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How High-Yield Savings Accounts Work

Savings accounts are where you stash cash that you want to keep secure and watch grow. But with the average interest rate on savings accounts at just 0.23% as of March 1, 2023, that isn’t going to do much to pump up your money, whether you have cash set aside for a vacation in Rio or for retirement.

But there are ways to earn more on your money while keeping it in a low-risk place. Specifically, you could open a high-yield savings account.

High-yield (aka high-interest) savings accounts often pay considerably more than standard savings accounts. As of March 2023, some offered annual percentage yields (APYs) of up to 4.55%.

Whether held at a traditional bank, online bank, or credit union, these accounts can keep your money liquid (meaning it’s nice and accessible), plus they don’t expose you to the risk that may accompany investing. However, you may have to meet a high initial deposit requirement or maintain a significant balance to reap that enticingly high interest rate.

Key Points

•   High-yield savings accounts (HYSA) offer significantly higher interest rates compared to traditional savings accounts, enhancing the growth of deposited funds.

•   These accounts are available at various financial institutions, including online banks which often provide the highest rates.

•   Funds in high-yield savings accounts are typically insured up to $250,000, providing security for depositors.

•   Accessibility to funds is easy, though withdrawals may be limited to six per month, with potential fees for exceeding this number.

•   High initial deposits and maintaining minimum balances might be required to obtain the higher interest rates offered.

What Is a High-Yield Savings Account?

First, an answer to the question, What is a high-yield or high-interest savings account? It’s a savings vehicle that functions similarly to a traditional savings account. These accounts, however, typically pay considerably higher interest rates than traditional savings accounts and almost always offer better returns than traditional checking accounts.

You may wonder, is a high-yield savings account worth it? For many people, the answer will be a resounding yes. Even a difference of one or two percent can add up over time, thanks to compounding interest — that’s when the interest you earn also starts earning interest after it’s added to your account. In other words, you make money on both your money and the interest, helping your funds grow.

You may be able to open a high-yield savings account at a variety of financial institutions, but the highest rates are often available from online banks vs. traditional banks or credit unions.

Depending on the financial institution, a high-yield savings account will likely be insured by the Federal Deposit Insurance Corporation (FDIC) or the National Credit Union Administration (NCUA) up to $250,000 per depositor.

Like other savings accounts, withdrawals from high-yield savings accounts may be limited to six times per month. Exceeding that withdrawal limit may trigger a fee. (Worth noting: While federal regulation had required all savings accounts to limit withdrawals to six per month, that rule was lifted due to the coronavirus pandemic. Institutions can now decide if they want to allow more than six transactions per month. Check with your institution to be sure.)

Earn up to 4.60% APY with a high-yield savings account from SoFi.

Open a SoFi Checking and Savings account and earn up to 4.60% APY - with no minimum balance and no account fees.


How Are High-Yield Savings Different Than Regular Savings Accounts?

As briefly mentioned above, the average savings account interest rate is currently 0.23% (that’s right, a mere fraction of a percentage point). What’s more, many of the nation’s biggest banks pay significantly less than that – only around 0.01%. Yes, it’s better than nothing, but not by much!

Here’s how the math works out: If you had $5,000 in a savings account earning 0.01% per year, you would only earn 50 cents for the entire year it sat in your savings account, assuming no compounding occurred.

Disappointing, to say the least! So if you’re looking to make more on your savings, one option to consider is a high-yield savings account (which may also be called a growth savings account).

These savings vehicles can be a good place to put money you’re saving for short-term financial goals, since they can help you get a higher-than-average return on your money but still allow relatively easy access to your cash.

How Do High-Yield Savings Accounts Work?

How a high-yield savings account works is very similar to how other savings accounts operate.

•   You make an initial deposit to open the high-interest account, while also sharing identification and other personal information with the bank or credit union.

•   You can then add to your account as you see fit.

•   You can also take money out of the account (there may be a cap on how many times a month you can do this, however), either withdrawing it or transferring it to another account.

Your account may also have minimum balances and monthly fees. This will vary with the institution. While traditional banks and credit unions may offer these accounts, it is common to find them at online banks, which have a lower overhead and can pass the savings on to you. You may find accounts that have no fees, like a SoFi Savings Account.

In many cases, your funds will be protected by either FDIC or NCUA; check with your financial institution to know the coverage limits in place.

How much interest will I get on $1,000 a year in a savings account?

Your interest will depend on where you stash the $1,000. If you put it in an account that gets only 0.01% APY, your earnings after a year would be 10 cents. In a high-yield savings account that earns 3.75% APY, you’d earn $37.50, without any compounding.

Those are the basics on how a high-yield savings account works. There’s one other angle to consider, however. It’s worth noting that the money you keep on deposit at a bank is used by the financial institution for other purposes, such as loans to their customers. That is why they pay you interest: They are compensating you for being able to do so.

How to Use a High-Yield Savings Account

A high-yield savings account can be used for a variety of purposes, just as other types of savings accounts can be.

Building an Emergency Fund

It may be a good place to build an emergency fund that is your safety net in case you have an unexpected car or household repair needed. You typically want to have a three to six months’ worth of living expenses available, but you can certainly start one of these accounts with less and add to it.

Saving for a High Value Purchase

Perhaps you are saving for a car, a cruise, or other big-ticket item. Or maybe you are getting close to having enough money for a down payment on a house. A high-yield savings account can be a secure, interest-bearing place to park those funds until you are ready to use them.

Saving Surplus Money

A high-yield account can also be a great place for any extra cash for which you may be figuring out next steps. Perhaps you received a tax refund or a spot bonus, or you are selling your stuff that’s no longer needed on eBay. That extra cash can go into a high-yield savings account rather than sit in your checking account, potentially earning zero interest.

Separating Your Money

Sometimes, setting up an additional savings account (or two) can help you organize your money. Perhaps you want to have multiple savings accounts to help you achieve different goals, such as an account for future educational expenses and one for paying estimated taxes on your side hustle. As you save money towards each of those aims, you might as well accrue some interest. A high-yield savings account will help you do that, and let you check on how your cash is growing towards each goal.

Benefits of a High-Yield Savings Account

There are definitely some big pluses to opening a high-yield savings account. Here are some of the main ones:

•   The interest rate, of course! It is typically many times that of a traditional savings account or a CD.

•   It’s a secure place to deposit funds when you are savings towards a relatively short- or medium-term goal (say, building an emergency fund, or saving for a down payment, a wedding, or another purpose)

•   These accounts often come with no fees, zero! Typically, this is the case with online banks rather than bricks-and-mortar ones or credit unions.

Recommended: How Much Money Should You Have Left After Paying Bills?

Disadvantages of a High-Yield Savings Account

You know the saying, “Nobody’s perfect”? It holds true for high-yield savings accounts, too. These accounts may not suit your needs for a couple of key reasons.

•   While the interest is higher than your standard savings account, it may not be able to compete with other financial products (such as stocks) for long-term savings, like retirement. In fact, it may not even keep pace with inflation. So if you are able to take some time and take on a degree of risk, you may be better off with stocks or mutual funds to reach some financial goals.

•   More restrictions and/or requirements may be part of the package. For instance, you may need to deposit or keep a certain amount of money in the account, especially for those high-yield accounts offered by traditional banks. Or might need to set up direct deposit or automate bill payment.

•   Less access may be an issue. It may take more steps and/or more time (perhaps a couple of days) to transfer funds when you have a high-yield savings account.

What to Look For in a High-Yield Savings Account

Ready to explore high-yield savings accounts a bit further? Here are a few things to look for (and to look out for) when considering a high-yield account.

Annual Percentage Yield (APY)

One of the most important factors to look for in a savings account, the APY is how much you’ll earn in returns in one year. Some accounts will specify that the currently advertised rate is only available for an initial period of time, so that can be something to keep in mind.

Required Initial Deposit

Many high-yield savings accounts require a minimum opening deposit. If that’s the case, you’ll want to make sure you are comfortable depositing that much at the outset.

Minimum Balance

Some banks require you to maintain a minimum balance to keep your high-yield savings account open. You’ll want to feel comfortable with always meeting the minimum threshold because falling below it can trigger fees or mean you won’t get the interest rate you’re expecting.

Ways to Withdraw or Deposit Funds

Banks all have their own options and rules for withdrawing and transferring funds. Options might include ATM access with an ATM card, online transfers, wire transfers, or mobile check deposits. Withdrawals may be limited to six per month.

Balance Caps

A balance cap puts a limit on the amount of money you can earn interest at the high-yield account rate. So, for example, if an institution offers 3% interest on your savings account, but sets a balance cap at $2,000, you would only grow that interest on the first $2,000 and not on any additional funds you may deposit.

Bank Account Fees

It’s a good idea to understand what, if any, bank fees may be charged — and how you can avoid them, such as by keeping your balance above the minimum threshold or minimizing withdrawals per month.

Links to Other Banks and/or Brokerage Accounts

Make sure you know whether you can link your high-yield savings account and other accounts you may hold. There could be restrictions on connecting your account with other financial institutions or there might be a waiting period.

Withdrawing Your Money

You’ve just read that it may be a bit more complicated or time-consuming to get your funds transferred. You should also check to see how withdrawals can be made. For instance, would it be possible to pull some funds out of your high-yield savings at an ATM? Your financial institution can answer that question.

Compounding Method

It’s up to the bank whether they compound interest daily, monthly, quarterly, or annually — or at some other cadence. Compounding interest more frequently can boost your yield if you look at the APY versus the annual interest rate (the latter takes into account the compounding factor btw).

Recommended: 52 Week Savings Challenge

How to Open a High-Yield Savings Account

Now that you’ve learned about high-yield savings accounts, you may be ready to say, “Sign me up!” If so, a good first step is to take a look at your current bank and see if they have a high-yield savings account available — that could be the quickest, easiest path forward.

If not, look for an account and interest rate that speaks to you, and move ahead. Most high-yield savings accounts can be easily opened online with such basic information on hand, such as your driver’s license, your Social Security number, and other bank account details.

How Do High-Yield Savings Accounts Compare to CDs?

Another option you can use to grow your savings is a certificate of deposit or CD.

A CD is a type of deposit account that can pay a higher interest rate than a standard savings account in exchange for restricting access to your funds during the CD term — often between three months and five years.

Interest rates offered by CDs are typically tied to the length of time you agree to keep your money in the account. Generally, the longer the term, the better interest rate.

When you put your cash in a CD, it isn’t liquid in the way it would be in a savings account. If you want to withdraw money from a CD before it comes due, you will typically have to pay a penalty (ouch). This could mean giving up a portion of the interest you earned, depending on the policy of the bank.

Another key difference between CDs and high-interest savings accounts is that with CDs, the interest rate is guaranteed. With savings accounts, interest rates are not guaranteed and can fluctuate at any point.

A CD can be a good savings option if you’re certain you won’t need to access your cash for several months or years and you can find a CD with a higher rate than what high-yield savings accounts offer.

Make the Most of Your Money With SoFi

If you’re ready to amp up your money, a SoFi Checking and Savings account can help. We make it easy to open an online bank account and — if you sign up for direct deposit — you’ll earn a competitive APY on a qualifying account. Need more incentive? How about this: SoFi has zero account fees and offers Vaults and Roundups to further grow your cash. Plus, you’ll spend and save in one convenient place.

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

Can you lose money in a high-yield savings account?

In most cases, you likely won’t lose money with a high-yield savings account. If your account is held at a financial institution insured by FDIC or NCUA, you are covered in the rare event of a bank failure for up to $250,000 per account category, per depositor, per insured institution. That said, you might lose money vs. inflation if the rate of inflation exceeds that of the APY on your high-yield savings account.

Is a high-yield savings account a good idea?

A high-yield savings account can be a good idea. It provides significantly higher interest than a standard savings account, but offers the same security and easy access/liquidity.

Can I withdraw all my money from a high-yield savings account?

You can withdraw all your money from a high-yield savings account. One of the benefits of this kind of account is its liquidity. If you are ready to close the account, check with your financial institution about their exact process for doing so.

Are there any downsides to a high-yield savings account?

There are some potential downsides of a high-yield savings account. While these accounts earn more interest than a standard savings account, they may not keep pace with inflation nor how much you might earn from investments. There may be restrictions at some financial institutions, such as a minimum balance requirement and withdrawal limits. While the funds are liquid, access may require some maneuvering. Transfers may take longer, and if you keep your funds at an online bank, you cannot walk into a branch to take out cash.


SoFi® Checking and Savings is offered through SoFi Bank, N.A. ©2023 SoFi Bank, N.A. All rights reserved. Member FDIC. Equal Housing Lender.
The SoFi Bank Debit Mastercard® is issued by SoFi Bank, N.A., pursuant to license by Mastercard International Incorporated and can be used everywhere Mastercard is accepted. Mastercard is a registered trademark, and the circles design is a trademark of Mastercard International Incorporated.


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

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

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

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

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

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


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

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

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What Credit Score is Needed to Rent an Apartment in 2021?

What Credit Score Is Needed to Rent an Apartment in 2024?

While there’s no universally required credit score needed to rent an apartment, having a solid credit score can certainly help your chances of a landlord handing you a set of keys. In general, a landlord will look for a credit score that is at least “good,” which is generally in the range of 670 to 739. However, that can vary by landlord or property manager, as well as the location in which you’re renting.

Read on to learn more about how your credit score can affect renting an apartment — and how you can approach renting if you have a lower credit score.

What Credit Score Do I Need to Rent an Apartment?

Truth is, the answer to what credit score you need to rent an apartment is a bit squishy. In general, you’ll have a better chance of approval if your credit score is at least deemed “good.”

What’s considered good? Credit scores are generally classified as follows per FICO® (keep in mind that different scoring models may vary):

•   Exceptional: 800-850

•   Very good: 740-799

•   Good: 670-739

•   Fair: 580-669

•   Very poor: 300-579

There also are variables that can affect whether your credit score qualifies you to rent an apartment. For example, if you live in a city where there is huge demand for apartments, landlords may give preference to those with higher credit scores.


💡 Quick Tip: What is credit monitoring good for? For one, maintaining a high credit score can translate to lower interest rates on loans and credit card offers with more perks.

Can You Get an Apartment if One Person Has Bad Credit?

If one person has bad credit, know that it will likely make it tougher for you to get an apartment. Landlords have a lot of leeway and can follow criteria of their choosing.

Still, it’s not impossible even if it is trickier. One smart strategy in this situation is to put the lease in the name of the person whose credit and income is best. You could also offer to show your income or provide a reference.

Check your score with SoFi

Track your credit score for free. Sign up and get $10.*


What Landlords Look at on Your Credit Report

When your landlord reads your credit report, they will be looking for clues about your financial health and habits.

Of much importance is your debt-to-income ratio. In a nutshell, this is the amount of your monthly pre-tax income that gets spent on debt payments. It’s certainly not news to you that filing for bankruptcy can have a negative impact on one’s credit. A landlord also may be spooked if you have hefty credit card balances.

Your credit history disclosed on your credit report also may include your rental history, since some landlords and rental property managers share your data with the credit bureaus. This can be a plus if you’ve been doing the right thing; if not, this can work against you.

Too many hard inquiries also can raise red flags for a landlord. This is because frequently applying for different types of credit could suggest financial instability, which increases risk in the eyes of lenders — as well as landlords.

How to Rent an Apartment with a Lower Credit Score

Just because your credit score isn’t stellar doesn’t mean you’re resigned to sleeping on a friend’s couch or living with your parents. There are ways to rent an apartment even with a lower credit score.

Pay a Higher Security Deposit

One way to show that your credit history is just history is by offering to make a higher security deposit. Say you are required to pay first and last month’s rent upfront. To sweeten the deal, maybe you tack on a couple additional months of rent.

If you want to instill confidence in your potential new landlord, this might do it. Just make sure you actually have the room in your budget to offer up the cash.

Recommended: What Is The Difference Between Transunion and Equifax?

Get a Cosigner

While getting a cosigner may put a damper on feeling like you’re finally a grownup, it may be worth sucking it up and getting a creditworthy parent or other trusted individual to cosign for your apartment. This can give your landlord peace of mind if someone is willing to pay the rent on your behalf if you’re unable to.

Just keep in mind that your cosigner will be on the hook if you miss a payment, and that cosigners generally must meet even steeper credit score and income requirements.

Play Up Your Income

Maybe your credit score is nothing to brag about, but you’ve worked hard and now have your finances in order, with solid savings and a good income. If you could show that you earn three or four times your rent on a monthly basis, that might divert attention from your lousy credit score. Additionally, if you have a solid stash in your savings account, that can also give your landlord assurance that you have the funds to cover your monthly rent.

Consider Getting a Roommate

Adding a roommate to your lease or rental agreement can increase your creditworthiness and your qualifying income. This is especially the case if you can find a roommate with good credit — and get your landlord to pull their credit first.

Benefits of Good Credit When Renting an Apartment

A landlord needs more than their gut instinct to help them determine who to rent to, which is why a credit score carries a lot of weight when it comes to getting your rental application approved. A good or — better still — an excellent score can give landlords the confidence to consider you for the apartment, especially if all other signals they get when checking on your background indicate they should give you the green light.

Having a solid credit score can help you to snag the apartment you want, and avoid the hassles associated with trying to secure an apartment when your credit isn’t as great, such as getting a roommate or a cosigner. Especially if you live in a city with a competitive rental market, a good credit score can be a serious edge.

How to Monitor Your Credit Score

Ideally, you want to check your credit and get a copy of your credit report before you start apartment hunting. It’s important to know where you stand, and if there are any errors, you want to fix them right away.

Through the end of 2023, you can get free weekly credit reports from the three national credit reporting agencies, Equifax, Experian and TransUnion.

To get your free reports, simply go to AnnualCreditReport.com .

While your credit report provides information on your various credit accounts and their balances and your payment history, it does not include your credit score. You can check your credit score by looking at a loan or credit card statement or through an online credit score checker. You can also buy a score directly through credit reporting companies. Even if you might have checked your credit score not that long ago, don’t skip doing so again — your credit score updates every 30 to 45 days.

If your score is low, consider taking steps to improve it before jumping into your apartment search. Actions like paying down credit card balances and making sure you don’t have any more late or missed payments for a stretch can show progress.

Recommended: What Credit Score Is Needed to Buy a Car?

What to Expect in 2024

According to Zillow, demand for rentals will remain strong this year. There’s an increase in the number of buildings under construction, and vacancy rates are close to what they were before the pandemic.

Market rental rates are slowing down, but that doesn’t mean housing prices are cheap. Apartment rents have risen 23.6% since the start of the pandemic. Inflated prices could lead to a rental market that is even more competitive, which may not bode well for those with less than stellar credit.


💡 Quick Tip: One way to raise your credit score? Pay your bills on time. Setting up autopay can help you keep your account in good standing.

The Takeaway

You’ll want to shoot for having a good credit score — generally in the range of 570-739 — to get an apartment. While you may be able to still get an apartment if you don’t have solid credit, it will make it more challenging with the competition you’re likely to face.

If you have the luxury of time, do what’s necessary to improve your score so that when you begin your search, you’ll be an ideal candidate. An online credit monitoring tool can make it easier.

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.

SoFi helps you stay on top of your finances.


Photo credit: iStock/MixMedia

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.

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.

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

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.

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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two nurses on a tablet

What Is the Average Nurse Salary?

Nursing can be a rewarding career in a couple of important ways. It involves caring for the health of others and helping them through what can be a challenging moment in their lives, which can be satisfying. A nursing degree can mean job stability as well. According to the Bureau of Labor Statistics, demand for nurses will increase at 6% per year, faster than the average career growth. And here’s one other important fact: The average registered nurse salary is at a median of $81,220 per year. Compare that with the median US salary for the same period of $54,132, and you can see that nursing can be a lucrative career, too.

The average nursing salary will vary depending on the type of nursing you do. For instance, there’s the average nurse salary vs. the average registered nurse salary vs. the average nurse practitioner salary. Qualifications and other factors will determine how much you make as a nurse.

Read on to learn more about this important topic. The information that follows can help you decide if nursing is the right career path for you, and, if so, which type of nursing you want to pursue.

Average Salaries for Different Types of Nurses

Wondering, “How much do nurses make?” First, understand that when considering nursing as a career, it’s vital to know about the different types of nurses. Each has its own education and certification requirements.

•   A licensed vocational nurse (LVN) or licensed practical nurse (LPN) is one of the lowest-paid jobs within the nursing field. Job responsibilities are typically similar for LVN and LPNs. California and Texas use the term LVN, while the rest of the country uses the designation LPN. These positions also have the lowest educational requirements.

While LVN/LPN roles don’t always require a college education, there are usually state-approved training certification programs. Most of these courses take aspiring LVN/LPNs one year to complete, and then they must pass the NCLEX-PN examination for state licensing. How much does a nurse make a year with this kind of credential? The average salary for LVN/LPNs as of 2023 was about $50,580 annually.

•   Aspiring registered nurses (RN) typically need a bachelor’s or associate’s degree from an accredited program. There are also some accelerated programs available and some second degree programs for students who already have a bachelor’s degree in another field.

After successfully completing their chosen coursework, nursing students must then pass the NCLEX-RN exam in order to become a certified RN. In addition, RNs usually must obtain a state license after passing the NCLEX-RN exam.

To drill down on the details here, know that each state has its own licensing board. You may want to research the specific requirements in the state where you plan to practice. How much do RNs make? The average RN salary as of 2023, as noted above, was approximately $88,220 per year. (Below you will find state-by-stage nursing salaries, though not specifically for RNs.)

Next, consider the career of a Clinical Nurse Specialists (CNS). This type of nurse has gone a step beyond RN and pursued additional education. At a minimum, you must have a master of science in nursing (MSN) to become a CNS.

A CNS typically trains extensively in a specialty area, such as emergency medicine, oncology, or women’s health. At the end of 2023, the average salary for a CNS was $99,148 annually, which is higher than the RN salary, reflecting the additional education and skills.

•   A Nurse Practitioner (NP) holds an advanced degree, but their responsibilities vary slightly when compared with a CNS. For example, in most states, a nurse practitioner is able to prescribe medication, while a CNS is not. The average nurse practitioner salary at the end of 2023 was $124,680 annually.


💡 Quick Tip: Ready to refinance your student loan? With SoFi’s no-fee loans, you could save thousands.

Average Salaries and Location

Here’s another factor that can impact the average nurse’s salary: location. After all, wages and overall cost of living can vary dramatically depending on whether you live in, say, a small town or close to a pricey urban center.

Check this chart to see how average nurse salaries compare state by state. Note that these figures reflect LPN salaries, which are at the lower end of the spectrum, but they can give you an idea of how much nurses make by location. This could be good information to consider when deciding where to practice.

State Mean Annual Nurse Salary
Alabama $45,260
Alaska $66,710
Arizona $61,920
Arkansas $45,990
California $69,930
Colorado $60,310
Connecticut $62,620
Delaware $57,360
District of Columbia $62,010
Florida $53,780
Georgia $50,830
Hawaii $55,730
Idaho $54,710
Illinois $58,840
Indiana $55,850
Iowa $51,400
Kansas $51,700
Kentucky $49,570
Louisiana $47,430
Maine $55,830
Maryland $60,180
Massachusetts $68,170
Michigan $57,180
Minnesota $54,870
Mississippi $45,020
Missouri $49,500
Montana $52,420
Nebraska $52,080
Nevada $63,910
New Hampshire $63,550
New Jersey $61,990
New Mexico $59,400
New York $57,560
North Carolina $53,010
North Dakota $53,080
Ohio $52,330
Oklahoma $48,090
Oregon $66,190
Pennsylvania $54,520
Rhode Island $66,770
South Carolina $51,060
South Dakota $46,000
Tennessee $46,540
Texas $52,850
Utah $55,790
Vermont $57,150
Virginia $52,790
Washington $69,950
West Virginia $45,530
Wisconsin $52,610
Wyoming $54,880

How Much Does it Cost to Get a Nursing Degree?

The cost of getting a nursing degree varies based on the type of nursing program you choose. Each of the nursing positions listed above requires different degrees and certification.

•   The process to become an LVN/LPN generally costs between $1,000 and $5,000.

•   Taking an RN two-year associate’s program can cost $3,500 per year at public institutions; $15,470 per year at private schools.

•   An alternative is to become an RN through a four-year bachelor’s program. This process works similarly to most other bachelor’s degree programs and typically costs the same as a four-year college or university.

•   In addition to having already been an RN, both CNS and NP careers require advanced degrees. Typically, a masters of science in nursing (MSN) is required for both positions, which can cost between $18,000 to $57,000 in total.

•   Some choose to further their education, becoming a Doctor of Nursing Practice (DNP). These degrees can be expensive but also have the potential to increase a nurse’s salary. After a master’s degree, expect to pay an additional $20,000 to $40,000, but your nursing salary is likely to rise, too.

There are usually costs beyond nursing school tuition. You’ll likely have to buy textbooks and supplies like a lab coat, scrubs, and a stethoscope. Many programs also charge additional lab fees each semester. Many schools will require nursing students to take out liability insurance and get some mandatory immunizations.

After graduating from your chosen program(s), you’ll also likely want to factor in the cost of licensing and exam fees as you enter the job market.


💡 Quick Tip: When refinancing a student loan, you may shorten or extend the loan term. Shortening your loan term may result in higher monthly payments but significantly less total interest paid. A longer loan term typically results in lower monthly payments but more total interest paid.

Paying for Your Nursing Degree

Becoming a nurse can be a pricey process, depending on the path you choose. But there are options available to help students pay for their nursing degree. The American Association of Colleges of Nursing has a database of scholarships for nursing schools. As you may know, scholarships don’t need to be repaid. This can make them an especially valuable resource in making ends meet as a nursing student.

In addition, federal aid, including grants, scholarships, work-study, and federal student loans could provide some relief. To apply, students must fill out the Free Application for Federal Student Aid (FAFSA) each year.

Student Loan Forgiveness Options for Nurses

There are a number of student loan forgiveness programs available to nurses. Keep in mind that each typically has its own program requirements, so it’s helpful to review them closely to determine whether you qualify.

•   Public Service Loan Forgiveness (PSLF) forgives certain federal Direct loans after 10 years of qualifying, on-time payments. This program is open to borrowers who work for a qualifying organization. You can find details online about qualifying for the PSLF program to see if you could benefit from it.

•   The NURSE Corps Loan Repayment Program will repay a portion of a nurse’s eligible student loans when they work full time at a Critical Shortage Facility or as a faculty member at a qualifying nursing school. Those accepted by the program are eligible to have 85% of their outstanding loan balances forgiven over a two-year commitment.

•   The National Health Service Corps Loan Repayment Program provides loan forgiveness to qualifying nurses who commit to working for two years in clinical practice at a National Health Service Corps site.

Repaying Student Loans after Nursing School

If you borrowed federal or private student loans to help you pay for nursing school, developing a repayment strategy can be valuable. Not only will it set you on a path to repaying your debt, it can teach you valuable budgeting skills as well.

If you don’t qualify for any of the available loan forgiveness options, federal student loans come with a few different student loan repayment plans so you can find the option that works best for your budget.

If you relied on private student loans to help you pay for your tuition at nursing school, you may want to review your repayment terms. Each lender will determine their own terms and conditions for the loans they lend.

As you develop a game plan to help you repay your student loans, one option to consider is student loan refinancing.

When you refinance a loan, you take out a new loan with new terms. This loan can then be used to repay your existing loans. If you borrowed multiple loans, that means you could have the option to consolidate them into one single monthly payment — potentially with a lower interest rate.

However, it’s important to keep in mind a couple of factors:

•   You may pay more interest over the life of the loan if you refinance with a longer term.

•   If you are considering refinancing federal student loans, know that they come with an array of benefits and protections that are forfeited if you refinance.

To see how refinancing could impact your student loan, you can take a look at this student loan refinancing calculator.

The Takeaway

Nursing can be a challenging but rewarding profession, and the average nurse salary could provide a well-paying career. How much do RNs make? The typical salary currently tops $88,000. There are different kinds of nursing degrees and positions, so it’s wise to do your research to understand what each one requires and which might best suit your needs. Also, financing your education as a nurse can also need research to understand the obligation and how you might fund it.

Looking to lower your monthly student loan payment? Refinancing may be one way to do it — by extending your loan term, getting a lower interest rate than what you currently have, or both. (Please note that refinancing federal loans makes them ineligible for federal forgiveness and protections. Also, lengthening your loan term may mean paying more in interest over the life of the loan.) SoFi student loan refinancing offers flexible terms that fit your budget.

With SoFi, refinancing is fast, easy, and all online. We offer competitive fixed and variable rates.


SoFi Student Loan Refinance
If you are a federal student loan borrower, you should consider all of your repayment opportunities including the opportunity to refinance your student loan debt at a lower APR or to extend your term to achieve a lower monthly payment. Please note that once you refinance federal student loans you will no longer be eligible for current or future flexible payment options available to federal loan borrowers, including but not limited to income-based repayment plans or extended repayment plans.


SoFi Loan Products
SoFi loans are originated by SoFi Bank, N.A., NMLS #696891 (Member FDIC). For additional product-specific legal and licensing information, see SoFi.com/legal. Equal Housing Lender.


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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How to Get a Mortgage in 2024

Getting a mortgage can be one of the biggest financial undertakings a person can make. What’s more, it also unlocks the path to what is typically the biggest asset and wealth builder out there: a home of your own.

Whether you’re dreaming of a center hall Colonial or a cool, loft-style condo, the odds are, you will need a mortgage to make home ownership happen. But these days, with mortgage rates rising, snagging that home loan can require a little more knowledge and preparation.

This guide will help you get up to speed and ready your application. Read on to learn:

•   How to get a mortgage right now

•   What matters most to lenders

•   What are the typical mortgage requirements

•   What steps are needed to get a mortgage

What Mortgage Lenders Look At

A good first step to getting a mortgage is to understand how you will be evaluated by lenders so you can put your best foot (or financial profile) forward. Consider the following:

Your Credit Score

Your credit score is an important number: It tells lenders how well you have managed debt in the past. Ideally, you have a good history of paying your bills on time. If, however, you have been late with payments or have defaulted in the past, your credit score may be a red flag as you apply for a mortgage.

•   Typically, you will need a credit score of 620 or higher to qualify for a conventional home loan.

•   However, those with scores of 740 or higher may snag the best (meaning lower) rates.

•   If your score is at least 580, you may qualify for a government-backed loan (more on those below). Even those with a credit score of 500 to 579 may be eligible in some cases.
If you’d like to build your credit score, try these steps:

•   Get a free credit report (one per year) from www.annualcreditreport.com. It will include bill payment history, current debt, and other information lenders typically check on. If you see any errors, report them.

•   Be impeccable with payment deadlines. The timeliness of your payments is the largest contributing factor to your credit score, so optimizing this area can have a positive impact.

•   Manage any situations where you owe money. Unpaid bills that linger and go from 30 to 60 to 90 days (or more) late can bog down your credit score. Prioritize paying overdue bills.

Your credit score is important: The higher your score, the more reliable and creditworthy you appear.

Debt-to-Income Ratio

Another number that lenders will be interested in is your debt-to-income (DTI) ratio. This shows how the amount of debt you are carrying relates to your income. Here’s how DTI is calculated:

•   Total your monthly minimum debt payments, such as student loans, car loans, credit-card bills, current rent or mortgage and property taxes, and the like.

•   Divide that total debt number by your gross monthly income (that is, before taxes and other deductions are siphoned off).

•   The resulting number is your DTI.

The DTI figure that lenders look for may vary. Some lenders want to see 36%; others will be comfortable with up to 43%. Government-backed loans are likely to accept higher DTI’s than other lenders.

Why does DTI matter? Lenders want to see that you can handle the financial burden of a mortgage without struggling.

Income History

Lenders want to see signs of a positive, stable income. Ideally, you have been employed for at least two years and your income is steady, if not trending upward.

This tells lenders that you are a person they can count on to pay back the funds you borrow. If you have been out of work or have job-hopped recently, it might be wise to wait a bit before applying for a mortgage until you can show the income history that lenders want to see.

Assets

Lenders will likely want to see that you have some assets available, such as cash in the bank or other fairly accessible funds. This is where a healthy emergency fund and money saved for a down payment can be a real boost.

These kinds of savings can reassure a lender that you are ready to buy and, even if you were hit with a major expense or were laid off, you could still pay your monthly mortgage and stay current on your home loan.

Property Type

The kind of property you are planning to buy may make a difference to lenders as well. For instance, if you are seeking to buy a single-family home that will be your primary residence, you may look more attractive to lenders than someone who already has a primary home and is buying a ski condo they will rent out on Airbnb. The former could seem more motivated to stay current on their mortgage payments than the latter.


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Get Familiar With the Required Mortgage Documents

Now that you know how lenders size you up for a loan, consider the documents that you will likely need to apply for a mortgage:

•   Proof of income: Get ready to break out those W-2s, 1099s, and tax returns. The lender will need solid proof of your recent income.

•   Credit documentation: You will likely sign a release allowing the lender to review your credit report to assess your history on that front.

•   Proof of assets and liabilities: You will probably need to share bank statements, investment account statements, and other documents to verify what assets you have. Your lender may want to see paperwork regarding any student or auto loans and other debts as well.

These forms allow a lender to consider your level of financial security and whether you are a good risk to offer a mortgage loan.

How to Get a Mortgage: 9 Steps

Now that you understand the paperwork you need and how lenders will look at your qualifications for a mortgage, consider the steps required to actually get the loan you need to buy a home.

1. Checking Your Credit

As mentioned above, it’s wise to check your credit score and review your credit report. If your number and record aren’t optimal, take the necessary steps to improve the situation, such as diligently paying bills on time, clearing up any errors on your record, and taking care of any debt that’s past due.

2. Figuring Out Your Home-Buying Budget

As you contemplate buying a home, develop a budget. You want to be sure that you have an adequate down payment and can afford your monthly mortgage payment. But don’t overlook these costs that need to be part of your budget:

•   Closing costs and related expenses

•   Funds to make any repairs/renovations required

•   Moving expenses

•   Home insurance premium

•   Property taxes

•   Utilities (especially important if you are moving from a rental where your landlord paid some of these costs to your own home)

•   Maintenance and upkeep costs (landscaping, HVAC service, etc.)

These expenses should be tallied and accounted for; you don’t want to wind up with your heating bill becoming a reason to use your emergency fund.

3. Saving for the Down Payment and Closing Costs

One important element of your home-buying budget is the down payment plus closing costs. Here’s how much you are probably going to need to set aside:

•   Down payments for a conventional loan have traditionally been 20% of a home’s cost, but there is some flexibility. A recent survey by the National Association of Realtors found that first-time homebuyers typically put down 8% on a home purchase.

•   Keep in mind that if you put down less than 20%, you will likely have to pay private mortgage insurance (PMI), since your lender may want extra protection in case you default on your loan.

•   Some loans are available with as little as 3% down or even (for government-backed ones) zero money down.

•   Closing costs will likely amount to 3% to 6% of the loan amount. They include fees for processing your loan, home appraisal, title search, and other activities.

4. Choosing the Right Mortgage Option

It’s worth reviewing some of the different loans that you may qualify for.

•   Conventional vs. government-backed loans. Conventional loans typically have stricter income, credit score, and other qualifying factors, while government-backed loans may be easier to obtain. Government-backed loans may have lower (or even no) down payment requirements. Examples of these government loans are FHA, VA, and USDA loans.

•   Type of rate: For some borrowers, a fixed-rate loan, with its never-varying monthly payment, may be best. For others, an adjustable-rate one that fluctuates may be more appealing. The payments tend to start out low, which can be attractive for those who may sell their home within a few years’ time. You may also look into mortgage points, which involve paying more upfront to shave down your rate over the life of the loan.

•   Mortgage loan term: Many loans last 30 years, but there are other options, such as 10, 15, or 20 years. The shorter the term, the higher your payment is likely to be.


💡 Quick Tip: Backed by the Federal Housing Administration (FHA), FHA loans provide those with a fair credit score the opportunity to buy a home. They’re a great option for first-time homebuyers.1

5. Comparing Mortgage Lenders

Next, it’s wise to review different mortgage lenders and see what kind of rates and terms are quoted. For example, your own bank may offer mortgages and could give you a good rate in an effort to keep your business with them. Or you might look into online lenders, where the process can be more streamlined and the rates possibly better than traditional options.

You might also decide to work with a mortgage broker to get help learning about your alternatives.

6. Getting Pre-Approved for a Mortgage

For this stage, you will begin your actual interaction with a lender. The goal is a preapproval letter, which can help you as you go home shopping and bid on properties. While not a guarantee of a mortgage, it shows you are serious about buying and are on the path to securing your funding, and it reflects that the lender found you qualified for a mortgage.

You can expect the lender to do a credit check, verify your income and assets, and consider your DTI. If all goes well, the lender will provide you with a preapproval letter, and you can shop for a home in the designated price range.

It can be wise to get preapproved by more than one lender. This can help you evaluate different offers and broaden your options when it’s time to apply for a loan.

First-time homebuyers can prequalify for a
SoFi Mortgage Loan, with as little
as 3% down.


7. Making an Offer on a Home

With your pre-approval letter done, you are ready to go home shopping. As you tour properties and make offers, you are on your way to getting to an accepted offer. When that happens (a big moment!), you will hopefully be on the path to home ownership. If contract negotiations and the inspection goes well, you will likely move along to the next step.

8. Applying for a Mortgage

Next, it’s time for the full-fledged mortgage application. Expect to submit the following, and possibly more:

•   Two years’ worth of W-2 forms or other income verification

•   A month’s worth of pay stubs

•   Two years’ worth of federal tax returns

•   Proof of other income sources

•   Recent bank statements and documentation of possibly recent sources of deposits

•   Documentation of funds/gifts of money to be used as your down payment

•   ID and Social Security number

•   Details on debt such as student loans and car payments

9. Closing on a Home

As you wait for your closing date, a home appraisal, loan underwriting, title searches, and more are happening. If things progress smoothly, you will be ready to close on your home. You also may wish to bring your real estate agent and/or attorney with you to this meeting. They can help explain everything — especially valuable if you are a first-time homebuyer.

You will gather to sign all your forms, submit your down payment and closing costs (or provide proof of wire transfer), and become a homeowner. Congratulations!

The Takeaway

The path to home ownership can be a long and winding road but worth it as you gain what could be your biggest financial asset. By preparing to present a credit-worthy file and following the steps needed to apply for a home mortgage, you can be on your way to owning your dream house.

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 do you improve your chances of getting approved for a mortgage loan?

You can improve your chances of getting approved for a mortgage by checking on your credit score (and improving it, if necessary), showing a debt-to-income ratio of ideally 36% or lower, and having two years’ of a steady job history.

How do I begin a mortgage?

The first step in getting ready to apply for a mortgage can involve checking up on your financial profile to see how it will look to potential lenders and optimizing it. You can then research different kinds of loans and their requirements and get pre-approved by one or more lenders to see what you qualify for. When you have found a home and are ready to apply for your mortgage, you’ll gather the credentials you’ll need (such as proof of income and assets, tax returns, and ID) and fill out your application.

What is the lowest income to qualify for a mortgage?

There is no one set income required to qualify for a mortgage. Much will depend on how much you want to borrow versus your income, how much debt you are carrying, and your credit score. For those who have a lower income, there are government-backed loans that may be suitable; it can be worthwhile to look into FHA, USDA, and VA loans to see what you might qualify for.

What credit score is needed to get a mortgage?

Typically, a credit score of at least 620 is required for a conventional loan, and the higher your score (say, in the 700s or higher still), the more loan options and lower rates you may find. For those with a credit score of at least 580, there are government-backed loan products available.


¹FHA loans are subject to unique terms and conditions established by FHA and SoFi. Ask your SoFi loan officer for details about eligibility, documentation, and other requirements. FHA loans require an Upfront Mortgage Insurance Premium (UFMIP), which may be financed or paid at closing, in addition to monthly Mortgage Insurance Premiums (MIP). Maximum loan amounts vary by county. The minimum FHA mortgage down payment is 3.5% for those who qualify financially for a primary purchase. SoFi is not affiliated with any government agency.
*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.

SoFi Loan Products
SoFi loans are originated by SoFi Bank, N.A., NMLS #696891 (Member FDIC). For additional product-specific legal and licensing information, see SoFi.com/legal. Equal Housing Lender.


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


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.

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 .

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.

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.

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.

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Guide to Liquid Net Worth

If you’re wondering how your financial health is tracking, you may want to figure out your net worth and your liquid net worth. These two numbers reflect what your assets (what you have) vs. what you owe, helping you see how your personal wealth is evolving.

While totaling up your net worth offers a more big-picture view of your total assets with your total liabilities subtracted, liquid net worth is a slice of that. It focuses on solely the amount you own in liquid assets minus your total liabilities.

This reflects how much cash you truly have access to or could quickly raise if for some reason you needed to.

Here’s a guide to determining your liquid net worth and ways to improve it.

Key Points

•   Net worth is the value of your assets minus your liabilities, while liquid net worth focuses on easily accessible assets.

•   Liquid net worth includes cash, checking and savings accounts, stocks, bonds, and other assets that can be quickly converted to cash.

•   Non-liquid assets like real estate and retirement accounts are not included in liquid net worth calculations.

•   Liquid net worth is important for financial stability and emergency preparedness.

•   Strategies for improving liquid net worth include building an emergency fund, reducing expenses, paying off high-interest debt, and increasing investments.

What Is Liquid Net Worth?

First, know that net worth is the amount of assets you have minus your liabilities, or what you owe. When it comes to income vs. net worth, you see that your worth is more than just what you earn; it’s also what you keep and how you invest and grow your money.

For instance, if you have a high income but spend it all because your cost of living is very high, your net worth could be very low despite your healthy salary.

Now, what is liquid net worth’s meaning? That’s the same calculation as net worth, but only looking at assets that could easily be tapped. So, you would exclude the value of, say, the home you are living in or your retirement accounts which you can’t touch until decades from now.

Liquid net worth reflects assets you could draw upon right now if you had to, without putting your home on the market or pulling money out of an IRA. Net worth vs. liquid net worth, on the other hand, represents all your assets, whether easily tapped or not.

What Counts for Liquid Net Worth Calculations?

Here are some assets that can count when calculating liquid net worth:

•   Cash

•   Money in a checking account

•   Money in a savings, CD, or money market account

•   Mutual funds, stocks, and bonds

•   Possibly jewelry and watches that could be quickly sold, if need be.

Typically, you do not include real estate or retirement savings when calculating liquid net worth as these can’t be cashed in on the spot if that was your goal.

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Net Worth vs Liquid Net Worth

As briefly mentioned above, your total net worth includes all of your assets (what you own) and liabilities (what you owe). When you determine your net worth, you add up all your assets, including non-liquid assets, such as your house, car, and retirement accounts, and then subtract all of your liabilities. The resulting number is your total net worth.

•   Your liquid net worth is the amount of money you have in cash or cash equivalents (assets that can be easily converted into cash) after you’ve deducted all of your liabilities.

It’s very similar to net worth, except that it doesn’t account for non-liquid assets such as real estate or retirement accounts.

•   Your total net worth gives you a picture of your overall financial strength and balance sheet, while liquid net worth shows how much money you have available that is quickly accessible in case of emergency or other financial hardship.

•   Both measures of net worth can give you a useful snapshot of your financial wellness, since they consider both assets and debts. Looking at your assets without considering your debts can give you a false picture of your financial situation.

•   Knowing and tracking these numbers can also tell you if you are moving in the right or wrong financial direction. If your net worth or liquid net worth is in negative territory or the numbers are declining over time, it can be a sign you need to make some changes and/or may want to put off making a major purchase such as a home or a car.

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Why Liquid Net Worth Matters

Your liquid net worth is a measure of your ability to weather a financial storm. Imagine you need money for something important — a major home or car repair, a trip to the ER, or getting laid off and deciding to start a new business.

You need it now… or, at least, within the next few weeks or months. Where are you going to get the money?

You might not want to look at cashing in things like your home, your car, your retirement savings, your baseball card collection, or Grandma’s wedding ring unless it’s absolutely necessary.

Those kinds of assets can be difficult to convert to cash in a hurry — and there could be consequences if you did decide to go that route.

Instead, it may be easier to tap your more liquid assets, such as cash from a checking, savings, or money market account, or cash equivalents, like stocks and bonds, mutual funds, or money market funds.

Liquid net worth is often considered a true measure of how financially stable you are because it tells you what you can rely on to cover expenses. In addition, your liquid net worth acts as an overall emergency fund.

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Calculating Your Liquid Net Worth

The difference in calculating net worth and liquid net worth is understanding which of your financial assets are liquid assets.

Liquid assets are cash and assets that could be converted to cash quickly. The following are considered liquid assets.

•   Cash: This includes the money that is in your wallet, as well as the cash you have in any savings, checking, and money market accounts.

•   Stocks: Any equity in a brokerage account, such as stocks, index funds, mutual funds, and ETFs, is considered a liquid asset. While you might have to pay taxes and other fees if you sell equities to convert to cash, you could liquidate these assets fairly quickly.

•   Bonds: Like equities, any bonds or bond funds are also liquid assets. Again, you may have to pay taxes on your profits when you sell, but the translation is relatively quick.

Non-liquid assets include anything that cannot be converted to cash quickly or for their full value, such as:

•   Retirement accounts, such as 401(k)s and IRAs.

•   A house or other real estate holding (which could take a while to sell and the actual sales price is not known).

•   Cars (while you may be able to liquidate a car relatively quickly, cars generally don’t hold their original value; they depreciate).

Liquid Net Worth Formula

For a liquid net worth calculation, here are the steps to follow:

•   List all of your liquid assets: The cash and cash equivalents you could easily and quickly get your hands on if you need money.

•   Next, list your current liabilities, including credit card debt, student loan balance, unsecured loans, medical debt, a car loan, and any other debt.

•   Subtract your liabilities from your liquid assets. The result is your liquid net worth.

4 Tips for Improving Liquid Net Worth

If your liquid net worth is too low to cover at least three to six months’ worth of living expenses or is in negative territory, you may want to take some steps to bolster this number. Here are some strategies that can help boost liquid net worth.

1. Building an Emergency Fund

If you don’t already have a solid contingency fund set aside in a liquid account, you may want to start building one. Having enough cash on hand to cover three to six months’ worth of expenses can be a great place to start building your liquid net worth.

An emergency fund can help keep you from getting behind on your bills and running up high interest credit card debt in the event of an unexpected expense, job loss, or reduction in work hours.

It’s fine to build towards this slowly. Automating your savings to deposit, say, $25 per paycheck into an emergency fund can be a good starting point if money is tight.

2. Reducing Expenses

For every dollar you save each month, you are potentially increasing your liquid net worth by that amount. One way to cut spending is to take a close look at your monthly expenses and to then try to find places where you may be able to cut back, such as saving on streaming services, lowering your food bills, or shopping around for a better deal on home and car insurance.

3. Lowering High-Interest Debt

Debts add to your liabilities and therefore lower your liquid net worth. Expensive debt also increases your monthly expenses in the form of interest. This gives you less money to put in the bank each month, making it harder to build your liquid net worth.

If you’re carrying credit card debt, you may want to start a debt reduction plan (such as the “debt snowball” or “debt avalanche” method) to get it paid down faster.

4. Increasing Investments

Investing money in the market for long-term savings goals, such as a child’s education, can increase your liquid net worth. While there is risk involved, you’ll have more time to ride out the ups and downs of the securities markets when saving for the longer term.

Recommended: Average Net Worth by Age

The Takeaway

Liquid net worth is the amount of money you have in cash or cash equivalents after you’ve deducted your liabilities from your liquid assets. It doesn’t account for non-liquid assets, such as real estate or retirement accounts.

Your liquid net worth can be a valuable measure of your financial health and stability because it shows how prepared you are to handle a change in plans, an unexpected expense, or a true emergency.

One easy way to boost your liquid net worth is to start building an emergency fund. If you’re looking for a good place to start saving, you may want to consider opening a high-interest bank account.

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 a 401(k) count as liquid net worth?

When calculating liquid net worth, you typically do not include retirement accounts nor real estate. Liquid net worth’s meaning involves assets you can quickly tap without paying a large penalty.

How do you calculate liquid net worth?

To calculate your liquid net worth, add up your liquid assets (cash, money in the bank, stocks, bonds, and the like) and subtract your liabilities (credit card debt, student loans, car loan, etc.). When adding up your assets, do not include real estate or retirement accounts.

What is the average liquid net worth by age?

Figures for average liquid net worth are hard to come by. Rather, total net worth is what is typically tracked, which was recently found to be approximately $76,300 for those under age 35, $436,200 for those 35 to 44; $833,200 for those 45 to 54, and $1,175,900 for those 55 yo 64. It may be helpful to also consider the media values for these age brackets, which are significantly lower than the average.


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

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

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

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

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

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


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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