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Whether you need to pay for an emergency root canal or have unexpected home repairs, sometimes life can’t wait for your next paycheck.

If you’ve researched how to access cash quickly, you might wonder if online payday loans are the answer. Lenders that offer payday loans typically promise you things like quick applications, no credit checks, and expedited approvals. They may say you’ll get the cold hard cash you need the very next day.

It’s an easy solution, right? Not so fast.

How Do Payday Loans Work?

Payday loans are called that because they’re meant to be paid back the next time you get a paycheck. They’re generally for small amounts, and usually don’t require collateral or even necessarily a credit check.

The catch? Payday loans come at a price — and a high one, at that. They can have interest rates of more than 600%, depending on the lender you choose and which state you’re in. (Some states have stronger protective laws, including rate caps.)

Such high-interest rates and other associated fees can quickly lead to situations where you end up getting behind on the loan. You may end up having to borrow more and more in order to pay back the money you borrowed, especially since the loan might come due in only two weeks or a month. Soon you may be in a hole so deep you might not know how to get out. It can be costly, greatly damage your credit, or even lead to bankruptcy.

Recommended: What Are Common Uses for Personal Loans?

How Much Does a Payday Loan Cost?

The short answer: a lot. But let’s look at an example.

Say you take out a $500 payday loan at an annual percentage rate (APR) of 300%. You would only pay that full 300% if you took a whole year to pay off the loan because the APR is what you would be charged in interest over 12 months.

However, even if you only borrow money for one month, you’d have to pay 1/12 of 300%, which translates to 25%. Here’s where the math gets ugly: 25% of $500 is $125, which means that when your loan comes due at the end of its very short term, you’ll owe $625. This amount might be tough to meet, especially if you’re in a situation where you needed a payday loan in the first place.

What Is a Direct Payday Loan?

Payday loans are offered by a wide variety of vendors, but for the most part, they break down into two categories: direct payday loans and those offered through a broker.

With direct payday loans, the entire loan process, from application to funding to repayment, is all managed by the same company. Although these can be slightly better than indirect loans — which may involve multiple fees, longer funding wait times, and harder-to-pin-down communication — they’re still generally considered a bad idea.

Why Is it Best To Avoid Payday Lending?

Other than the possibility that you can get money quickly if you have bad credit, there aren’t many benefits associated with payday loans. You’ll end up paying a significant amount in interest, and you’re usually expected to pay the money back in a very short period of time — usually within two weeks or so.

The interest on your loan can also compound daily, weekly, or monthly. This means that interest charges will start accumulating on the interest you already owe, which will inflate your loan balance even more.

Depending on how much you borrowed and your financial situation, compounding interest can make it incredibly difficult for you to pay back the loan. Many times borrowers end up taking out additional loans to pay off the payday loan, which can lock them into a seemingly endless cycle of debt.

You’re also unlikely to be able to borrow a large amount of money because payday and fast cash loan lenders typically have low maximum borrowing amounts.

What’s more, you won’t even be building your credit if you do manage to pay the loan back on time, because most of these lenders don’t report your behavior back to credit bureaus. In contrast, above-board lenders will report back to credit bureaus when you’re paying your bills on time and in full, and that can boost your credit score.

What Are Some Alternatives to Payday Loans?

In an ideal world, you’d avoid any kind of consumer debt. But sometimes it’s simply unavoidable. There are financially favorable alternatives to consider before you sign up for a risky payday loan.

Paycheck Advance

The best kind of money to borrow is money you’ve already earned. While not every employer offers it, a paycheck advance can be a relatively low-risk way to fund last-minute emergencies. An advance on your paycheck basically means getting paid earlier than you normally would, with the balance deducted from your future paycheck.

But tread carefully: Many employers offer paycheck advances through apps and platforms that may assess a one-time fee or even charge interest. While the rates may not be as astronomical as payday loan rates, it’s still worth taking a second look at the paperwork to ensure you understand what you’re signing up for ahead of time.

Recommended: What to Know About Credit Card Cash Advances

Debt Settlement

Another option is debt settlement, which is where you offer a creditor a lump sum payment on a delinquent debt — a lump sum that often ends up being far less than the original amount you owed.

However, doing this does require some negotiating, and sometimes even some legal know-how, which is why many people seek the help of professional debt settlement companies. This, too, is tricky, because scams abound, and some debt settlement companies may try to charge exorbitant fees to “eliminate your debt,” all without actually doing any work on your behalf. The Federal Trade Commission has more information on debt settlement and how to look for a reliable firm if you choose to go this route.

Personal Loans

Many types of personal loans are unsecured loans — meaning no collateral is involved — that can be used to pay for just about anything. And although they tend to have higher interest rates than secured loans, like mortgages or auto loans, those rates are still much lower than payday loans.

With its lower interest rate and longer-term, a personal loan will likely cost you less money than a payday loan in the long run. And some online personal loan lenders can process your application quickly and even get you the money you need in a matter of days.

Unlike payday loans, you have to go through a credit check to qualify and get approved for a personal loan. However, if you have a steady income and meet the lender’s eligibility requirements, you’re likely to qualify for a lower interest rate than you would if you used an online payday loan.

Your repayment timeline could also be less stressful if you opt for a personal loan rather than a payday loan. Personal loans come with the option of longer terms — a few years, for example, instead of a few months.

And because you can pay your loan off over a longer-term, your monthly payments might be more manageable than a payday loan. There also tend to be fewer fees attached to personal loans, and you might be able to borrow more because personal loans have higher loan maximums.

Personal loans aren’t much more difficult to apply for than payday or fast cash loans. You can typically get pre-qualified online by answering a few questions about your income, financial history, and occupation.

Recommended: Personal Loan Calculator

The Takeaway

When you need money quickly, payday loans — and their promise of fast money — can be tempting. But you’ll want to proceed with caution. These loans generally come with very high interest rates and associated fees, and you may only have a couple of weeks or so to pay back the money you borrowed. There are less-risky alternatives to consider, including paycheck advance, debt settlement, or a personal loan.

If you are thinking about taking out a loan to help you repay debts on time, a SoFi personal loan may be a good option for your unique financial situation. SoFi personal loans offer competitive, fixed rates and a variety of terms. Checking your rate won’t affect your credit score, and it takes just one minute.

See if a personal loan from SoFi is right for you.

FAQ

What is a disadvantage of a payday loan?

Payday loans generally come with high interest rates and associated fees. What’s more, you typically have to pay back the money you borrowed on your next payday.

Are payday loans a good idea?

Payday loans are usually not the top choice when you need cash quickly. That’s because they often come with high interest rates and tight repayment timelines.

What is the catch to payday lending?

The catch to payday loans is that borrowers are typically charged very high fees and interest rates.

Are payday loans easy or hard to pay back?

With their high interest rates and fees and short repayment timelines, payday loans can be difficult for borrowers to pay back on time.

Can payday loans hurt your credit?

While payday loans are unlikely to help your credit score, they can hurt your credit if you don’t pay back your loan and your lender sends the debt to a debt collector.

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

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

External Websites: The information and analysis provided through hyperlinks to third-party websites, while believed to be accurate, cannot be guaranteed by SoFi. Links are provided for informational purposes and should not be viewed as an endorsement.

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

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You likely already know it can be wise to save money every month. Whatever your income or age, putting money aside for the future can help you maintain financial stability and achieve your goals.

But how much of your paycheck should you save each month? Financial experts often recommend putting at least 20% of your monthly take-home income into savings for future financial goals, such as buying a home and funding your retirement.

Exactly how much you should save each month, however, will depend on your income, current living expenses and financial obligations, as well as your goals.

Here are some guidelines to help you figure out how much of your income you may want to set aside each month, plus some simple ways to jump start (or build) your savings.

Knowing What You’re Saving For

It can be difficult to know how much money you should save each month without having a sense of what you are saving for. Setting a few financial goals can also help motivate you to save, rather than spend all of your income.

There are some savings goals that can make sense for everyone. If you don’t already have at least three to six-months worth of living expenses stashed in an emergency fund, for example, that can be a good place to start.

Without a solid contingency fund, any financial set-back -– such as a job layoff, large medical bill, or costly home or car repair — can throw you off balance and cause you to rely on high interest credit cards.

Many people will also want to save for retirement. At the very least, savers may want to take advantage of company matches offered in their workplace retirement plan by contributing the maximum amount the company matches.

After emergency savings and retirement, goals may start to look different from person to person. One person may want to save up for a down payment on a home, another may want to save up to start a business, and yet another may be interested in college savings.

How Much to Save Each Month

A rule of thumb that is sometimes used in personal financial planning is a spending/saving breakdown of 50/30/20. Using this guideline, you would spend 50% of your take-home income on essentials (including minimum payments towards debts), 30% on nonessential (or “fun”) spending, and 20% on savings goals, including debt payments beyond the minimum.

To use the 50/30/20 method to determine how much you should save, you can simply calculate 20% of your monthly after-tax pay. For example, if you earn $3,000 each month after taxes, $600 would go towards savings or other short term financial goals.

You may want to keep in mind that your 20% savings goal can include the money you’re saving for retirement. You can determine how much you’re putting toward retirement each month by looking at your pay stub or electronic payment record. If your employer is automatically depositing money into your 401(k), you may be able to put less into savings each month.

While the 50/30/20 can be a helpful guideline, how much you should — and can afford — to save each month will ultimately depend on your individual circumstances, such as your current income, monthly expenses, and future goals.
If the cost of living is high in your area, for example, you may not be able to swing 20% savings each month.

On the other hand, if you make a significant amount more than you need to live on each month, you may want to put away more than 20%, especially if you’re working towards a large short-term savings goal, such as buying a home in the next couple of years.

Recommended: Cost of Living by State Comparison

Where Should You Put Your Savings?

The best account for building savings will depend on what you are saving for.

If you are saving up for retirement, for example, you’ll likely want to use a designated retirement account, like a 401(k) or IRA, since they allow you to contribute pre-tax dollars (which can help lower your annual tax bill).

You may want to keep in mind, however, that there are annual contribution limits to retirement funds.

For an emergency fund or other short-term savings goals (within three to five years), you may want to open a separate savings account, such as a high-yield savings account, money market account, or a checking and savings account. These savings vehicles typically offer more interest than a traditional savings account, yet allow you to easily access your money when you need it.

Easy Ways to Boost Savings

Below are some strategies that can help make it easier to start — and build — your monthly savings.

Automating Savings

One great way to make sure you stick to a money-saving plan is to automate the process. You may want to set up a recurring transfer from your checking into your savings account on the same day each month, perhaps the day after your paycheck clears. Even setting aside just a small amount of money each month now can, little by little, add up to a significant sum in the future.

Putting Spare Change to Work

There are apps that will automatically round-up any amount paid on a credit or debit card and then put that little bit of extra money into savings accounts or even invest it. This “pocket change” can add up over time.

Using Windfalls Wisely

If a lump sum of cash, such as a bonus or monetary gift, comes your way, you may want to consider funneling all or part of it right into savings.

Or, if you get a percentage raise on your salary, you might want to boost your automatic monthly transfer from checking to savings by the same percentage.

Reviewing Your Budget

If you feel like your budget is too tight to save anything at the end of the month, you may want to review your monthly and habitual expenses.

You can do this by combing through your checking and credit card statements and receipts for the past few months. Or, you may want to actually track your spending for a month or two.

You can then come up with a list of spending categories and determine how much you are spending on average for each.

Once you can see exactly where your money is going each month, you may find places where you can fairly easily cut back, such as getting rid of streaming subscriptions you rarely watch, quitting the gym and working out at home, or cooking more and getting take-out less often.

The Takeaway

The right amount to save each month will be unique to you and includes factors such as your financial goals, how much you earn, and how much you spend each month on essential expenses.

One of the most important keys to saving is consistency. No matter how much of your income you choose to set aside each month, depositing small amounts regularly can build to a large sum over time to achieve your goals.

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

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

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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.

Tax Information: This article provides general background information only and is not intended to serve as legal or tax advice or as a substitute for legal counsel. You should consult your own attorney and/or tax advisor if you have a question requiring legal or tax advice.

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It may feel like there’s nothing easy about money. The older you get, the more obligations you may have. Between checking, savings, IRAs, 401(k)s, bills, loans, mortgages, and more — it can be a lot to keep track of and manage.

If thinking about your finances causes you to feel stressed and/or you find yourself putting off important financial decisions, it may be time to simplify. While streamlining your personal finances can take a little bit of time and effort in the short term, it can end up saving you time, effort, as well as money, over the long haul.

Here are seven simple moves that can help you manage your money more efficiently — and more effectively.

1. Automating Your Bills

One of the easiest ways to simplify your finances is to set up auto payment whenever possible. Putting all of your bills — including credit cards, utilities, insurance, loans, mortgage, and even rent — on autopilot can save you significant time and hassle each month. Plus, you won’t have to worry about late payments — or late fees.

You can often set up automatic payments for your bills by going to the website of the service provider and inputting your bank account information.

If a business doesn’t offer an automatic payment program, you may be able to set up a recurring payment through your bank by logging on to your checking account or using your bank’s mobile app.


💡 Quick Tip: Don’t think too hard about your money. Automate your budgeting, saving, and spending with SoFi’s seamless and secure online banking app.

2. Going Paperless

A major culprit of personal finance-related headaches is paperwork. Keeping track of the many documents — all those receipts, investment reports, bank statements, tax returns — can be a struggle.

Many services allow you to opt-in to a paperless experience instead. You’ll typically have access to all of the documents when you log into your account. And, with everything just a click away, you won’t have to worry about finding misplaced paper documents.

If you’re interested in leveling up your organization, you could even set up a digitized archive of your important information and files on your computer or an external hard drive, so you never have to spend hours searching through file cabinets and miscellaneous envelopes.

You can also reduce physical — and mental — clutter by taking advantage of the many retailers and service providers that offer email, rather than paper, receipts. Or, you may want to consider getting an app that scans, organizes, and stores receipts, such as Smart Receipts .

You can also get an app for filing and organizing your paperless statements. Some not only capture receipts, but will also seek out your online statements and bills and automatically download and file them to the cloud.

3. Consolidating Accounts

Whether you’re married with three kids or single with two Labradoodles, there’s a good chance that you have more financial accounts than you need. Consolidating multiple bank accounts into just a few can help simplify your financial life. In some cases, it can also help you save you money.

If you’ve done a lot of job hopping in your career, for example, you could have multiple 401(k)s floating around. When you leave a company but don’t roll over your 401(k), you’re often subject to fees that your employer may have been covering while you were employed.

By rolling your 401(k) into an IRA, you may be able to minimize fees. Another plus is that you’ll also have all of your funds in one spot. And, you may be able to select from a wider selection of funds and investments than the ones selected by your previous employer.

If you have more than one checking or savings account, you may want to see if you can pare it down to one of each, ideally under the same roof. Or, you might want to consider switching to a checking and savings account, which functions as both a spending and saving account in one product.

You may also want to look at bundling your insurance policies. Many companies offer substantial discounts if they write both your auto and homeowner’s policies.

4. Using One Credit Card

If you signed up for a variety of credit cards, chasing the promised rewards they offered, you may have racked up more than a few credit accounts.

To make it easier to keep track of your spending, you may want to pick the card that offers you the most in return, whether that’s cash back, travel rewards, or other perks, and focus on using only that credit card.

By putting everything on one card, you’ll only have one credit card bill to pay each month, a single statement to monitor for errors and fraud, and one rewards program to track. Plus, you won’t have to think about which card to pull out whenever you’re making a purchase.

Rather than canceling your other cards (which could negatively impact your credit score), you may want to just store them away in a secure place.

5. Knocking Down Debt

One of the most effective ways to reduce financial stress is to get rid of high interest debts.

Paying off even one sizable credit card or loan can not only ease worry, but can also reduce the number of financial obligations you have to deal with each month. It can also free up money that you can then put towards something else, whether that’s getting rid of other debts or something fun like a vacation.

Two common strategies for paying off debt are the debt snowball and debt avalanche method.

With the debt snowball method, you list your debts in order of size, then put any extra money you have towards the debt with the smallest balance, while paying the minimum on the others. When that debt is paid off, you tackle the next-smallest debt, and so on. Paying off debts in full can help you feel accomplished, simplify your life, and inspire you to continue crushing your debt.

With the debt avalanche method of paying off debt, you list your debts in order of interest rate, then focus on putting extra money towards the debt with the highest interest rate first, while paying the minimum on the rest. When that debt is paid off, you put extra money towards the debt with the next-highest interest rate. While it may take you longer to see progress on your loans, you’ll likely pay less money in interest over time using this method.

6. Putting Saving on Autopilot

The set-it-and-forget-it approach can be highly effective when it comes to saving money. For one reason, you don’t have to remember to transfer money from your checking to your savings each month. For another, the money will get whisked out of your checking account before you ever have a chance to spend it.

You can automate savings in just a few minutes by setting up a recurring transfer from your checking to your savings account for a set amount of money on the same day each month (perhaps the day after you paycheck clears).

Even if you can only afford to transfer a small amount each month, it can be worth automating this task. Since the savings will happen every month no matter what, your savings will gradually build over time.


💡 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.

7. Focusing on Fewer Goals

It can be great to have financial goals. Many of us have plans to buy a home, put kids through college, and pay for our retirement. But if you set too many goals at one time, you can end up losing focus, and not making any progress on any of them.

A better approach can be to set just one or two goals to fully focus on at one time. Ideally, one should be saving for retirement, since the earlier you start saving for retirement, generally the easier it is to reach your goal.

The other goal might be paying off your credit card debt or student loans, saving for a down payment on a home, or putting money aside to help pay for your kids’ college education.

By focusing your energy on just one or two specific goals, you may be able to make real headway. Once you start seeing progress — or actually achieve the goal — you’ll likely be inspired to set, and accomplish, other goals.

The Takeaway

Simplifying your financial life may take a bit of legwork up front but, in the long run, it can help alleviate stress and also help you better plan for your financial future.

Strategies that can help you simplify your finances include paring down the number of accounts you have, crossing off debts, automating monthly tasks like paying bills and transferring money to savings, and focusing your efforts on just one or two financial goals at a time.

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

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

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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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Saving for kids’ college expenses can be a massive undertaking, but a critically important one. If you’re a parent, you’ve probably heard the mantra that education is the key to a successful future for your child. You’re also likely aware that college isn’t cheap, and it isn’t getting cheaper.

The escalating costs of college may have you worried about how to pay for higher education. You’re smart to think about how to start saving for college, even if your kids are still young. If you truly want to give your child the gift of a college education and free them from overwhelming student debt, the time to plan is now.

When to Start Saving for Your Kids’ College Tuition

Generally speaking, the sooner you can start saving for your kids’ college fund or overall education, the better. Tuition, even at in-state public schools (which tend to be the least-expensive options for many people) are already in the four and five-figures territory, depending on where you live. And, as noted, it’s unlikely that costs are going to decrease in any meaningful way in the near future.

For parents who paid for college using student loans, emphasizing saving for their children’s college expenses may be a no-brainer. Those parents may benefit from looking through a student loan refinancing guide, too, to see if they can free up space in their budget to increase their capacity for saving – more on that in a minute.

Yes, there are schools that offer free tuition, but it’s probably best to plan on paying for attendance – you never know what could happen going forward.

With that in mind, it’s never too early to start socking away money for your children’s education. Getting a head start gives your money more time to grow over the long term and to rebound after any dips.

It also means you can recalibrate if your child seems to be on track for scholarships related to sports or academic achievements, or if your child decides to forgo college. Keep in mind that the money you save will generally affect the financial aid package your child qualifies for.

Before you launch a college savings plan for your kids, it’s best to have your other financial ducks in a row. You might first focus on paying off any credit card balances or other high-interest debt. Then you might want to make sure you’ve paid off your own student loans (or looked at student loan refinancing, at least) and saved an emergency fund (generally three to six months’ worth of living expenses), and are on track in terms of saving for retirement.

After all, your child always has the option to take out student loans, but you can’t rely on that to pay for a crisis or retirement. You wouldn’t want to have saved for your kids’ college only to burden them with your living expenses after you retire because you haven’t built a nest egg.

Again, if you’re still grappling with your own student loan debts, you can experiment with a student loan refinance calculator to see if refinancing can make it easier to pay it off, and put you in a better position to start saving for your child’s education.

The Best Ways to Save for Child’s College

If you’re ready to start saving for higher education, you may be tempted to keep that cash reserve in a savings account. While it might seem like that would protect your funds from market ups and downs, you might actually be losing money.

That’s because even accounts with the best interest rates aren’t keeping up with the pace of inflation. Especially if your child won’t be going to college for a while, investing your savings is a way you might see your money grow. Keep in mind that investments can lose money.

It’s also worth mentioning, again, that many parents may still be struggling with their own student loan debts. As such, it’s worth asking: should you refinance your student loans? It’s worth considering, at the very least, or speaking with a financial professional about if you think it may help you save for your child’s college expenses.

Here are some of the best ways to save for a child’s college:

529 Plans

A 529 plan, also known as a “qualified tuition plan,” allows you to save for education costs while taking advantage of tax benefits (the plan is named after the section of the Internal Revenue Code that governs it). 529 plans break down into two categories: educational savings plans and prepaid tuition plans.

Educational savings plans, which are sponsored by states, allow you to open an investment account for your child, who can use the money for tuition, fees, room and board, and other qualifying expenses at any college or university. You can also use up to $10,000 a year to pay for schooling costs before college.

You can invest the money in a variety of assets, including mutual funds or target-date funds based on when you expect your child to go to college. The specific tax benefit depends on your state and plan. Generally, you contribute after-tax money, your earnings grow tax-free, and you can withdraw the money for qualified expenses without paying taxes or penalties. If you withdraw money for anything else, you’ll pay a 10% tax penalty on earnings.

Not all states offer tax benefits, so be sure to look into this when choosing your plan.

💡 Quick Tip: All investments come with some degree of risk — and some are riskier than others. Before investing online, decide on your investment goals and how much risk you want to take.


Prepaid tuition plans, as you may expect, allow you to prepay tuition and fees at a college at current prices. These plans are only available at certain universities, usually public institutions, and often require you to live in the same state. A prepaid tuition plan can save you a lot of money, given how much college costs are increasing each year.

Depending on the state and the 529 plan, you may be able to deduct contributions from state income tax. However, if your prepaid tuition plan isn’t guaranteed by the state, you might lose money if the institution runs into financial trouble. You also run the risk that your child will choose to go to a school that’s outside the area covered by the plan.

Coverdell Education Savings Account

Like a 529 educational savings plan, a Coverdell ESA allows you to set up a savings account for someone under age 18 to pay for qualified education expenses. The money can be invested in a variety of stocks, bonds, or other assets, and grows tax-free.

Your contributions are not tax-deductible, and the plan is only available to people who earn under a certain income threshold.

When your child withdraws the funds for qualified educational expenses, they won’t pay taxes on it. The money can also pay for elementary or secondary education. But note that you can only contribute $2,000 per year to a Coverdell ESA per beneficiary.

UGMA and UTMA Accounts

You can open a Uniform Gifts to Minors Act or Uniform Transfers to Minors Act account on behalf of a beneficiary under 18, and all the assets in it will transfer to the minor when he or she becomes an adult (at age 18 to 25, depending on the state).

Young adults are able to use the funds for anything they want. That means they won’t be limited to qualified education expenses. Another plus is that you can contribute as much as you want. The downside is that there are no tax benefits when contributions are made. Earnings are taxable.

A custodial account is an irrevocable gift to the minor named as the beneficiary, who receives legal control of the account at the age of majority.

The Takeaway

Given the increasing costs of higher education, parents are smart to save for a child’s college early and often. But rather than keep the money in a savings account, they’d likely benefit by choosing an option that lets their money grow.

The more popular routes for doing so often involve 529 Plans, Coverdell Education Savings Accounts, and UGMA and UTMA accounts. But you’ll need to do some thinking and research before deciding on the right strategy and accounts for you and your child. Just remember: The sooner you start saving, the better — generally speaking.

Ready to invest in your goals? It’s easy to get started when you open an investment account with SoFi Invest. You can invest in stocks, exchange-traded funds (ETFs), mutual funds, alternative funds, and more. SoFi doesn’t charge commissions, but other fees apply (full fee disclosure here).

For a limited time, opening and funding an Active Invest account gives you the opportunity to get up to $1,000 in the stock of your choice.

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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.

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