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Many people consider it a priority to protect the planet these days as reports of climate change are frequently in the news.

While living sustainably can take planning (Where to start? What are the right moves to make?), it doesn’t have to be pricey. Learning how to be eco-friendly on a budget can be surprisingly simple with some motivation and practice.

Sustainable living isn’t a one-size-fits-all prescription. One person may be all about composting while another would never try it. But the non-composter might bike rather than drive as often as possible or keep their thermostat in eco-mode year-round.

Ultimately, it’s up to the individual to figure out their preferred way to live a greener lifestyle. Remember, any adjustment can help the environment (and the wallet), so don’t feel intimidated.

Ready to learn more? Here, you can read up on:

•   What is sustainable living?

•   What are the practical benefits of living sustainably?

•   What are the financial benefits of living sustainably?

•   What are specific ways to live sustainably and save money?

What Is Sustainable Living?

Living sustainably means considering the environment when making daily decisions. It involves prioritizing actions that reduce your carbon footprint (the total amount of greenhouse-gas emissions your actions trigger). These moves, in turn, can benefit the environment.

Sustainable living is an all-encompassing umbrella term covering everything from how people shop and prepare food to how they allocate their money (say, with socially responsible investing).

What’s more, sustainable living can also help you reduce your expenses. Learn its basic principles, and it can help you to financially downsize.

What Are the Practical Benefits of Living Sustainably?

At first, a sustainable lifestyle sounds as if it may benefit the environment more than it does the individual. Certainly, it is focused on helping preserve our planet. However, practical benefits come with going green, including:

•   Saving money. Sustainable living encourages people to “reduce, reuse, and recycle.” Consuming less and reusing can also cut back on living expenses, which is a good money-management strategy.

•   Improving health. Depending less on a car can be an easy way to go green. Walking or biking to destinations can incorporate healthy living into everyday activities.

•   Gaining knowledge. People may learn to reuse or repair things they already have, picking up practical skills. That could mean learning to mend clothes instead of buying something new or becoming a home gardener who grows fresh veggies.

•   Creating community. As sustainable living gains steam, community groups may prove to be a way to meet like-minded people and make new friends.

What Are the Financial Benefits of Going Green?

Besides practical benefits, there are several direct financial benefits to eco-living:

•   Tax benefits. Purchasing everything from eco-friendly appliances to electric cars can come with tax credits or federal rebates.

•   Less consumerism. Since green living encourages reusing, people may be less likely to purchase new items.

•   Lower bills. Simple things like turning up the thermostat a few degrees in the summer can lead to direct savings on utility bills.

•   Reduced transportation costs. Biking, walking, or using public transportation can be considerably cheaper than driving a car or requesting a ride-share.

19 Ways to Save Money While Living Sustainably

You don’t need to go out and buy an expensive electric car to live sustainably. Learning how to be eco-friendly on a budget can be easier than it sounds. Read on for 19 affordable go-green tips. These creative ideas may help you save money while giving back to our planet.

1. Riding a Bike to Commute

Riding a bike to the office a few days a week is a win-win-win. With no emissions, riding a bike helps reduce harmful pollutants in the air. It’s also free (after the bike purchase), and as a bonus, it’s a form of exercise that can benefit your health.

2. Turning off Water When Washing Dishes and Brushing Teeth

Turning off the water when brushing teeth can save up more than 100 gallons of water a month. Conserving water during daily tasks could also lead to savings on the water bill.

3. Buying Items Second-Hand

Want to shop more ethically? Second-hand items are typically sold at a fraction of what their original price was when new. Perusing thrift shops could mean finding gently used, high-quality items for less. You might come across anything from brand-name kitchenware to clothing for much more affordable prices than buying at a department store or online. As a bonus, shopping for second-hand items gives them a longer life and saves them from the landfill.

4. Joining a Buy Nothing Club

Learning how to live sustainably on a budget can be easy when you snag a lot of things for free. Buy Nothing communities have sprung up across the country in the past few years. Members offer items they’re getting rid of for free, including everything from clothes to home decor. It’s a practical way to both give and receive items for free.

There are other similar organizations that have different names, and some people find that Facebook Marketplace or local groups, as well as Nextdoor have similar benefits.

5. Using Energy-Efficient Appliances

Swapping an old appliance for an energy-efficient one may cost more upfront but can save users in the long run. It could seriously lower energy bills and give you a tax credit to boot.

6. Eating Food Before Buying More (Reducing Waste)

The average American household wastes over a third of the food they buy, essentially throwing money down the drain. It also represents a waste of the energy and expense that went into the food’s production as well.

Making a conscious effort to eat everything in the fridge before another grocery run can be a good way to save money on food and help you cut down on waste.

7. Replacing Disposable Items With Reusable Items

Sure, disposable items are convenient, whether it’s a single-use plastic bottle of water or paper plates. Understanding the math behind cost per use is an important lesson in learning how to be eco-friendly on a budget.

For example, buying an insulated water bottle may be more expensive than a plastic bottle of water, but remember, once a reusable item is purchased, it’s used repeatedly. Its cost per use declines every time you reach for it, making it a better deal.

Opting for single-use items will likely be more expensive in the long run and worse for the environment. Consider swapping reusable items, like:

•   Water bottles

•   Straws

•   Sandwich bags

•   Shopping bags

8. Taking Shorter Showers

The average shower can use about 20 gallons of water or more. Cutting down shower time will save water and the monthly water bill.

Or, instead of shortening shower time, try a “Navy Shower,” which is when a person gets wet, turns off the water, lathers, then turns the water back on to rinse off. A Navy Shower can cut water usage dramatically.

9. Using Smart Power Strips

One of the cheap ways to go green is hunting down the “phantom energy” or “vampire loads” in a home. These terms refer to appliances that continue to suck up energy, even when they’re not in use. It’s been estimated that this kind of load represents 7% of all energy use in the U.S.

Power strips that have “all off/all on” switches can keep devices like smart TVs or printers from sucking energy and raising your electricity bill in their sleep mode.

10. Buying Used Over New

When it comes time to make major purchases, you may want to think used instead of brand new. The quest to buy used but still super functional items can be a good way to control spending money and be kind to the environment.

Buying, say, a used car or laptop, can definitely save money, as the item is likely to cost a fraction of its original price. It also encourages reuse. That car or laptop won’t wind up being junked if you swoop in and snag it.

11. Waiting to Run Laundry Until You Have a Full Load

When it comes to how much electricity home appliances use annually, washers and dryers are at or near the top of the charts. Cutting down on laundry loads saves on electricity and can help lower your bill. Aim to wash clothes only when there’s a full load, and consider running the washer on cold to save more electricity.

12. Upcycling

Upcycling is finding a second life for an item that typically goes in the trash. Let’s say you have an empty salsa jar. Rather than trashing it, you can use it to store leftovers in your fridge. And if you have an old door in the basement of your house, why not transform it into a desk or table that you might need?

Upcycling keeps items from being dumped into landfill and can save you money since you can buy less.

13. Going Meat-Free a Few Times a Week

Buying less meat at the store cuts down on the grocery bill, and going meat-free on a regular basis can reduce greenhouse gases — the gases in the earth’s atmosphere that trap heat. Cows and sheep emit methane, a greenhouse gas, as they digest grasses and plants, and ever larger amounts of land are needed for beef production, which is also a factor. Going plant-based for just one day a week can cut someone’s greenhouse gas footprint about 5% annually.

14. Composting

Composting is a process that takes what we typically consider waste (food scraps that usually go into the garbage, leaves that have fallen from trees) and turns it into fertilizer that can benefit the land. Creating a home compost or enrolling in a city collection program can divert food waste from landfills and have it perform a positive action for the environment. It also, of course, can save on garden maintenance expenses.

15. Avoiding Having Your Car Idle

When driving is necessary, avoid idling when you pick someone up or are waiting in a lot. Idling can produce harmful pollution. What’s more, it unnecessarily burns off fuel, costing you more at the gas pump.

16. Hanging Laundry to Dry

As previously mentioned, dryers are the most energy-consuming appliance in the home. Hanging laundry to dry saves electricity bills, and gentle drying outdoors could prolong the life of your garments.

17. Using Rechargeable Batteries

Disposing of single-use batteries in a landfill can lead to chemicals leaching into the soil. While rechargeable AAA or AA batteries are more expensive than single-use, they can be repeatedly recharged. As mentioned above, the cost per use gets lower and lower over time.

18. Opting for Slower Shipping

Global shipping accounts for 3% of the world’s greenhouse gas emissions. The rise of free and fast shipping can contribute to rising overall emissions. The rush to get the product to the consumer could waste more natural resources as well.

When possible, opt for slower shipping and choose bundling items so they arrive together in a single package versus multiple ones. That slow shipping might also deter impulse purchasing.

19. Utilizing Local Libraries

Visiting the local library helps cut spending and encourages lending instead of buying new. Local branches may offer everything from books to tool rental, cutting down on buying new or purchasing something for a single use.

The Takeaway

Going green (meaning being eco-friendly) and saving green (as in your hard-earned cash) don’t have to be mutually exclusive. Sustainable living encourages spending less overall. With a little practice and planning, learning how to live sustainably and benefiting your budget could become second nature.

Another way to save money while living sustainably? Open a bank account online with SoFi. When you open Checking and Savings with direct deposit, you won’t pay any account fees, and you’ll earn a competitive APY so your money could grow faster. Go ahead and opt for digital statements to help save the trees, too.

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 living sustainably cost more money?

Some sustainable choices may cost more upfront, but ultimately, the goal is to cut down on costs as well as minimize purchases that harm the environment.

How can I live sustainably if I do not make much money?

There are cheap ways to go green that don’t involve spending more. Shopping for second-hand items vs. buying new, for example, can save you a considerable amount, as can riding a bike or using public transportation rather than owning a car.

Am I living with financial integrity if I don’t live sustainably?

It depends on an individual’s outlook. For those who prioritize protecting the environment, financial integrity and a sustainable lifestyle probably go hand-in-hand to some extent. Spending sustainably would likely be very important. Others, however, might feel that finances and sustainability are two completely separate concerns.

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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.

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Even the most money-savvy person is likely to have some false beliefs about money. Maybe you were raised with misconceptions about finances, were given off-target advice from well-intentioned friends or advisors, or picked up some not-too-true intel online. These are all ways you can wind up adopting some incorrect beliefs about money. These in turn can have a negative impact on how you manage your money, hindering your path to achieving your financial and lifestyle goals.

To help make sure that’s not the case, read on to learn 18 common money misconceptions and why they simply aren’t true. Knowledge is power, and dropping false ideas can help you manage your money even better.

Why It Is Important to Have a Realistic View of Money?

Being realistic about money can help you set reasonable financial goals and reach them in the short- and long-term. Whether you are feeling financially secure or are looking to better manage your finances, practicing healthy financial habits will serve you well in the long run.

That’s why bashing money myths is important. If you believe, for instance, that carrying lots of credit card debt is “normal,” you may not eliminate that monthly balance that’s dragging down your budget, not to mention lowering your credit score. If you want to be financially fit, it’s wise to avoid the following common misconceptions about money.

1. “The More Money I Have, the Happier That I Will Be”

Yes, there is a link between money and happiness, but it’s not necessarily all that strong. People who make more money tend to be happier overall, but research reveals that millionaires are not extremely happy. Having more money doesn’t insulate you from illness, relationship issues, worries about politics and the environment, and other challenges. Also, having a lot of cash in the bank can lead to all kinds of “shoulds”: You should have multiple homes, you should spend a lot of travel, plus other expenses that can deplete your wealth.

No matter how much a person earns, it’s likely their life will have ups and downs. Understanding how to allocate the funds you have to cover needs, wants, and future aspirations is likely to help you feel in control of your finances. That, in turn, can give you peace of mind and a measure of happiness.

2. “I Don’t Need to Save for Retirement Now”

This can be a dangerous myth to believe. If you are young and are investing for your retirement, you have time on your side. Your invested money can grow thanks to compounded interest until you reach retirement age. Here’s an example: If a 25-year-old invests $200 a month and earns a 6% return, they’ll have $393,700 by age 65. If that same person only starts saving at age 35, that same money at the same rate nets them $201,100, or about half of what they’d have if they started sooner.

It may feel as if retirement is a long way away, but the sooner you begin funding it, the more you are likely to have. If your employer offers a 401(k) retirement plan, take advantage of contributing to it. If this isn’t offered at your place of work, you can open an individual retirement account (IRA) or a Roth IRA.

3. “Credit Cards Bring Debt, so I Don’t Need to Get One”

Using credit cards as a form of payment doesn’t mean you’ll go into debt. Spending more than you can afford to pay off, however, may put you on that path. If you use a credit card wisely and typically pay off the debt every month, this can be a factor that increases your credit score. However, if you are a person who tends to spend impulsively and not pay your credit card bill on time, this can put a dent in your credit score. This is why it’s important to manage your purchases and pay your credit card bills on time.

4. “If I Have Enough Money, I Don’t Need to Budget and Save”

Regardless of how little or how much money you have or make, a budget is needed to organize your finances. Budgeting for beginners can be a pillar of financial stability. You need to budget so you can keep track of your spending, your debt, and your savings for future goals. Even if you have zero debt, a budget can still help you manage your money and allocate for short- and long-term goals.

There are various techniques and tools (spreadsheets, journals, apps) for budgeting. One strategy is the 50/30/20 budget rule, in which 50% of your post-tax money goes towards necessary expenses (housing, food, utilities, and the like), 30% goes towards wants, and 20% is used for debt payments and/or saving.

5. “All My Problems Will Be Solved With More Money”

Yes, money can help take care of bills, but the old adage, “More money, more problems” may well be true, too. The secret to being financially secure is not about how much money you make, it’s about how well you manage it.

For instance, let’s say you take a new job that pays twice your current salary. If you turn around and buy a pricier home and car and book some luxury vacations, you might be in more debt and experience more stress than before. The way to prevent this is by not living beyond your means. Healthy budgeting and saving habits are what can help solve problems.

6. “I Need at Least Three Months of Income in My Emergency Savings”

It’s typically recommended to keep three to six months’ worth of living expenses in an emergency savings account. This can provide a cushion if, say, you were to experience a job loss or receive an unexpected medical bill. Some experts recommend that people have still more money stashed aside, but there are plenty who can’t even muster one month’s worth of expenses in savings. A recent survey found that 49% of Americans said they couldn’t afford a surprise bill of $400.

If you’re part of that group who feels an emergency fund is out of reach, overcome your financial anxiety. Start saving a small amount (perhaps $25 a week or a month) and build towards having $1,000 in a rainy day fund. By allocating a little bit of cash consistently, you can build up savings and be prepared for unexpected expenses.

7. “Money Can Buy Me Friends and Love”

Some people believe that having more money would make their personal lives fall into place, like something out of a movie. But think about it, true friends and partners are not with you for your money. They value who you are as a person.

If you tend to think that money could solve your relationship problems, challenge that belief. Look for other ways to improve that area of your life, like building your personal networks and working to enhance communication.

8. “The Rich Live In Big Houses, Drive Nice Cars, and Wear the Most Expensive Clothes”

If you watch reality TV or follow luxury influencers on social media, you might believe that the signs of having “made it” and being rich is all about living large. But the reality is that many rich people do not live in mansions, nor do they have a fleet of Bentleys. Media imagery might make you believe that rich people spend extravagantly, but many millionaires respect their money and live a modest lifestyle. They know that the more you spend, the more difficult it will be to accumulate wealth.

9. “If I Have More Money, I Will Have More Security”

One of the biggest money myths is that with more cash comes more security. Having financial security is less a measure of how much you have than it is of how well you save and invest. If you win the lottery and spend it all on, say, traveling around the world on a private plane, you may well have less security than the person who earns a modest income but consistently contributes to their employer’s 401(k) plan and snags the company match.

Again, this points to the value of setting up a financial plan and saving wisely. Being mindful with money in these ways is an important aspect of financial security.

10. “Money Increases My Odds Of Meeting People”

Having more money may provide opportunities to travel or go out often, but you can also do that in a more frugal way. You don’t have to join a private club or go out to Broadway shows every week to meet new people. You can expand your social network for free, and that includes volunteering opportunities. Donating your time and energy to, say, a local museum or other nonprofit can connect you with like-minded people with no money required.

11. “I Need to Be Rich In Order to Travel”

This is another popular money misconception. You do not need to be rich to travel. People at any income level can go on vacation; you simply need to have a budget. Starting a vacation fund (a savings or other kind of account earmarked for travel) can be a good starting point to begin saving.

Also, take advantage of the many ways to afford a great trip for less. Airbnb, VRBO, and other businesses offer rentals that may be cheaper than hotel rooms. Plenty of credit cards award travel perks when you use them, whether frequent flyer miles or discounts on lodging.

12. “It’s Normal to Have a Lot of Debt”

It’s true that 77% of American households have some kind consumer debt. But keep in mind, not all debt is created equal. Some debt is considered good debt. Think about a mortgage: It’s typically a fairly low-interest loan that builds your credit report (if managed responsibly) and allows you to build equity in the home and therefore wealth.

Bad debt, on the other hand, is high-interest debt, such as credit card debt, where interest rates are high (currently around 20%) and you aren’t building equity. Just because a lot of people may have this kind of debt doesn’t mean you should. It can snowball and keep you spending a chunk of money monthly that could otherwise be saved or invested. Most financial experts urge people to work hard to avoid this kind of bad debt.

13. “I Should Avoid Talking About My Money Problems With Others”

Talking about money issues may seem like taboo but it shouldn’t be. It is healthy to talk about money troubles to close family and friends, because they may have ideas about how to approach a solution. Perhaps they experienced a similar issue in the past and can offer advice on how they handled it. But if you find it uncomfortable to talk to family or friends about your money concerns, you can speak to a professional. For instance, there are non-profit credit counseling organizations, like the National Foundation for Credit Counseling (NFCC ), that can help you if you are burdened with debt and feel overwhelmed.

14. “It’s Better to Buy a House Rather than Rent”

Buying a home is the quintessential American dream, but it’s not necessarily the right move for everyone. Whether to rent or buy ultimately depends on your personal situation and your aspirations.

You may have heard that renting is a waste of money but it can provide flexibility for those who are not ready to buy a home or not interested in doing so. For instance, perhaps your work requires you to relocate often, or you only want to buy a house when your baby is older and you can pick the right school district. Or you just might not want the major expense of a mortgage, taxes, and home maintenance in your life. Whatever your situation may be, it’s important not to feel pressured into buying unless it’s the right move for you.

15. “I Need to Be Rich In Order to Invest”

You do not need to be rich in order to invest: Let’s bust that myth right away. You can start investing with as little as $10, and you might even invest if you have debt. Investing is often a path to wealth. Yes, it has its risks, but over time, it is likely to give you a very healthy return. For instance, at the start of 2022, the annualized 10-year return for the Standard and Poor’s (S&P) 500 was 15.43%.

You don’t need to be a market expert before you dive in. With today’s robo advisors and investing apps, investing has become easily accessible and convenient. Of course, you might prefer to work with a human advisor. Whatever you are comfortable with, investigate fees before you begin investing so you are prepared for any costs you will need to cover.

16. “High Salary = Wealthy”

A common money misconception is that earning a high salary makes you wealthy. That is not necessarily true. People who earn a lot of money can spend a lot of it too. The key to building wealth is saving and investing your money so it can grow over time. Wealthy people have a money-preserving and money-growing mindset.

To look at it from another angle, let’s say one person earns $50,000 a year, lives within their means, and saves and invests wisely. Then there’s also a person who earns $500,000 but they own multiple houses, spend freely on luxuries, and haven’t yet gotten their act together in terms of saving. The person who has the lower salary might actually be the wealthier of the two.

17. “I Can’t Improve My Finances Unless I Work With a Professional”

You might be more comfortable working with a financial professional, but you don’t need one to manage your finances well. It’s totally your choice. If you are looking to improve your finances, you can do so by reading up on cash management tactics or by listening to a podcast. There are plenty of apps that can help you budget and track your spending to better your financial situation. (Many banks offer these as well.) In addition, there are a variety of online calculators that can help you assess money moves like refinancing your student loan or mortgage.

18. “I Need to Work Until 65 In Order to Retire”

Another money misconception to correct: There is not a one-size-fits-all age for retirement. Deciding the age at which you can retire depends on many factors. While the typical retirement age is 65, you may retire earlier or later depending on whether you have enough funds to manage your future expenses. These days, many people continue to work in some capacity after the age of 65, since Social Security benefits are greater if you delay tapping them until age 70.

The Takeaway

Myths about money can stand in the way of your making the most of your finances. By avoiding these misconceptions, you’ll be better able to take control of your cash, budget, save, and invest wisely. These moves can not only grow your wealth and help you achieve your goals, they can enhance your peace of mind, too.

If you’re ready to put your money on a growth path, why not open an online bank account with SoFi? When you do so with direct deposit, you’ll earn a competitive APY, and pay zero account fees. What’s more, we also give you access to a network of 55,000+ fee-free ATMs.

Better banking is here with SoFi, NerdWallet’s 2024 winner for Best Checking Account Overall. Enjoy up to 4.60% APY on SoFi Checking and Savings.

FAQ

What are some negative beliefs about money?

There are many negative beliefs about money. Some include believing only rich people should invest their funds and that a person doesn’t need to think about retirement saving when they are young. These misconceptions can keep people from reaching their financial goals.

How might a misconception about money affect you?

A money misconception can prevent you from taking control of your finances. If you believe, for instance, that debt is normal, you might carry a balance on your credit cards and wind up being saddled with debt for a long time. In truth, high-interest credit card debt is not something to be treated as a fact of life; it should likely be paid off ASAP.

How do I change my beliefs about money?

To change your beliefs about money, it can help to broaden your perspective. Do online research about money management, listen to podcasts, and talk to friends whose money management you respect. Begin to look at the interest rates on your credit card and student loans, try budgeting apps, and take other small steps that begin to put you in the driver’s seat financially rather than believing prevailing wisdom.

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Photo credit: iStock/baona

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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As nice as a spa day, vacation, or hot yoga class is, sometimes the best form of self-care doesn’t cost anything at all. In fact, you can practice financial self-care and grow your wealth.

Financial self-care involves taking the steps to avoid financial stress and meet financial goals. Given that 73% of Americans say money is their number-one stressor in life, practicing financial self-care and minimizing money worries can be a very good thing. It might even feel better than a massage.

But what exactly does financial self-care mean and how do you do it? Read on to find out the answer, as well as learn nine money moves to make now.

What Is Financial Self-Care?

Financial self-care is a form of self-care that focuses on financial wellness. Essentially, instead of more traditional self-care activities (like getting massages or enjoying dinners out), you find the best way to manage your finances and improve your financial situation. This may not sound fun, but worrying about debt, paying the bills, and falling short of savings goals can all lead to a lot of stress that can be draining both physically and mentally. Self-care and money can go hand in hand.

Here’s another perk: Once you get your financial life under control, you’ll have more money to put towards the more exciting areas of self-care. Whether that means finally splurging on that cleaning service or a new puppy is up to you.

Recommended: Are you financially healthy? Take this 2 minute quiz.💊

Tips for Practicing Financial Self-Care

Self-care and money can combine in the pursuit of financial self-care. Here are some strategies that make it easy to incorporate this form of self-care into daily life.

Creating Realistic Financial Goals

To make strides in the area of financial self-care, it’s important to set reasonable goals. That way, you can make progress and feel a positive boost when you finally do reach a goal. Here’s an example: Paying off your student debt in a single year would be hard even on a high salary. Instead, having a goal of paying off your highest-interest debt (perhaps a credit card balance) in a year is likely more obtainable. Look at your income versus your monthly necessary expenses (the “musts” in your life), and see if you can begin funneling some of the funds left over after bill-paying towards your debt.

Tracking Your Expenses Daily

Impulse spending can feel good in the moment, but it can do a lot of harm. You can be more mindful about your spending by reviewing your personal finances daily, focusing on where your cash was spent. You may not realize just how much money flows away from you on a typical day. Expense tracking will reveal that. On days that you don’t spend much or anything at all, give yourself a big pat on the back. You’ve just taken care of yourself financially by adding to your wealth.

Checking Your Banking Accounts Frequently

Good cash management is an important part of hitting your financial goals. Alongside tracking your daily spending, it can be helpful to check bank account balances daily or at least a couple of times a week. You’ll see where you stand financially and won’t be caught unaware by a low balance. This process will also give you a deeper look at how any automatic bill payments are impacting your cash flow.

After all, most of us don’t see the money we earn or spend in cold hard cash, so it can feel less tangible. When you know exactly where you stand financially, it can empower you and help better inform your purchasing decisions.

Making Any Needed Changes to Budgets

After keeping an eye on spending habits and account balances, it’s a good idea to review your monthly budget goals and see how you’re doing. Perhaps you put a reminder in your calendar to do a quick check-in on the last day of every month and see how things look. Maybe eating lunch out on weekdays has made it hard to stick to your food budget for the month. Perhaps having too many subscription services left no wiggle room in the entertainment section of the budget.

The end of the month is the perfect time to reevaluate spending habits, to see where you can cut back on spending, and to figure out how to increase savings.

Recommended: Post-Pandemic Money Lessons

Focusing On Getting Rid of Debt

Debt is likely part of your life, but it can also cause a lot of worry. Thanks to interest charges, debt can mount and be hard to pay off. It’s not a fun cycle. So when you have some extra money, sure, you might spend it on a new outfit or a weekend getaway and lift your spirits that way. Or you could pay down your debt instead.

By prioritizing debt, you’d be a step closer to eliminating some money stress from your life. Getting rid of debt can be a key aspect of financial self-care and can boost your peace of mind.

Improving Your Mindset on Money

Self-care has just as much to do with our mental health as our physical health. Feeling negative about money can really drag a person down. That’s why it can be helpful to focus on what you have instead of what you don’t have.

If you are feeling as if you can’t compete with other people’s lifestyles, it may be that your comparison framework is skewed. It may be beneficial to delete social media (or unfollow certain luxury accounts), stop watching reality T.V., or to skip hanging out with that friend who earns and spends big.

Recognizing what your money can do for you rather than feeling deprived is an important step. It can be a very empowering mindset to adopt.

Recommended: Tips for Managing Finances When Facing Depression

Improving Financial Literacy

Money can be intimidating in part because most of us lack a basic financial education. While you may not have learned about money management in school, you can teach yourselves the financial basics and beyond. Knowledge is power, after all.

From learning about how credit scores work to the investing basics, take some time to read up on the financial topics that seem confusing. Also look into apps that help you with budgeting, saving, and tracking your spending. These tools can be part of financial self-care, helping to boost your financial literacy and wealth.

Visualizing Retirement and Investing in It

Financial self-care means taking care of today’s and tomorrow’s needs. Retirement can seem like a distant concept, so try picturing your future self at retirement age and how you’d want to live then. That way, you may feel more motivated to save even though retirement is far away. Look at your budget again to see if there is room to improve your retirement savings. Even saving an extra 1% a month can make a major impact.

Respecting Money

Money is a tool and a very valuable one at that. Embracing financial self-care means recognizing that money isn’t just about buying things. That may be the easy and fun part, but saving and investing it is what really makes the most of your cash. Educating yourself on investing or seeking professional advice can help you harness the full power of the money you make. It’s a force to be reckoned with; respecting its importance can help you achieve your financial and lifestyle goals.

Why Financial Self-Care Is Important

Financial self-care is equally important, if not more so, than more traditional forms of self-care like heading to the spa or taking a personal day off of work. When you prioritize financial self-care, you can reduce money stress and move closer to your short- and long-term goals.

Banking With SoFi

Financial self-care can help you reduce money stress and make the most of what you earn. Being smart about your cash and helping it grow can unlock the good things in life today and in the future. Try practicing some financial self-care ideas, and see if you don’t feel more in control of your money and less stressed about it.

The right bank can also help boost your finances. For instance, you can bank smarter with SoFi. When you open an online bank account with direct deposit, you’ll earn a competitive APY and pay no account fees, plus have access to more than 55,000 fee-free Allpoint Network ATMs. Higher interest and no fees mean your money could grow that much faster.

Better banking is here with SoFi, NerdWallet’s 2024 winner for Best Checking Account Overall. Enjoy up to 4.60% APY on SoFi Checking and Savings.

FAQ

Why is financial self-care important?

Financial self-care can help eliminate financial stress from your life. Specifically, prioritizing financial self-care can make it easier to reach financial goals like paying down debt or saving for retirement.

How do you take care of yourself and your money?

Budgeting, focusing on debt repayment, and setting clear savings goals are all great ways to take care of yourself and your money. Not having to worry about debt or overdue bills are other benefits of financial self-care.

How do I respect my money?

Respecting money involves not wasting it and instead looking for ways to make the most of it. Being mindful about purchases, sticking to savings goals, and not taking on high-interest debt are all ways someone can respect their money.

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Photo credit: iStock/hatman12

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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After you purchase a new home, there are many things to budget for, such as moving costs, new furniture, and of course, ongoing expenses such as your mortgage. Although it may seem like many of the significant expenditures are out of the way once you close on a property, there are a lot of additional costs that can add up.

To avoid financial surprises, it’s wise to jot down and budget for all of the extra expenses you will encounter when you move into your new place. To help you organize your finances, here are the things to budget for after buying a house.

Recommended: Should I Sell My House Now or Wait

Moving-Out Expenses to Budget for

Before you take up residence in your new home, you must move all of your things. Even if you pack and move all your belongings yourself, you’ll still have to spend on things like boxes, packing materials, and a truck. And if you use movers, it will cost you even more.

Recommended: The Ultimate Moving Checklist

Moving Your Belongings

There are three main options for moving your belongings:

•   Renting a truck and doing it yourself. It’s more cost efficient than using professional movers, but DIY moving yourself still adds up. You’ll have to pay for the truck rental fee, gas, and damage protection. If you’re moving across the country, you may also have to factor in the costs of shipping some of your items. Even though you can enlist your friends and family to help you do the heavy lifting, the cost of moving yourself can still be significant. And it’s a lot of work.

•   Hiring movers. If you decide to use professional movers, it’s wise to shop around to find the best price. Here’s why: For moves under 100 miles away, the national average cost is $1,400, and it ranges from $800 to $2,500. If you’re moving long distance, the average cost can be as high as $2,200 to $5,700. To cut costs, you can do your own packing, which may save you money.

•   Moving your things in a storage container. Another option is to use a hauling container — you load your things in it, and the container company moves it to your new location. This usually costs between $500 and $5,000, depending on the distance and how much stuff you’re moving. Long-distance moves will usually cost more than local ones.

Moving Supplies

If you decide to go the DIY moving route, you will need to buy boxes, bubble wrap, labels, and tape. And you likely have more items to wrap and box up than you think, which requires even more supplies.

Cleaning Supplies

You’ll probably want to clean your current property before you move out, and you’ll definitely want to clean the new place when you move in. That means buying mops, sponges, cleaning solutions, and paper towels. You may also want to get the carpets cleaned or hire a professional house cleaner if the place needs a deep cleaning.

10 Common Expenses After Buying a Home

Once the move is done, there are other expenses you’ll need to account for as you settle into your new abode. Here are a few things to budget for after buying a home.

Furniture and Appliances

You’ll likely bring some furniture and decor from your old place, but you’ll probably want to purchase some new things as well. For example, if the appliances are outdated, you might want to upgrade to new ones. And you may have more rooms to furnish, which requires additional furniture.

Consider opening a savings account for the new items you want to purchase. It can also help pay for any unexpected costs, such as having to replace a hot water heater that breaks.

Mortgage Payments

As a homeowner, every month you will making a mortgage payment that typically includes:

•   The principal portion of the payment. This is the percentage of your mortgage that reduces your payment over the life of the loan. The more you pay toward principal, the less you will have to pay in interest.

•   The interest. This is the amount you pay to borrow funds from the bank or lender to purchase your home.

If you are using an escrow account to pay your mortgage, other things may be included in your payment, such as your property taxes, insurance, and private mortgage insurance. This guide to reading your mortgage statement can help you understand all the costs involved in your mortgage payment.

Property Taxes

Property taxes are the taxes you pay on your home. In many cases, these taxes are the second most significant expense after your mortgage. Property taxes are based on the value of your home, which is typically governed by your state. The county you live in collects and calculates the sum due. Usually, property tax calculations are done every year, so the amount you owe may fluctuate annually.

Homeowners Insurance

Homeowners insurance helps protect your home from damage or destruction caused by events like a fire, wind storm, or vandalism. It can also protect you from lawsuits or property damages you are liable for. If someone slips and falls on your sidewalk, for instance, homeowners insurance will pay for the injured person’s medical bills and the legal costs if they decide to sue you.

The cost you pay for this coverage will vary by the type and amount of coverage you select.

Private Mortgage Insurance (PMI)

For borrowers who can’t afford a down payment that’s 20% of the mortgage value, lenders usually require private mortgage insurance (PMI). This type of coverage is designed to protect the lender if you default on your mortgage payments.

PMI can cost as much as a few hundred dollars per month, depending on the sum you borrow.

HOA Dues

This is a Homeowner’s Association fee, which goes toward the upkeep of property in a planned community, co-op, or condo. The amount can range from a couple of hundred dollars a year to more than $2,000, depending on the amenities you’re paying for (like a pool and landscaping). You typically pay HOA fees monthly, quarterly, or annually.

Utilities

Your utility payments include water, gas, electric, trash, and sewer fees. Some bills like water and electricity are based on the amount you use every month, so monitoring your electric and water usage, like taking short showers and turning lights off, can help lower your cost. Other payments, such as your trash or recycling, might be a fixed amount.

Lawn Care

Maintaining the curb appeal of your home requires landscape services and lawn care. If you choose to mow your own lawn, you may need to factor in the purchase of a mower, which can cost about $1,068 on average. If you hire a lawn service to cut your grass, you may pay $25 to $50 a week.

Pest Control

Pests such as ants, ticks, rodents, or mice, can wreak havoc on your home and your family’s health. For these reasons, many homeowners hire a pest control company to prevent the infestation of pests around their homes. The company’s initial visit may cost between $150 to $300, then $45 to $75 for every follow-up.

Home Improvement Costs

As a homeowner, there are likely things you want to change about your house. From painting the walls to a complete kitchen renovation, transforming your property can add to the cost of owning a home. According to the HomeAdvisor 2021 State of Home Spending Report, interior painting was the number one project homeowners completed, costing an average of $2,007.

Additionally, as the features of your home age, you will need to replace and repair them accordingly.

Common Mistakes After Buying a Home

One of the most common mistakes people make when buying a home is spending more than they can afford. For instance, you may forget to factor in utilities, lawn care, HOA fees, costs of upkeep, and other hidden expenses that come with owning a home. It’s crucial to do your research to determine extra costs and add them up before you move forward with purchasing a property.

Another mistake new homeowners make is taking on too many DIY projects. TV shows can make home renovations look easy. However, many of these projects require professionals who know what they are doing. Attempting a home improvement project could cost you more to fix than hiring a pro in the first place. In fact, about 80% of homeowners that attempt their own renovation projects make mistakes — some of them serious.

Unless you can afford an expert, you may want to rethink purchasing a home that requires a lot of renovation.

The 50/30/20 Rule

For help planning your budget as a homeowner, you can use the 50/30/20 rule, which breaks your budget into three categories:

•   50% goes to to needs

•   30% goes to wants

•   20% goes to to savings

That means you’ll be budgeting 50% of your income to go toward necessities such as housing costs, grocery bills, and car payments. Then 30% will go toward things you want, such as entertainment (movies, concerts), vacations, new clothes, and dining out. The remaining 20% goes towards saving for the future or financial goals such as home improvement projects.

Using a 50/30/20 budget rule is simple and easy. It allows you to see where your money is going and helps you save.

Recommended: What Credit Score is Needed to Buy a Car

Lifestyle Tradeoffs in Order to Budget

With so many things to budget for after buying a home, you may need to cut back on spending. Start by looking at your discretionary spending and think about where you can trim back. For example, instead of eating out regularly, you can cook more meals at home. Or perhaps you can put your gym membership on hold and do at-home workouts for a while to stay in shape physically and financially.

Recommended: What is The Difference Between Transunion and Equifax

The Takeaway

After you buy a house, there are many expenses you may not have accounted for, such as the cost of hiring movers; buying furniture; and getting your new place painted, cleaned, and ready to move into. Making a budget is vital to keep you on track financially, so you can enjoy your new home.

SoFi’s money tracker app can help you organize your money all in one place. You can link your bank accounts, monitor spending and savings, and plan for future goals, like home renovations.

With SoFi, you’ll always know where your budget, and your finances, stand.

FAQ

How much money should you have leftover after buying a house?

After buying a home, the amount you have left will vary depending on your financial situation. However, it’s a good idea to have at least 3 to 6 months of living expenses in reserve. That way, in case of an emergency, you can stay afloat financially.

Is it worth putting more than 20% down?

Putting more than 20% down on your home can help lower your monthly mortgage payment and interest because you’ll be borrowing less money. It also gives you more equity in your home from the beginning. But make sure you can afford to pay more than 20% in order not to stretch beyond your budget.

What’s the 50-30-20 budget rule?

The 50/30/20 rule means that you budget 50% of your expenses for needs (housing, groceries, loan payments), 30% for wants (entertainment, eating out, shopping), and 20% toward savings goals (retirement, renovations, new furniture).

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Photo credit: iStock/ArtMarie

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.

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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A variable-rate certificate of deposit (CD) is a financial product that locks up your money for a set period of time (or term) and has a fluctuating interest rate. This varying rate of return is what sets it apart from traditional CDs, which pay a fixed rate, so you know exactly how much money your money will earn.

When interest rates are high, a variable-rate CD can help pump up your returns, but the opposite holds true, too. Depending on your financial goals, style, and comfort level, a variable-rate CD may be a good option for you.

Let’s take a closer look. We’ll dig into:

•   What a variable-rate CD is

•   What to know if you are considering investing in one

•   Pros and cons of a variable-rate CD

What Is a Variable-Rate Certificate of Deposit?

Let’s start by answering the question, “What is a variable-rate CD?” A variable-rate certificate of deposit, or CD, is a financial product that you can purchase from a banking institution, broker, or credit union. All types of CDs are a savings account that have fixed investing terms. That means they hold your money for a certain amount of time, be it six months or several years.

You pick a term that suits you best. During that time, your money earns interest, but you are not supposed to withdraw any funds or you are likely to be assessed a penalty fee. When the term ends, your CD is said to have matured, and you may withdraw the funds plus interest or roll them over into a new CD. Usually the total amount of interest is also received at the end of the investment term.

Traditional CDs pay a consistent rate of interest that you are informed of at the start of the term. In the case of variable-rate CDs, however, the interest rate fluctuates throughout the term. This means, you, the investor can potentially earn more on your deposit when interest rates go up. As you might guess, the opposite is also true: You could earn less if interest rates go down. Several market factors influence interest rates. These include the prime rate, treasury bills, a market index, and the consumer price index (CPI); we’ll go into those more in a moment.

One last note: Yes, CDs are insured. Certificates of deposit are time deposits protected by the Federal Deposit Insurance Corporation (FDIC). If the bank holding the CD were to fail, you’d be insured up to $250,000.

Recommended: How Can I Invest in CDs?

Special Considerations of a Variable-Rate CD

The info above gives you an overview of how variable-rate certificates of deposit work. Beyond those broad strokes, there are a few key things to consider when looking into investing in variable-rate CDs. This type of CD is generally most profitable if purchased when interest rates are low, because it’s more likely that the interest rate will increase during the investment term. For this reason, there is a higher demand for these CDs when interest rates are low.

About those interest rates: There are four main factors that influence them. These are:

•   Consumer Price Index (CPI): The federal government uses the Consumer Price Index to calculate changes in the amount that consumers pay for certain products and services. Whatever the current CPI is can affect how interest rates fluctuate.

•   Market Index Levels: Another factor that affects interest rates is the performance of investment portfolios, such as major market indices. Some indices that are often analyzed include the S&P 500, the Dow Jones Industrial Average, and the Nasdaq Composite Index.

•   Prime Rate: The prime rate is the interest rate that banks charge customers who have the highest credit ratings. These customers are the least likely to default on loans, so they get the best interest rates.

•   Treasury Bill Yields: The U.S. Treasury sells Treasury bonds in order to raise money, and they also pay interest on those bonds. The interest rate associated with Treasury bonds depends on the amount and time period of the bond.

Now that you have a little more insight onto the factors that determine a CD’s variable rate, let’s look at the big picture. It’s worth noting that, during times of high inflation, CDs may not be your best option. If inflation surges, even a variable-rate CD may not be able to keep pace. At the end of your term, you may find that your investment has lost ground versus inflation.

Another factor to consider before you lock in on a variable-rate CD is the fee for early withdrawals. Some variable-rate CDs have higher fees than others. If there’s a good chance you may end up withdrawing funds early, before a CD’s maturity date, you should check those penalties and make sure they aren’t too steep.

Recommended: How Can I Buy a Bond?

Pros of a Variable-Rate CD

All CDs are known to be very safe investments since they are federally insured up to $250,000. In addition to that security, there are several benefits to investing in variable-rate CDs. Let’s take a closer look:

High Yield on Investments

Variable-rate CDs are secure, insured accounts that can provide a higher rate of return than other types of savings accounts. For instance, when you buy a fixed-rate CD, you might miss out on the opportunity to earn a higher interest rate if the market ticks upward. Variable-rate CDs, however, can respond to market conditions. If you buy a variable-rate CD when interest rates are low, you can potentially earn more as rates increase.

Profitable When Interest Rates Are Low

When interest rates are low, demand for variable-rate CDs increases, as does the profit potential. That’s because it is more likely that interest rates will increase after you purchase one. The interest rate can tick upwards and earn you more money on your money.

Lower Withdrawal Fee

Generally, variable-rate CDs come with lower penalties on early withdrawals than other types of CDs.

Cons of a Variable-Rate CD

While there are several reasons variable-rate CDs make good investments, they do come with a few downsides to consider before you invest.

Low Interest Rates

Although a variable-rate CD provides the opportunity to snag higher interest rates, it also creates a significant risk of earning a lower rate if market rates go down. If you buy a variable-rate CD when interest rates are low with the hopes that they will increase, there is no guarantee that this will happen. This means they will continue to earn a low interest rate for some or all of the duration of the CD term. In this case, you’re stuck! You may have lost out on the possibility of earning a higher return elsewhere.

Paying Extra for “Bump-Up” Feature

Although interest rates can increase or decrease with most variable-rate CDs, there are some kinds that have a “bump-up” feature. This allows for a one-time rate boost (or possibly a few rate hikes) during the CD’s term, but you may well have to pay extra for this “bump-up.” This is because the initial interest rates is typically lower than it would be on a fixed-rate CD.

Inflation Can Outpace Your Rate and Wipe Away Profit

There is a chance that inflation will increase during the term of a variable-rate CD. If this happens, inflation could end up being higher than the interest rate you’re earning. Let’s spell out what that means: Your earnings would be canceled out.

Variable-Rate CD: Real World Example

All this talk of varying interest rates can be hard to get a handle on without a concrete example. So let’s consider a CD that has a three-year term and a guaranteed repayment of the principal deposit. The starting rate is based on the prime rate, which is 4% at press time. During the term of the investment, let’s suppose that the prime rate drops from 4% down to 2%. To determine the amount of interest you’d receive, you’d take the difference between the initial prime rate and the final prime rate, which is 2%. So at the end of the term the investor would receive their initial deposit plus 2% interest. That’s half what it was when you started. Obviously, you, the CD account owner, would be happier if the reverse were true, which it could be!

What Happens if I Redeem a CD Before It Matures?

Most CDs have fees for early withdrawal; these typically involve losing interest that’s been earned, and occasionally a bit of the principal. (Generally speaking, you don’t receive earned interest until a CD matures). However, some variable-rate CDs do offer early withdrawals with no penalties for fees. These CDs usually have a lower interest rate, so you are paying for this flexibility.

The Takeaway

If you’re looking for safe, reliable, and flexible financial securities, you may want to consider adding variable-rate CDs to your portfolio. CDs provide choices in terms of how long money is invested and can provide strong returns. But, that said, they do come with some risks. It’s important to understand the factors that affect interest rates when considering buying variable-rate CDs. Time things right, and you could earn a healthy return on your investment. But if rates don’t head in a positive direction, you may not even be able to keep up with inflation.

CDs aren’t the only game in town for earning interest. Come take a look at the turbocharged APY you can earn when you open SoFi’s online banking platform with direct deposit. And these accounts have no overdraft or account fees to gnaw away at your money, either. They’re a great way to help your money grow.

Better banking is here with SoFi, NerdWallet’s 2024 winner for Best Checking Account Overall. Enjoy up to 4.60% APY on SoFi Checking and Savings.

FAQ

Are variable-rate CDs issued by the government?

Variable-rate CDs are not issued by the government, but the FDIC insures them up to $250,000. They are issued by FDIC-insured financial institutions.

What determines the rate on a variable-rate CD?

Several factors affect the interest rate of variable-rate CDs. These include the prime rate, market indices, treasury bills, and the consumer price index.

Do CDs have fixed interest rates?

Many CDs have fixed interest rates, but variable-rate CDs have interest rates that fluctuate throughout their term.

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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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