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The Federal Reserve is the U.S. central bank system. The Fed implements monetary policy in order to stabilize the economy, monitor interest rates, and keep unemployment low. It is the most powerful economic institution in the country, and one of the most important in the world.

The Federal Reserve System has far-ranging roles and responsibilities in the economy, and has been around for more than a century. It can be very important for consumers to understand what it is, and what it does, to help inform their financial planning strategies and decisions.

Why Was the Federal Reserve Created?

Throughout the 19th century, there was no central bank in the U.S., and the banking system was fraught with bank failures and “bank runs,” where depositors would rush to banks to withdraw all of their money. To create a safer and more stable bank system, President Woodrow Wilson signed the 1913 Federal Reserve Act.

The Fed is actually an intricate system that consists of several different parts. These are the three bodies of the Fed:

The Federal Reserve Board of Governors

The Board of Governors consists of seven board members that oversee the Federal Reserve System. This includes the chairman and vice chairman. Jerome Powell has been chair of the Fed since 2018. Before him, the chairman of the Federal Reserve was Janet Yellen.

The Board of Governors is based in D.C. and reports to Congress. Board members are appointed by the U.S. president and serve staggered 14-year terms (so the entire board isn’t replaced in a single year). The chairman and vice chairman serve four-year terms and may be reappointed at the end of their term.

Federal Reserve Branches

There are 12 Federal Reserve districts in major cities throughout the country that act as the operating arms of the Federal Reserve.

You wouldn’t walk into a Federal Reserve bank and open up a checking account, though. Rather, Federal Reserve banks work with other institutions, such as banks and credit unions, and the U.S. Treasury. They provide services like holding deposits for banks, processing payments, and issuing and redeeming government securities.

The Federal Open Market Committee (FOMC)

The committee comprises all members of the Board of Governors and five rotating Reserve Bank presidents. Although not all Reserve Bank presidents vote, all participate in policy discussions.

The FOMC meets eight times a year to review economic trends and vote on new monetary policy measures. During these meetings, the committee will set a federal funds rate. The FOMC may also take steps to control the money supply.

What Does the Federal Reserve Do?

The Federal Reserve has several primary functions:

Setting Monetary Policy

One of the primary roles of the FOMC is to set monetary policy. With monetary policy, there are typically two primary goals: Maximum employment and stable inflation.

Often, we hear about monetary policy in terms of the setting of the federal funds rate. This is the rate at which banks charge each other on an overnight basis.

A bank might need to borrow money from another bank in order to meet the Fed’s minimum reserve requirement, the amount of cash the bank needs to have available in its reserves to cover consumer withdrawals and activity.

The federal funds rate as set by the FOMC may influence other interest rates. In this way, the federal funds rate can be used as a tool to encourage or restrict borrowing. For example, the Fed may attempt to fight inflation by raising the federal funds rate, making borrowing more expensive. Conversely, the Fed may lower that same rate — making it easier to borrow and spend money — in an attempt to ward off a recession.

But this isn’t the only monetary policy that the FOMC is engaged in. According to the Federal Reserve, its main tool for controlling the money supply is “open market operations,” which is the buying and selling of government securities, like treasury bills. It may do this in conjunction with a rate change or other strategies.

Recommended: What Is Fractional Reserve Banking?

The federal funds rate as set by the FOMC may influence other interest rates. In this way, the federal funds rate can be used as a tool to encourage or restrict borrowing. For example, the Fed may attempt to fight inflation by raising the federal funds rate. Conversely, the Fed may lower that same rate in an attempt to ward off a recession.

But this isn’t the only monetary policy that the FOMC is engaged in. According to the Federal Reserve, its main tool for controlling the money supply is “open market operations,” which is the buying and selling of government securities, like treasury bills. They may do this in conjunction with a rate change or other strategies.

Regulating Banks

To ensure the safety and solvency of the nation’s banking and financial system, the Fed regulates banks and other financial services institutions. This is done not only for the protection of the consumer but to promote stability within the banking system.

The Board of Governors typically sets guidelines for member banks through policy regulation and supervision. The Reserve Banks then examine member banks to ensure that they comply with existing laws and regulations. Often, new guidelines are created because of legislation that has been passed through Congress.

Overseeing Payment Systems

The Fed provides financial services to the U.S. government, major financial institutions, and foreign official institutions. The Fed acts as the depository institution for the U.S. Treasury — essentially, the Treasury’s checking account.

The Fed also plays a major role in operating and overseeing the nation’s payment systems. In addition to making sure there is enough currency in circulation, the Fed clears millions of checks and processes electronic payments. Social Security checks and the payrolls of government institutions are processed by the Fed.

Limiting Risk

At the end of the day, the Federal Reserve wants to control risks to the economy and financial markets (such as the stock market) as best it can. It utilizes a number of measures, including those discussed above, in order to best achieve this stability.

How Does the Federal Reserve Affect You?

Although you might not always feel it, the Federal Reserve enacts policies and makes decisions that affect the lives of everyday Americans.

Although the Fed does not set rates like mortgage rates and credit card interest rates, those rates can shift as the Fed Funds rate does.

An increase or decrease in interest rates can affect consumers in plenty of ways. If overall rates increase, then it becomes more expensive to be a borrower. Variable interest rates may rise, and any new debt will be issued at higher rates.

The rates at which money is flowing freely throughout an economy may also have rippling impacts. For example, when rates are low and access to money is cheap, businesses may borrow money in order to invest in development or expand operations. If there is too much money in circulation, inflation may increase. This could cause the prices of everyday goods, like groceries, to increase as well.

The Takeaway

One of the Fed’s goals is promoting an economy that supports maximum employment. If it is not able to succeed using the tools at its disposal, people may lose jobs, and unemployment may increase. This could also have effects throughout the greater economy, such as decreased consumer spending and overall slowed economic growth.

Keeping an eye on what the Fed does, and why it’s doing it, can provide valuable information when budgeting and determining how to meet financial goals. Issues like unemployment and inflation can affect the markets, which in turn can have an impact on your financial plans.

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

FAQ

What is the Federal Reserve?

The Federal Reserve is the U.S. central bank system. The Fed implements monetary policy in order to stabilize the economy, monitor interest rates, and keep unemployment low. It is the most powerful economic institution in the country, and one of the most important in the world.

What does the Federal Reserve do?

The Federal Reserve has two primary goals: Maximize employment in the U.S. economy, and keep prices stable. It does so by utilizing monetary policy, and tools such as interest rates.

Does the Fed regulate banks?

The Fed regulates banks and other financial services institutions to ensure solvency throughout the financial system. The Board of Governors typically sets guidelines for member banks through policy regulation and supervision. The Reserve Banks then examine member banks to ensure that they comply with existing laws and regulations.

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

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.

*Awards or rankings from NerdWallet are not indicative of future success or results. This award and its ratings are independently determined and awarded by their respective publications.

Annual percentage yield (APY) is variable and subject to change at any time. Rates are current as of 11/12/25. There is no minimum balance requirement. Fees may reduce earnings. Additional rates and information can be found at https://www.sofi.com/legal/banking-rate-sheet

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

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

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

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

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It may feel like there’s nothing easy about money. The older you get, the more obligations you may have. Between checking, savings, 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 in to your online bank account or using your bank’s mobile 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 next-level financial 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.

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 Individual Retirement Account (IRA), you may be able to minimize fees. Another plus is that you may be able to merge your IRAs and 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. They don’t necessarily have to be under the same roof. You can typically link your accounts even if they are at two different banks, such as a checking account at a traditional bank and a high-yield savings account at an online bank.

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), 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 your 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.

Recommended: Savings Calculator

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

FAQ

How do I simplify my finances?

You can simplify your finances by consolidating accounts, automating payments, and using budgeting apps. Other ways to simplify your financial life include: setting up a budget with clear spending categories and limits, paying off high-interest debts to reduce monthly obligations, and getting rid of subscriptions and memberships you don’t use regularly.

What is the 50/30/20 rule in your financial plan?

The 50/30/20 rule is a budgeting guideline that splits your income into three parts: 50% for essential expenses (like rent and groceries), 30% for discretionary spending (like entertainment, dining out, and hobbies), and 20% for savings and debt repayment. This rule helps ensure a balanced way to manage money, ensuring both responsible financial habits and room for enjoyment and future planning.

What is the 7% rule in finance?

The 7% rule in finance suggests that a safe and sustainable withdrawal rate from a retirement portfolio is 7% per year. This means you can withdraw 7% of your total retirement savings annually without significantly depleting your funds. However, this rule is a general guideline and may vary based on market conditions, portfolio size, and individual financial circumstances. Always consult a financial advisor for personalized advice.

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

Annual percentage yield (APY) is variable and subject to change at any time. Rates are current as of 11/12/25. There is no minimum balance requirement. Fees may reduce earnings. Additional rates and information can be found at https://www.sofi.com/legal/banking-rate-sheet

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

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

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

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

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.

We do not charge any account, service or maintenance fees for SoFi Checking and Savings. We do charge a transaction fee to process each outgoing wire transfer. SoFi does not charge a fee for incoming wire transfers, however the sending bank may charge a fee. Our fee policy is subject to change at any time. See the SoFi Bank Fee Sheet for details at sofi.com/legal/banking-fees/.
Third Party Trademarks: Certified Financial Planner Board of Standards Center for Financial Planning, Inc. owns and licenses the certification marks CFP®, CERTIFIED FINANCIAL PLANNER®

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