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There’s nothing like the convenience and freedom of having a car at your disposal when traveling, but it can definitely add to the cost of a trip.

What’s more, it can be hard to know just how much a car rental will add to the bottom line because the daily rate you see advertised may wind up not reflecting the amount you will pay once surcharges are added to the bill.

But with some smart strategies, you can control the costs of renting a car. These include uncovering special offers and deals, knowing which day of the week is cheapest to rent a car, and avoiding those pricey add-ons that you don’t truly need.

12 Tips to Save Money on Car Rentals

These tactics can help you save money the next time you rent some wheels while traveling.

1. Understanding All Those Add-On Costs

At first glance, advertised deals on car rentals can seem inexpensive.

The sticker shock may come once you’re actually at the counter. That’s because, in addition to the base rate of a rental car, costs may include:

•   Additional driver cost. Are you going to be the only driver or will you be sharing driving duties with someone else? If someone else will be driving, it’s a good idea to add them to the rental to potentially avoid liability if something were to happen if someone else were behind the wheel.

•   Fuel Purchase Option (FPO). This option allows a renter to pay for the full tank of gas at the time of rental and return the tank empty. It may be cheaper to fill the tank yourself. However, if you are the kind of person who likely returns a car close to the deadline and is racing to catch a flight, the FPO can save time and might be worth it.

•   Fuel and Service. If you forgo the FPO and don’t return the car with a full tank, you will likely be charged for the cost of fuel, as well as a fee for the refueling service.

•   Insurance. Insurance can include Loss Damage Waiver, Liability Insurance, Personal Accident Insurance, and Personal Effects Coverage. This insurance may or may not be necessary, depending on your existing car insurance coverage or the possibility of coverage via the credit card used for the reservation.

•   Premium Emergency Roadside Service. This service can provide roadside assistance in the event of an emergency.

•   Additional fees and taxes. Fees and taxes are not optional and can add up. Taxes and fees are dependent on where you rent your vehicle (different states have different taxes). There is typically an additional fee for cars rented at an airport or a hotel, which can add to your bill and take a bite out of your checking account.

•   Toll fees. This typically includes not only the cost of driving on toll roads, but also convenience fees for having a transponder included in your rental to seamlessly pay those charges.

By knowing which charges can crop up and scanning for them, you may be able to avoid those extra costs. (Think of how many people opt for online banks vs. traditional ones to save on fees; it’s the same “do your research and save” principle at work.)

Recommended: How to Save Money on Gas

2. Considering Your Insurance Coverage

One way to get the cheapest possible deal on a rental car is to make sure you’re not doubling up on insurance coverage.

Find out what your car insurance covers. It may cover collision damage, and your homeowner’s or renter’s insurance may cover personal items that could be stolen from your vehicle.

But the disadvantage would be that if the worst were to happen, you would need to file a claim through your personal insurance, which could cause your rate to increase.

As noted above, your credit card’s car rental coverage may be a money-saving option. This can be a good travel hack that allows you to waive the insurance offerings from a rental car company yet not need to use your personal car insurance to file a claim.

Some pointers:

•   If you are renting a car with a credit card, as many people do, find out if your card has the coverage you need. You can check your card’s benefits to see if it includes primary car rental coverage. If it does, it’s a good idea to read the fine print for exactly what the insurance covers, as well as any coverage limits.

•   Calling your credit card company, as well as your car and home insurance companies, with any questions can give you a full picture of whether or not added car rental insurance is necessary for your situation.

You may also be able to waive roadside service if you have a membership to another roadside assistance company.

3. Looking Beyond Airports and Hotels

Because of the fees associated with renting from an airport or hotel — which can add as much as 26% to your total bill — it may be cheaper to rent from an outpost within the city.

The flip side is that it’s less convenient, and you may need to take a taxi or use a rideshare service to get to and from the car rental agency.

Comparing costs of rentals both at the airport and within 20 miles (adding in the cost of getting to that other location) can help you assess whether giving up some convenience will pay off.

4. Signing Up for Loyalty Programs

Before you rent a car, it can be helpful to sign up for several loyalty programs across rental companies. (To avoid junk mail, consider creating a separate email address to register for loyalty programs.)

Some rental car programs will give you an automatic percentage off just for being a member. Other rental car programs may give additional perks, such as upgrades or separate lines at the agency, which can help you avoid the hassle.

5. Using Your Memberships

There are various ways to snag a reduced price on your car rental, including working your memberships.

Many big-box stores and wholesale clubs have ties with rental car companies that can net you significant discounts if you’re a member. Auto clubs (like AAA), trade associations, unions, as well as AARP, may also offer rental car perks and discounts, including insurance on rental cars.

Shop around, and don’t be surprised if the most enticing deals and ways to spend less emerge from an unexpected source.

6. Booking Early

Reserving a car as soon as you know your travel dates can be a money-wise move. Here’s why: Rental car companies often keep a limited number of cars in their fleets. As a result, they need to estimate demand several weeks ahead of time. To encourage customers to book early and help them manage their pool of vehicles, they may offer lower rates when you reserve in advance vs. last-minute.

Booking a car in advance can help you not only get a better deal but also help to ensure you’ll get the car you want. This can help you avoid paying for a Suburban when all you need is an economy car.

If you do book early, consider searching prices again right before your trip.

•   If you find a better deal last-minute, you may be able to request a price adjustment from your original agency.

•   Or you may be able to cancel your current reservation and book a cheaper reservation at another company.

Before you book, you may want to read through the cancellation policy and make sure there is no penalty for canceling.

7. Shifting Your Dates

Prices of rental cars can fluctuate based on demand, and these fluctuations can sometimes be significant.

Of course, you can’t always change the days of your trip. But as a frugal traveler, you may want to weigh the cost-benefit of not having a rental car for a few days to score a lower rate.You could reap significant savings.

The cheapest day to rent a car can vary depending on market demand, but you may see lower rates on weekdays versus weekends, according to AAA.

8. Noting Any Damage Before You Drive Away

You may be eager to get on the road, but it’s a good idea to do your due diligence and make sure you point out and/or document any damage to the car when you receive it. Consider the following:

•   No matter how minor a scratch or ding, you could get charged for the damage unless you account for it on your rental agreement prior to driving away.

•   You may be asked to mark damage on the car rental agreement, but you may also want to take photos as well. That way, there is less likely to be any dispute about the extent of any damage or markings.

Recommended: Different Ways to Earn More Interest on Your Money

9. Paying Tolls in Cash if You Can

Rental car companies commonly tack on fees for using their transponder (the gizmo that lets you whiz past toll booths), in addition to the toll itself.

You may also have to pay a daily convenience fee for having the transponder even if you don’t use it.

To avoid using the rental company’s transponder, try these hacks:

•   Pay cash at tolls that still accept it. For cashless tolls, you may be able to pay online later.

•   It may also be possible to use your own transponder. Some transponders (such as E-ZPass) can be used in multiple states, so it could be worth doing your research beforehand to see if your personal transponder is accepted.

•   For a longer-term rental, you might consider buying a transponder or toll pass that is accepted in the state where you’ll be driving. In many cases, the fee for the pass goes into your account as credit for tolls.

10. Bringing Your Own Car Seat

Rental car companies may offer infant and child car seat rental options, but the additional charges can add up. You might pay $10 to $15 per day, per seat, plus tax, up to a cap of $84, give or take.

In addition to the cost, you may not necessarily know the size and reliability of a rental car seat.

Obviously, it is not always convenient to bring your own seat, but it may be a better bet when possible. Even though car seats are bulky, airlines typically don’t charge baggage fees on them.

11. Think Small and Simple

This one may be obvi, but renting a larger or premium car will likely jack up your costs considerably. Though this is a no-brainer, it’s easy to creep into higher pricing tiers as you scroll through the options and see a cool SUV or convertible next to that economy sedan you originally thought you wanted to book.

For example, a recent search on Kayak found that rental cars can range from $22 to $150 a day or more in Los Angeles, depending on the company, location, and car itself (from compacts to SUVs, from minivans to luxurious convertibles). That’s a major difference!

Recommended: How to Make Money Fast

12. Let One Person Do the Driving

It’s not always possible, of course, to have a single driver (say, if you’re criss-crossing the United States), but for shorter distances, having just one driver can help you save money.

Many rental car agencies will add $3 to $11 or more a day for an additional driver who is not a spouse, domestic partner, or business partner. This can vary by state and have a maximum charge per rental period So, if you are on a trip with a friend and the distances are fairly short (perhaps zipping between Miami and the Florida Keys), having just one driver can help cut rental car costs.

The Takeaway

Car rentals often end up costing more than you expect, due to add-on costs and the details of when and where you rent a vehicle. To get the best deal on a rental, it’s a good idea to do some research in advance so you can get the best rates and opt out of the extras you don’t need.

You can also explore other ways to get a good deal, such as looking for discounts through clubs and organizations you already belong to, shifting your dates slightly, and trying other clever hacks. This can help you keep more money in the bank vs. overspending on your wheels.

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

FAQ

How can you get a discount on a rental car?

Strategies for getting a discount on a rental car include comparing prices using online aggregator sites, booking early, being flexible about when and where you pick up and drop off the vehicle, and looking for memberships (like AAA) and perks (like credit card points) that can help you lower costs.

Is it cheaper to rent a car by the week or by the day?

It’s typically cheaper to rent a car by the week. You may even find that paying to rent a car for a week when you only need the vehicle for five days is more affordable than renting it for five single days.

How can you get around car rental fees?

It’s important to do your research about what fees may be added and see how you can minimize them. For instance, does your car insurance or your credit card offer insurance coverage when you rent a car? Can you bring your own car seat vs. renting one if traveling with a child? Can you avoid the surcharge often charged when you rent at the airport by instead taking a short cab or bus ride to another location? These moves can help lower costs.

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

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

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

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

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

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

We do not charge any account, service or maintenance fees for SoFi Checking and Savings. We do charge a transaction fee to process each outgoing wire transfer. SoFi does not charge a fee for incoming wire transfers, however the sending bank may charge a fee. Our fee policy is subject to change at any time. See the SoFi Bank Fee Sheet for details at sofi.com/legal/banking-fees/.
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SOBNK-Q125-025

If you are looking for some relatively painless ways to spend less, read on. There are all kinds of ways to slash expenses that don’t require much, or any, sacrifice. These can include trimming back some of your recurring bills to tweaking your typical shopping habits. You’ll even learn smart ways to avoid the temptations that can lead to overspending.

Ready to improve your cash flow? Here are 23 simple ideas for how to cut back on spending.

23 Ways to Cut Down Your Spending

Ready to start saving money? Pick and choose among these ideas to find the tips that suit you best.

1. Canceling Subscriptions

There’s a decent chance that you are leaking money on a subscription service that you are not getting much value from.

Scan your checking account and credit card statements for things you’re paying for on a recurring basis and consider canceling anything you don’t really need.

That might mean magazines or newspapers you rarely read, online software you aren’t using, and/or shopping services and other memberships that aren’t worth it anymore.

If you’re looking to save money faster, you might cut down on multiples. For instance, do you really need membership at two different yoga studios? Just one might be fine, and you’ll wind up with more money in your checking account.

2. Cutting the Cord

If you’re paying a high price for cable each month, you may want to think about switching to a streaming TV service. This budget-cutting move could save $40 to nearly $100 per month.

Just don’t let that get out of hand. You likely won’t save on streaming services if you sign up for Netflix, Max, Hulu, and a couple of others.

If you are not quite ready to cut the cord, you may still be able to shrink this monthly line item just by calling your cable service provider and asking for a better deal. Research better deals available elsewhere and cite those when talking to a customer service representative.

3. Revisiting Your Cell Phone Plan

Another way to significantly cut monthly spending is to take a closer look at what you’re paying for your cell phone service and exactly what you are getting.

You can then compare this with the competition and, if you see a better deal, call your provider and see if they will match it.

If you don’t see much wiggle room, you might consider going with one of the smaller MVNOs (mobile virtual network operators) that lease coverage from the major carriers, such as Cricket Wireless, Metro, and Visible.

Or, if you just need a basic plan, you can look into Consumer Cellular or H2O Wireless, which often offer affordable cell phone plans for individuals.

Before switching carriers, however, it’s a good idea to make sure that the carrier has strong coverage in your area. Saving money is great, but may not be worth it if you don’t get quality service.

4. Getting Into the Meal-Planning Habit

An easy way to cut back on food spending is to make a meal plan and a firm shopping list before you go to the grocery store. To cut spending even more, you can check your store’s weekly ads and plan meals around what’s on sale that week.

This can be as simple as picking a few basic recipes that you want to make throughout the week. You may want to try a meal planning app, such as Mealime, among others.

Not only will this help you avoid impulse buys at the supermarket and ordering takeout, but you will likely be able to buy in bulk, cook once and enjoy the leftovers, and otherwise streamline your budget and your life.

5. Actively Paying Down Credit Cards

If you’re currently only paying the minimum on your credit cards, a big chunk of your payment is likely going toward interest and you may be doing little to chip away at the principal.

Doing this every month can increase the amount of time you’re in debt, and increase the total amount of interest you’ll end up paying. That in turn can make it harder for you to plump up your savings account.

If you can swing it, consider putting more than the minimum payment towards your bill each month. This can help you pay off credit cards faster, so you’re not spending so much money on interest.

6. Renewing Your Library Card

How else to cut back on spending? If you’re a reader and love books, a fun and easy way to cut your spending is to fish out that old library card, or if you don’t have one, stop into your local branch and apply for a card.

The library can be a great resource for more than books. For example, you can often access magazines, newspapers, DVDs, music, as well as free passes to local museums. There are also services on your computer and phone that let you stream digital media; check out Kanopy and Hoopla, for instance.

7. Carrying Cash

There’s something about using plastic that can make it feel like you are not really spending money.

That’s why an effective way to cut back on spending is to take out enough cash at the beginning of the week to cover your daily expenses for that week and then leaving your credit and debit cards at home.

Or, you might try the envelope system (a budgeting method), where you designate an envelope for each expense category, then put enough cash inside to get you through the week. When you run out, you can’t spend anymore.

Using cash can also help you become more aware of and intentional with your purchases. You see exactly what you are spending as you go through your day.

8. Eliminating Bank Fees

How to cut back on expenses can involve taking a look at just what fees your bank may be charging for your checking and savings accounts.

They might include service fees, maintenance fees, ATM fees (if you don’t use their in-network machines), minimum balance fees, overdraft or insufficient funds fees, and/or transaction fees. And all those charges can eat away at your funds.

You may be able to cut your monthly spending by switching to a less expensive bank, which could mean an online bank, which tends to offer low or no fees.

9. Clicking Unsubscribe

Do your favorite retailers fill your inbox with tempting sales alerts, whether that’s 75% off, buy-one-get-one offers, or free shipping? One effective way to cut back on spending is to get off their email lists.

Sales and great deals are happening all the time, but generally the best time to purchase something is when you really need it.

If the enticement to spend doesn’t constantly land in your inbox, you’ll be less likely to click through and buy.

Recommended: How to Deposit a Check

10. Consider a 30-Day Spending Freeze

One quick way to change your spending habits is to put yourself on a 30-day nonessential spending freeze.

Or, if that seems too tall an order, you might pick a category (such as clothing or wine) to stop spending on for a month.

A spending freeze can immediately pay off, by leaving more money in the bank (or fewer bills) at the end of the month. And, once you start seeing the payoff of not giving in to impulse buying, you may find yourself spending less even after the freeze is over.

Recommended: Impulsive or Compulsive Shopping: How to Combat It

11. Keeping Your Tires Properly Inflated

A simple way to cut weekly spending on gas is to stop into a local station that offers free air once a month, and do a quick air pressure check on your car tires. If they aren’t inflated to the optimal PSI, you’ll want to fill each one to the maximum recommended amount (as stated on the tire or in your manual).

Here’s why: You can improve your vehicle’s gas mileage by an average of 0.6% and up to 3% with proper tire pressure. Which means you’re saving money on gas.

12. Working Out at Home

Instead of paying for a monthly gym membership, consider free exercise options, such as going for a walk, run, or bike ride around your neighborhood.

You can also find at-home cardio routines, resistance workouts, yoga classes and more for free online (YouTube is a great source). If you’re missing the social aspect of the gym, you always invite friends or neighbors over to work out with you.

There are also a number of free workout apps that can help keep you motivated, such as 7 Minute Workout, Freeletics, and Nike Training Club, among others.

13. Saving Before You Spend

One of the best ways to cut monthly spending is to siphon off some savings before you even have a chance to spend it. Many experts suggest 20% of your take-home pay, as is outlined in the 50/30/20 budget rule.

You can do this by automating your savings. This can mean you set up an automatic transfer from checking to put money in a high-yield savings account on the same day each month, possibly right after your paycheck gets deposited.

And it’s fine to start small. Whatever the amount, since it’s happening every month, it will build up before you know it.

Recommended: 50/30/20 Budget Calculator

14. Turning Clutter Into Cash

If you’re thinking of hiring a company to haul away stuff you no longer want or need, think twice. It can be easy to sell your unwanted items. There are dozens of places to sell your stuff, thanks to sites such as ThredUp, Poshmark, eBay, and Facebook Marketplace. Or you could host a yard or stoop sale (just make sure to check if you need a permit).

15. Reviewing Home and Auto Insurance

Here’s another way to cut back on spending: Review your insurance payments. You may be able to considerably cut your costs by taking some time to shop around and compare prices.

Many insurance companies also offer a discount if you bundle your homeowners and auto policies together. If you currently use two separate insurers, it can be worth asking what kind of discount each would offer if you bundled the policies together.

And you don’t have to wait until your current policy is up for renewal to change insurance providers. With most companies, you can leave at any time without having to pay for the remainder of the policy. If you find a better deal, you can also give your current insurer a chance to match their quote.

16. Drinking More Water

Getting plenty of water can not only help you stay healthy, but it can also help you cut back on spending.

When you’re food shopping, for instance, you can skip over sodas and even bottled water in exchange for free tap water at home. (If you don’t like the taste of your tap water, consider getting a pitcher with a water filter.) Dining out? You can save by ordering water instead of pricey beverages.

17. Using Apps to Earn Cash Back

You can cut your spending even after you’ve made your purchases by keeping track of your receipts and using a cash back app, such as Ibotta, Fetch Rewards, or Shopkick.

While each app works a little differently, you can generally use cash back apps to download digital coupons, purchase specific items, and then scan receipts to claim your cash back.

You may also be able to add your store loyalty card number and avoid the need to submit a receipt.

18. Shutting off the Lights

A super easy way to cut monthly spending is to simply turn off the lights whenever you leave a room or leave your home. You may not notice the impact immediately, but the savings on energy costs can add up over time.

It can also be helpful to unplug any unused electronics and chargers that aren’t in use.

19. Cutting Back on Bigger Expenses

If you’re looking to have more money after paying bills, you may want to address the biggest expenses in your overall budget. For instance, in terms of housing, you might consider downsizing, moving to a more affordable area, or getting a roommate. This could significantly reduce your monthly expenses.

Also take a look at car payments, if you have them. If they account for more than 10% of your take-home pay, consider trading in your car for one with a lower monthly payment. Or, you might want to think about buying a less expensive vehicle with cash.

20. Unfollowing Social Media Influencers Pushing Products

If you, like many people, shop from social media because you see new products being promoted, you may want to unfollow those accounts. That FOMO (fear of missing out) feeling can be powerful when you see an influencer pushing new kitchen gadgets, comfy socks, or other products. By eliminating that temptation, you can cut back on spending.

21. Uninstalling Shopping Apps on Your Phone

Shopping apps can be hugely convenient; maybe too convenient. If you find that apps encourage you to one-click your way to too many products and credit card charges, delete them. You can always reinstall them later if you have more wiggle room in your budget.

22. Buying Used and Second-Hand

A fun and frugal way to shop can be buying used and second-hand. You might hit a local thrift store for clothes, cookware, and other items. Check out a local library’s book sale for new reading material, and if you need a new kitchen appliance, see what major retailers have in their “open box” section (items that were returned with minimal or no use or perhaps floor models).

23. Do Some Bulk Buying

Check out the deals to be had by buying in bulk. That can mean joining a wholesale club, like Costco, or shopping at a local grocery store that has grains, nuts, and pasta sold from large containers to help you save at the cash register.

If you don’t have room to store, say, a pack of 12 cereal boxes or 24 rolls of paper towel, split purchases with a friend or two. You can all cut back on expenses that way.

The Takeaway

Cutting back on spending doesn’t have to involve a complete overhaul of your lifestyle. You can focus on lowering your recurring expenses (housing, insurance, utilities) and also cut back on unnecessary spending, especially impulse buys. If you pay with cash, delete shopping apps, and unsubscribe to marketing emails, you may find there’s a lot more breathing room in your budget. And you might be able to stash more cash and earn interest.

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

FAQ

How do I cut back on unnecessary spending?

Often, a mix of two tactics can help you cut back on unnecessary spending. First, look at how to reduce recurring basic bills, such as dropping a streaming channel or two, lowering your car insurance, and avoiding excessive banking fees. Next, tackle daily spending. You might reduce your daily latte habit, and look for free concerts and museum nights in your area vs. pricey entertainment. Also: Don’t let yourself give in to marketing ploys, like “buy one, get one” and free shipping, which can encourage you to overspend.

How can I drastically cut my spending?

To drastically cut your spending, try creating and sticking to a budget and using cash instead of credit so you are less likely to ring up debt. Also consider deleting shopping apps, emails, and influencer accounts that encourage you to shop, and putting yourself on a one-month shopping freeze, meaning no purchases except true necessities.

How do I mentally stop spending money?

If you are overspending, think about your triggers. Do you shop when bored or as a weekend activity? Find other ways to fill your time, whether that means reading or taking up a sport. You might also try the 30-day rule, which means that if there’s something you feel you must have, you might make a note of it in your calendar for 30 days in the future. Don’t buy it unless 30 days later you still feel it’s vital. Such feelings often dissipate over time.

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

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

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

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Automated portfolios have become a common option offered by financial companies, providing many people with a cost-efficient way to invest for retirement and other goals — while helping to manage certain market and behavioral risks via automated features.

Because robo-advisors typically rely on sophisticated computer algorithms to help investors set up and manage a diversified portfolio, some have questioned whether technology alone can address the range of needs that investors may have — beyond basic portfolio management. Others note that the lower fees and lower minimum balance requirements typical of most robo-advisors, in addition to certain automated features, may provide a much-needed option for new investors.

Is a Robo-Advisor Right for You?

Robo-advisors typically use artificial intelligence to generate retirement and financial planning solutions that are tailored to people’s individual needs. Here are some questions to ask yourself, when deciding whether a robo-advisor is right for you.

How Does a Robo-Advisor Pick Investments?

While the term robo-advisor can mean different things depending on the company that offers the service, investors usually fill out an online questionnaire about their financial goals, risk tolerance, and investment time frames. On the back end, a computer algorithm then suggests a portfolio of different securities based on those parameters.

For example one person may be investing for retirement, another saving for the purchase of a home. Depending on each person’s preferences, the robo-advisor generates an asset allocation that aligns with the person’s goals in the form of a pre-set portfolio.

A portfolio for someone nearing retirement age would typically have a different allocation versus a portfolio for someone in their 20s, for example. Depending on these details, the service might automatically rebalance the portfolio over time, execute trades, and may even conduct tax-loss harvesting. SoFi’s automated portfolio does offer automatic rebalancing, but not automatic tax-loss harvesting.

Can I Choose My Own Investments?

A robo-advisor typically has a range of investments they offer investors. Usually these are low-cost index exchange-traded funds (ETFs), but the offerings can vary from company to company. In most cases, though, your investment options are confined to those available through the robo-advisor, and typically you’re offered a selection of pre-set portfolios with limited or no ability to change the securities in that portfolio.

As the industry grows and becomes increasingly sophisticated, more companies are finding ways to offer investors new options like themed ETFs, stocks from different market sectors, socially responsible or ESG investing options, and more.

Who Manages the Portfolio?

Part of the appeal for some investors is that these portfolios are automated and thus require less hands-on involvement. This may be useful for people who are new to the process of setting up and managing a diversified portfolio, or who don’t feel comfortable doing so on their own.

In some cases, a robo-advisor service may also offer a consultation with a live human advisor. But again, in most cases the investor has limited control over the automated portfolio.

Recommended: Robo-Advisors vs. Financial Advisors

Are There Risks Involved in Using a Robo-Advisor?

Investment always involves some exposure to market risks. But robo-advisors may help manage behavioral risk. Many studies have shown that investors can be impulsive or emotional when making investment choices — often with less than optimal results.

By reducing the potential for human error through the use of automation, a robo-advisor may help limit potential losses.

What Do Robo-Advisors Cost?

While there are some robo-advisor services that have higher minimum balance requirements or investment fees, the majority of these services are cost efficient.

In some cases there are very low or no minimums required to set up a portfolio. And the management fees are typically lower than what you’d pay for a human advisor (although there are typically brokerage fees and expense ratios associated with the investments in the portfolio).

Pros and Cons of Robo-Advisors

Hopefully, the questions above have clarified the way a robo-advisor works and shed some light on whether a robo service would be right for you. In addition, there are some pros and cons to keep in mind.

Pros of Robo-Advisors

Saving for Retirement

It’s true that you can use a robo-advisor for almost any short- or long-term goal — you could use a robo-advisor to save for an emergency or another savings goal, for example. But in many ways these services are well-suited to a long-term goal like retirement. Indeed, most robo-services offer traditional retirement accounts like regular IRAs, Roth IRAs, SEP IRAs.

The reason a robo-advisor service can be useful for retirement is that the costs might be lower than some other investment options, which can help you keep more of your returns over time. And the automated features, like portfolio rebalancing and tax optimization (if available), can offer additional benefits over the years.

Typically, many robo-portfolios require you to set up automated deposits. This can also help your portfolio grow over time — and the effect of dollar-cost averaging may offer long-term benefits as well.

Diversification

Achieving a well-diversified portfolio can be challenging for some people, research has shown, particularly those who are new to investing. Robo-advisors take the mystery and hassle out of the picture because the algorithm is designed to create a diversified portfolio of assets from the outset; you don’t have to do anything.

In addition, the automatic rebalancing feature helps to maintain that diversification over time — which can be an important tool to help minimize risks. (That said, diversification itself is no guarantee that you can avoid potential risks completely.)

Automatic Rebalancing

Similarly, many investors (even those who are experienced) may find the task of rebalancing their portfolio somewhat challenging — or tedious. The automatic rebalancing feature of most robo-advisors takes that chore off your plate as well, so that your portfolio adheres to your desired allocation until you choose to change it.

Tax Optimization

Some robo-advisors offer tax-loss harvesting, where investment losses are applied to gains in order to minimize taxes. This is another investment task that can be difficult for even experienced investors, so having it taken care of automatically can be highly useful — especially when considering the potential cost of taxes over time.

That said, automatic tax-loss harvesting has its pros and cons as well, and it’s unclear whether the long-term benefits help make a portfolio more tax efficient.

Cons of Robo-Advisors

Limited Investment Options

Most automated portfolios are similar to a prix fixe menu at a restaurant: With option A, you can get X, Y, Z investment choices. With option B, you can get a different selection, and so on. Typically, the securities available are low-cost index ETFs. It’s difficult to customize a robo account; even when there are other investments available through the financial company that offers the robo service, you wouldn’t have access to those.

In some cases, investors with higher balances may have access to a greater range of securities and are able to make their portfolios more personalized.

Little or No Personal Advice

The term “robo-advisor” can be misleading, as many have noted: These services generally don’t involve advice-giving robots. And while some services may allow you to speak to a live professional, they aren’t there to help you make a detailed financial plan, or to answer complex personal questions or dilemmas.

Again, for investors with higher balances, more options may be available. But for the most part robo-advisors only cover the basics of portfolio management. It’s up to each individual to monitor their personal situation and make financial decisions accordingly.

Performance

Robo-advisors have become commonplace, and they are considered reliable methods of investing, but that doesn’t mean they guarantee positive returns.

Robo-Advisor Industry

Robo-advisors have grown quickly since the first companies launched in 2008-09, during and after the financial crisis. Prior to that, financial advisors and investment firms made use of similar technology to generate investment options for private clients, but independent robo advisor platforms made these automated portfolios widely available to retail investors.

The idea was to democratize the wealth-management industry by creating a cost-efficient investing alternative to the accounts and products offered by traditional firms.

Assets under management in the U.S. robo-advisor market amount to hundreds of billions of dollars, with the expectation that that will grow in the years ahead. While this market is small compared to the $100 trillion in the global asset-management industry, robo-advisors are seen as potential game-changers that could revolutionize the world of financial advice.

While this market is small compared to the $100 trillion in the global asset-management industry, robo-advisors are seen as potential game-changers that could revolutionize the world of financial advice.

Because they are direct-to-consumer and digital only, robo-advisors are available around the clock, making them more accessible. Their online presence has meant that the clientele of robo-advisors has tended to skew younger.

Also, traditional asset management firms often have large minimum balance requirements. At the high end, private wealth managers could require minimums of $5 million or more.

The cost of having a human financial advisor can also drive up fees north of 1% annually, versus the 0.25% of assets that robo-advisors typically charge (depending on assets on deposit). Note that this 0.25% is an annual management fee, and does not include the expense ratios of the underlying securities, which can add on another 5 or even 50 basis points, depending on the company and the portfolio.

Recommended: How to Track Robo-Advisor Returns

The Takeaway

Despite being relative newcomers in finance, robo-advisors have become an established part of the asset management industry. These automated investment portfolios offer a reliable, cost-efficient investment option for investors.

Robo advisors don’t take the place of human financial advisors, but they can automate certain tasks such as selecting a diversified group of investments that align with an individual’s goals; automatically rebalancing the portfolio over time; using tax-optimization strategies that may help reduce portfolio costs.

Ready to start investing toward your future, but want some help? You might consider opening an automated investing account with SoFi. Whether you're interested in investments for your traditional brokerage or IRA account, you can access personalized, expert-curated recommendations and automatic monitoring, trading, and rebalancing. With a robo advisor from SoFi Wealth, you'll get a professionally managed portfolio aligned with your goals.