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Certificate programs offer a flexible, focused, and often more affordable way for individuals to gain specialized skills and knowledge without committing to a full degree program. Whether you’re a recent high school graduate looking to supplement your education, a working professional seeking career advancement, or someone wanting to switch industries, certificate programs provide valuable credentials in a relatively short time frame. 

Keep reading to learn what certificate programs are, their benefits, and how to choose the right one to meet your personal and professional goals.

What Is a Certificate Program?

Certificate programs are courses or vocational training provided by colleges or professional associations that last less than two years, and typically just six to nine months. They can prepare you for immediate placement in trade, technical, and vocational careers. 

Trade schools prepare you for jobs such as welder, electrician, and cosmetologist. Vocational schools focus on in-demand jobs that can be trained in two years or less, such as working as a paralegal or a dental hygienist. Technical schools teach skills for one trade and typically involve an apprenticeship. Programs include HVAC, auto repair, and some nursing certifications.

“Certifications” are the outcome of certain certificate programs to prove successful mastery of the program. Exams are officiated by state or authorized organizations, and formal licenses, diplomas, or certificates are awarded on completion. Certificates can also be career training programs for bachelor’s degree holders to expand a student’s expertise without earning a degree. For instance, a marketing professional can enroll in a social media marketing course, a niche area of marketing, to broaden their skillset. 

Certificate Programs vs College Degrees

Certificate programs and college degrees differ in curriculum, program length, cost, and program outcome.

Curriculum. Colleges require a general education curriculum, whereas certificates teach only the skills for a trade or subject. No academic courses, such as humanities, are included in the training.

Length. Certificate programs are shorter. College degrees are a minimum of two to four years for full-time students. Certifications can sometimes be just one month, but are typically three to four months for one-off courses. Training programs for certifications are usually one to two years.

Cost. A college education has a substantial price tag. The average college tuition in 2024 costs $38,270 per student per year, according to the Education Data Initiative, compared to certificate programs that can range from $1,000 to $5,000 (though some may be more expensive). 

Program outcome. Finally, program outcomes differ. Certificates train students for a specific skill and immediate placement in careers with those skills. College programs provide an extensive and expansive education that can provide opportunities in multiple disciplines within a field. For instance, someone who earns a bachelor’s in economics can enter finance analytics, business consulting, and various disciplines in finance-related fields.

Recommended: A Guide to Choosing the Right College Major

How Long Are Certificate Programs?

Certificate programs can range from a few weeks to two years. San Diego University’s paralegal program can take four to eight months to complete in-person, for example. A cosmetology program at Fullerton College in California requires 1600 hours at a student’s own pace — so the program length depends on you and the field you are planning on studying.

Types of Certificate Programs

The two most common types of certification programs are undergraduate and graduate. They follow compulsory education, and outside of a degree, provide education needed for specific fields such as business, administration, and healthcare.

Undergraduate

Undergrad programs build technical skills and subject mastery via career training programs or one-off courses. Enrollees usually must have a high school diploma for certain courses. They can often be completed in one academic year or less.

Some programs, such as cosmetology, award a license at the end of the program. Ensure your program is formally accredited by the state or professional organization and will prepare you for required licensing exams.

Graduate

Graduate courses enhance a college degree. Students test and earn a certificate to satisfy course completion without earning a degree. Some courses require prior knowledge of a topic. For example, students employed in computer engineering can earn a certificate in a new computer language.

They are offered by universities and colleges, and programs are credit-based. Some programs’ credits can be transferred to other colleges.

Online Certificate Programs

Online certificate programs offer multiple advantages, with convenience being at the top of the list. The online universe has a library of extensive certificate programs, and prestigious courses are accessible to everyday learners. For example, eCornell has a large library of graduate courses. Also, MOOCs (massive open online courses) offer free and paid programs from universities, nonprofits, and for-profit companies.

Online courses also offer flexibility. Asynchronous courses, those that don’t have a specific meeting time, allow students to take a course at their own pace. You can access pre-recorded content anytime and follow class discussion on comment boards. On the other hand, synchronous online programs are more restricted to a schedule. They work like in-person courses where students attend live online lectures, meet due dates, and engage in online class activities.

Finally, online courses may be less expensive than in-person ones. Cutting the commute and certain campus fees can result in cheaper overall prices than in-person learning.

Not all certificate programs offer online learning, however. Hands-on vocations, such as landscaping, plumbing, and electrical engineering, often require apprenticeships to demonstrate material understanding and to meet minimum requirements.

Is a Certificate Program Right for You?

Certificate programs might be a good fit for someone who wants to try a trade career. They are an affordable way to test out vocations without incurring student debt. And college credits from some courses can be put toward a formal college degree if you decide to pursue a bachelor’s.

If you want to learn a new skill for work, graduate certificate courses are one alternative to a master’s or professional degree. For instance, some companies will pay employees to get a Project Manager Professional (PMP) certificate to better equip their employees and improve workforce productivity.

Certificate programs are a great way to kick-start a career change. Some popular certificate programs for career changes include business analysis, law, human resources, and accounting. They are offered by professional organizations, such as the American Institute of Certified Public Accountants for accounting.

Program Type	Certificate Programs	Certification Programs	College Degrees
What do you gain?	Add skills with specific courses for your current job	Fast-track into trade careers or career advancement	Gain career opportunities not limited to trade vocations
How long do you study?	Programs last a few weeks to a few months	Programs last a few months and up to two years	Programs for full-time students last two to four years
How many credits are programs?	15-30 credits, though requirements may vary	4-30 credits, requirements may vary	60 for associate, 120-130 for bachelor’s, and 30-60 credits for graduate programs
This program is good for…	Kick-starting a career change; adding skills to your existing job	Starting a new career (usually in trade vocations); advancing careers into management	Starting a new career or changing a career

Benefits of a Certificate Program

Certificates can propel students directly into the workforce with on-demand skills. According to a Georgetown University study, nearly all certificates (94%) are awarded in career-oriented fields.

Future success in earnings depends on the trade field you choose. For instance, the median earnings for a dental hygienist were $87,530 per year in 2023 according to the Bureau of Labor Statistics (BLS). In comparison, the median wage for cosmetologists was $35,080 in 2023 according to the BLS.

Certificates can also complement a college degree or help a professional acquire skills to advance upward within a field. A marketing professional can expand his or her skillset with an InDesign certificate — often a skill needed for content marketers. And it pays to learn. A total of 77% of Coursera students reported career benefits, such as promotions, raises, and career changes.

Certificate programs also can save time and money. Programs are fewer credits than full degrees and are shorter in length, so cost substantially less than a degree.

Drawbacks of a Certificate Program

Certificates alone can increase income value modestly — and the gains can be diminished in a rapidly evolving workplace. Some studies even show negative returns for certificate holders without a college degree, according to the nonprofit New America.

One BLS report shows bachelor’s degree holders earn median weekly earnings of $1,541, while “some college or associate degree” earners make $1,057 per week on average.

Furthermore, more vocations require a college degree. According to BLS, a bachelor’s degree is required for 174 occupations while an associate degree or a postsecondary nondegree award is required for only 99 occupations.

While certificate programs equip you with skills to land an entry level job after a short time, it may not pay off in the long run.

What to Look for in a Certificate Program

Evaluate programs by accreditation. Quality courses are accredited by the U.S. Department of Education or the Council for Higher Education Accreditation. They might also be verified by certifying bodies within that industry, such as HRCI for Professional Human Resources certification.

Determine flexibility. Some learners might benefit more from in-person courses, while an online course can give busy learners an opportunity to gain valuable expertise and skills. Furthermore, an asynchronous program can provide further flexibility for students who have unpredictable schedules.

Look out for for-profit institutions. For-profits are often synonymous with poor training for exorbitant costs. In short, it can be a scam. The College Scorecard is a government tool that can tell you whether your school is for-profit. On your school’s page, you will see its designation, such as “Private For Profit.”

What Certificate Programs Are in Demand in 2024?

There’s no shortage of demand for certificate programs. The National Center for Education Statistics says the number of certificates awarded increased from 53% to 70% from 2011-12 to 2021-22.

Top certification categories in demand in 2024, according to the International Association of Career Coaches, include:

•   Information Systems and Cybersecurity ($73K to $123K average salary)

•   Project Management ($99K to $122K average salary)

•   Healthcare ($41K to $203K average salary)

•   Finance and Accounting ($72K to $111K average salary)

•   Human Resources ($65K to $128K average salary)

The top paying certifications include:

•   Certified Registered Nurse Anesthetist: $203K

•   Google Cloud Professional Data Engineer: $129K

•   Global Professional in Human Resources: $128K

•   AWS Certified Solutions Architect: $123K

•   Chartered Financial Analyst: $104K

•   Certified Professional in Healthcare Quality: $100K

Coursera’s top 10 courses with professional certification include Google Data Analytics, Google Project Design, Google UX Design, IBM Data Analytics, Google IT Support, Meta Marketing Analytics, IBM Cybersecurity Analyst, IBM Data Science, IBM Data Analyst Capstone Project, and International Business Essentials Specialization. 

How to Pay for Certificate Programs

When deciding how to pay for certificate programs, it’s important to explore all your options. Some might include savings, student loans, and other forms of financial aid.

To get a student loan for a certificate program, you can fill out the Free Application for Federal Student Aid (FAFSA®). The FAFSA will tell you what you qualify for, including federal student loans, grants, and scholarships.

You can also look into private student loans. Private student loans are given by banks, credit unions, and online lenders. While they don’t offer the same benefits and protections as federal student loans, they can be a good option for students who need funding to pay for their certificate program.

Recommended: Guide to Student Loans for Certificate Programs

The Takeaway

Certificate programs can start, enhance, or change careers for learners. They can prepare students for immediate placement in a specific trade without a college degree. They can also boost your career by providing specialized skills, enhancing your qualifications, and demonstrating expertise to employers.

Certificate programs are less expensive and shorter in duration than college degrees. To pay for a certificate program, you can look into employer assistance programs, use cash savings, or rely on federal or private student loans.

If you’ve exhausted all federal student aid options, no-fee private student loans from SoFi can help you pay for school. The online application process is easy, and you can see rates and terms in just minutes. Repayment plans are flexible, so you can find an option that works for your financial plan and budget.

Cover up to 100% of school-certified costs including tuition, books, supplies, room and board, and transportation with a private student loan from SoFi.

FAQ

What does a certificate program mean?

A certificate program is a short-term educational course designed to provide specialized skills or knowledge in a certain field. It typically takes a few months to two years and is aimed at enhancing career opportunities, professional development, or gaining expertise in a particular subject.

Is a certificate program worth taking?

A certificate program can be valuable for gaining specialized knowledge quickly and affordably. However, it’s important to consider the program’s relevance to your field and potential return on investment.

What are the benefits of attending a certificate program?

Attending a certificate program offers three key benefits: It provides specialized skills and knowledge in a short time, enhances your qualifications to improve job prospects, and offers a flexible, cost-effective alternative to a degree, allowing you to advance your career or switch fields efficiently.

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Photo credit: iStock/PeopleImages

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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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SOISL-Q324-058

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Between inflation and rising prices, being frugal with your spending is a good idea. But you can go a step further: By learning some valuable life skills and DIY-ing more activities, you can save money.

Mastering skills like cooking, cleaning, riding a bike, and doing your own taxes means you don’t have to pay professionals for expensive services. While it can be time-consuming, harnessing new skills can make you more independent, help you keep more of your money, and maybe even inspire a few new hobbies.

In this article, we’ll take a look at 20 basic money-saving skills that almost everyone can learn. They can be fun to dig into, build confidence, and free up funds to put towards your financial goals.

How Life Skills Are Essential to Your Financial Freedom

Life is built on financial transactions. We pay for food at the restaurant, spend money on a haircut, reach deep into our wallets at the gas station, and shell out for repairs when something in our home breaks.

While we can’t possibly learn enough life skills to replace all these transactions, it is possible to take up a few new savings skills, like cooking, painting, and sewing, so that you can hoard a little more money each month.

That little bit of money adds up — honing several life skills can be an important step toward your financial freedom. The money you save can go towards your emergency fund, paying down student loan debt faster, or gathering the down payment on a house.

20 Life Skills That Can Help You Save Money

So which life skills are worth learning? We’ve rounded up 20 of the top money-saving skills that, when mastered, can help you avoid spending your cash on basic goods and services. They’ll help put you on the path to becoming financially disciplined.

1. Cooking

Eating out now and then is perfectly fine — a well-deserved reward after a long week at the office or a celebratory dinner for a major milestone. But eating out for lunch or dinner every day can be unhealthy (those portion sizes!) and can get quite expensive. Learning the basics of cooking can keep you out of the pricey restaurants and in your own kitchen instead.

Cooking can require an investment in the proper cookware and staple ingredients, but overall it’s bound to be cheaper than getting food to go or at an eatery. Just think about the price difference between avocado toast whipped up in your kitchen and what you’d pay at a cute cafe. Search for recipes online, and follow tips to save money on food before you head out to the grocery.

2. Painting

Ready to pick up a paintbrush and unlock another savings skill? According to Angi (formerly known as Angi’s List), homeowners spend more than $3,100 on average to paint the exterior of their home, and renters and homeowners alike might pay painters even more to paint the interior. The current rate for painting the interior typically runs from $2 to $6 per square foot.

While painting the exterior of your home can be a little more challenging, painting the interior is not complicated at all. If you are willing to take the time to learn, you can save yourself thousands of dollars every time you want to change up the inside of your living space. You could use that extra money to open a savings account or add to the one you already have.

3. Gardening

Yes, professional landscapers can weave a certain kind of magic. But doing your own gardening can be a tremendously satisfying and creative pursuit, not to mention that it can save you a lot of moolah. Spending time learning the basics about what zone you live in and which plants will thrive, plus wandering around nurseries and garden centers, can provide plenty of inspiration.

You can grow fresh produce for the small price of starter seeds and the occasional watering, which means less money spent at the grocery store.

What’s more, when selling your house, landscaping is an important part of curb appeal. A well-cared-for garden might attract potential buyers and help your home sell more quickly.

Recommended: How Much Should I Spend on Groceries a Month?

4. Plumbing

Plumbing emergencies like a flooded basement or a broken water heater are probably still better left to a licensed contractor, but teaching yourself to be handy with a wrench and a screwdriver might save you on smaller problems, like a leaky faucet or a running toilet.

This money-saving skill can serve you well over the years. Calling a plumber for every small problem that your house encounters over the years can add up. In fact, most plumbers charge $45 to $200 an hour and may charge a fee of $100-$250 just for a service call.

Beyond plumbing, you can teach yourself basic electrical and carpentry skills so that you can tackle some easy home improvement projects for beginners.

5. Budgeting

Knowing how to make a budget — and sticking to it — is a crucial life skill. When you are able to analyze your monthly expenses against your monthly income in an easy-to-read format, you can quickly discover which spending habits you need to scale back. Many people like the 50/30/20 rule, which spells out that you should spend 50% of your after-tax income on needs, 30% should be put towards wants, and 20% should go into savings.

And you don’t even need to pay for fancy budgeting software. Many online banking platforms make it easy to see all of your transactions in one place, and you can use a simple spreadsheet to design a budget that works for you.

6. Haggling

Not every price is negotiable, but when it is, it’s important to know how to haggle with confidence. While you might immediately think of haggling at a used car lot (and that’s a great place to do it), you can also haggle over things like your monthly cell phone bill, your rent, and even credit card interest rates. Politely asking, “Is there any flexibility on the price?” may yield a surprising positive response.

Even if you’re only successful in lowering one expense, that’s money in your wallet that you wouldn’t otherwise have had.

Recommended: How to Negotiate Medical Bills

7. Sewing

You might not ever create your own clothes from scratch (though you certainly can!), but knowing how to sew can come in handy when you get a rip in your favorite shirt or a parka’s zipper starts to detach. Instead of throwing out clothes with holes or lost buttons, sew them back together. Mending the torn back pocket on your favorite jeans, for instance, and you’ll save yourself from dropping $50 or much more on a new pair.

8. Cutting Your Family’s Hair

Haircuts at chain salons are certainly not cheap, often ranging from $30 to $70+, but boutique salons are even more expensive. Learning to cut your family’s hair (or your own, if you’re brave) can cut out one monthly expense. Check out the tutorials on YouTube and other video platforms and see if you can’t hone your skills.

9. Investing

The average stock market return over the last 10 years has been more than 10%. And though you can certainly pay a traditional broker to manage your portfolio, it’s totally possible to do it yourself.

In fact, there are many platforms for investing to choose among, some of which enable automated investing. Plus, you can help build your financial know-how by reading blogs and books on investing, as well as listening to podcasts or taking an online class to sharpen your skills. Just remember that investing entails risk, so make sure to choose an investment vehicle you are comfortable with.

10. Changing Your Car’s Oil

Done by a professional, the average oil change costs from $20 to $100, but the cost of doing it yourself is $30 to $45. Being able to change your car’s oil by yourself (typically twice a year, depending on how much you drive) can mean you pocket an extra $10 to $55 every time. It’s a great life skill to learn and then stash the cash you save, year after year.

11. Cutting Firewood

If you have ample trees in your yard — or a generous neighbor has just taken down a tree and doesn’t mind sharing the spoils — you can chop the wood yourself for an outdoor firepit or your fireplace. If your home has a fireplace, you can use that wood to heat a single room while leaving the heater setting lower in the rest of your home, cutting down on your utility bill.

12. Doing Your Own Taxes

If you have a complicated tax situation, an accountant might be a good investment, especially if they can help you maximize your credits and tax deductions even if you’re a student. However, if you have a straightforward income and financial situation, it might be beneficial to skip the accountant fees and file by yourself.

Check out the IRS Free File hub to find programs that will help you do it all by yourself.

13. Bartering

The time-honored tradition of bartering, or trading goods and services, can help you lower your expenses. Let’s say there’s a spinning class you love that’s beyond your budget. Could you offer to swap your digital savvy (say, filming videos and posting on social media for the studio) in exchange for no-cost sessions? Think creatively about the skills you have and how you might use them to get some freebies. It never hurts to ask about such arrangements, and it could help.

14. Roasting Your Own Coffee

Buying a latte at a coffee shop every morning may be convenient (and relaxing), but it also gets expensive. If you spend $5 (or more!) every day on a cup of coffee, that’s more than $1,800 a year. Instead, learn how to save on coffee expenses. Brew coffee at home — and better yet, learn how to grind and roast your own coffee beans for maximum savings. You’ll find that whole beans are typically less pricey than pre-ground ones at the supermarket.

15. Baking

Going to the bakery when you said you’d bring a dessert to your family’s holiday get-together may be convenient, but buying fresh cakes and cookies can get expensive. Baking can be a little more challenging than cooking, but it’s certainly a great way to save money. And it can be a wonderful creative pursuit and a new pastime. Need inspiration? Just watch any of the addictive shows on TV, like The Great British Baking Show.

16. Upcycling

Upcycling is a buzzword for reusing an item instead of buying something totally new. For example, you might use reclaimed wood or an old door to make a desk or table, turn a sweater with torn elbows into a vest, or use old towels as cleaning rags for a while before tossing them. Upcycling can help you save on common expenses, and it’s great for the environment; less goes into the trash.

17. Cleaning

Most people probably don’t like to clean, but it’s a big part of being an adult. Whether it’s scrubbing the bathroom, vacuuming the rug, or wiping down kitchen counters, these are chores that just need to be done.

It might be tempting to pay for a cleaning service, but doing so is expensive. Cleaning professionals typically charge $30 to $50 per hour — or more than $600 for a large home over 3,000 square feet.

Don’t give into that temptation to farm it out. Grab a rag (or an upcycled towel), a bottle of cleaning solution, and a monthly house maintenance checklist. You’ve got this!

18. Riding a Bike

Gas is expensive (and you probably know its impact on the environment). While you probably can’t bike everywhere you need to go, each trip on a bike you make — to work, to school, or just to a friend’s house — means you won’t be spending money on gas or bus fare.

19. Hosting

Hanging out with friends at your favorite bar is nice, but a fun night out adds up quickly when you do it every weekend. Instead, host your next friend or family gathering at your own home. Stock some wine, cold beer, and snacks, and you’re good to go. (You can be next-level and make a pitcher of a signature cocktail; it’s a fun way to build your mixology skills.)

Or switch things over to a morning meet-up with a pot of coffee and some home-made muffins. You’re likely to save big.

20. Doing It Yourself

Our final life skill ties all the rest together: Do things yourself instead of paying someone else to do them. If you don’t know how to do something, research online or find someone who does and learn. Once you’ve mastered the skill, share your knowledge with others.

Whether mowing your lawn, washing windows, or doing yoga or Pilates at home, you can really open up room in your budget when you DIY.

Banking With SoFi

Honing these valuable money-saving skills is a great way to establish financial freedom, and having a quality bank account will elevate your efforts. That way, you can immediately stash all the money you’re saving into your account so you won’t be tempted to spend it.

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.

Better banking is here with SoFi, NerdWallet’s 2024 winner for Best Checking Account Overall.* Enjoy 3.30% APY on SoFi Checking and Savings with eligible direct deposit.

FAQ

Is saving money a life skill?

Saving money is an important life skill. By learning to do various tasks yourself around the house and in your daily life, you can avoid paying for a lot of expensive goods and services. Also, being a smart consumer and comparison-shopping will help you save money. This is especially important when making a big purchase; look around for the best price, coupons, and other discounts.

How do I find the time to develop these life skills?

Most of these life skills can fit into your regular day. If you normally spend a couple of hours going out to dinner, you can instead spend that time finding a recipe and trying to cook it at home. You may also find that some of these tasks (cooking, gardening) become hobbies in which you happily invest time.

What is the most valuable life skill?

Learning to do things yourself, from cooking to filing taxes to changing your car’s oil, can be the most valuable life skill. This can give you confidence, know-how, and self-reliance, plus it requires you to be curious and willing to educate yourself, all of which are important traits.

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Photo credit: iStock/blackCAT

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

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

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

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

See additional details at https://www.sofi.com/legal/banking-rate-sheet.
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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.

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.

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While there’s no official guideline on what makes a salary “good,” a $20,000 salary is not typically enough for a household to live comfortably in most parts of the United States. Certainly, each person’s situation is unique in terms of their assets and expenses, but an individual making $20K a year may have a hard time making ends meet. They might need to rely on assistance from family, friends, and/or the government to afford basic necessities.

A $20,000 salary puts a single person above the poverty threshold for 2024. An individual supporting themselves plus one or more people on $20K a year, however, will live below the poverty threshold. With the record-high inflation we’ve seen in recent years, affording basic needs on a $20,000 salary has become even more challenging.

So is $20K a year good? While a $20,000 salary averages out to more than the federal minimum wage of $7.25/hour for full-time work, it is likely not an adequate income for anyone living independently and especially those with a family. In this piece, we’ll cover:

•   The current American median income.

•   Is $20K a year good?

•   A breakdown of a $20,000 salary.

•   The best and worst places to live on $20,000.

•   Tips for living on $20K a year.

Factors to Determine if a $20,000 Salary Is Good

A $20,000 salary will be challenging for anyone to live on, but a few factors may determine if it can be done — or if it’s impossible:

•   Taxes: If you are filing singly, a $20,000 salary will put you at the 12% federal income tax bracket. You may owe additional taxes for your state, city, and/or school district. For the sake of example, assume a flat 15%. That means, although you make $20,000, you only bring home $17,000 after taxes.

•   Family size: Single individuals without children can make $20,000 stretch more easily. Two or more people living off a $20,000 salary will face more challenges.

•   Location: Money goes further in some places more than others. If you live in an area with a low cost of living, a $20,000 salary may be more manageable. But if you live in a popular city, $20,000 a year may not even cover rent.

•   Debt: If you have debt, it can be more challenging to allocate your limited money to basic necessities and important financial goals, like building an emergency savings fund. If you are dealing with high-interest debt, you probably know how quickly this debt can grow when you are only paying the minimum amount due.

How Does a $20,000 Salary Compare to the American Median Income?

According to the most recent U.S. Census Bureau report, median household income was $80,610 in 2023. Keep in mind, though, that this number represents all households, which may include more than one earner. According to the Bureau of Labor Statistics, median weekly earnings for American workers was $1,117 in 2023, which comes out to $58,084.

Either way, $20,000 is far below either estimate for a median income. If you earn $20,000 and have a domestic partner or spouse who earns additional income, your salaries together might get you closer to the median income level.

Recommended: Is a $100,000 Salary Good?

$20,000 Salary Breakdown

Again, no judgment here: It’s not a matter of if a $20,000 salary is good or bad. To someone just out of high school, $20K a year might look like a good entry-level salary. But anyone who has handled monthly bills like rent and utilities will likely recognize that a $20,000 salary may be insufficient.

Here’s how a $20,000 annual salary breaks down:

•   Monthly income: $1,666.66

•   Biweekly paycheck: $769.23

•   Weekly income: $384.62

•   Daily income: $76.92 based on working 260 days a year

•   Hourly income: $9.62 based on working 2,080 hours a year

These estimates do not account for taxes. In the example above, a $20,000 salary may shrink to $17,000 after Uncle Sam has taken his cut.

Recommended: For other salary conversions, use our Salary to Hourly Calculator.

Can You Live Individually on a $20,000 Income?

It is possible to live individually on a $20,000 income, but you will likely only be able to afford the items on your basic living expenses list if you aren’t able to supplement your income. Living comfortably — with easy access to good health care (including mental health), balanced nutrition, safe housing, and efficient transportation — may be far more challenging on $20,000 a year.

If you make $20,000 a year, you might be able to minimize monthly expenses by looking for government assistance, getting a roommate or moving in with family, cooking at home, and using an online bank account with a high interest rate and automatic savings features.

How Much Rent Can You Afford Living on a $20,000 Income?

Wondering how much you can afford to spend on rent? Researchers have long argued that you should spend no more than 30% of your income on housing. With rising inflation and increasing rent prices, however, that’s not always possible.

If you were to stick to the 30% rule (and forget about income taxes for the sake of the example), that means you can spend $6,000 a year on rent, or $500 a month. But the median cost of rent in the U.S. was $2,100 as of September 2024, according to Zillow. That’s about four times what you could afford on $20K a year.

To afford rent on a $20,000 salary, it’s a good idea to live in a place with a very low cost of living and to have one or more roommates who can help share living expenses of rent and utilities with you. Moving in with family is also a solution if you cannot afford rent on your salary.

Best Places to Live on a $20,000 Salary

If you are making $20,000 a year (or $9.62 an hour), it might be a good idea to explore cities and states with a low cost of living.

These are the five least expensive cities to live in for 2024-2025, per U.S. News:

•   Fort Wayne, Indiana

•   Huntsville, Alabama

•   Wichita, Kansas

•   Springfield, Missouri

•   Davenport, Iowa

Living outside a city altogether is usually more affordable. Consider a rural location in one of these five cheapest states to live in:

•   Arkansas

•   Mississippi

•   Alabama

•   West Virginia

•   South Dakota

Recommended: Typical Monthly Expenses for a Single Person

Worst Places to Live on a $20,000 Salary

On the flip side, there are some major cities that are exorbitantly expensive to live in. If possible, it’s a good idea to avoid living in the following locations when you are living on $20,000 a year:

•   Hartford, Connecticut

•   Los Angeles, California

•   Miami, Florida

•   New Haven, Connecticut

•   New York City, New York

California cities clearly carry a high cost of living, but other states are also expensive. If you have a $20,000 annual salary, it’s a good idea to steer clear of any of the five most expensive states to live in:

•   Hawaii

•   New York

•   California

•   Massachusetts

•   Oregon

Is a $20,000 Salary Considered Poverty?

A $20,000 salary is above the poverty line for an individual, but if you are a couple or a family of three or more people living on a $20,000 salary, the government considers you to be below the poverty line.

These numbers do not consider factors like variable cost of living. A localized poverty line could be more telling, especially if you live in a place with a high cost of living. If you are, say, living in a pricey city and earning $20,000 a year, you might be feeling the financial pinch more.

Tips for Living on a $20,000 Budget

While advocating for a higher salary can infuse your line item budget with more funds, you can’t necessarily count on a raise. Taking other steps now may make it easier to live on your $20,000 salary.

Finding Out What Assistance You Qualify For

If you are making $20,000 or less, you may qualify for government assistance. Here are a few actions to consider taking:

•   Work with the U.S. Department of Housing and Urban Development for assistance with rent, including the Section 8 program.

•   Determine if you are eligible for assistance with grocery bills through the Supplemental Nutrition Assistance Program (SNAP).

•   Research the Low Income Home Energy Assistance Program (LIHEAP) to help with utilities.

•   See if you can lower your phone bill through the Lifeline Modernization Order .

•   Find out if you are eligible for free or low-cost health coverage through Medicaid and the Children’s Health Insurance Program (CHIP).

Coming Up With a Housing Plan

If you do not qualify for rental assistance from the government, you may need to come up with another plan to avoid high rent costs. Roommates can be a good way to keep rent low.

Alternatively, family and friends may be willing to offer free lodging while you save money. While it can be hard to lean on others in this way, it can be a form of financial self-care to do so until you are able to be out on your own. If you do move in with a loved one, just remember to be helpful around the house and chip in with utilities and groceries if you’re able.

Cutting Costs

After reducing your largest cost (rent), it may be possible to reduce other costs in your budget. For example, a car payment, gas, and car insurance can be costly monthly expenses. If you live in an area with great public transportation or are comfortable walking and riding a bike, you may be able to get around without owning your own vehicle.

Other costs you might be able to cut include streaming services, gym memberships, and bills from dining out.

Getting on a Budget

After finding low-cost housing and trimming unnecessary expenses, it’s a good idea to make a monthly budget that accounts for your post-tax income and your monthly expenses.

Not sure how to budget on a $20K salary? Taking care of all necessary bills (housing, utilities, groceries) is the perfect first step. Once you’ve accounted for those monthly expenses, see how much you can allocate to paying down debt or building your savings.

Recommended: How to Save Money From Your Salary

Avoiding the Wrong Kinds of Debt

Taking on debt is often necessary — when buying a house, purchasing a car, or even going to college. But when you make a low salary and struggle to pay the bills, it can be tempting to take out a payday loan or overuse a high-interest credit card.

When possible, it’s a good idea to avoid high-interest loans. In fact, instead of taking on more credit card debt, you may be able to take control of your bad debt by applying for a debt consolidation loan. These are typically personal loans that charge an interest rate that may be significantly lower than your credit cards’ rates. You use the loan to pay off the cards and then you work to eliminate the personal loan.

You might also meet with a counselor from a nonprofit debt counseling organization like the National Foundation for Credit Counseling, or NFCC .

Recommended: Debt Repayment Strategies

Supplementing Your Basic Income

You might also consider ways to bring in more income to pump up your spending power. This could include seeing if additional hours are available at your primary workplace, as well as taking on a seasonal part-time job or starting a side hustle. These are all ways to use some of your leisure time to bump up your income.

The Takeaway

A $20,000 is usually not enough for a family to live on, and it may be difficult for individuals to get by on this salary too. It may be wise to research government assistance, look for roommates to lower housing costs, and build (and stick to) a monthly budget that prioritizes paying down debt and building emergency savings. These steps can help you live on a $20,000 annual income.

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.

Better banking is here with SoFi, NerdWallet’s 2024 winner for Best Checking Account Overall.* Enjoy 3.30% APY on SoFi Checking and Savings with eligible direct deposit.

FAQ

Can you live comfortably on $20,000 a year?

It can be difficult for an individual to live comfortably on $20,000 a year. With the right assistance from friends, family, and the government, however, it may be possible to meet basic needs. Families will face more challenges living off $20,000 a year.

What can I afford making $20K a year?

A $20,000 salary may leave room in your budget for the most basic expenses: rent, utilities, transportation, and groceries. Even then, getting government assistance and a roommate might be necessary for managing monthly expenses on $20K a year.

Is $20,000 a year middle class?

According to the most recent data from the Pew Research Center, middle class, middle-income households have incomes ranging from about $56,600 to $169,800. Thus, a family living on $20,000 is not middle class; it’s actually below the poverty level. While an individual earning $20,000 a year is not below the poverty line, they are still not considered middle class.

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Photo credit: iStock/svetikd

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

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

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

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

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

See additional details at https://www.sofi.com/legal/banking-rate-sheet.

SoFi Loan Products
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.

​​*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.

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.

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.

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A tradeline is the term used by the three major credit reporting bureaus — Equifax®, Experian®, and TransUnion® — to describe any one of the accounts listed on your credit report. Each account has its own tradeline, and each tradeline contains information about the creditor, your account, and your debt.

Tradelines make up a good portion of your credit report, which means the information within them plays a big role in determining your credit score. And, as you probably know, your credit score is an important number that can prove your creditworthiness and help you snag lower rates on loans, among other benefits.

The more you understand about what a tradeline is and what creditors see when they read your credit report, the better equipped you’ll be to use that information to maintain the best credit score possible.

What Is a Credit Tradeline?

A tradeline in a credit report is a record for each of the credit accounts that you have. This includes revolving credit accounts, such as credit cards, and installments loans, such as student loans, auto loans, mortgages, and personal loans.

Each tradeline may contain a host of information reported by the creditor about themselves and your debt.

Recommended: Tips for Using a Credit Card Responsibly

What Information Is Reported by a Creditor?

When it comes to knowing what a tradeline is on a credit report, you may be surprised by just how much intel is shared. Quite a lot of information is reported about a creditor and your debt. The list includes:

•   Creditor’s name and address

•   Type of account

•   Partial account number

•   Date the account was opened

•   The account’s current status

•   Date of latest activity

•   Original loan amount

•   Credit limit

•   Current or recent balance

•   Monthly payment

•   Payment history

•   Date the account was closed, if this situation applies

By looking at a tradeline, you can view all of the most recent information reported by your creditors to the three credit reporting bureaus, all in one place. This is the information that will have an impact on your credit score.

Recommended: When Are Credit Card Payments Due?

What Other Information Is Gathered by the Credit Bureaus?

In addition to the information listed above, the credit reporting bureaus will also gather:

•   Personal information, including your name, date of birth, Social Security number, home address, phone number and employer

•   Information from the public record, including bankruptcies

•   Who has made recent inquiries about your credit and when (for example, if you’ve applied for new credit and a hard inquiry has been made)

The credit bureaus don’t know everything about you, however. They don’t have access to information such as your income, bank account balances, or marital status, though the report could include a spouse’s name if a creditor reports it.

How a Credit Tradeline Works

Tradelines are like the heartbeat of your credit report. Without them, you can’t have a score. If you are keeping your credit utilization low (that is, keeping your balance low vs. your limit on credit cards), paying your bills on time, and showing that you are a dependable borrower, your tradelines will be positive. Your three-digit credit score number should be in good shape.

If, on the other hand, you pay your bills late, skip payments, and rack up loads of debt, your tradelines will reveal negative information. Your score is likely to be low or decline.

What Are Tradelines for Credit Used for?

Creditors use your score to help them determine whether or not to extend credit to you and what terms and interest rates they’re willing to offer. Good credit is important. For example, if you have a good credit score, your lender may see you as less of a risk and offer a lower interest rate on a loan.

Higher-risk loan applicants with lower scores may be offered much higher rates. In other words, buying a car or home will be that much more expensive if your score is low.

While your credit score gives lenders an overall sense of the shape of your personal finances and credit history, it doesn’t give them any details. For those, they may look at individual tradelines contained within your credit report.

How Tradelines May Affect Your Credit and Banking

Your tradelines have a direct impact on your credit, since activity within the account is used to calculate your credit score.

Here’s a closer look at the five factors used to generate your FICO® score, and the weightings used for each.

•   Payment history: 35%

•   Amounts owed: 30%

•   Length of credit history: 15%

•   New credit: 10%

•   Credit mix: 10%.

Any credit activity that pertains to one of those categories can have an impact on your score when reported in your tradeline. For example, delinquent payments could damage your credit history. Or closing an account may have an impact on your length of credit history.

When Are Credit Tradelines Removed?

From time to time, a tradeline can be removed from your credit report. For example, if you’re an authorized user of a credit card and you are removed from the account, the tradeline will be dropped from your credit report in about two months.

When you close an account, the tradeline isn’t removed immediately. In fact, if that account has a positive impact on your credit score, the tradeline may stay on your report for as long as 10 years. Nice!

Worth noting: If a tradeline was opened fraudulently — someone opened a credit line or took on a loan in your name without your knowledge — you may ask to have the tradeline removed. In fact, it can be a very good idea to do so. It can help build your credit score since many fraudulent accounts contain negative credit information.

What Happens to Your Banking When a Tradeline Is Removed?

Removing a tradeline can be a positive or negative thing for your credit. If the tradeline was associated with positive information, removing it can hurt your credit. Luckily, a positive closed account stays on your report for a decade.

Closing an account with negative information can be a plus for your credit score. If an account is delinquent when it’s closed, the entire account will be removed after seven years.

How Is This Information Collected?

Creditors report the information collected in the tradelines to the credit reporting bureaus. They do so voluntarily, at their discretion, and on their own timeline, though the credit bureaus prefer that credit information is updated every month.

Each credit bureau may use different sourcing for the information they gather. What’s more, while some creditors will report to all three bureaus, some may only report to two, one, or even none of them.

Why You Should Check for Errors

As we’ve mentioned above, your tradelines are the source of information that determines your credit score. So it’s important to check your credit report regularly to make sure that there are no errors negatively impacting your score. Inaccurate information could also be a sign of identity theft.

You can request one free credit report from each of the three major credit reporting bureaus each year, according to the Fair and Accurate Credit Transactions Act. Since you can get three reports each year, you could even request one report every four months, to help ensure your finances are as up-to-date as possible. A popular site to check your credit report is Annualcreditreport.com .

You may also consider signing up with a credit score monitoring service.

Can You Buy New Tradelines?

Some companies will offer the opportunity to buy tradelines to help build your score. It’s not necessarily advisable to purchase from these third-party services.

First, a little background info: When you’re trying to build credit, one common strategy is to become an authorized user on an already existing account. For example, your parents might make you a user on their credit card. Good credit history and maintaining a low balance on this account could help you build credit.

When you purchase a tradeline, you enter into a similar agreement with a stranger. You’ll pay a third-party service to set up the transaction. You won’t know the person whose account you’re joining, and you will not be able to use the account. The account will usually remain open to you for a short period of time only.

You are paying for the privilege of being on this account, which will supposedly help positively impact your credit rating.

Is Buying Tradelines Legal?

Technically speaking, buying tradelines through a reliable tradeline service is legal. Congress has said that under the Equal Credit Opportunity Act, authorized users cannot be denied on existing credit accounts, even if the person being authorized is a stranger.

That said, there are times when working with a tradeline service can lead to serious issues:

•   A company may say you can hide bad credit or a bankruptcy using a credit privacy number. In reality, this might be someone else’s Social Security number, landing you in the middle of an identity theft scam.

•   You might also find yourself buying into an account that’s gone into default. You could end up as the primary owner of the account, which could hurt your credit.

•   Also, watch out for companies that use a process called address merging in which the company claims the authorized user (that would be you) lives at the same address as the account holder. This is fraudulent, and it indicates that you are not working with a reliable company.

Risks of Buying Credit Tradelines

Whenever you give out your personal information, including to a tradeline supplier, you are putting yourself at risk of identity theft.

By attempting to take a shortcut to build credit, you also won’t be doing yourself any favors. Beyond the risk of identity theft and other entanglements, you’ll be robbing yourself of the chance to build good financial habits. And this could come back to bite you in the end if you never learn to manage debt responsibly on your own.

How Banking Can Improve Your Credit Report

If you’re looking to positively impact your credit score, there are a number of alternatives to buying tradelines that you can pursue.

•   Always pay your bills on time. Your payment history makes up the bulk of your credit score. Pay close attention to your checking account and bills; make sure you can and do make regular debt payments on time and in full. Consider automated bill pay to help ensure you never miss a payment.

•   Pay down debts. Your available credit plays a large role in the calculation of your credit score. Your credit card utilization ratio, as we mentioned above, shows how much or your available credit you’re using. You can calculate your ratio by dividing credit card balance by loan limit. If your utilization rate is over 30%, build your credit score by paying down your balance. If possible, aim to keep your score at under 10%.

•   Check your credit reports regularly. Learn to read your credit report. Alert the credit bureaus to any inaccuracies. Your credit score should change for the better shortly after a mistake is corrected.

Alternatives to Credit Tradelines

If you’re trying to build credit over time, there are also alternatives to tradelines.

•   Become an authorized user. You may wonder, “Isn’t this what purchasing a tradeline is?” The answer is yes, but it’s far better to become an authorized user on the account of someone you know well or are related to. You’ll have the opportunity to use the account and learn healthy credit habits. Just don’t abuse this privilege.

•   Apply for a secured credit card. Secured credit cards require you to make a security deposit to receive a line of credit. This deposit often becomes your credit limit. These cards are easier for people with no credit history to qualify for, and they help you build credit.

•   Get credit for paying bills. You might look into services that allow you to get credit for on-time payment of bills that usually don’t count towards your credit score. This may include bills for everything from your utilities to your streaming service.

The Takeaway

The tradeline for each of your revolving credit or installment accounts contains all the information necessary to generate your credit score. Understanding your tradelines can help you understand the ways in which you can build your score. Manage those tradelines well, and you may unlock lower interest rates on loans and other elements of financial health.

Here’s another way to boost your financial health: Find the right banking partner.

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.

Better banking is here with SoFi, NerdWallet’s 2024 winner for Best Checking Account Overall.* Enjoy 3.30% APY on SoFi Checking and Savings with eligible direct deposit.

FAQ

Are tradelines good for credit?

The information contained with your tradelines is used to generate your credit score. It reflects how well you manage credit and can therefore be either good or bad, depending on such factors as whether you have been paying back debt on time and how much debt you are carrying.

How much will a tradeline build my credit?

Adding a tradeline can actually lower your credit in the short-term. For example, it will lower the average age of your accounts, which can have a negative impact on your length of credit history. However, if you can maintain the account over the long-term and keep up with payments, the new account may help build your credit score.

How do I get tradelines on my credit?

Tradelines are added to your credit report when you open new lines of credit or take out new loans. A tradeline is also added when you become an authorized user on another person’s account.

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Photo credit: iStock/miniseries

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

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

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

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

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

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

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.

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.

Disclaimer: Many factors affect your credit scores and the interest rates you may receive. SoFi is not a Credit Repair Organization as defined under federal or state law, including the Credit Repair Organizations Act. SoFi does not provide “credit repair” services or advice or assistance regarding “rebuilding” or “improving” your credit record, credit history, or credit rating. For details, see the FTC’s website .

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The federal funds rate is a key interest rate set by the Federal Reserve, and likely the most closely watched indicator of where the U.S. economy may be headed next. Changes to the federal funds rate provide insight into the Fed’s position on monetary policy and how it plans to respond to economic factors, including inflation and employment levels.

In September, 2024, the Fed announced a rate cut of 50 basis points (a half percentage point), lowering the federal funds rate to 4.75% to 5%. This was the first rate cut made in four years, marking a pivotal shift from the Fed’s policy of holding higher interest rates in place to battle the persistent inflation that followed COVID-19 rate cuts.

The Fed also signaled rates could drop an additional 50 basis points by the end of 2024, with more to follow, as it drives toward a more neutral rate.

Changes to the federal funds rate almost invariably create a ripple effect of changes throughout the economy, impacting interest rates on loans, mortgages, and savings. Here’s a closer look at the Federal Reserve and how its economic outlook and policies can impact your accounts.

Learn more: SoFi’s Liz Young Thomas Looks at the Fed’s September Statement

Q: What Is the Federal Reserve?

A: The Federal Reserve System was founded by Congress in 1913, with the primary goal of promoting the stability of the U.S. banking system. Since then, the Fed’s mandate and methods have evolved — today the work includes regulating financial institutions, directing monetary policy, managing inflation, and keeping employment rates high. And one of the key levers it pulls to those ends is adjusting the federal funds rate.

Q: What Is the Federal Funds Rate?

A: The federal funds rate is a benchmark interest rate that guides the interest rates U.S. banks use when lending excess reserves to other banks overnight. Banks frequently borrow money from one another to ensure they have sufficient reserves to cover consumer withdrawals and other commitments. While changes to the federal funds rate most immediately impact the rates banks use for overnight lending, they influence consumer interest rates as well.

The federal funds rate is set by the Federal Open Market Committee (FOMC), an arm of the Federal Reserve System responsible for setting a range of monetary policies that can influence inflation, economic growth, and the job market. The FOMC is made up of 12 members who meet approximately every six weeks to review their stance on economic policies, including whether they should adjust the federal funds rate.

Q: What Factors Influence the Fed’s Rate?

A: The FOMC determines interest rate policy based on a wide range of economic indicators including inflation, employment levels, and durable goods orders data, which can provide insight into the economic health of a variety of industries such as technology, transportation, and manufacturing.

When these market indicators suggest that the economy is languishing, the FOMC may reduce the federal funds rate to make borrowing less expensive in the hopes of boosting economic activity. More money in consumers’ pockets typically means more spending and more money streaming into the economy.

When prices are rising too quickly, the FOMC may increase its interest rate, making it more expensive to borrow. That can slow spending and, in theory, help keep inflation in check.

Q: How Does the Fed Influence My Savings APY?

A: As mentioned above, the federal funds rate directly influences the interest rates banks use to borrow from or lend money to one another. But secondary effects eventually impact the wider economy, including the interest rates banks and financial institutions use when lending money through credit cards, personal loans, and mortgages. It can also affect the annual percentage yield, or APY, for savings accounts.

A federal rate decrease should eventually translate into lower interest rates when you borrow money to buy a house or car. It may also lead to a lower APY on your savings account.

When the federal rate increases, on the other hand, it becomes more expensive to borrow money, and savings account APYs typically increase.

Because savings account APYs are variable, they tend to rise or fall in the wake of federal rate changes. There are some types of savings accounts with rates that are fixed for a period of time — such as fixed-rate certificates of deposits (CDs). However, federal funds rate changes influence the rates financial institutions offer their customers for new CDs.

Q: Do Other Factors Influence My Savings APY?

A: Federal funds rate changes have a substantial influence on saving account APYs — but they are not the only factor.

Some banks offer high-yield savings accounts with APYs that are considerably higher than the national average rate. Online-only banks and credit unions generally have less overhead than traditional brick-and-mortar banks, which may allow them to offer higher APYs.

Competition among banks for consumer deposits may also drive changes to the APYs they offer. Larger banks tend to be less dependent on deposits than those with a smaller regional presence, for example, so those smaller banks may offer higher rates to attract depositors.

Even among these different scenarios, however, the Fed’s interest rate adjustments can still influence whether these banks’ APY rates rise or fall over time.

Recommended: What Is a Good Interest Rate for a Savings Account?

Q: How Has the Fed Adjusted Rates Recently?

A: After the economic crisis of 2008, the Fed upheld a near-zero rate policy for seven years as the economy normalized. Rates began to tick up gradually in 2015 until the COVID-19 pandemic upended the economy in 2020. The FOMC followed with two steep rate cuts to encourage economic activity, at the time, bringing interest rates down to historic lows.

This maneuver worked, but also contributed to the highest inflation rate the U.S. had seen in decades. In response, the Fed initiated a series of fund rate increases, culminating in a rate of 5.25% to 5.50% in July 2023 — the highest rate in 23 years — which the Fed held in place in a bid to inch inflation toward its 2% target.

September, 2024, however, marked a major pivot in the Fed’s policy as they announced their first rate cut in four years: an aggressive 50 basis points, bringing the federal funds rate down to 4.75% to 5%, with additional rate cuts expected to be announced in upcoming FOMC meetings.

Federal Funds Target Rate (2015-2024)

Source: Federal Reserve Bank of St. Louis

Q: When Will the Next Rate Change Come?

A: The FOMC typically convenes eight times per year. Though it does not necessarily adjust rates at every meeting, the outcome of these meetings is always watched closely, due to the broad impact rate changes have on the national and even global economy. Given that the Federal Reserve’s September 2024 rate drop is expected to be the first in a series of cuts, investors and consumers will almost certainly be closely monitoring the FOMC’s next moves.

In addition, banks and financial institutions sometimes adjust their own interest rates ahead of FOMC meetings, especially when economic conditions or signals from the Fed suggest a rate change may be forthcoming. The Fed publishes the schedule of FOMC meetings on its website.

The Takeaway

While the FOMC sets the federal funds rate to directly influence the rates banks use to lend money to each other, the rate has a broader effect on the U.S. economy, impacting many financial services and products including personal loans, mortgages, and savings accounts.

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Photo credit: iStock/Sadeugra

This content is provided for informational and educational purposes only and should not be construed as financial advice.

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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