, etc.). Loan requirements may vary depending on your down payment amount, and minimum down payment varies by loan type.

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.

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

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

Strategies for Building Credit

1. Acquire Credit

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

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

2. Pay Bills Consistently and On Time

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

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

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

Recommended: When Are Credit Card Payments Due?

3. Manage Your Credit Utilization Rate

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

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

4. Keep Unused Credit Cards Open

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

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

5. Diversify Your Credit Mix

Having a diverse mix of credit products can also have a positive impact on a person’s credit, accounting for 10% of a credit score calculation.

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

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

6. Check Your Credit Report

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

Where Can You Track Your Credit Score?

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

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

7. Limit Credit Applications

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

Recommended: What Is the Average Credit Card Limit?

8. Avoid Overspending

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

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

9. Get Credit For Other Bills You Pay

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

10. Pay Off Any Existing Debt

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

What Is a “Good” Credit Score?

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

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

How Long Does it Take to Build Your Credit Score?

According to Experian, one of the three major credit bureaus, it generally takes around three to six months of data to generate an initial credit score.

Credit card issuers typically don’t report account activity until the end of the first billing cycle, so it’s worth waiting a month or two before you check in on the status of your score. If you’re anxious to ensure your activity counts, it’s also a good idea to check with your issuer to make sure they report to the credit bureaus.

What Can You Do with “Good” Credit?

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

The Takeaway

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

Whether you're looking to build credit, apply for a new credit card, or save money with the cards you have, it's important to understand the options that are best for you. Learn more about credit cards by exploring this credit card guide.

FAQ

How long does it take to build credit?

Once you open your first credit account, it generally takes around three to six months to start building a credit score.

How do I establish credit with no credit history?

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

How can I improve my credit as quickly as possible?

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

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Disclaimer: Many factors affect your credit scores and the interest rates you may receive. SoFi is not a Credit Repair Organization as defined under federal or state law, including the Credit Repair Organizations Act. SoFi does not provide “credit repair” services or advice or assistance regarding “rebuilding” or “improving” your credit record, credit history, or credit rating. For details, see the FTC’s website .

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

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.

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Offloading your used items can do you good on a couple of fronts. You can declutter your home, help fight waste (since you’re not just throwing things out), and you can make money by selling your still-useful stuff.

Whether you are looking to sell unwanted items like clothing, shoes, bags, furniture, housewares, books, electronics, or anything else, you can probably find a platform to help you get the job done. Some ways to sell are online, others aren’t, but all can do their part to connect your items with buyers. And get some additional cash flowing your way.

Here’s a guide on where to sell stuff, with dozens of places that can help you turn your unwanted items into cash.

21 Places to Sell Stuff Online

If you have items you no longer want or need, and you’re looking to make some extra money, exploring online platforms to sell used items can be highly beneficial. Whether you’re decluttering regularly to keep your space tidy or need a financial boost, online resale apps and sites offer convenient ways to reach a wide audience. Many of these platforms are free to list, some take a percentage of profits, and others offer direct payment upon sale.

1. Craigslist

One of the original online marketplaces, Craigslist (Craigslist.org) , is where you can sell used things. You can list all sorts of things, from tools to toys to DVDs to antiques (and much more) for free.

2. Facebook Marketplace

Facebook Marketplace makes it easy to sell items in your local area. It’s free to create a listing that can be seen by anyone on and off Facebook. You can also choose to post your listings to any “Buy and Sell” Groups you’re a member of.

However, a word of caution: Facebook Marketplace and other similar platforms can be used for banking scams. Read up on common ploys and proceed with caution when selling this way.

3. Amazon

While you may think that Amazon is where you can buy new things, there are also a lot of opportunities to list used items, especially books. Current pricing can be $39.99 a month plus selling fees, so you will likely want to be confident you can sell more than that before enrolling.

4. eBay

The original selling platform, eBay can still be a good way to sell your stuff, especially if you want to reach buyers from around the world who are looking to save money daily. Or it can be a huge help if you’re looking to unload an unusual item (there is almost nothing you can’t sell on eBay). But you may want to keep an eye out for selling fees, which may include a listing fee, a percentage of the sales prices, and possibly other fees.

One example of fees: For most categories, you will pay 35 cents per listing and, when an item sells, you will owe 13.255 of the total sales amount up to $7,500. If the item’s price is higher than that, you’ll pay an additional 2.35% on the overage.

5. OfferUp

Developed as a locally-driven platform, OfferUp is another good bet for selling used things. It allows you to sell to someone local, or ship an item to a buyer who lives anywhere in the US. Most items are free to post. When you sell a shipped item on the site, you may be charged a fee that is 12.9% of the sale price, with a minimum of $1.99.

6. Poshmark

Primarily a site for selling used clothing, Poshmark also lets you list home decor, jewelry, and beauty products. For sales you make under $15, Poshmark takes a flat commission of $2.95. If you make a sale that’s worth $15 or more, it takes 20%.

7. Etsy

Etsy may be best known as a platform for artists to sell their handmade goods and launch a low-cost side hustle. But the site also allows you to list some used goods. However, you can only resell in the “Vintage” and “Craft Supplies” categories. There is a listing fee of 20 cents per item, and, when you sell an item, there’s a transaction fee of 6.5% of the price, plus the amount you charge for shipping and gift wrapping.

8. thredUP

An online consignment and thrift store, thredUP sells thousands of major brands. You can send your gently used clothing directly to the service. If they accept (and sell) your clothing, you can choose from cash or credit.

A $2.99 Clean Out Kit fee and a service charge of $14.99 or higher may be assessed when you send in your clothes.

9. eBid

Like eBay, you can sell just about anything on eBid, either for auction or at a fixed price. eBid is organized into three tiers of selling, with different membership costs and selling fees. eBid may or may not wind up costing you less than other selling platforms, depending on how much you will sell and at what price.

10. Bookoo

Another platform for selling stuff locally is Bookoo, which doesn’t charge any listing or selling fees. Bookoo may not be as well known as other sites, but it is available in nearly every state throughout the U.S.

11. Vinted

If you have a lot of gently used clothes, shoes, and accessories to sell, you may want to check out Vinted (Vinted.com), a peer-to-peer online marketplace that focuses on vintage and second-hand fashion. And, for sellers, it’s free. Buyers pay a “protection fee,” typically 5% of the purchase price plus 70 cents.

12. Vestiaire Collective

If you have luxury items you want to sell, you may want to try Vestiaire Collective, a resale website where you can buy and sell high-end clothing, handbags, and accessories. When you sell an item, you can usually keep up to 85% of your money from the sale, minus a payment processing fee (usually 3%).

13. TheRealReal

TheRealReal is a luxury consignment site where you can drop off or ship designer clothing, accessories, and jewelry, as well as fine art and upscale home decor. They sell your items for you in exchange for a percentage of the profit.

Recommended: Ways to Make Money Online

14. Rebag

If you have a designer bag that you no longer want, you might consider selling it on Rebag, a site that’s focused on buying, selling, and trading luxury handbags. The site will let you know how much your bag is worth. If you like the offer, you can send them your bag with no shipping charges. Once it’s received and approved, you’ll get your payment.

15. Bag Borrow or Steal

Another site for selling luxury handbags is Bag Borrow or Steal. You can sell directly to the site (and get paid right away), or you can consign and receive 70% of the sales price after it’s sold.

16. PreOwned Wedding Dresses

If you aren’t sentimental about keeping your wedding dress, bridal party gown, or accessories, then you can list it on PreOwnedWeddingDresses.com, with a $25 listing fee and an 80% payout of the sale price when someone buys it.

17. BookScouter

If you’re looking to sell textbooks, you may want to check out BookScouter. The platform simplifies the process by searching sites that buy used textbooks, then displaying the prices from those sites, so you can compare and decide where to sell your books.

18. GoTextbooks

GoTextbooks also allows you to sell your college textbooks and hopefully recoup some of the money you spent on them. When you let the site (sellback.gotextbooks.com/) know about what you have for sale, they will give you an instant quote. You can then ship your books for free and receive your money.

19. DeCluttr

If you mainly have electronics to sell, DeCluttr offers a straightforward way to sell old things for cash, buying used tech, cell phones, DVDs, and video games. The site will give you an instant valuation. If you like the price, you can ship your item for free. If it meets expectations, you receive payment a few days later.

20. Gazelle

You may be able to turn your old cell phone into some quick cash at Gazelle. The site will give you an instant quote. If you like the numbers, you can ship the phone to them for free, and get paid via Amazon Gift Card, PayPal, or check.

21. Instagram

If you have a fair number of followers on Instagram, you might consider listing items you’re looking to sell there. As with Facebook groups, you simply need to snap a photo, write a brief description, and name your price. Or, you can go the more professional route and integrate Instagram’s shopping tools.

15 Places to Sell Stuff In Person

For those who prefer face-to-face transactions, selling items in person can be equally rewarding. If you have items cluttering your home and you need quick cash, local stores, markets, and community sales provide great opportunities to sell your goods directly. Whether you choose to consign your items or sell them outright for cash, these in-person places can offer immediate results and personal interactions with buyers.

1. Garage Sales

If your goal is to unload a large amount of stuff all at once, hosting a garage sale can be a good way to go. You could even get some neighbors together and hold a community garage sale to attract more people.

Just be sure to double-check community guidelines first to see if a permit is required.

2. Flea Markets

Community flea markets can be a great way to sell unwanted things. The owner and operator of the flea market will likely charge you a fee for a booth. If you live in a big city, you may have to register early to get a spot.

3. Buffalo Exchange

Buffalo Exchange is a vintage and used clothing store with locations throughout the U.S. If one of their stores is convenient to you, you can make an appointment to meet with a buyer. If they like your stuff, they will pay 25% of their selling price in cash or 50% in store credit. (Using that store credit could prove to be a good way to save money on clothes.)

4. Crossroads Trading

Crossroads Trading is a second-hand clothing store with brick-and-mortar locations throughout the U.S. If you visit a store, you may be able to receive cash for your clothing on the spot. For higher-end pieces, you can opt to consign. Crossroads also offers mail-in service.

5. Plato’s Closet

You can bring your gently used brand-name clothing and accessories to a Plato’s Closet near you. They’ll review your items and, if accepted, you’ll get paid on the spot.

6. Style Encore

A women’s resale store, you can bring in stylish, gently used clothes, shoes, handbags, and accessories to one of Style Encore’s retail locations. If they (style-encore.com) like your items, you will get paid right away in cash.

7. Once Upon a Child

If you have gently used children’s clothing and shoes, toys, and/or baby gear lying around, you may want to cart it over to Once Upon a Child, which has locations throughout the U.S. An employee will check out your goods and, if they think they sell them, will give you cash in return.

Recommended: Weird Ways to Make Money

8. Play It Again Sports

If you live near Play it Again Sports, you may want to consider bringing in all the no-longer-used sports equipment in your garage. You’ll clear out the space, and may get a nice amount of cash in return.

9. Music Go Round

Live in a musical household? Music Go Round is a resale music shop where you can bring in used instruments and sound equipment (like amps, MIDI equipment, and mixers) and get paid cash in return.

10. Local Thrift Stores

Unlike Goodwill or Salvation Army which accept donations, thrift stores — specifically ones that sell high-end or vintage clothing — might be willing to buy your clothes and other items. Look up local stores, and ask them what they buy and how much they typically pay.

11. Used Book Stores

Your local used book stores may be looking to purchase your books from you. You can call ahead, let them know what you have, and see if they are interested. You might wind up selling your old things for cash.

12. Pawn Shop

You may be able to make some quick money selling your old stuff to a local pawn shop. Typically, pawn shops are only interested in things of value, such as jewelry, collectible coins, and electronics. It can be a good idea to bring in proof of purchase so that the owner knows you aren’t trying to sell stolen goods.

13. Facebook Groups

If you’re in any local or niche Facebook groups, you may want to post items that might appeal to members of the group. You simply need to snap a picture, describe your item, set your asking price, and see what offers you get.

14. Nextdoor

Nextdoor is a network of local community websites and can be a good place to post items. You click on the “Sell or give away an item” option when posting and can set your terms. While the number of people who are in a particular area’s community will vary, Nextdoor does have approximately 37 million active users, so you just might find a buyer.

15. A “Raid My Closet” Event

Do you have friends who might be interested in checking out what you have for sale? You may want to consider inviting them over for a “raid my closet” event, or a “raid my garage” party. You can offer food and drinks, and make it a fun celebration to declutter your home.

What Are the Benefits of Selling Your Things?

Selling your things can have several benefits:

•   You can declutter or downsize by selling unwanted items.

•   You can help the environment by passing the item along versus throwing it in the garbage.

•   You can help someone who is looking for a gently used item that you have and wants to get a good deal on it.

•   You can bring in extra income.

However, as mentioned before, there are also downsides of selling your stuff. There is the possibility of being scammed in some direct sales, and there are also income tax implications to doing those kinds of transactions as well. Educate yourself on these situations.

Keeping Your Cash in a SoFi Savings Account

If you’re holding on to clothes, furniture, books, or other items you no longer want or need, you could be sitting on a way to make some extra money while decluttering.

What to do with all the profits that start rolling in? You might want to bank it and earn some interest.

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 good website to sell stuff on?

The right website to sell stuff on will depend on the item you are selling to some extent. If you are selling a piece of furniture or large appliance, you might try Craigslist or Facebook Marketplace. For clothing, there are sites like thredup and Vinted, among others.

How do I sell my stuff online for free?

This will depend on the kind of item you are selling. Craigslist, Facebook Marketplace, and Vinted are some examples of platforms that typically don’t charge the seller any fees.

What is the best app for selling used items?

Among the apps to consider when selling your used items are eBay, OfferUp, and Poshmark. These can reach a large number of potential buyers, though as a seller, you will likely pay some fees.

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Photo credit: iStock/Zinkevych

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.

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.

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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A chartered bank is a bank whose operations and services are governed by a charter issued at the state or federal level.

A charter is a legal document that essentially tells the bank what it can and can’t do. Chartered banks can be commercial banks but they can also operate as savings banks, savings and loan associations, online-only banks, or credit unions. They can accept deposits and make loans, just like other banks.

There are, however, a few characteristics that make chartered banks unique. And it’s important to know that not all banking startups may offer the benefits of chartered banks. Learn the details here.

What Is a Chartered Bank?

A chartered bank is any bank that’s authorized to accept deposits or lend money according to the terms of a legally recognized charter. Chartered banks are subject to oversight from the government agency that issues their charters.

Like other banks, chartered banks can offer different types of financial accounts, including:

•   Checking accounts

•   Savings accounts

•   Money market accounts

•   Certificate of deposit accounts

•   Specialty accounts, such as custodial accounts or bank accounts for college students

Chartered banks can also offer various types of loans, including personal loans, auto loans, lines of credit, and mortgages.

A chartered bank may have a physical footprint with brick-and-mortar branches and ATMs. Or it may operate online-only. Both traditional and online chartered banks can allow customers to access their money via online banking, mobile banking, or phone banking.

How Does a Chartered Bank Work?

Chartered banks work by accepting deposits and making loans. When you deposit money into a savings account at a chartered bank, for instance, the bank may pay you interest on those funds. Meanwhile, the bank uses your deposits and those of other customers to make loans, charging borrowers interest in the process. That’s largely how banks make profit.

A chartered bank can also generate revenue by charging its customers fees. If you’ve ever paid an overdraft fee, for example, you’re aware of how much a single fee can add up to. How much you pay in fees to a chartered bank can depend on whether you’re dealing with a brick-and-mortar or online bank. Since online banks tend to have lower overhead costs, they can pass the savings on to their customers in the form of higher rates on deposits and lower fees.

Banks must apply for a charter; they’re not granted automatically. Each state sets its own requirements for state-chartered banks. The Office of the Comptroller of the Currency (OCC) regulates federally-chartered banks.

Regardless of whether the bank is chartered by the state or federal government, the bank must insure deposits through Federal Deposit Insurance Corporation (FDIC) coverage. This covers up to $250,000 per depositor, per account ownership category, per insured institution. The bank must also apply for approval to join the Federal Reserve System if it wishes to do so.

Chartered banks may or may not be part of the SWIFT banking system. SWIFT, short for Society for Worldwide Interbank Financial Telecommunication, is an electronic messaging system that’s used to send financial transactions around the world. A chartered bank can, however, still process wire transfers and other electronic transactions even if they’re not part of SWIFT.

What Is a State Chartered Bank?

You may wonder what it means if a bank is chartered by the state vs. the federal government. Here’s a closer look.

A state-chartered bank is a bank that receives its charter from the state. As such, it’s subject to regulation by the chartering agency in that state. Again, the requirements to obtain a charter and the rules the bank is expected to follow once they secure a charter will depend on the state.

In California, for example, the process to become a chartered bank is similar to the process for establishing a commercial bank. Before a bank can apply for a charter, it has to complete a feasibility study, receive approval to proceed from the local government, and receive voter approval. The application itself is just a simple form, often only a couple of pages.

State-chartered banks that are part of the Federal Reserve System are regulated by the Fed. Any state-chartered bank that isn’t part of the Federal Reserve System is regulated by the FDIC instead. The FDIC regulates more than 5,000 state-chartered banks and savings associations.

What Is a Federally Chartered Bank?

Next, here’s a look at what a federally chartered bank is. It’s a bank that receives its charter from the federal government. The Office of the Comptroller of the Currency is responsible for regulating nationally-chartered banks and savings associations. The OCC is an independent branch of the Treasury Department.

Federally chartered banks are authorized to operate on a national scale. A federally chartered bank can be a traditional financial institution or an online banking platform.

Chartered Bank Oversight

Now that you know what is a chartered bank and what isn’t, here’s a bit more about how chartered banks are regulated. They are typically subject to oversight from the agency that issued their charter. Generally speaking, this oversight is designed to ensure the smooth operation of the bank itself while protecting consumer interests. Some of the things chartering agencies do include:

•   Visiting the bank to conduct on-site examinations

•   Monitoring the bank’s compliance with banking laws

•   Issuing regulations to cover banking operations

•   Taking enforcement actions when a bank violates a regulation or rule

•   Ensuring that the bank is financially sound and is conducting ethical banking practices

In extreme cases, the chartering agency may revoke the bank’s charter or close a bank if it fails. In the case of FDIC member banks, the FDIC steps in to cover deposits for customers. As noted, the current FDIC coverage limit is $250,000 per depositor, per account ownership category, per financial institution.

Chartered vs Online Banks

A bank can be chartered and have branches, or it can be chartered and operate online. In terms of what’s different between chartered banks that have physical branches and those that operate online, here are a few things to know:

•   Online banks tend to offer higher interest rates on savings accounts and possibly checking, too.

•   Online banks may also charge fewer bank fees, since they have lower overhead costs.

•   Brick-and-mortar chartered banks may offer a wider selection of banking products and services.

•   Traditional chartered banks can offer in-person banking, while online banks may limit you to accessing your account online or via a mobile banking app.

Whether it makes sense to choose a traditional chartered bank vs. an online bank can depend on your preferences and needs. If you want to get the best rates on savings and don’t mind branchless banking, then you might choose an online bank. On the other hand, if you like being able to pop into a branch from time to time, you might prefer a brick-and-mortar chartered bank.

Keep in mind, however, that not all online financial companies (sometimes called fintechs) are chartered banks. There are many startups, but it’s wise to do your research and see what benefits and protections they offer, either by reading the fine print or asking customer service.

Recommended: Online vs. Traditional Banking: What’s Your Best Option?

Chartered vs Commercial Banks

A commercial bank is a financial institution that engages in banking services, including accepting deposits and making loans. In that sense, it sounds similar to a chartered bank. In fact, a commercial bank can be a chartered bank, though not all commercial banks are.

Examples of chartered commercial banks include:

•   National banks that are chartered by the OCC

•   Non-member banks that are state-chartered but not part of the Federal Reserve System

•   State member banks that are state-chartered and part of the Federal Reserve System

When comparing a chartered vs. commercial bank, the main difference is the charter. A chartered bank is required to have either a state or national charter; a commercial bank may be chartered, but it isn’t required to be in order to operate.

Should I Do Business With a Chartered Bank?

Whether you opt to do business with a chartered bank is a matter of personal preference. Opening accounts with a chartered bank could give you some peace of mind since you know the bank is subject to regulation. And in the rare event that the bank fails, the FDIC can step in and restore your deposits to you.

When comparing chartered banks, consider such aspects as:

•   Account types offered

•   Account fees

•   Interest rates for deposit accounts

•   Interest rates for loans if you plan to borrow

•   Minimum deposit requirements

•   Access and convenience

•   Customer support availability

Security is another factor to weigh. The safety of mobile banking, for instance, might concern you if you’re used to managing your accounts at a branch or ATM. The good news is that online banks, chartered or not, have increasingly stepped up security efforts to protect customer accounts.

Keep in mind that you’re not limited to just one bank either. You may choose to open a checking account at a traditional chartered bank, for instance, and a high-yield savings account at an online bank. If you’re wondering whether to have a lot of bank accounts, it can be helpful to have checking and savings at a minimum.

You can use checking to hold the money you plan to spend now, and savings for the money you want to grow. Or you might prefer a simple hybrid approach that gives you the best of both worlds in one place.

Recommended: How to Open a New Bank Account

The Takeaway

Whether you open your accounts at a chartered bank or not, it’s important to find a financial institution that matches your needs. If you’ve only ever done business with traditional banks, you may want to consider the merits of using an online bank.

SoFi holds a national banking charter, an important point to consider as you think about your banking options.

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 all banks federally chartered?

No, not all banks are federally chartered. Some banks hold a state charter instead.

What is a non-chartered bank?

A non-chartered bank is a bank that does not have a federal or state charter. Neobanks are an example of a bank that has no charter, though technically, they do not meet the strict definition of a bank.

What is the difference between a state and federally chartered bank?

State-chartered banks receive their charters from state agencies. They’re subject to regulation by the FDIC or the Federal Reserve if they’re part of the Federal Reserve System. Federally-chartered banks receive their charters from the federal government and are regulated by the OCC, or Office of the Comptroller of Currency.

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Photo credit: iStock/ultramarine5

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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Sinking funds are tools that people or businesses can use to set aside money for a planned expense. For instance, you may know that you want to take a vacation next year, so you may start putting cash in an envelope in order to save up for that vacation. That, in effect, is a sinking fund.

Sinking fund categories, as such, depend on the expenses relevant to each individual. They can include auto repairs, health care costs, gifts, insurance payments, vacation funds, and more.

You can think of sinking funds as a way of “sinking” your money into an account for later use. It’s basically a savings strategy. We’ll get into it more below.

General Definition of Sinking Funds

The term “sinking fund” has its roots in the world of corporate finance, but mostly refers to the way that an individual would utilize them: for setting aside money or various types of income for a future expense.

Sinking funds are smaller offshoots of an overall budget. Putting together a sinking fund entails stashing money in reserve for the future, knowing what that money will eventually be spent on.

For instance, some people like to pay their car insurance in six-month installments. They may sock money away each month in anticipation of the next six-month installment payment, so that they’re not hit with a big expense all at once.

Their car insurance sinking fund contains the money they need, so they don’t have to scramble to cover the cost every six months.

Examples of Sinking Funds Categories

When it comes to sinking funds categories, there are no hard and fast rules. Different individuals have different financial needs and planned expenditures. As such, their sinking funds categories are going to vary. That said, some common sinking fund categories are applicable to most individuals. Here are some examples:

•   Vacations

•   Gifts and holiday-related expenses

•   A new vehicle or regular maintenance and insurance costs

•   A home purchase or home maintenance expense

•   Medical and dental costs

•   Childcare costs

•   Tuition expenses

•   Pet expenses, such as veterinarian visits

A sinking fund can be helpful in saving for just about anything.

Recommended: How to Set Your Financial Goals

Sinking Fund Category Calculations

Setting up a sinking fund is easy enough: You can stuff cash under your mattress or use a savings vehicle like a savings account. The difficulty for most of us comes in regularly contributing to it. But the trickiest part may be figuring out how much you should be contributing.

A budget planner app can come in handy, as you’ll be able to see how much money you have to dole out to your sinking fund categories after your monthly expenses have been taken care of.

Similarly, if you stick to a certain budget type — such as the 50/30/20 rule — that may help determine what you can contribute.

To calculate how much you can contribute to a sinking fund, first you’ll need to decide which sinking funds are the most important. Another consideration is which fund will need to be utilized first — perhaps you have an auto insurance payment coming up before a vacation. Priorities and timing both affect your sinking fund calculations.

In corporate finance, there is an actual sinking fund formula that helps a company figure out how much it needs to put away to pay off a long-term debt in a lump sum, while paying minimum amounts in the meantime. This can apply to individuals, too.

The formula looks at the amount of money already accumulated, multiplies it by any applicable interest, then divides it by the time period remaining on the loan. Using this calculation can tell you the monthly amount needed to be contributed to a sinking fund to reach a debt-payoff goal.

For individuals, however, it can be as simple as looking at your monthly income and dividing extra cash accordingly into your sinking fund categories.

Types of Sinking Funds

How do you save up a sinking fund? There are a few savings vehicles you can utilize.

The most obvious, and probably the simplest, is to keep the sinking fund in cash, and store it somewhere safe. Of course, that money won’t be earning any interest, and will likely lose value on an annual basis due to inflation, but it’s one way to do it.

Perhaps the best and safest option is to open up individual savings accounts at your financial institution for each of your sinking fund categories. This beats cash because your sinking fund is protected (and insured up to $250,000 by the FDIC), and you will earn a little interest on it, too.

Recommended: Money Market Account vs Savings Account

Best Time to Take Advantage of Sinking Funds Categories

Sinking funds are all about using time to your advantage, by saving up for a planned or known expense well ahead of time. As such, the best time to take advantage of them is when that expense finally does arrive, be it a pricey vacation, a new car, or sending a child to college.

There may be times or periods during the year when it’s more advantageous to save than others. For instance, most people experience a financial crunch during the holiday season — there are gifts to buy, parties to attend, and other demands on your income. So that may not be the best time to “sink” money into a fund.

Instead, think about when you may have some extra money, such as when you get a tax refund or receive a cash gift for your birthday. Those are the times when you may want to add something to your sinking funds.

The Takeaway

Sinking funds are designated cash reserves for future expenses. Using a sinking fund means that you’re stashing money away for an upcoming, known expense, and relieving some of the financial pressure of that expense ahead of time.
Sinking fund categories can vary, depending on your individual situation. Corporations and businesses also use sinking funds.

Sinking funds are a way to get ahead of your planned expenses, and give yourself some financial wiggle room. A money tracker app can help you do the same.

Take control of your finances with SoFi. With our financial insights and credit score monitoring tools, you can view all of your accounts in one convenient dashboard. From there, you can see your various balances, spending breakdowns, and credit score. Plus you can easily set up budgets and discover valuable financial insights — all at no cost.

See exactly how your money comes and goes at a glance.

FAQ

What to put in sinking funds?

You’ll put cash in a sinking fund — cash to use on an upcoming expense at a later time. What that expense is (i.e., a sinking fund’s category) will vary depending on your specific financial needs.

What is a sinking fund leasehold?

A sinking fund leasehold contains funds for repairs or renovations to a rental property. The leaseholder or landlord sets aside a small percentage of the rental money collected every month to build up the fund.

What is the difference between a reserve fund and a sinking fund?

The two are more or less the same. The big difference is that a sinking fund’s contents are designated for a specific purpose or expense, whereas a reserve fund contains funds used for general future expenses.

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Photo credit: iStock/Delmaine Donson

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

Non affiliation: SoFi isn’t affiliated with any of the companies highlighted in this article.

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.

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