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Savings accounts sometimes have withdrawal limits, such as no more than six outgoing transactions per month. That’s because savings accounts are fundamentally different from checking accounts, which are designed for everyday spending.

Because money in a savings account is meant to primarily stay put and be added to, it earns interest. Checking accounts, on the other hand, generally offer no interest or a nominal interest rate, as it’s constantly flowing in and out. Due to this distinction, there are sometimes withdrawal limits on savings accounts.

Here, you’ll learn more about savings withdrawal limits, why they exist, when they are applied, and how you might be able to avoid them.

How Many Times Can You Withdraw From Savings?

“How many times can I withdraw from savings?” is a common question. To help maintain the distinction between checking and savings accounts (and encourage people to save money), bank accounts traditionally come with savings account withdrawal limits. A federal rule called Regulation D used to limit certain types of transfers and withdrawals — known as “convenient transactions” — from a savings deposit account to no more than six a month.

That changed in April 2020, when the Federal Reserve removed the requirement that banks enforce the limit. However, many banks and credit unions have kept restrictions in place. They may charge a fee, transition your account to a checking account, or close it if you go over that amount.


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

Why Is There a Savings Withdrawal Limit?

Savings account withdrawal limits stem from Regulation D, mentioned above, which is a federal regulatory rule that sets standards for how banks and credit unions oversee savings deposits. But why are these guardrails in place? Some points to know:

•  One of the main reasons Regulation D exists is to ensure that banks and credit unions have the necessary amount of cash on hand to always cover customer withdrawals.

•  When you deposit any amount of money in your bank account, the bank uses most of that money for other things, such as consumer loans, credit lines, and home mortgages. (They most likely loan that money at a higher rate than the interest rate they pay you, the savings account depositor. That’s one of the ways banks make money.)

•  Banking institutions, however, face a legal requirement to have cash available to service customers. Withdrawal limitations help protect both banks and consumers.

•  One of the other motivations for Regulation D is to encourage consumers to see their transactional accounts and savings accounts as separate.

•  A savings account ideally encourages long-term savings, whereas checking accounts enable short-term spending. In some cases, these limitations can help motivate consumers to prioritize saving overspending.

Recent Changes in Savings Account Withdrawal Rules

Because of the financial strain caused by the coronavirus pandemic, the Federal Reserve altered the rules regarding Regulation D in April 2020. Currently, depository institutions have the ability to suspend enforcement of the six transfer limit.

Regulation D

As you’ve learned, in the past, Regulation D was in place and enforceable in order to limit the number of transactions flowing out of savings accounts. This encouraged bank customers to keep money in savings accounts, hopefully save for their goals, and allow banks to use the funds on deposit, confident that the money wouldn’t constantly be flowing in and out.

Now, however, financial institutions can allow their customers to make an unlimited amount of convenient withdrawals and transfers from their savings accounts. The word “can” is important here.

Just because banks aren’t required to follow the six transaction limit anymore, however, doesn’t mean they won’t continue to penalize the account holder for going over that limit.

Many banks still enforce caps on the number of convenient transactions customers can make from their savings accounts.

It can be well worth your while to check in with your financial institution and find out what policies are in place regarding savings withdrawal limits.


💡 Quick Tip: Want a simple way to save more everyday? When you turn on Roundups, all of your debit card purchases are automatically rounded up to the next dollar and deposited into your online savings account.

Which Transactions Apply to the Cash Withdrawal Limit?

Only “convenient transactions” count towards the monthly withdrawal and transaction limits that consumers face when managing their savings account. But what exactly are convenient transactions?

Regulation D sees these types of transactions as convenient transfers:

•  Overdraft transfers

•  Automated clearing house (ACH) transfers, such as bill-pay

•  Electronic funds transfers (EFTs)

•  Transfers made by writing a check to a third party

•  Debit card transactions

•  Transfers or wire transfers made by phone, fax, computer, or mobile device.

Which Transactions Don’t Count Toward the Withdrawal Limit?

While the six transaction limit per month can sound fairly strict, it does not mean account holders can’t access their savings accounts more than six times a month.

Whatever type of savings account you have, there are less-convenient transfers you can make that do not count towards the monthly limit. These include:

•  Withdrawals or transfers made in-person at the bank.

•  Transfers and withdrawals made at the ATM.

•  A withdrawal made by asking the bank to send you a check.

Recommended: ATM Withdrawal Limits

Convenient Transactions

As mentioned above, Regulation D defines convenient transfers to include such transactions as:

•  Transfers, whether by check, electronic funds transfer, overdraft, or other means.

•  ACH transfers

•  Payments made with your debit card.

What If I Go Over The Savings Withdrawal Limit?

The penalty for exceeding the cap set by your bank for savings transactions will depend on your institution.

You may be charged a fee, and even if your financial institution charges a low (or no) fee for exceeding the cap on transactions per month, you may still want to watch how many withdrawals or transfers you make.

The reason: If there are excessive withdrawals from a savings account, financial institutions have the right to convert the savings account into a checking account or even close the account.

Savings Withdrawal Limit Fees

If you are charged a fee for too many convenient transactions, it might be called a “withdrawal limit fee” or “excessive use fee.” These fees tend to run anywhere from $1 to $15 per transaction.

In some cases, you might ask your bank and see if they would waive the fee.

3 Tips to Avoid Hitting Withdrawal Limits

If your financial institution does have withdrawal limits, here are a couple of ways to avoid fees.

Use Your Checking Account

One simple way to avoid overstepping savings account withdrawal limits, is to use your checking account for most of your transactions.

It can be easy to get your accounts mixed up when you are banking online or in an app. By learning which account is which as you transfer funds, you can minimize use of your savings account.

Do a Single Large Transfer to Checking

If you think you will need to use your savings account to make more than six (or whatever your bank’s current transaction limit is) in a given month, consider making one substantial transfer from savings to checking at the beginning of the month.

You can then arrange to have your withdrawals or automatic bill payments taken right out of checking.

Try Work-Arounds If You Get Close to Your Limit

If you are already at your limit, you can avoid penalties by visiting the bank in person or using the ATM to initiate withdrawals or transfers from your savings account. (You may want to make sure, however, that you’re not triggering any out-of-network ATM charges.)


💡 Quick Tip: When you feel the urge to buy something that isn’t in your budget, try the 30-day rule. Make a note of the item in your calendar for 30 days into the future. When the date rolls around, there’s a good chance the “gotta have it” feeling will have subsided.

Opening a Bank Account with SoFi

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.

FAQ

How much can you withdraw from your savings account?

Individual banks set limits about withdrawals, both the number and the amount, often according to method (such as ATM withdrawals). Check with yours to learn the specifics.

Why can you only withdraw 6 times from savings?

Regulation D set the number of convenient transactions out of a savings account at six to encourage people to save and to leave their funds in the account, earning interest. The bank, in turn, could count on having a significant amount of those funds to use in their business activities.

Can banks stop you from withdrawing money?

Your bank account can be frozen, which will stop you from withdrawing money. Your bank may do this if they think illegal activity is occurring, or if a creditor or the government requests it.

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.

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Once upon a time, traveler’s checks were considered vital for keeping your money secure and helping you spend when traveling internationally. But as digital payment options have emerged and ATMs have popped up on street corners around the world, traveler’s checks have become less popular.

However, while perhaps not your primary source of funding while overseas, traveler’s checks may still have a place when you take a trip.

A key benefit of traveler’s checks is that they are very much like using cash. Many businesses will accept traveler’s checks, whether you are paying for a spa treatment or a pair of sandals. But, unlike cash, if your checks were to get lost or stolen, you can (phew!) get your money back.

Read on to learn why you might want to take some of these checks on your next trip, including:

•  What are travelers checks

•  How do traveler’s checks work

•  Where to buy traveler’s checks

•  Pros and cons of traveler’s checks

•  Alternatives to traveler’s checks.

What Is a Traveler’s Check?

Traveler’s checks are paper documents that can be used as a traditional paper check and also like cash. They are intended to aid tourists and are typically used by people on vacation in foreign countries.

Issuers print checks in varying denominations, such as $10, $20, or $50, and they are available in a range of currencies. There may be a fee to purchase these checks and/or exchange them when you are traveling; this varies with the issuer.

Here’s a bit more about how to use them:

•  You can use these checks just like cash to pay merchants for goods and services, as long as they accept traveler’s checks. Typically any change due back to you will be given in local currency.

•  You can also get the checks converted into cash in the local currency at many banks, hotels, and foreign exchange offices, which can be a major convenience when you want some spending money (say, when hitting an outdoor market).

•  If traveler’s checks get lost or stolen, the issuer will replace the checks or give you a refund.


💡 Quick Tip: Banish bank fees. Open a new bank account with SoFi and you’ll pay no overdraft, minimum balance, or any monthly fees.

How Do Traveler’s Checks Work?

Traveler’s checks are issued by a bank or other financial institution. Right after you purchase your checks, you sign each one. When you are ready to use the check, you fill in the payee and date, and then sign the check again.

For the second signature, the person or business you’re paying must be present to watch you sign. The two signatures should match. This is a deterrent to would-be criminals who for that reason may think twice about stealing them.

Though traveler’s checks function like cash, they also are similar to paper checks in that each check has a unique check number. If that check is lost or stolen, the issuer cancels it and issues you a new one.

Recommended: Where to Cash a Check Without Paying a Fee

Where Can I Get a Traveler’s Check?

You can still buy traveler’s checks in the U.S. and other countries. In the U.S, companies that still issue travel checks include American Express and Visa.

You can also purchase traveler’s checks online from the American Express website, but you will need to be registered with an account. In addition, Visa offers traveler’s checks at many Chase and Citibank locations nationwide, as well as at several other banks.

You may also be able to get traveler’s checks from your local bank. If your bank offers them, you may be able to get them for free. If you are buying them elsewhere, you will likely pay a 1% to 3% purchase fee, which could exceed the cost of using an ATM while traveling.


💡 Quick Tip: The myth about online accounts is that it’s hard to access your cash. Not so! When you open the right online checking account, you’ll have ATM access at thousands of locations.

Pros and Cons of Traveler’s Checks

Traveler’s checks are handy for tourists who do not want to risk losing their cash or having it stolen while abroad. But they come with a few disadvantages as well. Here’s a look at the pros and cons.

Pros of Traveler’s Checks

They keep your money safe. If something should happen to your traveler’s checks, they can be quickly replaced, typically within 24 hours.

They don’t expire. If you bought them and end up not taking your trip, you can use them, or redeem them, at any time in the future.

They protect your identity. Traveler’s checks are not linked to your bank account or line of credit and do not contain personally identifiable information, thus eliminating risk of identity theft.

Cons of Traveler’s Checks

They aren’t as widely accepted as they once were. You could find yourself not able to spend them as freely as you like. Outside of major tourist regions, you may find that few shops or hotels accept traveler’s checks as payment.

They can be hard to get. There are a limited number of issuers today, and the paperwork involved in obtaining them can be time-consuming.

You may have to pay a fee. Unless you’re getting them from the financial institution where you have an account, you’ll likely have to pay a fee to purchase a traveler’s check.

Here’s this intel in chart form:

Do I Need Traveler’s Checks When Going Abroad?

You certainly don’t need them, but they may come in handy–depending on where you’re traveling.

Before purchasing traveler’s checks, it can be a good idea to research how widely this form of payment is accepted in the city or region you are planning to visit. You can simply Google something like, “Where can I spend traveler’s checks in Paris” to get this information.

As an alternative, you might consider:

•  Using a prepaid travel card, which is the modern-day version of a traveler’s check. You can load the card with money from your bank account and then use it like a debit card at an ATM (to get local currency), or a credit card at stores and restaurants.

Like traveler’s checks, prepaid cards are not linked to your bank account, which prevents anybody from draining your checking account if the card gets lost or stolen — and you can’t go into debt.

•  Another alternative to traveler’s checks is your debit card, which you can use to get local currency at ATMs and also to make purchases.

However, when using a debit card in another country, you may want to watch out for fees, which may include both an out-of-network ATM fee, as well as an international ATM fee, for every withdrawal you make.

•  Your credit card is another option. These cards can offer you fraud protection and possibly rewards, such as miles vs. cash back. However, there may be fees involved with using your card overseas, called foreign transaction fees.

And, unless it’s an emergency, you’ll likely want to avoid using your credit card for getting cash at an ATM. When you perform a cash advance from a credit card, you can get hit with a fee (around 5% or more), as well as interest, which can run around 25%. You may also pay an ATM fee of several dollars.

Recommended: Ways to Be a Frugal Traveler

What Can I Do With Old Traveler’s Checks?

Because traveler’s checks don’t expire, those that you have tucked away in a drawer can be used for your next adventure.

You can also redeem traveler’s checks, no matter how old. Some banks allow account holders to deposit their traveler’s checks (including foreign currency traveler’s checks) into their bank account. It’s a good idea to check with your bank first, and also find out if they will charge a fee for clearing the checks.

You can redeem your unused American Express Travelers Cheques online at the company’s website.

Recommended: Here’s What You Can Do with Leftover Foreign Currency

History of Traveler’s Checks

Travelers checks have a long history. They were first issued in England in 1772 (yes, that’s over 250 years ago). They were popularized over the centuries by the Thomas Cook company in 1874 and by American Express, whose president in 1890 found it difficult to cash checks while in Europe.

They became a popular travel mainstay for Americans for years, before technological advances made other payment techniques possible.

4 Modern Alternatives to Traveler’s Checks

Do people still use traveler’s checks? Today, traveler’s checks are less popular as there are other ways to pay when traveling to another country. Here are some alternatives.

Credit Card

You can likely whip out your plastic to pay when traveling. However, keep in mind that you are basically borrowing money, will pay an interest rate, and there may be foreign transaction fees involved. Credit cards do typically provide good fraud protection.

Debit Card

Your debit card may be accepted at many places when you travel. It will pull funds out of your checking account to pay for goods and services.

Prepaid Debit Card

As you travel, you may be able to pay with a prepaid debit card. You load money onto the card when you purchase it, and then you draw down those funds as you spend.

Mobile Wallet

This digital edition of your wallet may enable your spending as you travel. It can electronically hold your credit card, debit card, and other financial information to allow you to scan and spend while on vacation.

The Takeaway

Traveler’s checks are a form of payment issued by financial institutions such as American Express. These checks function like cash but are more secure since you can get your money back if the checks are lost or stolen.

While traveler’s checks can be handy for tourists who do not want to risk losing their cash or having it stolen while abroad, they are not as widely issued or accepted as they used to be.

Today’s travelers may prefer to use a prepaid debit card, which functions in a similar way to a traveler’s check, and/or their credit cards to pay for expenses while traveling overseas.

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.

FAQ

How does a traveler’s check work?

A traveler’s check works by purchasing a check in the denomination you want (a fee may be charged) and signing the checks. Then, when you want to pay with the checks while traveling, you would sign them again. This double signature is one way that these checks present a secure way to spend when you’re on a trip.

Why are traveler’s checks not used anymore?

As technology has advanced, other methods of payment while traveling may be simpler. For instance, you might just swipe or tap your credit or debit card versus making a special trip to buy traveler’s checks before you head to another country.

Can you cash traveler’s checks?

Yes, you can cash traveler’s checks when traveling, but there may be a fee involved. When you return, you may also cash or deposit any unused checks.

Photo credit: iStock/AndreyPopov

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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In options trading, knowing the difference between being “in the money” (ITM) and “out of the money” (OTM) allows the holder of a contract to know whether they’ll enjoy a profit from their option. The terms refer to the relationship between the options strike price and the market value of the underlying asset.

“In the money” refers to options that have profit potential if exercised today, while “out of the money” refers to those that do not. In the rare case that the market price of an underlying security reaches the strike price of an option exactly at the time of expiry, this would be called an “at the money option.”

What Does “In the Money” Mean?

In the money (ITM) describes a contract that would be profitable if its owner were to choose to exercise the option today. If this is the case, the option is said to have intrinsic value.

A call option would be in the money if the strike price is lower than the current market price of the underlying security. An investor holding such a contract could exercise the option to buy the security at a discount and sell it for a profit right away.

Put options, which are a way to short a stock, would be in the money if the strike price is higher than the current market price of the underlying security. A contract of this nature allows the holder to sell the security at a higher price than it currently trades for and pocket the difference.

In either case, an in the money contract has intrinsic value, so the options trader can exercise the option and make money doing so.


💡 Quick Tip: Look for an online brokerage with low trading commissions as well as no account minimum. Higher fees can cut into investment returns over time.

Example of In the Money

For example, say an investor owns a call option with a strike price of $15 on a stock currently trading at $16 per share. This option would be in the money because its owner could exercise the option to realize a profit. The contract gives the holder the right to buy 100 shares of the stock at $15, even though the market price is currently $16.

The contract holder could take shares acquired through the contract for a total of $1,500 and sell them for $1,600, realizing a profit of $100 minus the premium paid for the contract and any associated trading fees or commissions.

While call options give the holder the right to buy a security, put options give holders the right to sell. For example, say an investor owns a put option with a strike price of $10 on a stock that is trading at $9 per share. This would be an in the money option. The holder could sell 100 shares of stock at a price of $10 for a total of $1,000, even though it only costs $900 to buy those same shares. The contract holder would realize that difference of $100 as profit, minus the premium and any fees.

What Does “Out of the Money” Mean?

Out of the money (OTM) is the opposite of being in the money. OTM contracts do not have intrinsic value. If an option is out of the money at the time of expiration, the contract will expire worthless. Options are out of the money when the relation of their strike prices to the current market price of their securities are opposite that of in the money options.

For calls, an option with a strike price higher than the current price of the underlying security would be out of the money. Exercising such an option would result in an investor buying a security for a price higher than its current market value.

For puts, an option with a strike price lower than the current price of its security would be out of the money. Exercising such an option would cause an investor to sell a security at a price lower than its current market value.

In either case, contracts are out of the money because they don’t have intrinsic value – anyone exercising those contracts would lose money.

Example of Out of the Money

Say an investor buys a call option with a strike price of $15 on a stock currently trading at $13. This option would be out of the money. An investor might buy an option like this in the hopes that the stock will rise above the strike price before expiration, in which case a profit could be realized.

Another example would be an investor buying a put option with a strike price of $7 on a stock currently trading at $10. This would also be an out of the money option. An investor might buy this kind of option with the belief that the stock will fall below the strike price before expiration.


💡 Quick Tip: In order to profit from purchasing a stock, the price has to rise. But an options account offers more flexibility, and an options trader might gain if the price rises or falls. This is a high-risk strategy, and investors can lose money if the trade moves in the wrong direction.

What’s the Difference Between In the Money and Out of the Money?

The premium of an options contract involves two different factors: intrinsic value and extrinsic value. Options that have intrinsic value at the time they are written to have a strike price that is profitable relative to the current market price. In other words, such options are already in the money when written.

But not all options are written ITM. Those without intrinsic value rely instead on their extrinsic value. This value comes from speculative bets that investors make over a period of time. For this reason, assets with higher volatility often have their options contracts written out of the money, as investors expect there to be bigger price swings. Conversely, assets considered to be less volatile often have their options written in the money.

Options written out of the money are ideal for speculators because such contracts come with less expensive premiums and are often created for more volatile assets.

Recommended: Popular Options Trading Terminology to Know

Should I Buy ITM or OTM Options?

The answer to this question depends on an investor’s goals and risk tolerance. Options that are further out of the money can be more rewarding, but come with greater risk, uncertainty, and volatility. Whether an option is in or out of the money (and how far they’re out of the money), and the amount of time before the expiry of the option impacts the premium for that option, with riskier options typically costing more.

Whether to buy ITM or OTM options also depends on how confident an investor feels about the future of the underlying security. If a trader feels fairly certain that a particular stock will trade at a much higher price three months from now, then they might not hesitate to buy a call option with a very high strike price, making it out of the money.

Conversely, if an investor thinks a stock will fall in price, they can buy a put option with a very low strike price, which would also make the option out of the money.

Beginners and those with lower risk tolerance may prefer buying options that are only somewhat out of the money or those that are in the money. These options usually have lower premiums, meaning they cost less to buy. There are also generally greater odds that the contract will wind up in the money before expiration, as it will take a less dramatic move to make that happen.

Investors can also choose to combine multiple options legs into a spread strategy that attempts to take advantage of both possibilities.

Recommended: 10 Important Options Trading Strategies

The Takeaway

In options trading, “in the money” refers to options that have profit potential if exercised immediately, while “out of the money” refers to those that don’t. Options contracts don’t have to be exercised to realize a profit. Sometimes investors buy contracts with the intent of selling them on the open market soon after they become in the money for quick gains.

In either case, it’s important to consider if an option is in the money or out of the money when buying or writing options contracts, as well as when deciding when to execute them. Options trading is an advanced investing strategy, and investors should know what they’re doing before engaging with it – or should speak with a financial professional for guidance.

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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.

Options involve risks, including substantial risk of loss and the possibility an investor may lose the entire amount invested in a short period of time. Before an investor begins trading options they should familiarize themselves with the Characteristics and Risks of Standardized Options . Tax considerations with options transactions are unique, investors should consult with their tax advisor to understand the impact to their taxes.
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